Latest economic updates
General economic outlook
UK inflation has hit a 40-year high, reaching 9.4% in June. Rising prices for motor fuels and food made the biggest upward contributions to the inflation rate as petrol and diesel prices hit new records.
- The impact of inflation on rising costs / prices continue to be a major business issue, particularly for utilities, wages and materials. Business groups have warned that the inflationary spiral is “unsustainable” for businesses.
- The prospect of regular train strikes, and other industrial action in the offing, is a major concern, on top of the increased cost of living crisis dampening consumer demand.
- Issues have been reflected in tumbling small business confidence, as reported by FSB. The Quarterly Small Business Index (SBI) for the East Midlands shows a Quarter 2 reading of -43, which is significantly down from 17 in the previous quarter, and more of a dramatic fall than the national average.
- Business groups and businesses have stressed that the current political uncertainty should not get in the way of solutions and support to help businesses in a time of great challenges.
Although unemployment rates continue to fall, recruiting staff is becoming increasingly difficult and problematic for many businesses.
- The combination of changed employee expectations (e.g., reduced hours worked, working from home etc) plus the high demand for labour across sectors and disciplines, are fuelling demands for very high wages and favourable conditions – even from those who are unskilled, inexperienced or new entrants to the labour market.
- While some larger firms are able to go some way towards meeting these expectations and demands, smaller firms often lack the financial and developmental capacity to pay high wages for - and then develop - new starters.
- Regional business groups have stressed the need therefore to find ways of attracting new talent, both at home and from overseas, in a suite of support from Government that also encourages businesses to invest in their infrastructure and people. Another key approach is maximising equality, diversity and inclusion (EDI) practices, recently explored by the East Midlands Chamber with local businesses.
- In addition to widening the labour pool to fill vacancies, successful EDI policies can support businesses to create better workplaces, improved decision-making and increased innovation.
Energy bills continue to be a major concern for businesses across the region as fixed term deals come to an end. Support for energy costs is required, as businesses look to reduce usage and save spiralling costs, as well as meeting carbon neutrality / net zero aspirations.
- Diversification – there is a strong appetite for diversification, probably more obvious post pandemic as many businesses have been forced to look at how else their people and operations can be used to widen service and product portfolios.
- Land values are increasing – the lack of available commercial land and property is frustrating growing businesses that wish to remain in the region due to increasing prices per square foot.
FHP report that despite the cost of living concerns we all have and increased inflation, the commercial property market, particularly in the manufacturing and distribution sectors throughout Mansfield and Ashfield continues to strengthen.
Record rents and capital values are being achieved and for any landlord or property owner looking to rent or sell their property, now is the best time ever to maximise returns. This scenario is being created by not only the strength of demand but also the complete lack of stock, stock levels are lower than for many, many years. Companies are having to hold more raw materials and supplies due to the impact of Brexit and delays in bringing goods into the country which is creating a need for more space so that suppliers can feed raw materials to their clients without having to factor in Brexit delays. All of this is creating further pressure on supply of manufacturing and distribution space hence why this coupled with strong demand is seeing rents and capital values increase across the board.
Global & National Outlook:
In July, wildfires swept across Europe, triggered by the hottest heatwave the region has ever seen. France has had to evacuate more than 30,000 people. Gironde, a popular tourist region in the south-west near Bordeaux, has been hit particularly badly, with firefighters from across France battling to control blazes that have destroyed nearly 17,000 hectares (42,000 acres) of land, according to the BBC. Spain and Portugal have attributed more than 1000 deaths to increased heat.
- Alongside, the immense human and animal loss, these fires will significantly impact Europe’s economies. Already thousands of hectares of agricultural land have been destroyed, with countries loosing significant proportions of their agricultural crops. This will heighten pressures on an already diminished food supply, as it will compound the loss of crops as a result of Russia’s invasion of Ukraine.
- Additionally, the impact of the fires may be long-term, due to significant soil degradation and erosion, which could impact agricultural harvest for a pro-longed number of years. Furthermore, the heatwave is placing substantial pressure on already struggling health systems.
- The heatwave is leading to increased hospitalisation and deaths across Europe, which is already trying to deal with rising Covid cases and falling staffing numbers.
- The loss of domestic homes will be devastating for many families, especially in a cost-of-living crisis heading towards a recession. This places increased pressures on public spending, at a time when governments across Europe have already seen record spending levels as a result of the pandemic. The economic impact will likely cost millions if not billions to economies in Europe.
Inflation has been rising globally. Sri Lanka last week ousted their Prime Minister over poor economic management which has fuelled inflation in the country. Currently, inflation in the country is at 54.6% and people have been struggling with daily power cuts and shortages of basics such as fuel, food and medicine. The country’s dire economic conditions led to the public marching on the capital city and into the Prime Minister’s private residency, leading the politician to flee the country. The country is now looking to help from various global institutes, however without a stable government, many will be unwilling to provide financial help, especially given we are facing a global financial crisis.