Business news 2 September 2022
James Salmon, Operations Director.
Sales slide 10% for small firms. Chancellor plans tax breaks for struggling firms. Truss plans to slash business rates. High inflation bad for productivity. Manufacturing PMI shows contraction. And more business news.
Sales slide 10% for small firms
Small businesses have seen sales plunge by a tenth, according to figures from the Office for National Statistics. The analysis shows that sales values slid by 10% at small firms in July compared with the previous month. This is the steepest decline since the onset of the pandemic in April 2020. This comes as consumers’ face increasing pressure on budgets amid the cost of living crisis and surging energy bills
Chancellor plans tax breaks for struggling firms
Chancellor Nadhim Zahawi has drawn up plans for tax cuts to help businesses facing bankruptcy due to soaring energy costs. He said ministers could introduce targeted reductions in VAT and business rates to help the retail and hospitality sectors, while suggesting energy-intensive industries could also be in line for tax breaks. Mr Zahawi said the Government could learn lessons from the pandemic, where firms were offered support through a number of measures and initiatives. He also warned that failing to act could force many companies into bankruptcy and lead to economic “scarring”. While he is not expected to remain as Chancellor once a new Tory leader is elected next week, Mr Zahawi is understood to have discussed his plans with frontrunner Liz Truss. He insists that it is vital that the next Chancellor should help businesses, commenting: “If we don’t support businesses I worry about the longer-term scarring of the economy … We have to make sure we support businesses as well as households.”
Truss plans to slash business rates
Liz Truss plans to cut business rates in a bid to ease the pressure surging energy prices are putting on firms if elected Prime Minister. The Conservative leadership frontrunner’s team has been discussing the proposals with industry lobbyists, with Chancellor Nadhim Zahawi having also met with representatives from industry groups. It is thought the Government could extend business rates relief from premises with a rateable value of £15,000 to those valued at £25,000, sparing a far greater number of businesses from the tax. Craig Beaumont of the Federation of Small Businesses said: “We are increasingly confident that business rates are on Liz Truss’ radar.” He added: “We like that she’s talked about small businesses and self-employed individuals, and the decisions on National Insurance contributions.”
High inflation bad for productivity, warns BoE policymaker
High inflation risks distracting businesses from issues needed to boost productivity, Bank of England policymaker Catherine Mann has warned. Speaking on a Productivity Institute podcast, she told academics that very high inflation “has many downside consequences.” “In a high-inflation environment, firms are scrambling to figure out what their best pricing strategy is. Productivity, on the other hand, comes when firms are focusing their attention on their products, their people, their investment choices and their global and domestic market opportunities,” she added.
Manufacturing PMI shows contraction in August
British manufacturing production and new orders collapsed in August, according to the S&P Global/CIPS UK Manufacturing PMI, with output seeing its largest contraction since May 2020. The PMI dropped to 47.3 from 52.1 in July on an index where numbers above 50 represent growth and anything lower points to a contraction. S&P Global says companies experienced a steep downturn in new orders in August, with interest from domestic and overseas clients falling heavily. This saw a decline in new jobs and a drop in business optimism.
Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, says August’s PMI data “suggests that a recession is developing in the manufacturing sector.” Rebecca Shalom, head of UK manufacturing at KPMG, commented: “Faced with a multitude of cost pressures alongside rising inflation, manufacturers are increasingly searching for efficiencies or delaying investments. Some, particularly those who are energy-intensive, will be increasingly concerned about how long they can withstand these pressures.”
Union urges new PM to increase taxes on the rich
Public sector union Unison has called on the next Prime Minister to increase taxation of the rich, saying this would provide funding to support those being hardest hit by the cost of living crisis. Unison general secretary Christina McAnea said many public sector workers will “never recover” unless the Government delivers greater support. The union is campaigning for pay rises in line with inflation – currently running at 10.1% – as well as a £15-an-hour minimum wage. The union has polled 3,000 voters and 54% backed the union’s proposal for a 1% annual wealth tax on assets worth over £5m, including property, to help foot the bill for additional support measures. In its Together We Rise report, Unison includes independent economic analysis showing that the proposed tax would raise £10.1bn a year. A further £1.65bn would be raised through a 1p hike in the higher and additional rates of income tax, with £8bn coming by increasing capital gains tax rates to match income tax.
Markets
Markets fell sharply yesterday on risk aversion. with UK listed stocks falling with the FTSE100 down around 2% and the 250 3%. mining shares were the worst performers. Oil fell almost 2%. Gold fell below $1700 for the first time in 6 weeks. Overnight, DOW rose 0.46%. S&P 500 rose 0.30%. NASDAQ dropped -0.26%. Focus now turns to US non-farm payrolls report.
Sterling’s slump against the dollar the biggest since 2016
Sterling has suffered its biggest monthly fall against the dollar since October 2016, having fallen by 4.6% in August. The pound fell further on the first day of September, trading down 0.5% at $1.1564. It has lost over 14% against the dollar so far this year. August also saw sterling suffer its worst month against the euro since May 2021.
Viraj Patel, global macro strategist at Vanda Research, said: “It seems like a bit of a perfect storm now for the pound.” Michael Hewson, chief markets analyst at CMC Markets, suggests that this is “not just sterling weakness – it’s a dollar strength story.” He added: “Sterling has its problems, but they are not unique to it – high inflation, surging energy prices and falling disposable incomes.”
Civil unrest index
101 of 198 countries tracked showed mounting risk in the third quarter of this year as rocketing inflation and shortages affected people across the globe. It is the biggest increase since the ranking was developed. Unrest is rising across Europe which is braced for a difficult and cold winter with energy disruption and spiking food prices.
Nuclear
Boris Johnson promised £700 million of funding for the Sizewell C nuclear power project as part of a drive to improve the UK’s energy security. The Prime Minister said the spike in gas prices driven by Vladimir Putin’s invasion of Ukraine showed why new nuclear generation capacity was needed in the UK.
Ryanair
Ryanair said passenger numbers in August were up 52% on a year before, rising to 16.9 million from 11.1 million. Load factor also showed a significant improvement, growing to 96% from 82%. August’s traffic figure was slightly higher than the July number of 16.8 million
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