Business news 13 October 2022
James Salmon, Operations Director.
UK economy shrank in August as cost of living crisis bites. Share of state spending on SMEs falls. Truss under pressure to make tax cut U-turn. COVID-19 rescue schemes lost billions to error and fraud. State pension age will have to rise to 69. And more business news.
UK economy shrank in August as cost of living crisis bites
New figures from the Office for National Statistics show the UK economy shrank by 0.3% in August.
The fall from July’s figure, which was down on predictions of no month-on-month change, was driven by a slump in manufacturing production and consumer services. Output was also dragged down by maintenance in the North Sea which pushed down oil and gas production.
Yael Selfin, chief economist at KPMG UK, said the UK economy “is teetering on the edge of recession.”
Elsewhere, George Lagarias, chief economist at Mazars, commented: “The global economic slowdown can’t leave an open economy like the UK unscathed. We believe that we are at the beginning of the recession cycle, not the end.”
Also commenting, Suren Thiru, economics director at the Institute for Chartered Accountants in England and Wales, said the figures show the economy was already in trouble “even before the chaos caused by the Chancellor’s mini-budget ”.
Share of state spending on SMEs falls
Figures from the British Chambers of Commerce show only £1 in every £5 of state procurement was spent with small and medium-sized companies last year. While public sector procurement spending with SMEs has increased, the proportion of total government money awarded directly to them has not grown over five years.
Truss under pressure to make tax cut U-turn
The Prime Minister has insisted the Government will not cut public spending to reduce UK debt. Attempting to address concerns about how the Chancellor’s tax cuts would be funded, Liz Truss told the Commons on Wednesday that she was not planning public spending reductions, but the Government would be ensuring that public money is spent well. Kwasi Kwarteng’s mini-Budget set out plans for £43bn of tax cuts intended to stimulate economic growth. But worries over how these would be funded has rattled markets. Tory MPs are now putting pressure on Ms Truss to reverse plans to scrap the planned increase in corporation tax in order to find savings.
Blame shifting
Kwasi Kwarteng is attempting to shift the blame for the turmoil that has hit the UK financace since his mini budget. He said the BOE will be responsible for addressing any market turmoil that might erupt when the bank ends its bond-buying program tomorrow. The chancellor told Sky News that any volatility would be “a matter for the governor.”
Oil cap to fail?
The US is reported to believe the cap on Russian oil price will fail now that OPEC+ has turned its nose up at the West and cut production targets.
COVID-19 rescue schemes lost billions to error and fraud
The latest report from the National Audit Office into the COVID-19 business support schemes criticizes the Government for not doing more to prevent mistakes and fraudulent claims when rolling out the programs. The NAO said a total of £4.5bn – or nearly 4.6% of the total cost of the Government’s £96.9bn emergency COVID-19 support – was claimed in error or in fraud. Gareth Davies, the National Audit Office head, said: “The Covid employment support schemes were introduced at speed and provided essential support to individuals, businesses and the economy during the pandemic. The furlough and self-employed schemes prevented millions of job losses but billions went to people whose incomes increased during the pandemic, and billions more was lost in fraud and error. The Government must improve the way it estimates levels of fraud and error and allocate sufficient resources to tackle this issue.”
UK finance sentiment falls at fastest pace since 2019
A survey by the CBI and PwC said on Thursday that sentiment in the financial sector had fallen at its fastest pace in three years. In the third quarter to September, optimism fell at its fastest pace since September 2019, when it was hit by uncertainty around Brexit negotiations. “While activity in the financial sector looks to be in a good position, with profitability and volumes growth remaining strong, the rapid fall in sentiment and lackluster investment intentions illustrate the challenging conditions that firms find themselves in,” CBI Chief Economist Rain Newton-Smith said. “Recent market volatility stemming from the Government’s mini-Budget – alongside other global developments – underlines the clear need to restore macro-stability and boost business confidence,” he added.
State pension age will have to rise to 69, experts warn
Experts have warned that future retirees will have to wait until 69 to collect their state pension due to the rocketing cost of supporting the ageing population. A study by the Centre of Future Studies and Evelyn Partners also suggested that longer life expectancy means workers will also have to save an additional £67,200 by 2040 to fund a 25-year retirement. The Government has already put in place plans to increase the state pension age, with it rising from 66 to 67 between 2026 and 2028, and again to 68 between 2044 and 2046. However, Prime Minister Liz Truss has not ruled out increasing the state pension age again in order to help balance the nation’s books.
Londoners’ finances on the precipice
New research by subscription lender Creditspring reveals that over a quarter of Londoners are being forced to dip into their savings to make ends meet every month, while almost a third don’t have any savings to fall back on at all. Neil Kadagathur, Co-Founder and CEO of Creditspring, comments: “Household budgets in London are on the precipice… It’s going to be a challenging winter for all of us, but many across London will be concerned that they may never recover financially from this.”
London recruiters remain upbeat
London recruiters remain in hiring mode despite the economic slowdown and financial turmoil as the capital’s jobs shortage continues, according to a report from, KPMG and the Recruitment and Employment Confederation. One in five recruiters think there will be an increase in taking on permanent members of staff over the coming months, twice the number who feel there will be a decrease.
Industry body warns on property sector’s failure to cut emissions
Unless property owners take account of the cost of transitioning to net zero they will be at risk of major write-downs on less energy efficient offices, shops and residential property, the Urban Land Institute has said.
End of UK’s housing market boom in sight
A new report from the Royal Institution of Chartered Surveyors (RICS) reveals the number of inquiries from potential home-buyers fell for a fifth month in a row in September, while sales fell to the lowest level since May 2020. The number of new instructions to sell has also continued to fall with stock levels are at historic lows. Rising mortgage rates are pricing new buyers out of the market, RICS said, while homeowners looking to remortgage are facing crippling increases in payments. “For now mortgage arrears and possessions remain at historic lows but they are inevitably going to move upwards over the next year, as pressure on homeowners grow,” said Simon Rubinsohn, chief economist at RICS. “It is difficult not to envisage further pressure on the housing sector as the economy adjusts to higher interest rates and the tight labour market begins to reverse.”
Easyjet
EasyJet reported a much improved fourth quarter. Disruption from cancellations, which plagued airlines for much of the summer, has since abated. The budget carrier flew 26.3 million seats in the quarter that ended September 30, 88% of the capacity from three year earlier, before the onset of the pandemic. Earnings before interest, tax, depreciation, amortization and rent are expected to land between £665 million and £685 million, so in line with three years prior.
Hays
Hays reported a record first-quarter, and said sterling weakness is a “tailwind”. Net fees surged 19% in the three months to September 30, or 15% on a like-for-like basis. “We have made a good start to our financial year; fees were stable at high levels over the summer and September delivered a record month, and ended a record quarter,” Chief Executive Alistair Cox commented.
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