Latest QES reveals challenges for the local economy

The scale of the challenges facing the East Midlands economy was laid bare in the Chamber’s most recent Quarterly Economic Survey, in which almost all indicators of economic health took a nosedive to unprecedented depths. Dan Robinson analyses the results and finds out how businesses are faring.

Sandra Wiggins’ manufacturing business had come a long way since forming in 2014, growing an average of 38 per cent annually during the first four years and entering 2020 with great optimism. DPI UK, based in Castle Donington, had capitalised on the thriving events industry – even managing to prosper on the not-so-thriving high street – to supply bespoke display frames and lightboxes that work with stretched fabrics to brighten up exhibition stands and shop windows both in the UK and overseas. Despite having to navigate the stormy waters

of Brexit and the retail industry’s challenges, the company was ahead of budget in its first quarter and on course to improve its £1m turnover by 28 per cent while aiming for a proportional net profit. Then Covid-19 hit. “Our order book fell off a cliff overnight,” says

Sandra, who spent the first 48 hours taking stock as she contemplated the future of the business she had co-founded with Paul Tomlinson, before deciding to move forward by bringing a skeleton team safely back on to site – a scenario that involved members of the senior leadership working on the shop floor to fulfil the few orders they had. Her husband has been forced to “shield” at

home during lockdown for health reasons and she adds: “I understand the balance between health and economy because we have personally had to make some really hard decisions to enable me to carry on working.” Like many businesses, she used the

Government’s Coronavirus Job Retention Scheme to safeguard as many roles as possible and pivoted to begin manufacturing screens that will help maintain social distancing in offices and factories during the “new normal” for workplaces. Sandra explains: “Exhibitions aren’t going to

come back quickly – they’ve turned many of the exhibition halls into coronavirus hospitals, and realistically they’re not going to be restored until next year. That was 40 per cent of our revenue cut off overnight.” Diversification only helped stem the tide, and

she needed financial support. But as an SME within the supply chain, she says DPI has slipped through the net because the company doesn’t qualify for various schemes, including the Small Business Grants Fund and Retail, Hospitality and Leisure Grant Fund.

Even if it succeeded in obtaining a grant

distributed via North West Leicestershire District Council, this is capped at £10,000 and would only cover deferred business rates during the lockdown period – but not rent or other operational overheads. “And it in no way reflects the loss of revenue

so far,” adds Sandra. There is particular frustration at the significant

underspend among local authorities for the Covid-19 grant funding, knowing the remaining money could help prop up so many businesses fighting for their lives. The entrepreneur has also been knocked back

from banks due to the high-risk category of her sector and has resorted to an 8.9% interest loan via the peer-to-peer lending platform Funding Circle – effectively storing up financial problems for further down the line once deferred VAT and business rates need paying. She says: “Sensible business owners will be

thinking of whether they can pay these back with their long-term revenue. “Are we just deferring our business being lost

altogether? We’ve had to do some big thinking but people will be asking ‘are we worth investing in ourselves and taking this big gamble?’”

DPI UK’s struggles are symptomatic of an extraordinary crash in the East Midlands, and national, economy due to Covid-enforced lockdown. The Chamber’s Quarterly Economic Survey for

Q2 2020, which was completed by 444 of the region’s businesses between May and June, found that a net -67 per cent of firms reported a decline in UK sales in the three months to June, while a net -50 per cent witnessed a fall in export sales. Order books also took a hit, with a net -55 per

cent reporting a fall in UK orders for Q3, while for exporters, the fall was a net -46 per cent. Survey data is modelled by the Chamber

across a range of key performance indicators – including sales and orders, recruitment, cashflow, investment intentions and confidence – to produce a quarterly State of the Economy Index, which enables it to compare local business performance quarter-by-quarter. In Q2, the score fell to -411, by far its lowest

level on record and the first time it has fallen into negative territory. In fact, it is the mirror opposite of the +411

peak that it reached just six years ago in Q2 2014.

‘There is particular frustration at the significant underspend among local authorities for the Covid-19 grant funding’

34 business network August/September 2020 Positive Kitchen founder Aatin Anadkat

Scott Knowles, chief executive of the Chamber, says the survey highlighted the “unprecedented” speed at which the economy shut down during lockdown. “Whole swathes of the business community

either ceased or dramatically reduced activity, with some yet to get back underway,” he says. “For most businesses, this period was defined

by uncertainty and a wait for much-needed clarity about how and when the economy may unlock, and any further health implications this may have.” The most obvious and tangible impact of the

crisis is in the rapidly rising numbers of job losses. Nationally, Sky News analysis identified at

least 93,000 roles had been cut by 58 major businesses between 23 March and 23 July. The worst-hit industries were aviation (30,675

jobs lost), retail (16,362), hospitality (13,319), energy (9,600) and manufacturing (7,198). In the East Midlands, Rolls-Royce announced

in June it would cut 3,000 jobs across the UK – with half the redundancies at its Derby base – and Boots shed 4,000 roles a month later, saying the move would particularly affect staff at its Nottingham head office.

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