Business news 13 December 2021
James Salmon, Operations Director.
Net business debt falls steeply over 2021. One in three UK small firms plan major staff cuts. UK economy barely grew in October. PM ramps up rhetoric as Tories prepare rebellion. Omicron likely to result in ‘modest’ impact on activity. Major employers shun work-from-home call. Some 52% of manufacturers reporting higher prices. And more business news.
Net business debt falls steeply over 2021
The latest EY ITEM Club for Financial Services Forecast estimates that net bank lending to UK businesses will fall to minus £1.6bn over 2021 as firms pay down more debt than expected. This comes after £35.5bn was lent in 2020.
Lending is predicted to pick back up again in 2022 with growth of 2.4% (£11bn net). The pandemic spurred a surge in corporate borrowing but the level of loan defaults initially feared have not materialised, said EY’s Dan Cooper.
The same picture is seen with credit cards and personal loans as households have paid back debts and used savings over loans. Anna Anthony of EY said: “Repayment is a double-edged sword; while the debt burden for many has been reduced, the focus on loan repayment over investment will have a long-term impact on growth, and for the banks facilitating lines of credit, the fall in borrowing – combined with the low interest rate environment – will have squeezed margins.”
One in three UK small firms plan major staff cuts
A third of UK small businesses are planning to make staff redundant over the next few months, according to a quarterly survey by Moore UK.
Businesses in London were more likely than those in any other part of the UK to be planning redundancies, with 42% considering laying off staff. Businesses planning to make redundancies were, on average, considering dropping 45% of their staff over the next six months. Maureen Penfold, the chair of Moore UK, said: “It’s surprising to see so many businesses are considering reducing staffing numbers so substantially. Policymakers should be careful not to assume that the economy is back in rude health – especially taking into account how the new restrictions just implemented may further impact businesses.”
Additionally, some 49% of those questioned said they expected to have to increase the prices they charged over the next six months, mostly as a result of increased staffing costs.
UK economy barely grew in October
The UK economy grew by just 0.1% between September and October, according to the Office for National Statistics, meaning it remains 0.5% below pre-pandemic levels. This was down on the 0.4% predicted by economists and marked a sharp decline from the 0.6% expansion the previous month. Supply chain disruption hit activity, with construction and dining out in restaurants both down and no growth recorded in manufacturing. However, the health sector again grew strongly while second-hand car sales and employment agencies also boosted the economy. The figures underscore “underlying weakness of many parts of the economy”, said Yael Selfin, chief economist at KPMG UK, who added that any gains were “likely to be reversed as pandemic-related restrictions are reintroduced”. The news raises doubts that the Bank of England will raise rates next week with a majority of economists agreeing with the EY Item Club that the BoE is likely to keep rates on hold.
PM ramps up rhetoric as Tories prepare rebellion
Despite repeated reports out of South Africa detailing how mild the Omicron variant of COVID-19 is, Boris Johnson has warned of a “tidal wave” of infections to come as he declared an emergency booster rollout offering all over-18s another injection by the New Year.
The move will see hospitals reprioritise resources to respond to the new booster programme just as the UK’s chief medical officers warn of further hospitalisations from Omicron. The Army has even been called in to help, ahead of a Tory rebellion against the PM’s latest plans to restrict the public. Over 60 backbenchers are set to oppose the reimposition of restrictions and the use of vaccine passports due to concerns over civil liberties, the economic repercussions and discrimination.
Meanwhile, South African Medical Association chair Dr Angelique Coetzee told LBC over the weekend that “there’s no reason why you can’t trust us when we say to you it’s a mild disease”. She said a minority of patients get sick and recovery is swift “whether you’ve been vaccinated or not”. The severity of the disease is not Delta. “It is mild disease,” she added. Mr Johnson’s approach to the pandemic has spurred leading Tory Steve Baker to relaunch the Conservative Way Forward. “Instead of pursuing freedom under the law, ill-thought-through state impositions on our lives are becoming more widespread, more minute and more frequent.,” Baker states in the Telegraph as he attempts to shift the Conservatives away from centre-left policies
Scientists at Britain’s Health Security Agency (HSA) said that a booster jab of the Pfizer vaccine offered significant protection against the Omicron variant of covid-19, regardless of whether people had received two original shots of Pfizer or AstraZeneca. Without a booster, however, the virus proved adept at avoiding the immune system. The HSA cautioned that its findings were based on a limited sample.
Omicron likely to result in ‘modest’ impact on activity
Following reports that GDP rose by just 0.1% in October, leaving output 0.5% below its pre-pandemic level, EY ITEM Club said it expects some “modest” impact on activity in the near-term due to the discovery of the Omicron variant and its likely impact on confidence. The group’s chief economic advisor, Martin Beck, said: “The discovery of the Omicron variant means that the near-term outlook is uncertain. The Government’s move to ‘Plan B’ is unlikely to have much direct impact on activity, given that the new restrictions are relatively minor. In the near-term this is likely to mean growth is weaker than forecast a few weeks ago. Until virologists have a better handle on the new variant, and whether additional restrictions will need to be imposed, it’s hard to gauge the likely impact further out.”
Major employers shun work-from-home call
Two more major employers have told staff to ignore Government work-from-home advice, with magazine publisher Future and the Telegraph Media Group both making clear they needed staff to be in the office. The news comes after the Big Four and major banks said they would let workers go into offices, citing mental health and the need to complete business-critical functions. Writing in the Saturday Telegraph, PwC’s UK chairman Kevin Ellis says that following a successful vaccine rollout and high booster uptake, the country is in a very different place to December 2020. There is good reason to be optimistic, despite Omicron, and that optimism “goes hand in hand with the economy rebounding”. Ellis goes on to say that employers need to strike the right balance. “This is not a return to full lockdown and there is no general instruction from the Government to remain at home.” He adds that against this background, and considering the health needs of PwC staff and the economic gains of people travelling to work, the firm has said “our people can use our offices if they need to, and we won’t be asking questions about why they’re coming in.”
Some 52% of manufacturers reporting higher prices
Over half (52%) of manufacturers are reporting higher prices for UK goods in the fourth quarter, according to the industry body Make UK and BDO. The figure is up from 50% in the third quarter and marks the highest balance since the survey began in 2000. A balance of 58% expected prices to increase further in the first quarter of 2022. Anecdotal evidence from companies suggested that price rises of 10% were common and not attracting a response from customers, suggesting such inflation is becoming built-in, said Make UK. Senior economist James Brougham said: “While manufacturers will be able to enjoy some festive cheer this year, their spirits will be tempered by the eye-watering impact of escalating cost pressures which are leading an increasing number to pass these on to the consumer. Given the global nature of some of these pressures, there is little sign that they will abate any time soon.” Richard Austin, of BDO, added: “Orders and output are still very positive compared to historical figures, but costs pressures – input prices, labour, logistics and inflation – are settling in for the long haul.”
Tax rebates fuel UK film and TV boom
Tax breaks fuelled a £13.5bn boost to the economy from TV and film production between 2017 and 2019, according to the British Film Institute report. The BFI says that for every £1 of relief the tax support scheme provides, it makes £8.30 for the UK economy. “There are many territories around the world that run very competitive tax reliefs, and some of them have become more competitive,” said Ben Roberts, the BFI’s chief executive. But he added that other factors, not least the English language, also made the UK attractive.
Britons urged to take advantage of charity tax relief
Figures from the Charities Aid Foundation show people in the UK gave £11.3bn to charity in 2020, £700m more than in 2019. But experts say the number of people claiming tax relief on their charitable donations is falling, particularly among higher-rate taxpayers. Recent data from HMRC estimated £530m was reclaimed by higher rate taxpayers during 2020/21, down from £540m in 2019/20 and £560m in 2018/19. Sean McCann, Chartered Financial Planner at NFU Mutual, says many higher rate taxpayers, particularly those paid via PAYE are missing out by failing to reclaim 20% of any donation made using Gift Aid. McCann also notes that when a person leaves at least 10% of their net estate to charity on death, the rate of inheritance tax paid on the remainder is reduced from 40% to 36%. Finally, Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, complains that the Treasury has not heeded the advice of the Office of Tax Simplification to reform CGT or IHT noting that the £3,000 annual exemption has been frozen since 1981. “If it had risen with inflation it would be over £13,000 now.”
Bank will kick rate-rise can down the road
Roger Bootle discusses in the Telegraph why he thinks the Bank of England won’t raise rates on Thursday, despite data on Wednesday likely to show inflation has hit close to 5%. He points to Omicron clouding the picture and political concerns over a by-election in North Shropshire, also on Thursday. Bootle adds that the Bank is set to stop its QE programme on Wednesday adding that plans to sell bonds again when interest rates reach 1% may need to be reconsidered: “Excess money is now part of the problem, not the solution.” Bootle concludes that although he expects a rate rise to be delayed until February, this won’t do anything to reduce the size of the increases that will ultimately be necessary. In fact, the signs point to inflation being more of a problem next year.
What next for Boots the Chemist?
Sam Chambers contemplates the future of Boots in the Sunday Times, after Walgreens put the high street chemist up for sale. The potential for Boots to pick up more business from the NHS will be central to the sales pitch by investment bankers at Goldman Sachs, who are being lined up to sell the chain. Chambers notes that pharmacies receive almost 90% of their revenues from NHS England, and EY has forecast that between 64% and 85% of the UK’s community pharmacies will be in deficit by 2024 under current funding schemes.
UK fraud agency faces probe after court rules it denied defendant fair trial
The UK’s attorney-general, Suella Braverman, has launched an investigation into the Serious Fraud Office’s handling of a bribery case after the Court of Appeal overturned the conviction of Ziad Akle, a former executive at Unaoil, an oil and gas consultancy, and ruled the agency had denied him the right to a fair trial. Judges said the SFO failed to properly disclose documents related to its engagement with David Tinsley, a former US Drug Enforcement Agency agent who offered to help secure guilty pleas from Mr Akle and another defendant in exchange for a more lenient deal for his clients – Unaoil. The “material failure of disclosure significantly handicapped the defence”, according to the ruling. Mr Akle’s lawyers have called on SFO chief Lisa Osofsky to resign describing her position as untenable.
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