Businesses ‘running out of fight’; UK recession fears mount as GDP contracts

UK businesses are facing a tough winter amid rising inflation and high energy bills.

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LONDON – The doors of The 25, a boutique bed and breakfast in Torquay on Britain’s south-west coast, have now closed for the duration of the winter. But this season they will be closed longer than usual.

With rising energy bills and high cost pressures on UK businesses, owner Andy Banner-Price has postponed reopening by a month until spring.

And while advance bookings from regular guests remain strong, new inquiries are down 50% and bookings are down 15% compared to previous years, painting an uncertain outlook for the year ahead.

“I suspect there are many people with a wait-and-see outlook because there is currently a lot of uncertainty in the economy,” Banner-Price told CNBC.

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

Many (businesses) aim to eliminate the Christmas rush, and then close the doors in January.

Tina Mackenzie

President of Policy and Advocacy, Small Business Association

UK gross domestic product (GDP) declined 0.2% in the three months to September quarter, official figures showed, down from a 0.2% growth rate in the second quarter of 2022. The second consecutive quarter of negative growth indicates that the UK has entered a technical recession.

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

“Every time you turn on the TV or open the newspaper it’s a cumulative effect of bad news,” he said.

“I think we talk ourselves into recession sometimes,” he continued. “Negative growth will make some people even more concerned about their jobs and wary of spending the money.”

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Britain’s longest recession ever

The Bank of England warned last week that Britain was headed for the longest recession since records began a century ago.

The central bank expects the gross domestic product (GDP) to continue to fall through 2023 and into the first half of 2024. The projected two-year recession is “very challenging”, the bank said, costing nearly 500,000 jobs, and piling pressure on already shuttered businesses and households.

A woman walks through closed shops in Romford, England.

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Tina Mackenzie, chair of policy and advocacy at the Union of Small Businesses, said many small and medium-sized UK businesses are now “under attack from various sides,” citing inflationary pressures along with less access to cash and labour. .

UK consumer inflation rose to a 40-year high of 10.1% in September, while prices of producer inputs remained steadfast at 20%. The BoE has warned that interest rates currently set at 3% will now have to move further than previously predicted to push inflation towards its 2% target.

Still, the worst effects of the upcoming recession may not become apparent until the first or second quarter of 2023, McKenzie said. Meanwhile, many businesses – particularly those in the hospitality and retail sectors – are simply passing their time.

“Businesses are under a tremendous amount of pressure. Many people are aiming to end the Christmas rush and then close the doors in January,” McKenzie told CNBC via a Zoom call.

‘Frightening and frightening’

According to a survey of operators released last week, more than a third (35%) of the UK hospitality sector say they are at risk of closure early next year due to high costs, rising energy bills and weak consumer spending .

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

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

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So far, Holiday said his business is “taking a hit” and that Buffer is absorbing increased production and energy costs to customers. But if those prices continue to rise until spring, it will have to pass on those costs.

“We’re sharing the pain with our customers, but it’s not going to be sustainable in six to 12 months’ time,” Holiday said. This year alone, he estimates Moon Gazer Alley’s energy bills have increased by £25,000–£30,000 ($29,000–$35,000) due to rising costs in Europe following Russia’s invasion of Ukraine.

One percent of the industry would say, for me, there is no next.

David Holiday

Co-Founder, Moon Gazer Alley

For many, however, a further increase in costs could be the death knell in a “three years of uphill struggle” for an industry already battered by Covid-19 restrictions, staff shortages and inflationary pressures.

“They’re kind of getting out of the fight,” Holiday said. “One percent of the industry would say, to me, there’s no next.”

Spending cuts, tax hikes on the horizon

Business owners will now be looking forward to the UK’s much-anticipated 17 November Autumn Statement, during which £60bn ($69bn) of spending cuts and tax hikes will be sought from Finance Minister Jeremy Hunt to plug the hole in the country’s battered expected to prepare an outline. public finance.

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But many worry that the Treasury may be going too far in its efforts to fix Britain’s economic situation – as was damaged by Liz Truss’s chaotic mini-budgets – that it will stifle struggling industries and further economic growth. will cause more trouble.

“Because of Liz Truss and Quasi Quarteng, they went to the other extreme and they are in such a cautious mode,” Mackenzie said.

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According to the Guardian, an initial draft of the government’s plan includes spending cuts of up to £35 billion and a tax increase of around £25 billion. Broader tax hikes and spending cuts could put Britain at risk of an “economic slowdown” more than expected, as BoE chief economist Hu Pill warned on Monday.

The UK Treasury said it would not comment on “speculation surrounding the tax change” when contacted by CNBC.

McKenzie, citing better migration policies and VAT, said, “We fear they’re going to go to such an extreme to please investors. And if they do nothing to protect the most vulnerable, they will There will be no development.” Rate reduction as possible areas in which the government can offer assistance.

And while some business owners like Banner-Price are confident they will return to scale with fewer but more quality experiences and products with consumers, their fortunes and the fortunes of many others are the broader business community’s ability to weather the storm. will depend on

“Even if we survive well, our guests still need to visit thriving local restaurants, cafes, tourist attractions, etc. They still have access to shopping at theaters and catching taxis and using all the other small businesses. Needs to be enabled,” Banner- Price said.


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