business news 6 September 2021
James Salmon, Operations Director.
Services sector falls back to six-month low. Almost 50 shops disappearing every day. Inflation set to surge this autumn. Wage inflation, employers and the economy. Taskforce needed to tackle supply chain crisis. Bosses warn creaking supply chains will trigger soaring prices. UK faces two years of labour shortages. And much more business news.
Services sector falls back to six-month low
Staff shortages, supply chain issues and lower demand from consumers meant a loss of momentum for the UK service sector last month, according to the latest IHS Markit/CIPS Services PMI, which fell from 59.6 to 55.0 during the month. Although the index is still above the 50 mark that separates growth from contraction, it registered its lowest reading for six months. “The service sector lost momentum for the third consecutive month as the impact of looser pandemic restrictions faded in August,” said Tim Moore, economics director at IHS Markit. “Many businesses suffered constraints on growth due to staff shortages, self-isolation rules and stretched supply chain capacity.” However, business optimism edged up to a three-month high during August. Duncan Brock, group director at the Chartered Institute of Procurement & Supply commented: “Brexit continued to make its mark and supply shortages and logistics difficulties will pile on the pressure in the coming months but service companies remained buoyant about future opportunities.” Elsewhere, Martin Beck, senior economic advisor to the EY ITEM Club, said that “as economic conditions continue to normalise, the fact there is less scope to make up lost ground will weigh on services growth.” Beck added: “But there are also some upsides: lower infection numbers and less stringent self-isolation rules will reduce virus-related economic disruption.”
Almost 50 shops disappearing every day
More than 8,700 chain retail stores closed in British High Streets, shopping centres and retail parks in the first half of this year, according to figures collected by the Local Data Company on behalf of PwC. That is an average of nearly 50 outlets a day as the impact of the pandemic and changing shopping habits continue to hit many towns and city centres. But despite some high-profile retail failures, the number of closures has fallen compared with a year earlier. City centres have suffered the worst, while retail parks are faring better. However, Lisa Hooker, leader of industry for consumer markets at PwC, said, “the next six months will be make or break for many, particularly with the reinstatement of business rates, the winding down of furlough and the need for agreement on rent arrears, as well as uncertainty for hospitality businesses around further lockdowns, vaccine passports and other operating restrictions.”
Inflation set to surge this autumn
Business leaders have warned that the UK is facing a “perfect storm” of worker shortages and problems with global supply chains that would lead to a surge in inflation within months. UK shop prices rose last month, with retailers warning the cost of filling up the trolley will climb further if disruption continues. Meanwhile, gas and electricity prices have soared to record highs, transport costs have rocketed and factory input prices were up nearly 10% in the year to July.
Wage inflation, employers and the economy
As we see lorry drivers being paid more by Waitrose than the supermarket’s back office executives, if wage increases become a longer term trend, then the prospect of inflation taking off will strengthen. Although there is a large pool of furloughed workers on the sidelines, what happens if they demand the same fillip as that offered to HGV drivers?
Thomas Pugh, UK economist at RSM says if “inflation expectations start to rise – they’re already back to pre-crisis levels – and if this starts to be reflected in higher wage deals across the economy, the Bank of England will take notice and could act prematurely to tighten monetary policy.”
However, Martin Beck at the EY Item Club, suggests greater competition, “as a result of globalisation and online activity makes it harder for firms to pass higher wages to customers via higher prices, and makes it more likely that if wage bills do rise, the cost will be borne in lower profit margins or efforts to improve efficiency.”
But with changing attitudes to work, employers need to draw workers in with wage rises and other incentives. Improving working conditions and mapping out clear career paths that offer discernible progression will also attract workers, Yael Selfin, chief economist at KPMG UK, adds.
FSB: Taskforce needed to tackle supply chain crisis
The Federation of Small Businesses is calling on the Government to intervene to tackle the supply chain crisis as small firms struggle to cope with a shortage of goods. Mike Cherry, chairman of the lobby group, warns that supply chain issues threaten to derail the economic recovery. “Small businesses are doing all they can to tackle the HGV driver shortage, but this now demands high-level Government intervention,” he says. “No10 should form a Cobra-style cross-Government taskforce, with business representation, to address the current and growing disruption and to agree a plan of action and timeline to save the recovery through the autumn and to Christmas.”
Bosses warn creaking supply chains will trigger soaring prices
Road haulage and food bosses have warned that a shortage of lorry drivers and soaring shipping costs have combined with delays in deliveries from Asia and ongoing Covid related problems to produce severe shortages of products. Commodity and fuel prices have also surged, driven by global demand strengthening amid a receding pandemic. Richard Harrow, CEO of the British Frozen Food Federation, remarked: “All the factors are going in the wrong direction for consumers – commodity costs, labour costs…and then we have the unknown of what the Brexit costs will be.” Alex Veitch, general manager for public policy at Logistics UK, said: “I’ve never seen anything like it. We’ve had a shortage of drivers in the UK, a chronic shortage, for many years, but now [this is] an acute shortage.” The situation has prompted shadow business secretary Ed Miliband to urge Boris Johnson to create a fresh ministerial post to handle the crisis.
UK faces two years of labour shortages, CBI warns
The Confederation of British Industry (CBI) has attacked the Government’s “refusal to deploy temporary and targeted interventions” to solve the country’s labour shortage, warning that without action the crisis could last for up to two years. The CBI is calling for the Government’s shortage occupation list, which helps recruit workers from abroad to fill particular skills gaps, to be updated to include lorry drivers, welders, butchers and bricklayers. “Standing firm and waiting for shortages to solve themselves is not the way to run an economy,” said the CBI director general, Tony Danker. “We need to simultaneously address short-term economic needs and long-term economic reform.”
Leisure and hospitality facing crunch
Research by Mazars reveals that banks have written off £100m in loans to restaurants and hotels in the past year – up from £60m a year earlier. Rebecca Dacre, a partner at the firm, said: “As support from the Government starts to wind down, we’re now beginning to see the true impact of the pandemic on the leisure and hospitality industry.” She adds: “Businesses that are just keeping their head above water are likely to be taken under by the end of government support schemes, the repeated cost of reopening and restocking, difficulty recruiting staff and lower occupancy or covers due to people’s changing habits or working patterns.”
Over half of SMEs delay adopting IR35 tax reforms
A survey from advisory firm BDO found 55% of SMEs using contract workers are delaying compliance with IR35 rules until they are on a firmer, post-pandemic, footing. HMRC has said there will be a so-called soft landing in the first year for those who do not comply with the new rules, but that a taskforce will soon be launched to clamp down on tax avoidance. John Chaplin, employment tax partner at BDO, said: “Businesses who do not comply will still need to pay tax and could face significant penalties. HMRC has shown that it will not turn a blind eye to non-compliance, so businesses who do not have a formal IR35 process in place should immediately rethink their affairs.”
Jobs market set for bumpy ride
Job creation looks set to continue at a strong rate after the furlough scheme ends, but a fresh rise in unemployment is still likely, a think tank has said. Thanks to the success of furlough, an expected pandemic-driven surge in joblessness has not materialised, said the Resolution Foundation. But it warned that about 900,000 people are still expected to be on the scheme when it finishes on 30 September. As a result, “huge uncertainty” surrounds what might happen next. “The Foundation expects many of these employees to return to their previous role – especially those on partial furlough – upon the scheme’s closure,” it said in its latest labour market report.
UK’s trade dependency on China “frightening”
A new report from the Independent Business Network warns that Britain’s reliance on trade with China has become a threat to national security. In a stark analysis, the lobby group claims that 28,000 firms import items for which the UK is almost “entirely dependent” on Chinese companies and that more than 50,000 types of products are being imported almost exclusively from China. Two thirds of the products deemed vital for the fight against COVID-19 were imported from China. The report comes after China overtook Germany to become the UK’s single biggest import market for the first time since records began. John Longworth, the Independent Business Network’s chairman and a former director-general of the British Chambers of Commerce, said: “The scale of the UK’s growing trade dependence on China is frightening,” adding that the UK was “failing to capitalise on the opportunities Brexit has given us to fix the problem.” Longworth went on: “China’s growing presence in British industry is not just a threat to business, it is a threat to national security. Growing monopolies on supplies for areas including biosecurity disaster relief, electronics and aerospace engineering have the potential to seriously undermine the UK’s domestic security and wider economy.”
Aluminium
Aluminum climbed to the highest in more than a decade as political unrest and attempted coup in Guinea fueled concerns over supply of the raw material Bauxite needed to make the metal.
US Jobs
The US Economy added jobs at a slower pace in August following an early-summer jump in employment, as an initial wave of reopening hiring waned and concerns over the Delta variant increased. Following back-to-back months of non-farm payroll gains over 900,000, employers added the fewest jobs since January. Still, this marked an eighth consecutive month of net job growth, and brought total employment closer to pre-pandemic levels.
UK Services
UK Services Firms hired workers at the fastest pace on record in August to cope with soaring demand, but growth in the industry slumped to a six-month low amid severe shortages, according to latest data. The services PMI survey dropped to 55.0 in August, the lowest since the industry returned to growth after lockdown, and down from 59.6 July.
AstraZeneca
AstraZeneca has reached an agreement with the European Commission that will end legal proceedings over a fraught vaccine supply deal. As AstraZeneca’s vaccine delivery disappointed earlier this year, the EU took the company to court, arguing that the firm failed in its contractual duty. AstraZeneca’s defence was the contract only stipulated it make “best reasonable efforts” and that production was hit by unavoidable delays.
Canine clauses used to lure staff back to the office
Employers are looking to allow dogs into the workplace to help persuade reluctant staff back into the workplace, the Times reports. “Canine clauses” stipulating how many dogs can be in an office are now commonplace in central London leases, according to Andrew Barnes, a Savills agent who advises companies renting offices. “What I’m putting in nearly every single lease I’m acquiring at the moment is a dog clause for access for dogs,” he said. Companies are gearing up for what they expect to be a challenge to attract workers back to city centres, the paper continues, noting a KPMG survey over the summer of 150 chief executives of big companies in Britain which found that only 14% planned to downsize. However, 43% were planning to invest in shared office space to provide increased flexibility for their employees. Bosses are prioritising the quality of space and staff wellbeing and Oliver Knight, head of offices at Land Securities, points out that employees are asking to see office space before accepting job roles, meaning “when it comes to real estate decision-making within most companies, the HR directors and the people side of it are much more influential.” The FT also looks at some of the incentives companies are offering workers to entice them back to the office, including yoga classes and free meals.
Wanderers owners pay off unsecured creditors
The owner of Bolton Wanderers, Football Ventures, has confirmed an agreement has been reached with all unsecured creditors inherited from the deal to buy the club two years ago. A statement released on Friday states that all obligations laid down by the EFL were met, including the payment of administrators, David Rubin and Partners (now Begbies Traynor), and Quantuma, by the August 31 deadline. Wanderers chairman Sharon Brittan said: “After a very challenging two years we are absolutely delighted to confirm that the Club has reached agreement with its unsecured creditors. I would like to thank our amazing colleagues [and] place on record our gratitude to the EFL, Jason Elliott of Cowgill’s, Paul Appleton of Begbies Traynor Group and our former COO Andrew Gartside.”
Three former chancellors attack Johnson’s social care proposals
Three former Conservative chancellors have criticised Boris Johnson’s plans to raise National Insurance to pay for social care improvements. Philip Hammond, Ken Clarke and Norman Lamont have joined several cabinet ministers, backbench MPs, business leaders and Labour in opposing the move which they say will unfairly hit young workers. The Prime Minister will today announce an extra £5.5bn for the NHS this year as a “down payment” to tide it through the winter and start tackling the backlog of patients before the extra money from a rise in NI, of between 1% and 2.5%, becomes available next April. But the proposals are seen to be not only damaging to young people and the Conservative party, but woolly too, with David Davis, the former Cabinet minister, saying: “All we’ve heard at the moment is well we’re going to put up National Insurance to pay for unspecified actions in the health service, unspecified actions on social care, and that’s not going to be good enough frankly.” Mr Johnson is expected to irk Tory MPs further this week by suspending the pension triple lock for a year, breaking another manifesto promise.
Big banks pay less than 15% tax on profits
Analysis of leading European banks conducted by the independent EU Tax Observatory has found that about £17bn, or 14% of their total profits, is being booked in tax havens. Banks said to enjoy a particularly low effective tax rate on their profits, of less than 15%, include Barclays, HSBC and NatWest. The effective tax rate is calculated as the ratio between aggregated tax paid and profit posted, across all jurisdictions.
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