Home Business amount Companies “lack of a fight”; UK recession fears rise as GDP contracts

Companies “lack of a fight”; UK recession fears rise as GDP contracts


UK businesses are bracing for a tough winter amid soaring inflation and higher energy bills.

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LONDON – The doors of The 25, a boutique bed and breakfast based in Torquay on the UK’s south west coast, are now closed for the winter period. But this season they will remain closed longer than usual.

With rising energy bills and rising costs weighing on UK businesses, owner Andy Banner-Price has postponed the reopening by a month until spring.

And while forward bookings from repeat customers remain strong, new inquiries are down 50% and bookings down 15% from previous years, giving an uncertain outlook for the year ahead.

“I suspect a lot of people have a wait-and-see approach because there’s so much uncertainty in the economy right now,” Banner-Price told CNBC.

The latest economic data from the UK brought some clarity to the situation on Friday – albeit on the downside.

Many (businesses) aim to ride out the Christmas rush and then close in January.

Tina McKenzie

Chair of Policy and Advocacy, Federation of Small Businesses

UK Gross Domestic Product (GDP) decline of 0.2% quarter on quarter in the three months to September, official figures showed, down one 0.2% growth rate in the second quarter of 2022. A second consecutive quarter of negative growth going forward would indicate that the UK has entered a technical recession.

The negative data adds to the country’s gloomy economic outlook and already depressed consumer confidence.

“It’s a cumulative effect of bad news every time you turn on the television or open a newspaper,” he said.

“I think we sometimes talk to each other about a recession,” he continued. “Negative growth will only make some people even more worried about their jobs and wary about spending money.”

The longest recession on record in the UK

The Bank of England warned last week that the UK is now heading into its longest recession since records began a century ago.

The central bank expects GDP (gross domestic product) to continue to decline through 2023 and the first half of 2024. The projected two-year slowdown is expected to be “very difficult”, the bank said, costing around 500 000 jobs and piling the strain on already pinched businesses and households.

A woman walks past dilapidated and shuttered shops in Romford, England.

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Tina McKenzie, chair of policy and advocacy at the Federation of Small Businesses, said many UK small and medium-sized businesses are now “attacked from a variety of sides”, citing reduced access to money and labour. work, as well as inflationary pressures.

UK consumer inflation hits 40-year high 10.1% in Septemberwhile producer input prices remained stubbornly raised to 20%. The BOE warned that interest rates, currently set at 3%will likely have to rise more than expected to bring inflation back towards its 2% target.

Still, the worst effects of a coming downturn may not show up until the first or second quarter of 2023, McKenzie said. Meanwhile, many businesses, especially those in the hospitality and retail sectors, are just biding their time.

“Businesses are under tremendous pressure. Many are aiming to push through the Christmas rush and then close doors in January,” McKenzie told CNBC via zoom call.

“Austere and frightening”

More than a third (35%) of the UK hospitality sector says it is at risk of closing early next year due to rising costs, soaring energy bills and falling spending on consumption, according to a survey of operators released last week.

“It’s stark and scary,” said David Holliday, co-founder of Norfolk, England-based brewer Moon Gazer Ale, which supplies craft ales and lagers to pubs across the country.

The Bank of England has warned that the UK is facing its longest recession since records began a century ago.

Huw Fairclough | Getty Images News | Getty Images

So far, Holliday said his company is “taking the hit” and absorbing increased production and energy costs to protect customers. But if by spring these price increases look set to continue, it will have to pass on these costs.

“We’ve shared the pain with our clients, but it won’t be lasting in six to 12 months,” Holliday said. This year alone, he estimates Moon Gazer Ale’s energy bills have risen by £25,000-30,000 ($29,000-$35,000) as costs in Europe have risen following the invasion of Ukraine by Russia.

A percentage of the industry will say, to me, there is no sequel.

David Holiday

co-founder, Moon Gazer Ale

For many, however, another cost spike could spell the end of an “uphill three-year struggle” for an industry already crippled by Covid-19 restrictions, staff shortages and inflationary pressures.

“They’re kind of short of a fight,” Holliday said. “A percentage of the industry will say, to me, there’s no sequel.”

Spending cuts, tax hikes on the horizon

Business owners will now look to the UK’s long-awaited November 17 autumn statement, in which Finance Minister Jeremy Hunt is expected to outline £60bn ($69bn) in job cuts. spending and tax hikes to fill the hole in the beaten country. Public finances.

But many fear that the Treasury is going too far in its attempts to restore the UK’s economic situation – damaged by Liz Truss’s chaotic mini-budget – that it will create new problems for struggling industries and hamper the economic growth in the future.

“Because of Liz Truss and Kwasi Kwarteng, they’ve gone to the other extreme and they’re in such a cautious mode,” McKenzie said.

Early drafts of the government’s plan contain up to £35billion in spending cuts and around £25billion in tax increases, according to the Guardian. As the BOE’s chief economist, Huw Pill warned monday that massive tax hikes and spending cuts could expose Britain to a bigger-than-expected ‘economic downturn’.

The UK Treasury said it would not comment on “speculation around tax changes” when contacted by CNBC.

“We’re worried they’ll get so extreme to please investors. And if they don’t do anything to protect the most vulnerable, they won’t get the growth,” McKenzie said, citing improved migration policies and a TVA. reduction in rates as potential areas where the government could offer support.

And while some business owners like Banner-Price are confident they will make it through as consumers return to fewer but more quality experiences and products, its fortunes and those of many others will hinge on the ability of the wider business community to weather the storm.

“Even though we are surviving well, our customers still need to visit thriving local restaurants, cafes, tourist attractions, etc. They still need to be able to shop and visit the theater, take a taxi, and use all the other small businesses,” said Banner- Price said.