CEO optimism set to drive growth – business news 1 September 2021
James Salmon, Operations Director.
CEO optimism set to drive growth. Business confidence at four-year high. Firms risk losing business if they ignore ESG. Business groups and unions call for furlough extension. Immigration policy driving supply crisis. No increase in consumer credit, bar home loans. Soaring inflation could add to the national debt burden and more business news.
CEO optimism set to drive growth
A KPMG poll of 1,325 business leaders in the world’s largest economies, including 150 in Britain, suggests increasing confidence in the global economy is set to spark an acquisition spree.
The survey saw 87% of respondents say they were looking to do deals to help boost and transform their businesses within the next three years, with mergers and acquisitions, joint ventures and strategic alliances identified as the main strategies for expansion and business transformation by 67% of those quizzed. Some 60% of business bosses are confident about the global economy’s growth prospects in the next three years, up from 42% in a poll taken during Q1.
On potential challenges, supply chains, cybersecurity and climate change were identified as the biggest risks to growth over the next three years. Bill Thomas, global chairman and chief executive of KPMG, said: “Despite the continued uncertainty around the pandemic, chief executives are increasingly confident that the global economy is coming back strong. This confidence has put leadership in an aggressive growth stance.”
Business confidence at four-year high
Optimism around the post-pandemic recovery has seen business confidence hit a four-year high in August. A study by Lloyds Bank shows that nine of the UK’s 12 regions and nations reported improving confidence last month. Growth in confidence was sharpest in the services sector, with the removal of lockdown restrictions seeing bars, restaurants and hotels welcome back consumers.
The bank’s business barometer showed overall confidence rose by six points to 36% in August, with this representing the highest level since April 2017 and a turnaround after a slight dip in July. On employment, Lloyds’ poll of 1,200 firms found that just 18% expect to increase headcount. It was also found that a third of businesses expect pay to increase by at least 2% over the next 12 months, with around 17% anticipating wage growth of more than 3%.
Hann-Ju Ho, a senior economist at Lloyds’ business banking arm, said the figures told “a positive story about the country’s economic recovery”.
Firms risk losing business if they ignore ESG
A report from BDO suggests that firms could lose business if they fail to keep up with ESG issues that are proving increasingly important to consumers and investors. Almost a third of mid-market companies say they face a “high” or “very high” risk of losing out on business if they fail to act.
The BDO poll also saw 36% say the risk was low, while 6% said there was no risk. On where environmental, social and governance issues rank among corporate priorities, 38% of business leaders said that meeting ESG criteria is their highest priority. This compares to 36% who said tackling Brexit-related challenges and 25% who said the post-pandemic recovery was their main area of focus.
Matthew White, chair of BDO’s ESG executive committee, said: “While the pressure to improve ESG performance has to date focused on the large polluters, big financial institutions and publicly listed companies, we are now seeing a trickle-down effect with ESG now firmly on the board agenda at mid-market level”.
Business groups and unions call for furlough extension
With the furlough scheme now in its final month, business groups and unions have called for the job subsidy programme to be extended to protect workers in industries still being hit by the pandemic. With up to 1.7m workers on furlough at the beginning of August, many of their jobs are expected to be at risk when Government support ends on September 30.
The British Chambers of Commerce (BCC) is set to release an economic outlook this week which will forecast a rise in unemployment above 5%. The BCC’s head of economics Suren Thiru said that while the labour market is improving and unemployment is not going to hit the levels seen in forecasts made earlier in the coronavirus crisis, “lots of businesses are recovering from the pandemic and don’t have much cash. They are still rebuilding their finances and so the end of the furlough comes at the wrong time for them”.
Union Unite’s assistant general secretary, Diana Holland, said the ending of the furlough scheme meant jobs would be “needlessly lost”, while Kate Bell, head of economics at the TUC, said that although there is little evidence of large companies making mass redundancies, there are many smaller firms in financial difficulties unable to maintain previous levels of employment.
Immigration policy driving supply crisis
Lord Wolfson, CEO of retail chain Next, believes a shortage of lorry drivers which is causing disruption across Britain’s supply chain stems from the Government’s immigration policy.
Urging officials to change the rules to allow more HGV drivers to work in the UK, he said: “It strikes me as being insane that despite the fact that everyone knows that we desperately need drivers, the Home Office are still preventing people coming to this country to work as drivers”.
He added that he does not believe Brexit has caused the issues, saying the problem is to do with “the way in which our immigration system is being run.” Lord Wolfson has called on ministers “to look at the policies that we have going forward” to ensure people who want to work in Britain and have the skills that we need “can get here”.
No increase in consumer credit, bar home loans
Outside of mortgage borrowing, people borrowed no additional consumer credit in July, according to Bank of England figures, with the sum households paid back roughly equivalent to what they were loaned.
This compares with an average of £1.2bn of consumer credit borrowed per month in the two years to February 2020. Economists had been expecting an increase of around £400m, up from £300m in June. The analysis shows that people borrowed an additional £100m in forms of credit such as car dealership finance and personal loans in July. Consumers repaid £100m on net in credit card debt, continuing a trend seen throughout the pandemic as reduced spending during lockdowns meant more people were in a position to pay off debts.
The data also shows that household savings grew by £7.1bn in July, despite interest rates paid on deposits hitting a historic low. The figure falls well short of the record £27.4bn deposited in May 2020. Large businesses borrowed £4.5bn from banks in July, the BoE report noted, while small and medium-sized businesses repaid £1.2bn.
Mortgage approvals fall as stamp duty relief tapers
Bank of England data shows that mortgage approvals fell to the lowest level in a year in July, with the tapering of the stamp duty holiday driving the slowdown. The report shows there were 75,152 mortgage approvals in July, down from 80,272 in June. This came after the June 30 cut-off that saw the threshold for stamp duty relief – which had been available on purchases under £500,000 – reduced to £250,000. Meanwhile, consumers repaid £1.4bn in mortgage debt in July. The net repayment followed record borrowing of £17.7bn in June.
Reflecting on the climate for the property sector, Sandra Horsfield at Investec said: “There is little to suggest the outlook for the housing market is poor.” She added: “First and foremost, house prices should continue to receive support from the strong recovery in the labour market.” Martin Beck, senior economic advisor to the EY Item Club, commented: “We may see another increase in activity in the next couple of months, as buyers line up transactions before the stamp duty threshold returns to its normal level of £125,000 from October.” He added that the EY Item Club “expects demand to soften” once the stamp duty holiday has ended, adding that it believes there will be “a modest correction in prices”.
UK House Prices however jumped unexpectedly in August driven by strong demand for homes at the lower segment of the market, according to new figures released yesterday. Data from Nationwide showed house prices rose 11% annually in August, up from July’s 10.5% increase. The shock rise is likely being driven by the lower stamp duty threshold still providing financial incentives for prospective homeowners seeking to purchase a property at the lower end of the market.
Soaring inflation could add to the national debt burden
Higher-than-expected RPI inflation is set to push debt interest payments above official forecasts produced by the Office for Budget Responsibility (OBR). Forecasts published by the Government’s spending watchdog in March pointed to RPI inflation hitting 3.1% in the three months to June. However, RPI inflation for the period actually came in at 3.9%. Analysts expect RPI inflation to rise even further. With around a quarter of the Government’s stock of debt linked to RPI inflation, further increases would push up the state’s debt burden. Samuel Tombs of Pantheon Macroeconomics believes the rate will hit 4.9% in the closing months of the year, an estimate that means “debt interest payments will overshoot the OBR’s March Budget full-year forecast by about £12bn”.
Europe sees inflation jump
Figures released by EU statistics agency Eurostat show that annual inflation in Europe equalled a ten-year high in August. Across the 19 countries that use the euro, inflation rose to an annual 3.0% in August, up from 2.2% in July. The rate came in higher than the 2.8% market analysts had forecast. The increase recorded in August was driven by more expensive fuel and supply chain disruptions, with it noted that the increase was steep because some prices were much lower a year ago due to one-time factors connected to the pandemic. Analysts believe the jump in inflation is temporary.
WH Smith
WH Smith said it expected to post a slight annual earnings beat, but warned that profits would be at the lower end of expectations for the 2022 financial year. The company’s annual revenue for the year through August 2021 had recovered to 71% of 2019 levels as footfall improved at travel locations and on the high street.Travel revenue was 64% at 2019 levels and high street revenue was 84%.
Bunzl
Bunzl reported a profit hike of 12% in the first half of 2021 despite a “reversal” in Covid-19 related sales and supply chain issues. The London-based distribution and services company had a strong 2020 due to sales of Covid-19 related products, such as gloves, masks and sanitisers. However, its base distribution business, which covers sectors such as retail, healthcare and catering, is picking up pace as pandemic related sales decline this year.
UK Retail Footfall
UK Retail Footfall rose an average of 8.2% over the August bank holiday as shoppers made the most of the long weekend. Historic towns enjoyed a flux of day trip and staycation shoppers with footfall up 20.1% over the long weekend while coastal towns saw footfall up 19.8%. High street footfall rose almost seven per cent last week from the week before while it rose 4.8% in shopping centres and rose just under 1% in retail parks.
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