Business news 24 August 2023
James Salmon, Operations Director.
SME sales fall. UK economic activity slides as interest rate rises hit demand. UK pay awards, Wilkos, Natwest Nvidia, ULEZ and more business news that we thought would interest our members.
SME sales fall
According to research by Sage on 85,000 small businesses, sales at the nations SME’s fell 21.1% year on year as customers cut back in the face of the cost of living crisis, soaring inflation and rising interest rates. Sage’s small business tracker showed sales dropped 27.9% in the three months to March, year on year, and despite an improvement in the second quarter, sales were still down over 20% compared to a year ago.
“Small businesses are struggling, with revenue growth and profitability both falling significantly on an annual basis,” Sage’s report said. “A stagnating economy, marred by a cost-of-living crisis and rising interest rates is dampening business activity.”
The Bank of England echoed the findings on Tuesday in its financial stability report. The BOE found that half of businesses experience debt-servicing stress, the most since before the financial crisis.
“Such pressure increases the likelihood of defaults on corporates’ debt and may lead some firms to reduce investment and employment sharply,” the BOE said in its note on Tuesday.
Cash balances also dropped off the edge of a cliff, down 20% between the three months to December and thee months to March alone, to the lowest level since Sage started compiling data in 2017.
Cash is king as the expression goes, and a faltering cashflow, is the main driver of small business closures. Cash balances for SME’s have now fallen to a third of their average before the pandemic.
Access to credit is also proving a problem for small businesses. The FSB has previously warned that SME’s are struggling to access finance and Sage’s tracker showed they paid off debt in the six months to March at the fastest pace in at least five years.
UK economic activity slides as interest rate rises hit demand
The UK economy is on course to shrink between July and September and could tip into recession, a closely-watched survey suggests. The S&P Global/CIPS UK Purchasing Managers’ Index (PMI) found that rising interest rates and weaker household spending led to a sharp drop in demand for goods and services in August. The PMI figures triggered a fall in sterling with the swap market now pricing in a peak interest rate of 5.8%, down from the 6% previously expected. The PMI index fell to 47.9 in August, down from 50.8 in July and the lowest level in two and half years. Anything below 50 marks a contraction.
The manufacturing and services sectors both slipped into contraction territory. UK Manufacturing PMI declined to a 31-month low of 42.5 for the first two weeks of August from 45.3 in July, lower than the 45 predicted. UK Services PMI went into negative territory at 48.7 from 51.5 in July, below the 51 expected. This was a seven-month low.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the survey was indicative of GDP declining by 0.2% over the third quarter so far. He added that a renewed economic contraction “already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector’s spring revival.” Martin Beck, chief economic adviser to the EY Item Club, warned the findings “may not be enough to deter the Bank of England from raising interest rates [in September], given recent developments in pay and services inflation” but if rates do rise next month it “will likely be the last in the current cycle.”
European activity slumped in August as services followed the industrial sector into a downturn. The euro-area PMI gauge fell more than expected to 47, below the threshold indicating growth, and figures from Germany and France hinted at more trouble ahead.
US Business Activity approached the stagnation point in August, with growth at its weakest since February as demand for new business in the vast service sector contracted. The US Composite PMI index, which tracks manufacturing and service sectors, fell to a reading of 50.4 in August from 52 in July, the biggest drop since November 2022. While August’s reading was the seventh straight month of growth, it was only fractionally above the 50 level separating expansion and contraction as demand weakened for both manufactured goods and services.
UK pay awards dip for first time this year
Pay deals awarded by British employers cooled for the first time this year in the quarter to July, according to XpertHR. Median basic pay deals in the three months to the end of July fell to 5.7% following six consecutive quarters at a record 6%, the human resources publication and data provider said. Sheila Attwood, senior content manager at XpertHR, said pay awards had likely hit their peak and expects the gap between pay deals and inflation to narrow. “Our figures of a decrease in wage rises might ease minds at the Bank of England, fearful of the effects of a wage-price spiral,” she continued. However, official figures from the Office for National Statistics showed annual wage growth excluding bonuses rose to 7.8% in the three months to June, the highest in records going back to 2001.
Mass layoffs expected despite efforts of Wilko administrators
Several discount retailers are in talks to acquire Wilko assets as attempts to sell the whole business failed. The family-owned household and garden products retailer fell into administration earlier this month after struggling with its debts. PwC, Wilko’s administrators, are expected to announce potential deals with Pepco – the owner of Poundland, B&M European Value Retail and private equity-owned TOFS today. However, even if these agreements are finalised, sources say half of Wilko’s 400 stores will face permanent closure, meaning at least 6,000 jobs, including those of Wilko head office staff, would be lost. Andy Prendergast, GMB national secretary, told Wilko’s 12,500-strong workforce that it would “continue to support members through this process” adding that GMB “will not forget the incompetence that has led to this collapse and will we not forget the dividends paid to the millionaires who gambled your jobs on their whims.”
ULEZ expansion will destroy small firms, Labour MP warns
Labour MP Siobhain McDonagh has warned that Sadiq Khan’s ULEZ scheme will ruin small businesses. The MP for Mitcham and Morden said firms would be wrecked when the London Mayor’s “regressive tax” is extended because many people “simply can’t afford” to replace their vehicles with more eco-friendly models.
Kemi Badenoch seeks cash for UK ‘advanced manufacturing plan’
The Secretary of State for Business and Trade is working with the Treasury on developing a long-term plan to promote advanced manufacturing in the UK as global competition heats up.
Natwest
The former boss of NatWest, Dame Alison, who resigned last month after admitting to being the source of an inaccurate leak to the press about Mr Farage’s finances is set to receive a £2.4m pay package this year, despite being forced to quit in disgrace over her handling of the Farage affair.
Nvidia
American AI chipmaker, Nvidia,reported revenue of $13.5 billion in the second quarter, double its earnings from the same period last year and higher than analysts’ estimates. Booming demand for its chips which are central to the Artificial Intelligence computing is fueling the growth. Nvidia’s share price rose more than 6% in post-market trading overnight as the Tech company said it expected an even better third quarter with $16 billion in sales against estimates of $12.5 billion.
Hackers
2 UK teenagers were convicted of hacking companies such as BT, Revolut, Nvidia, Rockstar Games and Uber as part of the Lapsus$ hacking group yesterday. The 17 & 18 year olds were found guilty of 12 charges including hacking, blackmail and fraud.
Strikes
Senior doctors are due to start a two-day walkout today and about 20,000 RMT rail workers will strike beginning in the early hours of Saturday, affecting 14 train operators from just after midnight in an action designed to hit the bank holiday weekend.
Jackson Hole
Attention is turning to the meeting of central bankers this week at Jackson Hole as businesses and investors look for indications on the future path of interest rates.
UK needs state-backed green investment fund
The Government should be taking stakes in clean energy companies if the UK is serious about competing with the US and the EU in the net zero market. That’s according to the Institute for Public Policy Research (IPPR), which said Britain needed a “national investment fund” to back new firms and secure a share of any future profits for the public. Simone Gasperin, an associate fellow at the left-leaning think tank, said: “The UK needs to finance and coordinate strategic industrial policy projects that will deliver a net zero transition through economic prosperity and inclusion. The cost of inaction on people’s livelihoods will be too high, while there are huge opportunities to be captured by the Government co-investing with private companies.”
Windfall tax harming North Sea production outlook
North Sea oil producer Ithaca has projected a 6% fall in production next year and that it will have to write off £58m in assets as a direct result of the UK Government’s windfall tax on oil and gas producers. “The Energy Profits Levy continues to have a direct impact on investment in the UK North Sea and Ithaca Energy’s own investment programme,” said the company’s executive chairman Gilad Myerson
Fiscal drag leaves personal taxes over 50% higher than a decade ago
The Treasury raked in £155bn in personal tax revenues during the first four months of 2023, an increase of more than £10bn, or 7%, on the same period in 2022. The freezing of tax thresholds and rising wages has meant workers are shifting into higher tax brackets, even if their earnings are being eroded by soaring inflation. Chris Etherington, tax partner at RSM, said that on average, “households are paying 57% more in personal taxes in the four-month period this year than they were for the same period a decade ago. This year that equates to an amount of £5,486 per household compared to £3,504 a decade earlier.” John O’Connell, chief executive of the Taxpayers’ Alliance, commented: “The growing tax burden is piling on the pain for families struggling with a cost of living crisis. The Treasury needs to give taxpayers a break and the economy a boost by lifting frozen thresholds.”
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Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
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When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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Just call 020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
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Check our compensation calculator to see how much your business could be owed!
Discover NOW the potential value of late payment compensation hidden in your sales ledger!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.