Business news 13 November 2023
James Salmon, Operations Director.
Economy flat in Q3 but avoids recession. Interest rates could soon fall. Skills shortages hindering growth for small businesses. Will business taxes be cut? Business Confidence, degrees in the job market, banking scandals & more business news that we thought would interest our members.
Economy flat in Q3 but avoids recession
Office for National Statistics data shows that the economy failed to grow in Q3. While GDP was up 0.2% in September, growth for August was revised down to 0.1% from 0.2%. With GDP flatlining in Q3, it means the UK has avoided a recession in 2023, with this defined as two consecutive quarters of negative GDP. Yael Selfin, chief economist at KPMG UK, commented: “Economic activity is continuing to slow as high interest rates are weighing on consumer sentiment and disposable incomes.” Suren Thiru, economics director at the ICAEW, said: “Flatlining quarterly UK GDP suggests that our economy lost momentum as the squeeze from inflation and higher borrowing costs suffocated output.” Chancellor Jeremy Hunt said the economy “has been much stronger than people thought,” adding: “Most people thought it was going to contract this year. It’s actually grown, and that gives us an excellent foundation for the future.” The Chancellor also warned that inflation is the “single greatest barrier” to growth, adding that the “best way to sustainably grow our economy right now is to stick to our plan and knock inflation back.”
Pill suggests interest rates could soon fall
Bank of England chief economist Huw Pill has suggested that interest rates could soon fall, going against the trend of central bankers in other countries who are considering raising rates. This unexpected stance has caused traders to speculate about when lower rates will come. While Bank governor Andrew Bailey has stated that it is too early to talk about cutting rates, markets have already started betting on interest rates falling to 4.75% by September next year. It is noted that the Bank of England will want to see headline inflation falling, wage growth easing, and a weakening economy before considering cuts.
Skills shortages hindering growth for small businesses
A fifth of the UK’s small companies are suffering from skills shortages that prevent them from expanding, according to Federation of Small Businesses (FSB) research. The poll saw 22% of small companies say a shortage of skilled workers would be a “stumbling block for growth in the upcoming year.” Among ICT companies, 38% said they were struggling to find workers with the correct skill levels, while almost half of construction companies and 28% of manufacturing companies reported shortages. The FSB’s Tina McKenzie said companies were struggling to hire “at all skill levels” and called on ministers to maintain an apprenticeship levy which covers much of a company’s training costs. She added: “Small businesses are eager to grow but many find themselves at a standstill, with skills shortages putting a brake on their ambitions. At a time where the economy needs it the most, firms are left hamstrung.”
Firms hope for full expensing pledge
With a general election on the horizon, Chancellor Jeremy Hunt is prioritising full expensing as a means to improve long-term growth and investment, with plans to extend the tax boost. Full expensing, which allows companies to save £250k in tax for every £1m invested, has been a top priority for business leaders. Research by the CBI and Oxford Economics shows that making it permanent could lead to a 21% increase in the level of business investment by 2030/31 (or an extra £50bn a year), equating to a 2% increase in GDP.
Chancellor plots tax cut to boost businesses
With analysis suggesting that the Chancellor has more fiscal headroom that previously calculated, Jeremy Hunt is reportedly considering extending a tax break for businesses in the Autumn Statement. In a bid to stimulate economic growth, the Chancellor is expected to extend the ‘full expensing’ capital allowance scheme, which lets businesses claim back the costs of investment in IT equipment and machinery. Mr Hunt is said to be considering either extending the regime beyond the 2026 deadline or a permanent change, with a 12-month extension thought to be the most likely option. While the full expensing policy is set to offer a boost to businesses, the Chancellor will reject calls to extend the freeze on business rates. Meanwhile, it has also been suggested that Mr Hunt is mulling the possibility of cuts to inheritance tax and stamp duty. These, however, will be pushed back to next spring’s Budget if they are deemed unaffordable.
Business confidence slips
Business confidence in the UK fell to its lowest level this year in October, according to a measure of company sentiment compiled by Accenture and S&P Global. The report shows a decline in the number of businesses saying they expected output to rise over the next year, with the net balance falling to 37%. Businesses said they faced record high wage bills, while service-based industries were hit by restrictive interest rates. Ewan Mackay, strategy and consulting lead at Accenture, said: “It’s no surprise that corporate confidence has wavered in the face of ongoing change with wider economic challenges impacting interest rates and high prices putting a dent in consumer spending.” He added: “Now is the time to stay the course with strategic investments where possible, hiring the best skills and embedding the right technologies throughout the core of their business to position them for future growth.”
Royal Mail fined
International Distributions Services’s Royal Mail arm has been fined £5.6 million by the UK communications regulator. Ofcom said the British mail delivery service failed to meet its first and second class delivery targets in the 2022/23 financial year. The regulator said the firm still under-performed against its targets, even after adjusting for industrial action, extreme weather and the Stansted runway closure.
Markets
UK European stock markets rose this morning around 0.5% as markets look forward to announcements this week on inflation in the US and the UK that investors will look to for guidance on the future for interest rates. In the US a surge in the tech giants took the S&P 500 to a 7 week high.
The US Credit Rating
Moody’s lowered its outlook on The US government’s credit rating from stable to negative. The credit-rating agency pointed to political polarization and risks to the government’s “fiscal strength”. The White House said in response the change was a “consequence of congressional Republican extremism and dysfunction”. However, Moody’s kept America’s rating at the highest investment grade, AAA. Whereas Fitch, a competitor agency, had recently downgraded its rating of the US government to AA+.
Millennials hit by financial stagnation
Research by the Resolution Foundation think-tank shows that pay packets, home ownership and overall wealth are all lower for those born between 1981 and 2000 than for previous generations. The report shows that the disposable incomes of British millennials are below their 2007 peak, while for Americans the same age they are 21% higher than before the financial crisis. The study also shows that hourly pay for graduates in their early thirties has fallen by 16% in real terms since 2007, compared with 6% for non-graduates. UK adults under pension age are £2,200 worse off as a result of tax increases since 2010, compared with only £200 for pensioners protected by policies such as the triple lock. The Resolution Foundation says that for today’s young people to enjoy similar levels of benefits in retirement, tax levels would need to increase by a third to 46% of GDP.
Fewer firms require a 2:1
The need for a 2:1 degree has dropped as graduate employers focus on inclusivity and social mobility, according to Institute of Student Employers (ISE) analysis. Only 44% of companies now require a 2:1 degree, down from 76% a decade ago and 48% a year ago. “Businesses continue to reduce reliance on minimum academic cut-offs for applicants. This is a positive trend for social mobility,” said ISE chief executive Stephen Isherwood. He added: “By reducing focus on grades, fewer young people are being filtered out of the opportunity to access a good job on the basis of their performance at school.” The ISE report reveals that graduate vacancies have grown by 6% and applications have increased by 23% this year, despite a cooling jobs market and economic uncertainty. While vacancies for graduates have increased, graduate salaries are either in line with inflation or falling in real terms. The median salary is £32,000, which is a 3% rise on last year, but worth £1,760 less than it was ten years ago.
Degrees not essential for 4 in 10 employers
Nearly 40% of employers do not consider university degrees essential for a job application, research from recruitment firm Hays shows. Just 16% think a degree is essential, according to a survey of about 15,000 British professionals and employers, while 39% of organisations say a degree is quite important but not essential when hiring. While 49% of bosses in the private sector said that having a degree is not important, 31% of those in the public sector said the same. It was found that 65% of manufacturing employers said a degree was not important. The figure is at 50% for HR, 43% for healthcare, 39% for financial services, 34% for engineering, and 22% for the legal sector. Gaelle Blake, head of permanent appointments at Hays, said: “Employers want the widest variety of people to apply. You want to be as open-minded as possible, and take other factors into account more, including work experience and apprenticeships.”
Banks to face broader BoE stress tests
The Bank of England will stress test some of the UK’s largest banks, insurance companies and pension funds to see how well they could cope with a repeat of the market chaos seen in the aftermath of 2022’s controversial mini-Budget. Around 50 institutions, including hedge funds, insurers and asset managers, will be asked to outline how they would respond to a series of simulated shocks to the economy. These will include a short, sharp shock, rather than a longer-term recession, with the Bank, Financial Conduct Authority and The Pensions Regulator working to deliver a “severe, but plausible” stress test that is “faster, wider ranging, and more persistent than those seen in recent periods of market instability.” The tests will look to gauge how institutions would react and the impact their reactions might have on the market but not assess the resilience of individual firms. Peter Rothwell, head of banking at KPMG UK, said widening the scope of stress testing comes amid concerns that the next financial crisis “may stem not from actions within the financial sector, but from geopolitical events that shake market stability.”
UK banks set to be hit by tax scandal
UK-based banks and financial services workers are expected to be drawn into Europe’s biggest ever tax scandal, with bankers, brokers and hedge fund managers based in the City of London among up to 2,000 suspects. The cum-ex scandal involves alleged dividend tax fraud and banks under investigation include Britain’s Barclays, US-based Bank of America Merrill Lynch and Morgan Stanley, France’s BNP, and Japan’s Nomura, with law firms and auditors also potentially implicated. While several convictions have already been secured in German courts, Danish authorities this week won the right to pursue a £1.4bn alleged cum-ex fraud in London after the Supreme Court ruled it could be heard in England. Prateek Swaika, a partner at law firm Boies Schiller Flexner, said this ruling “is likely to open the floodgates to claims by other European regulators.” Cum-ex is a ‘double-dipping’ trading strategy which exploited a loophole in how dividend tax was collected, with shares borrowed just before a company was scheduled to pay dividends, enabling more than one investor to claim bogus tax refunds.
Corporation tax cut would boost economy by 3%
Cutting corporation tax would deliver a long-term boost to the UK economy worth 3% of GDP, according to a taskforce set up by former Prime Minister Liz Truss. A Growth Commission report aimed at providing an alternative prospectus to the Chancellor’s Autumn Statement proposes that the increase in corporation tax from 19% to 25% should be reversed, adding that the levy should eventually be reduced to 15%. According to the modelling, such a package would result in a 0.1% uplift to GDP in 2026/27, a 0.4% increase by 2027/28 and a 3% increase by 2043/44. Shanker Singham, co-chairman of the commission, said: “We are stuck with low growth if we aren’t ambitious about what can make a difference to our country’s growth prospects in the long-term. The Government needs to break out of the relentless cycle of high tax and spend.”
Tax office faces customer service crisis
Some taxpayers have been waiting more than three years for answers from HMRC about their finances. Analysis shows that 3,245 taxpayers who sent letters to HMRC’s customer service department have been waiting more than a year for their enquiries to be resolved. Of these, more than 500 have faced a delay of more than two years and 18 have been waiting for more than three years for their requests to be formally dealt with and closed. Jim Harra, chief executive of HMRC, this week told MPs on the Treasury Select Committee that the tax office lacks the resources to keep up with demand and the challenge is getting “tougher and tougher.” HMRC has resorted to creating a special taskforce to deal with the substantial backlog of taxpayer correspondence. It has also introduced measures to address rising call waiting times, which now exceed more than 20 minutes on average or more in individual cases. Chris Etherington, a partner at RSM UK, said the length of HMRC delays was “unacceptable” but “not surprising.” He said HMRC has “barely made a dent” in a backlog of unresolved queries, “and customer satisfaction levels are going in the wrong direction.” In January, The Public Accounts Committee said customer service at the tax office had reached “unacceptable” levels.
LSE boss: IPO market will bounce back
David Schwimmer, chief executive of the London Stock Exchange Group, expects London’s sluggish IPO market to bounce back as the rate hiking cycle starts to ease and uncertainty over inflation settles. The amount raised via IPOs fell by 36% in Q3, totalling £565.5m. In the first three quarters of 2023, 23 companies listed in the UK, raising £953m. In 2022, there were 34 IPOs, with these raising £1.16bn. Mr Schwimmer insists that IPOs “will come back … when the environment stabilises and improves,” saying: “Markets are very adaptable, if this is the new norm then markets will adjust to that and people will raise capital in that new norm.”
Housing market exceeds expectations
Rightmove analysis suggests that the housing market will outperform forecasts this year, saying 2023 so far “has been better than many predicted following the turbulent end to 2022.” The average asking price has only declined 3% from the “unsustainably frothy heights” of a peak seen in May, while the number of agreed sales is down just 10% on 2019. Rightmove’s data also shows that there are now just 1% fewer listings than this time four years ago. Tim Bannister, head of data at Rightmove, said: “While there have been many twists and turns, and there are still seven weeks left of the year, the data indicates that there has been more to be positive about in 2023 than many thought there would be this time last year.”
ONS considers bigger rewards as response rate dips
The Office for National Statistics (ONS) could offer bigger cash incentives for participants in its surveys amid a dip in the response rate. The ONS has seen a decline in response rates for its flagship Labour Force Survey, with this raising questions about its accuracy. The rate has fallen to such an extent that the ONS recently opted to publish “experimental” estimates for the labour market. The official statistics body says it is taking steps to improve the accuracy of its survey, including reimplementing in-person interviews and increasing the sample size.
Bank of Mum and Dad dishes out £98bn in five years
Research from SunLife shows that the Bank of Mum and Dad has handed out £98bn over the past five years, with parents over the age of 50 helping their children to get onto the property ladder, pay bills and settle debts. The study, which used data from SunLife customers and the Office for National Statistics, found that around £35bn of the total handed out has gone toward property purchases. SunLife chief executive Mark Screeton said: “Financially supporting family is a priority for many over-50s. Our research shows that many are giving significant cash gifts for a range of different reasons, including to ease the burden of debts and the rising cost of living.”
BAE Systems
BAE Systems confirmed financial guidance after reporting the order book has remained strong in the second half of the year. For the full-year, BAE expects sales growth of 5% to 7% from £23.26 billion last year and underlying EPS to rise 10% to 12% from 55.5p last time. Charles Woodburn, BAE Systems chief executive, said: “Trading has been in line with the upgraded guidance we issued at the time of our 2023 half-year results.”
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The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.