The latest GDP figures are in, and the results aren’t good. We dig deeper and gauge the reaction from SMEs.
Dark clouds are gathering over the UK economy.
Startups previously reported the Q3 GDP figures, which showed growth slowing from 5.5% in Q2 to 1.3%.
And the latest data, released today by the Office for National Statistics (ONS), show that slowdown has ground to a halt, sparking fears about the UK’s economic recovery.
What’s more, these numbers don’t take into account the impact of the Omicron COVID-19 variant, which earlier this week forced the UK government to implement a work from home order and other stricter restrictions.
It all adds up to a pretty bleak picture for the country’s small businesses, most of which are still struggling with supply shortages and a hiring crisis.
Here, we look at the October GDP figures in more detail and share how small business owners are feeling about the economy.
What do the October GDP figures show?
The official GDP figures from the Office of National Statistics (ONS) show that UK GDP grew by just 0.1% during October 2021. This represented a significant slowdown from the 0.6% growth recorded in September, and means GDP is still 0.5% off the pre-pandemic level recorded in February 2020.
Overall, the figures show that the reopening momentum recorded during Q2 (5.5% growth) is now almost non-existent, with growth constrained by continuing COVID-19 fears and operational difficulties.
With Omicron already having a significant impact on the travel and hospitality sectors, pressure is mounting on Chancellor Rishi Sunak to introduce more state help for struggling businesses.
How are different sectors performing?
While the complete picture is pretty negative, there are some bright spots.
Growth was recorded by:
- Human health – This increased by 3.5% as the number of face-to-face appointments at GP surgeries in England continued to rise.
- Car/motorcycle sales and repairs – This sector posted a strong 8.5% improvement, although this followed a large 13.3% decline in September.
However, the impact of these bright spots was undermined by a number of key contractions.
Sectors that struggled in October included:
- Construction – One of the UK’s key industries, construction output fell by 1.8% – the largest drop since April 2020 – and the sector is now 2.8% below its pre-pandemic level.
- Accommodation and food services – This previously buoyant sector (30% growth in Q3) declined by 7.5%, with a fall in restaurant activity a key factor.
How have business groups reacted?
Quoted in the Guardian, lead CBI (Confederation of British Industry) economist Alpesh Paleja struck a downbeat tone:
“Growth disappointed in October, reinforcing concerns about the resilience of the UK’s economic recovery to the Omicron variant and the impact of further restrictions.”
Giving the small business view, however, FSB (Federation of Small Businesses) National Chair Mike Cherry was more forthright, urgently calling for government help for small businesses facing the prospect of a difficult festive season and a bleak new year.
“The economy was struggling to get into gear even before Plan B measures for England were announced.
“The 66% business rates discount for retail and hospitality firms is vital but – as omicron anxiety increasingly hurts demand – it should now be upped to 100%. As costs surge and recruitment continues to prove challenging for many, the Employment Allowance should also rise, to £5,000.
“We have thousands of firms within supply chains still waiting on £1.5 billion from the business rates relief fund, unveiled months ago. That cash needs to be distributed without further delay.”
Cherry also argued the government should reintroduce the Covid Statutory Sick Pay rebate, relaunch the workplace testing initiative, and relaunch the SME Brexit support fund.
What are SMEs saying?
Unsurprisingly, small businesses owners reflect these views – things are tough and they don’t expect them to get easier.
“People just aren’t buying”
Ruth Bradford runs The Little Black and White Book Project, a children’s book brand, and says the overall lack of economic confidence is really hurting her business:
“Right now, for me, it’s bad, really bad. We’re over 30% down on sales compared to last year and have had a 30-50% rise in manufacturing costs, which is making this quarter extremely hard to weather.
“People just aren’t buying and I’m suddenly living hand to mouth with cash flow, worrying when the next bill is going to hit my account and if I’ll have enough to cover it.
I don’t care what the big picture is, the small picture down in the trenches is bleak.”
“Expect worse to come”
Jamie Rackham is the founder of the Not on Amazon Facebook group, which has over 170,000 independent businesses as members. Sharing their views, he said the widespread opinion is that things will only get tougher over the next few months:
“The overriding feedback I’m getting from our members is that purses are tight and belts are even tighter. It certainly doesn’t feel like a fortnight from Christmas.
“If October’s snapshot of the economy underwhelmed, expect worse to come next month and the month after.
“If there are any positives, it’s the phenomenal resilience of independents in every corner of the UK.”
“A steady decline in bookings and sales since Omicron”
Kate Ashwell’s vintage clothes business Ashwell & Co says Omicron fears have already had a real impact:
“Our business operates across retail and hospitality and we have seen a steady decline in bookings and sales since the emergence of the Omicron variant.
“Things have deteriorated further since the reintroduction of some Covid restrictions.
“Any uncertainty around new variants is terrible for the retail and hospitality market, as people understandably get nervous.”
Final thoughts
These latest figures show the UK’s economic recovery has ground to a halt, and, with the emergence of Omicron and new restrictions, we can expect worse to come.
Urgent action is required to stop things going into reverse and, with the festive period looking extremely unlikely to provide crucial relief for UK SMEs, keep the country’s independent businesses going through the winter.
The spotlight now falls squarely on the Chancellor, who needs to give up on the idea that the UK is powering towards once again having a strong economy, accept the current situation and act accordingly.
Small businesses need to be protected from impending increases in business rates and national insurance and, depending on just how much of a threat Omicron turns out to be, much more comprehensive financial support might be required.
