FINANCE
WHAT ' S REALLY GOING ON IN THE UK ECONOMY ?
On 22nd September , the day before the ' mini-Budget ' was announced , the Bank of England published its latest summary of business conditions for Q3 . The publication summarises intelligence gathered by the Bank ’ s Agents between mid-July and late August 2022 . Its results provide a real insight into what ' s going on in our economy .
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Agency contacts reported a modest slowdown in activity , with squeezed household incomes weighing on demand for some consumer goods and services . Output continued to be constrained by shortages of goods and labour in some sectors . But demand for business services and some manufactured goods remained robust .
Companies ’ employment intentions slowed , and recruitment difficulties appeared to have stabilised . However , pay settlements had increased further and a large number of contacts said that they had given , or were considering giving , interim one-off payments to staff to help to offset rising living costs . Companies reported that energy , pay and the weaker sterling exchange rate were becoming the main sources of cost pressures . Many contacts expected to continue to pass on higher costs into prices to protect margins , which remained squeezed .
KEY TAKEAWAYS FROM THE REPORT
Consumer spending Annual growth in the value and volume of consumer spending fell , reflecting pressure
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on household incomes . This was particularly the case for consumer services .
Food retailers continued to report customers trading down to cheaper goods and cutting back on non-essential items . Discount chains continued to gain market share . Sales volumes of household items , such as furniture , electrical goods and homeimprovement products continued to fall .
By contrast , volumes of clothing and footwear sales were supported by demand for formal clothes as people returned to office-working .
Business services Business services contacts continued to report strong annual growth in turnover , particularly in IT , recruitment services and consultancy . Within professional and financial services , investment banks and accountancy firms reported strong demand . Insolvency practitioners also reported a modest pickup in demand .
By contrast , merger and acquisition activity was reported to be slowing to more normal levels ; and contacts said that companies were becoming more cautious about discretionary spending .
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Manufacturing Annual growth in manufacturing output slowed as demand weakened ; supply constraints also continued to hold back production though to a lesser extent than previously .
Construction Construction output growth weakened as high materials costs , labour shortages and economic uncertainty weighed on activity .
Investment Investment intentions were positive but had eased due to uncertainty about the economic outlook , rising costs and softer demand .
Corporate financing conditions Credit availability tightened for companies of all sizes , while demand for credit was broadly flat .
Employment and pay Employment intentions slowed and recruitment difficulties stabilised , though many companies continued to struggle to find staff . Pay awards continued to increase , with more firms offering one-off payments to help with rising living costs .
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Costs and prices Companies said that energy , pay and the weaker sterling exchange rate were becoming the main sources of cost pressure ; many contacts expected to continue to pass on higher costs into prices to protect margins , which remained squeezed .
Property markets The housing market cooled as demand eased and the supply of properties increased . Investor appetite for commercial real estate weakened , though occupier demand remained strong for some properties .
We all await with eager eyes the Q4 report to find out the initial impact of the Government ' s new mini-Budget and if the Stamp Duty cuts instantly boost the market .
The pound slumping to a fresh 37-year low against the dollar , as a direct result of the Government ' s actions doesn ' t fill SMEs with the confidence needed . We need to work together to overcome and succeed .
To read the full Bank of England Report go to : www . bankofengland . co . uk
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ADVERTISING FEATURE |
Riding the wave of inflation : how businesses can cope
by Michael Blaken , Accounts Director , Optimum Professional Services
Liz Truss has been in office for a short time as the new Prime Minister and she has a desk-load of urgent work to tackle : inflation , pending recession , war in Ukraine , fuel prices , Climate Change … the list goes on .
And while the new Government is working out how to deal with national and international issues , businesses locally also need to look at how to cope with the fluctuating economic situation . With costs going up , how best can business owners ride this storm ?
One obvious way to help maintain margins , which are being eroded by increasing costs , is to raise prices , and many businesses will be doing so .
We ’ d suggest to do so as an automatic response may be kneejerk ; by all means , increase prices if it ’ s right for your business , but take a step back first to assess .
An increase in prices may result in a fall in sales or enquiries . To help combat this , try to demonstrate to customers the value you bring , to make them still want to spend with you . If the service you offer warrants a price increase , and your customers will go with it , then it may be right for your business . If , however , you sell widgets and you increase your prices , then your customers may source their widgets from elsewhere . Our advice is , think first before you reach for the price increase button .
If you decide a price rise isn ’ t right for your business , then you will still need to take steps to ensure you don ’ t stand
8 www . tbeswindonandwilts . co . uk still , or worse , go backwards , because your costs are still rising .
First , look at what costs you can cut . Where are you over-spending ? Where are you not getting value for money ? Do you have any wastage or inefficiencies ? Hitherto , your business may have been able to carry these ; that time has now passed .
For example , you may be in premises that are too large for your business . Until now , you ’ ve been able to bear this additional cost , but with energy bills rising , now may be the time to relocate to smaller premises , or perhaps sublet part of the building .
Carry out price comparisons , to see if you can get a better deal from your suppliers . Any small costs you save in raw materials or supply may , collectively , add up to a significant sum .
Look at your people . Are they working efficiently ? Are they deployed in the best areas of the business ? This doesn ’ t mean you should be considering redundancies ; this might , in fact , be an opportunity to invest in training or retraining , so you can move people around , and get a better overall result from your team .
And talking of investment , if you have the funds available , now could be a good time to invest in equipment , to make your business more efficient and help to keep your running costs down .
The Super-Deduction Scheme will continue to operate until 31 March 2023 , where companies investing in qualifying new plant and machinery assets can claim a 130 % superdeduction capital allowance , plus a 50 % first-year allowance for qualifying special rate assets . It means businesses can cut their tax bill by up to 25p for every £ 1 they invest in super-deduction assets . Also operating is the Annual Investment Allowance , which until 31 March 2023 , remains at £ 1million .
All of these measures should help bring down costs for businesses , as we face an uncertain economic future .
At Optimum Professional Services , we specialise in working with our clients to help them develop and grow their businesses . If you ’ d like to talk to us , for an initial free first meeting , please get in touch . Email me , Michael Blaken : mblaken @ optps . co . uk , call 01793 538 198 or visit : www . optps . co . uk