UK firms must brace for virus hammer blow as tactics used during 2008 crash may not work, experts warn
- Many now fear the virus outbreak could deter investment and damage trading
- Ministers have fewer options to fight back against a hit to consumer spending
- The IFS urged the Chancellor to consider deferment of tax payments for firms
British businesses are bracing for a hit to profits as concerns mount about the spread of the coronavirus.
Despite a post-election ‘Boris bounce’ giving firms a lift in January and February, many now fear the virus outbreak could deter investment and damage trading, research warns today.
At the same time, experts have warned that tactics used to prop up the economy during the 2008 financial crisis may not work as effectively against the coronavirus – giving ministers fewer options to fight back against a potential hit to consumer spending.
Coronavirus fears: The outbreak could also deliver a hammer blow to shops on Britain’s high streets that are already struggling
However the Institute for Fiscal Studies (IFS) think tank urged Chancellor Rishi Sunak to consider financial support that could help firms weather the storm, such as deferment of tax payments.
The IFS said another crucial factor was making sure banks continued to lend to businesses that might get into temporary difficulties.
It comes as research by consultancy firm BDO shows that last month saw the biggest jump in business optimism in a decade, after the election removed uncertainty about the UK’s exit from the EU.
BDO’s Optimism Index rose by 5.8 points to 101.64, with the increase driven by a rise in confidence among services.
But partner Kaley Crossthwaite warned the gains could be ‘brought back down to Earth’ by the coronavirus crisis. ‘The next month will be crucial,’ she added.
The outbreak could also deliver a hammer blow to shops on Britain’s high streets that are already struggling, another piece of research by Springboard has warned.
Its footfall report for the five weeks to February 29 found visitor numbers were down 7.8 per cent compared to a year ago, partly due to heavy rain.
And although coronavirus had no ‘noticeable impact’ during the period, it says shops should brace for pain in March because ‘shopper activity will be stemmed as consumers become more wary about interacting in public spaces’.
Richard Hyman, an independent retail analyst, yesterday warned that prolonged periods of reduced visitor numbers could be ‘life-threatening’ for some retailers, with the sector already grappling with tough competition online and crippling business rates.
A temporary cut to VAT levied on sales has been mooted as a way to boost businesses by some. And the Bank of England is also under pressure to cut interest rates from the current 0.75 per cent base and to encourage banks to lend.
