Business news 3 January 2023
James Salmon, Operations Director.
2023 set to be ‘year of recession’. UK faces worst and longest in G7. Small firms run down their savings to stay afloat. 8m UK adults are ‘financially fragile’. 43% of households are using savings to pay bills . And more business news.
2023 set to be ‘year of recession’
With 2022 seeing inflation hit a 41-year high of 11.1%, the Bank of England lifting interest rates to a 14-year high of 3.5% and GDP dipping by 0.3% in Q3, Samuel Tombs at Pantheon Macroeconomics is forecasting 2023 to be the “year of the recession.” He believes GDP is likely to fall by 1.5% year-on-year in 2023, with no sign of a recovery until early 2024. Mr Tombs expects the Bank’s Monetary Policy Committee to raise the Bank Rate to 4% in February and not reduce it until early 2024.
Martin Beck at the EY Item Club believes households still have some savings built up during the pandemic that they can dip into, saying: “Consumer spending is therefore unlikely to fall to the same extent as real incomes. And falling inflation over the course of next year offers hope of a return to growth later in 2023.”
UK faces worst and longest recession in G7, say economists
The UK is set to face one of the worst recessions and have one of the weakest recoveries in the entire G7 this year, according to the FT’s annual poll of leading UK-based economists. The news comes as the International Monetary Fund warns that a third of the world economy will be in recession this year, with the US, EU and China all expected to experience slowdowns.
Small firms run down their savings to stay afloat
A survey by Investec has found nearly two thirds of small and medium-sized businesses were forced to dip into their savings at the end of last year due to rising costs. Some 43% expect to run down their savings over the next six months, while 4% said their savings will be wiped out, the study reveals. Samantha Booysen, at Investec, said this implied hundreds of thousands of companies will find themselves unable to borrow their way out of trouble, forcing some into administration. The survey follows a warning from the Federation of Small Businesses last week, which said small firms were struggling to get access to funding, with fewer options and higher interest rates. Martin McTague, chairman of the FSB, said: “Many small firms now are in a highly precarious position.”
8m UK adults are ‘financially fragile’
Analysis by PwC shows that more than 8m adults in the UK are “financially fragile” and at risk of being over-stretched due to record levels of unsecured debt and rising interest rates.
The study shows that 8.9m adults may need to use their overdraft to cover everyday spending and essentials. The report adds that these individuals may also struggle to keep up with repayments on their borrowing in 2023.
The study estimates that unsecured debt currently stands at more than £400bn. This equates to a record high of £16,200 per UK household. PwC also estimates that more than 20m people are being “under-served” by UK banks, meaning at least one in three adults may have difficulty accessing credit from mainstream lenders.
Isabelle Jenkins, leader of financial services at PwC, said: “The results are startling and it’s clear that for UK households struggling with post-Christmas debt, the outlook may feel challenging.”
43% of households are using savings to pay bills
Two-thirds of UK consumers are planning to cut their discretionary spending in 2023, according to KPMG, with a poll showing that just 4% will be able to increase their non-essential spending levels in the coming year. The survey shows that one in 10 respondents have no savings, while 43% of those who do have savings are using them to help meet essential costs. One in 10 consumers are concerned about energy costs once the Government reduces the amount of support available to families by increasing the cap on average bills in April.
Linda Ellett, UK head of consumer markets, retail and leisure at KPMG, said: “Current essential costs, fears of how high they’ll rise – including concerns about mortgage rate and energy price changes next year – are all factors in why two-thirds of consumers that we surveyed said they have to reduce their non-essential spending in 2023.”
Card spending up by 10.6% in 2022
Consumer card spending grew by 10.6% in 2022, according to data from Barclaycard, with the amount spent on debit and credit cards climbing year-on-year as people returned to shopping in-store, eating and drinking out, and booking holidays. Spending on essential items grew by 6.3% – thanks to a 28.3% rise in fuel outlay that was driven by surging petrol and diesel prices and increased car use, post-pandemic. Spending on utilities grew by 32.9% over the year as the cost of energy soared.
Meanwhile, the Barclaycard report also shows that retail spending dropped 0.8% over the last year. While high street retailers received a welcome boost, with sales increasing by 8.3%, there was a 12.2% fall in online shopping spending. With food price increases continuing to climb through 2022, there was a 0.1% reduction in grocery spending. DIY retailers saw a 5.5% drop in the value of consumer spending, while sales volumes dropped 7.5%. Electronics sales were down 7.2% in 2022 and furniture stores saw revenue slip by 3.2% compared to 2021.
Over 6m households faced hardship even before energy bill spike
Labour analysis of Bank of England data suggests that 28% of households in England experienced financial hardship over the past year – even before energy prices were hiked in October. A total of 6.7m households reported being in financial difficulty in 12 months up to the end of September. More than one in 10 households were already falling behind on bills before energy prices increased to an average of £2,100. The South East was the worst hit region of England, with 1.5m households (39%) reporting financial difficulty, followed by 1m in the North West (31%).
Shadow Chancellor Rachel Reeves said: “The cost-of-living crisis has been biting for far too long,” adding that the Conservative Government has refused to “come forward with long term plans for our economy” and “made it worse and left working people paying the price.”
Homeowners face £3k rise in mortgage payments
A report by the Resolution Foundation think-tank shows that the 2m homeowners refixing their mortgages next year face the highest interest rates since 2008, with repayments seeing an average annual increase of £3,000. An average fixed-rate repayment will increase from £750 a month to £1,000. About 1m households on floating-rate mortgages will be exposed to rising interest rates, with investors expecting the Bank of England to raise borrowing costs above 4% by the spring. Resolution Foundation chief executive Torsten Bell has warned that millions of homeowners will suffer “four-digit increases in their mortgage bills.”
UK banks to ease pressure on mortgage holders as late payments set to surge
Some of Britain’s biggest banks have agreed measures with the Government that will help struggling homeowners with their mortgage payments and avoid a wave of repossessions when fixed-rate deals expire.
Nearly 50 shops shut down a day in 2022
Research by the Centre for Retail Research found that more than 17,000 shops closed last year, the highest total in five years. The CRR said 11,636 closures were due to rationalisation programmes by large retailers or independents simply shutting up shop for good, while 5,509 were due to some form of insolvency proceedings. The closures resulted in over 151,000 retail jobs being lost in the UK last year – an increase of more than 45,000 on the year before. Real estate adviser Altus Group said retailers and landlords would have to pay close to £1.1bn from April 1 to cover the business rates on sites that have been empty for three months. Robert Hayton, UK president at Altus Group, said: “Rate-free periods need to be urgently extended to reflect the time that it actually takes to re-let vacant properties.”
Small businesses report difficulties securing affordable loans
The Federation of Small Businesses says SMEs are increasingly struggling to secure affordable bank loans, with fewer than half of applications successful in Q3, compared with nearly two-thirds before the pandemic.
Energy bill support for businesses to halve
The Times reports that the Government is set to halve financial support on energy bills for businesses, amid concerns about the cost. A six-month package of support for businesses was announced in October that capped wholesale energy prices on electricity and gas. That is expected to cost £18bn by the time it ends on March 20. A 12-month extension will be announced in January, but with the level of support more than halved.
Joules creditors £100m out of pocket
Fashion chain Joules left creditors more than £100m out of pocket when it collapsed, with the firm owing £136m to employees, gift card holders, the taxman and other creditors. It held just £22m worth of assets when it appointed administrators from Interpath Advisory, having been unable to repay a bank loan. This was distributed to preferred creditors including HMRC. Among those who did not see what they were owed were Deloitte, which is owed £300,000. Joules was bought out of administration by Next and founder Tom Joule in a £34m deal, saving 1,450 jobs and 100 stores.
2022 sees the pound record its worst drop since the Brexit vote
The pound is on course to end the year having suffered its worst annual decline since 2016 – the year of the Brexit referendum. Sterling has dropped by more than 10% against the dollar this year, although it has rebounded to $1.20 after falling to a record low of $1.03 after the mini-Budget in September. Chris Turner, global head of markets for ING, said the pound would be the “most vulnerable” of the leading currencies next year. He added: “The Bank of England is closer to ending its tightening cycle than the Fed and the UK’s large current account deficit leaves sterling vulnerable in a global slowdown.” Kenneth Broux, strategist at Société Générale, said: “The reality is that sterling is probably overcooked after the stellar recovery from the 40-year low in September.”
Retailers rethink returns
Several retailers have changed their returns policies to include charges, with some no longer offering free returns and others adding a charge for those seeking items more quickly. Nick Carroll, Mintel’s associate director of retail research, said a shift toward charges on returns “started pre-pandemic and it will continue, as online shopping continues to grow.” Clothing companies are the most likely to utilise the policy due to a surge in returns following the growth of online sales. KPMG estimates that by 2020, up to half of clothing bought online from some retailers was being returned – with this costing businesses around £7bn every year. Stores are expected to see more pressure over returns this year owing to shipping delays following postal strikes.
Tax raid to drive squeeze on real incomes
Analysts have warned that a tax raid by the Chancellor will trigger an income squeeze and exacerbate the cost-of-living crisis. The Resolution Foundation think-tank says households will see a 3.8% decline in real disposable incomes in 2023 because of rising taxes, interest rates and energy bills. This equates to an £880 drop in earnings – the steepest fall for a century. Real disposable incomes fell by 3.3% this year, equivalent to £800 per household. The Resolution Foundation says typical middle-class households will pay £1,000 more in tax, while the Government’s energy bill support scheme will become less generous, driving up costs. Torsten Bell, chief executive of the Resolution Foundation, warned that for living standards “things will get far worse in 2023 before they start to get better.” He added that while 2023 “should see the back of double-digit inflation … it looks set to be a groundhog year for many families whose incomes look set to fall by just as much as they did in 2022.”
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.