Business news 21 January 2022

James Salmon, Operations Director.

UK productivity lags behind G7 peers. Rising costs hit every sector of the economy. Retail Sales.  A quarter of small businesses will stick with WFH. UK consumer confidence plunges.  And more business news.

UK productivity lags behind G7 peers
Analysis shows that while the UK was closing its productivity gap with the G7 before the pandemic, it remained 13% below the average. Office for National Statistics data shows that the UK had started to narrow the gap from 16.6% in 2016. However, it continues to lag behind the US, France and Germany. While it is roughly on par with Italy, it is ahead of Canada and Japan.

While the UK’s growth in output per hour was the second fastest in the G7 between 1997 and 2007, this momentum dipped and it became the second slowest between 2009 and 2019. The ONS report says productivity grew across all G7 countries during the pandemic, but the UK experienced the largest falls in GDP growth and growth in hours worked.

Martin Beck, chief economic adviser to the EY Item Club, believes the shift to working from home and increased digitalisation could help UK productivity recover after the pandemic, saying: “The UK’s services-oriented economy is arguably in a better position to exploit productivity gains from pandemic-driven changes than some of its advanced economy peers.”

Rising costs hit every sector of the economy
Research from Lloyds shows that every sector of the economy is suffering from soaring costs. The report warns that higher wages coupled with rising energy and raw material prices are hitting firms’ margins, with it noted that a 1.25% increase in National Insurance coming into effect in April will add to firms’ expenses. City A.M. says the Lloyds report points to inflation climbing further in the coming months, adding that it reinforces Office for National Statistics figures showing British businesses’ input costs have jumped 13.5% in the last year.

Retail Sales

UK Retail Sales sank 3.7% in December from the month before as the spread of Omicron deterred shoppers from visiting the High Street. Data from the Office for National Statistics also showed a 7.1% fall in clothing and other non-food sales. However, last month’s figures followed a strong November amid reports there would be some shortages in the run-up to Christmas. And while food sales fell by 1%, volumes were above pre-pandemic levels.

 A quarter of small businesses will stick with WFH
A quarter of small firms are set to continue to utilise remote working, despite ministers scrapping work from home guidance. A poll of over 1,000 businesses with fewer than 50 staff by Hitachi Capital Business Finance shows that a quarter plan to work from home until at least April 2023, while a similar number plan to focus on hybrid working.

The poll suggests that the money saved on office space is key to the decision for many firms. Reflecting on the findings, Joanna Morris of Hitachi Capital Business Finance said: “The one positive that has come from this particularly challenging period has been the requirement to be far more flexible and open minded than ever before, with changes to the business that will reap benefits in the long term.”

Workers set to return to desks
A number of firms have announced plans to return to the office after the Government scrapped its work-from-home guidance, although most have said flexible working arrangements will remain in place.

PwC is urging staff to return to the office at least two to three days a week, with chairman Kevin Ellis saying staff “value time with colleagues, alongside the flexibility to work from home when helpful”. KPMG has told its workers to go back a minimum of two days a week “so they can catch up and work with each other in person and learn new skills together”, while EY said its offices in England will return to full capacity and it will operate a hybrid model. HSBC says staff started returning to the office yesterday, while Standard Chartered has asked employees to return to their desks from Monday. Citigroup and Goldman Sachs also plan to resume office working, while other lenders including Barclays, NatWest and JPMorgan said they have yet to decide on their new policies. Insurance firm Zurich said it was “excited” to welcome staff back to offices but most would continue on a hybrid basis.

Civil servants told to set an example amid office returns
The Government has asked civil servants to return to the office as an example to other employers, with the Prime Minister having told them to “show a lead” following the easing of Plan B coronavirus restrictions.

However, the Public and Commercial Services union, which represents civil servants and other public sector workers, has warned against a “reckless, headlong rush to increase numbers at workplaces”, saying there needs to be “a properly planned approach.” The FDA union, which represents senior civil servants, also questioned the move, with general secretary Dave Penman saying: “The idea that forcing civil servants back into the office will somehow show a lead to the rest of the economy is frankly insulting to all those businesses who have made decisions that enhance their efficiency and profitability.”

UK consumer confidence plunges over rising living costs and inflation
While research company GfK’s consumer confidence index fell four points to -19 in January, KPMG research suggests rising living costs will see a third of consumers reduce discretionary spending in 2022.

Reeves hits out over ‘triple whammy’ of taxes before proposing BTL and stocks charges
Shadow Chancellor Rachel Reeves has criticised Boris Johnson’s government over a “triple whammy” of tax rises that will add to pressure on household budgets already stretched by energy prices and a cost of living crisis. She said: “People rightly expect leadership from government, but instead they are being left to shoulder the burden alone, with the added insult of the triple whammy of a freeze on the income tax threshold, rising council tax and a hike in National Insurance contributions.” Ms Reeves added: “Now is the wrong time to raise taxes on ordinary working people.” However, in an interview with BBC Radio 4’s Today programme, she also said Labour would look to increase taxes to cover the NHS and social care dividend, saying the party would increase taxes on buy-to-let properties and those who earn money from investment. Saying it is “not right” that those being asked to contribute to the health and social care levy are people “who go out and work every day and the people who employ them,” she noted that those who get their income from stocks and shares, dividends or a portfolio of buy-to-let properties, “pay no additional tax whatsoever” in the levy.

Scots GDP set to climb 4.8% in 2022
KPMG analysis suggests the Scottish economy will return to pre-pandemic levels of growth this year, hitting 4.8%. While UK GDP is forecast to expand by 3.8% in 2022, the study says 2023 should see growth “moderate and settle,” hitting 2% in Scotland and 1.8% for the UK overall. Analysis shows that Scotland’s economy contracted by 9.7% over 2020, with this broadly in line with the UK average. By Q3 2021, GDP was still 1.9% below its pre-pandemic level, but by October GDP was just 0.4% down. Yael Selfin, KPMG’s chief economist, said: “Our latest analysis suggests that the Omicron variant has not impacted growth significantly in Scotland. However, rising taxes and borrowing costs, as well as elevated inflation, will squeeze households’ purchasing power.”

Women’s state pension shortfalls a ‘shambles’, say MPs
A £1bn shortfall in state pension payments to tens of thousands of women has been described as “a shameful shambles” by MPs. A total of 134,000 pensioners missed out on their full entitlement owing to errors at the Department for Work and Pensions (DWP) dating back to 1985. Some of those failures risked being repeated during a correction programme, the Public Accounts Committee said. The committee’s report added that the errors were the result of outdated systems and heavily manual processing of pensions at the DWP.

Equality ‘decades off’ as men dominate top roles
A report into female representation across UK industries by the Fawcett Society has found that equality in top jobs and high offices of state is still “decades off”. The 2022 Sex and Power Index shows men continue to dominate the top positions in law, politics and business, with it shown that women account for just 8% of FTSE 100 CEOs, with none of the chief executives a woman of colour. Women are outnumbered two to one in 5,166 positions of power in society identified by the report. Only two justices on the 12-member Supreme Court are women, while just a quarter of the 37 Court of Appeal judges are women. It was also found that the gender split in parliament has improved only slightly in recent years, with the proportion of female MPs climbing from 32% in 2017 to 34% at the 2019 election. Jemima Olchawski, CEO of the Fawcett Society, said: “Men continue to dominate most senior roles. That’s not only bad for the women who miss out on opportunities to thrive, but it’s bad for us all, as we miss out on women’s talent, skills and perspectives.” She added that the findings reveal “an unacceptable lack of women of colour in senior positions,” with it “appalling that in 2022, women of colour are missing in leadership positions from some of our key institutions and organisations.” “Structures, culture and often individuals continue to create barriers that prevent women and women of colour in particular rising to the top,” she added.

Premier Foods

Premier Foods upgraded its annual profit outlook following better-than-expected growth in the third quarter of the year. Trading profit for this financial year was now expected to be at least £145 million and adjusted profit before tax at least £125 million, following the delivery of ‘three strong quarters of trading, and taking good momentum into the final quarter,’ the company said. The upbeat guidance was supported by stronger sales in Q3, with sales up 11.3% on a two year basis.

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