Business news 14 November 2022
James Salmon, Operations Director.
GDP shrinks, Hunt warns of “tough road ahead”. Everyone will have to pay more tax. Contraction bleak news for small businesses. SMEs struggling to get loans. SMEs face energy bill ‘cliff-edge’. And more business news.
GDP shrinks, Hunt warns of “tough road ahead”
The UK economy contracted by 0.2% between July and September, according to data from the Office of national Statistics. This was below analysts’ forecasts of 0.5%, but if October to December shows another fall the UK will technically be in recession – defined as two consecutive quarters of decline.
A recession has been widely expected due to soaring inflation and the Bank of England said the battle to bring it down could take two years. Growth in services output ground to a halt in the third quarter while industries including retail and wholesale, and arts, entertainment and recreation declined over the period. Household spending fell by 0.5% on the quarter once adjusted for the jump in prices.
Meanwhile, Chancellor Jeremy Hunt said he would try to make any recession “shallower and quicker” than predicted. But he warned of “eye-watering” decisions needed on public spending and taxation to “restore confidence and economic stability”. Sanjay Raja, economist at Deutsche Bank, said the contraction was the result of “continued weakness in household and business confidence, higher inflation and higher interest rates in the economy”.
Hunt: Everyone will have to pay more tax
Chancellor Jeremy Hunt says everyone will have to pay more tax under plans set to be announced in this week’s Autumn Statement. He told the BBC’s Sunday with Laura Kuenssberg he has “been explicit that taxes are going to go up,” adding: “We have a plan to see us through choppy waters… we will make the recession we are in as short and shallow as possible.” The Chancellor acknowledged that the plans would “disappoint people” but promised to protect the “most vulnerable.”
Separately, Mr Hunt told Sky News’ Sophy Ridge on Sunday his plan will “help bring down inflation, help control high energy prices and also get our way back to growing healthily, which is what we need so much.”
Hunt has to make ‘horrible decisions’ on tax and spending
Jeremy Hunt is expected to set out spending cuts of about £35bn and plans to raise £20bn in tax in the coming years in this week’s Autumn Statement. With the Chancellor set to detail plans designed to help address a gap of around £50bn in public finances, he is expected to detail plans to freeze tax thresholds, while the windfall tax on energy firms is likely to be extended and increased. In an interview with the Sunday Times, Mr Hunt said he is “Scrooge who’s going to do things that make sure Christmas is never cancelled.” He warned of “horrible decisions” on tax and spending that are designed to bring down inflation, restore stability and shorten a likely recession. He said: “If we can, with the Bank of England, control inflation, then we will be able to contain the global rise in interest rates, contain the rises in mortgage rates that people are seeing, contain the cost of loans that businesses borrow, and have a chance of getting back on track.” Mr Hunt said the Autumn Statement requires him to “do what is right for the country … and unfortunately that does mean tax rises.”
Contraction bleak news for small businesses
Responding to the news that the UK economy contracted over the third quarter, the national chairman of the Federation of Small Businesses, Martin McTague, said: “Confirmation of a shrinking economy is dreadful news for small businesses that have been facing increasing recessionary pressures for months now.” He continued: “Lower levels of reserves and resources mean they are more vulnerable to downturns, and at a time when confidence is deteriorating in both consumers and businesses, the outlook for the UK economy is now very bleak indeed.”
SMEs struggling to get loans
A poll for asset manager Channel Capital suggests that SMEs are struggling to get loans from high-street banks. The survey saw three-fifths of SMEs say they need funding to ease day-to-day cashflow issues, while more than two-thirds said they need funding to grow. Over half of the business leaders surveyed said high-street banks are too slow in assessing business loan applications. Almost half believe banks are reluctant to lend to smaller businesses.
SMEs face energy bill ‘cliff-edge’
A poll from the British Chambers of Commerce (BCC) shows that almost half of SMEs fear they will be unable to pay their energy bills once the Government’s support package ends next March. The poll shows that 4% believe they will not be able to pay their energy bills at all, while 37% predict they will find it difficult to pay even when they are in receipt of Government support. Shevaun Haviland, director General of the BCC, warned a “cliff-edge” is looming for businesses, and that the Government should consider proposals such as reforming business rates and boosting competition in the business retail market.
Joules calls in administrators
Struggling high street outdoor wear retailer Joules is calling in the administrators after failing to find new funding, becoming the latest UK company to be hit by the cost of living crisis and putting 1600 jobs at risk.
House repossessions creep up
New data from UK Finance show home repossessions rose 15% between July and September this year compared to the previous quarter. Some 700 homeowner mortgaged properties were taken into possession in the third quarter of 2022 while the number of buy-to-let properties taken into possession rose 11% to 390. Inflation and rising borrowing costs are blamed for the rise. Citizens Advice estimates that more than a quarter of mortgage holders wouldn’t be able to afford their monthly repayments if they increased by £100 a month.
More workers seek crisis support as cost of living soars
The number of people in work seeking crisis support has more than doubled in two years, according to Citizens Advice. The charity says it referred 6,983 employed people for crisis support between July and September this year. That compares with 2,780 people in the same period in 2020. “Every day, our advisers hear stories of people skipping meals, going without essentials and then coming to us when they simply can’t cut back any more. This cannot continue”, said Morgan Wild, Head of Policy at Citizens Advice. “We have seen the difference government support can have but the warning lights are still flashing red for the future,” he added.
One in three at risk if income dries up
One in three adults would run out of money within three months if a recession means their main source of income dries up, according to analysis of new Financial Conduct Authority (FCA) figures by shadow Chancellor Rachel Reeves. The report shows that 16.5m people would be unable to cover living costs beyond 12 weeks unless they borrowed from friends and family.
FCA data shows that 2.2m more people now have low “financial resilience” than in 2020, with the report warning: “These people could quickly find themselves in difficulty if they suffer a financial shock because of little or no savings or burdened by domestic bills or credit commitments.”
Ms Reeves said: “Prices are soaring, mortgages are rocketing, and many are struggling to pay their bills. This cannot continue.” Looking ahead to this week’s Autumn Statement, Chris Etherington of RSM warned: ”This will be one of the most painful Budgets since World War Two and leave a bitter aftertaste. The age of austerity 2.0 is upon us.”
Treasury mulls raising energy price cap from April
The Government could announce an increase in the energy cap at next week’s fiscal statement, Treasury sources have told the Guardian. The Treasury does not have to announce the level of energy support it is planning to give until the spring, but believes doing so at the Autumn Statement would be appropriate given the significant government expenditure, while it could also help people plan for what they may need to pay. It could be raised from its current level of £2,500 from next April to as high as £3,100, as per Bank of England estimates.
PM to hike windfall tax on energy profits
The Prime Minister is reportedly planning to raise windfall taxes on oil and gas companies to 35% and extend them until 2028. The scheme will also be extended to cover electricity generators. Rishi Sunak and Jeremy Hunt, his Chancellor, had intended to increase the tax to 30% from its current rate of 25%. By taking it to 35% they will raise an estimated £45bn for the Treasury over the next five years. North Sea producers has already warned Mr Hunt that increasing the windfall tax would be disastrous for the industry.
Heathrow
Heathrow Airport has stated it will not re-introduce a cap on passenger numbers around Christmas. The UK’s biggest airport said it was preparing for the biggest festive travel season in three years. Heathrow also predicted staffing would be back to pre-pandemic levels before the summer holidays.
EU heading for recession
The European Union is heading for a recession amid rising energy prices and record inflation. The European Commission has cut its growth forecasts for the bloc and warned that the economy would contract until at least next spring. Germany, Europe’s biggest economy, is on course to suffer the worst recession in the EU next year, with the country’s GDP forecast to shrink 0.6% next year.
WFH with poor broadband hurts the economy
People working from home with poor broadband have cost the economy billions, according to data from software company Actual Experience. Digital disruption costs the UK £60bn per year, the equivalent to 3% of GDP, while time wasted through technical failures, video call dropouts and long technological delays have cost the average worker around £1,000 per year. A poll of 1,006 people who work from home found that 89% experienced IT problems while working remotely, with 27% of those who experienced technical difficulties saying they occurred “very” or “fairly” often.
Bankman-Fried’s FTX files for bankruptcy
Cryptocurrency exchange FTX was forced to file for bankruptcy protection in the US on Friday after a massive liquidity crunch collapsed the company. Binance has offered to bail out the firm but backed out after reportedly finding an $8bn hole in the company’s books. Founder Sam Bankman-Fried saw his $16bn fortune wiped out after last-ditch attempts to save his troubled businesses ended in failure. Alameda Research, Bankman-Fried’s trading firm, and a slew of other businesses linked to FTX, are also bankrupt. US regulators are investigating claims that FTX loaned customer funds to Alameda, which used the money to make risky bets. Bankman-Fried resigned as chief executive and has been replaced by John J Ray III, a turnaround veteran who led the clean-up at Enron. FTX has about 100,000 creditors and $10bn-$50bn of assets and liabilities, according to the filing. Binance CEO Changpeng Zhao said there are likely to be “cascading effects” from FTX’s collapse but the crypto sector would eventually recover.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.