Business news 15 March 2022
James Salmon, Operations Director.
Recession risk ‘is looming into view’. Wages lag inflation. OBR set to reveal slower growth and higher inflation . Poll reveals cost of living concerns. Firms set to hike prices. And more business news.
Recession risk ‘is looming into view’
The poorest households could see their cost of living jump by as much as 10% by this autumn, the Resolution Foundation think-tank has warned. It said that while public finances look healthier than expected at the time of the autumn Budget, with borrowing on course to be £30bn lower than forecast, the economic outlook has deteriorated significantly.
Resolution Foundation research director James Smith said: “The chances of a living standards recovery this year are receding as rapidly as inflation is rising, and the risk of another recession is looming into view.” Looking ahead to next week’s spring statement, he added that Chancellor Rishi Sunak “will therefore need to make some tough, and potentially expensive, choices in how to respond.”
Meanwhile, analysis by another think-tank, the New Economics Foundation, suggests that as many as 48% of all children could be living in households that are unable to meet the cost of some basic necessities by April. The report says a third of households, or 23.4m people, would have to cut back on some basics, such as food or heating. Urging the Government to act, Labour’s Louise Haigh said: “The Conservatives could help working people being hit hard by soaring prices; instead they’ve rejected the choice of a one-off windfall tax on oil and gas producers raking in billions,” while Liberal Democrat leader Ed Davey has renewed his call for a VAT cut in response to surging inflation.
Wages lag inflation
UK Wage Growth failed to keep up with the rising cost of living between November and January. Wages rose, but when taking rising prices into account, regular pay showed a 1.0% fall from a year earlier, the Office for National Statistics said. The new figures also show that the unemployment rate fell to 3.9%, while job vacancies hit another record high.
OBR set to reveal slower growth and higher inflation
The Times’ Mehreen Kahn looks ahead to Rishi Sunak’s spring statement on March 23, noting that alongside the Chancellor’s speech, the Office for Budget Responsibility (OBR) will publish its latest forecasts for the economy and public finances. She says that the OBR’s forecasts are expected to show slower growth and higher inflation over the next five years, pushing up the Government’s total borrowing bill by raising the cost of serving its debt.
Economists at EY project that total public sector borrowing will rise from an expected £83bn to £100bn in 2022/23. Ms Kahn notes that business and consumer lobbies are “pushing for tax breaks and fresh spending plans”, with the Federation of Small Businesses urging the Chancellor to raise the employment allowance from £4,000 to £5,000 to help reduce the hiring bill for squeezed employers, while ministers are also facing calls to scrap a 1.25% rise in National Insurance.
Poll reveals cost of living concerns
A poll by KIS Finance shows that 57% of Britons are either struggling financially or concerned about their finances in the near future. This comes amid the cost of living crisis and rising inflation, alongside the economic impact of Russia’s invasion of Ukraine. Holly Andrews, MD at KIS, said the squeeze on wages and rising costs of living mean that “more people will be facing difficult times making ends meet.”
Ukraine & Markets
Oil Prices fell around $7 a barrel yesterday in afternoon trading as traders pinned hopes on diplomatic efforts between Ukraine and Russia to end their conflict, while a surge in Covid-19 cases in China spooked the markets amid warnings from the US to China about getting involved in helping Russia avoided sanctions. Overnight the S&P 500 dropped -0.74% while the NASDAQ dropped -2.04%.
Small business lending falls
Figures from banking body UK Finance shows borrowing by small businesses fell significantly last year. Small firms took on £22.6bn in debt 2021, with this 64% down on the year before. Analysis shows that in Q2 2021, small firms took on £5.2bn in debt, compared to £34.5bn in Q2 2020. The report says Government implemented loan-schemes rolled out amid the pandemic incentivised banks to channel funds into the private sector, boosting overall loan demand among businesses during the pandemic.
Firms set to hike prices
A record proportion of UK firms are preparing to hike prices, analysis by IHS Markit shows. A net 62% of firms are intending to raise prices, the highest proportion logged since records began over 10 years ago. Prices are already accelerating at the fastest rate since 1992, having climbed 5.5% over the last year. Economists at KPMG believe inflation could reach 10% in October.
IoD: Tax change could boost retraining
The Institute of Directors (IoD) has urged Chancellor Rishi Sunak to introduce a tax “super-deduction” for companies that invest in retraining staff, with a focus on areas where there are skills shortages. Pointing to a “clear market failure” in training staff to meet labour shortages, the IoD has called for a tax incentive to encourage more workplace investment. The body said that members that were not intending to increase investment in skills training had responded positively when asked if a tax deduction would change their plans. Kitty Ussher, chief economist of the IoD, said: “Reskilling an existing team member, as opposed to updating existing expertise, is not tax deductible. There is also the risk that the individual, once retrained in a skills shortage area, is more likely to be poached by competitors. This represents a clear market failure.” She added that SMEs in particular had “insufficient incentive to invest in upskilling their staff in areas where the national need is clear.”
TUC calls for ban on umbrella companies
The Trades Union Congress (TUC) has warned that Government plans to address labour market abuses by umbrella companies are inadequate. While officials are working on new rules for the temporary labour market over concerns that unscrupulous umbrella companies are taking advantage of workers, the TUC has repeated its call for a ban on such firms. In response to a Government consultation, the TUC said that under current proposals, independent contractors who are not classed as agency workers could still fall outside the scope of regulation, despite being forced to use umbrellas.
Frances O’Grady, the TUC’s general secretary, said: “It has long been clear that our lack of regulation lets dodgy umbrella companies off the hook – allowing them to act with impunity and treat workers appallingly.” She added that the Government’s proposals “fall far short of what’s needed.” Rebecca Seeley Harris, a tax expert and former senior adviser to the Treasury, said umbrella companies “need to be regulated and sooner rather than later” but does not believe they should be banned as the complexity of hiring someone off-payroll means they have “found a place in the labour supply chain.” As many as 600,000 temporary workers in the UK are thought to be employed by umbrella companies, which are used by recruitment agencies and companies to cut temporary payroll costs.
Retail and hospitality see surge in wage whistleblowers
The number of whistleblower reports relating to alleged National Minimum Wage breaches in the retail and hospitality sectors have spiked, according to data compiled by law firm RPC. Complaints from those in the retail sector were up 37% in the past year, with 235 complaints made in 2020/21 compared to 171 in 2019/20. Meanwhile, the number of whistleblower reports in the hospitality sector was up from 354 to 408. RPC said the overwhelming majority of National Minimum Wage breaches are likely to be accidental and due to simple payroll errors, rather than firms deliberately underpaying their workers.
Jeremy Drew, co-head of retail and partner at RPC, believes the Government should consider simplifying the complex legislation to make it easier for businesses to comply. He also questioned a policy of naming and shaming businesses found to have breached rules, saying: “Some businesses have had their reputations unfairly tarnished over minor technical errors that were quickly rectified.”
Self-employed ‘will miss out on wage growth’
According to research from the Institute for Fiscal Studies (IFS) and social wellbeing charity the Nuffield Foundation, middle-income and self-employed households face being left behind amid a broader growth in earnings. The researchers said the Government was running out of tools boost the pay of middle-income earners and low-paid workers in self-employment. Robert Joyce, deputy director at the IFS, explained that while Government policies can help poorer workers, “they cannot help average earners who continue to see worrying wage stagnation and minimum wages cannot help the growing group in self-employment.”
Bumper year for start-up backers
Investors in UK start-ups saw a bumper year of exits, with total value hitting a record £26.7bn last year. There were 781 exits from UK high-growth firms last year, over five times the number seen in 2020, according to a report from Triple Point Ventures and research firm Beauhurst. Of the 781 exits, 732 came via acquisitions while 49 floated on public markets as IPOs surged, rising 308% on the previous year. Dealmaking globally hit record levels in 2021 with 3,791 across mergers and acquisitions in the UK alone, the largest number on record, according to separate data from BCW.
ONS removes suits from inflation basket
The Office for National Statistics (ONS) has removed men’s suits from the basket of goods used to calculate inflation due to a shift toward working from home since the start of the pandemic. The ONS said the change in working patterns meant the suit – which has been included in the basket since 1947 – is no longer one of around 730 goods and services selected to measure the cost of living. Other items that will no longer be tracked include doughnuts, which are being replaced by multipacks of cakes, and coal, which has been removed in anticipation of a ban on domestic sales of the fuel. Items added to the basket for the first time this year include antibacterial surface wipes, meat-free sausages, sports bras and pet collars.
Sam Beckett, the ONS’ head of economic statistics, said: “The 2022 basket of goods sees some really interesting changes, with the impact of the pandemic still evident in our shopping habits.” Linda Ellett, KPMG’s UK head of consumer markets, retail and leisure, said the updated basket was reflective of current pandemic spending habits, adding: “Amongst many commonly bought goods, prices are rising.” While inflation hit 5.5% in January, the Bank of England predicts it could hit 7% in the coming months and economists fear it could breach 8% as the Ukrainian conflict drives up prices.
Foreign ownership in London up 4%
Internationally-registered homes in London increased by £6bn last year, with data from estate agent Benham and Reeves showing that the number of houses registered to buyers overseas climbed 4% to 84,451. The report shows that £59.3bn-worth of property is overseas-registered, with this up £6bn on 2020. The biggest increase in foreign ownership was in Hackney, with a 15% increase recorded, while Westminster led the way on both the highest sums for homes (£12.5bn) and the biggest increase (£2bn). With Russia’s invasion of Ukraine resulting in sanctions against oligarchs linked to the Kremlin, Benham and Reeves director Marc von Grundherr commented: “There will be one segment of the international buyers that are sure to be absent for the immediate future, at least.”
UK rents up 4% year-on-year
Analysis by SpareRoom shows that all UK regions experienced year-on-year room rent increases in February, with an average increase of 4%. London saw the biggest increases since before the pandemic began, with average room rents now at £796 per month, having fallen to £703 as low as in March 2021. Some postcodes in the capital have recorded huge increases over the year, with rents in W1 up 33% while there were 31% increases in both NW8 and SW1. While rents are up, supply across the UK is down 32% year-on-year, while supply in London is down by 53% on February 2021. The report also found that 42% of London landlords currently do not have confidence in the rental market. Of these, 20% plan to leave the rental market and 11% plan to reduce their portfolio.
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