Businesses ‘running out of fight’; UK recession fears mount as GDP contracts

British businesses are bracing for a tough winter amid rising inflation and rising electricity bills.

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LONDON – The doors of The 25, a bed and breakfast in Torquay on Britain’s southwest coast, have now closed for the winter. But this season, they will be closed longer than usual.

With rising energy costs and high costs weighing on UK businesses, owner Andy Banner-Price has delayed the reopening by a month until spring.

And while advance bookings from regular visitors remain strong, new inquiries are down 50% and bookings down 15% from previous years, painting an uncertain outlook for next year.

“I think a lot of people are going to wait and see because there’s a lot of uncertainty in the economy right now,” Banner-Price told CNBC.

Many (businesses) plan to hit the Christmas rush and close their doors in January.

Tina McKenzie

Head of Policy and Advocacy, Small Business Federation

“It’s the cumulative effect of bad news every time you turn on the TV or read the newspaper,” he said.

“I think we sometimes talk ourselves into recession,” he said. “Negative growth will only make some people more worried about their jobs and wary of spending.”

Britain’s longest recession

The Bank of England warned last week that Britain is now heading into its longest recession since records began a century ago.

Data on Friday showed the economy shrank 0.2% in the third quarter of this year – likely the start of an official recession (defined as two straight quarters of negative growth).

The central bank expects the decline in GDP (gross domestic product) to continue through 2023 and into the first half of 2024. The projected two-year contraction will be “very difficult”, the Bank said, costing around 500,000 jobs and putting pressure on already strained businesses and households.

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A woman walks past ruined and closed shops in Romford, England.

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Tina McKenzie, head of policy and advocacy at the Federation of Small Businesses, said many UK small and medium-sized businesses were now “under attack from multiple sides”, citing reduced access to cash and labor as well as inflationary pressures.

UK consumer inflation hit a 40-year high in September at 10.1 percent, while producer prices remained up 20 percent. The BOE has warned that interest rates, currently set at 3%, will now have to rise more than previously expected to bring inflation back to the 2% target.

However, the worst effects of the coming recession will not be apparent until the first or second quarter of 2023, Mackenzie said. Meanwhile, many businesses, particularly in the hospitality and retail sectors, are simply biding their time.

“Businesses are under a lot of pressure. Many want to get the Christmas rush and then close the doors in January,” McKenzie told CNBC on a big call.

‘Dreadful and Terrifying’

More than a third (35%) of the UK hospitality sector say they will close early next year due to rising costs, rising energy bills and weaker consumer spending, according to a survey of operators published last week. are in danger of being closed.

“It’s scary and scary,” said David Holliday, co-founder of Norfolk-based brewer Moon Gazer Ale, which supplies craft ales and lagers to pubs across the country.

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The Bank of England has warned that Britain is facing its longest recession in a century since records began.

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So far, Holliday said his business has taken a “hit” and is absorbing rising production and energy costs to buffer customers. But if this price increase continues until spring, he will have to bear these costs.

“We’ve shared the pain with our customers, but it’s not going to be sustainable for six to 12 months,” Holliday said. This year alone, he estimates that Moon Gazer Ale’s electricity bills have risen by £25,000-£30,000 ($29,000-$35,000) as costs in Europe have risen since Russia invaded Ukraine.

One percent of the industry says that there is no more for me.

David Halliday

co-founder, Moon Gazer Ale

But for many, further cost increases could be the death knell in a “three-year uphill battle” for an industry already battered by Covid-19 restrictions, staff shortages and inflationary pressures.

“They kind of finish the fight,” Holliday said. “One percent of the industry says there’s nothing else for me.”

Spending cuts, tax hikes on the horizon

Business owners will now look forward to Britain’s autumn statement on November 17, in which Chancellor of the Exchequer Jeremy Hunt will outline 60 billion pounds ($69 billion) in spending cuts and tax hikes to plug the country’s crippling hole. state finance.

But many worry that the Treasury may go too far in trying to restore the UK’s economic position, as it has been hit by Liz Truss’s messy small budget, which will spell more trouble for struggling industries and further economic growth.

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“Because of Liz Truss and Kwasi Kwarteng, they’ve gone to the other extreme and they’re in such a cautious position,” McKenzie said.

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According to The Guardian, early drafts of the government’s plan include up to £35 billion in spending cuts and around £25 billion in tax increases. As BOE chief economist Huw Pill warned on Monday that widespread tax increases and spending cuts could put Britain at deeper risk of an “economic slowdown”.

The U.K. Treasury said it would not comment on “concerns about tax changes” when contacted by CNBC.

“Our fear is that they will go to extremes to please investors. And if they don’t do something to protect the most vulnerable, they won’t get growth,” McKenzie said, citing better immigration and value-added tax policies. lowering interest rates as potential areas in which the government could offer support.

And while some business owners, like Banner-Price, are confident that consumers will return to a less expensive but higher-quality experience and quality products, they will gain, his fortune and the fortunes of many others from the ability of the wider business community to endure. will depend on the storm.

“Even if we survive well, our guests still need to be able to visit restaurants, cafes, tourist attractions, etc. They still need to be able to shop and visit the theater, take taxis and use all the other small businesses. “. Price said.

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