Business confidence ‘at two-year low’ as tax hikes loom

Published

1 day ago

January 6, 2025

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More than half of private sector firms are planning price hikes to help offset looming tax increases announced in the chancellor’s first budget , according to a corporate lobby group.

The British Chambers of Commerce (BCC) warned business confidence was at its lowest level since the market meltdown that followed the Conservatives’ mini budget of autumn 2022.

Its survey of almost 5,000 firms found worries about tax stood at levels not seen since 2017.

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Labour had fought a growth-focused election on the back of an improved working relationship with business but there was a widespread sense of shock when the 30 October budget put businesses on the hook for the bulk of £40bn of tax increases.

The new government argued the hikes were necessary to lock in long overdue investment in public services due to an alleged black hole in the public finances inherited from the Tories.

But companies widely warned the higher costs, from measures such as higher employer National Insurance contributions and National Living Wage increases from April, would be passed on to customers and hit wage growth, employment and investment.

At a time when the Bank of England is struggling to cut interest rates due to stubborn cost pressures in the economy, there will be concern among policymakers over the threat posed by potential business price hikes ahead.

The BCC survey found 55% of companies were planning to raise their own sales costs.

Such a move would threaten further upwards pressure on inflation while weak business confidence will also do little to lift the economy out of the doldrums witnessed during the second half of 2024 when government warnings of a “tough” budget ahead were widely blamed for hitting sentiment.

Financial markets currently see just a 60% chance of a Bank rate cut at the next meeting in a month’s time.

BCC director general Shevaun Haviland said: “The worrying reverberations of the budget are clear to see in our survey data. Businesses’ confidence has slumped in a pressure cooker of rising costs and taxes.

“Firms of all shapes and sizes are telling us the national insurance hike is particularly damaging. Businesses are already cutting back on investment and say they will have to put up prices in the coming months.

“The government is rightly coming up with long-term strategies on industry, infrastructure and trade. But those plans won’t help businesses struggling now.

“Business stands ready to work in partnership to make the proposed Employment Rights legislation work for all, but the current plans will add further costs on firms.”

The BCC said the government could help firms absorb the additional pressures in areas such as business rates reform and through infrastructure investment.

A Treasury spokesperson said in response: “We delivered a once in a parliament budget to wipe the slate clean and deliver the stability businesses so desperately need.

“We have ensured more than half of employers will either see a cut or no change in their National Insurance bills, and by capping the rate of corporation tax at the lowest level in the G7, creating pension megafunds and establishing a National Wealth Fund, we are bringing back political and financial stability, creating the conditions for economic growth through investment and reform.

“This is just the start of our Plan for Change which will unlock investment, get Britain building via planning reform, and employ a modern Industrial Strategy to deliver the certainty and stability businesses need to invest in the UK’s growing and high potential sectors. This will make all parts of the country better off.”

Business

UK long-term borrowing costs highest this century

Published

2 hours ago

January 7, 2025

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UK long-term borrowing costs highest this century

UK long-term borrowing costs have hit their highest level since 1998.

The unwanted milestone for the Treasury’s coffers was reached ahead of an auction of 30-year bonds, known as gilts, this morning.

The yield – the effective interest rate demanded by investors to hold UK public debt – peaked at 5.21%.

At that level, it is even above the yield seen in the wake of the mini-budget backlash of 2022 when financial markets baulked at the Truss government’s growth agenda which contained no independent scrutiny from the Office for Budget Responsibility.

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The premium is up, market analysts say, because of growing concerns the Bank of England will struggle to cut interest rates this year.

Just two cuts are currently priced in for 2025 as investors fear policymakers’ hands could be tied by a growing threat of stagflation.

The jargon essentially covers a scenario when an economy is flatlining at a time of rising unemployment and inflation.

Growth has ground to a halt, official data and private surveys have shown, since the second half of last year.

Critics of the government have accused Sir Keir Starmer and his chancellor, Rachel Reeves, of talking down the economy since taking office in July amid their claims of needing to fix a “£22bn black hole” in the public finances.

Both warned of a tough budget ahead. That first fiscal statement put businesses and the wealthy on the hook for £40bn of tax rises.

Corporate lobby groups have since warned of a hit to investment, pay growth and jobs to help offset the additional costs.

At the same time, consumer spending has remained constrained amid stubborn price growth elements in the economy.

Higher borrowing costs also reflect a rising risk premium globally linked to the looming return of Donald Trump as US president and his threats of universal trade tariffs.

The higher borrowing bill will pose a problem for Ms Reeves as she seeks to borrow more to finance higher public investment and spending.

Tuesday’s auction saw the Debt Management Office sell £2.25bn of 30-year gilts to investors at an average yield of 5.198%.

It was the highest yield for a 30-year gilt since its first auction in May 1998, Refinitiv data showed.

This extra borrowing could mean Ms Reeves is at risk of breaking the spending rules she created for herself, to bring down debt, and so she may have less money to spend, analysts at Capital Economics said.

“There is a significant chance that the Office for Budget Responsibility (OBR) will judge that the Chancellor Rachel Reeves is on course to miss her main fiscal rule when it revises its forecasts on 26 March. To maintain fiscal credibility, this may mean that Ms Reeves is forced to tighten fiscal policy further,” said Ruth Gregory, the deputy chief UK economist at Capital Economics.

Business

Growing threat to finances from rising bills

Published

8 hours ago

January 7, 2025

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There is mounting evidence that consumers are facing hikes to bills on many fronts after Next became the latest to warn of price rises ahead.

Business

Higher prices for 2025 as Christmas trading fails to meet expectations – BRC says

Published

14 hours ago

January 7, 2025

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Higher prices for 2025 as Christmas trading fails to meet expectations - BRC says

Shop prices will rise in 2025 as the key Christmas trading period failed to meet retailers’ expectations, according to industry data.

Shop sales grew just 0.4% in the so-called golden quarter, the critical three shopping months from October to December, according to the British Retail Consortium (BRC) and big four accounting company KPMG.

Many retailers rely on trade during this period to see them through tougher months such as January and February. Some make most of their yearly revenue over Christmas.

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The minimal growth came amid weak consumer confidence and difficult economic conditions, the lobby group said, and “reflected the ongoing careful management of many household budgets”, KPMG’s UK head of consumer, retail and leisure Linda Ellett said.

Non-food sales were the worst hit in the four weeks up to 28 December, figures from the BRC showed and were actually less than last year, contracting 1.5%.

What were people buying?

Food sales grew 3.3% across all of 2024, compared to 2023.

In the festive period beauty products, jewellery and electricals did well, the BRC’s chief executive Helen Dickinson said.

AI-enabled tech and beauty advent calendars boosted festive takings, Ms Ellett said.

What it means for next year

With employer costs due to rise in April as the minimum wage and employers’ national insurance contributions are upped, businesses will face higher wage bills.

The BRC estimates there is “little hope” of covering these costs through higher sales, so retailers will likely push up prices and cut investment in stores and jobs, “harming our high streets and the communities that rely on them”, Ms Dickinson said.

Separate figures from high street bank Barclays showed card spending remained flat since December 2023, while essential spending fell 3% partly as inflation concerns forced consumers to cut back but also through lower fuel costs.

The majority of those surveyed by the lender (86%) said they were concerned about rising food costs and 87% were concerned about household bills.

More info to come

Numerous UK retail giants will update shareholders on their Christmas performance this week including high street bellwether Next on Tuesday, Marks and Spencer and Tesco on Thursday and Sainsbury’s on Friday.