As a second wave of the coronavirus swept through the UK throughout the latter half of 2020, the government responded by placing the nation under a second official lockdown. Designed to be in place from November 5th to the December 2nd, the set of restrictions primarily focused on closing all non-essential businesses in a move that was predicted to wipe out much of the economic progress that had been made in the third quarter of the year. And, with business activity only just starting to pick up in the months leading to the lockdown, many fear that these measures will hammer the nail into the coffin of many businesses that have already been weakened by the first wave of the virus.

However, with Britain officially standing as the worst-affected country in Europe by the Covid-19 outbreak, the Prime Minister, Boris Johnson, told MP's that there was 'no alternative' to the circuit-breaker lockdown if there was any hope in preventing coronavirus deaths from being twice as high in the winter as they were in Spring. So, after thousands of small to medium enterprises (SME's) across the country experienced a collective 'deja vu' and were forced to pull down their shutters once again, we're going to take a look at how lockdown 2 is likely to impact different sectors of business. But first of all, let's take a look at what state the market was in during the run-up to these nationwide restrictions.

How was the economy before the second lockdown?

Throughout the third quarter of 2020, the UK was finally starting to show signs of economic recovery - after being stuck in a sixth-month contraction which marked the worst recession since WW2. Due to the nationwide efforts to reduce the 'R' rate, key trading sectors were able to open up, and restrictions on movement were lifted. This growth in business helped to kick the UK's economy back into gear - and, from July to September, the country's GDP grew by a whopping 15.5%, which was the biggest period of growth on record.

As covid measures continued to relax, and government incentives like the 'Eat Out To Help Out' scheme helped struggling industries (particularly hospitality) to increase their revenue, the future was looking bright for many businesses across the UK. However, despite official economic projections remaining optimistic, the growth of the UK's GDP began slowing down throughout the summer, reducing to 2.1% in August and to 1.1% in September.

To make matters worse, on September 24th, the government imposed a 10 pm curfew on pubs and restaurants, massively denting the already suffering hospitality industry. Therefore, despite the UK achieving a record amount of growth throughout the summer months, the gradual tightening of covid-restrictions, alongside a stagnation in financial support, a rise in unemployment, and growing fears of a second national lockdown, meant that the growth of the country's GDP significantly slowed down in the third quarter. With the UK's economic output estimated to be 7% lower during this period than it was in the year prior. Additionally, according to results from the Business Impact of Coronavirus (COVID-19) Survey (BICS), during this period 47% of businesses in the UK reported their turnover had decreased below what was normally expected for that time of the year.

So, as the climate for businesses around the country was already starting to grow bleaker in the run-up to the second national lockdown, let's have a look at what these restrictions entailed and how their announcement impacted the market.

Lockdown 2: What restrictions were introduced?

The main features of the second lockdown were nationwide restrictions to people's movement and orders for all non-essential businesses to temporarily close. People over 60 and those who are clinically vulnerable were also advised to take extra caution.

Despite Prime Minister Johnson commenting that "all governments believe in liberty" and that he didn't want to "restrict people's freedoms", the November 5th regulations instructed the people of Britain to stay in their homes as much as possible. They outlined that no person may leave, or be outside of the place they were living without a "reasonable excuse" or for a "specific purpose". And when it came to the definition of a "reasonable excuse", examples included taking part in activities like buying food or medicine, attending school or university, attending to a medical appointment, accessing critical personal services, or visiting people within your support bubble.

With regards to businesses and venues, it was agreed that essential businesses were allowed to resume trading as usual if they adhered to social distancing and face-covering policies. However, all businesses deemed non-essential were ordered to halt trading or, if possible, move commerce online. According to the regulations, the businesses considered essential included food shops, supermarkets, pharmacies, and off-licences, among others. On the contrary, non-essential businesses included retail shops selling consumer goods; such as clothing and homeware, leisure and sports facilities, personal care services; such as hairdressers and salons, entertainment venues, and hospitality venues; such as restaurants, pubs, and cafes, among others.

How did this impact Britain's economy?

Unfortunately, with Britain's GDP growth already slowing down in the run-up to the second national lockdown, the announcement of these regulations only hampered the nation's economic growth even further. Even when the lockdown was only on the horizon, faith in the market decreased, and the economy retracted, placing the UK on the verge of entering a double-dipped recession.

As soon as the new restrictions were confirmed, analysts from the Deutsche Bank estimated Britain's national output would fall between 6% to 10% throughout the lockdown, with the GDP expected to fall between 2.5% to 3.5% down in the last quarter of the year. This drop in optimism was only confirmed once the lockdown was officially enforced, with levels of unemployment growing amongst most sectors for the eighth month in a row, and business orders in services dropping for the first time since June.

But, to help you understand how 'lockdown 2' may have impacted your business, let's look at what ramifications these restrictions have had on Britain's main industries.

The impact on each sector

Finance and banking

The UK's financial service sector is a vital player in the nation's economy. The industry is responsible for 6.9% of the country's economic output, and contributed £132 billion to the UK's financial system in 2018 alone. And, despite a difficult start to the year, the banking sector didn't suffer too badly throughout the first wave of the pandemic. With provisions against loan losses lowering, and debts not mounting as much as had been feared, the industry retained a fairly positive outlook in the face of a second national lockdown. Unfortunately, however, due to a combination of the November 5th restrictions, the upcoming Brexit deal, and the recent controversy of the 'FinCEN Files', almost all of the UK's major banking giants have seen their shares tumble tremendously in recent months.

Although predominantly focused on US banks, the FinCEN scandal refers to a series of leaked documents that detail widespread fraudulent practices enabled by globally leading banks. The FinCEN files are made up of over 2,500 documents that expose various criminal activities, such as one of Russian President Vladimir Putin's closest associates laundering millions of pounds through a Barclays bank in London.

Unfortunately, this crisis came at a time when the UK's banking industry was already being weakened due to thousands of branches being forced to close across the country due to covid-related restrictions. This was on top of faith in the market already dwindling, as the nation teetered on the edge of a second recession. Subsequently, the UK's leading basket of stocks fell 2% to 5,888, and London's shares on the multinational banking giant HSBC fell down to a 25-year low of 3.7%. Barclays Bank was also heavily impacted by the onset of lockdown 2, with their shares tumbling down 6.4% to 91.2p.

Although the nation's finance and banking industry is likely to recover throughout this new calendar year, it remains evident that the second lockdown impacted the sector more than was previously anticipated.

Construction

With the construction industry contributing around £117 billion to the UK's GDP per annum and 2.4 million jobs to the employment pool, the nation's economy largely depends on the sector's ability to perform well. Unfortunately, throughout the first lockdown, the construction industry faced wide uncertainty as guidance from the government was unclear. As a result, many construction sites across the country were forced to close, and output fell by 10.6%, massively impacting the sector. Luckily though, the industry didn't seem to face the same fate throughout the second lockdown.

With clear measures being issued from the government, it was evident that construction sites and manufacturing workspaces were able to remain open this time around. This helped key construction work to continue throughout November, helping the industry to avoid the dip in revenue that was felt during the first wave of the virus.

A large reason why construction was able to continue as usual was because the industry adopted more sophisticated technology as a result of the first wave of Covid-19. In research conducted at Loughborough University, data capture techniques have been enhanced to allow site teams to monitor the number of workers, as well as the effectiveness of their social distancing. With this technology being harnessed across the country, it has helped thousands of site managers to revise site layouts and allow for more effective social distancing, enabling them to get back to business as usual.

Lastly, another reason why the construction industry remained resilient throughout lockdown 2, is because it's been receiving a healthy amount of investment throughout the latter half of 2020. As part of the government's Covid-19 response, they revealed a £37 billion infrastructure pipeline back in June that was aimed at funding over 250 projects. The pipeline has funded a wealth of projects, such as the Free Schools Programme, the Green Homes Grant, and local transportation initiatives, significantly contributing to the strength of the construction industry as it emerged from the second national lockdown.

Manufacturing

With the UK being the ninth-biggest manufacturing nation in the world, the industry employs a whopping 2.7 million people - and its contribution to the national economy is only growing. However, just like with almost every sector of business in the country, the second lockdown has posed its challenges.

The hardest-hit part of the sector was the manufacturing of consumer goods. As cases of Covid-19 skyrocketed throughout the country, households were left with less disposable income to spend on consumer goods. This led to a decline in new orders and consumer output, while spare capacity increased. This also contributed to the consumer goods industry witnessing the most job cuts out of any other area of the manufacturing industry. As for the rest of the industry, James Brougham, an economist at industry group Make UK, explains that while data on the sector's output isn't forbidding, it's at the lowest level since the easing of the first national lockdown.

However, despite widespread market uncertainty, faith still remains. As Samual Tombs, chief UK economist at Pantheon Macroeconomics remarked, "Looking ahead, the industrial sector should not be disrupted significantly by the four-week lockdown that begins on Thursday, as manufacturing employees are permitted to attend their usual place of work, and schools will remain open, enabling parents to continue working." Also, as Britain looks to finalise the Brexit transition, EU stockpiling demands are increasing. This, alongside growing US and Chinese demand in our services, will likely signal marked expansions to the industry, hopefully helping to give British manufacturing a more stable economic future.

Retail

Despite the obvious hit to the sector throughout the second quarter of the year (when the first nationwide lockdown saw retail sales drop by 9.7%), the industry is showing signs of resilience. As restrictions began to be gradually lifted throughout the summer months and stores could resume trading, retail revenue across the country steadily picked up again. The sector even witnessed five consecutive months of growth in the run-up to September, and throughout this month growth was seen across all measures, with the value of retail sales increasing by 1.4% and the volume of sales by 1.5%, according to data from the Office for National Statistics.

This increase in sales makes the industry's future look optimistic. Also, since the second lockdown was only in place until the beginning of December, consumers are likely postponing plans to shop for Christmas, rather than cancelling them altogether. However, despite these reasons, the closing down of all non-essential shops through the second lockdown will inevitably negatively impact the sector. But, since the lockdown had a clear end time in sight, the National Institute of Economic and Social Research predicted that the sector's GDP will only dip 3.3% in the fourth quarter, which is fairly unsubstantial, compared to the hit to the industry throughout the second quarter of 2020.

Hospitality

The hospitality sector is the third biggest employer in the UK, with the industry almost double the size of the financial services industry, and bigger than the aerospace, pharmaceuticals, and automotive industries combined. But, due to the public-facing nature of the hospitality industry, it was one of the worst-hit industries by the pandemic. The sector witnessed an 87% tumble in sales, with only £4.6 billion worth of revenue being bought in throughout the second quarter of 2020. This is in comparison to £34.2 billion that was generated by the sector throughout the same months in the previous year.

Unfortunately, after the first wave of the coronavirus already devastated hospitality businesses across the country, the second wave (and subsequent second national lockdown) looks like it may follow suit. This opinion is backed up by Kate Nicholls, the chief executive officer at UKHospitality. She believes that the second lockdown could be detrimental, because it may wipe out around a third of the sector's total annual turnover, which would usually be made between Halloween and Christmas Eve. Nicholls also fears that the stricter set of national restrictions will also accelerate closure rates and business failure rates across the country if significant support isn't provided soon.

In addition to these concerns, the sector has also witnessed massive job losses as a result of businesses suspending their service or cutting down their opening hours. It's even being estimated that the second lockdown will only increase unemployment levels, with the British Beer and Pub Association (BBPA) predicting that the sector will only be left with 750,000 jobs by February of this year.

Tourism

Another industry that saw its revenue dive throughout 2020 was the UK's tourism sector. It stands as one of the nation's hardest-hit industries due to governmental restrictions on international travel. And even though its outlook remains uncertain, the Organisation for Economic Co-operation and Development (OECD) estimates that rates of international tourism will have fallen around 80% in 2020, in comparison to the previous year. In terms of domestic tourism, rates started to pick up as restrictions were relaxed throughout summer. However, since the second lockdown effectively banned all British residents from going on holiday, the whole domestic tourism ecosystem was instantly put back at risk.

As England emerges from the second national lockdown and into the tier system, restrictions on domestic and international travel will remain, creating tangible economic and social consequences for people who rely on the industry for their livelihoods. So, until restrictions on travel and tourism are lifted, many in the sector are calling for more substantial government support, to tide them through these difficult times.

What help is out there?

The Local Restrictions Support Grant

Suppose your business is located within an area with a High or Very High-Level COVID Alert, and has been affected by the regulations imposed throughout the second lockdown. In that case, you may be eligible to apply for the Local Restrictions Support Grant (LRSG). The LRSG allows local authorities to make payments at their discretion to support businesses in their area that were impacted by the restrictions but were not required to close.

Alternatively, the Local Restrictions Support Grant (Sector) provides grants up to £3,000 per 28-day period to businesses like nightclubs, which were ordered to close nationally from March 23rd 2020. Since it is possible that more regulations may be enforced in the future at regional or national levels, businesses will be eligible for this grant if they have been asked to close for 14 or more days.

Business grants from local authorities

For businesses across the UK who are facing imminent financial pressure and may not be eligible for loans, local authorities across the UK have received funding from the central government to administer to local SMEs who are struggling through the pandemic. Specifically intended to help support businesses that are not required to close under temporary covid restrictions but are still seeing revenue being impacted by a severe lack of footfall, the Local Restrictions Support Grant is open to businesses that operate in areas with high covid alert levels.

Eligible businesses are entitled to payments from their local council for each 28 day period they are under tight restrictions, and the grant administers up to £2,100 a day to businesses occupying premises with a rateable value of £51,000 or above. This grant is more catered towards businesses within the hospitality, accommodation, lodging, and leisure industries; and the decision-making power is predominantly left to the discretion of regional authorities.

For more information on this grant, as well as information on how to apply, visit the YouGov site here.

Government-backed loans

Previously only available until November 30th, due to the implementation of the second national lockdown, the deadline on government-backed loan schemes has been extended to the end of January 2021 in order to provide support to businesses who have been impacted by the stricter COVID restrictions. They differ from government-issued grants, because the businesses are expected to repay the loan to the best of their ability. However, they are a much better alternative to most other types of borrowing, because they are government-subsidised, meaning that the interest rates attached to the loans are significantly lower. The two predominant government-backed loans that are currently available are The Bounce Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme.

The Bounce Back Loan Scheme is catered more towards smaller businesses, and it allows SMEs to borrow a minimum of £2,000, up to a maximum of £50,000 - or otherwise up to 25% of their annual turnover. Since the scheme is completely government-guaranteed, the businesses are not required to pay any interest rates during the first year or borrowing, and interest rates only increase to 2.5% after the first 12 months. In terms of eligibility, your business is able to apply if it is based in the UK before March 2020, and if it is able to prove that its revenue has been impacted by the Covid-19 pandemic.

If your business is slightly larger, and is in need or more robust financial support, then the Coronavirus Business Interruption Loan Scheme may be more suitable for you. CBILS operates in a similar way to the Bounce Back Loan Scheme. However, it provides up to £5 million to businesses that have suffered as a result of the coronavirus pandemic. Due to the higher level of support available, the interest levels are slightly higher after the first year of borrowing; although no charges are imposed throughout the first 12 months. In order to apply, you need to prove your business was economically impacted by the Covid-19 pandemic, and you need to prove that you turn over less than £45 million annually.

Stuck on where to go from here? Here at Market Finance, we offer up a super-easy way to apply to government-backed loans. From our friendly customer service team to our no-fee guarantee, we take care of the hard bits to give you more time to worry about your business.

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