Business news 12 April 2022

James Salmon, Operations Director.

UK economy grows just 0.1% in February. Red tape knocks out a third of UK exporters to EU. Low consumer confidence hits sales growth.  And more business news.

UK economy grows just 0.1% in February

Figures from the Office for National Statistics show growth slowed to just 0.1% in February as declining construction and production output stalled the economic recovery. This compares with a 0.8% monthly rise in January and comes in below the 0.3% predicted by economists. Output in the services sector grew 0.2%, down from 0.8% in the previous month while manufacturing production fell 0.4%, leading to a 0.6% fall in industrial production.

Overall, the economy was 1.5% bigger in February than its pre-pandemic level. But 1.8% of the growth was generated by spending on test and trace and vaccinations alone.

George Lagarias, chief economist at Mazars, said the overall economic backdrop was “fragile and due to weaken further”, as inflation continues to climb because of soaring energy bills.

Alpesh Paleja, lead economist at the CBI, said: “Following the bounce at the start of the year, it’s no surprise that economic growth slowed in February. Near-term challenges to the outlook have ramped up since, with a growing cost-of-living crunch set to weigh on growth.”

Red tape knocks out a third of UK exporters to EU

New data from HMRC show the number of UK businesses exporting goods to the EU fell by a third in 2021 to 18,357, down from 27,321 in 2020.

Michelle Dale, a senior manager at UHY Hacker Young, pointed out the fall is due to the extra red tape UK businesses must now comply with when exporting to the EU. “Businesses are not getting enough support from the Government to navigate the post-Brexit trading minefield,” she said. “These are really worrying numbers and show the scale of the difficulties UK businesses now face in exporting their products to the EU. A lot of SMEs can’t afford professional advice to cope with Brexit-related red tape. Many are likely to have decided trading with the EU is not worth the cost.” Dale added: “Fewer UK companies exporting to the EU will result in lost opportunities for growth and expansion in Europe.”

Low consumer confidence hits sales growth
Retail sales growth rose by 3.1% in March, significantly down on the 6.7% rise seen in February. The BRC-KPMG data showed that like-for-like retail sales were down 0.4% against March 2021. Helen Dickinson, chief executive of the BRC, said: “As consumer confidence continued to sink, March saw sales slow, and while spend remained above last year this likely reflects higher prices.” Ms Dickinson added: “Ultimately, consumers face an enormous challenge this year, and this is likely to be reflected in retail spend in the future.” Don Williams, retail partner at KPMG, said that the biggest drag on growth came from food sales, which were down 6.1% due to the timing of Easter and lockdowns last year. “Sales growth in March rose at the slowest rate so far this year, suggesting clouds on the horizon as household budgets come under pressure from rising costs, an increasing tax burden and competition from holidays,” he said. Elsewhere, Barclaycard’s latest credit card data showed that consumer spending was still significantly ahead of pre-pandemic levels as people spent more on hospitality, but still highlighted some pressure on consumer confidence.

UK benefits plunge to lowest value in 50 years
With the state pension and most other state benefits rising by just 3.1% on Monday, pensioners and benefit claimants will see the value of their payments fall to the lowest point in 50 years as everyday prices rise as much as 8%.

Helen Barnard, the associate director of the Joseph Rowntree Foundation, an anti-poverty group, told Sky News that pensioners and benefits claimants had seen the value of payments fall in real terms in eight out of the last 10 years. “It means that in terms of their values, how much bread and milk you can buy in the shops, it is the biggest fall in value since 1972.”

International Trade

The World Trade Organisation (WTO) has forecast that Russia’s invasion of Ukraine could cut global trade growth for 2022 by almost 50%. The WTO also said the war could lower global GDP growth by 0.7 to 1.3 percentage points. It pointed out both countries’ importance to food and energy supply chains, as the drivers of the downturn.

Storm Arwen damage brings £80m in claims
NFU Mutual has said 8,000 customers have made claims following Storm Arwen worth a total of £80m. The storm in November brought winds of almost 100mph and led to widespread damage, disruption and power cuts across the North East and Cumbria. PwC has estimated total insurance losses could be up to £300m.

FRC to reclaim power to punish poorly performing auditors
The Financial Reporting Council (FRC) could this week propose reclaiming power over the registration of audit firms and their audit partners in a move that would strengthen its ability to punish firms carrying out poor quality work for “public interest entities”, large, listed groups or financial institutions. A review chaired by John Kingman in 2018 said it was a serious deficiency that powers to approve the registration of audit firms and their partners had been delegated to professional bodies, and that these powers should be “reclaimed” by the FRC. It is noted that as registration powers already exist, they can be reclaimed by the FRC without the need for a new law, so the regulator is not reliant on the Government pushing through new legislation for the move

HMRC catches up with overseas buy-to-let investors
Research by UHY Hacker Young reveals that the number of overseas investors confessing to tax evasion in the UK has more than quadrupled to 338 this year from 78 in the previous year. Many of these disclosures are from buy-to-let investors who are coming clean about unpaid tax on their rental income. Neela Chauhan, Partner at UHY Hacker Young says: “Overseas buy-to-let investors are discovering that they cannot hide income from HMRC. The wealth of data at HMRC’s fingertips of the organisation means that it’s not ‘if’ but ‘when’ unpaid tax is discovered. Its far better to come forward to confess than wait to be found out – the penalties can be enormous.”

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