Business news 6 February 2023
James Salmon, Operations Director.
Factories and shops particularly in trouble. Complacent business owners risk disaster. Supply chain problems the biggest threat. Services sector declines. Royal Mail cyber-attack. Record year for start-ups. And more business news.
Factories and shops particularly in trouble
Turnaround specialists are pointing to the manufacturing and retail sectors as particularly vulnerable to the current economic malaise. Andy Leeser, chairman of the Institute for Turnaround, said the manufacturing sector would require the most turnaround expertise with 63% of its members expect manufacturing to be the sector under most stress. The remainder believe retail will be the worst hit. More than 17,000 retail businesses have already been identified as “distressed”, where payments increasingly are being delayed and liquidity is deteriorating. Members were reporting demand for support in the middle and smaller end of the retail sector, Leeser added.
Complacent business owners risk disaster
Insolvency specialists are warning that many business owners are ignoring the reality that state support is over and a recession, higher interest rates and nervous banks spell trouble. “I just sense that management teams are possibly slightly more relaxed at this stage in the cycle than they were in other recessions that I’ve lived through,” says Colin Haig, partner and head of restructuring at Azets. “They probably ought to be a bit more nervous.” Referring to the support provided by the Government over the course of the pandemic, Haig adds: “Whenever you have a forced injection of liquidity into the economy, it has unfortunate side effects of promoting a certain sort of apathy, complacency, and we’ve got no space for that right now.”
Supply chain problems the biggest threat to UK businesses
The biggest threat to British businesses over the next six months is disruption to supplies, according to a survey by BDO. Some 54% of mid-sized companies said that chaos in supply chains was the biggest challenge they faced, with access to labour being their second biggest concern, ahead of rising interest rates and rising costs for raw materials and goods. Additionally, 34% said they were experiencing delays caused by customs rules that had changed because of Brexit with the same proportion saying the cost of products sourced from the EU had increased. Furthermore, 37% of businesses said rising numbers of COVID-19 cases and lockdowns in China had caused delays. Ed Dwan, a partner at BDO, said: “Medium-sized businesses are battling rising costs, supply chain problems and difficulty accessing labour amid a nationwide skills shortage.”
Services sector declines to two-year lows, but optimism shines through
The UK’s services sector began 2023 with its weakest performance in two years, according to the latest S&P/CIPS UK services PMI survey. Fears over a looming recession left businesses struggling to place new orders while labour shortages pushed up costs and consumers tightened their belts. The PMI showed a reading of 48.7 in January, down from 49.9 in December, with any reading below 50 considered a decline. Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey said: “January data pointed to the weakest service sector performance for two years as cutbacks to business and consumer spending resulted in a fourth consecutively monthly reduction in output levels.” However, businesses reported feeling the most optimistic they had been since April last year, amid “tentative signs” of a turnaround in the global economic outlook.
Royal Mail cyber-attack is ‘destroying’ small businesses
The suspension of international deliveries by Royal Mail following a cyber-attack last month has left small businesses at risk of going bust. The business stopped dispatching items abroad after it was hit by a ransomware attack on January 10th. But more than three weeks later Royal Mail has still not resumed all its international deliveries, forcing businesses to remove products online because they cannot say when they will be delivered. Tina McKenzie, policy chair at the Federation of Small Businesses, said: “Cyber-attacks can have devastating consequences on small businesses and entrepreneurs live in fear of this threat – indeed, 20% of small businesses say cybercrime is one of the most impactful crimes.”
Last year was a record breaking one for start-ups
The founder of business support provider Enterprise Nation notes in the Mail on Sunday how 30,000 more businesses were registered in 2022 than the previous year and 114,000 more recorded annually pre-pandemic. Emma Jones says “the relentless upwards trend in these figures has always been an indicator of the UK’s growing entrepreneurial aspiration.” Jones touts Enterprise Nation’s StartUp UK programme which offers support to fledgling businesses. She goes on to provide five tips to start a business in 2023.
Delaying bank transfers ‘could protect victims from fraud’
A policing chief is calling for bank transfers to be automatically delayed by 24 hours to help combat fraud. Mark Shelford, the national lead for fraud with the Association of Police and Crime Commissioners and PCC for Avon and Somerset, said it would provide a colling off period for people to rethink a transfer and give banks time to take action. Mr Shelford conceded a two-hour delay was more realistic and his proposal has been backed by Mike Haley, the chief executive of fraud prevention body Cifas. However, Haley believes the delay should be restricted to suspicious payments and vulnerable customers.
Fraud to be designated a threat to national security
The Government is to reclassify fraud as a national security threat under plans to force police chiefs to devote more officers to solving the crime. Fraud will be added to the strategic policing requirement, which means that forces will be required by ministers to treat it as a major priority alongside not only terrorism, but also public disorder, civil emergencies, serious and organised crime, cyber-attacks and child sexual abuse.
FCA steps up interventions on fin-fluencers
The Financial Conduct Authority has been taking a tougher line on social media influencers who illegally promote investments online. Last year, the watchdog told firms either to amend or withdraw a record 8,582 promotions, up from 573 in 2021 and 207 in 2020. The FCA said that so-called fin-fluencers were a “growing concern” adding that “issuing an illegal financial promotion is potentially a criminal offence.” Sarah Pritchard, the FCA’s executive director for markets, said: “This year, we will continue to put the pressure on people using social media to illegally promote investments, which put people’s hard-earned money at risk.”
Energy bosses say net zero at risk without tax breaks
The chief executives of five energy industry associations have co-signed a letter to Jeremy Hunt urging him to use the spring budget to introduce new tax reliefs for investment into green energy. They warn the Chancellor that Britain’s net-zero goal is at risk because the Government lacks a clear plan to deliver green growth. “Despite our industry’s commitment to the low-carbon energy transition, we are concerned that there is no clear plan to deliver green economic growth and continue attracting clean energy investment into the UK,” they write. With prices rising, many developers would see their small profit margins “disappear completely without a more sustainable approach to pricing clean energy solutions and a reformed capital allowances regime”.
AI could start replacing human workers soon
Copywriters, bloggers and people who produce online copy could be among the first to lose their jobs to artificial intelligence, according to Zak Saidi, creative director and AI Lead of creative agency IZSRI. Some 100m people have used ChatGPT after just two months and its success has fuelled fears that AI could automate millions of jobs out of existence. However, Saidi says that in its current form AI produces highly generic content and so the most creative human writers will still be in demand. However, as the technology develops, “a lot of businesses will turn to AI to provide their content writing services.” The retail sector will suffer severe job losses from AI, Saidi believes, while software developers and even cybersecurity experts are under threat as are graphic designers and visual artists. The most resilient roles will be those that require a face to face interaction and physical skills that AI cannot replace. But as this technology displaces current roles in retail and marketing, Saidi believes it will create new roles in tech companies. He says: “We anticipate, and are witnessing the very genesis of, a huge recruitment drive in the tech industry, likely picking up a lot of retail and admin staff that have been displaced by the introduction of AI.”
Treasury minister kicks off apprenticeship push
Chief Secretary to the Treasury, John Glen, has urged middle-class parents to encourage their children to do apprenticeships instead of going to university. He argues that apprenticeships can offer a better “return on investment” and offer young people the opportunity to develop “deeper skills” earlier on than if they go to university. His comments come ahead of a government push to break down the stigma of apprenticeships and remind parents that some can provide a university degree following a course of training. The Telegraph notes that higher or degree apprenticeships are now available in sectors ranging from accountancy and engineering to IT and digital marketing.
Steel output slumps to its lowest since the Great Depression
The UK’s future as an industrial economy has been put into doubt following a record slump in the production of crude steel in Britain, which last year fell to its lowest levels since the Great Depression of the 1930s. The UK produced just 6m tonnes of crude steel in 2022, a 90-year low, leading to concerns over the industry as it faces pressure to undergo a hugely expensive decarbonisation transition. Chrysa Glystra, an analyst at UK Steel, said: “Some of the reduction in steel production is in response to reduced demand, but the exorbitant energy prices faced by industry have clearly taken their toll on industry in the UK.”
Australian battery group selected as preferred bidder for Britishvolt
Recharge Industries, an Australian battery company, has been selected by EY as the preferred bidder to buy Britishvolt out of administration. EY aims to sign a contract by Monday.
Growth in mortgage lending set to fall this year
Research by the EY Item Club suggests growth in mortgage lending is set to fall to 0.4% this year, its lowest level in more than a decade. Higher interest rates, a weak economic outlook and falling house prices will dampen demand along with a tightening of banks’ lending criteria. Anna Anthony, UK financial services managing partner at EY, warned: “Stretched affordability will affect loan demand across all fronts and banks should be preparing for low and, in some cases, negative lending growth rates.” Lending to businesses grew by 3.7% in 2022, but is expected to fall by 3.8% this year, before returning to growth of 0.9% next year. Dan Cooper, UK head of banking at EY, said UK businesses faced rises in interest rates but much of the borrowing over the course of the pandemic was in the form of government-guaranteed loans with low interest rates. Meanwhile, corporate balance sheets had strengthened as stresses associated with the pandemic eased.
Home owners can expect protracted slump
Melissa Lawford details in the Telegraph why Britons can expect a drawn out housing downturn. Figures from Nationwide show house prices have fallen for five months in a row, the longest period of consecutive monthly falls since 2009. Values are down by 5.6% compared to their August peak, but Oxford Economics doesn’t expect prices to drop beyond 12%, peak-to-trough. This is not as severe as the 18% crash recorded from 2008 to 2009, which saw prices fall for 16 consecutive months. But analysts expect the slump to last longer this time, predicting the downward trend to last 24 months. Andrew Goodwin, of Oxford Economics, says: “We think the much higher share of fixed rate mortgages now will limit the fall in prices and make it less steep, but more prolonged.”
Markets & US jobs
US non-farm payrolls were a big beat on expectations on Friday, with the US economy adding 517,000 jobs in January versus estimates of 190,000, and almost double the 260,000 jobs added in December. The unemployment rate fell to 3.4% versus the estimate for 3.6%. That is the lowest jobless level since May 1969. The labor force participation rate edged higher to 62.4%. A broader measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons also edged higher to 6.6%. Wall Street was mixed in response, with investors also digesting earnings from technology companies including Meta, Apple, Amazon and Alphabet.
The FTSE 100 stock index closed at a record high on Friday, lifted by investors betting that a weak pound will help UK firms abroad and that the worst of the cost of living crisis has passed. The FTSE added as much as 1.1% on the day to trade at 7906.58, beating the previous record of 7,903.5 set in May 2018, before closing at 7902.
Liz Truss smokes out true believers
Former prime minister Liz Truss talked to the Sunday Telegraph about how she was ousted after only 44 days in office and what lessons she has learnt. She admits she is not blameless for her administration’s premature demise, but believes Whitehall’s “strength of economic orthodoxy and its influence on the market” worked against her
Her claims that her agenda was blocked by a left-leaning anti-growth economic establishment have provoked a mixed reaction from government and experts.
Business Secretary Grant Shapps said although he agreed with Ms Truss on wanting lower taxes her approach was not right at the time – you needed to bring inflation and debt down first, he told the BBC. Sir Jake Berry, who was Conservative party chairman under Ms Truss, said he agreed with her assessment of the problems facing the UK economy, but “not necessarily the cure”.
Elsewhere, Panmure Gordon economist Simon French said Truss’s essay in the Sunday Telegraph revealed “how little she understands the role of key UK economic institutions” and the credibility they provide. But hedge fund tycoon Crispin Odey backs Truss’s stance, even if the timing was questionable. He said it will require a Labour government to bring the Tories round to Liz Truss’s low tax, small state thinking. Hotelier Sir Rocco Forte also said that “Liz Truss was absolutely right to take on the economic orthodoxy” while financier Jeremy Hosking said: “The Truss/Kwarteng reforms were a well-considered and justifiable approach to reinvigorating Britain’s growth prospects.” He went on to explain that Britain’s institutions had been captured by leftist progressive ideologues who needed to be routed in a culture war the Conservatives don’t have the courage to engage.
Finally, the Guardian reports that Cambridge economist Dr Charles Read wrote to the Treasury ahead of the mini-Budget to warn about the risk to financial stability should interest rates be pushed up faster than they were and George Osborne, a former Tory chancellor, said that although he agreed that the regulators should have anticipated some of the pension problems Truss was brought down by the free market in government bonds. “She dismissed the economic establishment. She fired the permanent secretary at the Treasury. She went around telling everyone, as did her chancellor, that the Bank of England governor was useless. She didn’t consult the office … To then turn around and say ‘no one told me’, well I mean, she went out of her way not to listen.”
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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.