Business news 22 August 2022
James Salmon, Operations Director.
Small businesses folding across UK as energy costs soar. Tide rising for Britain’s zombie companies. Sky high energy bills an existential threat to small firms. Rise in UK retail sales comes with warning for months ahead. And more business news.
Small businesses folding across UK as energy costs soar
Growing numbers of small traders are closing their doors for good in the face of unaffordable costs driven by record inflation.
Data published on Friday by the Federation of Small Businesses (FSB) shows 53% of firms expect to stagnate, shrink or fold in the coming 12 months due to the impact of soaring gas and electricity prices.
The outlook for some sectors is better than others: 63% of IT and communications businesses expected to grow, compared with only 34% of wholesale and retail firms, and 35% of hospitality operators.
Smaller traders, which employ 16m people between them, do not benefit from the energy price cap, which puts a ceiling on costs for households but not for companies. “Without help, we are facing a generation of lost businesses, jobs and potential,” said Tina McKenzie, the policy and advocacy chair at the FSB.
If you have small business customers are you taking action to make sure you get paid for the goods and services you supply? Talk to CPA about how we can help.
Tide rising for Britain’s zombie companies
The boss of Alvarez & Marsal’s restructuring practice in Europe says business is set to become brisk as companies start to struggle with rising interest rates and a looming recession. Richard Fleming says the downward cycle is overdue and he expects 2023 and 2024 to be very busy years. “We’re coming off a coma.”
His comments come as Begbies Traynor estimates that nearly 600,000 businesses are in “significant financial distress”, with many thought to be zombies – firms kept alive by rock-bottom interest rates.
Julie Palmer, a regional managing partner and insolvency practitioner at Begbies Traynor, says: “By definition, if you’ve got zombie companies that have just been hanging on at 0.25% interest rates, then rolling those interest rates towards 2% might be enough to start washing out those businesses.” She adds: “It feels like we’re moving towards a bit of a winter of discontent, where the number of insolvencies could start tipping up quite significantly.”
Sky high energy bills an existential threat to small firms
Small businesses face an “existential threat” from soaring energy bills, the Federation of Small Businesses has warned, as a typical bill rises from £6,000 a year in early 2021 to almost £20,000 now.
Martin McTague, national chairman of the business group, has urged the Tory leadership candidates to cut VAT on household bills from 20% to the 5% and to extend the price cap to small companies, dish out vouchers to help firms decarbonise, and offer business rates rebates to help with the costs.
Rise in UK retail sales comes with warning for months ahead
Retail sales bounced back last month but continued to show signs that consumers are holding back as the cost of food and energy soars.
Figures from the Office for National Statistics (ONS) show sales volumes rose 0.3% in July. However, sales fell by 1.2% in the three months to July, reflecting a gradual decline in spending.
Jacqui Baker, partner and head of retail at RSM UK, said: “The warmer weather for an unusually long period in July encouraged people to get into the summer spirit and socialise to make up for lost time. Unfortunately, this could very well be the last hurrah for consumers as they prepare for what’s coming down the tracks, in the form of further price increases and cost-of-living pressures, meaning it’s unlikely this boost is here to stay. Increasing costs have already started to bite, with many consumers being forced to make hard spending choices, as their budgets become increasingly squeezed.”
Also commenting, Martin Beck, chief economic advisor to the EY ITEM Club, said: “July’s rise in retail sales is likely to prove only a temporary respite from recent weakness as we move through 2022 and into next year.” Elsewhere, Kien Tan, director of retail strategy at PwC, said: “With the prospect of more inflation to come, the concern for retailers is that shoppers will simply have less to spend as the nights draw in.”
Felixstowe port workers begin eight-day strike
Almost 2,000 workers at Felixstowe port are on strike over pay. The walkout will last eight days and could bring further disruption to Britain’s supply chains. Members of Unite, including crane drivers, machine operators and stevedores, will take part in the first strike to disrupt the port since 1989. The union warned the stoppage will have a significant impact on UK supply chains and the logistics and haulage sectors, but a port source downplayed the warning, telling the PA news agency that the strikes will be an “inconvenience not a catastrophe”.
Cineworld on brink of bankruptcy
Shares in Cineworld have fallen more than 60% after the cinema chain revealed that it is preparing to file for bankruptcy. Cineworld has 9,189 screens across more than 750 sites and operates in 10 countries, including the UK, the US, Poland and Israel, employing more than 28,000 people. The company, which also owns the Picturehouse chain in the UK, is struggling under $5bn worth of debt and has blamed a lack of blockbuster films for low audience numbers. Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said Cineworld had “failed to lure back enough movie goers to help pay back its enormous debts”.
Soaring inflation hits Britain’s public finances
The cost of servicing Britain’s debt is rocketing as inflation pushes up interest payments. The Office for National Statistics said Government borrowing hit £4.9bn in July, ahead of City predictions of some £2.8bn, while debt interest payments climbed to £5.8bn, up from £3.5bn in the same month last year. Chancellor Nadhim Zahawi said: “I know that rising inflation is creating challenges for families and businesses, and it is also putting pressure on the public finances by pushing up the amount we spend on debt interest. To help people during this difficult time, Government support is continuing to arrive in the weeks and months ahead, targeted to those who need it most, like pensioners, people on low incomes, and those with disabilities.” Michal Stelmach, senior economist at KPMG UK, said the latest figures meant “tough choices” for the next Prime Minister and Chancellor following the Conservative leadership election. “The balance of risks to public finances has clearly shifted to the downside,” he added.
Cheap UK companies likely to be target of PE
‘Dry powder’ stored up by private market investors globally fell 13% this year to $3.2tn, down from $3.69tn last year as central bankers hike rate, cutting off the supply of cheap cash. Analysts at Pitchbook said the sharp fall in dry powder has been felt most keenly among private equity firms, while the wider private capital landscape had held up more firmly. Merlin Piscetelli, EMEA lead at investment data firm Data Site, comments: “With a weakening pound, and the UK stock market trading at an ever-wider valuation discount to global peers, many UK firms are attracting a high level of investment interest, especially from private equity firms, who are looking to put their significant dry powder to work.”
4 in 10 under-30s spend more than 30% of income on rent
People under 30 are facing a growing cost-of-renting crisis, new figures from property market consultancy Dataloft suggest. Four in 10 of this age group are now spending more than 30% of their pay on rent, according to the data – a five-year high. Experts say spending this level of income on rental costs is unaffordable. The data suggests under-30s spend more of their earnings on rent than other working-age groups.
Many young people are rejecting the live-to-work lifestyle
Nilufar Ahmed, a senior lecturer in social sciences at the University of Bristol, looks at the trend of quiet quitting” in The i, where people do the bare minimum expected at work with the aim of reducing stress and improving mental health. A recent study by Deloitte found young people are increasingly seeking flexibility and purpose in their work and balance and satisfaction in their lives. Many are now rejecting the live-to-work lifestyle, by continuing to work but not allowing work to control them. Ahmed claims quiet quitting is not about avoiding work, but rather means employees “are rejecting overwork and burnout and choosing balance and joy. They are establishing boundaries so their identity and self-value is not tied to their work productivity.” He believes that, if instead of employers getting nervous at the loss of productivity they encouraged a better work-life balance, this “will communicate to workers that they are valued, leading to greater engagement, productivity and loyalty: everyone wins.”
Rishi Sunak claims Liz Truss will cause inflation spiral
Tory leadership frontrunner Liz Truss is facing calls to reveal details of her tax and spend plans amid claims the Foreign Secretary’s proposals will put Britain on the path to an inflationary spiral. Her opponent’s campaign said: “The reality is that Truss cannot deliver a support package as well as come good on £50bn worth of unfunded, permanent tax cuts in one go. To do so would mean increasing borrowing to historic and dangerous levels, putting the public finances in serious jeopardy, and plunging the economy into an inflation spiral.” Rishi Sunak’s team also seized on reports that Ms Truss would not subject her planned September emergency Budget to scrutiny by the Office for Budget Responsibility (OBR). “It’s no wonder they want to avoid independent scrutiny of the OBR in their emergency Budget – they know you can’t do both and it’s time they came clean about that now,” Mr Sunak’s campaign team said.
Number of unemployed over-50s soars
Figures from the Office for National Statistics (ONS) show the number of people aged 50-64 who are economically inactive in the UK has risen almost 10% since before the pandemic to hit 3.6m. The data also show that 375,000 over-50s were claiming unemployment benefits last month, 65,000 more than the month immediately prior to the pandemic and more than double the figure from five years ago. Labour has used the figures to accuse the Tories of failing to assist people who want to get back to work. The Department for Work and Pensions said: “We are investing an extra £22m to tackle unemployment among over-50s. That investment is paying off, as last month over 190,000 more 50- to 64-year-olds joined company payrolls, and 2m more workers [aged] 50 and over are in work than in 2010.”
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