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State of the Region 2020 Full Report

Impact on our Businesses

Across various business surveys the main messages are: cash reserves are being used and are rapidly depleting; workforces have stayed relatively stable but there has been a significant amount of furloughing; the threat of redundancies remains, low hours are reducing, there is drop in contract staff and significant homeworking (50% of workers).

Local businesses are facing the most significant economic shock of recent decades with domestic demand, export demand, investment in training & capex and cash flow positions falling to record lows. While businesses are continuing to, on balance, experience the negative impact of COVID-19 and related lockdown measures, it is likely that businesses felt the sharpest negative impact of Coronavirus related measures in the early weeks of lockdown (end of March to mid-April).

Regionally90% manufacturers have continued to trade during the crisis but 25% plan to make redundancies in the next 6 months. 40% believe it could take more than 12 months to return to normal trading conditions. One fifth of manufacturers are operating between 25% and 50% of their full capacity and over 70% of manufacturers have seen a further decrease in orders and sales. A quarter of companies expect to be back to full operating levels by the start of 2021.

Previous record levels of growth in the West Midlands have been driven by construction, which has now stalled and manufacturing, especially automotive, has been hit hard due to a reduction in domestic and export demand. Work carried out by WMREDI highlights there are 21 large manufacturing firms in the automotive supply chain which are at high risk because they have relatively poor liquidity ratios. They employ 16k people and only 12 are eligible for the Covid-19 Business Interruption Loan Scheme (CBILS). Out of the 9 high-risk firms that do not qualify for the CBILS, 6 of these also have negative profit margins. The 21 firms that do not qualify for CBILS will rely heavily on the Covid-19 Job Retention Scheme (CJRS), which is only a temporary measure.

Contrary to forecasters’ assessments, businesses do not expect to see a sharp recovery as lockdown measures ease with the majority predicting a fall in profitability and turnover over the next 12 months. Meanwhile, a number of significant Government support schemes and interventions are set to end over the coming months.

While, on balance, firms are decreasing headcount, and HR1 redundancy notices are seeing a sharp rise, the Coronavirus Job Retention Scheme is likely to be playing a significant role in limiting workforce reduction. Businesses are to adapting to reduced demand by decreasing hours worked without decreasing headcount to the extent they otherwise may have done.  However there is a change in business operations, with an increasing recognition that they can maintain operations on much lower numbers of employees, and the accelerated adoption of technology will drive this further. Maintaining headcount was an unusual pattern in the 2008 crash and has continued since, and this may now change as businesses can see gains from reducing the headcount. Therefore as the furlough scheme tapers down, it is likely that further redundancies will be made.

  • 21 automotive sector companies are at high risk due to poor liquidity 

  • 25% of companies expect to be back to operating levels by 2021

  • 90% of manufacturers have continued to trade but 25% plan to make redundancies in next 6 months