One thing is certain in our February 2017 economic statistics report: stagnant revenues could mean an increase in costs is likely to eat into profit margins – and RSA’s Economic Imperative study only helped emphasise the point.
It found that 756,000 businesses expect revenues to shrink due to a prophesied slowdown in consumer spending. Further costs will be driven by the rising price of imported goods and the apprenticeship levy – some have branded it a payroll tax.
The research comes at a time when 51 per cent of SMEs, according to RSA, think the government is not doing enough to foster growth. And at the top of reasons why is the increase in business rates set to shake the corporate world on 1 April. A fifth of companies expect to see an instant rise of 40 per cent, even after the government’s plan to help those hit the hardest kicks in.
Indeed, chancellor Philip Hammond announced thoughts at the end of February on giving extra funding to small firms – £3.6m worth, claimed FSB East Midlands development manager Natalie Gasson. She explained, as part of the February 2017 economic statistics roundup, that the business rates would lead to 55 per cent of companies reducing, postponing or cancelling investment.
“Of the SMEs facing an increase in business rates, almost one in five may ultimately consider closing down or selling the company,” she explained.
“While many businesses which may have contemplated the possibility of closure will ultimately find a way to carry on, the current level of anxiety within the SME community should worry policymakers. Profitability across the SME community is already falling. The costs of doing business are now at their highest levels since early 2014.”
As such, bosses will undoubtedly be watching the Budget on 8 March to see if it delivers. But companies will not be alone in feeling the financial burn. Our February 2017 economic statistics report found that due to the pound’s weakness, combined with the fall in energy and food prices, inflation is set to rise to three per cent. As such, numerous retailers will pass on costs to consumers.
The British Chambers of Commerce (BCC) claimed the fall in the value of the pound is squeezing domestic sales margins, and thus increasing the cost base of UK businesses. As a result, 54 per cent were set on increasing the prices of products and services over the next 12 months.
“The falling pound has been a double-edged sword,” said Adam Marshall, director general of the BCC. “Nearly as many export bosses say the low pound is damaging them as benefiting them. For firms that import, it’s now more expensive, and companies may be locked into contracts with suppliers, unable to be responsive to currency fluctuations.
“Inflation rates aren’t high by historical standards, but they are still putting pressure on companies. Currency fluctuations aren’t something in the government’s direct control, and they are likely to continue as the Brexit transition unfolds. Ministers must do everything in their power to help businesses keep costs down and stay competitive. Alleviating many of the up-front costs facing companies should be a priority for the Budget in March.”
ONS labour market statistics, on the other hand, marked some good news – a 37,000 rise in employment and a minute increase in productivity. However, pay growth remains sluggish and the dreaded skills shortage is rearing its ugly head. It’s a situation made clear by UK employers struggling to fill roles with the right candidates. And for the February 2017 economic statistics piece we sought to find out more on the matter.
Labour Market Outlook research from the CIPD and The Adecco Group claimed there was a near record number of 748,000 vacancies. After surveying over 1,000 employers, the most common response to labour shortages was to leave the positions empty. This, the report claimed, “reflected the tightness of the domestic labour market and highlighted the UK is attracting and retaining fewer EU nationals”.
Of this, John Marshall, CEO of The Adecco Group UK & Ireland, said: “The big decisions Britain took in 2016 are beginning to show in the labour market. Whilst the outcome of Brexit negotiations is still uncertain, employers’ access to EU migrant workers is likely to change. Investing in young people is a solid long-term strategy, but employers also need to face the facts and prepare for a situation where they might lose access to significant numbers of skilled EU workers in the near future.”
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