Business News Round Up (10/05/2022)
Scottish businesses ‘risk underestimating inflation rates’
Inflationary pressure poses a huge risk to Scottish businesses in the coming months, with a significant number unprepared for the highest level of inflation in 30 years. Accountancy and business advisory firm BDO estimates that 73% of businesses have only accounted for a 3% to 5% level of inflation this year – already well below the current 6.2% rate, which is the highest it’s been since the 1990s. The Office of Budget Responsibility (OBR) has suggested that the fallout from the war in Ukraine could push inflation to a 40-year high of 8.7% in the final three months of 2022, with The Bank of England also warning that inflation could hit double digits. A BDO survey has revealed that nearly half of Scottish companies are planning to seek additional finance in order to counteract rising inflation. Kevin Lamb, managing director at BDO in Scotland, commented: “It’s very clear that rising inflation is having a profound effect on businesses in Scotland. Companies have done the right thing and planned for higher levels of inflation this year, but forecasts are well below the current and expected rate of inflation. As such, businesses need to respond quickly and reassess their business plans for the remainder of 2022 in order to accommodate for record increases – whether that’s through additional financing, raising the price of goods or services, or working alongside lenders and suppliers to agree more beneficial terms.”
https://www.insider.co.uk/news/scottish-businesses-risk-underestimating-inflation-26911438
UK shoppers cut spending as inflation squeeze tightens
British shoppers, feeling the hit from surging inflation, cut their spending for the first time since early 2021 when the country was under a coronavirus lockdown, according to a survey published on Tuesday. The British Retail Consortium (BRC) said total retail spending among its members – mostly large chains and supermarkets – was 0.3 per cent lower than a year earlier, compared with 3.1 per cent annual growth in March. “The rising cost of living has crushed consumer confidence and put the brakes on consumer spending,” BRC chief executive Helen Dickinson said. The annual fall in spending was the first since January 2021. The figures are not adjusted for inflation, so the fall in the volume of goods purchased will have been much greater than the drop in money spent. A 13 per cent leap in global food prices between March and April, pushed up by the war in Ukraine, spelt more trouble ahead for retailers who would be unable to absorb all the extra costs, Dickinson said.
Tech in focus as Edinburgh hosts global foreign direct investment conference
Scotland’s inward investment strengths – including its digital technology industries – are to be globally showcased at a major three-day conference which kicked off in Edinburgh today. The World Forum for Foreign Direct Investment (FDI) 2022 will bring together hundreds of industry leaders, policymakers, and investors to discuss the latest insights, trends and developments regarding corporate expansion strategies and global investment. Taking place at the Edinburgh International Conference Centre (EICC), the event will feature panel discussions on sectors critical to Scotland’s economy, such as health tech, software, digital industries, and a just transition. Scottish Development International (SDI) – the international arm of the Scottish Government and Scotland’s enterprise agencies – has worked with event organisers to being the forum to Edinburgh. It says the conference will provide a “valuable opportunity” to highlight Scotland’s ongoing ability to attract innovative and world leading international projects, with the country continuing to be the most attractive location in the UK outside of London for foreign direct investment.
Problems mount for UK investors as global outlook darkens
At the start of May, the Bank of England found itself in the unusual position of raising rates while warning of a recession later this year. The UK’s central bank said it could do little to prevent the cost-of-living squeeze, which was likely to see the economy reverse in the year ahead but needed to act on inflation. Is the outlook for the UK economy really as gloomy as the bank suggests? The BoE’s prognosis was grim: “UK GDP growth is expected to slow sharply over the first half of the forecast period. That predominantly reflects the significant adverse impact of the sharp rises in global energy and tradable goods prices on most UK households’ real incomes and many UK companies’ profit margins.” It said CPI inflation was expected to rise further over the remainder of the year, to just over 9% in the second quarter of 2022 and averaging slightly over 10% at its peak in the fourth quarter. This peak is likely to be later than for many other economies. In another blow, the BoE said economic output would dip again in the third quarter of 2023, as the government’s temporary incentives for business investment ended, leaving the economy 0.8% smaller than in the summer of 2022.