Ahead of the 2023 Spring Budget next week, data published by the Office for National Statistics (ONS) has revealed that the UK economy grew by 0.3% in January 2023 after shrinking by 0.5% in December 2022.
According to the data, the services sector grew by 0.5% in January after falling by 0.8% in December.
However, the data also showed that output in both the manufacturing and construction sectors has declined.
Commenting on the figures, Darren Morgan, Director of Economic Statistics at the ONS, said: ‘The economy partially bounced back from the large fall seen in December. Across the last three months as a whole and, indeed, over the last 12 months, the economy has, though, showed zero growth.
‘The main drivers of January’s growth were the return of children to classrooms, following unusually high absences in the run-up to Christmas; the Premier League clubs returned to a full schedule after the end of the World Cup; and private health providers also had a strong month.’
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The UK’s business confidence has dropped to a 13-year low, according to a survey conducted by the Institute of Chartered Accountants in England and Wales (ICAEW).
The ICAEW’s latest Business Confidence Monitor (BCM) showed that record high inflation and rising costs, including energy and the cost-of-living crisis, have adversely affected business confidence.
The latest monitor showed confidence had fallen to -23.4 for Q1 2023, the lowest since the global financial crisis of 2009. This has dropped considerably when compared to -16.9 for Q4 2022.
Most sectors have shared this decline, with construction, property, retail and wholesale and manufacturing the least confident. Annual growth in domestic sales was slowest in the manufacturing and engineering (3.9%) and retail and wholesale (4.8%) sectors.
Michael Izza, Chief Executive of the ICAEW, said: ‘Financial challenges have had a big impact on certain sectors and across the board investment is set to fall over the next year, but it is notable that sentiment could be starting to level off.
‘With confidence at a decade low, it’s time for the Chancellor to outline his long-term vision for growth for Britain, injecting resilience into the economy and bringing in a period of renewal for the future.’
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Businesses that are now liable for the Plastic Packaging Tax (PPT) will need to file their first returns this month.
The UK’s PPT took effect from 1 April 2022 and the first return will cover the period from the date the business became liable to register for the tax to 30 June 2022.
The return will become available to submit on the government gateway from 1 July 2022.
The deadline for completion of the return, and payment of any PPT due, is 29 July 2022.
The government says the PPT will incentivise businesses to use recycled plastic in the production of plastic packaging. Manufacturing or importing ten tonnes or more of plastic packaging containing less than 30% recycled plastic will be taxed at £200 per tonne.
The government said: ‘Businesses who import plastic packaging need to check who is responsible for complying with and paying the PPT. This is unlikely to be the suppliers.
‘The retailer is the consignee and in control of the import, so are the businesses who will need to register for the tax where they pass the ten-tonne registration threshold.
‘If businesses import finished plastic packaging components using incoterms, they will need to agree with the other business about who is responsible for including the details on their PPT return and paying the tax.’
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Manufacturing trade body Make UK is calling for an emergency, pre-recess package of business support measures.
The call comes after a Make UK survey showed growth and orders slowing significantly with exports close to a standstill.
Make UK has made recommendations for measures government can introduce now to address rising business costs including the following:
waive or reduce business rates for the next 12 months
implement VAT deferrals for larger businesses and waive completely for SMEs
temporarily freeze the Climate Change Levy
review the efficacy of the business interruption loan schemes introduced during the pandemic and deploy a successor scheme
Extend the 130% super-deduction tax break, due to end in March 2023
make the increase in the Annual Investment Allowance permanent.
Stephen Phipson, chief executive of Make UK, said: ‘Whilst industry has recovered strongly over the last year we are clearly heading for very stormy waters in the face of eyewatering costs and a difficult international environment.
‘Clearly some of the factors impacting companies are global and cannot be contained by the UK government alone. However, given the rate at which companies are burning through their balance sheets just to survive, it must take immediate measures to help shield companies from the worst impact of escalating costs and help protect jobs.’
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Research carried out by the Federation of Small Businesses (FSB) has found that close to half of UK small firms don’t expect their business to grow over the coming year as a result of the cost-of-doing-business crisis.
The FSB’s latest Small Business Index (SBI) confidence reading stands at +15.3 for the first quarter of 2022, which is down 12 percentage points compared to the same period last year.
Firms in the manufacturing and wholesale and retail sectors report negative readings as supply chain disruption, rising operating costs and surging labour costs affect expansion plans.
National Chair of the FSB, Martin McTague, said: ‘The small business community shrank in size to the tune of hundreds of thousands over the pandemic. With COVID numbers now falling, this needs to be the summer where we start to reverse that trend – policymakers should be doing all they can to facilitate and encourage start-ups and side hustles.
‘The new Enterprise Allowance, which helped move people off benefits and economic inactivity into small business ownership, has now sadly been withdrawn. The government’s own statistics show 500,000 people, including many over-50s, have stopping working altogether – they should be encouraged to start a small business this summer.’
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Data published by the British Chambers of Commerce (BCC) has found that UK export growth has been effectively stagnant for the past year.
The BCC’s quarterly Trade Confidence Outlook revealed that the proportion of exporters reporting increased overseas sales was 29%, whilst 25% reported a decrease.
Manufacturers were more likely to report increased export sales than business-to-business firms or business-to-consumer firms, the data showed.
Commenting on the data, William Bain, Head of Trade Policy at the BCC, said: ‘UK exporters are facing the headwinds of higher red tape costs from trading with the EU, raised raw material pressures and ongoing issues in global shipping markets.
‘If we are to realise the aspirations of the UK government’s Export Strategy then 2022 has to be the year where these structural factors holding back our exporters are addressed.
‘Sustained export growth should be powering our economic recovery from the pandemic.’
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A survey carried out by the Confederation of British Industry (CBI) has revealed that optimism amongst small and medium-sized enterprise (SME) manufacturers rose considerably in the quarter to April 2021.
The survey, which polled 260 SME manufacturing firms, found that optimism rose at the fastest pace in seven years.
The CBI revealed that the volume of total new orders grew, but export orders were flat. Manufacturers expect output and domestic orders to bounce back in the next quarter, the CBI said.
Alpesh Paleja, Lead Economist at the CBI, commented: ‘SME manufacturers are poised for strong growth and are sunnier in their outlook, consistent with the overall picture for the economy over quarter two.
‘But not all is rosy: companies clearly remain under the cosh, with cost pressures mounting and raw materials shortages persisting thanks to COVID-related supply chain disruption.
‘As the end of the re-opening roadmap hoves into view, manufacturers need clear guidance from government on the state of play beyond June, so they can plan, prepare and strengthen their supply chains – ensuring they can continue to operate safely and profitably.’
Across the U.K many business are still missing out on thousands of pounds they are entitled to by not submitting an R&D claim. SME businesses can claim up to 33p for every £1 spent on R&D qualifying activity and large business 10p for every £1 spent.
R&D tax relief is one of the UK’s most generous tax reliefs yet due to the misconceptions surrounding qualifying activities many companies do not even consider claiming.
R&D often occurs within day to day business actives where companies are improving products and even internal processes to maintain a competitive and commercial advantage.
For example, a manufacturing client who is making something faster, lighter, stronger or cheaper would be required to modify processes to facilitate this improvement. Any such developments will involve a reiterative trial and error process and a degree of uncertainty as to whether the desired outcome can be achieved. This development work is where R&D expenditure is commonly found.
We work with businesses across all sectors including bakers, software developers, architects and manufacturing companies of all types.
Examples of our recent claims include:
Law – Development of an automated claims processing solution to increase process speed an reduce manual intervention
Farmer – undertaking a program to identify the optimal predator insects for crops and climates to reduce the need for pesticides.
Energy Supplier – development of a meter reading API for customer smart phone
A commonly overlooked opportunity is where a client incurs a significant spend to improve their internal efficiencies and reporting. In many cases off the shelf products do not have the capabilities to provide end to end solutions. Companies often are required to develop solutions in areas such as stock management systems, time management software and tracking solutions.
In addition any off the shelf solutions require integration with existing systems and therefore project costs are incurred to bespoke the solution in order to generate the required communication or reporting functionality.
Given the significant challenges businesses face during these uncertain times, identifying and undertaking a successful R&D claim can provide a business with the much needed support. As claims can be made for two historic accounting periods including the current accounting period a business has to potential to receive a large benefit in a short period of time with the average claim value in the UK being £52,000 per accounting period.
Identifying the scope and value of R&D activity across a business and undertaking a claim can be a complex process. Our job is to make the claim process as smooth as possible, which is why you will deal with the same technical consultant throughout the process.
A survey carried out by the Confederation of British Industry (CBI) has revealed that, in the three months to April, UK manufacturers’ domestic orders improved at the ‘fastest pace since July 2014’.
Meanwhile, export orders recorded the strongest growth in six years, according to the CBI’s latest Industrial Trends Survey. This was conducted before the announcement of a General Election.
However, the CBI also revealed that the weak pound pushed up costs, with manufacturers reporting the strongest rise in unit costs in six years.
Rain Newton-Smith, Chief Economist at the CBI, commented: ‘UK manufacturers are enjoying strong growth in demand from customers in the UK and overseas, and continue to ramp up production.
‘Exports have surged and firms are at their most optimistic about selling overseas in over four decades. Even so, the combination of the weak pound and recovering commodity prices means that cost pressures continue to build, and manufacturers report no sign of them abating over the near-term.’
Manufacturing output rose by 0.6% in September, according to data published by the Office for National Statistics (ONS). This represents an increase from a growth rate of 0.2% in August, following a 0.9% fall in July.
ONS statistician, Kate Davies, said: ‘There are no obvious signs so far of either the weaker pound or post-referendum uncertainties affecting the output of UK factories, which continued broadly in line with recent trends.’
However, output in the mining and quarrying sector fell by 3.8%, contributing to a 0.4% drop in total industrial production in September. The British Chambers of Commerce (BCC) has stated that the overall trends are ‘concerning’.
Suren Thiru, Head of Economics at the BCC, commented: ‘The pick-up in manufacturing output in September was unable to halt the overall decline in total industrial output in the month. It is concerning that the longer-term trends show that manufacturing and total industrial output are adding little to overall UK growth.
‘It is vital that this month’s Autumn Statement is used to support firms during this period of uncertainty – through greater investment in our infrastructure, and incentivising business investment.’
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