Business news 8 August 2022
James Salmon, Operations Director.
Sharp rise in number of firms in ‘critical distress’. Did the UK contract in Q2? Did the future fund invest in zombie businesses. Port strike threatens supply chain. Homeowners face mortgage crisis. Nine in Ten cut spending. And more business news.
Sharp rise in number of firms in ‘critical distress’
The number of UK companies in “critical financial distress” has increased by 37% in the past year, insolvency specialists Begbies Traynor warn. Bars and restaurants, retailers and construction groups are among the hardest hit with year-on-year rises of 70, 48 and 36 per cent respectively, the firm’s Red Flag Report reveals.
The data paints a “worrying picture”, Julie Palmer, a partner at Begbies Traynor, said. She added: “Having emerged from the pandemic, many companies were hoping for an economic boom but that has simply fizzled out, as supply chain issues and the invasion of Ukraine have taken their toll by driving up raw material and energy costs and reducing both business and consumer confidence. We are now in a very high inflationary environment that’s piling pressure on businesses that were already weakened by the shock of the pandemic.”
Did the UK contract in Q2?
Analysts are predicting that the UK economy actually contracted in the the second quarter ahead of official figures to be released later this week.
UK’s government investment fund largely backed ‘zombie businesses’
The UK’s COVID-19 investment vehicle, the Future Fund, invested in nearly 1,200 companies. But minutes of a British Business Bank audit committee reveal most of them had a limited chance of success.
Felixstowe port strike risks supply chain chaos
Some 2,000 workers at Felixstowe port will strike for eight days later this month after the port’s owners did not improve an offer of a 7% pay increase. The strike at the Suffolk port threatens to cause major disruption in the early stages of ‘peak season’ – the period in the second half of the year when importers are gearing up for Christmas. The Unite union said the strikes will have a “huge effect” on supply chains and cause “severe disruption” to international maritime trade.
Blockade of Taiwan would trigger global chip shortage
The chief executive of Intel Europe has warned that rising tensions between the US and China over Taiwan threaten to trigger significant shortages of electronics. If Taiwan’s chipmaking exports are cut off by Beijing, the industry could be plunged into a major crisis. Mark Williams, chief Asia economist at Capital Economics. “The prospect that this supply could be disrupted or severed in the near future would trigger panic buying and stockpiling.”
Sick Britain: 200,000 more people out of work due to ill-health
The number of people on sickness related benefits rose by 200,000 between the pandemic to start of 2022, costing an extra £2.5bn a year in benefits, figures show. People out of work due to long-term ill health are not counted in Government unemployment data, leading to Labour warning of a crisis of “hidden joblessness”.
Employees lacking meaning at work embrace “quiet quitting” trend
Experts have described how a new phenomenon known as “quiet quitting”, where employees do the bare minimum if they feel their jobs are not meaningful, has been embraced by workers in the UK. Encouraged by social media, workers who are uninspired are mentally “checking out” but learning to do just enough not to get sacked, academics say. The trend has been driven in part by the pandemic, which prompted greater reflection on the meaning of existence and work-life balance, but researchers are warning that adopting a quiet quitting approach may itself be the cause of poor job satisfaction.
Homeowners face the worst mortgage shock since the 1980s
Economists are warning that house price falls are now imminent as borrowing costs soar following a series of interest rate rises. Thursday’s 0.5 percentage point rise means that new mortgage rates will be three times higher than at the end of last year. Before the Bank began to raise interest rates in December last year, the average rate on a two-year fixed-rate mortgage for a buyer with a 25% deposit was 1.2%. Now the same buyer would have to pay 3.63%. Over the course of a two-year mortgage, they will pay £6,288 more than if they had bought at the end of 2021. But analysts expect the Bank Rate to climb to 3% next year. This would push the average rate on a two-year fixed deal for a buyer with a 25% deposit up to 4.88%, according to Hamptons – four times the rate at the end of 2021. With rising costs hitting demand, Capital Economics has forecast that house prices will fall by between 5% and 10% over the next two years. Adrian Lowery of Evelyn Partners says many homeowners will be coming to the end of cheap fixed-rate deals and will be facing a shock rise to their borrowing costs.
Nine in 10 adults cut spending as cost of living rises
A new Office for National Statistics (ONS) survey has revealed that nine in 10 adults, or 46m people, are worse off because of rising bills. Some 28m are already spending less in shops and online, 24m are cutting back on electricity and gas use and 16m are spending less on food. The research also found that 11m are raiding their savings to get by and 7m have taken out loans to cope with the dramatic rise in inflation. Lower-income households and those living in more deprived areas in the UK are being hit the hardest, while significantly more disabled people have been forced to buy less food and essential items, such as utilities or medication, than non-disabled people, the ONS said. Tom Marsland, policy manager at Scope, said: “These stark findings show millions have already had to cut back, with disabled people hardest hit – even before October’s terrifying energy price hikes have come into force.”
People turning back to cash as prices rise
New research by the Post Office indicates that people are turning back to cash to help them keep tighter control on their spending as living costs soar. Post offices handled £801m in personal cash withdrawals in July, the most since records began five years ago. That’s up more than 20% from a year earlier
Firms still on lookout for staff, despite recession fears
BDO’s monthly index of business surveys found the labour market still buoyant in July, as companies scrambled for staff, but the firm warned a slowdown looks likely as a recession looms.
Tackle family breakdown to mend Britain’s ills, think tank says
The Centre for Social Justice is calling for a £2,500 tax break to encourage people to get married. The think tank says if tax allowances for couples with dependent children were raised to 100% of the personal allowance – usually £12,570 – this could boost finances by £2,500 a year. The CSJ is warning that the UK has become “a world leader in family breakdown” with Office for National Statistics figures showing “marriage rates for opposite-sex couples have fallen to their lowest since 1862”. “The evidence is clear that family breakdown underpins national emergencies – from our mental health crisis to the growth in loneliness. It is a key factor in problems from educational failure to homelessness”
Soaring costs force builders to work at a loss
The Sunday Times reports on the increase in construction firms seeking help from restructuring experts as builders struggle with the soaring cost of materials. Ross Dent, who runs a double glazing company in Plymouth, says builders “are pricing at one figure, and buying materials two months later at another that will have jumped significantly.”
BoE could be ordered to scrap inflation target as Governor defends policy
Bank of England Governor Andrew Bailey has denied claims he was “asleep at the wheel” amid widespread dismay over surging inflation and calls for him to resign. Both Attorney General Suella Braverman and the Business Secretary, Kwasi Kwarteng, have said rates should have been raised sooner.
Meanwhile, the BoE’s 2% inflation target could be abandoned altogether under radical plans being floated by allies of Tory leadership frontrunner Liz Truss. The Monetary Policy Committee may be ordered to target nominal GDP instead, meaning the Bank would adjust interest rates to control the amount of spending in the economy, rather than inflation itself.
Truss: Slashing EU red tape ‘a priority’ in plan to beat recession
Liz Truss, the Foreign Secretary and favourite to win the Tory leadership race, pledged on Friday to make it her priority to slash EU regulations as part of plans to “unleash investment and boost economic growth right across the country.” She said: “For too long, we have allowed those who create wealth and high quality jobs – dynamic businesses and hard-working people – to be weighed down by onerous EU bureaucracy,” adding: “We haven’t moved fast enough to take full advantage of Brexit.” Ms Truss said that reform of EU finance sector controls known as Solvency II and MiFID would be a crucial part of supply-side reforms which she hopes will attract new investment to the UK.
However, the head of policy and governance at the Institute of Directors, Roger Barker, said: “The scrapping of laws based purely on the fact that they derive from the EU is not a priority for business. UK business needs law and regulation which is effective and proportionate. Regulatory reform should not be driven by the political motive of seeking to justify the UK’s exit from the EU.”
Voters want inflation tackled before tax cuts
A YouGov poll for the Times indicates that 64% of voters believe the next prime minister should concentrate on bringing down inflation ahead of cutting taxes, compared with 17% who favour prioritising tax cuts. The newspaper says the results are a warning to Liz Truss who has been adamant that tax cuts are needed as soon as possible to boost growth and ease the cost of living crisis. Meanwhile, her rival, the former chancellor Rishi Sunak, is preparing to announce a cost of living package to help households with energy costs this winter. His allies said yesterday that Truss’s tax cuts would disproportionately benefit the better-off and fail to help millions of families struggling to pay to heat their homes this winter.
Truss rejects ‘handouts’ in favour of tax cuts to help households
Tory leadership hopeful Liz Truss has said she would help people with the cost-of-living crisis by lowering taxes, not giving “handouts”. In an interview with the Financial Times, the Foreign Secretary said: “Of course, I will look at what more can be done. But the way I would do things is in a Conservative way of lowering the tax burden, not giving out handouts.” Speaking earlier at the Tory party leadership hustings in Eastbourne, Truss suggested her plans for immediate tax cuts could avert recession. She said: “I know there are difficult forecasts out there, but forecasts are not destiny. And what we shouldn’t be doing is talking ourselves into a recession. We should be keeping taxes low.”
Tory leadership contender Rishi Sunak has promised to provide a fresh multibillion-pound package to help ease the cost of living crisis, accusing his rival Liz Truss of being “simply wrong to rule out further direct support at this time.” He also argued that unless inflation is brought under control there is “no hope” the Tories will win the next election. Mr Sunak went on to argue that a cut to corporation tax wasn’t necessarily the best move for businesses, suggesting a wholesale reform of business taxes would be the better option.
A new poll for the Observer shows that only 22% of the public want public spending reduced in order to fund tax cuts. Just over a third (34%) say taxes and spending on public services should remain at current levels, while 26% think there should be an increase in tax to increase funding.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.