Business News Round Up (29/09/2022)
UK economy marred by uncertainty while high inflation takes its toll on global growth prospects
The UK economy is likely in a recession, but it could be shallower compared to previous downturns, with GDP falling by 1% between Q1 and Q4 of this year. Overall, UK growth is expected to average 3.2% this year, greatly boosted by weaker GDP in 2021 due to pandemic-related restrictions. Further out, however, a picture of stop-start growth in 2023 could lead to a full year fall in GDP of 0.2% compared to 2022, according to the latest KPMG Global Economic Outlook. European and UK gas markets have been extremely volatile throughout the past 12 months. By August this year, UK domestic energy bills had already risen by 73.2% compared to a year ago. The UK Government’s decision to cap domestic energy bills at £2,500 from October has avoided the expected series of sharp rises that could have seen bills rise by another 235% by April 2023. The report forecasts that these measures will reduce the headline rate of inflation by around 5 percentage points next year. This will help to keep UK inflation peak at 10.5% in October this year before it is expected to fall throughout the following two years. The new Government announced a large package of fiscal loosening amounting to around £160 billion over the next two years, equivalent to 3.2% of GDP per annum. This included £45 billion of permanent tax cuts. Financial conditions have tightened sharply as a result of the announcements, with investors demanding a higher premium for financing UK debt. Currently, sterling is down by 6.4% against the US dollar since the start of September, while 5-year gilt yields are around 190 basis points higher. Financial markets now expect the Bank of England to raise interest rates to a peak of around 6% next year.
Scottish tech firms report growth despite Brexit and global economic slowdown fears
Scottish tech firms are reporting high levels of growth despite brakes put on expansion caused by Brexit and rising concerns about a global economic slowdown, according to a new survey. The sixth annual Scottish Start-up Survey has revealed 88 per cent of start-ups reported growth this year but 89 per cent are concerned by the global economic outlook and 68 per cent said Brexit was slowing growth. While 93 per cent of respondents said Scotland is a good place to launch a start-up, 88 per cent of start-ups are targeting investors outside Scotland. London and rest of the UK (46 per cent), followed by North America (30 per cent), and Europe (21 per cent) are the most targeted investor regions. Run by the EIE Investor Readiness Programme at the University of Edinburgh’s Bayes Centre in association with the Freer Consultancy, the survey sample included the current EIE22 cohort, EIE alumni companies, and a number of other early to later stage start-ups from across Scotland.
Greater Manchester business survey shows economic downturn
The Greater Manchester Chamber of Commerce’s (GMCC) latest Quarterly Economic Survey has shown a recent downturn in the economic outlook of the city-region’s businesses. The Greater Manchester Index, a composite indicator made of key QES measures, declined by 18 points from the previous quarter and now stands at 13.5, after hovering in the early 30s for five quarters. The survey of nearly 300 businesses in the city-region between August 22nd and September 12th, 2022, and so results do not consider the effects of the Bank of England’s most recent interest rate rise, the Chancellor’s Growth Plan, or the recent decline in value of the pound. GMCC instead attributes the stalling of the local economy to uncertainty over consumer spending and high energy costs. Survey respondents reported that sales to UK customers decreased significantly for both B2B and B2C services, with only the manufacturing sector showing a slight uptick albeit following a sharp decline in the previous quarter. Export sales also showed a decline and have yet to benefit from the declining value of sterling.
Decline in service sector blamed as Scotland’s GDP falls by 0.2% in July
Scotland’s onshore gross domestic product (GDP) fell by 0.2% in July, according to the latest estimates from the Scottish Government. The decline comes after a fall of 0.8% in June and means GDP is just 0.1% higher than the pre-pandemic level in February 2020. GDP growth during the second quarter of 2022 is estimated to have been flat at 0%. The latest figures show output in the services sector, which accounts for about three-quarters of the economy, is estimated to have fallen by 0.3% in July. Consumer-facing services grew by 0.3%, but this was offset by larger declines in other parts of the service economy. The decreases were led by a 3.7% fall in professional, scientific, and technical services output. Output in production, construction and agriculture grew by 0.1% in July. This includes growth of 2.5% in the water and waste management industry, rebounding after a sharp fall in June of 2.1%. The monthly report noted that warm weather in July may have had an impact on the economy. “The heat seems to have had an effect on the UK economy, with the weather being reported as a reason for increased turnover in ice cream manufacturing, amusement parks, golf clubs, maintenance and repair of vehicles, boat hire, marquee hire and outdoor pools, wholesale of water coolers, wholesale of fruit and the provision of courier services, where increased deliveries of summer clothing and fans were reported. “
https://www.insider.co.uk/news/decline-service-sector-blamed-scotlands-28109502