Business news 1 December 2021
James Salmon, Operations Director.
Business confidence dips in November. Markets & Omnicron. Cost of living crisis could slow the recovery. Services sector sees record cost inflation. And more business news.
Business confidence dips in November
Analysis from Lloyds Bank shows that business confidence dipped by three points to 40% in November, although it remains above the annual average.
Nine out of the 12 UK regions and nations saw confidence decline, with Wales, the South East and East of England the only places to register an increase in confidence. The Lloyds Bank Business Barometer also saw a record 50% of businesses say they plan to raise prices. It was also found that a quarter of firms expect to raise pay by 3% or more over the next 12 months amid staff shortages across multiple sectors, while 48% plan to increase staffing levels over the next 12 months.
Hann-Ju Ho, senior economist at Lloyds Bank Commercial Banking, said that while business confidence “remains robust above the long-term average”, it dipped in November as “economic optimism and trading prospects were affected by the persistence of rising costs and supply chain issues.”
Markets & Omnicron
The FTSE 100 recovered off lows yesterday dipping below the 7000 level but still closed negative. The Dow and the S&P500 also slipped after a warning from vaccine maker Moderna’s chief executive on the effectiveness of Covid-19 shots against the Omicron variant hammered travel, energy and banking shares. Global equity markets tumbled as Moderna CEO Stéphane Bancel also told the Financial Times that it was likely the current crop of vaccines would need to be modified. Oil Prices tumbled nearly 5% while Gold Prices climbed higher as investors sought safe havens. Overnight, the DOW dropped -1.86%, the S&P 500 dropped -1.90% and the NASDAQ dropped -1.55%
Ugur Sahin, the boss of BioNTech (who developed with Pfizer the first vaccine) , said in an interview with The Economist that his firm would examine the new variant for two weeks before deciding whether it requires a new vaccine.
All the while, new cases of Omnicron are being reported in more and more countries around the world.
Meanwhile, the South African doctor who helped identify the omicron variant warned that it’s still too early to write off new cases as ‘mild’ as symptoms may worsen in the second week and Omicron hasn’t yet reached a large enough sample of people.
PwC: Cost of living crisis could slow the recovery
Research from PwC suggests the economy will be hit by a triple whammy of a climbing cost of living, higher interest rates and the end of pandemic-related support from the government, with weaker household spending likely to slow the recovery. PwC economist Hoa Duong warned that those living on tight budgets “will feel the pinch from a combination of rising inflation, higher interest rates, and fiscal changes”, going on to note the impact of an impending 1.25 percentage point national insurance increase.
The analysis says more affluent households will be able to shake off the impact of rising prices, with an increase in spending “likely be concentrated on higher income households”. While the Office for National Statistics estimates prices are 4.2% higher than they were a year ago, PwC expects the rate to increase, saying: “The rise in the energy price cap and the reversal of the VAT cuts for hospitality and tourism create a perfect storm that is set to push headline inflation rates to around 5% and 6%”.
CBI: Services sector sees record cost inflation
Confederation of British Industry (CBI) figures show that costs in the services sector are rising at the fastest rate in over 20 years, with quarterly analysis showing the quickest growth in costs for both business and consumer services companies since the survey began in 1998. While average selling prices are expected to rise by a record amount, profit growth for services firms is expected to stall over the coming three months due to the rise in costs. While sentiment in the sector was up in the three months to November, it climbed at a slower pace than the preceding quarter. Business volumes continued to grow at a strong pace, however, there were signs of slowing growth, with firms expecting volume growth to ease in the next quarter. The CBI report also highlights the fastest rate of hiring by business and professional services companies since 2015. CBI economist Charlotte Dendy commented: “Record growth in costs is threatening to put a winter freeze on the service sector recovery next quarter.”
Treasury targets umbrella companies over lost tax revenue
The Treasury is preparing to take action against umbrella firms used by freelance workers as it looks to claw back lost tax revenue. Umbrella companies act as a middle man between recruitment agencies or clients and temporary staff, dealing with payroll issues and often helping reduce tax bills. There are concerns that many of these businesses abuse their position, benefiting from spurious charges. The Treasury said it is “prepared to intervene where there is evidence of poor compliance with employment rights and tax obligations”. Chris Sanger, head of tax at EY, said umbrella companies have “clearly caught the Treasury’s attention”.
Nationwide house prices
UK House Prices jumped 10% in a year amid a bouyant market. Annual house price growth hit 10% in November according to an index. The average UK house cost 0.9 per cent more on average in November than it did the month before whilst year on year growth soared to 10 per cent. Buyers dished out an average of £252,687 to snap up a new home according to data from Nationwide, which publishes a monthly house price index.
Leading firms hand over half of their income in taxes
FTSE 100 companies are handing over half of the money they generate to the tax office, according to analysis by PwC. The UK’s leading businesses saw 53.2% of their income paid out in taxes last year, with a pound in every £10 collected in taxes sourced from the largest companies. On average, FTSE 100 companies and other large businesses saw 53.9% of their profits taken away from them through taxes – the highest rate since the 64% seen during the financial crisis. With the tax burden climbing due to measures set out in this year’s spring and autumn Budgets, experts have warned that officials must tread carefully in asking businesses to foot a high tax bill to help repair public finances that have been hit by the pandemic. Andrew Packman, a tax partner at PwC, said: “The goal will be balancing the need of closing the government spending deficit created by the Covid-19 crisis while ensuring businesses continue to invest and evolve to sustain economic growth.”
Diversity policies increasingly important for workers
Paul Farrer, chairman of recruitment firm Aspire, says a company’s approach to diversity and inclusion is increasingly proving to be the difference between someone accepting or rejecting a job – or leaving their current role. “When so many organisations are struggling to recruit people to plug skills gaps as they look to recover from the pandemic, employers simply can’t afford to overlook this fundamentally important aspect of a job,” he warned. This comes as a poll from Aspire found that for UK staff, it is either extremely important (39%) or very important (35%) that an organisation has a diversity and inclusion policy in place. The survey saw 56% of respondents say their employer has such a policy in place.
HMRC blocked just £28m in suspect claims to UK’s Covid furlough scheme
HMRC blocked 3,578 claims through the furlough scheme in the financial year to the end of March, with these worth £28.5m. In the same period, it paid out £61bn through the scheme.
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