Business news 1 November 2022
James Salmon, Operations Director.
Perfect storm as insolvencies surge. Hospitality businesses reveal collapse concerns. Consumer credit growth climbs to 7.2%. Firms optimistic about exports despite Brexit issues. PM and Chancellor set to hike taxes. And more business news.
Perfect storm as insolvencies surge
41% established small and medium sized businesses expect either insolvency or redundancies within the next 12 months, according to a survey by Allica Bank. These SMEs account for 30% of jobs in the UK.
Rising interest rates, rising inflation, crippling energy costs, rising insolvencies causing bad debts and loss of custom, increasing late payments wary consumers, a coming recession, pay-rise demands and a build up of debt from the pandemic are leading to a perfect storm for small business owners.
Hospitality businesses reveal collapse concerns
More than a third of pubs and restaurants say they fear for their future due to the impact of high inflation. A poll by UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping and Hospitality Ulster saw 35% of hospitality businesses say they expect to be operating at a loss or unviable by the end of the year. The survey shows that 77% are experiencing a decline in customers, while 89% are either not confident or pessimistic that the current levels of Government support will protect the industry in the next six months. Industry leaders have called on ministers to issue further business rates relief and to cut VAT to help boost the sector.
Consumer credit growth climbs to 7.2%
Bank of England data shows that the annual growth rate for consumer credit, which includes borrowing using credit cards, personal loans, overdrafts and car finance, accelerated slightly to 7.2% in September from 7.1% in August. Net unsecured consumer credit rose by £745m, the smallest monthly increase since December 2021.
Ashley Webb of Capital Economics said: “September’s money and credit figures point to further signs that consumers have been become more cautious in response to the weakening economic outlook.” The Bank also revealed that UK households put an extra £8.1bn into banks and building society accounts in September. This compares with a £3.2bn rise in August and also represents the biggest increase since June 2021. It also compares with an average monthly rise of £4.6bn during 2019, the year before the pandemic started.
Martin Beck, chief economic adviser to the EY Item Club, said the data pointed towards “a household sector that is low on confidence and either unable, or unwilling, to borrow more and save less to try to push back against the squeeze on real incomes.”
Firms optimistic about exports despite Brexit issues
UK businesses are optimistic about their future exports, despite trade disruption caused by Brexit. A poll from the Institute of Directors (IoD) shows 42% expect their exports to grow over the next year, with recently agreed free trade agreements (FTA) increasing companies’ confidence. The IoD said that since Brexit, firms have been “looking beyond the EU and finding opportunities as a result of FTA negotiations.” However, the report also found that Brexit has hit export activity at almost half of the businesses quizzed, with higher costs and tighter custom controls seeing a decline in trade with EU countries at 42% of IoD member firms.
PM and Chancellor set to hike taxes
Chancellor Jeremy Hunt is set to announce tax rises in his fiscal statement later this month, with the Treasury saying Mr Hunt and Prime Minister Rishi Sunak have agreed “tough decisions are needed on tax rises as well as spending.” A Treasury source said the PM and Chancellor agreed “on the principle that those with the broadest shoulders should be asked to bear the greatest burden,” while warning that it is “inevitable that everybody would need to contribute more in tax in the years ahead”.
While VAT, National Insurance and income tax hikes are understood to be off the table given previous pledges and Conservative Party manifesto commitments, the Treasury is likely to focus on stealth measures such as freezing income tax thresholds for another two years. Mr Hunt is reportedly looking to implement an equal split of 50% tax rises and 50% spending cuts, which could translate into £25bn in hikes for taxpayers.
Investor confidence in BoE slides
A poll for InvestingReviews shows that a majority of investors do not have confidence in the Bank of England, with almost three in four investors saying the Bank has got its rate-hiking cycle wrong. However, respondents were divided over whether interest rate rises had come too fast or too slow. The poll saw 37% say that monetary tightening had been too fast, while 36% thought the Bank should have acted sooner. The survey saw 44% of respondents say they think inflation will rise to the Bank’s previously forecasted peak of 11% or above. It was also found that 83% believe a recession is on the way, while just 8% say it can be avoided.
Mortgage demand declines as rates rise
Mortgage approvals for house purchases fell to 66,800 in September from 74,400 in August, according to figures from the Bank of England. This has been attributed in part to the impact of rising interest rates and a decline in the number of mortgage products following the Government’s mini-Budget. Alice Haine, personal finance analyst at investment platform Bestinvest, has warned that “mortgage pain is far from over,” adding that those with deals expiring soon will have difficult decisions to make as rates rise, with Moneyfacts analysis showing that the average two-year fixed mortgage rate has risen to almost 6.5% from just over 4% in early September.
Meanwhile Nationwide said UK annual house price growth slowed to 7.2% in October from 9.5% in September. Prices fell 0.9% on a seasonally-adjusted monthly basis, which was the first monthly decline since July of 2021.
Ministers set to have call-in powers over City regulators
The Government is set to push ahead with plans to give ministers the power to overrule decisions made by City regulators, despite Bank of England concerns over the measure. The Treasury has confirmed plans to hand ministers call-in powers which enable them to overturn decisions made by watchdogs like the Financial Conduct Authority (FCA) and Prudential Regulation Authority if it is deemed in the public interest.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.