Business news 27 March 2023
James Salmon, Operations Director.
Slashing energy support puts small firms at risk. Cost-of-living crisis worse than lock-downs for SMEs. Retail sales, windfall tax relief, deposit protection, business rates, recruitment, recession, interest rates, hospitality and more business news.
Slashing energy support puts small firms at risk
The Federation of Small Businesses (FSB) has warned that 370,000 small businesses may have to retrench operations when support for energy bills is cut next month. Some 24% of small businesses are locked into energy contracts signed last year, and 28% of these may have to shrink, restructure or close their businesses when the current support package ends, the FSB said. The recent fall in gas prices won’t be reflected in long-term contracts until they are renewed later this year, leaving many businesses exposed to ultra-high bills, while the new Energy Bills Discount Scheme only offers a fraction of the help the outgoing Energy Bills Relief Scheme provides. Tina McKenzie, policy chair at the FSB, said: “This cliff edge will also hit consumers as businesses will have to raise prices to cope with soaring bills, driving up inflation.”
Cost-of-living crisis worse than lockdowns for SMEs
Research by Nucleus Commercial Finance has found that most SMEs find the current cost-of-living crisis more of a burden than the pandemic lockdowns. Chirag Shah, chief executive and founder of Nucleus Commercial Finance, said: “The scale of the current economic challenge facing UK SMEs vastly exceeds that of the pandemic, according to those at the coalface. This is forcing businesses across the UK to reassess their investment and growth strategies, closely examine their overheads, and, more often than not, lean on additional finance just to keep the lights on.”
OBR chief in cost-of-living warning
Office for Budget Responsibility (OBR) chair Richard Hughes has warned that real living standards may not improve until the “late 2020s.” He told the BBC’s Sunday with Laura Kuenssberg that the country is facing the “biggest real drop in living standards on record,” although he added: “But we do expect, as we get past this year and we go into the next three or four years, that real income starts to recover.”
UK likely to have dodged recession in 2022
Official figures set to be published this week are expected to show that Britain avoided a recession in 2022. The data is forecast to show that growth held steady at 0% in the closing quarter of the year, having slipped 0.3% in Q3
Retail sales rose 1.2% in February
New figures published by the Office for National Statistics show retail sales volumes rose by 1.2% in February, the largest monthly growth since October last year. Non-food sales rose by 2.4% last month, boosted by discount department and clothing stores, while food sales rose 0.9% as cost of living pressures prompted shoppers to cut down on eating out. However, sales volumes fell in the three months to February compared with the previous three-month period and remain 3.5% lower than in February last year. “Looking at the latest retail sales figures you might be forgiven for wondering if Britain really is in the middle of a cost-of-living crisis,” said Danni Hewson, head of financial analysis at AJ Bell. “But pop the hood and the reality is laid bare… people are hunting out bargains whether they’re found in the sales aisles being well-stocked by department stores, or in charity shops or other second-hand emporiums.”
UK government expected to offer energy companies windfall tax relief
Ministers are considering scrapping the 35% windfall levy on oil and gas company profits should energy prices fall below a certain level in an effort to encourage investment in new energy projects.
Energy firms have urged the Government to reduce the windfall tax as oil and gas prices fall, with trade body Offshore Energies UK saying that “when prices drop, it is fair that the windfall tax should fall away.”
David Whitehouse, chief executive of Offshore Energies UK, said the windfall tax has “damaged the confidence” of companies in regard to investing in the long-term energy security of the UK. He added: “If this tax is changed, as conditions and prices have changed, that would be a positive move that would go some way to start rebuilding confidence.”
The Government is expected to set out measures to boost the UK’s energy security this week, with Energy Security Secretary Grant Shapps set to detail plans focused on bringing down wholesale electricity prices and reducing energy bills for consumers and businesses.
Ministers urged to boost deposit protection
The Government has been urged to give companies more deposit protection amid turmoil in the banking sector. This comes in the wake of the collapse of Silicon Valley Bank (SVB), with it shown that many SVB UK customers had uninsured deposits, meaning they risked losing everything above the £85,000 that is safeguarded under the Financial Services Compensation Scheme. Will Wragg, co-chair of the All-Party Parliamentary Group on Fair Business Banking, said the SVB UK “fiasco” has revealed that a number of companies were exceeding their deposit protection limits, adding that this is “cause for serious concern which could be existential for thousands of small and medium-sized enterprises.”
Urging ministers to take advantage of Brexit freedoms, he has suggested that the guarantee needs to be reviewed. The guarantee of up to £85,000 compensation in the event of a bank failure was adopted under EU law in 2010. The Federation of Small Business has calculated that if the limit had kept pace with inflation, it would be nearly two-thirds higher at around £140,000. Lord Tyrie, former chair of the Banking Standards Commission, commented: “The higher you raise the limit, the more you create moral hazard,” rewarding reckless behaviour. Sir Philip Hampton, former chair of bailed-out bank RBS said that if, in the “highly unlikely” event of a major bank going under, the Government would have to step in and insure deposits, as has happened in the US.
Business rates revenue expected to rise by £1.4bn
Revenues from business rates are expected to rise by £1.4bn, or 4.9%, to £29.9bn when new valuations come into force on April 1, according to analysis by real estate advisory firm Altus Group. The revaluation, the first in six years, will see airports, power stations and business headquarters hit hardest. Chancellor Jeremy Hunt last year announced a £13.6bn package to help businesses with their new rates bills from April 2023, including freezing the tax rates, and discounts for 230,000 retail, leisure and hospitality premises.
Firms struggle to fill gaps in the workforce
Analysis by ManpowerGroup shows that around 80% of UK companies have reported difficulty filling jobs. This is the highest percentage since 2006 and marks an increase on the 35% recorded in pre-pandemic 2019
IMF warns of increased financial stability risks
The head of the International Monetary Fund (IMF) has warned that the global economy faces increased financial stability risks amid turmoil in the banking industry
When the experts expect rates to fall
Experts predict that the Bank of England will cut the base rate to 3% by the end of next year and then 2.5% by the end of 2025. Since December 2021, the Bank’s Monetary Policy Committee has increased the base rate on 11 consecutive occasions, from 0.1% to the current 4.25%. Paul Dales, chief UK economist at Capital Economics says: “Our current forecast is that the Bank of England will raise interest rates from 4.25% now to a peak of 4.5% in the coming months and keep rates there all year.” He added: “A lot can change, but our current forecast is that the Bank Rate is cut to 3% by the end of next year and 2.5% in 2025.” Laith Khalaf, head of investment analysis at AJ Bell commented: “There is of course a limit to how much interest rates can rise, and after 11 consecutive hikes in the space of just over one year, it’s little wonder that everyone is now curious about when the music is going to stop.” “Monetary policy takes a long time to filter through into the real economy, and so we are only now just beginning to see some of the effects of the tightening cycle of the last year or so,” Mr Khalaf added. Richard Carter, head of fixed interest research at Quilter Cheviot, said: “We think the base rate is more likely to fall in 2024 than rise,” while Andrew Hagger, a personal finance expert at Moneycomms, commented: “I think we will see a very gradual decline in base rate from a high of 4.5% this year to somewhere around the 3% mark in the next three years.”
Hospitality has little choice but to raise prices
JD Wetherspoon boss Tim Martin has said holding back on raising prices could have disastrous consequences for pubs and restaurants after the Bank of England Governor, Andrew Bailey, pleaded with business to stop increase prices as inflation continues to run rampant. “The two things that keep price rises low are competition and, by definition, low inflation,” Martin said. “If input costs are high, which they are in the hospitality industry, it’s very difficult for pub companies to avoid price rises, and it might produce catastrophic results if Mr Bailey’s advice was taken too literally – although he’s right to say it.” Kate Nicholls, chief executive of trade body UKHospitality, also said Bailey was being impractical and Tina McKenzie of the Federation for Small Businesses agreed, stating: “Small firms have already cut their costs to the bone.”
Bailey warns firms raising prices ‘hurts people’
The Bank of England Governor Andrew Bailey has called on businesses to resist hiking prices in the face of ongoing inflation warning that rates will only need to rise further if costs increase. “I would say to people who are setting prices – please understand, if we get inflation embedded, interest rates will have to go up further and higher inflation really benefits nobody,” he added. His comments come after the BoE raised rates by a quarter point to 4.25% on Thursday – their highest level for 14 years. The rate at which prices are rising remains close to its highest level for 40 years, hitting 10.4% in the year to February – more than five times the Bank of England’s target.
Administrator warns Paperchase creditors
Paperchase’s administrator says there is not enough money to pay back the retailer’s unsecured creditors. In its first report to creditors, Begbies Traynor said: “The company has insufficient property to enable a distribution to unsecured creditors.” Paperchase’s 300-plus unsecured creditors are collectively owed £18.1m and Begbies rates their chances of getting anything back as “nil.”
Windsor deal unlocks financial services cooperation
Talks between the UK and the EU on financial services cooperation may now be revived after latest Brexit deal was signed. A Memoranda of Understanding on financial services and on intellectual property was promised following talks between James Cleverly, the Foreign Secretary, and Maros Sefcovic, vice-president of the European Commission on Friday. Miles Celic, chief executive of TheCityUK, said: “This will be a vital step towards ensuring continued industry cooperation and continuity between the UK and EU.” Brussels has also agreed to look at easing trade barriers and Britain’s membership of the EU’s flagship science and research programme Horizon is now set to be revived.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.