Business news 18 January 2023
James Salmon, Operations Director.
Corporate insolvencies climb in England and Wales as costs bite. Inflation cools slightly. UK wages jump but fail to keep pace. IMF signals upgrade to forecasts. And more business news.
Corporate insolvencies climb in England and Wales as costs bite
Soaring business costs and the closure of pandemic business support schemes have seen corporate insolvencies climb to 1,964 in England and Wales in December, according to Insolvency Service data, up 32% on the same period the year before.
This is 76% higher than in December 2019, before the COVID-19 pandemic.
David Kelly, head of insolvency at PwC, said businesses are facing many challenges “ranging from high inflation and rising interest rates to poor consumer sentiment and increasing raw material costs”.
David Hudson, partner at advisory firm FRP, said the restructuring profession is “bracing for a year of more and more insolvencies” as “inflation is crushing demand, and leading to soaring overheads”.
Meanwhile, Christina Fitzgerald, president of R3, the insolvency and restructuring trade body, said directors are “very concerned about the effects of energy and staff costs, as well as fears about how the cost of living crisis will impact on their income this year”.
Inflation cools slightly
UK Inflation cooled slightly in December – for the second month in a row 0 the latest figures from the Office for National Statistics showed, raising hopes that the worst of the inflation is behind us. The consumer price index rose annually by 10.5% last month, compared to a 10.7% rise in November. Consensus had expected 10.6% inflation in December. The percentage is down from a four-decade high of 11.1% in October. On a monthly basis, CPI rose by 0.4% in December, the same pace as in November and in line with market expectations.
UK wages jump but fail to keep pace with inflation
Figures from the Office of National Statistics reveal UK pay increased by 6.4% between September to November 2022, both including and excluding bonuses. However, in real terms adjusted for inflation, total and regular pay both fell by 2.6% over the year, marking one of the biggest falls in living standards since comparable records began in 2001. Wage growth was much stronger in the private sector than in the public sector – 7.2% compared with 3.3% – a gap that will likely fuel the stand-off between the Government and striking public sector workers.
Economists said the acceleration in wage growth would strengthen the case for further interest rate rises, with traders pricing in a higher probability of a 0.5 percentage point increase after the data was released. “At the moment, the jobs market is too strong for comfort for the Bank of England,” said Sandra Horsfield, economist at Investec. She added: “The worry is that, if wage growth exceeds productivity gains, firms may seek to pass on some of these extra costs…prolonging the bout of inflation.”
Meanwhile, the rate of UK unemployment rose to 3.7% in the three months leading up to November, up from 3.5% in the previous three-month period, the ONS said. The Office for Budget Responsibility expects unemployment to peak at 4.9% by the third quarter of 2024, while analysts at KPMG expect a rise to 5.6% by the middle of next year. Yael Selfin, the chief economist at KPMG UK, said: “Continued frictions in the labour market have kept the unemployment rate low, but this is set to reverse as employers adjust their headcount in light of rising costs and falling demand.”
IMF signals upgrade to forecasts as optimism spreads at Davos
The Financial Times reports that business leaders and government officials have expressed optimism for the global economy as China drops COVID controls, the US launches a green investment boom, and western Europe adjusts to Russia’s war in Ukraine.
Probe into EV battery supply inquiry after Britishvolt collapses
The British electric car battery firm Britishvolt has fallen into administration and made the majority of its roughly 300 staff redundant. The company, which had plans to build a gigafactory to make the batteries in Northumberland, hired administrators at EY after failing to raise enough cash for the research and development required at its Cambois site. Within hours, the UK’s Business, Energy and Industrial Strategy Committee launched an inquiry into UK electric vehicle battery production to determine “what’s holding back the development of electric car batteries in the UK and what needs to be done to protect the thousands of jobs across the country in this important sector.”
Former Aston Martin boss Andy Palmer called Britishvolt’s liquidation “an unmitigated disaster” for the industry.
Workers pressure bosses on climate
A Deloitte survey of more than 2,000 executives across 24 countries has found that pressures to spend more on decarbonisation are expected to grow. Climate change was one of the top issues facing executives, second only to the economic outlook, ahead of skills shortages, supply chain woes and geopolitics. More than half said employee activism on climate matters has led their organisations to increase sustainability actions during the past year and almost a quarter said it has led to a “significant” increase.
Mortgage rates fall to their lowest in almost three months
High street lenders are slashing mortgage rates with HSBC reducing rates on 100 of its deals by up to 0.1 percentage points on Tuesday. Yorkshire Building Society cut its fixed-rate mortgages by up to 0.75 percentage points while Santander also slashed some of its fixed-rate mortgages by up to 0.59 percentage points. The bank also launched a new two-year deal at 4.84%, one of the cheapest on the market. Borrowing costs rose dramatically after the mini-Budget at the end of September, peaking towards the end of October, before gradually falling to today’s three-month low. The average two-year fixed rate now stands at 5.58%, down from its peak of 6.65%, while the average five-year rate has dropped to 5.39%, the lowest level since the start of October, when it was priced at 5.23%.
Covid fraud task force ‘not best value’ for UK taxpayers, admits HMRC
HMRC will be closing its Taxpayer Protection Taskforce, set up in 2021 to recover billions lost through COVID-19 financial aid schemes, saying keeping it open “does not provide the best value for the taxpayer”. It is believed that £4.5bn was misallocated by HMRC over the lifetime of the support schemes. The taskforce will be wound down from March 2023 and by September its COVID-19 fraud work will be absorbed into wider compliance activity, boss Jim Harra said in a letter to the Treasury. Mr Harra wrote in the letter: “We remain committed to tackling error and fraud in the COVID-19 support schemes where this is the most cost-effective use of resources, and we are not writing anything off.” A spokesman for HMRC said: “Tackling Covid scheme fraudsters remains extremely important to HMRC, and moving this work into business-as-usual compliance activity is the most efficient way to ensure we continue to protect and recover taxpayers’ money in the longer term.”
Super-rich call on governments to introduce wealth taxes
A group of 205 millionaires and billionaires, including the Disney heiress Abigail Disney and The Hulk actor Mark Ruffalo, on Wednesday called on world leaders to introduce wealth taxes to help tackle “extreme inequality”. In an open letter published on Wednesday, the group said: “Defending democracy and building cooperation requires action to build fairer economies right now – it is not a problem that can be left for our children to fix. Now is the time to tackle extreme wealth; now is the time to tax the ultra-rich.”
Total signals $1bn hit from UK windfall tax
French oil and gas major Total said it expects to take a $2.1bn hit from windfall taxes in the UK and EU on its earnings for 2022, with half the bill coming from Britain. Jean-Luc Guiziou, Total’s head of exploration and production in Britain, said: “The energy industry operates in a cyclical market and is subject to volatile commodity prices. We believe that the government should remain open to reviewing the energy profits levy if prices reduce before 2028.”
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.