business news 5 August 2021
James Salmon, Operations Director.
Defaults on UK’s emergency Covid loans. Big Tech is a lifeline for SMEs. UK’s service sector recovery slows and other business news.
Defaults on UK’s emergency Covid loans set to be up to £5bn
Experts have assessed that £5bn of state-backed government COVID-19 emergency loans are at risk of not being repaid, far less than feared due to the strong economic recovery.
Welcome Big Tech as a lifeline for SMEs
Sir Martin Sorrell, the founder and executive chairman of advertising agency S4 Capital, told the Times in an interview that the power of Big Tech to help small business grow has been understated and companies like Apple, Google and Amazon deserve a more positive reception in Britain.
Sir Martin said: “SMEs are the engines of growth for employment in the economy. During the pandemic, the way companies generated sales was through the tech platforms. The tech platforms get too bad a rap. One does want a competitive landscape – I don’t diminish that – but they are really important. We estimate it is around 60 to 70% of their revenues…come from SMEs.”
UK’s service sector recovery slows
The latest IHS Markit/CIPS health check on UK services firms reveals growth in the sector has slowed to its weakest since March.
Tim Moore, an economics director at IHS Markit, said: “July data illustrates that recovery speed across the UK economy has slowed in comparison to the second quarter of 2021. More businesses are experiencing growth constraints from supply shortages of labour and materials, while on the demand side we’ve already seen the peak phase of pent-up consumer spending.”
UK Services Activity has been hit by the ‘pingdemic’ as firms struggle to ramp up supply to cope with soaring demand due to severe worker shortages, according to the closely watched survey released today. The purchasing managers’ index for the services industry dropped to 59.6 in July, down from 62.4 in the previous month, and the lowest reading since March.
BoS helps small firms embrace sustainable transformation
Fraser Sime, regional director at Bank of Scotland, writes in the Scotsman on how the bank is helping small businesses make their operations more environmentally sustainable.
A recent study by the bank found 47% of small firms have no commitment, nor any current plans to commit, to net zero – compared to just 5% of the largest SMEs.
Mr Sime points out that the bank’s Clean Growth Finance Initiative (CGFI) helps businesses access discounted lending to help make operations more sustainable. “This can help with the introduction of a host of green measures including installing solar panels for SMEs to acquiring electric vehicles for company fleets for much larger companies,” he explains.
UK pension funds urged to back investment “Big Bang”
Prime Minister Boris Johnson and Chancellor Rishi Sunak have urged UK institutional investors to “seize the moment” and pile cash into domestic assets that will provide long-term income, such as tech start-ups and infrastructure projects. In a letter to asset managers, the pair encouraged them to move funds away from short-term, highly liquid investments, and instead to seek out “British success stories”.
They said: “We need an Investment Big Bang, to unlock the hundreds of billions of pounds sitting in UK institutional investors and use it to drive the UK’s recovery. It’s time we recognised the quality that other countries see in the UK, and back ourselves by investing more money into the companies and infrastructure that will drive growth.”
Traders betting against sterling for the first time since last December
Data from the Commodity Futures Trading Commission show that, in aggregate, bets against the pound now exceed bets on the currency for the first time since the build-up to the pre-Brexit crunch last December.
Kit Juckes, chief foreign exchange strategist at Société Générale, commented: “Vaccine-related optimism has waned over the spring, with lockdown restrictions not being lifted enough to radically change the economic outlook.” He continued: “It seems to me that if we could get the sun back out, and the holidays back on track, there’s room for positions to reflect economic optimism and expectations that the MPC will start to unwind current policies sooner than the [European Central Bank] does.” If that happens, he added, “Sterling has a chance of another sortie into the $1.40s”.
WPP
Advertising giant WPP has returned to 2019 levels a year ahead of plan, reporting a £550m increase in revenues for the first half of 2021 when compared to the same period in 2020. According to WPP, the like-for-like revenue less pass-through costs growth rate of 19.3% that it experienced in the second quarter was its highest on record driven by clients reinvesting in digital media, e-commerce and marketing technology.
Rolls Royce
Rolls Royce has returned to profit in the first six months of 2021, with underlying operating profit of £307m, up from a £1.6m loss in the first half of 2020. Group underlying revenue was down at £5.2bn for the first half of 2021, compared with £5.4bn for the same period the previous year.
Frasers
Formerly known as Sports Direct, Frasers Group reported a fall in profit as revenue was hurt by shuttered stores during the pandemic. Frasers also said it was now in discussions with regards to transitioning the CEO role from Mike Ashley to his future son in law, Michael Murray over the course of FY22, with the latter taking up the role on 1 May 2022
Hammerson
Hammerson swung to half-yearly loss as losses on sale of its properties amid the pandemic weighed on performance.For the six months ended 30 June, pre-tax losses were £20.5 million compared with a profit of £48 million year-on-year as revenue slipped to £11.7 million from £18.2 million.
Law firms brace for tax rises
The Times reports that the Treasury may be dusting off plans to hit large commercial law firms with a 1% levy to help to prop up an ailing legal aid system. The idea was first mooted by Michael Gove in 2016 when he was justice secretary and lord chancellor, and elicited dismay from the City legal profession at the time. Legal expert Dominic Carman commented: “Ultimately, it is a matter of politics and pragmatism. Millionaire lawyers increasing their wealth during a time of widespread hardship while many public sector workers and small businesses continue to struggle does not paint a picture of a country where the Government is actively pursuing a levelling-up agenda.” But Nicola Mackintosh, a solicitor and joint chairwoman of the Legal Aid Practitioners Group, thinks that the idea is “flawed”, arguing that it is the Government’s responsibility to fund a proper system of justice that works when everyone needs it.” Labour peer Baroness Kennedy of The Shaws, QC, also opposes a one-off levy, arguing instead for City law firms to simply “be taxed more.” She adds: “Access to justice is fundamental to the rule of law and should sit alongside the NHS as the measure of British values.”
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