Omicron – Business news 29 November 2021

James Salmon, Operations Director.

Omicron covid variant. More work needed to create green jobs. Business investment to hit pre-pandemic levels in 2023. ‘Misled’ firms look to cut loan repayments. UK to grow faster than China for first time since Mao. ‘Perfect storm’ leaves manufacturers facing ‘tipping point’. And more business news.

Omicron covid variant

Global markets fell  in what has been termed “Red Friday” in the media. Traders responded quickly to the discovery in South Africa of a new heavily mutated Covid-19 variant called “B.1.1.529”, now dubbed Omicron which has more spike proteins and is inherently more transmissible.

The FTSE 100 suffered its worst fall in nearly 18 months dropping 3.6% while German markets closed down 4.2% and France fell 4.8%. In the US, the S&P 500 fell 2.3% and Brent crude suffered a 10% drop. Bitcoin was down 7.5% just after the London close. Airline stocks were hit hard as were hotels and leisure but vaccine makers Moderna and Pfizer were up as was online grocery business Ocado

There are still a lot of unknowns re the new variant. There may or may not be 30 mutations instead of 2, it may or may not spread more quickly and it may or may not cause more severe illness. Very few cases have been confirmed, the majority of which are in South Africa, where the vaccination rate is extremely low at 24%.

The new variant is seen as the cause for the surge in cases in South Africa last week and cases are popping up around the world, including the UK. The European Commission has recommended EU countries introduce an emergency brake on travel to a number of countries in southern Africa. The UK, Germany and Italy have banned flights to /from South Africa. Central to concerns is the unknown defence shield offered by existing vaccines.

Boris Johnson has said mandatory face coverings will be reimposed in shops and on public transport after cases of the Omicron variant of coronavirus were found in the UK. Additionally, anyone entering the UK will be required to take a PCR test within two days of their arrival and must self isolate until they receive a negative result.

t is not yet known if the variant is more transmissible or causes more severe illness and it is yet to be confirmed that vaccines are less effective against it. Professor Sir Andrew Pollard, one of the Oxford scientists behind the AstraZeneca vaccine, told the BBC yesterday that most of the strain’s mutations are in similar regions seen in other variants so far and that “from a speculative point of view we have some optimism that the vaccine should still work against a new variant for serious disease.”

His views were echoed by Sage adviser Professor Calum Semple who told BBC Breakfast that: “This is not a disaster, and the headlines from some of my colleagues saying ‘this is horrendous’ I think are hugely overstating the situation. Immunity from the vaccination is still likely to protect you from severe disease.”

Pfizer and BioNTech have said they expect to have more data about the efficacy of their vaccine against the variant in two weeks. Meanwhile, the Joint Committee on Vaccination and Immunisation (JCVI) has been asked to consider extending booster jabs to those aged 18 to 39 and reducing the gap between second and third jabs from six months to five.

More work needed to create green jobs

Efforts to create green jobs need to intensify if the Government is to achieve its target of 2m roles by 2030, according to PwC analysis. Jobs linked to the green economy accounted for 1.2% of all advertised roles in the year to July 2021, with this equating to just 124,600 new jobs.

PwC says work is needed to ensure the move to a net-zero economy does not add to regional inequalities, with it shown that Wales, Northern Ireland and Yorkshire and the Humber lag behind other parts of the UK in terms of transitioning to a greener economy, while Scotland and London were the top performers in a ranking that looked at green job creation, job loss and carbon intensity of employment.

Kevin Ellis, PwC chairman and senior partner, said: “Jobs are getting greener and this is cause for optimism, but evidence is needed on the level and distribution of these opportunities.” He added: “Left unchecked, green employment will grow in the most fertile spots, but not necessarily where they’re needed most.” Mr Ellis went on to say: “By acting now, we have a massive opportunity to rebalance the economy and ensure a fair transition.” Carl Sizer, head of regions and ESG at PwC, said: “With targeted policies, investment, and training, and collaboration between government, business and education providers, a green future can be a future of employment for everyone.”

Business investment to hit pre-pandemic levels in 2023
Business investment will not return to pre-pandemic levels until early 2023, economists have warned. With firms looking to focus on paying down pandemic-related debt, experts at Pantheon Macroeconomics believe they are likely to behave cautiously, despite having the funds to rapidly increase investment.

Office for National Statistics data shows that business investment fell 0.2% in Q3 and remains 11.4% lower than at the end of 2019. Pantheon expects investment to rise 10% in 2022 and 4% the year after, meaning it will return to pre-pandemic levels in Q1 2023.

Meanwhile, EY expects business investment to have rebounded strongly during 2021, predicting growth of 13.8%. Hywel Ball, UK chairman at the firm, said further investment is likely as companies look to adapt to the post-pandemic economy and try to take advantage of the super deduction which allows businesses to cut their tax bill on investments. “Having been through two ‘once in a lifetime’ economic shocks in just over a decade, businesses will be looking for certainty and investment support from policymakers,” Mr Ball added.

‘Misled’ firms look to cut loan repayments

A number of small business owners have shown interest in joining law firm Allium Law’s “Back British Business” campaign, a promotion that claims it could help them to escape or reduce liability on Bounce Back Loan Scheme funds.

The firm says it can help directors struggling to repay emergency credit because small companies were “misled” over the loans.

Wasif Mahmood, chief executive of Back British Business, says that businesses which took the debt on after the first lockdown were led to believe restrictions would be short term but subsequent lockdowns damaged their ability to repay and “changed the legal basis of the loans being issued”.

Allium says it has received interest from about 30,000 borrowers, and that more than 1,000 have taken the first step towards making a claim. The scheme offers to draft legal letters to banks for borrowers who want a write-off or reduction in liabilities, or a set off against their losses, and says it will escalate complaints to the Financial Ombudsman Service and the Government if necessary.

The British Business Bank, which administers the Bounce Back Loan Scheme, has declined to comment.

UK to grow faster than China for first time since Mao
The UK is expected to sustain its strong recovery from the pandemic with growth of 5.4% in 2022, according to analysts at BNP Paribas. China, however, will grow by just 5.3%, marking the first time Britain has expanded faster than the communist country since 1976, the year Mao Zedong died. Beijing’s iron-fisted zero Covid policy and a crunch in the property market are expected to suppress growth. For the UK, BNP analysts predict a relatively robust recovery” through 2022 with “strong employment and investment intentions suggest that underlying demand remains strong.”

UK car production slumps
British car production fell to a 65-year low last month, according to the Society of Motor Manufacturers and Traders, marking the fourth monthly drop in a row. Mike Hawes, the organisation’s chief executive, said: “These figures are extremely worrying and show how badly the global semiconductor shortage is hitting UK car manufacturers and their suppliers.”

‘Perfect storm’ leaves manufacturers facing ‘tipping point’
Britain’s manufacturers are facing a “perfect storm” of rapidly rising costs and towering debts that many fear could push them over the brink, according to a new survey from trade body Made UK and RSM.

Made UK has urged ministers to introduce payment holidays on loans, warning that thousands of firms faced a “tipping point” that could make their business models unviable. The poll of more than 200 company finance directors found that 48% have had trouble fulfilling orders as the supply chain crisis intensifies, while 65% said a lack of cash had hampered their growth plans. Amid challenging trading conditions and increased levels of risk, 38% said they had used, or intended to use, restructuring, turnaround or insolvency professionals.

Mike Thornton, head of manufacturing at RSM, said: “Manufacturers are facing a variety of headwinds, from staff shortages, supply chain disruption, soaring energy prices and an increased debt burden post-Covid.” James Brougham, senior economist at Make UK, commented: “Given the inflationary spiral shows every sign of continuing to climb, many companies fear a tipping point that could make their business models unviable.”

SMEs say Brexit has made life more difficult
A study by cloud accounting provider FreeAgent found that 64% of SMEs thought Brexit had negatively influenced the UK economy while over half experienced shrinking customer bases and 43% were impacted by supply chain issues. Two in five of SMEs said costs had increased while 16% have suffered a talent shortage. “Without doubt, Brexit has had a drastic impact on all businesses – large or small. However, the research emphasises how the challenges presented by Brexit are now being felt more so by UK SMEs,” commented Roan Lavery, CEO and co-founder of FreeAgent. He added that “leaving the EU has presented significant bottlenecks to the survival of these businesses including both supply chain issues, increased red tape and higher costs.”

HMRC pays £2m to snitching taxpayers

HMRC has paid out close to £2m to informants over the past five years and almost £400,000 in the last financial year alone. Now, with an estimated £6bn lost from support schemes rolled out during the pandemic, the tax authority is urging individuals with information about suspected tax fraudsters to come forward. HMRC does not reveal the nature of its sources, but Richard Morley of HW Fisher said information often came from former disgruntled employees who reported to their old bosses’ dodgy dealings. “In other cases it is a former spouse grassing up an ex during a divorce proceeding, or is sometimes just a nosy neighbour who becomes suspicious of a new car appearing on the driveway each year even though the person seems to do no work,” he said.

Arena TV directors sued by administrators
Following the collapse of Arena Television this month, administrators from Kroll have filed a claim in the High Court against the company’s former owner and managing director, Richard Yeowart, and Robert Hopkinson, another former director, for breach of fiduciary duty. Arena TV, one of the largest independent outside broadcasters in the UK, is understood to have borrowed about £300m from lenders including HSBC, Close Brothers and Shawbrook. A source said the collapse began when an auditor, acting for one of Arena TV’s lenders, found the serial numbers for company-owned equipment used as security for loans did not exist. “It is potentially the biggest fraud of this kind the UK has ever seen,” the source said.  The Sunday Times adds that Arena TV’s 2019 accounts were signed off by auditors from McKenzies, a small practice based in Surrey.

London businesses are the country’s most profitable
A study by BDO shows firms in London have average profit margins of 8.1%, well above the nation-wide average of 6.7%. The profitability of businesses in the capital was boosted by the financial services industry, which was found to have an average profit margin of 14.4%. Richard Burge, the chief executive of the London Chamber of Commerce and Industry, said the data “highlights the important role that London businesses play in the UK economy.” Scotland ranked in second place after London with average profit margins of 7.5% while the South West and North East of England saw margins of 6.2% and 6.1% respectively. The West Midlands was at the bottom of the league table with margins of 2.8%. “The recovery from the pandemic is the perfect opportunity for targeted policies and investments to make a big impact on regional economies and support the overall recovery of the UK,” Mark Lamb, a business advisory partner for BDO, said.

EU banks demand access to City markets
A collection of the eurozone’s most powerful banking groups have demanded long-term access to London’s derivatives trading market. In a joint letter, finance trade bodies including the European Banking Federation, the European Association of Co-operative Banks, the Global Financial Markets Association, and the International Swaps and Derivatives Association said that the bloc faces a “cliff edge” unless it extends exemptions that allow trades by EU institutions to take place in the UK and other major markets. The letter warned that if temporary arrangements are allowed to expire without being replaced by equivalence decisions in all key jurisdictions, it will result in increased costs and “operational burdens for EU firms while also resulting in trapped assets.” While the European Commission has refused to grant Britain equivalence status for derivatives trading despite the UK’s post-Brexit rules being broadly in line with its own, the trade bodies have urged Brussels to grant derivatives trading permission to the City for at least a further three years.

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