Business news 11 October 2022
James Salmon, Operations Director.
Three-quarters of UK business hit by labour shortages. Companies collapse at fastest rate since financial crisis. Business confidence slumps as output shrinks. Over 20,000 LLPs raise fraud concerns Households face rising shopping costs, mortgages and sentiment takes a dive. And more business news.
Three-quarters of UK business hit by labour shortages
A survey by the Confederation of British Industry (CBI) reveals that three-quarters of businesses have experienced difficulties filling vacancies, meaning nearly half have been unable to meet output demands as a result. Nearly half (46%) of businesses called for the Government to introduce incentives to help them invest in technology to boost productivity while just over two-fifths (44%) want the Government to grant temporary visas for roles that are in obvious shortage. Matthew Percival, CBI director for skills and inclusion said: “It is crystal clear that labour market shortages are having a material impact on firms’ ability to operate at full capacity, let alone grow. To go for growth and build a higher-wage economy we will need to ease shortages to create the conditions for higher investment. That means helping more British workers to overcome barriers into the workplace, like a lack of affordable childcare, and taking a pragmatic approach to immigration.”
UK’s older workers help fill the hospitality labour gap
Hospitality businesses in the UK are increasingly turning to older workers to fill staffing shortages with over-50s now accounting for 25.2% of the 2.2m-strong hospitality workforce
Companies collapse at fastest rate since financial crisis
Company insolvencies in England and Wales rose to a 13-year high in the three months to the end of June. Figures from the Office for National Statistics (ONS) show there were 5,629 insolvencies in the second quarter, which is 46% higher than the average quarterly figures recorded over the four years before the coronavirus pandemic. The sharp rise in energy bills was cited as the biggest problem for businesses. Problems with paying debt, rising costs of raw materials and supply chain disruptions were also blamed. Although all businesses have been hit by the financial squeeze, construction, retail and accommodation and food services suffered the highest number of insolvencies in the first half of the year.
Business confidence slumps, BCC finds
A survey by the British Chambers of Commerce (BCC) reveals a slump in business confidence in the past quarter with as many as four in 10 firms saying they thought their profitability would fall in the next 12 months. The study, which was carried out before the Government announced its energy support package and mini-budget plans, also found over three-quarters of respondents had not increased investment in the last three months. Shevaun Haviland, the director general of the BCC, said: “Our findings paint a worrying picture of the state of affairs at many UK firms. Almost every key business indicator is trending downwards – sounding alarm bells across all sectors and regions.”
Businesses pessimistic as output shrinks
Business output and confidence fell to its lowest level since February 2021 last month as employers put the brakes on recruitment because of growing economic uncertainty, according to a report from BDO. Kaley Crossthwaite, a partner at BDO, said: “A fall across output, optimism and employment is a stark warning sign for the economy, and it’s likely that there is further upheaval ahead. With energy prices expected to accelerate inflation towards the end of this year and unemployment rates set to peak in mid-2023, we are only just starting to see the recessionary impacts set in.” A separate survey from the Institute of Directors showed that the level of businesses reporting a strengthened order book fell sharply from 41% in July to 29% last month. “The economy is teetering on a knife edge,” Kitty Ussher, the institute’s chief economist, said.
BoE’s debt purchase pledge fails to ease market strains
The Bank of England has said it stands ready to double the size of its daily gilt purchases as the central bank seeks to reassure markets ahead of the programme expiring at the end of this week. The Bank launched an emergency bond-buying support programme two weeks ago after the yield on long-dated bonds leapt to a 24-year high, threatening a meltdown of pension funds. But, having not used all the firepower it set aside, the Bank is now preparing to deploy the unused capacity. The Bank said fund managers operating LDI funds on behalf of pension funds had made substantial progress with improving their financial resilience over the past week, adding: “Beyond the end of this week’s operations, the Bank will continue to work with the UK authorities and regulators to ensure that the LDI industry operates on a more resilient basis in future.” However, the move failed to convince markets which sold off government debt, pushing the 30-year gilt yield up 0.29 percentage points to 4.68%. “We suspect the new measures are insufficient and do not fully recognise the long-term nature of the challenges,” said Daniela Russell, head of UK rates strategy at HSBC, who described the BoE’s moves as a “sticking plaster”.
Over 20,000 LLPs raise fraud concerns
A report from Transparency International UK claims that more than 21,000 partnerships, 14% of the total set up over the past 20 years, “share almost identical characteristics” with those known to have been used in corruption and money laundering schemes. The findings come ahead of a debate by MPs this week on the Economic Crime and Corporate Transparency Bill, which Transparency International says will still leave vulnerabilities for money launderers to exploit. Duncan Hames, its director of policy, said there were “glaring gaps” in the bill and parliament should “prohibit opaque corporate control of UK- registered companies to further strengthen this legislation and buttress Britain’s defences against dirty money”. He said a “substantial proportion” of partnerships show “red flags for use in high-end money laundering”.
Households paying more for their weekly shop
Figures from the British Retail Consortium and KPMG show consumers are paying more for their weekly supermarket shop, with total sales up 2.2% in September amidst a drop in volume of goods sold. Paul Martin, UK head of retail at KPMG, said Christmas was likely to be difficult for retailers: “With interest rates, inflation, labour, energy and costs of goods continuing to climb, retailers are heading into one of the most challenging Christmas shopping periods they have had to deal with in years. Consumer confidence remains low, and retailers are having to tread a very fine line between protecting their own margins and further denting confidence by passing on price rises.”
Mortgage rates continue to rise
The average interest rate on a two year fixed term mortgage has risen to 6.3%, nearly triple the 2.25% rate just a year ago. According to data compiled by Moneyfacts, a similar rise has taken place in the average five year fixed term mortgage, which now has an average rate of 6.19%. The increase comes despite the number of products on the market gradually increasing in recent days. Lenders rapidly withdrew deals from the market after the Bank of England signalled it would raise rates in the aftermath of the Chancellor’s mini-Budget last month. “Mortgage products are starting to return after lenders temporarily withdrew deals amid interest rate uncertainty, but there is still much more room for improvement compared to the level of choice seen before the mini-budget,” a Moneyfacts spokesperson said. “Consumers must carefully consider whether now is the right time to buy a home or remortgage, or to wait and see how things change in the coming weeks.”
Consumer sentiment takes a dive
A new survey by PwC reveals how UK households are growing increasingly pessimistic about their financial situation with sentiment now worse than during George Osborne’s austerity drive in 2012. Nearly half of UK adults have already started to buy less in shops and 42% of people are trading down to cheaper alternatives, the study found. Adults aged between 55 and 64 are the most gloomy given they typically spend more on a monthly basis than younger groups and have less protection through savings or pensions than older people. Lisa Hooker, of PwC, said: “Perhaps those who took voluntary redundancies or early retirement during the pandemic might be feeling the anxiety of rising mortgages and inflation.”
Consumers cut spending on pubs and clubs
Figures from Barclaycard show that more than half of consumers are cutting back on non-essential spending with sales at bars, pubs and clubs down 0.4% in September compared with a year earlier. This marks the first time sales have fallen since March 2021 when pandemic restrictions began easing. Restaurant spend fell 12.2% in September, compared to a 11.4% drop in August
Renewable energy firms face £14bn windfall tax
The UK Government is going ahead with plans to cap the profits renewable energy generators are making from soaring wholesale power prices. The move could bring in up to £14bn a year for the Treasury but industry figures fear the step will amount to a windfall tax on renewable energy and penalise companies such as EDF, ScottishPower and SSE. The plan comes after talks for voluntary 15-year fixed-price contracts collapsed. An industry source told the Times if ministers go ahead with this they will have to revisit windfall taxes on oil and gas companies, which were watered down by including tax breaks on future investments.
Renewable power generators balk at revenue cap
Following news the Government is considering imposing a cap on profits earned by renewable and nuclear power generators, shares in the companies likely to be affected slumped on Monday. The proposal would mean the Government taking a share of wholesale revenues above a certain level for each megawatt-hour of electricity generated. Initial plans suggested a cap in the region of £50 to £70 per megawatt-hour, with the state taking at least 90% of revenues above that level. Power for the month ahead is currently trading at almost £500 per megawatt-hour. The industry has described the proposals as potentially crippling and worse than a one-off windfall tax whilst also being a deterrent to investment.
Zahawi confident in UK’s energy resilience
The chancellor of the Duchy of Lancaster, Nadhim Zahawi, has said blackouts were extremely unlikely this winter. His assurances came after the National Grid said a worst-case scenario could see households and businesses facing planned three-hour outages to ensure that the grid did not collapse. Zahawi told the BBC on Sunday that a series of negative events would have to occur alongside a “very cold snap” to make such a scenario possible. “I don’t believe that will happen.”
Chancellor told he faces £60bn bill to stabilise UK finances
The Institute for Fiscal Studies (IFS) claims in a new report that Chancellor Kwasi Kwarteng would need to cut spending by £62bn by 2026-27, or increase taxes if he is to decrease the share of debt to GDP. The IFS forecasts that government debt interest payments will top £100bn next year, some £71bn more than official forecasts showed in March. Much of this increase would be down to the tax cuts Mr Kwarteng announced last month. The IFS outlined a series of cuts that could achieve the savings, including spending £35bn less on public services. The think tank’s projections are based on relatively downbeat growth forecasts from Citigroup, which estimates that the British economy will grow by an average of just 0.8% a year over the next five years, with inflation peaking near 12% and interest rates at 4.5%. The IFS said faster growth would improve the outlook for the public finances, but even if the Office for Budget Responsibility added 0.25 percentage points to its forecast for GDP growth in each year, a fiscal tightening of £40bn would still be needed by 2026-27. The Treasury said: “Through tax cuts and ambitious supply-side reforms, our growth plan will drive sustainable long-term growth, which will lead to higher wages, greater opportunities and sustainable funding for public services.”
Chancellor brings forward strategy update
Kwasi Kwarteng will reveal his plans to balance Britain’s finances on October 31st, three weeks earlier than planned as the Treasury moves to reassure nervous markets. The updated financial strategy and independent economic assessment is due to set out how the Government will reduce borrowing in the longer term and pay for the tax cuts the Chancellor announced in his mini-budget last month. The OBR, the independent budget watchdog, will also publish a report alongside Mr Kwarteng’s statement at the end of October. The new date means Mr Kwarteng’s fiscal statement will be published before the Bank of England announces its latest decision on interest rates on the 3rd of November, leading to hope from some for a smaller rate rise. Meanwhile, Liz Truss, the Prime Minister, reportedly reversed a decision to appoint Antonia Romeo, the permanent secretary at the Ministry of Justice, to permanent secretary of the Treasury, deciding instead to install James Bowler, formerly permanent secretary in the department of trade and a senior Treasury official. The Times reports that Bowler is regarded as a safe pair of hands at a time when the department is under huge political and economic pressure.
Most firms will not offer full pay for four-day week
New research by the Chartered Institute of Personnel and Development (CIPD) has revealed that a third of UK companies expect most workers to be on a four-day week within the next 10 years. However, those shifting to the working pattern are facing big wage cuts as only 1% of companies plan to offer full pay for reduced hours. Jonathan Boys, economist at the CIPD, said: “The major sticking point is the need to increase productivity by a whopping 25% to make up for the output lost from fewer days of work. This point came through in our findings with a majority of employers saying they would need to work smarter and adopt new technology in order to reduce working hours without cutting pay.”
High electricity prices keep electric cars more expensive
Soaring electricity prices will mean petrol and diesel cars will remain cheaper to own than electric vehicles until 2026, according to analysts at EY. Their previous forecast was 2023-24. “Higher energy costs are offsetting the reduction in vehicle [costs],” says Maria Bengtsson, partner and UK electric car lead at EY. “So the tipping point has moved further out and we are looking tentatively at 2026.”
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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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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.