Business news 31 May 2022

James Salmon, Operations Director.

500k small businesses ‘at risk of going bust within weeks. SMEs fear long-term fallout from cost of living crisis. Spending with SMEs up in Q1. Corporate confidence rises. High street hit as footfall declines.  And more business news.

FSB: 500k small businesses ‘at risk of going bust within weeks’
The Federation of Small Businesses (FSB) has warned of a “ticking timebomb” for small businesses, with almost half a million at risk of going bust within weeks unless the Government delivers a fresh wave of support. FSB chairman Martin McTague praised the cost of living support for consumers announced by Chancellor Rishi Sunak last week but warned that for small firms, “there is still a massive problem.” He told BBC Radio 4’s Today: “They are facing something like twice the rate of inflation for their production prices, and it’s a ticking timebomb. They have got literally weeks left before they run out of cash and that will mean hundreds of thousands of businesses, and lots of people losing their jobs.” Noting Office for National Statistics data showing that 2m small businesses have less than three months’ worth of cash left to support their operations, Mr McTague said about 10% of these were in “serious trouble” while another 300,000 “have only got weeks left.”

SMEs fear long-term fallout from cost of living crisis
Three-quarters of SMEs are worried about the long-term impact the cost of living crisis, soaring energy bills and rising inflation. Barclays’ SME Barometer, a quarterly survey of business sentiment, saw 51% say they were concerned that surging prices would dent consumer spending, while more than a quarter said they feared that having to increase their own prices in response would make them less competitive.

Spending with SMEs up in Q1
Data from Barclaycard Payments shows that the volume of debit and credit card payments processed to SMEs rose in Q1, with a 20% increase in value and a 35% increase in volume between January and March compared with pre-pandemic levels. Colin O’Flaherty, head of SME at Barclaycard Payments, said: “After an exceptionally tough time for the hospitality and leisure sector, it’s encouraging to see that businesses have seen revenues rise over the last few months, despite a challenging economic climate.”

Corporate confidence rises
Businesses are increasingly confident that they can use high inflation to rebuild their margins, the monthly barometer by Lloyds Bank has found. Confidence among firms has risen by five points on the index to reach 38%, significantly higher than the long-term average of 28%. This marks the first increase since Russia launched its invasion of Ukraine. Six in ten of the 1,200 companies surveyed said that they plan to increase prices to protect profit margins in light of the rising cost of supplies. It was also shown that 53% plan to take on staff, up from 44% in the previous month. Martin Beck, chief economic adviser to the EY Item Club, said: “Unemployment is close to a record low, households have accumulated £180bn of unplanned savings during the pandemic and the Chancellor’s package of support to households goes a long way to alleviating the concerns around higher energy prices for the most vulnerable. So while businesses aren’t lacking in things to worry about, there are factors at play which they can take heart from.”

Missguided collapses into administration
Fast fashion chain Missguided has collapsed into administration, with supply chain costs and weakening consumer confidence hitting the business. Administrators from Teneo said there was “a high level of interest from a number of strategic buyers,” with rival Boohoo said to be interested in snapping up the brand.

High street hit as footfall declines
High streets and shopping centres are feeling the impact of the cost of living crisis with analysis by Ipsos showing that the number of shopping visits was down more than 20% last week compared to the same period in 2019. Susannah Streeter, senior investments and markets analyst at Hargreaves Lansdown, said: “The high street is really beginning to feel the heat from red hot prices with bills mounting all over the place.”

Labour urges OBR to assess £21bn cost of living package
Labour has called for an independent assessment of whether Chancellor Rishi Sunak’s £21bn cost of living emergency package could cause inflation to rise. Pat McFadden, shadow chief secretary to the Treasury, has written to Office for Budget Responsibility (OBR) chair, Richard Hughes, asking for the spending watchdog to analyse the impact of the measures and “provide authoritative and independent economic and fiscal projections.” Mr McFadden has called for an assessment of the measures on public sector expenditure, receipts and net borrowing, as well as gross domestic product and investment.

Inflation expectations remain high
A poll by YouGov and US bank Citi shows that the British public expect inflation of 6.1% over the next 12 months, with this up from 6% in April and equal to the record high seen in March. Expectations for inflation in five to 10 years’ time held at 4.2% in May, unchanged from April. Citi economist Benjamin Nabarro said the Bank of England is likely to remain concerned about medium-term inflation expectations but suggested there was little in the data that should provide a further impetus for an “out-sized” half percentage-point interest rate increase.

Sanctions

The EU agreed to a partial ban on Russian oil imports. An exemption was given to  oil delivered through pipeline inorder to keep Hungary from vetoing the deal. The ban will cover more than two-thirds of Russian imports to the EU. Russia’s largest bank, Sberbank will also be blocked from SWIFT, the interbank-communications system. Separately, the EU will send an additional €9bn to Ukraine to help support its economy.

5G

BT Group entered a new “multi-million pound” joint venture partnership with Swedish peer  Ericsson. The companies will work together to provide commercial 5G private networks for the UK market. BT has signed a multi-year contract with Stockholm-based Ericsson, which will enable it to sell the mobile network technology products to businesses and organisations in different sectors. These include manufacturing, defence, education, retail, healthcare, transport and logistics.

House Prices

Rightmove has reported the average UK house price has topped £250k for the first time after rising 8.4% in the year to April 2022.

GSK

GSK has agreed to pay $2.1 billion upfront, with potentially a further $1.2 billion coming, to acquire Boston, Massachusetts-based Affinivax. Affinivax is a clinical-stage biopharmaceutical company focused on developing a novel class of pneumococcal vaccines. The deal is expected to close in the third quarter of 2022.

Overseas investors return to Britain
Foreign direct investment in Britain last year rebounded from lows recorded in the first year of the pandemic, according to EY analysis. There were 993 foreign direct investment projects in the UK last year, up from 975 in 2020. Despite climbing, last year’s total remains down on the 1,109 recorded in 2019. Digital technology remained the most popular sector, with a 7% rise in projects in Britain, despite a fall of 7% across Europe. The sector represents a third of all British investments, compared with a fifth of projects across the Continent. London remains Europe’s leading location for foreign investment projects, with 394 investment projects recorded in the capital in 2021. There were 383 were recorded in 2020 and 538 in 2019. Last year was the third successive year that France received the highest number of foreign direct investment projects in European countries.

Opinion: Firms risk being ‘taxed into oblivion’
Matthew Lynn in the Telegraph looks at how energy firms are “starting to put up some resistance” to the Chancellor’s plans for a windfall tax on their profits. He voices concern over tax policies, suggesting the Government “has been treating business as a bank account that can be raided whenever ministers feel like it” and warns that businesses “can’t simply be taken for granted or taxed into oblivion.” Mr Lynn notes that corporation tax is to rise from 19% to 25%, “turning the UK from a low tax to high tax place to do business.” He also highlights that the National Insurance increase marks “another hefty tax rise for every company,” while the rate of tax on dividends is going up, “so shareholders will face extra charges for making any kind of return on the money they have put at risk.”

HMRC tracking 277 businesses over use of tax havens
HMRC is tracking 277 British businesses it suspects of using tax havens to artificially reduce their tax bills in the UK, research from City law firm Pinsent Masons shows. HMRC is concerned that some businesses are avoiding tax in the UK by recording income in countries with zero or near-zero corporation tax. The tax office has received data on 277 businesses from tax authorities in 12 tax havens over the past year as part of its no or only nominal tax jurisdiction project – a scheme operated by the Organisation for Economic Co-operation and Development and involving tax authorities in 38 member states. Under this initiative, tax authorities in tax havens must provide information on the identities, activities and ownership of multinational businesses reporting revenue in their countries to HMRC and other tax authorities. Jake Landman, partner at Pinsent Masons, said: “HMRC has a real focus on worldwide profit-shifting and it will be looking for extra tax and penalties from businesses that use tax havens artificially.”

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