2021 UK Business Forecast: Light At The End Of The Tunnel?

There’s no denying that the last year has been a tough one for us all, but no one has felt the impact of Coronavirus more than small businesses. The spread of Covid-19 and the lockdown measures that followed had a dramatic effect on the UK economy as a whole, with GDP estimated to have fallen by 20% in Q2 – the largest quarterly fall on record. 

The most affected sectors were those that rely heavily on face-to-face interaction, such as Accommodation, Food, Transport, Recreational Services and Retail. According to the Department for Business, Innovation and Skills, of the estimated 6 million UK private sector businesses at the start of 2020 (99.9% being SMEs), retail businesses made up 9% of the overall total. As the Wholesale and Retail sector accounts for the highest levels of SME employment (14%), the knock-on effects of the pandemic have been huge and can be felt by businesses and families all across the UK.  

But it’s not all doom and gloom: with a vaccine on the cusp of becoming a reality, the idea of normality returning – or at least some semblance of it – is feeling closer than ever. And that could just well be the lifeline that small UK businesses have been looking for! 

Data from KPMG is based on situation modelling assuming that the Covid-19 vaccine is approved by January and that the pandemic is overcome by mid-2021. This would allow the economy to resume normal operations after contracting by 10.3% this year. It could be an entirely different picture if the vaccine doesn't work out.

According to KPMG, partly thanks to strong performance by eCommerce sites, the economy could even grow by 8.4% next year!

Experts predict that different industries will recover at varied rates. If we assume mass Covid-19 vaccination is going to start in January 2021, travel agencies and the entertainment sector will continue shrinking by staggering 14% and 10.6% respectively. Industries like Science and Research, Telecoms, Online Retail, IT and Management consulting are poised for big growth. Although there are unlikely to be any breakout industries in 2021, the overall growth will balance out the staggering losses of the hospitality and tourism sector.

As the UK spent the majority of this year stuck at home in lockdowns, many shoppers turned their sights to online shopping platforms to satisfy their retail therapy cravings. According to Statista, eCommerce sales soared by 161% in May from the previous year and still remain in the double digits now, even though most people are able to return to their local retail stores.

Last week we announced a record-breaking start to Q4, seeing an 800% increase in sales revenue compared to the same period last year. This comes after an extraordinary year of success for the company, who announced their ambitious plans for a world-wide scale up into over 140 countries by 2023, starting with 40 initial sites by the end of this calendar year.

Cas Paton, founder and CEO of OnBuy, said:

Of course, if the last year has taught us anything, it’s that nothing is certain. There are still many hurdles to overcome and a wealth of variants that could impact the economy’s recovery, particularly the outcome of Brexit. If there has been limited progress in eradicating Coronavirus and the UK leaves the EU without a deal, economic growth could oscillate between 8.4% and 4% in 2021, offering businesses far less security than they’d want after this tumultuous year.

However, even with potential pitfalls on the horizon, the combination of lower oil prices, temporary tax cuts and weaker demand will keep inflation well below the 2% target set by the Bank of England, which should help to keep base interest rate at 0.1% or below until the end of 2021 – all good news for profitability! So, whatever the outcome of the next few months, there’s still good reason for business owners to be feeling positive about the new year ahead. 

Local lockdowns highlighted vulnerabilities and created even more uncertainty for businesses across different UK regions, with Aberdeen, Leicester and multiple areas in the North of England being the hardest hit over the course of the last few months. One of the largest sectors to have been affected by the pandemic is Transport, leaving areas linked to air travel particularly vulnerable. KPMG predicts that heavily-impacted areas such as Crawley, Hounslow, Luton and Uttlesford could see their gross value added (GVA) fall between 13.8% and 16.6% this year, with no real certainty for the future of airline travel in 2021.

The downfall of the Transport sector has, however, proven to be a blessing in disguise for traditional UK holiday destinations. With so much uncertainty surrounding flights and cancellations, many people have opted for a ‘staycation’ over an international holiday. From seaside breaks to caravan parks, Britons have shown an increasing interest in domestic tourism since the start of the pandemic. Statistics by CabinBookers revealed that eight in 10 people said their “appreciation for UK beauty spots had increased while under lockdown”, with 44% of holiday hunters attributing their increased interest in ‘staycations’ as a result of the effects of the pandemic.

According to data collected by the Great Britain Tourism Survey, the top five destinations for domestic tourism in the UK are the South West, South East, North West, London and Scotland. While international tourism has decreased significantly in the UK, increased regional tourism may help to offset the downturn of the first half of the year in certain areas, helping to boost their recovery in 2021.

Local authority forecasts by KPMG predicts that London may see a GVA increase of 18.4% next year, increasing from -9.2% (2020) to 9.1% in 2021 – a trend that can be seen throughout all regions of the UK. These preliminary forecasts are setting a positive scene for UK business owners, indicating that economic recovery is within arm’s reach if the upward trajectory of the vaccine continues.