Business news 7 March 2022
James Salmon, Operations Director.
Ukraine crisis is an economic catastrophe. BCC downgrades growth forecast. Oil rises. War set to drive up UK food prices. 7 in 10 small businesses expect to see growth. Britain’s businesses urged to invest. And more business news.
World Bank: Ukraine crisis is an economic catastrophe
World Bank president David Malpass says Russia’s invasion of Ukraine is “a catastrophe” for the world which will cut global economic growth, saying that it “comes at a bad time for the world because inflation was already rising.” Stressing that his biggest concern is “about the pure human loss of lives”, he went on to note the impact of global energy prices rising and inflation. The World Bank is in the process of putting together a $350m aid package that Mr Malpass says “will help fund the budget of Ukraine,” paying for things such as government salaries, social welfare and emergency supplies at a time when the conflict has seen tax revenues collapse.
BCC downgrades growth forecast
The British Chambers of Commerce (BCC) has downgraded its expectations for economic growth. While it predicted growth of 4.2% for 2022 in a forecast in December, it now expects growth of 3.6%, warning of the impact of soaring inflation, tax rises and Russia’s invasion of Ukraine. The revised estimate suggests growth this year will come in at less than half the 7.5% recorded in 2021. The BCC said it expects inflation to hit 8%, with this set to reduce disposable incomes, while interest rates are likely to increase to 1.5%. Suren Thiru, head of economics at the BCC, said: “Our latest forecast signals a significant deterioration in the UK’s economic outlook.” Pointing to the effects of rising inflation, supply chain disruption and higher taxes, he warned that growth is set to “run out of steam in the coming months”. The BCC report also forecasts that business investment will grow 3.5% in 2022, down from a previous forecast of 5.1% and far lower than the Bank of England’s latest projection of 13.75%. The business lobby group expects consumer spending to be up 4.4% on 2021, down from a previous forecast of 6.9%.
Oil.
Western governments are considering a ban on Russian oil as they look to build up the pressure on Putin. Brent Oil has hit $125. Global stock markets have seen heavy losses as a result.
War set to drive up UK food prices
The price of bread, pasta, sunflower oil, sweetcorn and beer is set to rise as the conflict in Ukraine continues, analysts have said. An estimated 30% of world trade in wheat comes from Ukraine and Russia, 50% of sunflower oil and seeds, 32% of barley and 17% of corn. By August, the cost of bread could be 20% higher than a year earlier, economists at RSM forecast.
7 in 10 small businesses expect to see growth
More than two thirds of small businesses expect to grow this year, according to a poll by accounting technology firm Sage. The analysis shows that SMEs, which represent 61% of UK jobs and 52% of national income, are thriving, with 68% forecasting growth this year compared with 57% in Germany and 62% in France. It was also found that 43% of UK firms expect a revenue rise in the next six months, with this just higher than the 39% in France and Germany. Half of UK SME leaders expect import and export problems to ease, outweighing the 27% who fear they will get worse.
FSB calls for respite from NICs rise
The Federation of Small Businesses has urged ministers to introduce measures to mitigate the upcoming hike in National Insurance on small businesses by giving small employers discounts on their tax bills. Its analysis shows that the rise will add more than £3,000 to the annual tax bill of the average small business. FSB national chair Mike Cherry said: “The Government’s levelling-up plans are now at serious risk. The chilling impact of National Insurance hikes will hit the pay of those in regions that need help the most.”
Britain’s businesses urged to invest
David Smith in the Sunday Times looked at the need for the UK to increase business investment, noting Office for National Statistics data showing that between 1997 and 2017, the UK invested less as a percentage of GDP than any Organisation for Economic Co-operation and Development (OECD) member. He says the referendum, and the Brexit vote, brought the recovery in business investment after the financial crisis “to a halt”, while the pandemic drove it down again and it is yet to properly recover. Business investment in real terms, Mr Smith notes, was last year down by more than 12% compared with 2016. Over the previous five years, it had grown by 34%. Chancellor Rishi Sunak has recently voiced concern over investment levels, saying business investment in Britain averages 10% of GDP over the long term, compared with an OECD average of 14%. There is “a pervasive economy-wide issue,” he warned, adding that “we must fix it to improve productivity, growth and living standards.” Mr Smith highlights that firms have just over 12 months to take advantage of the 130% “super deduction” against corporation tax, after which the tax will rise from 19% to 25%.
Unions call for emergency cost of living support
The heads of the TUC, Unite, Unison, GMB and other unions and leading groups have jointly called on Chancellor Rishi Sunak to use his spring statement this month to announce emergency financial assistances for UK households struggling with the rising cost of living, and to boost humanitarian aid to support those impacted by the invasion of Ukraine. TUC general secretary Frances O’Grady says working people “will need protection from even steeper hikes in gas bills from the conflict.” She adds: “The chancellor should introduce grants to help with energy prices, roll out an emergency programme of home insulation, and fund it with a windfall tax on excess energy profits.”
UK employment recovers to pre-pandemic levels
Britain’s labour market has recovered to pre-pandemic levels for the first time, according to the latest business trends report from BDO. The firm’s Employment Index rose for a fourth consecutive month to 110.75 in February, representing a monthly gain of 0.77 points. This is the highest level the index has seen since February 2020, when it reached 112.86 ahead of the UK’s first coronavirus lockdown. Kaley Crossthwaite, partner at BDO, said: “Propped up by the Government’s furlough scheme, the UK jobs market was largely resilient throughout the pandemic. As we return to normality, it is now moving from resilience to growth, reflected in February’s buoyant figures.” However, Crossthwaite warned that with inflation rising faster than wages and price pressures only set to increase in the coming months, growth in the UK jobs market could be short-lived.
UKSA warned PM over misleading jobs claims
Government officials were repeatedly warned about making misleading claims about job figures before the UK Statistics Authority (UKSA) reprimanded Boris Johnson over the matter. The Prime Minister said more people are in employment in the UK than before the pandemic began, repeating the claim several times. However, while the number of workers on payrolls has risen, the number of self-employed people has dropped, meaning the total number of people in work is 600,000 lower. UKSA chair Sir David Norgrove wrote to Mr Johnson, saying he was making “a selective use of data” and added that “public trust requires a complete statement”. Ed Humpherson, director general of the official statistics watchdog, has now revealed that there had been “a series of informal discussions” before the regulator spoke out publicly over the matter. He added that the fact the UKSA had written repeatedly to Number 10 about the matter is “unusual, but not without precedent.”
Oligarchs aided by ‘white-collar collaborators’
MP David Davis warns that lawyers and accountants are “helping oligarchs escape the UK with their ill-gotten gains” and argues that these “white-collar collaborators cannot continue to aid Putin’s oligarchs”. He says that as officials “move to clean out dirty Russian money in the wake of the invasion of Ukraine,” lawyers and accountants “will doubtless be helping put blockages in the way of government policy.” Mr Davis says the legal and financial services sectors must be stopped from “peddling their wares to high-paying corrupt oligarchs” and urges the professional bodies in charge of these industries to “look very hard at this issue and clean up their act.” Meanwhile, Jim Armitage in the Sunday Times looks at City firms’ links to wealthy Russians, especially law firms eager to take them on as clients. He said at times “the case lists at the High Court were dominated by Russians fighting Russians,” adding: “Billings for lawyers, translators, forensic accountants and corporate investigators soared.”
One in seven workers yet to make office return
Office for National Statistics data shows that one in seven people are still working from home despite official guidance suggesting workers should return to the office. Between February 16 to February 27, 15% of people were working from home, with this down 26% on January 6 to January 16. There was also an increase in the proportion of people traveling to work, from 51% in early January to 56% in late February. The analysis also shows that 13% of people reported both working from home and traveling to the office in the past seven days.
Dyson in WFH productivity warning
Entrepreneur Sir James Dyson has warned that the shift toward homeworking is damaging productivity, learning and collaboration, causing British businesses to fall behind global competitors. He says there is evidence to show “the damaging impact on productivity” and says that while Business Department offices may be “sparsely occupied”, the rest of the economy “cannot afford such a lackadaisical approach if it wishes to survive in a fiercely competitive global world.” Sir James, the founder of Dyson, argues that while businesses must be able to “choose the right ways of working”, ministers appear “determined to decide for us and to push ahead with making flexible working the default.” The Telegraph notes that PwC chair Kevin Ellis recently suggested that it is in “everyone’s interest to encourage people back to the office,” saying: “The business case is clear – our economic research suggests a GDP cost of around £15bn a year is at stake, factoring in not only reduced spending by office workers, but the opportunity cost of people and businesses not being clustered together.”
London faces logistics space shortage
London will run out of available industrial space within five months should the current take-up rate continue, according to a report from London First and CBRE. The surge in occupancies has been driven by an e-commerce boom amid the pandemic, with online retailers and food delivery firms thriving. There is short supply of ready-to-occupy units, with just 1.8% of total stock in London and the South East available for rent compared to 6.2% in 2019. Analysis shows that demand for large office spaces remains robust, with transactions over 50,000 sq ft making up 38% of the total take-up in 2021. Nearly three-quarters of those were within newly completed buildings or deals for pre-let space. Richard Smart of CBRE comments: “London continues to hold its allure for occupiers, which has been reflected in the strong uptick in the leasing market at the end of Q4 2021.”
House prices hit £244k but growth is slowing
The growth in house prices is showing signs of slowing down, according to Zoopla’s house price index. The data shows that property prices increased by 7.8% to £244,100 in the year to January, while new home listings were 5% higher in January than the five-year average. However, there are signs the rate of growth is slowing, with property values up by just 0.9% in the past three months. This marks the slowest growth since August 2020. Grainne Gilmore, head of research at Zoopla, said the sheer level of activity in the market in recent years “eroded” the stock of homes for sale, but added that data indicates that more homes are now coming to the market and this will create more choice for buyers. She added that the imbalance between high demand and supply “will take much longer to unwind, and this imbalance will continue to underpin pricing in the coming year.”
BoE may end borrowers’ stress test
The Bank of England is considering ditching the stress test which requires lenders to check if a borrower can afford a mortgage if they have to pay their lender’s standard variable rate plus 3 percentage points. The Bank is consulting on a plan to replace the stress test with looser Financial Conduct Authority rules which are based on expected future interest rate rises and require a minimum stress test of 1 percentage point above a borrower’s mortgage. Research suggests that the present stress test restricts 30,000 borrowers a year to smaller mortgages than they wanted. George Nixon in the Sunday Times says that it might seem an unusual time to change mortgage rules, with bills, costs and interest rates rising, but notes suggestions that the stress test has been too restrictive. James Daley from consumer group Fairer Finance said limiting mortgages based on income multiples was a “crude” way of doing things, arguing that a borrower’s outgoings, commitments and career were as important. “As long as people can afford it — including if interest rates go up significantly — I don’t think we should be too concerned about lending people more,” he said. It is noted that in 2010, 10.6% of mortgages were for four or more times a person’s income, while this year 12.9% were at this income multiple or higher.
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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.
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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
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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?
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.