Business news 13 December 2022
James Salmon, Operations Director.
Economy shrinks despite October rebound. Poll raises standard of living concerns. Unemployment rate rises. Pessimistic employers reduce hiring. House prices could fall 10% as mortgage debt rises. And more business news.
Economy shrinks despite October rebound
The UK economy shrank by 0.3% in the three months to October, according to figures from the Office for National Statistics (ONS). The decline came despite a 0.5% increase in October, which was driven by an increase in retail sales and followed a 0.6% contraction in September. Much of September’s decline in GDP was attributed to the extra Bank Holiday to mark the funeral of Queen Elizabeth II. Analysis shows that the economy shrank by 0.2% in the three months to September, with economists warning that the UK is already in recession. Suren Thiru, economics director at the ICAEW, said October’s rebound was a “false dawn for the economy.” He added: “The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in GDP in November and December.” Yael Selfin, Chief Economist at KPMG UK said: “While overall UK GDP rose by 0.5% in October, driven in part by the weaker September as a result of the additional bank holiday, we expect it to fall in the final two months of the year.” Martin Beck, chief economic adviser to the EY Item Club, warned that the near-term outlook “remains gloomy,” with consumers continuing to “struggle under the weight of high inflation and with much of the impact of this year’s interest rate rises still to be realised.” Reflecting on the ONS data, Chancellor Jeremy Hunt said the figures “confirm that this is a very challenging economic situation,” adding that “it will get worse before it gets better.”
Poll raises standard of living concerns
A study by the New Economics Foundation think-tank suggests that 30m people in the UK will be unable to afford a decent standard of living by the time the current parliament ends in 2024. The report warns that rising prices, below-inflation increases in earnings and projected increases in unemployment would result in 43% of households lacking the resources to afford groceries, buy new clothes or treat themselves and their families. This marks a 12 percentage point increase since 2019. The NEF said that by 2024 almost 90% of single parents and 50% of workers with children would fall below a minimum income standard. The think-tank has called for universal credit to be scrapped and replaced by a national living income, a minimum below which no one could fall whether they were in or out of work.
Renewable energy jobs surge
The number of jobs being created in the renewable energy industry is growing four times faster than the overall UK employment market. PwC’s annual green jobs barometer shows that shows that 2.2% of all new UK jobs have been classified as “green”, with the number of green jobs advertised almost trebling in the last year and equating to 336,000 roles. Scotland has the highest proportion of green jobs, at 3.3% – up from 1.7% last year. However, PwC said that, by volume of jobs, London and the south-East are “pulling away from the rest of the country.”
Chancellor defends public sector pay gap
With a wave of strikes focusing attention on the gap between private and public sector pay growth, Chancellor Jeremy Hunt has warned that increasing pay for public sector workers could contribute to spiralling inflation. Office for National Statistics data shows that regular wage growth in the public sector was 2.2% in July to September 2022, compared to 6.6% for the private sector.
Unemployment rate rises
The UK Unemployment Rate has risen and the number of vacancies fell back further in a sign of a weakening jobs market. The Office for National Statistics said the rate of UK unemployment rose to 3.7 per cent in the three months to October, up from 3.6 per cent in the previous quarter. The data also showed that vacancies dropped by 65,000 in the three months to November to 1.9 million – the fifth quarterly fall in a row and the first annual fall since the beginning of last year.
Pessimistic employers reduce hiring
Employers cut back on hiring new staff for a third month in a row in November, BDO research shows. The firm’s employment index – which is compiled using data from the Bank of England, the Office for National Statistics, the Confederation of British Industry’s economy surveys and other sources – fell 1.2 points to 111.85. BDO also found that businesses were less optimistic about their prospects amid higher energy costs and an expected downturn in consumer spending. The firm’s optimism index fell to a two-year low of 91.64 in November on a scale where a reading below 95 suggests a contraction in business sentiment
Netflix paid £5m in UK tax after earning £1.3bn
Netflix paid just £5m in UK corporation tax last year, despite earning a record £1.38bn from British subscribers. The streaming service used a legal accounting loophole to avoid an estimated £49m in UK taxes by diverting cash to the Netherlands. The firm’s 2021 accounts reveal that it transferred £1.24bn – of which an estimated £260m was pure profit – to Dutch-registered Netflix International BV “per a distribution agreement.” This effectively reduced the company’s UK corporation tax rate on its profits from the standard 19% to under 2% – reducing its bill from around £54m to just £5.2m. While MP Nigel Mills, a member of the Fair Tax All-Party Parliamentary Group, said it looked as if Netflix was “not paying a fair amount of tax in the UK,” the company insisted it has invested more in production in the UK than anywhere outside of North America.
EU reaches deal over tax on big corporations
The European Union has reached a deal in principle to approve a minimum tax on major corporations, with Hungary having previously used its veto to block the move. Budapest has agreed to drop its veto over the global minimum corporate tax of 15% set out by the Organisation for Economic Co-operation and Development, which is to be applied to large international corporations where they make money, rather than where they set up offices for tax purposes. The agreement means the profit of companies with annual turnover of more than €750m will be taxed at 15% or more. The minimum tax will become EU law if Poland withdraws an objection it has to the policy.
House prices could fall 10% as mortgage debt rises
Economists at Credit Suisse say house prices are set to slump due to rising interest rates and a looming recession. Warning that the rising cost of mortgages will see the burden of payments hit the highest since 2009, Credit Suisse’s Peter Foley said: “We expect house prices to fall at least 10% next year in the US and UK.” Credit Suisse expects borrowers in the UK to be hit harder by rising interest rates than the US because the “overwhelming majority of US mortgages” are fixed for 30 years while most UK borrowers fix their interest rates for between two and five years. Elsewhere, the Office for Budget Responsibility believes prices will fall 9% over the next two years. Meanwhile, Karen Ward, chief market strategist at JPMorgan Asset Management, has ruled out a “doom loop of construction activity contracting massively, people getting into negative equity and consumer behaviour really changing because of the housing market.”
40% of ethnic minority workers have hidden career choices
Research commissioned by Samsung Pioneers shows that four in ten ethnic minority workers have lied about or hidden career decisions due to cultural expectations. A poll of 1,568 adults found that 67% of non-white workers felt pressure to pursue specific job roles by family compared to just 31% of white workers. The study also shows that 47% of ethnic minority workers claim to have been treated unfairly due to cultural background, with 56% saying they have felt obliged to change aspects of identity or heritage to fit in at work. It was also found that 71% of ethnic minority workers said they have had to worker harder than white British employees in the same – or a similar – role.
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