Credit, Collections & Insolvency News
Latest figures from the Office for National Statistics has shown that the economy fells 0.3% in March, but grew by 0.1% for the first three months of the year
The services sector led the decline, falling by 0.5% whilst the production sector grew by 0.7%, the strongest read since May 2021. Construction was up 0.2%.
The growth was in line with economists’ forecasts and means that the economy is not at an immediate risk of recession.
Commenting on the figures,Tina McKenzie, Policy Chair at the Federation of Small Businesses (FSB), said “The GDP fall in March sets the capstone on a disappointing first quarter for the economy. The monthly fall in the retail and wholesale sector’s output is especially eye-catching, and will not have been helped by March’s cold weather, which will have dampened sales. Small retailers are also highly exposed to inflation, with less negotiating power than their larger rivals. Consumer-facing services, including retail and hospitality, are running at almost 10% below pre-Covid levels.”
“Small firms made up a lot of ground over the first three months of this year, according to our Small Business Index research, but their overall confidence reading ended up in pessimistic territory, with those expecting growth slightly outnumbered by small firms bracing for a hit to their prospects.
“The proportion of small firms reporting a fall in sales over the quarter outweighed those who said their revenues rose. The domestic economy was the most commonly-cited barrier to growth, showing the impact that subdued economic performance is having on small firms.”
“Insolvency rates for the year so far are running at a high level, which spells bad news as the ripple effect of each company lost will affect others, impeding their own efforts to survive and thrive. It’s likely that the level of informal closures is also high.”
“The base rate was increased twice in the first quarter, and yet again yesterday, turning up the margin pressure for many small firms with index-linked debts, and making new funding harder to come by, hampering investment and growth plans.”
“With the cost of living crisis still in full effect, small businesses reliant on consumer spending are feeling the pinch, with retail and hospitality businesses far less confident than the average for all sectors, according to our figures. With the Energy Bill Relief Scheme phased out, some businesses in these sectors are now staring down the barrel of a tripling in their energy bills for April. Coupled with consumers’ limited capacity to absorb higher prices, the situation looks precarious for those firms.”
“It must be emphasised that economic pain is not evenly distributed – many small firms in different sectors and parts of the country are thriving, but many others are finding it very hard going indeed. Policies intended to help small firms expand and develop must be a priority for the Government – but are rather thin on the ground at the moment.”
“We know what is needed to help small firms – reform of pre-profit taxes like business rates, tackling late payments once and for all, and allowing small firms stuck on energy contracts with sky-high rates to ‘blend and extend’ their contracts. If no action is taken, thousands of small business owners’ dreams will be needlessly dashed, and the economy will suffer as a result.”
Kitty Ussher, Chief Economist at the Institute of Directors, said “Manufacturing performed strongly coming out of the first quarter, but this was not enough to compensate for the difficulties experienced elsewhere in March, particularly by retailers and the motor trade. There were also other weaknesses in the service sector, such as the creative industries and general business services.”
“The ONS suggests that the retail sector suffered from March being one of the wettest on record, reducing non-food sales compared to the previous month. It also seems likely that some households have reduced discretionary spending as they re-budgeted for rising mortgage costs.”
Ben Jones, CBI Lead Economist, said “The UK economy is proving more resilient than widely expected and it looks increasingly likely that the UK will avoid a recession this year. Underlying momentum appears to be firming, with our surveys showing growth expectations for the quarter ahead creeping back into positive territory for the first time in a year.”
“Nonetheless, this is still going to be a difficult year for many UK households and businesses. Whilst we anticipate that inflation will slow rapidly through the summer, higher interest rates will act as a drag on spending. But we are likely to have weathered the worst of the storm, and expect a mild economic recovery in the year ahead.”
Suren Thiru, Economics Director at ICAEW, responds to the latest UK GDP figures, released by the Office for National Statistics today (Friday 12 May 2023):
“While the economy grew slightly in the first quarter, the sharp slowdown from a strong January to a decline in output in March points to continued stagnation as high inflation and strikes stifled activity.”
“The positive first quarter could be followed by a slight fall in GDP in the second quarter as the extra Bank Holiday for the Coronation and continued strike action limit activity. The likely squeeze on consumer spending and investment from higher taxes, and the lagged impact of rising interest rates, may mean that our growth prospects are weaker than the Bank of England currently expects.”
“Against this backdrop, the Monetary Policy Committee’s decision to raise interest rates may soon look like a misstep.”
