The Country is sad but business is bullish – business news 12 July 2021.
James Salmon, Operations Director.
On the day following the Euro final the nation is sad but business is bullish. Confidence grows among SMEs, CFOs bullish, ready for investment, Business confidence at highest level since 2005, exports to EU climb and more news.
Confidence grows among SMEs
A survey by Hitachi Capital Business Finance has found that more small companies are becoming confident about their prospects, with the proportion predicting contraction or worse falling from 31% to 8%.
Hitachi said 29% of SMEs are now predicting organic growth, compared to just 10% at the start of the pandemic, while 6% believe they will expand significantly, versus 4% in April last year.
Hitachi Capital head of insight Joanna Morris said: “England’s run in Euro 2020, together with confirmation that Covid restrictions will end, are ushering in a new era of confidence and hope, after a prolonged period of anxiety and fear. Nationally, there is a solid basis to believe that the resurgent confidence we saw last quarter will be sustained, which is really welcome news for small business sectors that have had a torrid time during lockdown.”
CFOs bullish, ready for investment
Deloitte’s latest CFO survey found more than half of UK finance chiefs have seen a full recovery in demand – or expect to by the end of the year – while more than three quarters now expect rises in capital expenditure.
A takeover is a top priority for nearly one in three – the highest level for 11 years, and 76% expect to see increases in hiring over the year ahead. Just over a fifth said increases in capital expenditure over the next 12 months will be a priority and 41% said introducing new products and services or moving into fresh markets is a key goal.
Deloitte chief executive Richard Houston said: “We’ve seen a huge shift from the uncertainty caused by the pandemic to an appetite for acquisitions, investment and hiring. With the majority of finance leaders expecting a return to at least pre-pandemic levels of demand, the focus is now on innovating and creating new products and services.”
Business confidence at highest level since 2005
The latest business trends report from BDO shows business confidence in the UK has surged to its highest level since 2005 as companies look ahead to the final lifting of lockdown restrictions later this month. The rise was driven primarily by the manufacturing optimism index, reflecting growing global economic confidence as the easing of lockdown measures and rollout of vaccines begins to pay off.
The rise in the services optimism index was more muted, largely because businesses such as restaurants, cinemas and the wider hospitality industry have seen little change over the last month in terms of lockdown restrictions.
The BDO employment index also increased for the second consecutive month in June while the inflation index reached a four-year high in June.
Kaley Crossthwaite, partner at BDO, commented: “While businesses are feeling optimistic, rising inflation may be a sting in the tail. The hope is that factors pushing up inflation – shortages caused by supply chain disruption and increased demand caused by the lifting of lockdown restrictions – are short term. However, businesses should keep a close eye on this in case it becomes a longer-term prognosis.”
Concern over zombie firms rises
Business failures in Scotland could start to rise in the months ahead as government support measures start to unwind, insolvency expert Blair Nimmo has warned. Nimmo, who is chief executive of Interpath Advisory – formerly KPMG Restructuring – said while insolvencies are being suppressed artificially thanks to the raft of support measures available, he stressed there are “lots of good businesses out there whose balance sheets are broken solely due to the impact of the pandemic”. “It is only right they continue to be given the time and the support to be able to build their way back out of the crisis,” he said.
UK’s economic recovery slows in May
The UK’s economy expanded by 0.8% in May as coronavirus restrictions eased to bring a rebound in the hospitality sector. However, this is a slowdown on the 5% growth seen in April and well short of the 1.7% forecast, the Office for National Statistics said, with the economy still 3.1% below pre-pandemic levels.
Manufacturing and construction both dropped with widespread reports of disruption to supply chains, partially offsetting the rise in services output.
“Of course, the pace of the recovery was always going to slow as the economy climbed back towards its pre-crisis level. But we hadn’t expected it to slow so much so soon,” said Paul Dales, an economist with Capital Economics. Yael Selfin, economist at KPMG, commented: “We still expect the economy to run hot over the coming months, with pent-up demand fuelling many industries. However, bottlenecks are already starting to emerge across various sectors – from labour shortages to supply chain pressures – as a result of the speed with which many are keen to reopen.”
UK exports to EU climb sharply
Figures from the Office of National Statistics show UK exports to the EU jumped 8% in May, an increase of £1bn over the last month. The rebound was driven by strong demand from European countries as economies across the bloc reopened and stocks built up in the run up to the end of the post-Brexit transition period were depleted. Monthly goods imports from non-EU countries were higher than from the EU for the fifth consecutive month – in the three months to May 2021, the trade deficit narrowed by £2.2bn to £3.5bn.
Service sector’s future unclear as recovery unfolds
Financial services sector is bouncing, having added two percentage points to its pre-pandemic growth level. Beyond banks and insurers, estate agents are also proving resilient, as are transport and IT. But office services have languished as have hotels and entertainment businesses.
Martin Beck, senior economic adviser to the EY Item Club, said: “There are corners of the services sector that are still pretty depressed and hopefully they are going to spend the next few months making a powerful recovery.” But the spread of the Delta variant “makes it more difficult to predict the pace of the recovery, especially if some people become wary of socialising and hold back their spending.”
Jonathan Gillham, chief economist at the consultancy PwC, believes the shifting sands of the recovery, with many industries losing ground as others are waking up, suggest “continued consumer caution”. “Businesses, despite having adapted amazingly well to lockdown conditions in the first quarter, may struggle to fully return capacity to pre-Covid levels,” he said.
Landlords report shortfalls from retail and leisure tenants
Commercial landlords Land Securities and Derwent London have reported a rise in rent collection for the latest quarter, but revealed heavy shortfalls in collection rates from retail and leisure tenants. Elsewhere, the FT reports on how commercial property investors are shifting out of retail and offices in favour of warehouses, rental flats and student housing and life sciences campuses.
Travel for the vaccinated
Easyjet jumped on Friday after the UK government once again changed tack, saying that double jabbed UK holidaymakers visiting ‘amber’ countries will not be required to self isolate for 10 days on their return to England
Rishi Sunak urges workers to get back to the office
The Chancellor has signalled his support for workers to return to the office after “work from home” guidance is lifted on July 19th saying it was particularly important for young people to be in the workplace learning from others. While making his own views about the benefits of the workplace known, he said: “Ultimately I trust people and businesses to make decisions for themselves.”
Four London boroughs highly dependent upon furlough
Four London boroughs feature in the top five areas in the UK that are most reliant on furlough. The London borough of Newham has 18% of its working population on furlough and is second out of 369 ranked county or district authorities in the UK. South Lakeland is top with 19%. Haringey, Brent, and Hounslow are joint third with 17% of their respective working populations furloughed. Across London an average of 14% of the workforce in on furlough compared with 12% nationwide, the study shows.
Martin Jones, Partner at UHY Hacker Young warned: “Younger and lower-income people in London have already been hit hardest by the economic effects of the pandemic. That’s only going to get worse when we hit the furlough cliff-edge.” He added: “The Government may even need to extend the furlough scheme deadline until the end of the year in order to protect the hundreds and thousands of jobs on the line.”
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