UK economy is back – business news 28 June 2021.

James Salmon, Operations Director.

UK economy back to pre-Covid levels, Cash holdings can drive investment and recovery, Unemployment fears as furlough scheme winds down, Consumer confidence remains steady and a lot more business news.

UK economy back to pre-Covid levels
The Bank of England’s outgoing chief economist Andy Haldane told a Money Week podcast on Friday that the UK economy has already fully recovered from the Covid crisis after a “very punchy” fightback from the worst recession in 300 years. Official figures put the economy still 3.7% below February last year during April but Mr Haldane said he thinks in May we’ll see a further significant leg up, due to the loosening of restrictions. “That will mean as of now I reckon we’ve pretty much made up all of the GDP lost ground from last year, and we’re back roughly to around pre-Covid levels on the back of what is a really very punchy recovery.” However, Haldane also warns of building price pressures which could lead to a “nasty surprise” if the Bank opts for a sharper-than-expected rise in the base rate.

Cash holdings can drive investment and recovery
EY Item Club analysis suggests that business have amassed almost £130bn in cash holdings, with this potentially set to trigger investment that will drive a post-pandemic economic rebound. The report says bank deposits of non-financial UK firms have risen significantly during the pandemic, climbing by £129.5bn between March 2020 and April 2021 – £111bn more than if average monthly rises recorded in 2018 and 2019 had continued. The EY Item Club study also found that non-financial businesses raised £77.7bn in extra financing in the period. While the analysis shows business investment fell by 10.2% last year, the EY Item Club expects it to rise by 7.1% this year and 10.5% in the following 12 months. Peter Arnold, an economic advisory partner at EY, said: “A key factor supporting business investment this time around is that the pandemic did not limit bank lending in the same way that we saw during the financial crisis — instead, we saw the opposite.” “The banking sector entered the pandemic well-capitalised and funding has been readily available to support businesses and households”, he added.

Unemployment fears as furlough scheme winds down
Experts have warned that around a quarter of a million jobs are likely to be lost amid the winding down of the furlough scheme, pushing unemployment to the highest level in six years. The Job Retention Scheme has paid up to 80% of wages but the subsidy will fall to 70% in July and 60% in August before the scheme ends on September 30. As of July 1, businesses will have to contribute 10% of wages for unworked hours. John Philpott, an independent labour market economist, estimates that around 250,000 jobs “will disappear because of continuing uncertainty about demand in certain sectors and workforce restructuring caused by the pandemic”. JP Morgan estimates that almost 500,000 workers are likely to still be on furlough by the end of September, with economist Allan Monks predicting a 273,000 rise in unemployment by the end of the year, pushing the jobless rate to 5.5% – the highest since 2015. Meanwhile, the Resolution Foundation think-tank calculates that 2.3m people are still not working fully compared with their activity before the pandemic – with this based on data showing 1.5m people are still on furlough and figures on the fall in employees and self-employed workers. Separately, Craig Beaumont of the Federation of Small Businesses has warned that July 1 “is fast becoming a serious economic flashpoint” as business support starts to wind down despite the lifting of restrictions being delayed.

Think-tank warns of economic crisis
A Conservative think-tank has voiced concern over the Government’s economic policies, with Bow Group chair Ben Harris-Quinney saying: “I think we are headed into another economic crisis that is fostered by the coronavirus” and suggesting this could hit Tory support among voters. He argues that it is a “simple truth” that the Government “can’t just spend, spend, spend, and print money with no consequences”, warning that “the fallout from coronavirus and the fallout from very heavy Government spending will come” and this is likely to take the form of “a reckoning” in regard to the Conservative Party’s poll rating. Mr Harris-Quinney said that while the Tories won support by vowing to deal with the national debt, “what has happened since is that the national debt has almost tripled”.

Car production still half pre-Covid level
Data released on Friday by the Society of Motor Manufacturers and Traders (SMMT) shows car production in May was down 52.6% on the same month in 2019. Inflationary pressures affecting copper, steel and oil are adding to issues surrounding semiconductor supply, Richard Peberdy, UK Head of Automotive at KPMG UK, said. The SMMT also revealed that just one in 16 cars made in Britain are purely electric, while one in six were hybrids.

Women needed for economy to build back better
Ann Francke, head of the Chartered Management Institute, has warned that the economic recovery from the pandemic is at risk without Government intervention to get women into fast-growing industries. Noting that just 17% of staff in the technology sector and 11% in engineering are female, Ms Francke said: “These areas face huge skill shortages. If we don’t get women in these areas we won’t be able to build back better.” Calling for legislation setting out the right to flexible working, she warned that without it women will be disproportionately affected. “If it isn’t an employee’s right to work flexibly, the ones that will be more likely to be able to go back into the office are those with fewer caring responsibilities,” she warned, adding: “Those tend to be men. Those who want to work flexibly are likely to be women and those with disabilities.”

Consumer confidence remains steady
GfK’s consumer confidence index remained steady in June at -9 amid warnings the threat of inflation could quickly weaken stability. Confidence in personal finances was up though, rising one point for the year ahead while the major purchase index improved for the third month in a row. GfK client strategy director Joe Staton said: “The upwards trajectory for the index since the dark days at the start of the pandemic is currently still on track. However, forecasts for rising retail price inflation could weaken consumer confidence quickly and that may account for the six-point dip in June in our measure for the wider economy in the coming year.”

Small firms need tech support to drive recovery
Ben Law, head of GoDaddy UK and Ireland, considers the climate for small businesses, highlighting his firm’s State of the Nation study which shows that there has been a 21% increase in new ventures over the last year. He also points to data showing that micro-businesses make up 96% of the UK’s registered companies, account for 33% of the workforce and 21% of overall turnover. Increasingly, Mr Law says, these businesses are online, adding that before the pandemic small companies “had fallen behind … and were not as technologically literate as they needed to be to thrive” but a year on, “the story is very different”. He also notes Barclaycard research showing that nearly two-third of consumers in the UK have chosen to buy from small, local stores amid the pandemic and nine in ten plan to continue to do so once all the restrictions have been lifted. Mr Law argues that the tech industry has a responsibility to empower small businesses as they “buoy up the nation’s economic recovery”.

Food supply warning over lorry driver shortage
Experts have warned that a shortfall of more than 100,000 lorry drivers could see Britain hit by food shortages, with Brexit and the pandemic sparking a dip in staff numbers that could disrupt the supply chain. In a letter to Prime Minister Boris Johnson, industry groups including the Food and Drink Federation and CEOs of logistics firms have warned that without government intervention, supply chains risk “failing at an unprecedented and unimaginable level.” The letter urges ministers to introduce temporary worker visas for HGV drivers, adding them to a “shortage occupation list”. The letter to the PM also notes the impact of the IR35 tax rule which forces agencies to pay enough to cover national insurance and tax for self-employed drivers.

More than 1,200 companies get letters demanding overdue income taxes
As the Government starts to recover debts built up in the pandemic, HMRC has sent more than 1,200 companies warning letters demanding they return unpaid employment taxes or risk having future furlough claims blocked.

SEISS claimants ‘confused’ about how grants impact tax returns
The Low Incomes Tax Reform Group (LITRG) is warning that many SEISS claimants are underestimating how grants impact self-assessment tax returns. The organisation has published fresh advice after finding many self-employed workers were struggling with processing previous claims. LITRG said it was concerned that some claimants are unaware that SEISS grants are taxable income and subject to income tax and self-employment National Insurance contributions. This, they warned, means some people may exclude SEISS grant income from their tax return altogether and thereby submit an incorrect return to HMRC and not pay all of the tax they owe.

Outlook brightens for retailers
The CBI’s Distributive Trades Survey revealed on Friday that retail sales jumped above seasonal norms in June with volumes expected to remain good for the time of year next month. Growth in online sales fell back in the year to June, however, to the slowest pace since April 2020. Ben Jones, principal economist at the CBI, said: “After a generally gloomy 2021 so far, the sun finally shone for retailers in June, with seasonal sales volumes the strongest since November 2016.” However, he continued, “the sector remains a long way from a full recovery. The return of demand is patchy, with inner-city footfall still well down.”

First time buyer costs up 67% in five decades
Research from the Resolution Foundation shows that first-time-buyers in London have to pay two and a half times as much for their first home as they did in the mid 1970’s. The cost of purchasing a first home with a mortgage in the capital now exceeds £500,000 whereas in 1974 it was £212,000. Across the UK, the average cost of getting on to the property ladder has increased 67% in the same period, rising from £154,000 to £254,000. The report also shows that first-time buyers now require a deposit of £33,000, with this tripling in real terms from £11,000 in 2000.

BoE says renters are a risk to economic recovery
In its quarterly bulletin, the Bank of England said the finances of people renting homes and apartments pose a potential risk to Britain’s economic recovery, as they were hardest hit by the pandemic and hold a big portion of unsecured debt.

Summer sales set to hit £100bn
Analysts are predicting that Britain’s property buying bonanza will top a record-breaking £100bn this summer, with buyers expected to snap up 420,000 homes during this month, July and August – spending a record £107bn. That would make it the highest grossing quarter in UK residential market history. The rush to beat the end of the stamp duty holiday, higher wages, the Covid vaccine success and a stronger post-pandemic economy are fuelling the spending surge, according to JLL. The JLL report also reveals that over the past five years, total spend during the summer months has averaged £69bn per year, from a little over 300,000 sales.

Brexit has exceeded expectations, says Kwarteng
Business Secretary Kwasi Kwarteng has described Britain’s exit from the EU as an “unalloyed success” which has “exceeded expectations”. In an article to mark the fifth anniversary of the referendum result, Mr Kwarteng said Britain is “already reaping the rewards” of the vote, highlighting a shift from EU state aid rules, noting new powers to encourage research and development, and pointing to analysis which shows the UK is the top destination for overseas in investors in Europe. The EY 2020 FDI Attractiveness Survey found the UK is the most attractive destination for investment this year.

Six months in and UK businesses are still battling with Brexit
Institute of Directors analysis shows that 31% of UK firms that trade with the EU have seen business decline since January 1, while 17% have temporarily or permanently stopped trade with Europe

Steepest rent shortfall in a year piles more pain on UK’s high street landlords
Commercial property owners collected just 18% of the rent they were owed on Friday, when rent was due for the three months to the end of September. It marks the lowest collection rate recorded in a year.

Binance banned from UK
The Financial Conduct Authority (FCA) has banned Binance, one of the world’s largest Bitcoin exchanges, from operating in Britain, giving it until Wednesday to remove all advertising and financial promotions. The City watchdog told Binance it “must not, without the prior written consent of the FCA, carry out any regulated activities”. This comes just days after the Japanese financial regulator issued a consumer warning against Binance, while US and German regulators have also raised concerns over its activities.

EU grants the UK data adequacy

The European Union has finally formally voted for proposals to give the UK “adequate” status in its data protection laws, allowing data sharing to continue in the post-Brexit world. The Confederation of British Industry (CBI) welcomed the decision. Russell Antram, head of EU negotiations, said: “Securing a positive decision on data adequacy from the EU was a priority for thousands of businesses across the UK. The free flow of data between the UK and the EU is essential for businesses across the economy – from automotive to logistics – playing an important role in everyday trade of goods and services.”


EasyJet and Ryanair added seats to destinations such as Malta and the Balearic Islands following their addition to the UK travel green list, but urged the government to relax travel rules further. EasyJet put over 50,000 extra seats on sale to new green list destinations.


Nike reported record sales in North America for its fourth fiscal quarter. Sales surged 141% from last year, and 29% compared to the fourth quarter of 2019 – pre-pandemic. Digital sales soared 147% from the fourth quarter of 2019.

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