Businesses ‘invincible’; UK recession fears mount as GDP shrinks

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

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LONDON – The doors of The 25, a boutique bed and breakfast in Torquay on the south west coast of England, are now closed for winter. But this season, they will remain closed for longer than usual.

With rising energy bills and rising costs weighing on British businesses, owner Andy Banner-Price has delayed reopening for a month until spring.

While bookings from regulars remain strong, new inquiries are down 50%, bookings are down 15% from previous years, and the outlook for the year ahead is uncertain.

“I suspect a lot of people are on the sidelines because there’s so much uncertainty about the economy right now,” Banner Price told CNBC.

The latest economic data from the UK on Friday made the picture even clearer – albeit unfavorably.

Many (businesses) aim to get past Christmas and then close in January.

Tina McKenzie

Small Business Federation Policy and Advocacy Chair

UK gross domestic product (GDP) fell 0.2% month-on-month in the three months to September, down from 0.2% growth in the second quarter of 2022, official data showed. A second consecutive quarter of negative growth ahead would signal that the UK has entered a technical recession.

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

“Every time you turn on the TV or open the newspaper, bad news builds up,” he said.

“I think we sometimes convince ourselves that we are in a recession,” he continued. “Negative growth has only made some people more worried about their jobs and cautious about spending money.”

Britain’s longest recession ever

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

The central bank expects GDP (gross domestic product) to continue to decline in 2023 and the first half of 2024. The projected two-year downturn will be “very challenging”, the central bank said, leading to about 500,000 jobs and a mountain of pressure on already squeezed businesses and households.

A woman walks past dilapidated, closed shops in Romford, England.

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Small Business Federation policy and advocacy chair Tina McKenzie said many UK SMEs were now “under attack from all sides”, citing reduced access to cash and labour, as well as inflationary pressures.

UK consumer inflation hit a 40-year high of 10.1% in September, while producer input prices remained high at 20%. The Bank of England has warned that interest rates, currently set at 3%, may now have to rise further than previously expected to push inflation back to its 2% target.

However, McKenzie said the worst effects of the looming recession may not be felt until the first or second quarter of 2023. At the same time, many businesses—especially those in the hospitality and retail sectors—are waiting for their time.

“Businesses are under tremendous pressure. The goal of many is to get Christmas past and then shut down in January,” McKenzie told CNBC via Zoom.

“Powerful and scary”

According to a survey of operators released last week, more than a third (35%) of the UK hotel industry said they were likely to close early next year due to rising costs, soaring energy bills and weak consumer spending.

“It was horrible,” said David Holliday, co-founder of Moon Gazer Ale, a Norfolk brewer that supplies ales and craft beers to pubs across the country.

Britain is facing its longest recession since records began a century ago, the Bank of England has warned.

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So far, Holiday said his business has been “taking the hit” and absorbing increased production and energy costs to cushion customers. But if those price increases continue by spring, he will have to pass on those costs.

“We’ve been sharing the pain with our customers, but that’s not going to last for six to 12 months,” Holliday said. He estimates Moon Gazer Ale’s energy bills have increased by 25,000 to 30,000 pounds ($29,000 to $35,000) this year alone, as costs soar in Europe following Russia’s invasion of Ukraine.

A certain percentage of people in the industry would say, for me, there is no next.

David Holliday

Moon Gazer Ale Co-founder

For many, however, a further spike in costs could be the death knell for a “three-year struggle” in an industry already crippled by Covid-19 restrictions, staff shortages and inflationary pressures.

“Their battle is almost over,” Holiday said. “Part of the industry will say, for me, there is no next.”

Spending cuts, tax hikes coming

Business owners will now look forward to Britain’s much-anticipated autumn announcement on November 17, when Finance Minister Jeremy Hunt is expected to outline £60bn ($69bn) of spending cuts and tax increases to fill the country’s battered Crackdown on loopholes in public finances.

But many fear that the Treasury may have gone too far in trying to restore the UK’s economic standing – hurt by Liz Truss’ chaotic small budget – which could cause further trouble for struggling industries and hamper future economic growth .

“They went to the other extreme because of Liz Truss and Kwasi Kwarteng, they were in such a cautious mode,” McKenzie said.

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Early drafts of the government’s plan include up to £35bn in spending cuts and around £25bn in tax increases, The Guardian reported. Widespread tax hikes and spending cuts could put Britain at risk of a worse-than-expected “economic slowdown”, as BoE chief economist Huw Pill warned on Monday.

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

“We are concerned that they will take extreme measures to please investors. If they do nothing to protect the most vulnerable, then they will not be able to grow,” McKenzie said, citing improved immigration policy and value-added tax cuts as the government could Potential areas for support.

While some business owners like Banner-Price believe they will survive as consumers scale back to fewer but higher-quality experiences and products, the fate of his and many others will depend on what the wider business community can do. Whether to get through the hard times.

“Even if we are alive and well, our guests still need to visit thriving local restaurants, cafes, tourist attractions, etc. They still need to be able to shop and visit theaters, hail cabs and use all the other small businesses,” Banner-Pray said. said.

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