Business news 11 April 2023

James Salmon, Operations Director.

Global economy set for years of weak growth. Ultra-low interest rates will return. Call for higher pay for workers. Employers offer “early finish Fridays”. Recession risk receding?   And more business news.

Global economy set for years of weak growth, IMF chief warns
The global economy is facing years of slow growth, the International Monetary Fund’s managing director Kristalina Georgieva has warned, with medium-term prospects their weakest in more than 30 years. The IMF expects global economic growth to dip below 3% in 2023 and to remain at around 3% for the next five years – well below the average growth of 3.8% seen in the past two decades. “With rising geopolitical tensions, with inflation still running high, a robust recovery remains elusive, and that harms the prospects of everyone, especially for the most vulnerable people and the most vulnerable countries,” Georgieva said in a speech in Washington.

IMF: Ultra-low interest rates will return
The International Monetary Fund (IMF) expects a return to ultra-low interest rates, with an ageing population and low productivity set to tame inflation and see interest rates returning to levels seen before the coronavirus outbreak. The IMF says high inflation has interrupted a trend for low interest rates, rather than delivered a permanent shift in the economy. The report says: “Recent increases in real interest rates are likely to be temporary. When inflation is brought back under control, advanced economies’ central banks are likely to ease monetary policy and bring real interest rates back towards pre-pandemic levels.”

Reed boss calls for higher pay for workers
The CEO of Reed Recruitment has called on British companies to increase pay for their workers in an effort to retain staff and encourage more people into jobs. James Reed said firms should “make work pay” for their employees and increase salaries by as much as they could afford. “Many companies are looking at what they need to do to retain people and paying people more money is an obvious one,” Reed said in an interview with Bloomberg TV. Although he acknowledged the remark “might be controversial in some quarters” he explained that “over time workers have had a worsening deal and that’s been to the detriment of business more widely and the economy too.” Reed went on to encourage the UK Government to develop a “workforce strategy” to boost skills and “encourage the development of clusters of expertise”.

UK employers offer “early finish Fridays” to lure Gen Z workers
Gen Z workers are being offering “early finish Fridays” by UK employers in an effort to fill vacancies, according to jobs site Adzuna. There were 1,426 job ads on the portal offering shorter days on Friday this March, compared to only 583 in the same month five years earlier. Sectors such as engineering, sales and technology offer the most jobs with early-finish Fridays with junior roles the most targeted. Andrew Hunter, co-founder of Adzuna, said employees are “demanding more” from employers after the pandemic.  “For jobseekers, a company offering early-finish Fridays signals that they are flexible in their attitude to working hours and care about their employees’ wellbeing — two factors of utmost importance in today’s jobs market,” Hunter said.

South East pays half of UK’s £173bn tax
HMRC data shows that households in London and the South East account for almost half of the UK’s £173bn tax take, paying a combined £87bn bill. Analysis by the Liberal Democrats shows that nearly a million more taxpayers in these regions are set to be forced into higher rates by 2027/28, with this due to Chancellor Jeremy Hunt’s decision to freeze tax thresholds in the Budget – a move that is expected to net the Government an extra £120bn over the next five years. Office for Budget Responsibility analysis shows the freezes will add £12bn to the tax take over the 2023/24 financial year, rising to £29.3bn by 2027/28. In five years, 3.2m people previously not liable for income tax will have to pay it, and nearly 2.5m will move into higher brackets. The Lib Dem report shows that freezing the tax bands will lead to an increase of more than £4.4bn being paid by London and the South East over the next year alone. Liberal Democrat leader Ed Davey described this as “a hammer blow for Middle England,” adding: “Hard-working families are already struggling with rising food and energy bills. More tax hikes are the last thing they need. When will the pain end?” Warning that families are “feeling short-changed, with yet more of their wages eaten up by endless tax hikes,” he pointed to a “toxic cocktail of taxes, mortgages and food bills.”

Retail

The British Retail Consortium-KPMG monitor shows UK Retail Sales growth remained stable in March Total UK retail sales increased 5.1% in March against the previous year, slowing from an increase of 5.2% in February. This was above the three-month average growth of 4.8%, however, as well as the 12-month average of 2.6%.

Recession risk receding?
Rachel Rickard Straus in the Mail on Sunday said that despite forecasts that predicted a recession, the economy has proved more resilient than expected. She notes that while the Bank of England last year predicted that a recession was on the horizon, Office for National Statistics data shows the economy was stronger at the end of 2022 than previously thought. Rising interest rates were forecast to see more people selling their homes, driving down prices, but Halifax figures show prices rose for a third consecutive month in March. Late last year the Office for Budget Responsibility said unemployment would rise but the unemployment rate was unchanged at 3.7% in the quarter to January. Ms Rickard Straus reflected that “things may not be as bad as they might have been – and certainly not as catastrophic as predicted.”

Business optimism builds
A poll by BDO shows that business confidence has been boosted, with the firm’s latest inflation index easing by 2.19 points, dropping to 110.99 on an index where a score above 95 means that inflation is growing. While the score remains high by historical standards, the latest report marks the lowest score since March 2022. The decline came as supply chain pressures eased and wholesale energy prices came down. BDO‘s output index hit 99.48 in March, its strongest reading since August 2022. The manufacturing output sub-index also rose, climbing 2.73 points after a 0.59-point decline in February. BDO partner Kaley Crossthwaite said: “Improvements in the output and inflation indices will only lead to a better outlook, as they work to drive growth and leave signs of a downturn in the past.” She warned, however, that a less generous energy bill support scheme and a possible recession mean the economy “is likely to face further headwinds despite recent resilience.”

Pandemic leaves empty office space
The amount of vacant office space across the UK has jumped 65% over the past three years. There is 102m sq ft of empty offices, according to data from real estate analytics group CoStar. This marks the largest amount of unoccupied space since 2014. About a third of that space is in London, while around 5m sq ft of offices sit empty in each of Manchester, Birmingham and Glasgow, which has the highest office vacancy rate in the UK at 10.6%. Close to 16m sq ft of office space was leased in London last year, according to the CoStar data, compared with an average of around 24m sq ft in the years before the pandemic. Regional office leasing was roughly 17m sq ft over the past 12 months. The trend has been towards moving into smaller but better-quality offices, CoStar notes.

UK commercial rent collection dips for first time in two years
Data from Remit Consulting shows that rent collection by UK commercial landlords dipped in Q1, with Landlords only collecting 63% of the rent owed by the late March due date.

Firms face ‘brutal’ cost increases as energy support ends
Liam Halligan in the Sunday Telegraph said that while falling gas prices and Government support will ease household energy costs and give the economy a boost, “the picture is very different” when it comes to businesses’ energy bills. He notes that a scheme providing support with firms’ energy costs has come to an end and what remains is a “stripped-back version,” with support limited to steelmakers and some other highly energy-intensive industries and public sector entities. This, he argues, leaves countless SME manufacturers “in the lurch.” He adds that firms with energy bills still 20%-40% of their cost base are being hit by “brutal” increases. The Confederation of British Metalforming has written to ministers to warn that with government support gone: “Many UK manufacturers now face uncompetitive energy costs, having been coerced to enter fixed contracts at the peak of the wholesale market last year between July and December.”

Scandal could destroy the CBI
The Sunday Telegraph, Sunday Times and Mail on Sunday each looked at a scandal engulfing the Confederation of British Industry (CBI), saying that the business lobby group has been plunged into crisis amid allegations of sexual misconduct. The CBI last month hired law firm Fox Williams to help investigate the conduct of director-general Tony Danker. The inquiry has since been widened to cover additional allegations of sexual misconduct not linked to Mr Danker, with two directors thought to have been suspended. A number of companies have said they are reviewing their links with the group, with high-profile names including EY, Rolls-Royce and Marks & Spencer having raised concerns about the allegations. So far no major firms have publicly cancelled their membership, with many said to be waiting to see the findings of the investigation. Ann Francke, chief executive of the Chartered Management Institute, comments: “This is a wake-up call to all organisations and a stark reminder that company culture isn’t a slogan on the wall or the campaigns you champion — it’s all about how you behave.” A CBI spokesman said: “It’s deeply regrettable and completely unacceptable that any staff member would feel poorly treated or unsafe. The CBI has treated and continues to treat all matters of workplace conduct with the utmost seriousness.”

Crypto

Bitcoin rose above $30,000 for the first time in ten months,  strengthened by predictions that America’s Federal Reserve will end its interest rate rises soon. The crypto-currency has risen by almost 23% in March.

Address scam prompts HMRC review
HMRC is to review its processes for managing high volume address changes after a man received 580 letters in one day demanding payment for tax bills after thousands of Chinese companies fraudulently used his home address to register for VAT. Dylan Davies of Cardiff got tax bills for 11,000 Chinese companies in the space of six months, with HMRC demanding tax amounting to £500,000. HMRC Permanent Secretary Jim Harra detailed the issue in a letter to the Commons Public Accounts Committee, noting that 2,356 of the Chinese companies owed tax. A law change in 2021 means online marketplaces such as Amazon or eBay must collect VAT from overseas traders and pay it to HMRC. However, if a company has a UK address for VAT, which it does not have to provide proof of, it is responsible for the payment. HMRC said: “We are reviewing our operational processes for managing high volume address changes, including understanding any vulnerabilities in our systems associated with this behaviour.”

Creative tech firm close to failure as debts mount
Talenthouse, a tech company which matches artists with design briefs for major brands, is on the brink of collapse after being issued with a winding-up petition over unpaid debts. Talenthouse’s UK arm has been issued with a winding-up petition by Quantuma, which is owed money. If successful, it could lead to Talenthouse’s UK assets being sold and any money generated paid to those who are owed. Parent company Talenthouse AG has also announced a major “restructuring” – including the closure of four other subsidiaries, saying they cannot afford to pay outstanding bills, including staff wages.

Government drops support for staff offence legislation
Downing Street has opted not to back legislation that would allow staff to sue their employers if they were offended by a rude customer. While employers are not liable for ‘third-party’ incidents, the Bill would make them responsible for staff being harassed by customers or the public. Senior MPs have raised concerns over the Liberal Democrat-sponsored Bill which has already cleared the House of Commons. MPs have argued that the Worker Protection Bill could be abused by business owners seeking to damage rivals. A Government spokesman said: “We are aware of concerns raised by some parliamentarians about the balance the Bill strikes between protecting free speech and tackling harassment.”

Tech sector layoffs have already surpassed last year’s total
Tech sector layoffs for 2023 have already surpassed the whole of last year. Almost 169,000 people have been sacked since January, exceeding the 164,411 who were let go during 2022, according to data tracker Layoffs.fyi. Around 566 firms have cut staff numbers in the past four months, compared to 1,054 in the whole of 2022. This means that on average each firm is laying off 300 people in 2023, compared to an average of 155 last year.

House Building

UK House-Building fell at the sharpest pace since May 2020 last month as the cost of higher interest rates outweighed an easing in supply chain difficulties that bolstered other types of construction, according to a survey released on Thursday. The Construction PMI fell to 50.7 in March after jumping to 54.6 in February, a bigger drop than the fall to 53.5 forecast in a Reuters poll of economists.

UK house prices rose unexpectedly in March, says Halifax
House prices increased by 0.8% between February and March, according to the Halifax, with easing mortgage rates and a tight labour market firming market resilience. It’s the third consecutive month of price rises, following increases of 0.2% and 1.2% in January and February. The rise surprised economists who had predicted a 0.3% fall. The average UK property costs £287,880, up from £285,660 in February but around 2% below the peak reached last August. The annual rate of house price growth slowed in February to 1.6%, the weakest rate of annual growth in three and a half years. Kim Kinnaird, director of Halifax Mortgages, said: “Overall these latest figures continue to suggest relative stability in the housing market at the start of 2023.” Martin Beck, chief economic adviser to the EY Item Club, outlined some of the reasons for prices holding up: “The economy is showing increased signs of health, aided by falling energy prices, with job creation continuing at a solid pace and consumer confidence recovering.”

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