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UK locks down again as government promises to support businesses

The UK has been ordered to lockdown for another month by Prime Minister Boris Johnson. While the initial lockdown will be for one month, senior cabinet minister Michael Gove told the media that it could be extended.

Gove commented, “We can definitively say that unless we take action now, the (health service) is going to be overwhelmed in ways that none of us could countenance.”

The economic impact of the new lockdown is expected to be severe. Dutch bank ING has forecast that it will cut at least 6% from the UK’s November GDP, although the bank stated that the total losses will put the UK far behind where it was before the pandemic.

From ING: “We think the November lockdown will put the economy back to around 14-15% below its pre-virus levels.”

All businesses in the UK that are deemed “non-essential” will be closed and this includes any leisure facilities and entertainment venues. Many of these businesses were already struggling, and the new round of lockdowns will do even more damage to their profits.

UK government to support economy

Given the magnitude of the economic losses, the UK government has opted to introduce new support programs to help mitigate the impact from the fresh lockdowns. While these programmes probably won’t fully offset the losses, they do offer some support to ailing businesses.

Furlough programmes that offer grants of up to £3,000 per month to businesses that have been forced to close were extended by Chancellor Rishi Sunak, and the UK has also introduced new measures as well.

Aid for small businesses

Many businesses are in far worse shape than they were earlier this year and need extra help to survive. Most retail shops are closed – this is the lead-up to the holiday season when they make a substantial amount of their annual sales.

The UK Treasury published this information about its support for businesses:

-open businesses which are experiencing considerable difficulty will be given extra help to keep staff on as government significantly increases contribution to wage costs under the Job Support Scheme, and business contributions drop to 5%

-business grants are expanded to cover businesses in particularly affected sectors in high-alert level areas, helping them stay afloat and protecting jobs

-grants for the self-employed doubled to 40% of previous earnings

Sunak commented on the new measures: “I know that the introduction of further restrictions has left many people worried for themselves, their families and communities. I hope the government’s stepped-up support can be part of the country pulling together in the coming months.”

Revised job support scheme (JSS)

The UK has decided to expand the scope of its existing job support scheme (JSS), and allow employers to gain extra assistance for their employees.

The UK Treasury communicated these changes via its website:

“When originally announced, the JSS – which will come into effect on November 01 – saw employers paying a third of their employees’ wages for hours not worked, and required employers to be working 33% of their normal hours.

Today’s announcement reduces the employer contribution to those unworked hours to just 5%, and reduces the minimum hours requirements to 20%, so those working just one day a week will be eligible. That means that if someone was being paid £587 for their unworked hours, the government would be contributing £543 and their employer only £44.

 Employers will continue to receive the £1,000 Job Retention Bonus. The Job Support Scheme Closed for businesses legally required to close remains unchanged.”

Not every business will suffer

Clearly, people will still need to have access to necessary goods in the UK, and many companies that provide stable goods with online ordering and delivery are in good shape to help people cope with the new lockdowns.

Ocado, a provider of online grocery shopping, raised its full-year guidance on the back of expected demand due to the new round of lockdowns. Tesco also saw its profits rise earlier this year as its online operations exploded as people bought all their food and other retail items via its online shop.

Russ Mould, who is investment director at AJ Bell, commented on the shift in market expectations,

“Supermarkets are going to be in demand once again, with chatter that big queues already started to form over the weekend. Sales could improve for this sector over the coming month, but costs are also likely to be higher as companies likely reintroduce measures to help keep customers safe and crowds under control.”

More loans for businesses

In addition, the UK Treasury is allowing businesses to “top-up” on loan schemes that were already in place. Businesses will now have until January of 2021 to apply for loans under the coronavirus business interruption loans (CBILS), bounce back loans (BBLS) and CLBILS schemes.

There is a programme in place for just about every business in the UK for the new lockdown measures, and this assistance should help companies that are already struggling with one of the worst years in modern history.

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