Business news 13 June 2024
Productivity warning for small businesses. Quiet quitters. Economy flatlines in April. Interest rate cuts, insolvencies, markets, City SME plans, house prices & more business news that we thought would interest our members.
James Salmon, Operations Director.
Productivity warning for small businesses
Revenue generated by employees of smaller businesses in Britain’s most productive regions is falling to “concerning” levels, according to a report by Xero. The study shows that small businesses in these regions have experienced a significant decline in revenue per employee, with no offsetting rises elsewhere. Revenue generated by employees of small firms in London fell 2.5% to £47.90 an hour in the two years to December 2023. The South East, East and West Midlands saw steeper falls, to £42.20 an hour, £40.70 an hour and £40.20 an hour, respectively. In contrast, firms in the East Midlands saw a 9.7% increase to £42.70 an hour, those in Yorkshire and Humber jumped 7.4% to £40.10 an hour, and those in the North West of England hit £42.80 an hour.
Quiet quitters fuel productivity crisis
Analysis by Gallup warns that a generation of “quiet quitters” are costing the UK economy £257bn in lost output. Warning that an increasing lack of motivation among staff who were once actively engaged is adding to a productivity crisis, the study highlights levels of stress and dissatisfaction in the workplace. The report also suggests that just 10% of British workers are putting extra effort into their jobs, potentially hitting GDP by 11%. Jon Clifton, chief executive of Gallup, said: “The global workplace can play a significant role in addressing the world’s mental health crisis. As detailed in this year’s report, changing how we manage people is critical for reducing stress at work and in life.”
Economy flatlines in April
Office for National Statistics (ONS) figures show that the UK economy failed to grow in April, with GDP flat following growth of 0.4% in March. April’s reading came after growth on 0.6% in Q1 which pulled the UK out of recession. Reflecting on the ONS report, Chancellor Jeremy Hunt said: “There is more to do, but the economy is turning a corner and inflation is back down to normal.”
Shadow Chancellor Rachel Reeves questioned this, however, noting that “the economy has stalled and there is no growth.” Paul Dales, UK chief economist at Capital Economics, said the stagnation in GDP figures “doesn’t mean the economic recovery has been extinguished,” while Luke Bartholomew, deputy chief economist at asset management firm abrdn, said it is “important not to put too much stead in just one month of data.” AJ Bell’s head of financial analysis, Danni Hewson, said that “no growth is better than negative growth.” Suren Thiru, economics director at the ICAEW, said the figures suggest the economy “stumbled noticeably in April as poor weather and the lagged impact of previous interest rate rises weakened key drivers of GDP.”
Looking ahead, KPMG’s chief economist, Yael Selfin said: “We expect economic activity to remain sluggish in historical terms this year with growth at just 0.5%.”
Bank to cut interest rates in August, say economists
The Bank of England is expected to start cutting interest rates in August, according to a poll of economists. Despite high pay and services inflation, most economists anticipate at least one more rate reduction this year. Economists predict two 25 basis point reductions to 4.75% by the end of 2024. UK inflation is expected to average slightly above the bank’s target of 2% until at least the end of 2025. The economy is forecast to grow 0.3% in every quarter until the end of 2025.
City unveils SME business plans
The City of London Corporation has unveiled its first-ever SME business plans for the Square Mile. The strategy aims to maintain the City of London’s status as a premiere destination for starting and growing a business in the UK. It focuses on providing SMEs with access to finance, data, working spaces, expertise, and networks. The strategy includes incentives such as free membership access to meeting rooms and workspaces, low-interest business loans, advisor planning, and digital innovation incentives. The Federation of Small Businesses has praised the City’s commitment to supporting small businesses, saying it will lead to growth and greater employment opportunities.
Markets
Yesterday, the FTSE 100 closed up 0.83% yesterday at 8215.48 and the Euro Stoxx 50 closed up 1.40% at 5034.43. Overnight in the US the S&P 500 rose 0.85% to 5241.03 and the Nasdaq rose 1.53% to 17608.44, on the back of Apple gains.
Apple reclaimed its title as the world’s most valuable company with a market capitalization of $3.29trn, overtaking Microsoft who are valued at $3.24trn. Apple has been boosted by investor reaction to the integration of AI technology in its iPhones.
Markets were boosted after US CPI data at 3.3% came in modestly under the forecasted 3.4% suggesting a further cooling of US inflationary pressures. US 5 year Treasury yields fell 0.26% to 4.26%. The FED then indicated they would cut rates once this year and left the door open to a second cut.
The pound is currently worth $1.2789 and €1.1832. Brent is at $82.53, Gold is at $2315. The FTSE 100 is down 0.21% at 8198 and the Eurostoxx 50 is down 0.34% at 5018.
Housing market recovery reverses as mortgage rates rise
The housing market’s recovery has reversed as mortgage rates have increased, leading to fewer inquiries, sales, and more price reductions. The drop-off in confidence among prospective homemovers is largely due to the recent upward moves in mortgage rates, according to the most recent industry survey from the Royal Institution of Chartered Surveyors. Stubborn inflation and strong wage growth have caused mortgage providers to raise their prices, with the average five-year fixed-rate mortgage back above 5%. Estate agents expect prices to continue to decline over the summer, but the longer-term outlook is more positive.
Home insurance premiums soar
Households in the UK are facing the largest increase in home insurance premiums on record, with extreme weather events being a major factor. Quoted premiums have risen by 42% over the past year, the highest annual increase in a decade. While quoted premiums now average between £150 and £199, the true average cost is closer to £400, according to the Association of British Insurers. Customers who have previously made claims have seen an even larger 50% increase in their premiums. The increase in home insurance costs has been attributed in part to global supply chain issues and labour shortages, which have driven up material and repair costs. It is suggested that some insurers may be able to reduce their premiums this year due to the slowing rate of inflation.
New home loans surge
Figures from the Financial Conduct Authority (FCA) show a surge in new home loans, indicating strong demand among buyers. The value of new mortgage commitments in the past three months reached £60.1bn, with this up 30.8% from the previous quarter. However, the total value of mortgages in arrears rose by 44.5% to £21.3bn, possibly due to higher interest rates.
Ukraine
G7 leaders have reportedly agreed to provide Ukraine with $50 billion of aid using the profits generated by frozen Russian sovereign assets.
Starmer refuses to rule out tax rises while Sunak has no timeline for cuts
Labour leader Sir Keir Starmer has refused to rule out further tax rises beyond his manifesto plans if his party wins the election. During a during an interview with Sky News, he reiterated his party’s pledge not to increase income tax, National Insurance, or VAT over the next five years. However, he did not rule out increases to council tax, capital gains tax, fuel duty, and other levies at some point during the next parliament. In the same broadcast, Prime Minister Rishi Sunak said that “taxes for working people will come down” but admitted: “I don’t have a forecast for the next five years.” He also said that while the overall tax burden is “high,” this is the result of “difficult decisions” the Tories had to make during the pandemic. Mr Sunak also hit out at Mr Starmer’s comments, saying: “He’s failed to rule out raising taxes. Again. Labour will raise your taxes.”
Greens set out tax plans
The Green Party has launched a manifesto which sets out plans for a wealth tax and an increase in National Insurance. The Greens want to introduce a new wealth tax of 1% on assets worth over £10m, and 2% on assets worth more than £1bn. This, the party says, would affect fewer than 1% of UK households and raise £15bn a year by the end of the next parliament. While the NI rate is currently 8% on earnings between £12,570 and £50,270, and 2% on earnings above £50,270, the Greens would set a rate of 8% for earnings above the upper threshold. Party co-leader Adrian Ramsay said the Greens are the “only party being honest” about the tax rises needed to fund better services.
CGT hike could see Treasury revenue fall by £3bn
An increase in capital gains tax could lead to a £3bn drop in revenue for the Treasury, according to HMRC figures. The data suggests that a 10 percentage point increase in the higher rate of CGT could result in a £170m fall in tax take in 2024/25, followed by a £1.1bn drop in 2025/26 and £2.1bn the year after. While Labour has ruled out increasing income tax and National Insurance, it has not made the same pledge about CGT. The Liberal Democrats have already promised to double rates for higher earners, estimating it would raise £5.2bn a year in 2028/29.
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Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this last one was particularly deadly for suppliers and we are still seeing elevated insolvencies as businesses struggle.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
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Just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!
If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?
CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
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Check our compensation calculator to see how much your business could be owed!
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