Last week we blogged about the regional distribution of lending under the government-backed CBILS and BBLS support schemes. The key message was that lending under these schemes has been evenly distributed across regions and devolved nations, in line with the widespread hit to economic activity across the country caused by the Covid-19 pandemic.  

Here we pull together insights from the British Business Bank (BBB) lending data, the ?hot off the press? SME Finance Monitor and the latest numbers on the economy to understand what is happening across different industry sectors. Unlike the consistent regional picture, there has been considerably more variation in sector performance and demand for finance as a result of the pandemic over the past few months.

Recession watch

Today we received confirmation, if confirmation were needed, that the UK economy is in recession. GDP fell by a record 20.2 per cent in the three months to June, following a 2.2 per cent decline in the first quarter of 2020. This data covers the main period of lockdown restrictions implemented by government to manage the health crisis. The pace of contraction in the UK economy in 2020 Q2 looks quite a bit steeper than that recorded in much of Europe and the US, largely reflecting differences in the timing of economic shutdown. Taking the first half of the year as a whole, the picture is similarly bleak across the developed world, However there is no getting away from the fact that the hit to the UK economy has been significant.

Moreover all sectors of the economy experienced a substantial fall in output over the quarter. Services output fell by just shy of 20 per cent and within that accommodation and food services contracted by a massive 87 per cent. At the other end of the spectrum, real estate and financial services declined by around three per cent. Lockdown restrictions also weighed heavily on construction, which saw output fall by 35 per cent. Nor was manufacturing immune, seeing falls in output of just over a fifth in the three months to June.

The rate of decline seen in Q2 2020 was unprecedented, but amidst the gloomy data there are some chinks of light. Activity was starting to regain some ground in June as lockdown restrictions started to ease and services, construction and manufacturing reported a return to growth. Nonetheless it is too soon to call this a ?V-shaped recovery?. This will depend on the continued phased re-opening of the economy and a return of consumer and business confidence to get back to business as usual.

Business lending by sector

How have the variable experiences of different parts of the economy through the pandemic translated into demand for financial support? Last week the BBB published a regional and sectoral breakdown of lending to businesses under the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS). In contrast to the relatively even regional distribution of support, there is a much higher degree of variation in the spread of approved facilities across sectors, as illustrated in the chart below.

CBILS and BBLS facilities approved per 1000 business by sector

Source: British Business Bank

Unsurprisingly given the hit to activity caused by the lockdown, the requirement for lending support has been amongst the most significant in the accommodation and food service industry, in which over 450 facilities were approved per thousand businesses in the sector. Manufacturers and firms in the wholesale and retail trade were also somewhat more likely than the whole economy average to draw on government-backed lending schemes.

In addition, there were also large variations in the lending across CBILS and BBLS. For example, manufacturing, arts and recreation and utilities were more likely to access finance under CBILS, whereas real estate and agriculture saw a higher proportion of lending under BBLS.

These sectoral differences are not just explained by the hit to activity caused by the pandemic, but also a reflection of the degree of financial headroom going into this recession (an issue explored in our latest Business Finance Review), the appetite to borrow and access to non-scheme sources of finance.

Long list of business concerns

The latest BVA-BDRC SME Finance Monitor, published today echoes many of the findings from the official statistics on business performance over the quarter and access to finance to navigate the crisis. Businesses in accommodation and food service and construction are most likely to report Covid-19 as barrier to running the business. These sectors are also the most concerned about their ability to repay finance over the next 12 months - as shown in the chart below.

Notably, these are not necessarily the sectors that have been most likely to access lending under the government schemes since the onset of the pandemic, indicating that additional support and engagement with the finance sector will depend as much on the future path of the economy and how this plays out across different sectors as the extent of borrowing to manage through the crisis.

Percentage of firms concerned about their ability to repay finance in the next 12 months

Source: BVA-BDRC SME Finance Monitor

However government support schemes develop following reviews in September to November, whether they are a sole trader or a company with hundreds of employees, and regardless of sector, the diverse banking and finance industry from specialist finance providers to locally based banks stands ready to offer the right support to suit their customers? needs.