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Firms more confident - but 1 million jobs still at risk

Unexpected changes to lockdown policy – while sometimes necessary– can have sizable impacts on business confidence.
- Peter Lambert, co-author and research economist
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The number of firms saying they are at risk of failure has more than halved in the last six months, but 1 million workers are employed in businesses which fear closure.

The latest information from the Programme on Innovation and Diffusion (POID), a research group at the London School of Economics and Political Science (LSE), shows that 1 in 16 firms say they are now at risk of closure in the next three months – down from 1 in 7 covering 2.5 million jobs back in January 2021.

The POID Business Tracker (based on Office of National Statistics data) shows the most significant improvement in confidence came from those businesses with less than nine employees – although these are still the firms which are most likely to say they are at risk.

Peter Lambert, co-author and research economist, said: “The significant decline in at-risk businesses relative to 2020 is very welcome. These numbers can, however, be quickly reversed by changes to Covid policies, or threats such as new variants. In May and June 2021 there was an uptick in self-reported risk of failure, coinciding with the increasing concerns about the Delta variant and the announcement that the so-called “Freedom Day” was to be delayed. This shows that unexpected changes to lockdown policy – while sometimes necessary– can have sizable impacts on business confidence.”

Peter adds: “Looking forwards, the tapering down of Government support for furloughed workers may give rise to additional volatility in the number of firms at-risk of failure.”

Apolline Marion, co-author and research economist, said: “The most significant improvement in confidence came from micro-enterprises (0-9 employees) and small enterprises (10-49 employees).  These were also the most severely hit groups earlier in the pandemic, so it is encouraging that they have responded strongest to the improved business landscape.”

Professor John Van Reenen, co-author and director of POID, said: “The survey question we study has been asked in a consistent way since October 2020, and we began reporting on these data in January 2021. At that time, things looked very bleak: more than 15 per cent (1-in-7) of businesses were on the brink of exit. The reduced number of businesses at risk of closure due to COVID is welcome news. But as winter approaches, and with the possibility of new strains emerging, nothing can be taken for granted.”

Read the blog here: Risk of Business Failure: POID Tracker

Behind the article

The Programme on Innovation and Diffusion (POID) carries out cutting-edge research into how to boost productivity through nurturing innovation – ideas that are new to the world – and how to diffuse these ideas across the economy.

POID is co-funded by the London School of Economics and Political Science and the Economic and Social Research Council, part of UK Research and Innovation (UKRI) https://esrc.ukri.org/   https://www.ukri.org/

 About the authors:

  • Peter Lambert is a research economist at POID, a PhD student in economics at the London School of Economics (LSE), and visiting researcher at Imperial College. P.j.lambert@lse.ac.uk  
  • Apolline Marion is a research economist at POID. A.marion@lse.ac.uk  
  • Professor John Van Reenen is the Ronald Coase Chair in Economics at LSE and former director of the Centre for Economic Performance (CEP). J.vanreenen@lse.ac.uk