Small businesses accuse Bank of England of ignoring their needs

In a blog post published this morning, the Bank of England has said the proportion of businesses that will struggle to pay back debts because of rising interest rates could increase to 50% by the end of 2023, the highest level since the financial crisis and an increase from 45% in 2022. For medium-sized firms, which made up only 15% of its survey, 70% were predicted to face stress, leading to complaints by small business groups that the central bank is ignoring their needs when setting monetary policy. Martin McTague, national chair of the Federation of Small Businesses (FSB), noted the lack of input from small businesses that are “far more exposed” to rising rates than their larger peers. FSB data from the second quarter of 2023 shows that one fifth of small businesses reported financing as a main contributor to increased costs, the highest proportion on record. “Small and medium-sized firms make up over 99% of all businesses in the UK, and the risks to them from rising interest rates are far from theoretical,” McTague said. David Bharier, head of research at the British Chamber of Commerce also said the data was consistent with what “thousands of SMEs are telling us,” saying: “Businesses are citing significant increase to costs from loan repayment, mortgages, and invoice financing…they need to be reassured that the Bank of England fully understands the impact high interest rates are having”.

A fivefold increase in the number of freight train cancellations threatens to undermine firms’ decisions to start transporting goods by rail in a bid to reduce their carbon footprints, City AM reports. Freight cancellations between the financial years 2021/22 and 2022/23 rose from 2,492 to 12,708, according to a Freedom of Information request filed by the newspaper. Of the cancellations, 78% - 9,952 – were caused by industrial action, while severe weather was responsible for 1,097 cancellations. Rail union the RMT declined to comment.

UK factory output fell sharply over the summer to its lowest level in nearly three years according to data from the CBI, which said production is now at its weakest since the economy was emerging from the first Covid lockdown in 2020. The business lobby group said its members had been surprised by a slowdown in activity over the three months to August in which twice as many firms said output was falling (37%) rather than rising (18%). Martin Sartorius, a CBI economist, said: “With output volumes contracting at their fastest pace since the Covid-19 pandemic and order books deteriorating, this survey makes for gloomy reading for manufacturers. However, easing price pressures will bring some relief to many manufacturing firms and the broader economy”.

Pay deals awarded by British employers cooled for the first time this year in the quarter to July, falling to 5.7% after six consecutive quarters at a record 6%, human resources publication and data provider XpertHR has said. Sheila Attwood, senior content manager at XpertHR, said she thought pay awards had hit their peak and that the gap between pay deals and inflation is now expected to narrow. However, the data is somewhat at odds with official figures from the Office for National Statistics which showed annual wage growth excluding bonuses rose to 7.8% in the three months to June, the highest in records going back to 2001.

Drugmakers Dechra and Hikma (HIK.L), along with retailer Marks & Spencer and technical products provider Diploma are likely to join the FTSE 100 in September, indicative changes announced by index provider FTSE Russell show. Meanwhile, asset manager abrdn, autocatalyst maker Johnson Matthey, housebuilder Persimmon and electronic products provider RS Group look set to be demoted to the mid-cap FTSE 250. The quarterly review will be carried out using data at market close on 29^th August and confirmed changes will be announced after the close on 30^th August.

Microsoft has offered to sell its non-European streaming rights to Ubisoft Entertainment in a fresh attempt to persuade The Competition and Markets Authority (CMA) to give the green light to its takeover of computer games maker Activision Blizzard in an effort to gain approval from UK competition authorities. It has also agreed not to acquire the cloud streaming rights to all current and future Activision games released in the next 15 years. The CMA now says it will start a new investigation and make a decision by 18^th October.

The Advertising Standards Authority (ASA) has said that online adverts for Boots that promoted four brands of infant formula on Google broke advertising rules. It is currently against the law to advertise infant formula for babies up to six months, because it might discourage breastfeeding, the BBC says. Boots apologised and said the adverts, which were automated, had been removed. Meanwhile, supermarket Iceland is calling for changes in the laws on formula milk advertising, so it can tell the public when they reduce the price of formula. It also wants customers to be allowed to buy formula with loyalty points, gift cards or food bank vouchers, which is currently prohibited. Iceland's executive chairman, Richard Walker, said the retailer still endorsed breastfeeding, yet rising costs were "placing unbearable pressure on parents who choose to or have no alternative" to using formula milk.

Ofgem has levied a £5.4m fine on Morgan Stanley & Co International for not recording and retaining electronic communications relating to trading wholesale energy products. The fine was for the period between January 2018 and March 2020, Ofgem said, when traders were using WhatsApp to discuss deals, meaning messages could not be recorded or retained.

Grocery delivery service Getir says it will cut some 2,500 jobs across five countries, including the UK, because of waning demand. The cuts, which amount to more than 10% of its 23,000-member workforce, will include couriers, pickers and office employees in the UK, US, Germany, the Netherlands and its home market, Turkey, it said. Getir has already exited Spain, Italy and Portugal as demand for rapid deliveries of groceries in less than 20 minutes has subsided amid the cost of living crisis, while costs have risen.

Home REIT investors have voted almost unanimously to embrace a dramatic change to its business model to keep itself afloat, approving a plan to remove the property landlord’s focus on owning only social housing, in favour of moving to investing in all kinds of residential property.

SoftBank's Arm Holdings announced the public filing of a registration statement with the US Securities and Exchange Commission (SEC) overnight, for its proposed initial public offering. The silicon designer, whose chips power most smartphones, said it was seeking a listing on the Nasdaq Global Select Market under the ticker 'ARM'. Details around the number of shares Arm intended to float and its projected valuation were not published, although Reuters has suggested Softbank could release around 10% of its shares in the IPO, eyeing a valuation of between $60bn and $70bn. Government ministers had hoped to persuade the Cambridge-based British firm to launch on the London Stock Exchange, but it decided a sole US listing this year was "the best path forward" for the company and its stakeholders.  

Kevin Ellis, chairman and senior partner at PwC UK, has told the Daily Mail that the firm has experienced more “political and economic turbulence” over the past year than ever before. PwC UK reported a 14% fall in profit and partners' pay fell to £906,000, down from just over £1m a year ago, despite a 16% rise in revenues to £5.8bn in the 12 months to the end of June. Ellis said: “In my working life, we haven't seen a year like this year in terms of political and economic turbulence, so I'm quite comforted with how we performed against that backdrop.” However, he added that high-level corporate dealmaking – a key part of its business – remained sluggish. He said: 'We're still waiting for the moment when the deals market goes gangbusters again. What everyone's waiting for is certainty around inflation and interest rates. Then deals will take off again”.