Business news 7 November 2022
James Salmon, Operations Director.
UK almost certainly going into recession. Small firms will bear the brunt. Recession fears knocks output and confidence. Real incomes face tight squeeze. But inflation is the number one enemy. And more business news.
UK almost certainly going into recession
Official figures are this week expected to show the economy shrank 0.5% in the third quarter. The Office for National Statistics is tipped to say that GDP shrank by 0.6% in September. Combined with a 0.3% fall in August it would mean the economy contracted by 0.5% for the third quarter as a whole.
Investec chief economist Philip Shaw said: “If we’re not in recession now, we will be at the start of next year.” Martin Beck, chief economic adviser to the influential EY ITEM Club think tank, agreed and RSM economist Thomas Pugh said: “It’s time to buckle up because the economy is almost certainly in recession.” Pantheon Macroeconomics’ senior UK economist Gabriella Dickens explains her forecast: “We continue to expect GDP to contract by 0.5% quarter-on-quarter in the fourth quarter, building on a likely 0.5% drop in the third quarter, and expect it to fall by a further 1.2% over the course of 2023.”
Small firms will ‘bear brunt of recession’
The London Chamber of Commerce and Industry (LCCI) has warned of the impact a prolonged recession could have on small firms. With the Bank of England lifting interest rates to a 14-year high of 3% and forecasting that the economy will be in a recession until mid-2024, LCCI chief executive Richard Burge said small businesses “will feel this rise acutely” before urging the Government to “relieve some of the mounting pressure on these SMEs.” He warned: “With the cost of doing business at an all-time high and still climbing, the Bank of England’s biggest interest rates rise in over 30 years will only serve to heighten business’s economic concerns and make financing investment more expensive.”
Recession fears knocks output and confidence
The latest Business Trends report from BDO reveals a sharp decline in economic output and optimism last month, with both down to their lowest levels since the third national lockdown in February 2021. “A contraction in both optimism and output is a concerning bellwether for firms, as inflation is expected to continue climbing in the run-up to Christmas,” said Kaley Crossthwaite, partner at BDO. “A weaker currency and drop in consumer spending power will have real and tangible consequences for firms relying on imports or customers in the retail and services sector, alongside the knock-on effects of managing political and economic uncertainty.”
Real incomes face tight squeeze, think-tank warns
The Resolution Foundation think-tank has warned that the UK faces the tightest squeeze on real incomes since the Second World War due to soaring inflation. With the Bank of England forecasting that Britain is set to see its longest recession since records began in the 1920s, the Foundation has cautioned that the average household will be £800 worse off in 2023. James Smith, research director of the Resolution Foundation, said: “By the end of 2024, 5.1m households will see their mortgage costs increase substantially, with an average annual increase in the region of £3,900 relative to autumn 2022.” He added that the Bank’s forecast that GDP is set to contract for two years “showed a grim outlook for the UK economy,” noting that it would be the longest recession on record.
Higher mortgage rates will drag thousands into poverty
The Joseph Rowntree Foundation (JRF) said an extra 120,000 households in the UK, the equivalent of 400,000 people, will fall into poverty when their current mortgage deal ends. The analysis assumes homeowners will be forced to borrow at an interest rate of 5.5%. With a current norm of 2% this change would mean spending 54% of their monthly income on housing costs, up from 38%.
PM: Inflation is the number one enemy
Rishi Sunak has said inflation is the “number one enemy” and insisted that he is doing everything he can to address the issue and limit rises in mortgage repayments. The Prime Minister said: “Inflation has the biggest impact on those with the lowest incomes. I want to get a grip of inflation.” Vowing that he will strive to limit increases in mortgage rates, the PM said: “I absolutely recognise the anxiety that people have about mortgages. It’s one of the biggest bills people have.”
Businesses voice concern over tax plans
With the Chancellor considering changes to capital gains tax (CGT) and dividend taxes as he looks to balance the books, he has been urged not to tax businesses “into the ground.” Business leaders have warned that tax raids could stifle growth at a time when firms are already battling rising late payments, soaring energy costs and higher interest rates, while also awaiting a forecast recession.
Tina McKenzie, policy chairman at the Federation of Small Businesses, said: “Filling the hole in public finances cannot and must not be achieved at the cost of taxing small firms and self-employed people into the ground, especially at a time when they are facing so many other headwinds.” Roger Barker, director of policy at the Institute of Directors, warned that business confidence “is already at a low ebb,” adding that “the further squeezing of business through higher business taxes would do little to rekindle a more positive business outlook.”
Small Business owners among the 4m to be caught by dividend tax crackdown
Analysis by RSM shows that 4m taxpayers face losing hundreds of pounds a year as the Government prepares to cut dividend income allowances as it looks to plug a £50bn gap in the nation’s finances. Chancellor Jeremy Hunt is said to be considering cutting the £2,000 tax-free allowance on dividend income. RSM says halving the allowance to £1,000 would mean 4.3m taxpayers who earn income from dividends face higher bills or paying dividend tax for the first time.
With official statistics showing that the majority of taxpayers who earn dividend income earn less than £50,000, Chris Etherington of RSM said a cut to the allowance would therefore “largely impact ordinary people with lower incomes, such as pensioners living off investment income from shares outside of Isas.”
Cut in NICs come into effect
Former Chancellor Kwasi Kwarteng’s reversal of the 1.25 percentage point rise in National Insurance Contributions came into effect yesterday. Last year, Boris Johnson’s government billed the hike as a health and social care levy. The U-turn, combined with the decision this summer to increase the threshold at which the tax kicks in (from £9,880 to £12,570 a year), means that the average worker will be £500 better off next year.
COP27
Climate talks have begun in Egypt as the world looks to re-emphasize the needs for action after a year of being destracted by Russia’s invasion and the knock on effects to fossil fuel markets and the global economy. With global temperatures rising, oblivious to the political and economic distractions, and natural disasters increasing in their frequency and impactfulness, the call is out to return Climate to the top of the agenda for global governments. limiting global warming to 1.5 degrees looks more and more like a dream. And for the first time governments will discuss rich polluters compensating poor countries for the impact of climate change under “loss & damage” finance.
Extra bank holiday to mark King’s coronation
The Prime Minister has proclaimed an additional bank holiday for Monday, 8 May 2023 to mark the coronation of King Charles III. Rishi Sunak said: “The coronation of a new monarch is a unique moment for our country.” “I look forward to seeing people come together to celebrate and pay tribute to King Charles III by taking part in local and national events across the country in his honour”, he added
Bond market pressures continue for BoE
City traders are warning of mounting stress in the repo market and a scarcity of short-dated UK debt just weeks after the post mini-Budget bond chaos pushed Britain’s pensions funds to the brink of collapse. The Bank of England started unwinding its quantitative easing (QE) programme last week, issuing its first bond sales under quantitative tightening (QT). Antoine Bouvet, rates strategist at ING, said: “It is becoming increasingly difficult to buy short-dated gilts, or to borrow them via repurchase agreements (repo).” He added that the strong demand for the shortest dated bonds in the Bank’s first QT sale reinforces the “impression of a shortage of bonds” in this part of the gilt market. Further short-dated bond sales by the Bank should help alleviate gilt scarcity in due course, however.
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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.
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