Business news 23 December 2022
James Salmon, Operations Director.
UK economy contracts by more than expected in third quarter. Private sector activity in rapid decline. Life satisfaction expected to slump in 2023.Rail fares, strikes, and more business news.
UK economy contracts by more than expected in third quarter
New data from the Office for National Statistics (ONS) show the UK economy contracted by more than first thought between July and September and growth has been weaker than estimated. UK output fell 0.3% between the second and third quarter, more than initial estimates of 0.2%. The economy was 0.8% smaller in the third quarter of 2022 than in the final quarter of 2019.
By contrast, in the three months to September, the US economy was 4.3% larger than in the fourth quarter of 2019, while eurozone output was up 2.2%. Gabriella Dickens, UK economist at the consultancy Pantheon Macroeconomics, warned: “We expect Britain to suffer the deepest recession among major advanced economies in 2023, due to the severity of the headwinds from both monetary and fiscal policy.”
The ONS data also showed real disposable income fell 0.5% between the second and third quarter while the saving ratio was up from 1.3% in Q2 to 1.8% in the third quarter as people become more cautious. Real household income was down 2.9% on the third quarter of 2019 – the largest decline over that time period since records began. Household spending fell by 1.1% in the third quarter, the first drop since the beginning of 2021 when the country was in lockdown.
Martin Beck, the chief economic adviser to the EY Item Club, said: “Quarter three’s fall in GDP is unlikely to prove a one-off.” He said he expected the recession to last for the first half of next year as high inflation affected household spending power and tighter monetary and fiscal policy weighed on activity.
Private sector activity in rapid decline
New figures from the Confederation of British Industry (CBI) showed private sector activity fell 13% in the three months to December, a much steeper fall that the 7% drop seen in the previous month. This is the fifth consecutive quarter of decline with activity expected to fall even faster in the next three months. The CBI predicts activity will fall 22% in the next quarter due to faster declines in business and professional services at 17% and distribution sales at 30%.
Martin Sartorius, principal economist at the CBI, said: “The decline in private sector activity over December extends a downward trend that looks set to deepen going into 2023. Businesses continue to face a number of headwinds, with rising costs, labour shortages, and weakening demand contributing to a gloomy outlook for next year.”
Life satisfaction expected to slump in 2023
Research by PwC estimates that wages in the UK will fall back to 2006 levels next year, while 2023 will also bring a slide in house prices and an increase in divorces. There were few positive indicators for the year ahead, the firm said, with most measures of the UK’s economic and social performance going into reverse. PwC said average real wages in the UK would fall from a peak in 2020 of £36,330 to £34,643 next year.
UK household income fell by 0.5% over Q4 when adjusted for inflation according to the ONS.
Higher taxes and a slump in house prices will add to the gloom which could help fuel a 20% surge in divorces. Barret Kupelian, senior economist at PwC, said the UK economy faced “a highly challenging” year, and “it is not surprising that these chilly headwinds will continue throughout 2023, bringing with it some unwelcome milestones in terms of economic and social wellbeing measures”.
Rail fares up 5.9%
UK rail fares are rising by 5.9% in 2023 the biggest increase for a decade. Transport Secretary Mark Harper said that cap ‘at well below inflation will reduce the impact on passengers.’
Strikes
Passengers at UK airports have been warned to prepare for disruption Friday as Border Force officials become the latest workers to go on strike. The actions will affect London airports Heathrow and Gatwick, as well as Manchester, Birmingham, Cardiff and Glasgow and the port of Newhaven. They will take place on December 23rd to 26th and 28th to 31st.
Rail strikes could, according to the Times, cost the hospitality sector more than £1.5 billion in lost sales amid an epidemic of cancelled bookings and customer no-shows. Some regions have reported shortfalls in takings of at least 40 per cent last week, normally the busiest week of the year for office parties as well as a peak period for Christmas shopping.
Ambulance workers announced two more days of walkouts in January. The new strikes are set for the 11th and 23rd and are more extensive than Wednesday’s action
UK Grid
The UK electricity grid faces record costs in 2022 for getting power stations to crank up output to help balance supply and demand in the face of Europe’s energy crisis. National Grid Plc paid £3.2 billion between January and October in these so-called balancing costs.
Crypto
The Bank of England said it plans to step up its effort to regulate trading in digital currencies, after the collapse of the exchange FTX as the market is too dangerous to remain unregulated.
UK joins EU in critising US
The UK joined the EU in criticising the Biden administration’s package of green subsidies in its Inflation Reduction Act. International Trade Secretary Kemi Badenoch wrote to her US counterpart to say the legislation will hurt UK-based makers of EVs, batteries and other renewables.
Surging costs mean half of UK adults are buying less food
Nearly two-thirds of people in the most deprived areas of England say they were buying less food when shopping last month, according to the Food Standards Agency, compared with 44% in the least deprived areas and 51% across Great Britain. Food and non-alcoholic drink prices rose by 16.5% in the year to November 2022, the highest increase since September 1977, according to the Office for National Statistics. Staple foods have seen the largest price increases meaning inflation for low-income households stood at 10.5%, while the figure for high-income households was 9.1%.
UK companies brace themselves for escalating battles with auditors
British companies with a December year-end are preparing for tough conversations with their auditors as a volatile economy makes it more difficult to predict their financial outlook.
HMRC uses the courts to bully people into paying tax
Mike Warburton says in a piece for the Telegraph that HMRC’S increasingly aggressive approach to taxpayers is becoming alarming. Warburton lists several cases, such as the pursuit of EY over its work for property developer Jamie Ritblat, the IR35 legislation, the loan charge disaster and more to demonstrate a history of failed legislation and bullying behaviour. “HMRC is fallible but with the bottomless pockets provided by taxpayers, it is able to use the courts to bully its quarry into paying tax that may not be due in law.”
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