Business news 27 June 2022

James Salmon, Operations Director.

Small businesses stockpiling supplies as costs soar. Inflation expected to push UK economy into recession. Leading economies at risk of falling into high-inflation trap. Retail sales down as shoppers cut spending. Employers set to slash pay for home workers. Britain is the £3bn fraud capital of the world. G7, Insurance costs house price crunch and more business news.

Small businesses stockpiling supplies as costs soar
Britain’s SMEs are seeing much of their cash tied up with stockpiling raw materials and ordered components six months in advance as they seek to overcome supply shortages. Simon Gray, head of business at the accountancy body ICAEW, said companies were suffering “a hat-trick of hurt” that was forcing them to limit production. He said: “Businesses are reporting that things are so bad they cannot plan for the future. There is a breakdown in confidence and the uncertainty is changing their behaviour, making them take no risks and cut investment.” Make UK, the manufacturers’ organisation, said recent reports reveal investment cash and expansion plans are being shelved because more funds are tied up securing supplies.

 Inflation expected to push UK economy into recession
KPMG’s latest UK Economic Outlook report predicts GDP growth will more than halve to 3.2% this year, from 7.4% in 2021, and fall to 0.7% in 2023. KPMG warned that the risks to its forecast were “skewed to the downside”, and that “a sharper deterioration in the external environment – causing recession for major UK trading partners – coupled with a stronger fall in consumer spending, could see the UK entering a mild recession next year”. Household incomes are set to fall by 0.8% because of inflation, which KPMG expects to average 8.1% this year. Yael Selfin, chief UK economist at KPMG, said there was a roughly 50% chance of a mild recession in the UK, given the cost-of-living crisis and depending on developments in key trading partners.

Leading economies at risk of falling into high-inflation trap, BIS says
The Bank for International Settlements has said the world’s leading central banks should not be shy of inflicting short-term pain or even recessions to prevent a shift into a persistently high-inflation world. “The global economy could be set for a period of stagflation, involving both low growth, if not an outright recession, and high inflation,” the BIS said. Agustin Carstens, general manager of the Switzerland-based BIS, explained: “The key for central banks is to act quickly and decisively before inflation becomes entrenched. If it does, the costs of bringing it back under control will be higher. The longer term benefits of preserving stability outweigh any short-term costs.”

Retail sales down as shoppers cut spending
Data published on Friday by the Office for National Statistics show retail sales fell 0.5% between April and May, reversing the expansion seen in the previous month. Despite the volume of sales being 4.7% lower than a year ago, consumers spent 0.6% more than in the previous month, illustrating the impact of inflation. The deepening cost of living crisis was blamed by statisticians for a 1.6% month-on-month slide in food sales in May. The ONS also revealed that 43% of families are cutting back on their weekly food shop in the face of rising prices, up from 8% in September 2021. Martin Beck from EY Item Club said the second half of the year would be a “challenging period for retailers” adding that the sector was “effectively already in recession and the wider consumer sector is likely to experience a marked slowdown this year.”

Employers set to slash pay for home workers
On Saturday, the Telegraph’s Lucy Burton detailed how employers across the UK are planning to reduce pay or benefits for staff working from home after many failed to lure workers back to their desks. A survey by the Chartered Institute of Personnel and Development (CIPD) found that around 4% of companies have already reduced pay or benefits for those who continue to work remotely, while 13% are on the verge of doing so.  The argument for cutting pay for those working remotely permanently is that they incur lower travel and lifestyle costs and could live in cheaper residential areas. But Ben Willmott, head of public policy for the CIPD, said employers that are planning to reduce pay or benefits should “recognise there are potential ethical and legal risks in this approach. It could also make it harder to recruit or retain staff if people working remotely are valued and rewarded less than those who have to attend their organisation’s workplace.”

Businesses face steep rise in insurance costs
According to estimates from PwC, businesses could see price rises of between 10 and 20% in their annual insurance bill. The research suggests that rising prices have significantly increased the costs of materials and labour involved in the settlement of insurance claims. Mohammad Khan, head of general insurance at PwC, said: “This week’s industrial action will no doubt have made a significant impact on businesses, and firms face a double blow with the potential of a 10-20 % increase in their annual insurance bill. Insurers have increased premium rates to cover higher claim settlements.”

House price crunch coming for Western countries
Goldman Sachs is predicting that the property booms experienced in Western countries over the course of the pandemic are coming to an end as soaring interest rates, stretched affordability and weakening economic growth take the heat out of property markets. The UK will see prices flatline from next year onwards, rather than fall, the bank’s model predicts, while France and the US will see declines of 9% and 3%, respectively. Prices in Canada, Australia and New Zealand are already dropping. The worst price slump will be in Canada, at 12%. House prices in the UK have jumped 22% since Covid struck, fuelled in part by the stamp duty holiday, but Goldman attributed the stronger performance in the UK next year to a “smaller drag from rising mortgage rates than in North America” and scarcer housing supply than in France.

Britain is the £3bn fraud capital of the world
An investigation by the Daily Mail reveals that Britain has become the global capital of fraud, with losses from scams soaring to almost £3bn a year. Losses of £36.02 per person in the UK are far higher than in other leading Western economies. This is more than double the amount lost per capita that year in the US, according to figures from the Federal Trade Commission, more than five times that recorded in Australia and almost six times the amount logged in Canada. New Zealand had a rate of just £1.73 per person in 2021. The Mail points to research by Crowe UK in conjunction with the Centre for Counter Fraud Studies at the University of Portsmouth which last year found all fraud cost individuals and businesses in the UK £137bn a year. UK Finance said: “The banking and finance industry is committed to stopping fraud.” The banking trade body added: “We agree that more needs to be done and have long called for a regulated code, backed by legislation, to ensure consumer protections apply consistently.”

Barclays to hunt down the £1bn Covid crooks
Barclays is hiring a team of investigators to claw back up to £1bn of Covid loans that have been siphoned off by criminals. The bank issued 345,006 loans worth £10.8bn to small firms under the Government’s Bounce Back Loan Scheme at the height of the pandemic. These were fully guaranteed by the Treasury so that banks were not exposed to excessive risks. However, this has left taxpayers on the hook for potentially huge losses from borrowers who are either fraudulent or genuinely cannot pay. Barclays has held talks with the Cabinet Office over its move to outsource the Covid fraud investigation. It is likely to be given a green light by Ministers, who are keen to recoup as much of the losses as possible. Its elite team will include experts in insolvency, law and forensic accountancy. The hope is to reduce losses to taxpayers, who are already forking out extra National Insurance contributions and have been hit by a freeze in allowances and thresholds.

G7 Summit

G7 Leaders have detailed plans to mobilise $600bn in funding for the developing world in a move seen as a counter to China’s Belt and Road plan. The Partnership for Global Infrastructure and Investment (PGII) relaunches a scheme unveiled at last year’s G7 talks in England. US President Joe Biden said the plan would deliver returns for everyone. China’s multi-trillion dollar infrastructure initiative is criticised for hitting nations with too much debt.

G7 leaders will also commit to providing indefinite support to Ukraine for its defense against Russia’s invasion, according to a draft statement from their summit. “We will continue to provide financial, humanitarian, military and diplomatic support and stand with Ukraine for as long as it takes,” the text of a draft statement said.

G7 leaders also discussed putting a cap on the price of Russian oil, using restrictions on finance and insurance on any oil above the cap.

UK to impose steel tariffs to protect British manufacturing
Boris Johnson is preparing to impose steel tariffs on several countries in an effort to protect UK manufacturers from a “flood of cheap steel” from overseas. The move, which is also designed to win back support in Red Wall seats, has been informally agreed by key Cabinet ministers, but final details will be signed off in the coming days. But opponents of the plan say the Prime Minister will be breaking World Trade Organisation rules and that a trade war could result from the “anti-free market and anti-capitalist” policy.

Microchip shortage stymies smart meter rollout
A shortage of microchips has meant energy companies have failed to meet their smart meter installation targets, leaving them facing multi-million pound fines from Ofgem and putting the Government’s net zero plans behind schedule. Every home was supposed to have a smart meter by 2025. In evidence submitted to MPs on the Business, Energy and Industrial Strategy Committee, Energy UK said: “The medium-term outlook for an improvement in the availability of semiconductor materials is highly uncertain.” Manufacturers have been suffering from microchip shortages since 2020 when production was hit by coronavirus lockdowns.


Covid-19 infections rose 23% during last week with 1.7m people in the UK estimated to be infected, or 1 in 35 people.

PZ Cussons

PZ Cussons said trading for the fourth quarter to May 31 has continued to be in line with expectations despite a challenging trading environment. The maker of products such as Carex, St Tropez and Imperial Leather expects revenue for the financial year of £590 million, with full-year like-for-like revenue growth of 3% and fourth-quarter LFL growth of 7%. PZ Cussons recorded revenue of £603.3 million in financial 2021.

Russian Default

Russia defaulted on its foreign-currency sovereign debt for the first time in a century, despite having the funds to pay the interest payments as a culmination of ever-tougher Western sanctions that shut down payment routes to overseas creditors. Meanwhile, America, Britain, Canada and Japan announced a ban on the imports of Russian gold to prevent oligarchs using bullion to sidestep sanctions.

U.S. and EU officials try to move global tax deal forward
Efforts to break the deadlock over a new global corporation tax rate are continuing with Hungary currently blocking progress in the EU, while the Democrats’ slim majorities in the U.S. House and Senate make passing legislation a challenge for those pushing the programme. Nearly 140 countries agreed last year to impose a 15% minimum tax on large companies but eight months later, there has been little progress on changing national laws to implement the tax. Hungary argues that uncertainty about Europe’s economic outlook makes it a bad time to raise taxes. But some observers believe the country is holding out for concessions elsewhere. Meanwhile, the EU is withholding pandemic relief funds earmarked for Hungary. The question now is who moves first. U.S. Treasury Secretary Janet Yellen made the point that countries that resist the change will see their firms are being taxed anyhow but they are not getting the benefits of that taxation. “Now that was never supposed to apply to the United States, and I really hope we go first and second,” she told an event in June, referring to the U.S. and the EU.

Business founders turn to employee ownership
A report by Price Bailey reveals that enterprise owners are increasingly drawn to selling their business to employee ownership trusts (EOTs) because of a desire to reward workers who had helped them through the pandemic and the tax benefits EOTs can bring. HMRC authorised 312 ownership trusts in the year to March, compared with 181 the previous year and only 15 in the year to March 2019. In total, there are more than 1,000 employee-owned businesses in Britain, according to the Employee Ownership Association (EOA), more than double the figure from 2020. Simon Blake, partner at Price Bailey, said: “Interest in employee ownership has surged post-pandemic. Owners are exploring ways to incentivise and retain valuable staff [while] rising interest rates provide an added incentive to fund transfer of ownership without the need for increasingly costly external debt.”

Accountants voted the best kissers in Britain
Accountants have been voted the best kissers in Britain – ahead of doctors, nurses and engineers. The worst are civil servants, bankers and lawyers, according to a poll of 2,000 Britons by dating site Plenty of Fish.

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.