Business news 13 February 2023
James Salmon, Operations Director.
Recession avoided but economy ‘not out of the woods’ . Pub and bar insolvencies up 83% in twelve months. Small firms ‘let down’ on energy bills . Business pessimism persists. Trade deficit widens . And more business news.
Recession avoided but economy ‘not out of the woods’
Office for National Statistics (ONS) data shows that the UK narrowly avoided falling into recession in 2022, with the economy flat in Q4. This comes despite a 0.5% month-on-month fall in economic output during December, with the decline partly attributed to strikes across the public sector.
Chancellor Jeremy Hunt said the figures showed “underlying resilience,” but went on to warn: “However, we are not out of the woods yet, particularly when it comes to inflation.” While the Bank of England still expects the UK to enter recession this year, it believes it will be shorter and shallower than previously forecast. As well as posting Q4 data, the ONS has revised up its Q3 figures, saying that the economy shrank by 0.2%, having previously estimated a fall of 0.3%. The ONS data also shows that the UK economy was 4% bigger in 2022 than in 2021.
Yael Selfin, chief economist at KPMG UK, expects the UK to fall into “a mild yet prolonged recession throughout this year,” while Debapratim De, senior economist at Deloitte, said: “The UK avoided a recession last year but by the slimmest of margins,” adding: “Recession or not, UK growth has stagnated for some time now.” Suren Thiru, economics director at the ICAEW, said: “Despite skirting a technical recession for now, December’s GDP fall confirms that the economy took a nosedive at the end of 2022.”
Pub and bar insolvencies up 83% in twelve months
Pub and bar company insolvencies have increased 83% in the past calandar year, from 280 to 512, according to accountancy group UHY Hacker Young. An industry barely recovering from the pandemic has seen soaring energy prices have soared hit their own running costs and dent the spending power of their clients throughout the winter. With the cost-of-living crisis, including interest rate rises, has changed consumer habits, making them less likely to spend on non-essentials, including a drink or a meal at the local.
UHY partner Peter Kubik said: “Following an extended period of lost revenues during the pandemic, the cost-of-living crisis has been the final nail in the coffin for many.” He suggests that the Government should perhaps consider what it can do to alleviate pressures faced by the hospitality sector, “for instance, by extending the energy bill relief scheme.”
Small firms ‘let down’ on energy bills
Conservative MP David Simmonds has criticised Ofgem, saying the energy regulator is failing small businesses by not forcing the big energy companies to pass on taxpayer-funded energy subsidies. While discounts available under the Government’s Energy Business Relief Scheme are supposed to be applied automatically, four of the UK’s five biggest energy providers – British Gas, EDF, ScottishPower and SSE –last month revealed that thousands of small business customers had yet to see the relief reflected in their bills. The firms have said customers would receive backdated discounts if they had been overcharged. Mr Simmonds said the Ofgem had to “pull its finger out” and clamp down on the energy suppliers that are yet to pass on the discounts. He said: “The big frustration is Ofgem’s decision not to intervene on the fact that these energy companies can use customers’ money as working capital for their businesses.” Ofgem said: “We are ready for enforcement action if necessary to make sure customers receive the help that they are entitled to.”
Business pessimism persists
Businesses remain pessimistic about the outlook for the economy, with BDO’s optimism index stuck in negative territory for a fourth consecutive month. The index, on which anything below 95 is considered negative, logged a reading of 91.88 in January, with this slightly worse than the 91.89 recorded in December. January marked the third time in six months that BDO saw all four of its measures – optimism, output, inflation and employment – fall at the same time. Companies in the services sector, including retailers, restaurants and accountants, were especially downbeat in January. Reporting its findings, BDO noted a “sharp decline” in the number of goods and services that British companies sold last month, with its output reading sliding almost 3.5 points to 89.15. BDO partner Ed Dwan commented: “A net decline across the optimism, output and employment indices, coupled with historically high levels of inflation, suggests the outlook still remains bleak for businesses.”
Trade deficit widens
The annual deficit in the UK’s foreign trade widened by £85.3bn to £108bn in 2022, according to the Office for National Statistics, which identified the soaring cost of energy as a key factor. The report also revealed that the value of the goods and services that the UK imported rose by 32.5%.
Chancellor rules out extra energy bill support
Chancellor Jeremy Hunt says it is unlikely that households will be given any extra support with energy bills from April. With the typical household energy bill set to rise from £2,500 to £3,000 a year and a £400 discount coming to an end, ministers have been urged to offer additional help. Mr Hunt told the BBC that while the Treasury kept all support “under review,” he did not think the Government had the “headroom to make a major new initiative to help people.” Consumer finance expert Martin Lewis, founder of Money Saving Expert, has written to the Chancellor, warning that an increase in the price cap would mean another 1.7m people will enter fuel poverty, taking the total to 8.4m. He argues that allowing bills to increase further would be a “national act of harm.”
Energy firms falling short over prepayment meters
Energy Secretary Grant Shapps says a number of energy companies that forced pay-as-you-go meters upon vulnerable customers have refused to say how they will identify and compensate those affected. Mr Shapps ordered companies to outline their plans to identify customers who may have had meters wrongfully installed and provide redress. However, he said a number of companies had “failed to address” the issue and has now referred them to energy regulator Ofgem. While all energy suppliers have now committed to end forced installations of prepayment meters, Mr Shapps said the response from several firms was “simply not good enough,” with “most suppliers … falling short on correcting their ways.” He added that the sector is “only at the beginning of correcting this abhorrent behaviour.”
Hunt offers hope on pay settlements
Jeremy Hunt has not ruled out increasing pay offers to public sector workers, telling Sky News: “It’s not a no, but I’m saying we’ll talk about absolutely anything, except things that will dig in the very high inflation.” Going on to say that he does not think strikes are helpful – arguing that they are “very damaging and very disruptive” – the Chancellor said: “We’ll talk about absolutely anything to resolve the strikes except measures that will entrench high inflation.”
Older workers could fill gaps
The Sunday Times’ Jill Treanor looked ahead to an Office for National Statistics (ONS) report due tomorroe which is expected to show that unemployment rate remains at about 3.7m and vacancies are running at more than 1m.
Olivia Cross, assistant economist at Capital Economics, said: “We’re becoming increasingly concerned that the decline in the labour force will lead permanently to lower gross domestic product,” while the Bank of England is worried that the “tight” jobs market will fuel wage growth and drive inflation. Ms Treanor said focus is turning to the nearly 9m people classed as “inactive” – not looking for work or claiming unemployment benefits – amid concerns that the economy will suffer if jobs cannot be filled. However, she warns of a “mismatch between vacancies and those who might be enticed back.”
Noting the role those over 50 who have left the workforce could play, she cited ONS data showing that 544,000 50 to 64-year-olds who are classified as inactive would take a job if they could find one that suited them, with 110,000 over-65s in the same situation. A recent survey by the Chartered Management Institute found that only four in ten managers questioned would be willing to consider hiring someone aged between 50 and 64.
Skilled worker demand to push up salaries
Demand for skilled workers is likely to push up salaries this year, with a poll from the Chartered Institute of Personnel and Development (CIPD) showing that more than half of British businesses expect to increase salaries to “stay competitive.” The CIPD’s quarterly employment report shows that, on average, employers expect pay to increase by 5% in 2023. While it is predicted that private sector workers will get a 5% rise, public sector workers are expected to receive an increase of 2%.
Although seven in ten firms want to hire new staff in the next three months, almost 60% said the workers they were looking for are proving hard to find. To address this, half of businesses have sought to improve the skills of existing staff, while a third have chosen to increase employees’ duties. Some 43% have increased the pay they are offering to lure applicants. Jon Boys, the institute’s senior labour economist, said: “Skills and labour remain scarce in the face of a labour market that continues to be surprisingly buoyant, given the economic backdrop of rising inflation and the associated cost of living crisis.”
Just 3% of people have missed work as a result of strikes
Polling by the Office for National Statistics (ONS) shows that recent industrial action has had little impact on people being able to work, with just 3% of working adults having missed work as a result of the strikes. The ONS notes that while the survey period covered January 25 to February 5, the majority of responses would have been received before February 1, the biggest day of industrial action in more than a decade. With staff across a number of sectors walking out amid disputes with the Government over pay and conditions, the ONS poll saw 43% of respondents say that such action is an important issue.
AI set to shake-up the world of work
Hamish McRae in the Mail on Sunday looked at the impact advances in AI could have on the world of work, saying that there could be enormous savings in time and cost but warning that “any innovation that substitutes technology for human labour destroys jobs.” He said that while jobs will go, “such is human ingenuity that we always find new things for people to do.” However, Mr McRae added: “There is a genuine problem that the skills needed for the new jobs are different from the skills needed for the old ones,” going on to warn that “it is easy to see the jobs that are going, but hard to envisage the ones that will be created.”
Chancellor ‘disappointed’ by pharma firm’s low tax move
Chancellor Jeremy Hunt says he is “disappointed” by AstraZeneca’s decision to build a new £330m plant in Ireland rather than in England because taxes are lower. While Mr Hunt said he agreed with the pharmaceutical firm’s “fundamental case” that UK business tax should be “more competitive,” he insisted: “The only tax cuts we won’t consider are ones that are funded by borrowing because they’re not a real tax cut. They’re just passing on the bill to future generations.” The corporation tax rate is set to rise from 19% to 25% in April, while a tax relief scheme for businesses is expected to end. Tony Danker, head of the Confederation of British Industry, says that while he understands why corporation tax is rising, he is concerned that the hike is coming at the same time as a tax break on investment is scrapped. He has called on the Government to rethink the “tax double whammy” and prevent the economy from “stagnating.”
Heathrow
Heathrow Airport is “back to its best” having recorded the busiest start of the year since before the pandemic, its Chief Executive Officer John Holland-Kaye has said. The UK’s busiest airport revealed more than 5.4 million passengers traveled through Heathrow in January, reaching levels not seen since the start of 2020. It comes as UK airports were hit with severe disruption in the run-up to Christmas, with Border Force staff staging strike action in December.
Businesses hit by postcode lottery for pandemic support
Analysis by property consultancy Colliers has found that businesses faced a “postcode lottery” when it came to a £1.5bn fund to help firms struggling with business rates during the pandemic. Official figures show that many local authorities failed to pay out a fifth of the money they were allocated through the Covid-19 Additional Relief Fund, while some handed out just 1% of the cash available. Colliers says payments from the fund quickly descended into “carnage” after the Government failed to set clear rules for how money should be awarded, leaving councils to allocate cash “as they saw fit.” Describing the issue as a “disgrace,” John Webber, head of ratings at Colliers, said: “Eighteen months on from the time businesses were denied their right to appeal their business rates, one fifth of the allotted £1.5bn had still not been allocated.” The £1.5bn funding pot was put in place in 2021 when the Government announced rate relief for businesses not in the retail, hospitality or leisure sectors – which received a temporary business rates holiday. Officials opted to bar companies from using the pandemic as justification for challenging their property taxes.
Inflation data set to show prices remain high
While analysts expect the Consumer Price Index measure of inflation to have eased slightly in January, figures due this week are expected to show prices remain stubbornly high. Inflation stood at 10.5% in December and forecasters expect the rate to have fallen last month but still remain above 10%, far exceeding the Bank of England’s (BoE) 2% target. Samuel Tombs of Pantheon Macroeconomics said the latest inflation data will probably make members of the Bank’s Monetary Policy Committee wince. BoE governor Andrew Bailey recently suggested that the UK has “turned the corner” in the fight against inflation, predicting that it would fall to 4% by the end of this year.
Paperchase creditors land £20m bill
Paperchase’s unsecured creditors have been left with a bill of about £20m from its first period in administration. The retailer brought in advisers from PwC to plan for a possible administration towards the end of 2020 and was sold back to its owner Permira Debt Managers through a pre-pack administration in January 2021. A consortium bought Paperchase from Permira in August 2022 but the stationery chain fell into administration again last month. Tesco has picked up the Paperchase brand but all of its stores are closing down. Paperchase Products Limited recently moved from administration to dissolution and notified stakeholders of the dividend they could expect from the sale of its assets. PwC has determined that £19.8m of the £41.3m in claims on the estate are valid.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.