U.K.’s Main Growth Engine Struggles to Bounce Back From Covid

(Bloomberg) -- The U.K.'s dominant industry is lagging behind in the recovery from the coronavirus recession, suggesting the government may have to step up aid to prevent an economic collapse over the winter.

Services firms saw slower improvements in domestic and export sales than manufacturers in the third quarter, according to a survey by the British Chambers of Commerce. Business-to-consumer companies such as those in hospitality and catering had the weakest performance as two-thirds reported a drop in income.

In a separate poll published Thursday, YouGov said almost 70% of households expect the economic situation to deteriorate in the coming months. More than half of those expect it to get a “lot worse.”

The findings make grim reading for an economy that relies heavily on services and consumer spending for growth. The end of the year will get even more difficult as government aid measures expire and the country faces a rocky separation from the European Union's single market.

“Business conditions remain fragile in the face of uncertainty, with the prospect of a difficult winter to come,” said Adam Marshall, head of the BCC. “The economy will need more support.”

Cash flow deteriorated for 45% of firms in the three months through September, the survey showed. Smaller companies were hit harder than larger ones.

Chancellor of the Exchequer Rishi Sunak last week announced new plans to ease the coming spike in unemployment, though they're less generous than those in place over the summer and he warned that he cannot save every business or job. This week alone, Royal Dutch Shell Plc and TSB bank have announced thousands of cuts and economists warn the crisis may leave more than 3 million out of work.

“While the government's winter economy plan may provide a short-term boost, with restrictions tightening and the economic scarring already caused by the pandemic starting to crystallize, the resulting gains in economic output are likely to fade,” said Suren Thiru, chief economist at the BCC.

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