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With at least six more months of Covid-related restrictions set to take their toll, the fear is that imminent mass unemployment is on the cards when the government’s £39 billion job retention scheme ends next month. And three sectors are most at risk.
As Chancellor Rishi Sunak draws up plans for a new programme to subsidise workers’ wages in consultation with both the CBI employers’ group and Trades Union Congress, the day-to-day survival of tens of thousands of businesses and millions of workers is a very real battle.
We already saw unemployment rise sharply even before the start of the winding down of the Coronavirus Job Retention Scheme from August.
The sharp uptick in redundancies – up 45% on the quarter to May-July, to 156,000 – is a worrying leading indicator of sign of things to come, especially with the ONS showing that there were 5.5 million employees still employed but temporarily without work at the end of August (the majority of whom were still on furlough).
The Resolution Foundation notes that there are some encouraging signs in the data, with job vacancies up 54% since May, although that’s still over a third down on pre-crisis levels. But all the signs are that the UK labour market is set for an extremely challenging Autumn once the Job Retention Scheme ends in October.
And, after yesterday’s announcement that pubs, bars and restaurants in England must close their doors at 10pm every evening from tomorrow night, it’s not difficult to see where the bulk of those furlough job fallouts will come from.
As long as the hospitality sector is unable to operate at full capacity, due to public health guidelines, jobs and company profits will only head in one direction.
If proof were needed, then the latest worse-than-expected figures from across the Eurozone show the impact of the pandemic and the various public distancing measures on the services sector in particular. The pattern will undoubtedly be the same here - with a divided economy emerging; manufacturers boosted by demand and consumer-facing consumer businesses battered.
The battle on the high street has already been vividly painted by the retail sector. But it’s not confined to that. Pubs and bars, restaurants and hotels are three of the most at-risk sectors, right now.
Yesterday Whitbread, which owns Premier Inn and Beefeater, warned that 6,000 staff could lose their jobs. With 27,000 staff still on the furlough scheme, which ends next month, the slump in hotel guest numbers since lockdown, means job cuts are, unfortunately, a certainty.
However, as the retail sector has shown, it is always possible to spot winners in almost every beleaguered sector. When it comes to hotels, one potential bright spot is likely to be at the higher end. With would-be holidaymakers largely stuck on home soil for now, consumers - when they do take a holiday or short-break - are more likely to opt for higher-end five star hotels and resorts.
So, hotel chains that cater for that end of the market could well see an uptick in demand, especially over the forthcoming Christmas period. The same could also apply to holiday rentals, with the choice for owners or operators of large properties that sleep more than six left between remaining empty and sitting it out while the restrictions on groups apply, or pro-actively cutting their prices and making 10-12 bed properties wallet-friendly enough for groups of six or fewer people.
Pubs chains are the other sector looking increasingly perilous under these new restrictions. Already struggling, even before the pandemic took hold, many publicans have had to cut staff and costs in order to simply keep going. With few obvious measures beyond what pubs have already been doing to survive the current situation, it will be a testing time for the pubs sector. The emphasis so far, and one that has worked for many, has been to shift to survival mode. In have come take-outs and bottle shops as well as “survival” style cocktail making kits, and even the option of online drink mixing webinars.
Time may well be called for good at some pubs, over the next few months. But for those that can keep going, one thing worth noting is that once pubs do get free rein to operate as they did before the latest restrictions come in - if not quite the unfettered way they did before the virus struck - punters will be back.
Restaurants are another sector of special concern. Again, like shops and pubs, many were already on their knees before the pandemic struck. Since then more have fallen by the wayside.
But again, many have adapted and survived. From switching their offerings to takeaways, or reinventing themselves as bottle shops and delicatessens, offering “lockdown essential” BBQ meat packs, ready-made meals and fruit and veg delivery services, innovation has been the key to survival.
Picking the winners is far from straightforward, but much like we have seen in the troubled retail sector, the businesses that have been able to shift their models to meet demand under the already-hackneyed “new normal”, the future, while not rosy, is at least potentially survivable.
Important information - The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Please note, past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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