The impact of Coronavirus on UK Business

A global pandemic may temporarily or permanently affect UK Businesses employees, operations, supply chains and customers.

The recent outbreak of the SARS-CoV-2 virus responsible for COVID-19, which has reached pandemic proportions has had significant, wide reaching impacts on UK businesses. The duration of the pandemic, health outcome, state responses and the timing and nature of the recovery are uncertain.  

Global economic turmoil, or the expectation that economic turmoil could worsen, could have follow-on effects on UK business that include exchange rate fluctuations and commodity market fluctuations. The COVID-19 pandemic has resulted in a sharp decline in global financial markets and a significant decrease in global economic activity, which may have a material adverse effect on worldwide demand for certain products and services.

The duration of the COVID-19 pandemic is uncertain with the potential for additional future waves of infection across the globe, the disease to become seasonal or SARS-CoV-2 to mutate. These changes could amplify existing risks, prolong disruption to customers and delay recovery of economic activity.

Similarly, the COVID-19 pandemic could adversely impact businesses operations by causing supply chain delays and disruptions, import restrictions or shipping disruptions, as well as operational shutdowns (including as part of government-mandated containment measures). For example, the both the Malaysian and New Zealand governments have recently imposed significant restrictions on the movement of goods, services and persons, including a nationwide lockdown of businesses and its citizens. Such disruptions and other manufacturing and logistical restraints could result in extended lead times in supply and distribution networks, as well as the exercise of force majeure measures, the impacts of which could eventually result in suspension of operations and/or the construction industry. Epidemic-related export restrictions (including as a result of government regulation and prevention measures) could similarly adversely impact businesses financial condition and results of operations. The ability to operate effectively may be affected by disease control measures such as social distancing.

 In addition, restrictions on travel imposed by governments as a result of the outbreak of infectious diseases including restrictions in travel and border access may impact the company’s ability to source and transport goods and services required to operate our facilities and get our products to customers. These measures may also prevent contractors or capital plant and equipment from reaching our sites which could have an adverse effect on the schedule or cost of completing projects or other capital works.

MostUK businesses cannot 100% guarantee that there crisis management measures will be adequate, that the supply chain, outsourced service providers and operations will not be adversely affected by a future wave or waves of COVID-19 or other epidemic outbreak or that there would be no related consequences, such as severe food shortages and social impact. Epidemic-related export restrictions (including as a result of government regulation and prevention measures) could similarly adversely impact the company’s financial condition and results of operations.

In addition, COVID-19 may significantly impair the health of our labour force either directly or indirectly due to a shortage of Personal Protective Equipment. If spread among the countries workforce, COVID-19 may lead to a full or partial shutdown of business operations in the affected areas. COVID-19 also poses the risk that business may be curtailed or even suspended for an indefinite period of time due to shutdowns that may be requested or mandated by governmental authorities or otherwise elected by companies as a preventive measure to contain the spread of the virus. A curtailment or suspension at the business operations in certain or all regions due to COVID-19, either for a definite or indefinite period of time, may have a material adverse impact on the financial condition of many UK businesses across varying sectors.

Similarly, UK Businesses that operate facilities in countries that have confirmed cases of COVID-19 and resulting deaths. In some countries, national or state governments have declared a state of emergency empowering such governments to take actions or impose restrictions to contain the virus that otherwise would not be permitted under the applicable legal and regulatory framework. Governments have also imposed certain restrictions on travel or business activities as precautionary measures, including nationwide lockdowns (quarantine), which may disrupt the company’s activities and operations and even lead to a full or partial shutdown of the companies operations in those countries. 

Businesses which operates in some countries that may be susceptible to societal instability or political risks stemming from the COVID-19 pandemic, including Indonesia, India and through the supply chain, Brazil. At a geo-political level there is a heightened risk of increased state nationalism and reversal of globalisation as each state seeks to insulate itself from the economic downturn and support it’s citizens. The influence and capability of intergovernmental organisations including the World Bank, IMF and WTO may be significantly reduced if no longer supported and adequately funded which could have a destabilising effect on global trade. Introduction of additional border tariffs or local content requirements, social unrest, state collapse or expropriation of assets could have an adverse impact on our financial condition.

Following the pandemic, the recovery of economic activity is uncertain and may be partly dependent upon Government stimulus packages or continuation of wage subsidies or similar programs. Businesses could be adversely affected if these programs and support for key industry sectors such as construction are ineffective.

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Written by James

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