Business news 10 January 2022
James Salmon, Operations Director.
COVID-19-related absence hits output and reporting. Business optimism. Energy bills to jump. And more business news from the housing market, construction, restaurants, Brexit, manufacturing and retail in a jam packed Monday post.
COVID-19-related absence hits output and reporting
Some 8.8% of GDP for the months of January and February could be lost due to staff shortages and absenteeism caused by COVID-19 isolation, analysis by the Centre for Economics and Business Research (CEBR) shows. This is equivalent to £35bn in lost output.
However, Pushpin Singh, economist at the CEBR, said most of the losses would be made up during the rest of the year. Meanwhile, KPMG has warned that sickness absence over the next six months could hit the publication of company results. The firm’s Cath Burnet said: “Given the rapid spread of the new variant, it is likely that finance functions at companies and audit teams could be impacted by COVID-19-related absence, and this could see companies push back the announcement of their results.”
UK companies optimistic about outlook for 2022
A Deloitte survey of CFOs found persistent labour shortages, the pandemic, climate change and higher inflation were seen as the leading risks to their businesses in the year ahead. However, some 37% said that increasing capital expenditure was a priority for 2022. This is the highest figure recorded by Deloitte since it first asked the question in 2009.
Half of respondents said expanding into new markets and introducing new products and services were a priority for this year, up from 37% last March. Ian Stewart, chief economist at Deloitte, said: “It is a measure both of the remarkable snap-back in activity from the pandemic and the scale of the challenge today that CFOs rate labour shortages as the greatest risk to business. This is ahead of even the pandemic, in second place. Strikingly, the worries that dominated the risk list in recent years, above all Brexit and weak global growth, have dropped sharply down the risk rankings.”
Optimism and output growth fell last month
However, in contrast, an analysis of leading business surveys by BDO and the Centre for Economics and Business Research found that business optimism and output growth fell in December as companies grappled with the fallout from the latest wave of Covid infections. Kaley Crossthwaite, a partner at BDO, said: “Ongoing uncertainty around Omicron is providing a further blow to UK businesses, which have already battled a string of supply chain issues, the threat of further Covid restrictions and inflationary pressures this past year.”
UK’s average earners face massive pay cut
Calculations by the Institute for Fiscal Studies (IFS) indicate that a person earning £30,000 will see their take-home pay plunge by £1,660 thanks to soaring living costs, stagnant wages and tax increases. The effective pay cut includes paying £250 more in NICs and £150 more in income tax. Separately, George Dibb, head of the IPPR’s Centre for Economic Justice, warned: “There is a real risk that poorly designed tax rises combined with lower economic growth will prove a dangerous combination for both household budgets and the nation’s finances.”
Energy bills to jump £18 billion in April
Energy bills are set to spike in April when new caps come into effect. The energy bill for a typical household is set to jump 50% in April to almost £2,000, more than double the level set 5 years ago in 2017. The regulator will set the caps on 7th February giving the government and the energy industry little to time to act to lessen the blow.
Various commentators have suggested cutting VAT on bills or setting up a fund for energy suppliers so they can slow bill increases. Others have suggested extending financial help directly to consumers through the Warm Home Discount. Finding a way to reduce wholesale costs would be the most effective solution but the government hasn’t indicated an urgency to act. The government said Friday it’s continuing to talk with the industry, and it will keep supporting the lowest-income families and the most vulnerable people.
Labour urges windfall tax on North Sea operators
Rachel Reeves, the shadow chancellor, has announced plans for a one-off windfall tax on oil and gas producers who have profited from the rise in wholesale prices. The Labour party claims £1.2bn can be raised by increasing the tax by 10%. It would also remove VAT on domestic energy bills for a year from April, which would save families £89 a year. The call was echoed by Dale Vince, the founder of green energy supplier Ecotricity, who pointed out that the UK paid up to ten times more for gas extracted from our own territory despite the cost of extraction staying the same, just because it’s tied to global prices.
Rishi Sunak urged to reconsider NIC move
Mike Cherry, of the Federation of Small Businesses, has joined a raft of other voices calling on the Chancellor to reconsider planned increases to National Insurance Contributions, arguing that the combination of “a jobs tax hike, fresh business rates bills – with reliefs on them ending for the hardest hit – and a national living wage increase” makes April “a flashpoint that threatens to spell the end for thousands of small businesses”.
Small businesses concerned over rising prices
A poll conducted by small business lender Iwoca reveals that almost half of Britain’s small businesses say the increased cost of doing business is a concern for them in the new year. Optimism is in short supply, the survey found, with fewer than one in three expecting turnover to grow in the coming year. Smaller businesses are also feeling the pinch from supply chain constraints and shortages.
Mortgage Lenders expect Housing market to slow
Halifax and Nationwide predicted that rising tax, energy prices and interest rates will finally start to slow the economic worry defying housing market as consumers face a squeeze on multiple fronts. This comes after prices rose 9.8% to an average of £276,091 in 2021.
“The prospect that interest rates may rise further this year to tackle rising inflation and the increasing pressures on household budgets suggest house price growth will slow considerably,” Russell Galley, Halifax Managing Director said on Friday.
“The stamp duty holiday encouraged many to bring forward their house purchase,” said Robert Gardner, Nationwide’s chief economist. “It appears likely that the housing market will slow next year.”
However, Martin Beck, chief economic adviser to the EY Item Club said “The ingredients for any serious correction in property values are lacking,” before adding “changes in housing preference driven by the pandemic – the race for space – will eventually fade.”
Brexit
Liz Truss, writing in The Telegraph, insisted on Sunday that Britain will overhaul the post-Brexit agreement over Northern Ireland unilaterally if she cannot reach a “negotiated solution” with the EU. In her first move as Boris Johnson’s new Brexit negotiator, the Foreign Secretary states that the Article 16 “safeguard clause” in the Northern Ireland Protocol was “explicitly designed” “to ease acute problems because of the sensitivity of the issues at play” in Ireland. The Eu has warned of serious consequences if the UK triggers article 16.
UK to scale back testing under plans for living with Covid
Giving lateral flow tests out for free could come to an end under plans set to be announced by Boris Johnson in the next few weeks. A new policy could see free tests being provided only in high-risk settings while contact tracing by NHS Test and Trace is also likely to be scaled back. The changes are part of a shift back to normality as ministers begin to accept that the pandemic is over. Experts say the Omicron variant has essentially made Covid endemic and that immunity will eventually make the disease no less severe than seasonal flu. The PM last month cut the self-isolation time for coronavirus-positive people from ten days to seven and has been urged to cut it to five as staffing pressures leave schools and the NHS struggling. Separately, the former chairman of the UK’s vaccine taskforce, Dr Clive Dix, has said Britain’s mass-vaccination programme should end and that Covid should be treated more like the flu. He also called for research into immunity with the view to managing the disease, not its spread
Economists warn of rise in wealth inequality
Figures released on Friday by the Office for National Statistics (ONS) show the inequality gap in Britain has widened over the last decade with the richest 1% of households having fortunes of at least £3.6m while the poorest 10% of households have just £15,400 or less. The ONS said the income inequality gap as measured by the Gini coefficient had “steadily increased to 36.3%”, which was “the highest level of income inequality since 2010”.
The ONS added: “The wealthiest 10% of households held 43% of all the wealth in Great Britain in the latest period; in comparison, the bottom 50% held only 9%.” However, the figures cover the financial year to the end of March 2020, and economists said the gap between rich and poor is likely to have increased further during the pandemic.
Arun Advani, an assistant professor at the University of Warwick’s economics department, pointed out that the data was likely to dramatically underestimate the share of wealth going to the richest households because the data does not include business wealth, and because “the very wealthy do not tend to respond to such surveys”.
Fears for restaurants ahead of spending squeeze
Losses at the country’s largest restaurant groups rose by 174% to £673m in the year to September, according to UHY Hacker Young. With household spending due to be squeezed in the spring when energy bills and taxes rise, a fresh wave of restaurant firm collapses are now more likely as many face rising costs, UHY’s Peter Kubik warned.
Brexit adds to manufacturers’ woes
Make UK, the industry body representing 20,000 manufacturing firms, has warned that the soaring costs facing British industry will be worsened by Brexit. Two-thirds of survey respondents said delays at customs, the additional costs from meeting separate regulatory regimes in the UK and the EU, and reduced access to migrant workers had moderately or significantly hampered their business.
Over half of businesses warned they were likely to suffer further damage this year from customs delays due to import checks and changes to product labelling. According to the 2022 Make UK/PwC senior executive survey, Brexit disruption remains among the biggest concerns facing industry bosses for the year ahead.
However, the survey also found that business leaders expected conditions to improve over the coming year. Almost three-quarters of companies said they believed conditions for the sector would improve, with about 73% believing that opportunities for their company outweighed the risks.
UK construction industry growth slowed in December
The latest IHS Markit/CIPS survey of the UK construction industry shows the sector slowed in December despite a reduction in pressure on building firms from supply chain problems. The number of construction firms reporting supplier delays dropped from 47% in November to 34% in December and fewer shortages of essential raw materials and improved delivery times contributed to the slowest rate of inflation for building supplies for nine months. However, the arrival of Omicron offset these gains somewhat with rising infections and fresh pandemic restrictions hitting demand. Housebuilding gained momentum in December, but activity was weaker for commercial building projects and civil engineering. Overall, the construction PMI fell to a three-month low of 54.3 in December from 55.5 in November.
Jan Crosby, head of infrastructure, building and construction at KPMG, said: “Along with the disruptive weather we tend to get at this time of year, any tightening of restrictions or workers needing to self-isolate will likely result in project delays or even the temporary closure of some sites.” He added: “The sector has shown great resilience through the events of the past two years, remaining robust despite having seemingly endless obstacles and pressures to contend with. And it will need to keep doing so as we enter 2022, with the impact of the ongoing Omicron variant, supply chain issues and skills shortages continuing to create uncertainty in the months ahead.”
NMCN creditors face £115m losses
Unsecured creditors of the collapsed construction group NMCN are facing losses of £115m, up from an estimate of £60m in October, shortly after the company appointed administrators at Grant Thornton. The Financial Reporting Council launched an investigation in October into the audit by BDO of NMCN’s 2019 financial statements, the Times reports, adding that BDO had been its external auditor since 2010. NMCN is said to have collapsed after contracts soured and deep losses were discovered.
Omicron ‘wiped out’ progress for retailers
Britain’s high streets saw footfall drop by 23.1% last month, compared to 2019, as fears over the Omicron variant of Covid rattled shoppers. This was 3.5 percentage points below November’s rate and below the three month average decline of 20.7%.
Helen Dickinson OBE, chief executive of British Retail Consortium, said much of the bricks-and-mortar industry’s pandemic recovery progress was “wiped out” in December. “As case numbers rose precipitously, many people chose to limit social mixing in the run up to Christmas and shop less frequently,” she added. According to BDO’s high street sales tracker, growth in stores was slowed in the second and third weeks of December but rose 60.9% in the final week of the month.
Sophie Michael, BDO’s head of retail and wholesale, warned: “Retailers will now need to reinforce the resilience they have developed over the past two years if they are to survive further shocks to the system and see the strong growth of 2021 continue in 2022.”
Eurozone inflation hits new record as energy and food prices soar
Inflation in the eurozone rose to 5% in December, driven by soaring energy and food prices. This marks the highest annual rate in the 22-year history of the single currency and comes as consumer confidence across the eurozone also sank to its lowest since May last month. The increase is likely to put pressure on the ECB to reduce its monetary stimulus quicker than planned
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