Business news 17 February 2022
James Salmon, Operations Director.
Inflation hits 5.5% in January. SMEs plan to add staff in Q1. Business confidence falls from a record high. Real wages higher than pre-Covid levels. But banker pay points to unequal recovery. And more business news.
Inflation hits 5.5% in January
Inflation data from the Office for National Statistics (ONS) shows that the cost of living hit a new 30-year high in January as energy, fuel and food prices continued to soar.
The rate of Consumer Price Index inflation, which hit 5.4% in December, increased to 5.5% in January, far exceeding the Bank of England’s 2% target. The Bank believes inflation will continue to climb as energy prices increase, hitting a peak of 7.25% in April. This would mark the highest level of inflation since August 1991. Having already increase interest rates to 0.5% in the first back-to-back increase since 2004, officials are expected to increase rates further as the Bank looks to rein in inflation.
Reflecting on the ONS’ inflation figures, Chancellor Rishi Sunak said ministers “understand the pressures people are facing with the cost of living,” noting the Government is “providing support with the cost of living worth over £20bn across this financial year and next.”
Yael Selfin, chief economist at KPMG, said that while inflation is expected to accelerate to 7.5% in April, it should return to 2% by the end of 2023.
Martin Beck, chief economic adviser to the EY Item Club, believes inflation could remain high until late summer if global oil and gas prices are slow to fall.
Commenting on the likelihood of inflation prompting further interest rate increases, Thomas Pugh, an economist at RSM, says there will “probably then be another hike in May” but suggested the Bank would “pause” there.
SMEs plan to add staff in Q1
SMEs are looking to bolster their employee numbers, with Barclaycard Payments’ SME Barometer showing that firms plan to add six new staff on average in Q1.
The analysis shows that 40% of SME’s hope to expand their workforce in the first three months of the year. It was also shown that SMEs expect earnings to increase by more than 13% year-on-year in Q1. The report also reveals that two thirds of SMES are concerned about the impact the rising cost of living, inflation and soaring energy bills may have on their businesses.
Jo Fairley, co-founder of SME Investor, says that despite the challenges, “the last couple of years have shown that the British consumer is keener than ever before to support smaller and local businesses, and this should prove really positive for SMEs, helping them not just to cope but go grow in the months ahead.”
Business confidence falls from a record high
The ICAEW’s quarterly business monitor shows that business confidence has been hit by a shortage of skilled workers, concerns about tax rises, and an expectation that salaries will see a sharp increase. Business confidence, which reached a record high in 2021, had declined for the second consecutive quarter. While companies reported domestic sales growth of 5.3% in the past year, this is expected to slow compared with the previous quarter, according to the survey of 1,000 accountants between mid-October and mid-January.
Michael Izza, chief executive of the ICAEW, said: “After record-breaking confidence in 2021, it’s unsurprising that the index has fallen as companies look to the future. Nevertheless, confidence remains strong and is returning to the levels we saw before the pandemic.”
Real wages higher than pre-Covid levels
While wage growth failed to keep pace with inflation at the end of 2021, British workers are still better off than they were at the start of the pandemic. Wages rose by 4.9% in the year to December 2021, lagging the 5.4% annual rise in inflation recorded in the same month. However, real wages – where pay is adjusted for the impact of inflation – are higher than they were before the coronavirus outbreak, finishing 2021 almost 4% higher than they were before the pandemic.
But banker pay points to unequal recovery
Analysis shows that bankers, private equity dealmakers and other financier pay is growing three times as fast as wages for nurses and teachers. Office for National Statistics (ONS) labour market data shows that average pay in the finance and business services sectors rose 8.1% in Q4 2021, outpacing the 2.6% increase seen in public sector professions and the 2.4% rise in the construction and manufacturing sectors.
Simon Hunt in the Evening Standard says the data suggests Britain is seeing an “unequal recovery as it bounces back from the coronavirus slowdown”. Luke Hildyard, director of the High Pay Centre think-tank, said: “The pay culture in financial services is a key reason why the UK is one of the most unequal countries in Europe with bonus payments in the sector mostly accruing to a small number of very high earners.” Noting that bonuses in the financial services sector are increasing while the rest of the country faces a cost of living crisis, Mr Hildyard says it “highlights how the incomes of the super-rich don’t really trickle down to the rest of us.”
Amazon & Visa
Amazon and Visa have reached an agreement over the fees on purchases on Amazon’s website. The retailer said it will no longer charge customers who use Visa cards on its site in Singapore and Australia an extra fee and it will not turn off Visa credit cards from amazon.co.uk. Amazon and Visa had been feuding over the fees.
Ofgem challenged by energy suppliers’ administrators
Administrators are challenging Ofgem’s status as a creditor in the collapse of three separate gas and electricity companies. Alvarez & Marsal, Grant Thornton and Teneo Restructuring are reportedly seeking a legal intervention, asking the courts to determine the regulator’s rights to claim outstanding Renewables Obligation Certificate payments from administrators.
HMRC spends £12m on data analysts
HMRC has almost tripled its yearly spend on data analyst and data scientist roles over the past five years, according to official figures analysed by the Parliament Street think-tank. Over the 2017 to 2021 reporting period, HMRC’s estimated staff bill rose 192% from £4,244,879 to £12,414,306 with the number of data staff increasing from 139 to 354. Last year saw the steepest increase, with an additional 78 staff joining HMRC in data roles. This saw an estimated £3,339,317 increase in the staffing bill. Neil Parker, general manager EMEA at artificial intelligence specialist Laiye, comments: “As we emerge from the chaos of the Coronavirus outbreak, harnessing the power of artificial intelligence and data processes remains vital for developing and delivering first class public services. HMRC should be commended for boosting its data science capabilities.”
Average house price climbs £27k in 2021
Office for National Statistics (ONS) figures show that the average UK house price rose by £27,000 last year, hitting a record high of £275,000. House prices increased by 10.8% over the year to December, with this slightly higher than the 10.7% increase recorded in November. In England, property values increased by 10.7% over the year to December, taking the average price to a record high of £293,000. The average house price in Scotland rose by 11.2%, with the average price hitting £180,000 at the end of 2021. In Wales, the average price jumped by 13% to a record high of £205,000. In Northern Ireland, property values increased by 10.7% to £159,000. Separate ONS data shows that the private rental prices increased by 2% in the 12 months to January. Excluding London, private rents increased by 3% year-on-year.
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