Business news 4 July 2022
James Salmon, Operations Director.
Majority of firms vow to put up prices. High street bosses warn independent firms could collapse. Manufacturing growth slows in June. Food price rises to get worse before they get better. PM’s wage-price spiral warning ‘a myth’. And more business news.
Majority of firms vow to put up prices
A record number of businesses intend to pass on rising costs to their customers, according to a British Chambers of Commerce (BCC) survey. A quarterly analysis of 5,700 companies shows that two-thirds expect their prices to rise in the next three months, with more than four out of five citing inflation as a big concern. The number of businesses expecting to increase their turnover in the next year is at its lowest level since the lockdown at the end of 2020, falling from 63% to 54%. BCC director general Shevaun Haviland said: “A cut in VAT on energy bills to 5%, and other steps to relieve the tax burden on firms to encourage investment, are crucial.” She also called for better infrastructure, a plan to address labour shortages and a “unified long-term economic strategy” to give businesses more certainty.
High street bosses warn independent firms could collapse
High street bosses have warned that 10,000 of the 100,000 independent retailers in the UK are at risk of collapse amid the worsening cost-of-living crisis, while consumer confidence levels reach record lows. In addition, a further 10,000 of the UK’s 140,000 hospitality businesses are also at risk of going bust. British Independent Retailers Association CEO Andrew Goodacre said: “The cost-of-living crisis is really biting across the board and there is no doubt people’s behaviour is changing. They are changing what they are buying and the frequency of buying.” He has also criticised a leaked Government plan which will call on business leaders to reduce spending on marketing and cut prices for consumers in order to help curb inflation.
Manufacturing growth slows in June
Britain’s manufacturing sector saw a slowdown in June, with growth in factory output nearing a standstill. The S&P Global / CIPS UK Manufacturing PMI shows that activity rose at the slowest pace in two years, with new orders falling for the first time since the third coronavirus lockdown in January 2021. The PMI fell to a two-year low of 52.8 in June, down from 54.6 in May on an index where a figure above 50 represents growth. Business optimism fell to its lowest since May 2020, with just 47% of manufacturers expecting growth in output compared with 55% in May. Fhaheen Khan, senior economist at Make UK, which represents manufacturers, commented: “Production and levels of new work are starting to fall and will likely continue in this direction until economic conditions improve.”
Food price rises to get worse before they get better – FDF
The Food and Drink Federation has warned that increases in the price of food may not hit their peak until next year, with chief executive Karen Betts saying prices would “absolutely” get worse before they get better. The industry group, which represents UK food and drink makers, said it usually takes 7-12 months for producers’ costs to reach shop shelves. While Office for National Statistics data shows that food and drink price inflation rose to 8.7% in the year to May, Ms Betts said the peak “could well be into next year” and that prices could rise “some way above 10%.”
Scotland faces household debt crisis
Holyrood’s Social Justice and Social Security Committee has warned that increasing prices are hitting real incomes in Scotland, pushing the country toward a household debt crisis. The committee made recommendations for both the UK and Scottish governments, calling for greater support targeted at those most in need, more financial support for debt advice services, and the development of a debt management strategy covering public bodies. Committee convener Elena Whitham said: “Urgent action must be taken to help protect people on the lowest incomes, who are already having to make impossible decisions about how ever more limited budgets should be spent.”
PM’s wage-price spiral warning ‘a myth’
Economists have questioned Boris Johnson’s claims that workers asking for pay rises will make inflation worse. While the Prime Minister has urged workers to show “restraint” amid the cost of living crisis, a growing number of public sectors workers are calling for pay rises. The PM earlier this month said that “at a time when you’ve got inflationary pressures in an economy, there’s no point in having pay rises that just cause further price rises because that just cancels out the benefit.” Sam Tims, social security economist at the New Economics Foundation (NEF), said current high levels of high inflation are not due to wages “and increasing wages now won’t lead to further inflation.” “The Government claim that increasing wages will only push up prices more as companies have to increase prices to remain profitable. This isn’t correct,” he added. NEF chief executive Miatta Fahnbulleh said the age-price spiral argument is a “myth.”
Europe faces ‘severe recession’ if Russia cuts off gas
The Centre for Economics and Business Research (CEBR) has warned that Europe faces a severe recession if Russia cuts off gas exports to the continent, saying it would be a “near certainty.” CEBR forecasters said President Putin “seems intent on forcing the hand of European states, convinced that stopping gas exports will hurt Western countries more than it will cost Russia.” The think-tank estimates that there is a 40% risk of a recession in Europe this winter.
NI rethink will hit the ‘squeezed middle’
While Chancellor Rishi Sunak has described an increase to the National Insurance (NI) threshold that comes into force on July 6 as an effective “tax cut,” people earning £50,000 or more will still pay more in NI contributions than in the 2021/22 tax year. Sean McCann, of advisory firm NFU Mutual, said the increase to NI contributions will affect the “squeezed middle”, who already have to contend with frozen income tax thresholds. Nimesh Shah of Blick Rothenberg believes the Government should correct its “flawed” policy by abolishing the 1.25% increase for basic rate taxpayers and increasing income tax thresholds in line with inflation. With the NI threshold rising from £9,880 to £12,570, 30m people will pay less tax, while around 2.2m will be taken out of paying NI entirely.
Credit card borrowing falls as consumers feel squeeze
Consumers cut back on credit card borrowing in May, according to figures from the Bank of England. Consumer borrowing fell to a four-month low of £800m in May, from £1.4bn in April, with May’s total also below the pre-pandemic average of £1bn. Analysis shows that credit card loans accounted for £400m of the total. The average interest rate on personal loans fell to 6.49% in May. Rates on credit cards rose to 18.38% from 18.08% in April. Nicholas Farr of Capital Economics comments: “The more muted rise in unsecured borrowing in May suggests the cost of living crisis and recent plunge in consumer confidence are prompting households to exercise a bit more caution.” The data also shows that mortgage approvals rose to 66,200 in May from 66,100 in the previous month, showing that demand remains strong. Overall mortgage borrowing was at £7.4bn, up from £4.2bn in April and above pre-pandemic averages. Karim Haji, head of financial services at KPMG, said: “While strong demand for housing continues to boost prices, rapidly falling affordability could be a key driver of a slowdown in the near-term, as higher interest rates are passed on to borrowers.”
Wealthy flee as tax raids take their toll
Thousands of wealthy people have left Britain in the last five years, with experts saying this comes amid a surge in inheritance tax bills and repeated raids by chancellors. The UK has lost 12,000 rich people since 2017, according to research by migration consultancy Henley & Partners and data firm New World Wealth. It is estimated that 1,500 wealthy individuals – those with assets and cash of more than $1m – are expected to leave the UK this year. Experts point to rising taxes among the factors that are driving departures. Andrew Amoils, head of research at New World Wealth, said an end to loopholes and high taxes, including on inheritance, have contributed, while Tim Fuller, associate director of investment service Saunderson House, said: “There’s a general sort of fear that we’re now in a high tax, high inflation, low growth environment in the UK, relative to G20 peers so long term prospects here just don’t feel that great.”
Fast growing firms set to create thousands of jobs
Britain’s fastest-growing small businesses are poised to create thousands of new jobs over the next year, despite concerns over the impact soaring inflation and rising interest rates will have on the economy. The Sunday Times 100, a ranking of Britain’s fastest-growing private companies with revenues of less than £250m, reveals that more than 6,000 jobs will be generated over the next 12 months as businesses look to expand in the UK and abroad. Alpesh Paleja, lead economist at the Confederation of British Industry, comments: “It’s welcoming news to see job creation remains strong despite the current challenges facing industry across the UK.” He adds: “Creating high-value, export-led jobs and attracting foreign investment across all regions will be essential to get our economy back on track.”
Labour pledges to create 30k gigafactory jobs
Labour has pledged to create at least 30,000 jobs by vowing to build three gigafactories for electric car battery production by 2025. The party has committed itself to a major expansion of the part-financing of gigafactories. This comes as research from the independent Faraday Institution suggests countries such as Germany are significantly ahead in establishing such plants. Labour said its estimate of 30,000 extra jobs from the gigafactories was based on a calculation by the Faraday Institution, which found that each GWh produced by a gigafactory would support 500 jobs both directly and in the related supply chain.
No 10 proposes a VAT cut
Downing Street has proposed a reduction in VAT in an effort to help ease the cost of living crisis and tackle soaring inflation, with Steve Barclay, the Prime Minister’s chief of staff, suggesting a temporary cut to the headline rate. The Treasury is reportedly concerned about the cost of such a move and has also warned that it could ultimately fuel inflation by overstimulating the economy. Analysis shows that cutting VAT from 20% to 17.5% would cost the Government about £18bn. Paul Johnson, head of the Institute for Fiscal Studies, said cutting VAT would reduce inflation in the short term but increase it next year, arguing: “It can’t help in the long run.” He noted that a cut “could actually lead to higher inflation overall because you would be pumping extra money into an economy where demand is already outstripping supply.” He added: “Stimulating demand at the moment would be economically inappropriate.”
Eurozone inflation hits record high
Inflation across the eurozone hit a record high of 8.6% in June. Data from EU statistics agency Eurostat shows consumer price inflation increased from 8.1% in May. The European Central Bank is planning its first interest rate hike in 11 years this month, followed by another increase in September.
Ryanair
Ryanair said its June passenger numbers surged to 15.9 million from 5.3 million a year earlier. Ryanair’s June passenger numbers were its best so far this year, eclipsing May’s 15.4 million, and also topped the 14.2 million passengers reported in June 2019. However, Ryanair’s July could be more turbulent as cabin crew staff have planned further strikes in Spain for better working conditions. The walkouts have been scheduled for July 12-15, 18-21, and 25-28, the Spanish unions USO and Sitcpla announced on Saturday.
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