18th June 2021
NatWest Bank Chief Economist Sebastian Burnside recently shared his thoughts on what the UK’s economic recovery will look like with clients and partners of Leonard Curtis.
The hour-long seminar – which we co-hosted with NatWest Bank – was undertaken to support those who are advising businesses as the nation’s economic recovery begins. If you missed it, it’s available to watch here now.
Seb provided a fascinating insight into the current economic climate as well as what we can expect in terms of recovery – in coming months and longer-term, over the next decade – as the unprecedented level of support for businesses soon comes to an end.
In the meantime, here’s our round up of some of the most significant issues that he covered and the advice that professional advisers should be sharing with their clients right now.
COVID is the biggest single swing factor in all of our lives right now
In terms of GDP, it’s hard to comprehend just how spectacular and unprecedented the last 15 months or so have been. Every stress test undertaken by NatWest during Seb’s decade-long tenure was inspired by the Financial Crisis of 2007-2008. No one ever dreamed that the UK would lose a quarter of its output overnight in Q2 2020. It really was a genuine ‘heart attack’ as far as the economy is concerned.
UK businesses are phenomenally adaptable
Despite its severity, it became very clear, very quickly, just how phenomenally adaptable and innovative so many UK businesses are in incredibly challenging circumstances.
Firms have exploited all sorts of routes to market to continue to meet as many customers’ needs as possible. As a result, in March we were ‘only’ 6% below the pre-COVID output level in terms of the country’s GDP, representing a recovery of around three quarters from the low point we reached in 2020.
Performing better than expected
Putting the Delta variant to one side, the good news is that we have actually performed better in terms of case rates than any SAGE modelling suggested to support the Government’s roadmap out of lockdown back in February.
This is testament to two things – the effectiveness of restrictions that are in place and especially the success of the vaccination programme in not only reducing health outcomes but also transmissibility of the virus amongst the population.
The importance of planning ahead
We’re in very uncertain times and, pleasingly, we’re doing much better from an economic perspective than we thought we would be at this stage in terms of OBR GDP forecasts. But whether it’s new variants or success on the vaccine front, the range of plausible outcomes is still immense.
Seb recommends that the only way to really stay sane and plan sensibly through that situation that we will, realistically, continue to be in for the rest of the year, is to adopt a scenario-based approach.
It’s the same approach that we always adopt here at Leonard Curtis, and it really is a critical tool when something as volatile as a virus is such a key risk factor on a business.
Advice would be to work closely with clients to decide what is the best guess that could happen and determine plausible upsides and downsides to it. This will enable you to work out the impact of those outcomes on your client’s business, their supply chain, their customers and their people. You can then develop strategies to mitigate the harms and to capitalise on the opportunities and track how you’re performing against them.
This way, you can avoid the pitfalls of being trapped in the endless cycle of updating analysis with the latest available information and never actually getting around to implementing any of the strategies that you’ve devised to ensure you’re in the strongest possible position.
It’s an excellent way to cut through the daily noise and distil it down to what matters most to you, your business and its performance over the longer term.
Transient or permanent changes to come from COVID?
COVID has changed so much about how we work, what we do and our choices – some of which will be transient and others permanent.
Driving them is the step change in digitisation, which is evident in banking and professional services and is also highlighted perfectly by Sebastian’s favourite example – an acceleration in the shift towards online retail sales. The UK has always been a country of internet-savvy shoppers – pre-COVID, 20% of sales happened online, which is one of the highest in the world, second only to South Korea.
Figures now suggest that the base level of online sales has changed and now stands at 30%, which is a gigantic leap to happen in 15 months and one that, based on the previous rate of change, would have occurred over five years.
It’s a real challenge for businesses without big budgets to take advantage of this behaviour change and to keep up with it. But it’s a challenge that Sebastian believes to be critical.
A decade to be dominated by climate change
One factor that will dominate our economic development over the next ten years – which has also been accelerated in terms of focus and attention during the pandemic – are the challenges brought about by climate change and our attempts to combat it.
It’s a really big global issue and it’s going to involve really big changes to how we live, work and run our lives. It’s now getting the level of commitment across the world that it deserves, with the 127 countries that are responsible for 63% of emissions now considering – or having already adopted – Net Zero targets. This includes the UK, US and the very substantial Asian economies of China, South Korea and Japan.
Needless to say, climate is a really big issue for all businesses – whether that’s because their customers care, their regulators care, very soon their banks and insurers are going to start to ask questions about their carbon emissions for precisely all these reasons.
There’s no shortage of experts who can and should be called upon to determine where these challenges and opportunities lie both in your business and those of the clients you advise.
It’s our responsibility to provide all the support we can to viable businesses
The key takeaway from the session is that advisers must do everything they can to ensure that clients’ viable businesses don’t fail. Do this by making sure that they’re taking advice, talking to you and talking to recovery and turnaround specialists like us here at Leonard Curtis.
Also bear in mind that insolvencies can be a positive restructuring tool. CVAs and Administrations could well be used increasingly regularly for good businesses to get that protection and to allow them to restructure and reset and to get ready to go again and we’re expecting to see more of them in the coming months.
As always, make sure that they get advice as early as possible – this will maximise the options available and help them to successfully navigate what are sure to be a rocky few months ahead of us.
Watch Sebastian Burnside’s seminar here.