UK businesses are bracing for a tough winter amid rising prices and higher energy bills.
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LONDON – Door 25, Torquay’s bed and breakfast shop on the UK’s southwest coast, is now closing for the winter. But this time, they will be more closed than before.
With rising energy bills and high prices putting pressure on UK businesses, owner Andy Banner-Price has postponed the restart for a month until spring.
But while bookings from regular visitors remain strong, new inquiries are down 50% and bookings are 15% lower than in previous years, painting an uncertain outlook for next year.
“I think a lot of people are taking a wait and see approach where there’s a lot of uncertainty in the economy right now,” Banner-Price told CNBC.
He said: “It’s a negative feeling every time you turn on the TV or open a newspaper.”
“I think we talk ourselves into recession sometimes,” he continued. “The negative growth will make some people worry about their jobs and be cautious about investing.”
The UK’s longest recession
The Bank of England warned last week that the UK is now heading for its longest recession since records began a century ago.
Friday’s data showed that the economy grew by 0.2% in the third quarter of this year – possibly marking the beginning of a government recession (defined as two straight lines of negative growth).
The central bank expects GDP (gross domestic product) to continue falling through 2023 and into the first half of 2024. The expected two-year decline will be “challenging,” The bank said, costing about 500,000 jobs, and piling pressure on businesses and families already caught.
A woman walks past a closed shop in Romford, England.
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Tina McKenzie, head of policy and advocacy at the Federation of Small Businesses, said many small and medium-sized businesses in the UK are currently “under attack from all sides,” citing reduced opportunities. income and employment, and inflationary pressures.
UK consumer prices hit a 40-year high of 10.1% in September, while producer prices remained strong at 20%. The BOE warned that interest rates, currently set at 3%, would have to rise further than previously predicted to keep inflation back to its 2% target.
Still, the worst effects of the impending 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 taking their time.
“Stores are under a lot of pressure. Many want to make Christmas run, and then close the doors in January,” McKenzie told CNBC via teleconference.
‘Necessary and scary’
More than a third (35%) of the UK’s hospitality sector say they are at risk of closing at the start of the year due to high costs, energy costs and reduce consumer spending, according to a survey released last week.
“It’s weird and scary,” said David Holliday, founder of Norfolk, England-based brewer Moon Gazer Ale, which supplies ales and craft lagers to pubs across the country.
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 is “taking shape” and is experiencing an increase in production and energy efficiency to protect customers. But if in the spring, the price rises to continue, he will have to pay those costs.
“We share that pain with our customers, but that won’t last for six to 12 months,” Holliday said. This year alone, he estimates that the cost of Moon Gazer Ale has risen by £25,000-£30,000 ($29,000-$35,000) in Europe as a result of Russia’s invasion of Ukraine.
For many, however, another pay rise could be the death knell for a “three-year boost” for companies hit by Covid-19 restrictions, labor shortages and rising pressures.
Holliday said, “They are running in the fight. “The percentage of the company will say, for me, no more.”
Budget cuts, tax increases on the horizon
Business owners will now look to the UK announcement which is expected in Nov. 17 of autumn, during which it is expected that the Minister of Finance Jeremy Hunt will outline £ 60 billion ($ 69) of spending cuts and tax cuts to fill the gap in the country that is broken. public money.
But many feel that the bank may have gone too far in its efforts to revive the UK economy – damaged as it was by Liz Truss’s low budget – and will announce more problems for companies and -work hard on continued economic growth.
“Because of Liz Truss and Kwasi Kwarteng, they did the other extreme and they were in a very cautious mode,” McKenzie said.
The first draft of the government’s plan contains up to £35 billion of spending cuts and up to £25 billion of tax rises, according to the Guardian. That’s as BOE’s Chief Economist Huw Pill warned on Monday that big tax rises and spending cuts could put Britain at risk of a deeper than expected “recession.”
The UK Treasury said it would not comment on “details of tax reform” when contacted by CNBC.
“Our fear is that they will go too far to please the capitalists. But if they don’t do anything to protect the vulnerable, then they will not achieve progress,” McKenzie said. said, citing good exit policies and VAT. rate cuts as a possible area in which the government can provide support.
But sometimes business owners like Standard-Price are confident that they will increase as consumers climb back to the experience and products are few and far between, his property and that of many others will depends on the ability of the business community to cover the storm.
“Even if we live comfortably, our guests still need to visit the city’s thriving restaurants, cafes, tourist attractions etc. They still need to be able to shop and visit the attractions. , catch a taxi and use all the other small businesses,” said Banner-Price.