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Business News

This month we have updates on the following topics:

  • National outlook and trading environment
  • Labour markets
  • Property markets
  • Industry sector updates
  • Business support enquiries
  • Global economic outlook

Information is taken from the The Midlands Engine Economic Impact Monitor and they are reporting during a period of continued turbulence, uncertainty and overall challenge that is currently impacting the economy and society of the Midlands Engine and wider UK. Driven by continued high inflation and rising interest rates, the UK’s economic outlook has deteriorated materially, with confidence in the regional business environment struggling in an attempt to reduce current pressures and stimulate growth, the new Chancellor delivered a “mini-budget” on 23 September, following on from energy price cap announcements made in the days and weeks before. Key policy announcements from the document, “The Growth Plan 2022”, included:

  • The basic rate of income tax will be cut to 19p (from 20p), and the top rate of income tax will be slashed.
  • The National Insurance rise (of 1.25p in April) will be reversed from 6 November.
  • Corporation tax rise also to be scrapped; it was due to rise from 19% to 25% but this will no longer be the case.
  • Cap on bankers bonuses to be removed.
  • There are to be “investment zones” created across the UK, providing tax and planning incentives with a number of names across the region.

National Outlook and Trading Environment:

  • A crisis in the cost of doing business is continuing to present significant challenges for Midlands businesses across all sectors. This is likely to continue despite the easing of inflation (9.9%) reported in September and as new government initiatives (including energy price caps and fiscal changes) take shape in the coming weeks and months.
  • Despite the challenging environment, there remains reasons to be optimistic about the Midlands’ long-term future – particularly given its resilient and dynamic business base and economy. Despite price hikes, order books and overall activity are still high in many sectors, while some surveys, such as from Lloyds Bank, suggest business confidence in some parts of the Midlands is holding comparatively stable.
  • A new government and approach in general is a key opportunity to drive positive change in the Midlands and across the UK; and with this comes ways of realising opportunities and benefits from the current economic shocks.
  • The newly formed Government is providing a major intervention on energy markets, capping domestic and non-domestic bills to protect further price rises. This policy will be crucial in providing business and households with short-term certainty, while easing the cost of living and inflationary pressures. It has been welcomed by industry and communities, albeit with more assurances and long-term help being required.
  • But most short-term, predictions and economic sentiment are bleak, with major pressure now on the currency, interest rates and the wider market as well as costs.

Labour Markets:

  • Firms continue to have difficulty recruiting the skilled talent they need to fill vacancies, limiting their operational capacity and constricting their growth potential.
  • Businesses across the region continue to be hit by the lack of suitable staff, both for skilled/qualified positions and for unskilled and less desirable positions. Inflated salaries have to be offered for the most sought after candidates.
  • A significant problem with staff retention lingers on as businesses offering inflated salaries continue to poach employees.
  • There are examples of businesses struggling to stimulate interest from younger people and get the next generation involved.
  • Flexible working conditions post Covid-19 continue to be a topic for discussion amongst business owners who are increasingly having to adapt to employee preferences. This issue is not abating as the next generation workforce filters through.
  • There is concern from businesses worried about the governments proposed increase in the UK national living wage from the current £9.50 to £10.14 adding to the current strain of increased energy and materials costs
  • Ashfield has an unemployed figure of 3.75% or 2,970 people. We have been reducing our unemployment levels consistently each month since January 2022, which was 4.24%. At the moment we are slightly higher than current regional average of 3.30% but we are moving in the right direction.

Property Markets:

Tim Gilbertson, Director at FHP reports that the impact of the current energy crisis and inflationary pressures is certainly starting to be felt in the commercial property market but it’s not all ‘doom and gloom’. The underlying trend in terms of industrial and distribution space throughout the region shows that there is still good demand and a lack of space, with demand still strong at the top end of the market from major distribution and manufacturing companies.

  • For the smaller more local companies, we are still seeing activity but undoubtedly committing to leases or buying premises is a difficult decision to make at present and there is certainly some nervousness in this sector.
  • The office market in the region is still stable although there is stock available, and retail and leisure continues to be challenged by the impact that all individuals and businesses are feeling due to the general increases in costs of living.

In this sort of market, it’s the proactive local authorities who can offer support both financially and otherwise to local businesses that will “win” and help their communities benefit. Certainly, the commercial property world would love to see planning departments within local authorities be as proactive as possible, to reduce time and costs in terms of submitting and having decided planning applications which would 'speed up development', this in itself would bring increased life and vitality to the region and hopefully prosperity too.

Sector updates

Manufacturing:

Manufacturers across the region are struggling to cope with the continued rising energy costs in addition to continued supply chain constraints related to materials supply. SME’s are hit particularly badly, many have put plans (albeit before the government’s energy relief scheme announcement) to only work 3 days per week during the winter, relocate office staff to shop floor to close upper office areas, or look for opportunities in diversification.

Hospitality and retail:

Hospitality is particularly hit by cost increases, with pub and brewing company bosses signing an open letter to the Government urging it to act in order to avoid "real and serious irreversible damage" to the sector. Some in the sector have urged pubs and other hospitality businesses to “diversify or risk losing the British pub industry.”

Other cross - sectors:

All sectors (including production, services and consumer-facing) are now being affected by rising costs, particularly energy, but also related to wages, materials and other goods. This is impacting every step of supply chains, while putting firms in a difficult position deciding between substantially raising prices for customers or absorbing costs. Government support in recent weeks has initially been welcomed but its real effectiveness and long-term benefit remains to be seen by many businesses and communities.

Business support enquiries:

Beyond the obvious cost of doing business pressures, enquiries from Midlands businesses to support organisations recently have included enquiries on:

  • Grants – Ongoing interest in grant funding. Typical projects include property purchases, new capital equipment and carbon saving initiatives - many of which lead to job creation, upskilling of existing staff and apprenticeships. Businesses also looking for financial support for website development and marketing.
  • International trade – Mentoring and guidance required to drive business forward with international trade.
  • Accreditation/Quality standards – ISO, HR/Health and safety, import licensing and CE to UKCA marking support.
  • ERP/MRP Software – A number of more traditional manufacturing and engineering businesses seeking support with the implementation and roll out of Enterprise Resource Planning (ERP) and Material Requirement Planning (MRP) software.
  • Property searches – Growing businesses looking for additional space or larger premises to consolidate multiple sites.
  • Energy efficiency – A continued increase in companies seeking energy reduction grants to install solar panels / LED lighting / new boilers.
  • Raising finance – Support for businesses looking to raise significant cash to aid future growth plans, particularly in the renewable energy sector.

Global Economic Outlook:

In recent months, the U.S. dollar has reached historic high levels in 2 decades, as the United States Federal Reserve increased its interest rates aggressively since March 2022, amid stubbornly high inflation. Higher interest rates and the relative stability of the United States’ economy have boosted the dollar’s appeal and triggered the ‘flight to safety’ in the international capital market. The impact of the Ukraine conflict on energy prices has deteriorated the economic outlook in Europe, while COVID-19 shutdowns continue to undermine China’s near-term growth prospects. For the developing countries, rising interest rates in the United States, and the appreciation of the U.S. dollar are translating to rising costs of imports, higher inflationary pressures, rising debt servicing and borrowing costs and worsening fiscal and current account balances, undermining the prospects of their full economic recovery from the pandemic.

If you would like to find out more about the economic situation, there are several useful websites that you can look at:

Key Sector Updates: Trade Associations

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