Which firms and industries have been most affected by Covid-19?

While all industries have been negatively affected by the spread of Covid-19, it has had a bigger impact on some firms and sectors than on others. This is for a number of reasons, for example, due to variation in the risks of infection from different activities, the ability of the business to operate remotely, and the ways that policies have affected the current business of the firm and expectations about the future.

What does evidence from economic research tell us?

Almost all businesses have been badly affected by the spread of Covid-19.

• Sales, investment and employment have fallen sharply, and we are entering what will be the biggest recession in a generation.
• Firms report that over the period from April to June 2020, they expect sales to be on average 44% lower and investment 50% lower than they would otherwise have been.
• Overall uncertainty has risen sharply. 86% of firms report that the level of uncertainty facing their business is high or very high, up from 68% in March and 40% in February, making business planning very difficult.
• 77% of businesses indicate that they are continuing to trade, with little difference between the countries within the UK. Of those continuing to trade, 58% report that their turnover has decreased, while 30% report that their financial performance has not been affected.

Some industries have been hit harder than others.

• Industries that rely on personal interactions or travel have been hardest hit. This includes accommodation and food services, air travel, and non-food retail.
• Sales in the accommodation, food services, arts, entertainment and recreational services sectors are expected to be around 80% lower than normal in the second quarter of 2020.
• The fossil fuels production and distribution industries have also been severely affected as oil prices have fallen sharply.
• Producers and retailers of food and medical products, other healthcare-related services and research, and utilities have not been as badly hit as others.

Why does the effect vary across industries? Lockdown rules and social distancing requirements have reduced sales for some firms more than others (and even increased them for a few firms). There are large differences in the ability of workers to work from home, due both to the nature of the business and the type of employees (for example, workers with children may struggle to work productively while also home schooling).

Related question: Who can work from home and how does it affect their productivity?

Disruptions to supply chains (the ability of firms to access the supplies that they require to conduct their business) will affect some business more than others.

In addition, firms will differ in their ability to withstand the disruption (for example, due to how much cash they have on hand) and in the decisions they take in the face of the considerable uncertainty about future business conditions.

Related question: Why is uncertainty so damaging for the economy?

What is the combined impact of all of these factors?

Early evidence from financial markets

Early evidence from share prices gave some indications of how different industries were expected to be affected. Share prices provide a useful insight into how an event is expected to affect companies both today and in the future. Buying a share makes you a part owner of a company. So how much people are willing to pay for shares depends in part on their expectations of the future value of the firm, and the future dividend payments that they will receive.

The FTSE All-Share price index remained broadly stable in the early part of this year but saw a sharp decline from late February and through most of March in the weeks following the announcement of a lockdown in Northern Italy and as the number of UK cases continued to increase (Figure 1). Lockdowns of this kind would later be introduced across the whole of Italy and in other countries across the world.

Figure 1: Percentage change in FTSE-All Share Index price from 2 January 2020

Source: Griffith et al (2020).
Notes: Authors’ calculations based on indices of sector share prices, as reported on shareprices.com (accessed on 22 May 2020), using Industry Classification Benchmark definitions. Vertical lines indicate: 20 January, the first confirmed human-to-human transmission in China and first WHO report; 30 January, first confirmed case in the UK; 23 February, Italy introduced lockdown in Lombardy; 16 March, the UK Prime Minister first urged social distancing; 21st April government announces the UK is past peak cases; May 13th lockdown measures are eased.

Figure 2 shows the change in share price for the four sectors with the largest increase and the largest decrease in their relative share price over the period from 2 January to 20 May 2020. The largest falls during March came in leisure and tourism, and in fossil fuels and distribution. Food and drug retailers and businesses involved in medicine and biotech research were among those share prices that performed best (although their share prices still fell overall).

Figure 2: Percentage change in share prices of firms listed on the London Stock Exchange in sectors with the largest share price movements relative to the FTSE-All Share Index, from 2 January 2020

Source: Griffith et al (2020). See Figure 1 for full notes.

Changes in share prices are useful because they allow us to see very quickly how different industries are affected by Covid-19 in real time. They also provide an easy way to see the impacts of all of the different factors affecting firms together.

But stock market data do have some important limitations for measuring the impact of the crisis. Notably they do not include small firms and firms that are not publicly listed; and many of the firms that are listed operate internationally and not only in the UK economy.

Importantly, stock market are just a reflection of the expectations of those buying and selling in financial markets. These market participants are likely to have been very uncertain about how the economy would be affected by the spread of coronavirus: measures of uncertainty derived from financial markets also rose very sharply at this time.

What do firms themselves say the impact has been? 

Surveys of businesses are a key source of information. These directly ask firms how they have been affected by Covid-19, and how much they expect to be affected in future. The main surveys in the UK are the Decision Maker Panel (DMP) and surveys conducted by business organisations such as the British Chambers of Commerce (BCC) and the Confederation of British Industry (CBI). In addition, in response to the crisis, the Office for National Statistics (ONS) launched the new Business Impact of Covid Survey (BICS).

The Decision Maker Panel is a monthly survey of chief financial officers of UK firms. It is run by the Bank of England together with academics from Stanford University and the University of Nottingham. It conducts monthly online surveys of over 8,000 executives from small, medium and large UK companies operating in a broad range of industries. Results from the April survey (run from 3 to 17 April) received 2,700 responses.

The ONS launched its survey on 23 March 2020 and it is conducted fortnightly. It samples around 18,500 firms to collect information about the financial and operational performance of businesses and plans to run over the crisis. Over the period from 6 to 19 April, they received 6,114 responses.

The BCC and CBI both run regular quarterly surveys of their members (the BCC survey covers around 6,000 firms and CBI around 650). The BCC have also been running a smaller weekly survey (of around 600 firms) on the impact of coronavirus.

A key advantage of these surveys is they have been running for a long time and can therefore be used to make comparisons to previous recessions. But since they are drawn from members of business organisations, they may be less representative than surveys that cover the full business population. They also tend to focus on questions asking businesses whether things are getting better or worse rather than by how much they are getting better/worse. The latter is likely to be particularly important in the context of the current crisis due to the unprecedented scale of the impact of the spread of Covid-19 on firms. (see Dhingra and De Lyon, 2020, for discussion of the results from the April CBI survey).

Relative to other business surveys, both the BICS and DMP surveys draw large samples designed to be representative of businesses registered in the UK. They provide timely, quantitative information that can be disaggregated to help get a better understanding of what lies behind the headline numbers. They are conducted frequently – fortnightly for the BICS and monthly for the DMP – and are conducted online. For most cases where they cover the same issues, the BICS and DMP data tell a broadly similar story.

Sales declined dramatically, while employment fell by less

Figure 3 shows the responses of firms to the April DMP survey. All firms expected to see large reductions in sales, up to 80% in the accommodation and food sector. Other sectors expecting a large reduction in sales were recreational services, construction and wholesale and retail. According to the ONS, these were the sectors where temporary closure or paused trading were most common. The smallest impacts were expected in health and in other production (agriculture, mining and quarrying and utilities), but even there the expected reductions in sales was much larger than seen during the 2007/08 financial crisis.

The expected reductions in employment were also large. But it is noticeable in Figure 3 that the expected reduction in employment was lower than for sales. This is in large part because of the support programmes that the Government has put in place, such as the Job Retention Scheme.

Related question: How does the government's furlough scheme work?

Figure 3: Expected impact of Covid-19 on sales and employment in 2020 Q2 by industry

Source: April DMP Survey.
Note: The results are based on the question ‘Relative to what would have otherwise happened, what is your best estimate for the impact of the spread of coronavirus (Covid-19) on the sales/employment of your business in 2020 Q2 (April to June)?’

As shown in Figure 4, the firms and industries that are expecting the largest negative impact on employment are the ones with relatively lower productivity. Productivity is a measure of how much each worker in a firm or industry produces; a higher level of productivity means that the average worker produces more. Productivity can vary for many reasons, but tends to be lower in more labour-intensive industries such as accommodation and food, recreational services, and wholesale and retail.

Figure 4: Expected impact of Covid-19 on employment in 2020 Q2 and labour productivity

Source: April DMP Survey.
Note: Please see Figure 3 for details of questions. Labour productivity is calculated from last set of reported company accounts based data from Bureau Van Dijk. Labour productivity is defined as valued added (operating profit plus remuneration) per employee. In this figure each dot represents 5% of firms grouped by labour productivity.

Businesses have both laid off some workers and used the Job Retention Scheme to furlough some workers. Firms in the DMP survey in April reported furloughing around a third of their employees; these workers were still employed but not required to work any hours. The extent of furloughing varies significantly across industries, as shown in Figure 5. And it is correlated with their expectations of the impact on sales and employment. Businesses in accommodation and food and recreational services reported to have furloughed the largest proportion of their workforce.

Figure 5: Impact of Covid-19 on employees

Source: April DMP Survey.
Note: The results are based on the question ‘Approximately what percentage of your employees fall into the following categories as of April 2020?’ Respondents could assign their employees to the following categories: (i) Still employed but not required to work any hours (e.g. ‘on furlough’), (ii) Unable to work (e.g. due to sickness, self-isolation, childcare etc.), (iii) Continuing to work on business premises’.

How has the crisis changed the way that businesses operate?

The spread of Covid-19 has had a profound impact on how businesses operate. For example, workers in some businesses have been able to adapt relatively easily to social distancing at work, for example, by working from home. The ability to do this varies greatly by industry and firm. It depends on the nature of the firm’s activities and the extent to which it is necessary to engage in face-to-face contact with customers or other employees. Figure 5, using data from the DMP survey, shows that working from home has been more prevalent in sectors such as finance, insurance, professional and scientific and information and communications. These are all higher productivity service industries.

What about the impact of disruptions to supply chains?

Apart from falling demand, firms might also reduce output because they are unable to obtain crucial inputs. In the April DMP survey around half of firms said that they were experiencing disruption to their non-labour inputs, and for some a large proportion of their inputs were being disrupted. Around a quarter of firms were experiencing disruption to at least 25% of the goods and services that they use other than labour. Supply disruption was reported to be higher in industries and firms that expected a larger sales impacts (Figure 6), implying that supply effects could be a factor holding back output too, and more so in some sectors than others.

Figure 6: Disruption to non-labour inputs from Covid-19 (April 2020) and expected impact of Covid-19 on sales in 2020 Q2 by industry

Source: April DMP Survey.
Note: Results are based on the question ‘How has the spread of coronavirus (Covid-19) affected the availability of the non-labour inputs your business uses as of April 2020?’ and that reported in Figure 3.

Uncertainty

The crisis has also led to a sharp increase in uncertainty for everyone – firms, workers and consumers. In April, 84% of businesses reported that the overall level of uncertainty facing their business was high or very high, up from 68% in March and 40% in February. And almost 90% of firms reported that coronavirus was their largest current source of uncertainty in April compared with 50% in March.

Figure 7 shows a big jump in uncertainty around expected sales growth over the coming year. Figure 8 shows that this uncertainty was larger for firms in accommodation and food, real estate, transportation and storage. And, while still high, there was relatively less of an increase in uncertainty for firms in information and communications, finance and insurance, administrative support.

Figure 7: Uncertainty around year-ahead sales growth

Source: DMP survey.
Note: Data are average standard deviations around expected year-ahead sales growth. This is derived from a question asking respondents to attach probabilities to five different possible outcomes for year-ahead sales growth. The five outcomes are chosen by the respondent.

Figure 8: Uncertainty around year-ahead sales growth by industry

Source and notes: See Figure 7.

Where can I find out more?

Decision Maker Panel: Information from financial officers in UK companies operating in a broad range of industries designed to be representative of the population of UK businesses.

Business Impact of Coronavirus (Covid-19) Survey: Office for National Statistics

The economic impact of coronavirus on UK businesses: early evidence from the Decision Maker Panel:  March summary at VoxEU.

Coronavirus expected to reduce UK firms’ sales by over 40% in Q2: May results from the Decision Maker Panel at VoxEU.

How is Covid-19 affecting businesses in the UK? Swati Dhingra and Josh De Lyon report real-time survey data at LSE Business Review.

The impact of COVID-19 on share prices in the UK: Rachel Griffith, Peter Levell and Rebekah Stroud at the Institute for Fiscal Studies.

The economic effects of coronavirus in the UK: Jack Leslie and Charlie McCurdy at the Resolution Foundation.

Who are the experts?

• Nicholas Bloom, Stanford
• Swati Dhingra, LSE
• Peter Levell, IFS
• Jack Leslie, Resolution Foundation
• Paul Mizen, Nottingham

Authors: Nicholas Bloom, Philip Bunn, Scarlet Chen, Rachel Griffith, Paul Mizen, Rebekah Stroud, Gregory Thwaites, Pawel Smietanka