business news 13 September 2021
James Salmon, Operations Director.
Economic growth stalls in July. Inflation expected to reach three-year high. Rising wages may see inflation pressure persist. Customs bill hits a record £2.2bn. End nears for insolvency protections. 660k jobs at risk as green investment lags. Shortages prompt HGV driver vow and lots more business news.
Economic growth stalls in July
Data from the Office for National Statistics (ONS) shows that the UK economy grew by just 0.1% in July. While this marks the sixth consecutive month of growth, the increase is far lower than the 1% growth recorded in the previous month and means the economy remains 2.1% below its pre-pandemic peak. The ONS report shows that the main contributor to growth was a 1.2% rise in production output. The data also shows that GDP grew by 3.6% in the three months to July. Jonathan Athow, the ONS’s deputy national statistician for economic statistics, said: “After many months during which the economy grew strongly, making up much of the lost ground from the pandemic, there was little growth overall in July”, while Chancellor Rishi Sunak said the figures showed the recovery was “well under way”. Martin Beck at the EY Item Club said: “The bulk of the gains from the reopening of the economy are now behind us, so a tougher phase of the recovery beckons.” Jonathan Gillham, chief economist at PwC, commented: “The economy now is being hit by a continued wave of structural problems. Some of these issues will soften over the coming months, but the recovery may well continue to stall if they are not resolved.”
Inflation expected to reach three-year high
Inflation is expected to surge this week, with experts predicting the steepest annual increase in nearly three years. Economists surveyed by Bloomberg expected a year-on-year increase of 2.9% for August, with this coming after a slowdown to 2% recorded in July. The expected increase will stem in part from the VAT cut and Eat Out to Help Out scheme rolled out last year. Andrew Goodwin of Oxford Economics, who believes the projected rise in August is likely to be surpassed by further peaks later in the year, comments: “Obviously the comparison with that big fall in prices last August creates quite a substantial base effect … So almost all of the pick up between July and August will be due to that.” It is noted that the Bank of England expects inflation to hit around 4% in Q4, with price growth likely to stay strong through the early months of 2022. With data released last week showing GDP expanded just 0.1% in July, Capital Economics’ Paul Dales believes “stalling GDP and rising inflation will leave a whiff of stagflation in the air”. Mr Dales expects consumer price inflation to rise to 3.1%.
Rising wages may see inflation pressure persist
A report from BDO suggests inflationary pressures may persist as labour shortages force employers to increase pay. The BDO inflation index rose from 103.01 in July to 103.60 for August, with this above the long-term average level of 100 that indicates positive growth. BDO’s employment index, a measure of recruitment activity, rose by 0.98 points in August, reaching 108.6 – its highest level since the start of the pandemic on an index where a measure over 95 signals growth.
Customs bill hits a record £2.2bn
British businesses and consumers have paid 42% more in customs duties on goods since Brexit came into force, research from UHY Hacker Young suggests. The total hit a record £2.2bn between January 1 to July 31, with the “rule of origin” tariff which applies to goods imported from the EU but originally made outside the bloc the main driver of the increase.
End nears for insolvency protections
Nicola Ross of law firm Morton Fraser looks ahead to the lifting of Government protections designed to prevent insolvencies amid the pandemic. With the support winding down at the end of the month, creditors will once again be able to seek to put companies who owe them money into liquidation. She suggests that directors should take stock of their company’s financial position and if it is in financial difficulties, “seriously consider whether it is likely things will turn around”. Ms Ross says firms owed money will be able to be much more proactive in recovering what they’re owed come October “and it’s important that they get on the front foot quickly”. For businesses in “uncertain waters”, she adds, “prudence and an honest review of the company’s position should be the top priority over the next month”.
TUC: 660k jobs at risk as green investment lags
Up to 660,000 jobs will be at risk if the UK continues to fall behind other countries when it comes to investment in green infrastructure and jobs, according to a report from the TUC. The study suggests 260,000 manufacturing jobs could be at risk as well as 407,000 in supply chains. Analysis shows that while the Treasury is expected to invest around £180 per person on green recovery and jobs over the next decade, President Joe Biden plans to allocate more than £2,960 per person on a green recovery in the US. It has also been shown that relative to the population, the UK’s green recovery investment is just 24% that of France, 21% that of Canada, and 6% that of the US. The TUC has urged the Government to fund an £85bn green recovery package to create 1.24m green jobs. The union body also called on ministers to deliver a scheme to help protect working people through periods of profound industrial change. TUC general secretary Frances O’Grady warned that “the clock is ticking”, adding: “Unless the Government urgently scales up investment in green tech and industry, we risk losing hundreds of thousands of jobs to competitor nations. If we move quickly, we can still safeguard Britain’s industrial heartlands.”
Shortages prompt HGV driver vow
The Government has announced plans to speed up the process of obtaining an HGV driver licence amid a shortage of drivers, with up to 50,000 more tests to be made available a year. With a shortfall of around 90,000 drivers, the shortages have been blamed on EU workers leaving the UK following Brexit, with the pandemic and tax changes making it more expensive for drivers from Europe to work or be employed in the UK also having an impact. Transport Secretary Grant Shapps has confirmed that regulations will be overhauled to boost capacity. Richard Burnett of the Road Haulage Association said the industry is losing 600 drivers a week and it would take nearly two years to fill the net shortfall
City centres and towns set to lose 500k jobs
A report commissioned by the Local Government Association (LGA) suggests that city centres and towns are set to lose half a million jobs due to changes brought about by the pandemic, such as the shift toward increased remote working. The LGA warned that there are 4.6m urban jobs in “vulnerable or very vulnerable” sectors such as hospitality, with manufacturing, finance and retail among industries also set to see job losses. The report also found that those in the 16 to 24 age group are 2.5 times more likely than others to be working in sectors shut down by the pandemic. It is noted that unemployment is expected to rise in the coming weeks as the furlough scheme comes to an end.
Firms eye London weighting cut for WFH staff
Nearly one in ten employers in the capital has removed – or has plans to scrap – the London weighting allowance on salaries for remote workers. A poll of 22,700 companies by recruitment firm Hays saw 11% say they will remove the salary boost for London workers who continue to work from home. The survey also saw 28% of respondents say they are planning to hire staff to work remotely on a permanent basis, with this more than double the proportion who said the same in a previous poll, while many firms plan to adopt a hybrid working model.
Flexible working shift could see 100k more City staff
Research by KPMG suggests the shift to flexible working will trigger a jump in the number of firms with offices in urban hubs, with this adding 100,000 workers to the City of London’s workforce. The report suggests a trend towards bigger offices in taller buildings is likely to be replaced by a focus on smaller offices, freeing up space for more businesses to open sites in previously expensive and crowded sites. KPMG’s chief economist Yael Selfin, said: “There is quite a lot of potential to get more people in” with flexible working, saying there will be “more attractive office space freed up in larger cities, where companies have access to more staff, and easier access to supply chains and customers.” KPMG predicts that the number of employees in the City will rise by more than 20% from its pre-Covid level, with Office for National Statistics data for 2019 showing there were more than 540,000 employees working in the City.
Pensioners returning to work boost economy by £1.8bn
Research has found that pensioners rejoining the workforce could help drive the recovery from the pandemic, with it shown that over 70s heading back to work could add nearly £2bn to the economy every year. Research from Retirement Villages Group shows that nearly 900,000 Britons aged over 70 are choosing to head back to work or stay longer in part- or full-time work as a direct result of the pandemic, with this coming at a time when there has been a surge in vacancies. It is calculated that this return to employment among older people could boost the economy by up to £1.8bn a year.
Taxing the lower-paid could stall the economic recovery
Phillip Inman in the Observer says that there are “plenty of nasty bills looming for the average British household”, with inflation at 2% and set to increase. He says a 1.25% increase in National Insurance contributions is on the horizon, “adding to the squeeze on incomes”, while income tax thresholds will be frozen from next year, pushing more people into the higher-rate tax band. “Making matters worse”, Mr Inman suggests, is the fact that Prime Minister Boris Johnson has “conspicuously failed to rule out further tax rises.” Reflecting on a “tough stance” taken by Chancellor Rishi Sunak that has seen him rule out further borrowing, Mr Inman says it risks harming the economic recovery. He argues that it is not so much that Mr Sunak has raised the tax burden to its highest level as a proportion of national income in 50 years, it is that he has opted to mainly increase taxes on low- and middle-income workers, “allowing the wealthy to escape higher taxes yet again”. Mr Inman says that with the Chancellor on course to borrow around £57bn less in the current financial year than the Office for Budget Responsibility forecast in March, he could spend more without raising taxes.
CBI chief: Tax raid puts recovery in jeopardy
Tony Danker, director-general of the Confederation of British Industry (CBI), has warned that the National Insurance increase announced by the Prime Minister is a “self-defeating” tax raid that will put Britain’s recovery from the pandemic at risk. Figures show that businesses paid £78bn in National Insurance in the year to March 2020, with the Telegraph’s Russell Lynch suggesting they “will shoulder the lion’s share of next April’s 1.25% rise”. Mr Danker, who warned that raising business taxes “too far has always been self-defeating as it stymies further investment”, said: “I am deeply worried the Government thinks that taxing business – perhaps more politically palatable – is without consequence to growth. It’s not.” Chris Sanger, head of tax policy at EY, comments that repeated tax increases would damage the UK’s reputation as a low-tax economy. A Treasury spokeswoman said it has supported businesses during the pandemic and shown a commitment to supporting business investment, “extending the annual investment allowance increase for another year and introducing the superdeduction: the biggest two-year business tax cut in modern British history.”
HMRC in health tax warning
HMRC analysis suggests plans to raise National Insurance to boost health and social care funding could lead to the breakdown of struggling families. The tax authority predicts that a 1.25% rise in National Insurance that comes into force in April next year will have a “significant” impact on wages, inflation, and company profits. The analysis shows that in 2022/23, a worker on the median basic rate taxpayer’s income of £24,100 would be expected to pay an additional £180 per year, while those on the median higher rate taxpayer’s income of £67,100 would be expected to pay an additional £715. The report says the increase may have an impact on “family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce.” With the NI increase set to become a separate Health and Social Care Levy from April 2023, the HMRC document says the move will mean extra staff costs for the tax office. Health Secretary Sajid Javid yesterday told the BBC’s Andrew Marr that the tax increase was the fairest way to fund investment in social care, while Shadow Health Secretary Jonathan Ashworth told the same programme that the proposals amount to a “punishing unfair tax rise on working people”.
Covid
The covid pandemic is not over yet, experts warn. Nearly all will be either infected or vaccinated by the time the pandemic ends, with scientists warning of more outbreaks that will close schools and overwhelm hospitals as countries continue to push ahead with re-opening. We can expect the vaccination roll-out to continue to race against the emergence of new variants. Meanwhile, here in the U.K. is preparing a mass booster vaccination program amid plans to scrap mandatory vaccine certificates.
Infrastructure
The UK government has set out plans to invest £650bn in infrastructure projects over the next decade saying it would support over 425k jobs over the next four years.
Heathrow
Passenger numbers remain 71% down in August with cargo volumes also down 14%. The airport owner reported that Heathrow has gone from being Europe’s busiest airport in 2019 to now 10th behind Paris Charles de Gaulle, Amsterdam’s Schipol and Frankfurt.
Bus passengers
First Group has reported bus passenger volumes of 65% of pre-pandemic levels in recent weeks which it expects to increase further as term times get underway.
Apple
A federal judge in California ruled that Apple can no longer block app developers from allowing customers’ to make direct payment for in-app purchases, circumventing their app-store which charge 30% of revenue as a fee.
Nord Stream 2
Gazprom has said it had completed construction of the Nord Stream 2 natural-gas pipeline from Russia to Germany, by-passing Ukraine and that there is only technical testing to be completed before it becomes operational.
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