Advertising tycoon Sir Martin Sorrell has warned that weak firms will be wiped out in a ‘Darwinian culling’ – as forecasts show unemployment is set to rocket.
Sir Martin, the founder and former chief executive of the WPP media empire, predicted that only the strongest companies would pull through the Covid-19 pandemic in a survival-of-the-fittest fight that he compared to naturalist Charles Darwin’s theory of natural selection.
‘You feel it in the markets already. It’s terrible, shocking, it’s catatonic. A lot of companies will go down,’ he said. ‘This is a Darwinian culling.’
Prediction: Sir Martin Sorrell is the founder and former chief executive of the WPP media empire
With 50 years in advertising behind him, Sir Martin’s comments are seen as a bellwether for consumer confidence and spending – and they come ahead of a major report from the Bank of England due out this week on how the economy is holding up in lockdown.
The Bank will detail its expectations for growth and unemployment in the UK on Thursday – the same day the Government releases its plans to exit lockdown.
The latest jobs data indicates up to five million people could become unemployed as a result of the pandemic, according to analysis handed to The Mail on Sunday by recruitment boss James Reed.
The owner of Reed.com, the largest recruitment website in Britain, forecast it would take three years for employment to recover to preCovid-19 levels. The number of new job listings on his site has halved from 181,000 to just 89,000 in April alone.
The figure was 275,000 this time last year. He said Reed’s analysis of trends in the data suggest up to 15 per cent of the workforce could become unemployed as businesses struggle to bring back all the staff who have been furloughed.
He added: ‘I don’t see how businesses can bring back everyone. If your income is half what it was, or worse, how can you cover the costs you had before?
‘These figures are a leading indicator of what things will look like, and that could suggest as many as five million unemployed. If you look at previous cycles, it could take at least three years to recover. That would be the highest rate of unemployment since the 1930s. It suggests a very different economy will emerge out of this, and coming out of furlough will be a big challenge.’
Howard Archer, chief economist at the EY Item Club, a forecaster that uses the Government’s own figures, said: ‘A number of policymakers have sounded cautious about whether the economy will bounce back quickly. They think there will be consumer caution even after the lockdown has eased, and that could cause the recovery not to be very sharp.
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‘Longer-term forecasts will give us an idea about how much permanent damage has been done to the economy in terms of how many businesses go under and what the unemployment rate will go up to.’
Company profit warnings hit a record 301 in the first three months of the year, with travel and leisure firms worst affected, according to accounting giant EY. There were just 313 for the whole of 2019. Alan Hudson, UK head of restructuring at EY, predicted a spike in insolvencies and said the crisis had ‘exacerbated existing weaknesses’.
Sir Martin Sorrell said Britain was entrenched in a ‘wartime’ mode. He forecast a deep V-shaped recession, where the usual rules for companies spending their way out of a downturn no longer apply. March to June would be ‘horrendous’, he said, the next three months would be ‘tough but better’, and the final three months of the year would be ‘a recovery’.
But he warned that many companies would not survive that long. ‘A lot of companies will have gone to the wall by then,’ he told client magazine Finito World in an interview shared with the MoS.
‘In our industry, a lot of highly regarded production companies have gone.’
He also criticised Chancellor Rishi Sunak’s rescue programmes for businesses, saying: ‘They take time to implement. A lot of this stuff will be deployed where it is least needed – to large not small businesses.’
Sir Martin founded WPP in 1985 and grew it into a FTSE100 company, making him one of the most highly paid businessmen in Britain, with a £368 million fortune. He stepped down in 2018 amid allegations of misconduct and misuse of company funds – which he denies – and set up digital advertising firm S4 Capital.
On Thursday, S4 will publish a trading update for the first three months of the year, which will show the impact of lockdown from March.
WPP, now led by Mark Read, last week announced a 4.9 per cent fall in turnover for the first three months of the year.
Sir Martin said the crisis would hand even more power to online giants such as Google and Facebook, adding: ‘Imagine the data that Amazon is buying on consumer buying patterns: it will give them a huge data advantage. The same will be true for Tencent, Alibaba and TikTok in the east.’
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