Business news 9 May 2023

James Salmon, Operations Director.

Small firms stretched by fixed energy contracts. UK firms more optimistic than rivals. Consumer spending fails to match inflation. UK to avoid recession in H1. Bank of England set to raise interest rates and set to stay high.  And more business news.

Small firms stretched by fixed energy contracts
Nearly 100,000 small businesses are at risk due to high energy deals that were locked in before prices fell, according to the Federation of Small Businesses (FSB). Analysis shows that more than one in eight small businesses fixed their energy contracts at the peak of the market last year. Around 93,000 businesses say they could be forced to close, downsize or restructure because of the cost of energy bills. The FSB has called on energy suppliers to give small firms the option to renegotiate their contracts, or “blend and extend” their payments to spread out the burden of high costs.

UK firms more optimistic than rivals
A poll by software firm Sage shows that British SMEs are more optimistic than global rivals. The survey of 12,000 small firms found that 71% of those in the UK were confident of business success. In the UK, 40% of small firms predict they will feel “very confident” about the success of their business at the end of this year, exceeding the 34% global average. It was also found that more than two-thirds expect their revenues to stay the same or increase next year, marking a 14% increase on a year ago. Around 60% of companies have seen rising costs this year, compared with a quarter in 2022. The Small Business, Big Opportunity report shows that firms which invested in equipment reported an average doubling in productivity, while those who adopted new technology saw an 84% increase. The poll also shows UK firms only plan to increase tech investment by 13% over the next 12 months, with this less than their European or US peers.

Consumer spending fails to match inflation
Consumer spending increased at about half the pace of inflation in April, with data from the British Retail Consortium and KPMG showing that retail sales increased 5.2% on a like-for-like basis when compared with April 2022. This compares with March’s headline inflation figure of 10.1%. The report also shows that although customers spent more, the volume of items bought was lower. Paul Martin, UK head of retail at KPMG, said that while consumer demand “has so far been fairly resilient to the twin drags of high inflation and high interest rates,” dwindling savings, rising bills and the end of energy support mean “it is likely that the next few months will continue to be challenging as the consumer tank empties.” Separate figures compiled by Barclays show a 4.3% year-on-year increase in consumer card spending in April, with this also well short of inflation.

UK to avoid recession in H1
Office for National Statistics (ONS) data due to be published this week is expected to show that the UK avoided a recession in the first half of this year. The figures are set to reveal that GDP increased by 0.1% in Q1, meaning that economy dodged the official definition of a recession – two straight quarters of contraction. Sanjay Raja, an economist at Deutsche Bank, says expansion in Q1 is likely to have been driven by “expected gains in household consumption and government spending.” In February, the Bank of England forecast that GDP would shrink 0.1% in the first quarter. The Bank is expected to upgrade its prediction this week. It is also set to deliver its twelfth consecutive rate increase, with analysts expecting the base rate to be hiked to 4.5%.

Bank of England set to raise interest rates
The Bank of England is set to raise interest rates to 4.5% amid ongoing inflationary pressures and a stronger-than-expected economy. This would mark the 12th consecutive increase. The Bank’s Monetary Policy Committee (MPC) is set to vote for the increase, with the US Federal Reserve and European Central Bank having recently upped rates as officials look to tame inflation. Although the MPC has raised interest rates by 4.15 percentage points since December 2021, inflation remains high, coming in at 10.1% in March. This exceeds the Bank’s 9.8% forecast from February and is significantly above its 2% official target. In February, the Bank said it expects inflation to fall to 3.9% by the end of this year, and below the 2% target in 2024. Sanjay Raja, UK economist at Deutsche Bank, said the MPC could have to raise rates another three times after this month, pushing the base rate to as high as 5.25%. Peter Schaffrik, a strategist at RBC Capital Markets, said: “We think the MPC will retain a hiking bias but keep their options open by stressing the data dependence of their decisions going forward.”

Rates to remain high, say economists
Economists say weak growth and high inflation will keep interest rates higher for longer. The Bank of England is expected to hike its base rate by a quarter point to 4.5% this week, while Office for National Statistics data is expected to show that economic activity was flat in March. Bank of America UK economist Robert Wood believes 4.5% could be the peak of the rate tightening cycle, saying: “We think the market is pricing too many cuts for 2024.” Capital Economics’ chief UK economist, Paul Dales, believes that “lingering inflation pressures will keep rates higher for longer.” S&P Global economist Chris Williamson says the economy is stagnant, commenting: “We were fortunate to avoid contraction, but the economy is just ticking along.” Martin Beck, chief economic adviser to the EY Item Club, says it is likely that GDP will struggle to grow in Q2, “given the impact of the extra public holiday and the drag on activity in some sectors from industrial action.”

Calder Valley the UK’s small business hotspot
Research by GoDaddy shows that the Calder Valley in West Yorkshire is the fastest growing area for small businesses in the UK. Data from more than 2.3m microbusinesses showed its density of new businesses grew by 70% over the past 12 months. The report points to a surge in new business growth outside of London and the south of England, which had represented a majority of locations in last year’s top 10 regions. This year’s top 10 had no representation from London and the South. Torfaen in Wales ranked second, followed by Airdrie and Shotts in Scotland, Wirral West in Cheshire and Knowsley, Merseyside. Andrew Gradon, head of GoDaddy UK & Ireland, said: “It is heartening to see the growth in microbusinesses across Scotland, Wales and the North of England thriving.” “Last year’s venture forward study revealed a North-South divide in Britain’s entrepreneurial landscape, but this year’s data suggests that it could be starting to close,” he added.

Coronation drives dip in retail footfall
Footfall at shops across the UK was 20.6% lower than the previous week on Saturday, with many people opting to stay at home and watch the Coronation. Between 10am and 3pm, when the event was televised, the figure rose to almost 25%. However, there was significant variation across the country. Shoppers in central London avoided the crowds lining the street to witness the historic event by flocking to Knightsbridge, where footfall was 57.7% higher than in the same period a week earlier.

WFH not working for 4 in 10 staff
A survey by software firm Ivanti shows that almost 40% of workers are struggling with working remotely, with a lack of interaction with colleagues cited as the biggest downside. One in ten of those polled identified mental health problems linked to home working. The tech sector saw the steepest proportion of workers say they were not enjoying working remotely, at 60%, with nearly three quarters saying their work had increased as a result of not being in the office. Helen Masters, executive vice-president at Ivanti, said it was “unsurprising” to see so many people express dissatisfaction with working from home. This comes as more firms push for staff to return to offices, with the number of remote jobs advertised on LinkedIn falling for the 11th consecutive month in March.

Tata Steel warns future of its UK business in doubt
Tata Steel has warned of a “material uncertainty” over the future of its UK steel business, saying the uncertainty stems from tough trading conditions and lack of clarity over government support.

Sunak urged to cut taxes and ‘go for growth’
Prime Minister Rishi Sunak has been urged to cut taxes after the Conservatives lost control at more than 40 councils at the local elections. Tory MP Sir John Redwood said: “If the PM wants to win back lost Conservative voters he should try offering some Conservative policies. Cut taxes, get better value for state spending and go for growth,” while former Cabinet minister David Jones said Tory voters wanted “a lower tax regime and control over illegal immigration.” Former Conservative leader Sir Iain Duncan Smith said that while next year’s general election was still “game on” despite the local election results, lowering the tax burden was “critical” to the party’s prospects of success. “People are fed up with us, they are fed up with the level of taxation and the cost of living,” he said, adding: “We have got to get the economy going and cut this oppressive tax burden, which is not what people want from the Conservatives.”

Lawyers called in to help with ‘bonfire’ of EU laws
Ministers have handed law firm Hogan Lovells a £4m contract to help deliver a “bonfire” of 4,000 EU-era laws. The Business Department has hired lawyers amid reports that the Government is unlikely to rid the statute books of EU law by the end of the year. Noting that the Government has “procured external legal support,” a spokesperson said ministers are “fully committed to removing and reforming burdensome EU law,” adding: “Once passed, the Retained EU Law Bill will enable the country to further seize the opportunities of Brexit by ensuring regulations fit the needs of the UK, helping to drive economic growth and innovation.” The planned law, which is currently in the House of Lords, will put a “sunset” clause on the remaining EU-derived legislation.

HMRC ‘in disarray’ amid delays and fraud losses
Charlotte Gifford in the Sunday Telegraph said HMRC is “in disarray,” accusing the tax office of failing in its primary tasks of “chasing those who break the rules and helping taxpayers get their tax affairs right in the first place.” She points to two “damning” Public Accounts Committee reports published this year, with one condemning HMRC for its “unacceptable” levels of customer service and the other criticising the tax office for failing to recoup the revenue lost to tax evaders. Ms Gifford highlights that taxpayers calling HMRC are waiting for an average of 21 minutes before their call is answered, compared to a pre-pandemic wait time of just five minutes. Staff cuts and HMRC’s working home policy have been blamed for the delays. Over the past five years, the tax office has cut its customer-facing staff from 25,500 to 19,500. Richard Wild, of the Chartered Institute of Taxation, said HMRC is cutting staff numbers in anticipation of efficiencies and time savings from digitalisation “which have not yet arrived.” The ICAEW has warned that taxpayers could face more delays, with hundreds of tax office workers set to go on strike this month. Ms Gifford also suggests that HMRC “has given up” on retrieving all the money lost through pandemic support schemes, with it expecting to recover just £1.1bn of the £4.5bn in fraud and error losses. BDO’s Dawn Register comments: “Without firm action from HMRC, there is a real risk of a dilution in the deterrent effect which is so crucial in encouraging people to come forward and settle their tax affairs.”

Heathrow blames tourist tax for empty shops
Heathrow says the tourist tax has left the UK’s largest airport with empty shops that it is struggling to fill. It said eighteen stores have been shut “as a direct response” to the tax, with seven yet to be filled by new businesses. it added that the tourist tax was “continually brought up as a blocker for investment and entering Heathrow.” Prime Minister Rishi Sunak scrapped VAT-free shopping for overseas visitors in 2021, when he was Chancellor. He claimed that the change would save the Treasury £2bn a year and have limited impact on spending. However, retailers say the policy has driven wealthy tourists elsewhere. Archie Norman, chairman of Marks & Spencer, says the decision to scrap tax-free shopping for tourists points to a “lack of a clear sense of where the UK should compete.” He argued it is “hard to divine the Government’s thinking behind the tourist tax.” The chief executives of Burberry, Harrods and Selfridges have all recently said that shoppers are being tempted to other European cities where VAT relief is still in place, while the bosses of 20 airports, including Gatwick, Edinburgh, Belfast and Exeter last month joined calls for Britain to bring back VAT-free shopping.

Why should you become a CPA member!

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.

CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.

Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the debt value maybe!

No face-to-face meeting required – just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.

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

Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!

If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?

CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.

Once you have enjoyed that success then you can consider the more cost effective membership which includes our Overdue Account Recovery service and Status/Credit reports as well as a range of other complimentary services.

Just call  020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.

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?

Maybe you no longer work with them. Under legislation, you are entitled to  compensation you for those late payments you have suffered.

You put up with the PAIN – now claim the GAIN!

Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!

CPA (LPC) Recoveries is using our bespoke software and decades of experience to do just that for our clients

Check our compensation calculator to see how much your business could be owed!

Discover NOW the potential value of late payment compensation hidden in your sales ledger!

The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.