UK business confidence crumbles as ‘stagflation’ fears grow | Business
UK business confidence collapsed after a month in which bottlenecks, rising energy prices, fuel shortages and impending tax increases combined to stifle growth .
In its latest economic health check, the Institute of Directors said sentiment had ‘fallen off a cliff’ in September, adding to fears Britain was on track for a dose of stagflation in the style of the 1970s.
The IoD warnings came as people lined up to refuel in garage forecourts and road traffic dropped last week. Online clothing retailer Boohoo said its profit margins were being squeezed by higher shipping costs and the need to increase staff salaries in its warehouses.
The IoD said the sharp drop in business confidence from +22 points to -1 point in September signified a return to the pessimism of February, when the economy was constrained by foreclosure restrictions.
Kitty Ussher, IoD Chief Economist, said: “The business environment has deteriorated dramatically in recent weeks. After a period of optimism at the start of the summer, leaders of small and medium-sized businesses across the UK are now much less certain of the overall economic situation and the IoD CEOs Economic Confidence Index has fallen from a cliff in September.
“A higher proportion of our members expect costs to increase over the next year than they expect revenues to increase. This is not helped by the government’s recent decision to increase employers’ national insurance contributions, which discourages hiring just as the leave scheme ends.
Although the ONS improved its growth estimates for the UK in the second quarter of this year from 4.8% to 5.5%, activity has slowed since mid-year due to the increased rates of infection, “pingemia” and labor and supply. -channel shortages.
The latest weekly economic update from the ONS showed vacancies in the transportation, logistics and warehousing sector increased by more than 350% from pre-pandemic levels . The combination of pressures has led to warnings that the UK could be heading into a winter of stagflation, when a stagnant economy combines with rising prices.
Shevaun Haviland, chief executive of the British Chambers of Commerce (BCC), which represents thousands of businesses across the UK, said ministers must work with businesses to deal with the growing fallout from Covid and Brexit .
Writing in the Guardian, she warned that businesses faced the most difficult operating environment in a generation. “It’s not just labor shortages. The prices of energy, raw materials and shipping have all risen sharply. Moving goods across borders often takes longer and businesses will face higher taxes in the coming year, ”she said.
As Chancellor Rishi Sunak unwinds emergency support programs that have limited the fallout from the worst recession in 300 years, the Guardian’s monthly economic development dashboard shows signs of distress spreading through the world. ‘economy.
Businesses and households are under increasing pressure from rising costs, with inflation at its highest in a decade before a harsh winter, as shortages of goods and materials hold back growth. At the height of a fuel crisis as gas stations dry up, business leaders have warned that cutting holidays and other support programs risked a “perfect storm” for growth and business. use.
“Any of these issues alone would be difficult, but together they create a perfect storm as we head into an unpredictable winter,” said Haviland.
For more than a year, the Guardian has tracked the economic fallout from the pandemic on a monthly basis, tracking infection rates, eight key growth indicators and the FTSE 100 level. Facing the deepest global recession since the Great Depression, the Covid Crisis Watch is also monitoring Britain’s performance relative to other countries.
After suffering one of the world’s worst death rates from Covid-19 and the deepest economic slump in the G7, the UK economy has recovered faster than expected and is expected to grow at the fastest rate among the group of rich countries this year. However, economic growth has fallen near the sticking point despite the end of most pandemic restrictions.
Official figures show weakening retail sales and shortages of workers and raw materials caused GDP growth in July to drop to 0.1% on the month, and the IoD survey will add to fears that the economy stagnated in the third quarter.