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Brexit and pandemic have cost UK businesses £250bn each but EU departure tally now rising faster than Covid disruption

The political choice of Brexit has cost UK businesses as much as the unforeseeable Covid pandemic.

British companies have lost over £250bn to Covid and an equal amount to Brexit by the end of 2021, but the Brexit tally is now rising faster.

The Centre for Economics and Business Research found that Covid-19 lockdowns had cost UK businesses £251bn by March of last year.

It revealed the value of the goods and services produced by the economy was more than £250bn lower than it would otherwise have been.

It calculated the Gross value added (GVA), which measures the value of the goods and services produced by the economy, minus the costs of inputs and raw materials needed to deliver them.

Covid-19 cost small businesses alone an estimated £126.6bn, according to the business insurer Simply Business, while a November 2021 Government report revealed the UK lost almost £365 billion in GDP from Covid overall.

Commenting on the figures, David Jinks, who is head of consumer research at delivery firm ParcelHero, said: “British businesses have had a torrid few years.”

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“Brexit or Covid, which has been the heavier burden for them to bear? The shocking answer is that the entirely avoidable Brexit crisis has had as much of an impact on UK businesses as the unforeseeable Covid-19 tragedy, and its costs are still rising,” he added.

“No one could have foreseen the arrival of the pandemic and there was little that could have been done to shield UK businesses in advance. However, this is certainly not the case for the impact of Brexit on UK businesses,” Jinks said.

Negotiations

The confrontational handling of trade negotiations with the European Union made “a bad situation worse,” he stated.

Before Brexit had even happened, a 2020 report by Bloomberg Economics revealed that, by the end of that year, the economic cost of Brexit already exceeded £200bn in lost revenues to UK companies. It calculated the British economy was 3 per cent smaller than it otherwise would have been.

Since Brexit actually happened, on 1 January, 2021, the UK Trade Policy Observatory reveals that the reduction in trade has lost UK businesses a further £44bn.

“That breaks down to £32.5bn lost in potential imports to the UK and £11bn in exports to the EU,” Jinks pointed out.

The UK Government splashed a further £8.1bn on preparing for Brexit and the end of the transition period, according to the Institute for Government.

“In our view, that was money that should have been spent on promoting UK trade across the EU and beyond, not battening down the hatches,” noted Jinks.

The figures mean that the combined costs of Brexit and of the pandemic both equal around £250bn.

However, in the long term, Brexit could end up costing even more than Covid-19.

Thomas Sampson, Associate Professor at the London School of Economics, said: “When measured in terms of their impact on the present value of UK GDP, the Brexit shock is forecast to be two to three times greater than the impact of Covid-19.

Moreover, the Office for Budget Responsibility (OBR) told the BBC last October that leaving the EU would “reduce our long run GDP by around 4 per cent.”

It is believed the effect of the pandemic will reduce GDP output by only a further 2 per cent.

End of Covid restrictions

With the end of lockdown and travel restrictions, the impact of Covid measures is now receding but the Brexit bill continues to mount.

The most recent Government Business Insights report has revealed that, last month, 66 per cent of UK businesses experienced challenges with exporting and 79 per cent with importing.

“This has had a knock-on effect on transport and logistics companies. A staggering 36.7 per cent of transport and logistics companies either closed, paused trading entirely or continued trading only partially in December,” Jinks shared.

This is only how much the loss of physical goods sales has cost.

The Institute for Fiscal Studies sayidexports of professional services to the EU slumped from 44 per cent of the UK’s entire international services trade in 2016, before Brexit negotiations got underway, to just 30 per cent in 2021. It forecast a net drop in overall UK services exports.

By MICHIEL WILLEMS

Source: City AM

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Labour squeeze and soaring costs compound to hit UK businesses

The ongoing labour squeeze, soaring costs and uncertainty over the economic landscape since the emergence of Omicron are compounding to hit British businesses, reveals a new survey published today.

Growth among UK private sector firms slowed to 21 per cent in the three months to December, down sharply from 32 per cent in the last quarter, according to the Confederation of British Industry (CBI).

That is the slowest rate of growth since April when the UK economy was still in the teeth of tight Covid-19 restrictions.

Alpesh Paleja, lead economist at the CBI, said: “Substantial challenges remain for businesses heading into Christmas: labour and materials shortages, rising costs and new Covid measures are restricting business’ ability to trade during this crucial period.”

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“With uncertainty rising – associated with the sharp rise in Omicron cases – it’s no surprise that the near-term growth outlook has dampened,” he added.

Prime Minister Boris Johnson this week ruled out imposing tighter measures on economic activity to curb the spread of Omicron before Christmas.

However, he has warned the UK government is ready to launch tougher curbs after Christmas if data on the new strain does not improve.

Yesterday, the UK reported more than 100,000 Covid-19 cases for the first time since the onset of the pandemic.

By JACK BARNETT

Source: City AM

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UK business confidence falls amid record-high inflation expectations

UK business confidence has fallen to its lowest level this year, amid concerns among businesses about supply challenges and inflationary pressures, according to the latest Accenture/ IHS Markit UK Business Outlook.

More than half of UK private sector firms (56%) expect an increase in business activity during the year ahead, compared to 11% that project a decline. The resulting net balance of +45% is a sharp fall from the highs recorded in both June (+58%) and February (+57%) earlier this year.

Despite this sharp fall from the spring and summer, confidence remains higher than seen throughout much of the last five years and UK businesses are more confident than those in every other European country apart from Ireland.

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Firms’ employment expectations also dropped last month, with the net balance of companies confident that they will hire additional staff in the next 12 months, at +32% compared to +41% in June. However, barring the record high seen in the previous survey, hiring intentions are at their peak since June 2015.

The fall reflects ongoing concerns among UK businesses about their ability to hire the skilled staff.Only one-third (35%) of businesses were confident that they will be able to hire the skills they need over the next 12 months. This was lowest for ‘experienced’ workers (29%), when compared with ‘entry level’ (47%) and ‘senior management and executive’ (40%) roles.

Inflation expectations among UK firms continued to surge higher, with forecasts for both staff and non-staff costs rising to unprecedented levels. Whilst primarily driven by global supply-side risks, firms increasingly expect to see wages rise as the labour market tightens and living costs increase. The rapid surge in energy costs also served to exacerbate fears that business expenses will spiral upwards.

Commenting on the survey, Simon Eaves, Market Unit Lead, UK & Ireland at Accenture, said: “The high levels of business confidence we saw earlier this year have been tempered by some strong economic and unanticipated headwinds. Despite this, business optimism in the UK remains higher than in most other European nations and we must capitalise on this sentiment to inspire further growth across the economy.

“Supply chain challenges and labour shortages cannot be fixed overnight, but it is critical that business leaders adapt their operations and invest in the right technologies, such as cloud and data, and bring in the right skills to remain competitive.

“Two areas are dominating every business leaders’ agenda at the moment. There’s the movement to digital as they recover post-Covid and, with it, sustainability which we saw many commitments made at the recent COP26 Summit. Our research shows that businesses that invest in these two important areas will be amongst the winners of the future.”

Source: London Loves Business

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UK economy picks up in Oct despite strongest price pressures in a generation

UK businesses reported faster growth in October, helped by fewer curbs on foreign travel, but the Bank of England is likely to be worried about record rises in the costs faced by businesses, which are being passed on to consumers.

The IHS Markit Composite Purchasing Managers’ Index (PMI) rose to 57.8 in October from 54.9 in September, its highest since July and well above an initial flash estimate of 56.8.

The narrower services PMI rose to a three-month high of 59.1, up sharply from 55.4 in September and above the initial flash reading, as reduced COVID-19 testing and quarantine requirements led to greater foreign travel bookings.

The readings suggest the UK economy regained momentum last month – despite high-profile supply-chain disruption that led to petrol stations running short of fuel.

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However a record proportion of businesses reported a surge in operating costs, according to two series which went back to 1996 for the services sector and to 1998 for the composite index which also includes manufacturers.

Tight labour market conditions were a major factor behind higher costs, IHS Markit said.

“Many consumer service providers commented on unfilled vacancies after staff departures for higher wages, despite efforts to boost pay and conditions,” IHS Markit economics director Tim Moore said.

“The impact of staff shortages was another rise in backlogs of work and greater willingness to pass on higher costs to new customers,” he added.

Businesses were more likely to raise prices than at any time since these records began in 1999.

On Thursday, the BoE is widely expected by investors to become the first major central bank to raise interest rates since the start of the COVID-19 pandemic, increasing its benchmark cost of borrowing to 0.25% from 0.1%.

Governor Andrew Bailey said last month the central bank would have to act if it sees a risk that medium-term inflation or inflation expectations will exceed its 2% target.

However, some policymakers view the surge in inflation – which the BoE’s new chief economist thinks could soon top 5% – as driven overwhelmingly by temporary bottlenecks and higher energy prices which BoE rate rises will do nothing to ease.

IHS Markit said rising costs caused business optimism in the services sector to fall to its lowest since January.

“Respondents also cited worries about prolonged staff shortages and constraints on growth due to the supply chain crisis,” Moore said.

Reporting by David Milliken

Source: Nasdaq

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UK economy set for a significant boost, new figures show

The UK economy is set for a significant boost as UK mid-sized businesses emerge from a winter of lockdowns and restrictions with plans to invest and recruit, according to new figures published today.

According to the data from accountancy and advisory firm, BDO, medium-sized businesses are set to spearhead the UK’s economic recovery with three quarters (75%) of mid-tier businesses stating that 2021 is the time to invest, and over a quarter (26%) already planning to invest in new locations or M&A.

BDO surveyed leaders from 500 medium-sized businesses across the UK to uncover their plans for the year as the UK progresses with its rapid vaccine rollout programme.

Hinting at some early signs of recovery, 86% of UK mid-tier businesses are looking to recruit more staff over the next six months, with over half (54%) planning permanent appointments. Almost three quarters of businesses based in Yorkshire and the Humber, as well as Central South (73%), will add permanent staff to their ranks.

The Government’s £3,000 apprenticeship grant also provided a boost, with over a third (36%) of businesses stating they would now hire apprentices as a direct result of this incentive. This came as part of a larger 70% of businesses planning to recruit in this area regardless of the incentive.

News of investment in apprenticeships will be welcomed by many, with recent data from the ONS revealing that those under the age of 25 account for more than two thirds of job losses since the start of the pandemic.

Businesses believe they are well supported by the Government for the year ahead. 73% agreed the Chancellor promised enough to support the regional “levelling up” agenda in his March budget, while 59% believe that their region will be given enough financial support over the next 12 months as a direct result of the pandemic.

Investment plans also received a boost in the March budget. Nearly half of businesses (47%) are planning new investments following the “super deduction” initiative, which allows companies to cut their tax bill by up to 25p for every £1 they invest.

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There is cause for further optimism as three quarters of businesses (75%) expect revenues to return to pre-pandemic levels within a year of the strictest restrictions being lifted.

That said, few businesses have come away from the crisis unscathed. Over a third (38%) of businesses stated that their business model or product line will change in light of the pandemic. Another third (33%) expect pricing of products and services to increase, likely reflecting a need to pay back debt or recover higher costs.

Reflecting on the findings Ed Dwan, Partner at BDO, commented: “Mid-sized businesses are the engine of the economy; they have often proven robust even during the most uncertain economic conditions. The resilience they have demonstrated over the past year will mean they are well-placed to benefit from the vaccine roll-out and gradual lifting of restrictions. Ultimately these businesses will drive the UK’s economic recovery forward.

“However, the strength of the mid-market economy can’t be taken for granted. The results show that Government support has been vital for this segment of the UK economy so far, but areas such as access to finance and support on supply chain disruption will be crucial in creating an environment that allows these businesses to thrive.”

Mid-sized, PE owned and AIM listed businesses, what BDO calls the economic engine, account for less than 1% of businesses overall but contribute £1.4tn in revenues and provide one in four jobs. In the five years leading up to the start of the pandemic, these businesses grew revenues by 46% despite Brexit-related uncertainty.

The role of the economic engine in the UK’s wider economic recovery should not be overlooked. In 2015, the CBI estimated that the growth of just 3,000 mid-sized firms from 2010 to 2013 was enough to drag the country out of recession and into growth after the financial crash. If more firms had rebounded quickly and hit pre-recession growth rates, then it could have added tens of billions of pounds to the UK economy.

By: Barney Cotton

Source: Business Leader

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Two-thirds of all UK businesses at risk of insolvency

Two-thirds of all businesses across the UK currently trading have a “low to severe risk of insolvency”, according to the Office for National Statistics (ONS)

The latest Business Impact of Coronavirus Survey (BICS) from the ONS found that 64 per cent of businesses across all industries are at risk of insolvency, with 43 per cent of companies running on less than six months’ cash reserves.

The figure comes on top of the 14 per cent of all UK businesses that have already paused trading under local lockdown restrictions.

Businesses in the hospitality industry are at the highest risk of entering administration, with 17 per cent of all accommodation and food companies currently trading at “severe risk” of insolvency, according to the ONS.

Seven per cent of all pubs, restaurants and hotels in the UK have zero cash reserves, latest data showed.

A spokesperson for trade body UK Hospitality told City A.M: “There can be no doubt of the devastating impact that the government’s restrictions are having on hospitality and pub businesses across the UK.

“Without urgent sector-specific support for our industry, massive business failure is imminent and hundreds of thousands of jobs will be lost around Christmas from a sector that was in growth at the beginning of this year, as well as in the supply chain that supports them.”

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It comes after more than two-thirds of businesses in the hospitality sector reported a slump in usual turnover for this time of year in the three weeks to 4 October, when the survey was conducted.

Key figures in the hospitality sector have called for further financial support, warning that the 10pm curfew, social distancing measures and tier restrictions will decimate the industry and cause wide-scale job losses.

Nine per cent of the entire UK workforce, and more than a quarter of the nation’s hospitality industry, were still on partial or full furlough at the beginning of the month, according to the ONS.

The Trade Union Congress (TUC), which represents more than 5.5m workers across the UK, has warned the country will see a “tsunami” of job losses when the furlough scheme winds down on 31 October — in just three days’ time.

Figures up to the 4 October from the ONS showed a slight increase in the number of UK businesses resuming trading in October, with 86 per cent of businesses in the UK currently operating — compared to just 66 per cent in June.

However, the latest figures are likely to be much higher, after large swathes of the North of England, Scotland and the whole of Wales entered some form of local lockdown since the ONS survey was compiled.

Businesses in the arts and entertainment industry have taken the biggest hit from the pandemic, with 30 per cent of companies in the sector currently shuttered.

But the pandemic continues to weigh on those businesses that have reopened, with almost half of companies that have resumed trading experiencing a decrease in turnover compared to normal business at this time of year.

A government spokesperson told City A.M: “We understand the pressures businesses are currently under and have put in place one of the most comprehensive packages of business support in the world, worth more £200bn.

“We have also given businesses much-needed breathing space by extending measures put in place to protect them from insolvency.”

The spokesperson added: “Our plan for jobs will support businesses in the months ahead, and businesses required to close due to local lockdowns can claim £3,000 a month. On top of this firms can continue to access billions of loans and guarantees, cuts to VAT and business rate relief.”

By Poppy Wood

Source: City AM

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UK economy facing “capital destruction” event as furlough ends

Major sectors across the UK equity market are facing a “capital destruction” event in the next few months as the real impact of coronavirus feeds through to their bottom lines, Smith & Williamson Investment Management’s Enterprise Fund team has warned.

The furlough scheme has protected a number of businesses, including many in the retail and leisure industries, which have been some of the worst impacted by the coronavirus.

However, as the scheme is wound up, many businesses will not be able to return to trade as normal. Mark Swain, co-manager of the Smith & Williamson Enterprise Fund, said the impact of this was about to be felt across several industries.

“Markets have held up relatively well in the face of coronavirus, including in the UK, but capital destruction is coming now,” he said.

“We are at the tipping point as the furlough scheme comes to an end, and unfortunately coronavirus is going to create ‘survivor’ companies and remove a lot of weaker ones.”

Swain, who manages the Enterprise fund alongside co-manager Mark Boucher, said various sectors are seeing long-running trends – both positive and negative – being accelerated by the pandemic.

“Some companies are benefiting from this and will continue to do so and some, particularly those relying on cheap and abundant leverage, no longer have viable business models,” Swain said.

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“Pandemics accelerate existing structural trends, and so this time companies with a strong internet presence are thriving, and those relying on high footfall, or those overburdened with too much debt for example, are really struggling.”

Swain said as a result of the nature of the crisis, the sectors in the eye of the storm, including retail and travel and leisure, were polarising, with winners likely to benefit from better business models and healthier balance sheets, but also a decline in competitors.

“If you look at retail, for example, a lot of capacity is coming out of that market and the better operators – those that are good at retailing and have a strong internet presence – are going to prosper.”

By contrast, the duo expect the “zombie” companies being kept afloat by the furlough scheme to face an uphill struggle for survival.

“If you are a business that is currently not open because of Covid-19 restrictions then the future looks very bleak, and there are large swathes of struggling companies across the UK that will not get through this,” he said.

By Peter Wilson

Source: IFA Magazine

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Almost half of UK businesses say they will make redundancies this year

Close to half of all UK businesses think they might have to reduce headcounts before the end of the year, new figures show.

Researchers found that 42% of small and medium sized enterprises think they will have a smaller workforce in December than they did in September.

An online survey from Censuswide and Virgin Money also showed that companies are worried about their futures, with nearly a quarter thinking they might go out of business in the next year if there is a second wave of Covid-19.

The figures speak to a gloom in the business world, as companies prepare for what to do when the Government’s furlough scheme ends on October 31.

However, the survey was carried out before Chancellor Rishi Sunak announced a raft of new measures which he hopes might help save jobs.

The Treasury promised last week to pick up part of the tab if companies cannot take their workers back full-time.

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But the data also shows that many companies were not tempted enough by previous Government measures to hold onto their staff for just another couple of months.

In August Mr Sunak promised companies whose staff had been furloughed that they would get £1,000 per employee they brought back and kept on the books until the end of January.

Businesses who have parted ways with the workers by December will therefore not be in line for the cash.

Researchers asked 501 decision makers at small and medium sized enterprises between September 4 and September 7 about their plans for the future.

The online survey found that 17% of businesses think it is very or somewhat likely that they will be forced to close in the next 12 months.

“If there is a second national lockdown, that figure rises to 24%.

“The results make for sober reading, but they are unsurprising given the extraordinary disruption of the last six months,” said Gavin Opperman, group business director at Virgin Money.

He added: “While the Chancellor’s newly announced schemes may help stave off the worst of the closures over Christmas, both the Government and the banks need to look for pragmatic ways to provide support for SMEs and the economy moving forward.”

By Neil Shaw

Source: Wales Online