Business news 25 July 2022
James Salmon, Operations Director.
UK private sector maintains run of growth. August heatwave could cost Britain billions more. Insolvencies rise after support measures removed. Begbies prepares for surge in failing companies. SME confidence holding up despite pressures. Inflation could surge to 15% this winter. And more business news.
UK private sector maintains run of growth
Economic output continued to expand in July, according to the flash purchasing managers’ index (PMI) from S&P Global and the Chartered Institute of Procurement & Supply (CIPS). The economy has expanded for 17 consecutive months, but July’s rate of growth was the slowest in 17 months. The index, covering services and manufacturing firms, fell to 52.8 – the lowest since February 2021 – from June’s 53.7. Manufacturing production levels fell for the first time in two years while services were held up by resilient consumer spending on travel and leisure, the survey said. Chris Williamson, chief business economist at S&P Global Market, said the reading was consistent with quarterly economic growth of 0.2% and there were signs from order books that the slowdown would worsen. “The concern is that rising interest rates, as the Bank of England seeks to control inflation, will cause demand growth to weaken further in the coming months,” Williamson said. “To be hiking interest rates at a time of such weak business growth is unprecedented over the past quarter-century of survey history.”
August heatwave could cost Britain billions more
Forecasters are predicting more high temperatures in August as the British economy counts the cost of last week’s heatwave. Kate Palmer, consultancy director at HR firm Peninsula, said: “High temperatures cause a slump in productivity.” This is thought to have cost up to 20% of working hours on Monday and Tuesday, costing £1bn per day. Firms were also left with fewer staff as annual leave during the heatwave soared by 60%.
Insolvencies rise after support measures removed
Official data show that more than 620 businesses filed for administration between January 1 and June 30, 2022, a 60% increase on 2021. Construction, manufacturing and retail were the sectors worst hit, making up 40% of administrations.
Andy Taylor, partner and head of restructuring at Shakespeare Martineau, said: “Administrations were suppressed during Covid due to the introduction of numerous measures… As those support packages have been removed, we have seen an increase in insolvencies generally, which is to be expected.” He goes on to say that if the headwinds facing businesses continue, we can expect to see an increase in businesses failures. “We’re also anticipating the banks will review their portfolios and it may be they will be taking a more cautious approach to lending decisions in the short to medium term,” Taylor says, adding: “We are also seeing more enforcement and less flexibility from HMRC.”
Begbies prepares for surge in failing companies
Begbies Traynor is planning to expand its workforce to deal with the expected surge in failing companies. Chairman Ric Traynor said he expected the restructuring firm would add up to 100 staff by the end of April, a rise of about 10%. The number of business failures is already back up to pre-pandemic levels as taxpayer assistance is cut, but a further increase is likely, he said, adding of insolvencies: “We’re going to see yet more to come.” Analysis by the group suggests half a million businesses in the UK are “under stress” and 10% of those were expected to go insolvent within the next two years.
SME confidence holding up despite pressures
Optimism among small business owners in hospitality and leisure has fallen from 41% predicting growth in the second quarter to 31% for the third quarter, according to a survey by Novuna Business Finance. In the construction sector, the proportion of SMEs forecasting growth has dropped from 29% to 18%. For manufacturers, confidence is down 6 points to 34%, while retail is down from 25% to 20%. Overall, however, SME confidence had held up, Novuna said, with 34% predicting growth in the third quarter. Jo Morris, the lender’s head of insight, said: “Whilst some sectors have been hit particularly hard by price rises and supply chain pressures, the findings from our latest quarterly research are remarkably reassuring.” SMEs in legal, financial and accounting and IT and telecoms were all predicting growth.
Inflation could surge to 15% this winter
Forecasts from the consultancy arm of EY suggest inflation could hit 15% this winter. The worse-case scenario modelled by economists at EY-Parthenon assumes Vladimir Putin cuts of gas supplies to Europe, food prices soar and inflation expectations become entrenched among the population. EY-Parthenon also has a scenario in which inflation peaks at just over 10% and then starts to fall back. Mats Persson, a partner at EY-Parthenon and a former Downing Street adviser, said clients were war-gaming for higher inflation. “While clearly not the central forecast, firms are now scenario modelling a 15% inflation peak over the winter in the event that Russia turns off the taps and food inflation continues to rise,” said Persson.
Retail Sales
UK Retail Sales volumes fell 5.8% annually in June, accelerating from a 4.7% decline in May. The figure was worse than the market consensus of a smaller 5.3% fall. On a monthly basis, sales fell 0.1% in June from May. In May, they had fallen 0.8% from April.
Hospitality facing a recruitment crisis
The latest figures from the Office for National Statistics show there were 1.29m job vacancies across all sectors of the UK economy between April and June this year. Hospitality accounts for 13% of the national total – or 176,000, a number that has doubled since before Covid – leaving venues forced to close on quiet days or reduce their opening hours. UK Hospitality boss Kate Nicholls said: “These figures show that the hospitality industry continues to return to growth and is attracting new people into the workforce. However, high vacancy rates are impeding our ability to trade. This is particularly concerning as we enter the summer, a key trading period for much of the sector.” The high vacancy rates come despite hospitality having the highest wage growth of any sector at 15.1% higher than a year earlier.
Restaurant closures up 64% as customers cut spending
A shortage of workers and surging inflation are pushing more restaurants into insolvency with the number jumping by more than 60% in the past year. New data from UHY Hacker Young shows that 1,406 restaurants in the UK closed their doors in the 12 months to May, up 64% on the previous year. Peter Kubik, a partner at UHY Hacker Young, said: “Restaurants are now facing fresh challenges in the form of rising inflation, a post-Brexit labour shortage and consumers who cannot afford to spend as much.”
Number of UK mothers in work reaches highest level for 20 years
Figures from the Office for National Statistics show 75.6% of mothers with dependent children were in work from April to June of 2021, the highest level for 20 years.
UK sees uptick of supercar sales
More than 18,000 supercars – such as Ferrari, Bugatti, Aston Martin , Maserati and Koenigsegg models – were registered at UK addresses in 2021, a 19% increase on 2020
British Airways
British Airways check-in staff in the Unite and GMB unions have called off planned industrial action after accepting a 13 per cent pay rise. “No one wanted a summer strike at Heathrow, but our members had to fight for what was right,” said GMB’s national officer Nadine Houghton. “This improved pay deal came because of their efforts.” Industrial action was initially called on 23 June after the unions demanded to reinstate a 10 per cent wage cut taken by ground staff during the pandemic.
Fuller, Smith & Turner
Fuller, Smith & Turner said at its annual general meeting on Thursday that sales were continuing to recover, marked by a strong performance in the first weeks of its current financial year. For the first 16 weeks to July 16, total sales rose 3% over pre-pandemic levels, and were 81% higher on the same period the year before. On a like-for-like basis, sales for the period were up 27% compared to a year prior.
City lawyers out in front with eye-watering pay
Jim Armitage and Jill Treanor investigate the massive salaries being paid out to City lawyers in the Sunday Times. Magic Circle firms are paying partners around £2m this year (the top earners will be getting double that) and smaller firms are recording profit per equity partner at well over £1m. But accountants, corporate insolvency experts, management consultants and corporate PR partners are also raking in more than ever before.
Grain
The UN, Turkey, Russia and Ukraine has agreed a deal to allow the export of Ukrainian grain in an effort to alleviate the problem of elevated food prices. The deal will allow a cease fire between Ukraine and Russia along identified shipping routes. But then Russia launched a missle attack on the port of Odessa over the weekend threatening the deal.
NCA cracks down on oligarch enablers
The UK’s National Crime Agency on Thursday reported a surge in suspicious activity reports (SARs) filed by banks and other regulated institutions since February, when Russia invaded Ukraine. SARs detail concerns around sanctions breaches as well as money laundering and terrorist financing. The NCA has set up a new Kleptocracy Unit to tackle the influence of Russian oligarchs and their enablers. “We are up against an opponent that is essentially the state” an NCA spokesman said. “This is about starting to push back on this concept of ‘Londongrad,’ that people were free to come regardless of their money and do whatever they liked.” In total, around a dozen “enablers” working with wealthy individuals have been arrested since the war in Ukraine started, the NCA said, adding that there are signs the investigations and arrests are deterring Russian investment into London.
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