Business news 28 February 2023
James Salmon, Operations Director.
New EU deal. London to drive economy away from recession . Economists forecast smaller fall in UK output in 2023 . Price cap reduced but bills will climb . Retailers fear hit from rising energy costs. Tax hikes or spending cuts needed to end pay disputes. And more business news.
New EU deal
Prime Minister Rishi Sunak on Monday signed a new trade deal with the European Union designed to remedy problems caused by the Northern Ireland Protocol. Speaking at a press conference shortly after the announcement, Sunak described the new agreement — know as the Windsor Framework — as “the beginning of a new chapter” for the relationship between the UK and the EU.
The deal includes strong safeguards that will allow goods to move more freely across the Irish Sea. The establishment of red (goods bound for Eire) and green lanes (goods bound for Northern Ireland) for imports which can bypass custom checks, as well as real-time data-sharing, which will enable Northern Ireland supermarkets to stock the same food as in Great Britain. And importantly, an emergency “Stormont brake” for the Northern Ireland Assembly on new EU regulations, which the UK Government will then have a veto over.
London to drive economy away from recession
Analysis by EY suggests that London will power the UK economy out of recession in the next few years, with growth driven by the financial and legal sectors. The capital is set to see the fastest growth of all UK regions, with its economy on track to expand 2.6% each year between 2024 and 2026 while growth across the country is set to climb by 2.1%. While London’s GDP is set to decline by 0.2% in 2023, this will be the smallest fall among UK regions.
EY expects the UK economy as a whole to shrink by 0.6% this year. Julie Carlyle, managing partner for EY in London, said: “London’s performance is dependable, but should not be taken for granted,” adding that the capital “will have its own investment needs to be met” so it can “continue to help form the backbone of nationwide growth.”
Economists forecast smaller fall in UK output in 2023
The economic outlook has improved, with data from Consensus Economics showing that, on average, analysts expect a 0.6% fall in UK GDP in 2023, having previously predicted a 1% decline.
Price cap reduced but bills will climb
Although energy regulator Ofgem has reduced the amount suppliers can charge households for energy, bills will still rise in April as Government support eases. Ofgem has announced that the energy price cap will drop by 23% from £4,279 to £3,280 in April because of falling wholesale prices.
However, the typical annual household bill is set to rise from £2,100 to £3,000 in April because the Government’s Energy Price Guarantee will become less generous and a £400 winter discount on bills comes to an end.
TUC general secretary Paul Nowak said: “Energy bills are out of control. The Government must cancel April’s hike. With the cost of wholesale gas plummeting ministers have no excuse for not stepping in.” Emily Fry, an economist at the Resolution Foundation think-tank, commented: “While consumers won’t have to face typical bills of £3,280 this spring, many are still set to see bills rise by a fifth as government support is scaled back.”
Retailers fear hit from rising energy costs
A survey by FRP Advisory has seen more than 50 retail groups voice concern that their businesses may not survive the next 12 months because they face a sharp rise in costs when help with energy bills tails off from April.
Tax hikes or spending cuts needed to end pay disputes
The Institute for Fiscal Studies (IFS) think-tank says that the Government will need to increase taxes or reduce spending to end public sector pay disputes and avoid further strike action. The IFS pre-Budget report says the Government is on track to borrow around £31bn less than forecast by the Office for Budget Responsibility in 2022/23 and £25bn in 2023/24. However, it warned that the short-term borrowing boost would not allow for permanent spending increases, such as increasing public sector pay to match predicted inflation. The IFS said the Chancellor should resist calls to use the savings to fund tax cuts or spending rises in next month’s Budget as public finances would suffer from a slowing economy until 2027. Isabel Stockton, senior research economist at the IFS, said: “Short-term savings cannot finance permanently higher spending – which is what a higher consolidated pay rise for public sector workers would entail.”
FTSE bosses braced for takeovers
A study from investment bank and broker Numis shows that almost 90% of FTSE 250 directors believe UK firms are vulnerable to foreign takeovers this year due to the weak pound and falling valuations. Numis said foreign takeover interest this year was likely to come amid a rebound in wider M&A activity, following a sharp downturn last year. The poll saw 95% of directors say they expect an uptick in mergers and acquisitions this year, with the same proportion expecting the financing environment to rebound – which could allow private equity firms to pursue more big deals.
Begbies boosted by Paperchase collapse
Begbies Traynor saw its finances boosted by the collapse of Paperchase, having been appointed as administrator after the stationery chain failed to secure any buyers. The restructuring specialist said the ongoing administration is a “higher-value” insolvency case which has helped strengthen its financial performance. Begbies says it is confident it would meet market expectations of between £19.7m and £20.6m in pre-tax profit and between £117.7m and £121.4m in revenue for the year.
Zoom
Zoom said quarterly revenues rose by 4% year over year, to $1.1bn but reported a loss due to stock based compensation. The company had risen to be valued as the 65th most valuable company in the world but now it is back at the value it had before covid. Meanwhile the US market is up a quarter in the same time.
UK housing stock worth £8.7trn
The value of the UK’s residential housing stock reached a record high of £8.68trn in 2022. The valuation by estate agent Savills marks a rise of just over 5% on a year earlier. The £425bn increase represents a smaller rise than the 700bn annual increase recorded in 2021 and the £500bn rise in 2020. Lucian Cook, the head of residential research at Savills, expects 2022 to represent a “high watermark” for the value of the nation’s homes for the next few years. The firm predicts that a slower market means property prices will fall by 10% this year, which would take the value of the nation’s property down to £7.81trn. Analysis also shows that the level of mortgage debt carried by UK households rose by £63bn last year, the largest annual rise since 2018. Savills said the overall total to £1.67trn is an all-time high.
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