As the first month of the new year ends and Plan B Covid-19 restrictions are lifted across England, it’s interesting to reflect on how the pandemic impacted new company formations last year, and what further trends we may see in the coming months of 2022.

Before Covid-19 was a household name, research by business intelligence specialists, Business Data Group, shows that 672,716 new companies were formed during 2019. Of course, there were peaks and troughs throughout the year, due to seasonal events, but on average over 56,000 new businesses were starting out every single month.

It wasn’t until the pandemic hit the UK early in 2020 that things really started to change. As Covid cases grew and the country was forced into its first lockdown on March 26, 2020 we saw the start of a change in consumer behaviour like never before. Faced with uncertainty and the country’s population adjusting to its new ways of living and working, the steady stream of new businesses that were set up in the UK dipped in April 2020 to just over 40,000.

Like a phoenix from the ashes

Like a phoenix from the ashes, the entrepreneurial spirit that is prevalent across the UK, rose to the occasion. Slowly, slowly, new business ideas were conceived, side hustles were given time to grow, and start-up ventures began in their thousands. By June 2020, the number of newly formed businesses shot up to over 75,000 and, further still in July, to just under 80,000. Start-up life was booming with the country seeing a massive increase of 38,204 new company formations in July compared to April earlier in the year.

Evolution in human behaviour

When the ‘Stay At Home’ order was served to the nation, online shopping became the norm. Even people who had zero interest in buying their weekly groceries online turned, stayed safe indoors and clicked to order. It was the time for e-commerce businesses to thrive. The pandemic accelerated what would have taken many years in the evolution of human behaviour.

Record numbers of company formations

Whilst the July 2020 peak in new company formations has not yet been repeated, a not-insignificant total of 748,922 new companies were started the following year; that’s an average of 62,410 every month, and 76,206 more new companies than the previous year, before the pandemic hit the UK.

Looking closely at the location of newly registered offices, there are few surprises. Outside of London, the densely populated UK cities of Birmingham, Manchester and Glasgow are top of the table. The West Midlands city of Birmingham holds a strong first place position with over 17,000 of the new businesses registered to offices in the city.

A close examination of which SIC code the new businesses were registered under, confirms the boost that the pandemic gave to e-commerce. 49,191 new businesses were registered as ‘Retail sale via mail order houses or via internet’ which is the greatest number of registrations under one classification. A somewhat close second is ‘Other letting and operating of own or leased real estate’.

Of course, whilst the number of new businesses established is encouraging, it is also important to remember that the figures will be distorted to some degree by the formalisation of side-hustles as well as the much-reported Bounce Back Loan fraud.

Challenges to demand and supply

So what will 2022 bring? Of course, without a crystal ball, and especially during such unpredictable times, no one can say for certain. However, the huge uplift in e-commerce has placed massive and inevitable pressure on fulfilment and delivery services, with many headlines in recent months highlighting the country’s problems with supply chains. As consumer shopping behaviour has shifted dramatically to online, so too has the expectation for same-day deliveries. We are seeing how this is creating untenable expectations on logistics and distribution and is currently, simply not sustainable as a business model.  Going forwards, we will see changes in the logistics industry and quite possibly it will be the gig economy that will thrive as a result.

Ensuring small and micro-businesses can thrive

Perhaps more certainly, small and micro-businesses in the UK need much more support at local, regional and national levels. There are new programmes being introduced across the country but, at the same time, small and micro business owners are being slapped down again with hikes to their energy bills, National Insurance and other taxes. As we have heard from small and micro business owners in the UK Business Forums (UKBF) community, the past two years have been the toughest of times and their battles are far from over. The Government needs to step up its support to not only help small businesses recover and rebuild, but to ensure they are equipped to thrive.

This research was conducted by start-up data intelligence specialists Business Data Group.  For more insights into the company formations sector contact Business Data Group on email@bdgroup.co.uk

Author:  Richard Osborne, UK Business Forums