Business news 7 February 2022
James Salmon, Operations Director.
Small businesses face massive cost increases. Consumer confidence falls amid price rises. Britain takes a hit from homeworking? Bailey criticised over pay restraint call. FSB calls for support as energy costs climb. And more business news.
Small businesses face massive cost increases
Business leaders are warning that some small businesses are facing energy bill rises of up to 300% with one restaurateur reporting an expected £22,000 increase in their gas and electricity bills this year. Andrew Goodacre, chief executive of the British Independent Retailers’ Association, commented: “We have calculated that if the average energy bill doubles that is another £6,000 a year on average. Wage bills are going to go up another £6,000 with National Insurance and minimum wage increases in April, and business rates will go up by about £6,000 on average then too. So those businesses, whether it is a shop, a pub or hairdresser, have got to find £20,000 in extra costs just to break even.” Kate Nicholls, chief executive of UK Hospitality, agreed. She said: “There are significantly higher energy price increases in the commercial setting which is largely unregulated. We have the ability to negotiate long-term contracts, so it is variable when this is hitting but when hospitality firms are looking at renegotiating their energy bills they are looking at increases of 100 to 150%.”
Consumer confidence falls amid price rises
Consumer confidence has declined for a second consecutive quarter, according to a survey by Deloitte, driven down by growing fears about the cost-of-living crisis facing many Britons. Deloitte’s consumer confidence tracker fell by 1 percentage point to minus 11% in the final three months of last year. This follows a 1 percentage point fall in the third quarter of 2021. Ian Stewart, Deloitte’s chief economist, said: “Sharply higher inflation and a squeeze on consumer spending power has hit consumer confidence. With inflation set to rise further a tough few months are in prospect. However, high savings, strong consumer balance sheets and rising employment should help soften the blow to spending caused by higher inflation.”
Britain takes a hit from homeworking?
Gordon Rayner in the Telegraph considers the impact of the shift toward remote and hybrid working, looking at the economic impact, as well as issues around productivity and corporate culture. He warns that with data showing that at least 6.5, people – or one in five workers – are still working from home all or part of the week, there is a “potentially catastrophic knock-on effect” for the economy. Mr Rayner says the homeworking revolution is now costing the country an estimated £20bn to £30bn per year. He goes on to warn of an “HR doom loop that has taken root in the British workplace”, saying: “HR departments tell bosses they have to allow home working, bosses roll over, and staff end up working from home whether they want to or not – or whether it works for the business or not.” Mr Rayner notes that KPMG chief executive Jon Holt has said hybrid working “is here to stay”, with the firm’s 15,000 employees only having to commute into the office two days a week, while Deloitte has told its 20,000 UK employees that they can work from home permanently.
Bailey calls for ‘moderation’ of wage rises
Bank of England (BoE) governor Andrew Bailey has suggested workers should opt against asking for big pay rises in an effort to stop prices soaring. Household finances are set to come under increased pressure, with prices expected to climb faster than pay. Inflation is on course to rise above 7% in 2022, while post-tax incomes are forecast to fall 2%, taking into account the rising cost of living. Workers are currently seeing pay rises of just below 5% on average, according to a BoE survey. Mr Bailey told the BBC that while it would be “painful” for workers to accept that prices would rise faster than their wages, some “moderation of wage rises” is needed to prevent inflation becoming entrenched. “I don’t want to in any sense sugar that, it is painful. But we need to see that in order to get through this problem more quickly,” he added.
Bailey criticised over pay restraint call
Unions have criticised Andrew Bailey after he suggested workers should refrain from asking for big pay rises in a bid to help control inflation. The Bank of England governor told the BBC’s Today programme: “I’m not saying nobody gets a pay rise, don’t get me wrong. But what I am saying is, we do need to see restraint in pay bargaining, otherwise it will get out of control.” Sharon Graham, general secretary of Unite, asked: “Why is it that every time there is a crisis, rich men ask ordinary people to pay for it?” She added: “Let’s be clear, pay restraint is nothing more than a call for a national pay cut.” Gary Smith, general secretary of the GMB, was equally unimpressed by Mr Bailey’s comments, saying: “Telling the hardworking people who carried this country through the pandemic they don’t deserve a pay rise is outrageous. It’s a sick joke” Kate Bell, the head of economics at the TUC, said inflation was being driven by rising energy costs, not pay demands. Beyond the unions, Julian Jessop, an economics fellow at Institute for Economic Affairs, said loose monetary policy set by central banks should be blamed for high inflation rather than workers, while David Blanchflower, a former member of the Bank’s Monetary Policy Committee, said Mr Bailey’s comments were “clueless”. The High Pay Centre think-tank said Mr Bailey’s comments “while not ill intentioned” were “frankly absurd” and “insulting”. Meanwhile, Boris Johnson’s spokesperson said pay restraint was not something the Prime Minister was calling for, saying: “We obviously want a high-wage, high-growth economy, and we want people’s wages to increase.”
FSB calls for support as energy costs climb
With the Treasury announcing support measures for households set to be hit by a spike in energy prices, the Federation of Small Businesses (FSB) has urged officials to extend the support to small businesses. National chair Mike Cherry said many small businesses “face many of the same challenges as consumers in the energy market, but without the same protections.” He added that a rebate for households should be matched by an equivalent business rates rebate “to help the smallest firms which have been weathering these price increases for months already, and which desperately need a measure of protection from the energy crisis storm.” Mr Cherry also warned of the impact of the Bank of England’s interest rate increase. With the rise set to increase repayments on some personal and professional debt, he said it would “add to existing cashflow woes just as tax rises loom.”
Sales climb but cost of living crisis is set to hit growth
January marked the eleventh consecutive monthly climb in like-for-like retail sales, according to BDO, with combined in-store and online sales up by 51.9%. This was from a base of -10% in January 2021, a point where the UK was in lockdown. Non-store like-for-like sales fell 2.7%, with this only the second time that online sales have fallen since BDO started recording the data in 2010. The decline can be partly attributed to a high base that saw 132.8% growth in January 2021. Sophie Michael, head of retail and wholesale at BDO, said that amid concerns over the cost of living, “many retailers may have expected a rocky start to 2022, particularly as they largely avoided significant discounts and promotions in January.” “Consumers, though, have defied expectations by continuing to spend heavily in discretionary categories.” She added that growth is unlikely to continue throughout 2022 due to pressure on household finances.
Growth forecast set to be downgraded
The EY Item Club is set to downgrade Britain’s growth forecast for 2022, saying that GDP will come in at 4.9% this year, down on the growth of 5.6% it predicted in November. It’s report is also expected to forecast that inflation will hit a peak of 7% in the coming months, forcing the Bank of England to raise its base rate to 1% by year end. Martin Beck, chief economic adviser to the EY Item Club, has warned of the impact of rising prices and the cost of living crunch, saying: “This year is likely to see an increase in polarisation between the economic experience of high and low-income households.”
Peleton
Peleton Interactive is reportedly attracting takeover interest from Nike and Amazon. The biking specialist recently cut the pricing of its flagship bike by 20% to $1,495 but revealed increased losses.
Amazon
Amazon said sales for the last three months of 2021 expanded by 10% year-on-year to $137.4bn. However, those gains were driven by growth in areas like its cloud computing division, Amazon Web Services, and advertising, while its e-commerce sales dipped from 2020, when the covid pandemic drove big gains. Amazon also said it is raising the price of its Prime service for US customers by $20 to $139.
US jobs
The US added 467,000 new jobs to the payroll in January beating estimates despite business closures caused by Omicron. The surprise boost to the payroll was far ahead of estimates by economic analysts who predicted new jobs would stand at 125,000. While the unemployment rate ticked upwards from 3.9% to 4.0% the number of long-term unemployed fell to 1.7 million in January, down from 2 million in December
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