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


British businesses are bracing for a tough winter amid soaring inflation and higher energy bills.

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LONDON – The entrances to The 25, a bed and breakfast in Torquay on the UK’s southwest coast, are now closed for the winter time. But this season, they will be closed longer than usual.

With rising energy bills and higher costs putting pressure on businesses in the UK, owner Andy Banner-Price has postponed reopening for a month until spring.

And while term bookings from regular guests are still strong, new requests are down 50% and bookings are 15% lower than in previous years, suggesting an uncertain outlook for next year.

“I suspect a lot of people are taking a wait-and-see approach because there’s so much uncertainty in the economy right now,” Banner-Price told CNBC.

The latest UK economic data brought some clarity to the picture on Friday – albeit with a flip side.

Many (businesses) are aiming to have a quick Christmas, and then close in January.

Tina McKenzie

President of Policy and Advocacy, Federation of Small Business

UK gross domestic product (GDP) 0.2% decrease from the previous quarter in the three months to September, official figures show, down from 0.2% growth rate in the second quarter of 2022. A second consecutive quarter of negative growth going forward would indicate that the UK has entered a technical recession.

The negative data added to the country’s economic outlook and consumer sentiment was already depressed.

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

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

UK’s longest recession ever

Bank of England warning last week that the UK is currently facing its longest recession since records began a century ago.

The central bank expects GDP (gross domestic product) to continue to decline throughout 2023 and the first half of 2024. Forecasting a two-year recession is “very challenging”, the Bank said. know, costing about 500,000 jobs and piling pressure on already oppressed businesses and households.

A woman walks past closed shops in Romford, England.

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Tina McKenzie, chair of policy and advocacy at the Federation of Small Businesses, said many UK SMEs are now “under attack from many sides”, citing reduced access to money. face and labor, as well as inflationary pressures.

UK consumer inflation hits 40-year high 10.1% in Septemberwhile the producer’s input price remains fixed high at 20%. The BOE has warned that interest rates, currently set at 3%is likely to have to rise further than previously thought to push inflation back to the 2% target.

However, the worst effects of an upcoming recession may not become apparent until the first or second quarter of 2023, McKenzie said. Meanwhile, many businesses – especially those in the hospitality and retail sectors – are just procrastinating their time.

“Businesses are under a lot of pressure,” McKenzie told CNBC via zoom call. “Many people are aiming for a quick Christmas and then closing in January.”

‘Scary and scary’

More than a third (35%) of the UK’s hospitality sector said it was at risk of closing early next year due to higher costs, rising energy bills and weakening consumer spending, according to the report. a survey of operators released last week.

David Holliday, co-founder of Norfolk, UK-based Moon Gazer Ale brewer that supplies beer and craft beer to pubs around the country, said: “It was horrifying and terrifying. .

The Bank of England has warned that the UK is facing its longest recession since records began a century ago.

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So far, Holliday said his business has “taken the blow” and absorbed the increased production and energy costs to cushion customers. But if by spring those rallies look set to continue, he will have to pass on those costs.

“We’ve shared the pain with our clients, but that’s not going to be sustainable for 6 to 12 months,” Holliday said. This year alone, he estimates that Moon Gazer Ale’s energy bills have increased by £25,000-30,000 ($29,000-$35,000) as costs in Europe have increased following Russia’s invasion of Ukraine.

For me, one percent of the industry would say, there’s no next.

David Holliday

co-founder, Moon Gazer Ale

However, for many, a further sharp rise in costs could be the death knell in the “three-year uphill struggle” for an industry already hit by Covid-19 restrictions. , staff shortages and inflationary pressures.

“They’re running out of war,” Holliday said. “One percent of the industry would say, for me, there’s no next.”

Spending cuts, tax hikes imminent

Business owners will now look forward to the UK’s much-anticipated November 17 Autumn Statement, in which Finance Secretary Jeremy Hunt is expected to put out £60 billion ($69 billion). la) spending cuts and tax increases to close the gap in public finances.

But many worry that the Treasury could go so far in its efforts to restore the UK’s economic position – already damaged by Liz Truss’s tumultuous small budget – that it will cause more trouble. for struggling industries and sluggish economic growth in the future.

“Because of Liz Truss and Kwasi Kwarteng, they’ve gone the other way and they’re in a cautious mode,” says McKenzie.

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Early drafts of the government’s plan included spending cuts of up to £35 billion and around £25 billion in tax increases, according to Guardian. It’s Huw Pill, Chief Economist of BOE second warning that widespread tax increases and spending cuts could put Britain at risk of falling into a deeper “recession” than expected.

The UK Treasury said it would not comment on “speculations around tax changes” when contacted by CNBC.

“Our fear is that they’re going to go too far to please investors. And if they don’t do anything to protect the most vulnerable, they won’t be there,” said McKenzie. growth,” said McKenzie, citing improved migration policies and lower VAT rates as potential areas where the government could help.

And while some business owners like Banner-Price are confident they’ll succeed as consumers return for fewer but better-quality products and experiences, his fortunes and those of many others. Others will depend on the broader business community’s ability to weather the storm.

“Even if we survive well, our guests still need to go to the thriving local restaurants, cafes, tourist attractions, etc. They still need to be able to shop and visit the theatre, take a taxi and use all the other small businesses,” Banner-Price said.

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