UK economy shrank 1.5% – business news 12 May 2021.

James Salmon, Operations Director.

UK economy shrank 1.5%, economy to suffer £700bn output loss due to Covid and Brexit, Rose salutes UK’s tough small businesses, boom removes need for tax hikes, quarter of Britons have no emergency savings and more business news.

UK economy shrank 1.5% in Q1

The UK economy shrank 1.5% in the first three months of 2021, but had already started to recover in March as lockdown restrictions began to ease according to official figures.

The fall reversed the 1.3% growth in Q4 of 2020.

The reopening of schools and strong retail spending helped the economy grow 2.1% in March, its fastest monthly growth since last August. That still leaves the economy 8.7% smaller than it was before the pandemic.

But the March figures give hope and show that predictions of a strong recovery through the rest of the year are supported by the evidence.

NIESR: Economy to suffer £700bn output loss due to Covid and Brexit

The National Institute of Economic and Social Research has claimed that Britain’s economy is on track to suffer more than £700bn of lost output as a consequence of COVID-19 and Brexit.

The thinktank said that Britain’s economy would suffer from a lingering impact on world trade caused by the pandemic, while “remaining negative consequences of Brexit” would also have an impact for years to come.

Dr Hande Küçük, deputy director at NIESR, commented: “Beyond short-term optimism, the outlook for the UK economy is less certain given the economic and social challenges that existed before the pandemic. Our analysis at sectoral, regional, and household level shows that despite the rhetoric about ‘building back better’ existing inequalities could be exacerbated by the pandemic and an uneven recovery.”

Rose salutes UK’s tough small businesses

NatWest boss Alison Rose told a media event yesterday that the way she’s witnessed entrepreneurs and small business owners cope and pivot their businesses in response to the pandemic is “really positive” as she hailed the country’s SMEs as resilient and the lifeblood of the economy. She said the UK has “huge strengths” and although there’ll be tough times ahead “I’m positive about the recovery and the resilience the UK economy.”

Small firms targeted with eBay pilot loans scheme

eBay has launched into small business financing with plans to lend between £500 and £1m through fintech provider YouLend to 300,000 small business and solo entrepreneurs who sell through its website. The lending programme, called Capital for eBay Business Sellers, will be repaid directly through a percentage of sales, rather than monthly payments.

Boom removes need for tax hikes

An analysis by Oxford Economics of the Bank of England’s upgraded forecasts indicates that Rishi Sunak will have £20bn more than expected to play with. Andrew Goodwin, chief UK economist at Oxford Economics, said: “The prospect of better growth has given him more flexibility. Tax hikes should be off the table, certainly new tax hikes.”

Quarter of Britons have no emergency savings

Research undertaken by Hargreaves Lansdown reveals one in four individuals still have no emergency savings. While 38% of people polled have had an unexpected expense in the past 12 months, there are still individuals who have not put money aside. Some 14% said they currently have no savings and do not plan to start saving, while 12% said they would take action to begin a savings journey.


The British Crown dependency of Jersey postponed new fisheries  licensing rules and France lifted a ban on vessels from the Channel Islands landing catches at its ports, as negotiations continue on access for French fishermen to waters around Jersey.

HMRC probe should be voided due to address error, says businessman

The Supreme Court is hearing an appeal from HMRC over a businessman’s claims that because correspondence relating to an investigation into his affairs was sent to the wrong address the inquiry and HMRC’s correction of a declaration of a £2.5m loss is rendered invalid. HMRC admits making an administrative error, but said that it had copied in BDO, his accountancy firm, on all correspondence so former Stobart Andrew Tinkler knew he was under investigation. Michael Paulin, a barrister at 1 Crown Office Row, said: “The point is that, when the going gets tough and formal inquiries are opened up into a taxpayer’s return, HMRC must by law tell the person affected directly not only their accountancy firm.” Defeat for HMRC could open it up to claims from thousands of people who might have received demands to the wrong address, the Times’ David Byers suggests.

FTSE falls

The FTSE 100 had one of its biggest selloffs since the pandemic induced crash last year yesterday falling almost 2.5%. The drop was caused by sell offs in the US tech stocks on Monday which continued yesterday. Investors seemed spooked by fears of rising inflation that could push the US Federal Reserve to tighten monetary policy faster than expected. The yield on benchmark U.S. 10-year Treasury note ticked up to session high of 1.629% ahead of consumer price index report on Wednesday. Investors have grown increasingly concerned regarding inflation even though the central bank has repeatedly said it views any inflation that occurs to be transitory. A stronger pound didn’t help the overseas earners on the FTSE 100 either.

City suffers £2.3trn derivatives loss in a single month

Some £2.3trn worth of derivatives business left the City of London in March , according to an estimate by Deloitte and IHS Markit. The majority went to the US while venues in the EU also gained. “We are only at the beginning of the post-Brexit story”, the head of Deloitte’s EMEA Centre for Regulatory Strategy, David Strachan, said. “Brexit fragmentation has increased costs across banks’ European operations, at a time when the economic environment in Europe is already challenging,” he added. “Whilst some capital markets activity has clearly migrated from the UK to the EU, there is no doubt that the UK remains the largest capital markets hub in Europe,” Strachan noted.

City raises eyes to post-Brexit future

The Times’ Katherine Griffiths reports that the financial services industry, like the rest of the country, is feeling positive about a post-Brexit Britain, despite the fact that a growing number in the City do not expect Brussels to grant the UK access to EU markets. She cites a survey by EY last month which found of about 100 senior figures from international firms, 41% planned to expand their UK business, up from 28% in January. Those planning to reduce fell from 12% to 6%.

More Britons should pay higher inheritance tax, OECD thinks

A report from the Organisation for Economic Co-operation and Development asserts that people should be paying more inheritance tax and loopholes used by the wealthy to avoid the tax should be closed. Pascal Saint-Amans, of the Paris-based think tank’s Centre for Tax Policy and Administration, said inheritance duties “played a more limited role than they could in raising revenues” and that there were “strong arguments” for using them more. The report found that Britain had one of the narrowest tax bases in the world, with 3.9% of estates subject to IHT.

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