Business news 4 March 2024
Banks shortchanging small businesses. Regional growth gap set to widen. Poor labour force participation. Asset Finance, Consumer credit, retailers, manufacturing, 5G, trade volumes & more business news that we thought would interest our members.
James Salmon, Operations Director.
Banks shortchanging small businesses
Big banks are facing pressure to improve the interest rates they offer to small businesses, as MPs are urged to take action against the practice of shortchanging SMEs. Allica Bank estimates that small and medium-sized enterprises are missing out on over £7.5bn annually due to a “savings penalty” and the lack of interest earned on deposits in zero-interest current accounts. Richard Davies, CEO of Allica, has written to the Commons Treasury committee calling for reform. The Institute of Directors and the Federation of Small Businesses are supporting Allica’s campaign.
UK’s regional growth gap set to widen
An EY report predicts stronger economic growth in London and the wider south-east of England over the next three years compared to the rest of the country. The report forecasts that overall economic growth across the UK will average 1.9% a year between 2024 and 2027, with London and the south-east growing by 2% and 2.1% respectively. Despite government promises of levelling up, the report highlights a worsening regional growth gap. Rohan Malik, UK and Ireland managing partner for government and infrastructure at EY, stated that the benefits of economic growth will not be felt equally across the country. The report also warns that a lack of targeted regional support and concentration of high-value economic activities in certain areas will exacerbate regional divisions.
Poor labour force participation holds the UK back
UK’s labour force participation rate remains below pre-Covid levels, lagging behind other G7 economies, writes Andrew Saunders in the Times. The country’s poor workforce participation is attributed to a surge in people leaving the workforce due to long-term health problems and growing waiting lists for NHS treatments. “In the UK, the generally [poor] state of the health service means that people with long-term health conditions are not getting the care they need to get back into work,” says Andrew Sentance, economist and former member of the Bank of England’s Monetary Policy Committee. “There is a lack of joined-up policy in this area.” Prior to 2019, labour force participation in the UK had been on a broadly upward trajectory since the 1990s. Now, however, there are 9.3m economically inactive people in the UK, 700,000 more than on the eve of the pandemic. James Bethell, former health minister and chairman of Business for Health, says a more holistic approach to preventative health and data sharing between public and private sectors is needed to tackle the root causes of illness and improve workforce health.
Asset finance reaches record high of £23.5bn in 2023
The British Business Bank’s Small Business Finance Markets 2023/24 report reveals that asset finance has grown for the third consecutive year, reaching a record high of £23.5bn in 2023. Smaller businesses have increasingly turned to external finance, with a rise from 41% to 50% in the use of finance over the year. Working capital was the main reason for seeking finance, and the report shows a decline in bank lending to smaller businesses. Challenger and specialist banks now account for a higher share of lending than the big five banks. Equity investment in smaller businesses has declined to 2020 levels, with a sharp drop in growth-stage investment. The report also highlights the increasing use of digital technology and AI in accessing finance, as well as the role of finance markets in the transition to net zero.
Spike in consumer credit signals revival in spending
Figures published by the Bank of England show consumer credit rose more than expected to £1.9bn in January, up from £1.3bn in the previous month, adding to signs of a revival in spending.
Retailers face longest sales slump since pandemic
Retailers are experiencing the longest sales slump since the pandemic began, with sales across fashion, homewares, and lifestyle dipping by 1.3% in February, according to new figures from BDO. The fashion sector was hit the hardest, with an 8.2% drop in sales compared to last year. This marks the fifth consecutive month of declining retail sales, which BDO described as an “almost unprecedented” downturn. Despite a 2.9% increase in online sales, a 2% drop in in-store sales has resulted in the overall performance of the retail sector being in negative territory. Retailers are facing challenges from rising operational and borrowing costs, with more than half of those polled by BDO citing this as their main challenge over the next six months.
Consumer groups look for ways to revive growth as price rises ease
The biggest companies in the consumer products sector are looking to boost growth through better advertising and a return to dealmaking as shoppers start to resist further price increases.
Sharp fall in trade volumes blamed on Brexit’s impact
According to analysis of ONS data by the FT, Brexit caused the steepest five-year decline in UK goods trade since 1997, with imports and exports down 7.4% in 2023.
Manufacturers struggle as Red Sea crisis hits production
The Red Sea crisis has troubled UK manufacturers as factory production fell for the 12th consecutive month, according to the S&P Global/CIPS UK manufacturing PMI survey. The score increased to 47.5 in February from 47 in January, but remained below the 50 threshold, indicating contraction. The disruption in the Red Sea, caused by attacks on international container ships by Iran-backed Houthi rebels, led to rerouted shipping, longer delivery times, and increased shipping costs. Manufacturers faced the choice of accepting delays or paying higher prices to source from closer to home. The survey also highlighted cost-cutting measures, with staffing levels falling for the 17th month in a row.
Slow 5G rollout costing UK small businesses £8.6bn a year
Small businesses in the UK are missing out on £8.6bn annually due to the slow rollout of the 5G mobile network. Experts are concerned that this could cause the UK to fall behind other European countries, such as Sweden, Finland, Denmark, and The Netherlands, in terms of being an attractive location for starting a business. A report commissioned by Vodafone Business suggests that upgrading the country’s 4G and 5G network to 5G Standalone could result in productivity savings of £8.6bn for the 5.6m small and medium-sized businesses in the UK.
Hunt promises a prudent Budget
Jeremy Hunt told media on Sunday that he wanted to be prudent in his upcoming Budget. Making the media rounds, the Chancellor said he admired Nigel Lawson’s Budget in 1988, explaining that it was significant because “those tax cuts were permanent and people need to know that these are tax cuts we can really afford.” Hunt went on to explain that more money would be needed for defence, but stressed that extra spending on the military first needed to be underpinned by a strong economy. “Every decision that I take will be a prudent and responsible long-term decision,” Hunt promised. As well as considering the abolition on non-dom rules, Mr Hunt’s list of potential revenue raisers includes an increase in air passenger duty for business travel, an extension of the windfall levy on oil and gas producers, a tax on vapes and abolishing the furnished holiday let regime. Meanwhile, senior Tories have expressed their disappointment in Hunt, making clear he should be increasing the number of people who have got income and wealth, not inventing new taxes.
Tax cuts will benefit rich more, think tanks warn
Thousands of families may fall into poverty if the Chancellor cuts national insurance in the spring Budget, according to think tanks. Jeremy Hunt is expected to announce tax cuts in a last-ditch effort to win back voters. However, two think tanks have warned against further reductions, stating that poorer households would benefit little while experiencing a sharp drop in services. The Institute for Public Policy Research (IPPR) estimates that a 2p cut in national insurance would cost the government £10.4bn, with almost half of that benefiting the richest 20% of households. The New Economics Foundation (NEF) cautions that even a 1p tax cut would cost £4.8bn, with almost half going to the richest households. The NEF also warns that this cut would push 55,000 more people into relative poverty.
House prices rise for first time in 12 months
Buyers are returning to the housing market as lower mortgage rates tempt them back, according to the latest monthly reading from the Nationwide. The average house price in the UK has risen annually for the first time in over a year, reaching £260,420. This is 1.2% above where it was this time a year ago. Nationwide said that after having risen 0.7% in January prices increased by the same amount again last month. The building society’s UK chief economist, Robert Gardner, said: “The decline in borrowing costs around the turn of the year appears to have prompted an uptick in the housing market.” However, he cautioned that “near-term prospects [for the housing market] remain highly uncertain”.
The Body Shop to close 75 stores and cut 500 jobs
Nearly 500 staff will be made redundant as The Body Shop collapses into administration. The company plans to shut down 75 stores, including its flagship store on Regent Street, London. The closures will result in 489 job cuts over the next few weeks. The administrator, FRP, has already closed seven sites and plans to close more in the coming weeks. The closures mainly affect town and city centres, including High Wycombe, Wolverhampton, and Bolton. The joint administrator, Tony Wright, aims to stabilise the business and ensure its long-term sustainability. The taxpayer may be responsible for The Body Shop’s redundancy bill. Workers who have been with the company for at least two years can claim redundancy pay through the Government-backed service. The Body Shop and FRP are exploring all options to move the business forward.
Public sector pay demands could put services at risk
The Treasury has warned that further large pay rises for public sector staff this year are unaffordable and would put the delivery of frontline services in jeopardy. Two years of “above affordability” pay awards had already eaten into departmental budgets, the Treasury said in a submission to pay review bodies. Millions of public sector workers were handed a pay rise of at least 6% last year, but this has meant more than half of all day-to-day spending is for civil service and other public sector worker pay.
Oil Cuts
OPEC+ extended its oil supply cut of 2 million barrels a day to the middle of the year as surpluses rose and the oil price came under pressure.
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Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the debt value maybe!
Just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!
If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?
CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.
Once you have enjoyed that success then you can consider the more cost effective membership which includes our Overdue Account Recovery service and Status/Credit reports as well as a range of other complimentary services.
Just call 020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
CPA (LPC) Recoveries is using our bespoke software and decades of experience to do just that for our clients
Check our compensation calculator to see how much your business could be owed!
Discover NOW the potential value of late payment compensation hidden in your sales ledger!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.