Business news 15 December 2021

James Salmon, Operations Director.

Inflation jumped to 5.1%. Unemployment rate falls to 4.2%. Trade bodies call for fresh support. Christmas vital for one in five small firms. IMF tells UK to be ready to redeploy furlough. Bank of England urged to up rates.  And more business news.

Inflation jumped to 5.1%

The latest figures show UK Inflation jumped to 5.1% in November, up from 4.2% in October, and more than double a Bank of England target to keep inflation at 2%. The last time inflation reached similar heights was September 2011 when it stood at 5.2%. Transport costs were the largest driver behind inflation as fuel costs skyrocketed. Clothing and footwear have also driven up prices.

Trade bodies call for fresh support
Trade bodies have urged ministers to offer new support measures amid the latest coronavirus restrictions. UK Hospitality chief executive Kate Nicholls has called for full business rates relief, grants, rent protection and extended VAT reductions, saying: “We desperately need support if we are to survive this latest set of restrictions, and urge the Government to stand behind our industry.” VAT was cut to 5% for hospitality during the pandemic but was increased to 12.5% from October and will return to 20% in March. The British Chambers of Commerce has called for it to be returned to 5% – and has also requested that business rates relief be reinstated. Meanwhile, The Night Time Industries Association has called for the return of the furlough scheme in the first quarter of 2022, describing new measures as a “pseudo-lockdown”. CEO Mike Kill said the trade body wants VAT frozen at 12.5% and additional sector specific grants targeted at hospitality.

Inflation expectations highest since 2013
A poll from Citi and YouGov shows that expectations for inflation over the next five to 10 years have climbed to the highest level in eight years. Long-term inflation expectations rose to 3.8% in December from 3.7% in November. The 3.8% rate matches that recorded in September, making it the joint highest level since Q3 2013. Inflation expectations for 12 months’ time were static at 4.0%. With the Bank of England set to decide whether to raise interest rates on Thursday, Citi analysts said they not believe rates will increase this week due to the Bank’s concern about the Omicron coronavirus variant, saying: “Instead, we expect some upward pressures here to keep the Bank on course for a rate hike – most likely in February.” Citi also said it expected inflation to reach as high as 6.4% in April 2022.

Christmas vital for one in five small firms
A study by insurance provider Simply Business suggests that one in five small businesses will not survive 2022 unless their Christmas sales are strong. It was also found that 27% of SME staff are “not confident” about their trading fortunes, while one in ten expects to fare worse this month than they did last December. Two-thirds of SME owners believe a strong performance over the festive season would keep their business afloat. Owners said their biggest challenges will be attracting enough customers (21%) and earning enough to keep their operation going into 2022 (17%). Analysis shows that the pandemic has already cost Britain’s SMEs a combined £126.6bn. Alan Thomas, CEO of Simply Business, said: “For a third of small businesses, Christmas accounts for over 20% of their annual revenue. Many SME owners quite simply need it to be Christmas every day if they’re to recover properly from a devastating two years.”

Unemployment rate falls to 4.2%
Unemployment in the UK fell in October despite the end of the furlough scheme, according to data from the Office for National Statistics (ONS). The unemployment rate fell to 4.2% in the three months to the end of October, down from 4.3% in the three months to the end of September. The number of workers on company payrolls rose by 257,000 in November compared to October, with this the largest monthly rise since 2014. The increase means around 29.4m workers are now on company payrolls. Darren Morgan, director of economic statistics at the ONS, said: “With still no sign of the end of the furlough scheme hitting the number of jobs, the total of employees on payroll continued to grow strongly in November, although it could include people recently made redundant but still working out their notice.” The ONS report also showed that annual wage growth, excluding bonuses, fell to 4.9% in the three months to October, down from 5% in the three months to September. Meanwhile, the number of job vacancies rose to a record high of 1.2m between September and November. This is up 419,000 on the total recorded in the pre-pandemic period of January to March 2020.

IMF tells UK to be ready to redeploy furlough
The International Monetary Fund (IMF) has said Britain should be “ready to redeploy” some form of furlough support if widespread lockdowns are required to tackle a surge in coronavirus cases driven by a new variant. The IMF said fresh waves of the virus represented a “major risk” and suggested a version of the job subsidy scheme could be rolled out if firms are forced to close. It argued that if the UK sees a “virulent Covid-19 wave requiring widespread mandated closures”, authorities should be ready to “redeploy a subset of the most successful previous exceptional programmes.” The IMF pointed to the furlough scheme as an example, as well as “targeted support to the most vulnerable households and small businesses”.

Bank of England urged to up rates
The International Monetary Fund (IMF) has urged the Bank of England (BoE) to increase interest rates to tame inflation, telling the Bank it needs to “withdraw the exceptional support provided during” the pandemic or risk facing spiralling inflation. The economic watchdog says the Bank should avoid “inaction bias” and lift rates from the record low of 0.1%. The IMF said the rate of price rises will not revert back to the BoE’s 2% target until 2024, estimating that inflation will hit a three-decade high of 5.5% in 2022. City economists expect the rate to climb to around 5%, with the Office for National Statistics estimating that inflation is already at 4.2%. Meanwhile, the IMF has forecast that the UK will see GDP growth of 6.8% for this year, with this dropping to 5% in 2022. Elsewhere, Yael Selfin, KPMG UK’s chief economist, has suggested that while a “combination of a tight labour market and low unemployment” could be sufficient to merit a rate rise, the emergence of the Omicron variant means the Bank is likely to hold off raising rates until next year.

Businesses resist price hikes as costs climb
Businesses are absorbing increasing costs in a bid to avoid hitting demand by hiking prices, according to research by Lloyds Bank. The analysis shows that the gap between the amount it costs firms to produce goods and the price they charge for their products has widened to the largest on record amid the soaring cost of raw materials. Lloyds said the rise in prices for components is “increasing pressure on margins that could potentially leave firms vulnerable to weakening demand and further input price shocks.” Jeavon Lolay, head of economics and market insight at Lloyds, said that many businesses are facing rising input costs but “are potentially choosing not to fully pass them on to their customers.” He added: “Persistent or worsening price pressures could leave some with no choice but to eventually raise prices.”

BoE plans to ease mortgage lending rules
The Bank of England has announced plans to ease mortgage lending rules in a move that could help first-time buyers get on to the property ladder. The Bank’s Financial Policy Committee said that it was “minded” to withdraw the rule that forces banks to check that potential borrowers could afford a 3 percentage-point rise in their mortgage interest rate above the lender’s standard variable rate. Scrapping the requirement could help 1% of renters in Britain currently not able to meet the affordability test. A further 6% of mortgage borrowers would also have been able to secure a bigger loan if the rule had not been in place. The Bank said a rule limiting some new mortgages to 4.5 times a borrowers’ income, as well as separate affordability criteria set by the Financial Conduct Authority, were sufficient to guard against excessive risks in the mortgage market. It will consult on the change in the first half of 2022.

2022 set to deliver a tax squeeze
The Mirror’s Harvey Jones looks at changes to taxation coming into force next year, noting that the new 1.25% National Insurance health and social care levy will be introduced in April, hitting 25m workers. He says taxpayers “are going to pay a high price” for Rishi Sunak’s pandemic spending, highlighting that the Chancellor will look to help foot the nation’s coronavirus bill by freezing a host of tax allowances for five years. This, it is noted, applies to income tax, inheritance tax, capital gains tax and the pensions lifetime allowance. Rebecca O’Connor, head of pensions and savings at Interactive Investor, comments: “Tax freezes are a clever way of increasing the income tax people pay without technically increasing taxes, because as salaries increase, more people are dragged into higher bands.” Shaun Moore, a tax and financial planning expert at Quilter,  says freezing the IHT threshold is a stealth tax that means “more grieving families will face IHT bills after inheriting homes.” Mr Jones notes that HMRC pocketed £5bn from IHT last year, with this to climb to £6bn this year. Analysis also shows that Mr Sunak’s move to freeze the CGT threshold for five years will double the annual tax take from £9.2bn this tax year to an estimated £20bn a year in five years’ time. Sean McCann, a chartered financial planner at insurer NFU Mutual, warns: “Too many people overlook the growing danger CGT now poses.”

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