UK companies urged to take advantage of pandemic innovation

• UK output slumps at its fastest pace since April 2020
• UK companies taking advantage of pandemic innovation opportunities
• London businesses agree on a roadmap to reopening the capital
• COVID-19 vaccine optimism expected to drive the FTSE 100 Index higher

According to a recent study by accountants at BDO, UK output in January slumped at its fastest rate since April 2020  due to the third round of lockdown restrictions, which forced all non-essential businesses to close and strict stay-at-home orders imposed.

According to the BDO Output Index, which provides a comprehensive snapshot of output across the main sectors contributing to UK gross domestic product (GDP), economic output slumped to its lowest levels in seven months in January.

The study revealed that business output plummeted by more than 5% month-on-month in January to a final score of 70.44, with service sector activity leading the rout.

Meanwhile, the BDO Optimism Index revealed that business confidence fell to a six-month low of 86.34 last month, down from 86.96 in December 2020.

Despite hopes that the UK-EU Brexit deal secured on December 24th would provide UK companies with some clarity over their future, the reality appears to be far different.

Since January 1st 2021, several UK businesses, particularly small and medium-sized enterprises (SMEs), have reported additional challenges post-Brexit due to new trading rules, supply chain disruption and unexplained charges.

Furthermore, reports published last week claim UK exports to the EU have plunged by a staggering 68%, prompting several British hauliers to demand immediate intervention from the government.

Although the UK government dismissed recent border chaos as “teething problems”, they launched a GBP 20 million Brexit Support Fund to help SMEs adapt to new Brexit trade rules.

Despite the concerning news, the BDO provided some reason for optimism, noting that overall economic activity was higher in January than during the first lockdown in April.

They added that while the services sector continues to struggle, British companies in other areas of the economy have adapted to the pandemic and can better navigate lockdown challenges.

The UK’s vaccination response is also expected to result in the earlier easing of coronavirus restrictions. If the UK maintains its rapid vaccine rollout and firms continue to benefit from innovating their services, this could help shore up business confidence.

While the BDO’s figures reveal the damaging impact lockdown restrictions have had on the UK’s economic growth, they also highlight the resilience of UK businesses, many of which have adapted their working models to secure their futures.

BDO partner Kaley Crossthwaite said: “With PM Boris Johnson unveiling the lockdown exit roadmap next week and the UK’s vaccine rollout progressing smoothly, sentiment should rebound providing trade disruption is minimised with further government support.”

UK companies encouraged to take advantage of innovation opportunities

Most UK companies appear well-equipped to handle lockdown challenges and are being urged to continue taking advantage of pandemic innovation opportunities.

While businesses have faced financial hardship due to the coronavirus crisis, most have quickly and effectively adapted their operations to overcome the negative impacts of the pandemic and boost output.

According to Access2Funding, which works with firms across varying industries, thousands of British businesses have used the pandemic as an opportunity for innovation and have found effective new ways to sell, service and operate over the past year.

Access2Funding encourages business owners to continue pursuing opportunities to innovate their working models by taking advantage of R&D tax relief, which allows firms to claim cash payment and/or Corporate Tax reduction on any new products or work methods developed.

Most businesses are unaware that they are eligible for R&D tax relief and believe that overcoming challenges is “part of the job”. However, UK companies that are liable to pay corporate tax and undertaking new projects or working methods to boost their business capabilities can claim some of the expenses from HMRC – even if the project fails.

London businesses agree on a roadmap to reopen the capital

Mayor of London, Sadiq Khan, and more than 20 London-centred business groups have unveiled phase one of a roadmap for reopening the capital, which includes a proposal for urgent government intervention ahead of Chancellor Rishi Sunak’s budget statement.

Mr Khan and the other members of City Hall’s London Covid Business Forum announced that the first phase of the plan would seek to invest GBP 5 million into new initiatives designed to boost domestic tourism in the capital once lockdown restrictions are lifted.

The proposal is expected to include events that showcase London’s “cultural riches” and promote prime landmarks to drive a post-COVID boost to the capital’s economy to encourage people from across the UK to visit London.

It comes as UK Prime Minister Boris Johnson makes preparations to unveil the government’s lockdown exit roadmap on February 22nd.

The Prime Minister is expected to reopen schools from March 8th, non-essential stores in April and hospitality venues, hotels and leisure facilities in May, providing that scientific data says it is safe to do so.

While much remains uncertain, during a Downing Street press conference, Mr Johnson seemed to suggest that this lockdown will be the last for the UK, which has fuelled optimism over the UK’s recovery outlook.

FTSE 100 expected to recover from COVID slump

The blue-chip FTSE 100 Index was set for a positive start on Thursday, but disappointing US labour market data has knocked global market sentiment.

According to US Labor Department data, jobless claims increased by 13,000 week-on-week from 848,000 to 861,000 – an indication that the labour market is struggling despite signs that coronavirus cases in the United States are declining.

Today’s US data triggered a pullback in investor sentiment, and as a result, the FTSE 100 has plunged by more than 1.60% or −107.17 points to 6,603.73.

However, financial experts expect the FTSE 100 will rise again once nerves settle, supported by rising commodity prices and ongoing reports of positive vaccine developments.

An improvement in broader risk sentiment will also support pound Sterling (GBP) exchange rates, which remain elevated on Thursday amid expectations that the UK’s rapid vaccine rollout will result in the economy being unlocked ahead of peers.

The British pound to US dollar (GBP/USD) exchange rate is currently trading 0.6% higher at USD 1.3949 and is likely to test the USD 1.40 level in the near-future if support holds.

However, JML Economist John Mills warns that a stronger pound Sterling (GBP) is bad news for UK economic recovery.

Mr Mills said that allowing pound Sterling (GBP) to drift upwards at a time when we are desperately trying to rebalance the economy will create an unfavourable environment for investment and condemn the UK economy to a post-COVID growth rate of approximately 1% per annum.