UK business confidence collapses as fears of
‘stagflation’ grow
Supply chain shortages and price rises could lead to
the zero growth and high inflation seen in the 1970s
Richard
Partington and Larry Elliott
Fri 1 Oct
2021 06.00 BST
Business
confidence in the UK has collapsed after a month that has seen supply
bottlenecks, rising energy prices, fuel shortages and looming tax increases
combine to stifle growth.
In its
latest health check on the economy, the Institute of Directors said sentiment
had “fallen off a cliff” in September, adding to fears that Britain was on
course for a dose of 1970s-style stagflation.
The
warnings from the IoD came as people queued to fill up on garage forecourts and
road traffic fell in the last week. The online clothes retailer Boohoo said its
profit margins were being squeezed by higher shipping costs and the need to
increase pay for staff in its warehouses.
The IoD
said the sharp fall in business confidence from +22 points to –1 point in
September meant a return to the pessimism of February, when the economy was
constrained by lockdown restrictions.
Kitty
Ussher, the IoD’s chief economist, said: “The business environment has
deteriorated dramatically in recent weeks. Following a period of optimism in
the early summer, people running small and medium-sized businesses across the
UK are now far less certain about the overall economic situation and the IoD
Directors’ Economic Confidence Index fell off a cliff in September.
“A higher
proportion of our members expect costs to rise in the next year than expect
revenues to rise. This is not helped by the government’s recent decision to
raise employers’ national insurance contributions, which acts as a disincentive
to hire just when the furlough scheme is ending.”
Although
the ONS upgraded its growth estimates for the UK in the second quarter of this
year from 4.8% to 5.5%, activity has slowed since the middle of the year as a
result of rising infection rates, the “pingdemic”, and labour and supply-chain
shortages.
The latest
weekly update on the economy from the ONS showed that job vacancies in the
transport, logistics and warehousing sector were up by more than 350% on
pre-pandemic levels. The combination of pressures has led to warnings the UK
could be heading for a winter of stagflation, when a stagnating economy
combines with rising prices.
Shevaun
Haviland, director general of the British Chambers of Commerce (BCC), which
represents thousands of companies across the UK, said ministers needed to work
with firms to deal with the growing fallout from Covid and Brexit.
Writing in
the Guardian, she warned that businesses were facing the most difficult
operating environment for a generation. “It’s not just labour shortages. The
price of energy, raw materials and shipping have all risen sharply. It’s often
taking longer to move goods across borders and businesses are facing higher
taxes in the coming year,” she said.
As the
chancellor, Rishi Sunak, unwinds emergency support schemes that helped limit
the fallout from the worst recession in 300 years, the Guardian’s monthly dashboard
of economic developments shows signs of distress spreading across the economy.
Businesses
and households are coming under growing pressure from rising costs, with
inflation at the highest rate in a decade ahead of a tough winter, as shortages
of goods and materials drag on growth. In the depths of a fuel crisis as petrol
stations run dry, company bosses warned that removing furlough and other
support schemes risked a “perfect storm” for growth and jobs.
“One of
these issues alone would be tough, but together they create a perfect storm as
we head into an unpredictable winter,” said Haviland.
For more
than a year, the Guardian has tracked the economic fallout from the pandemic on
a monthly basis, following infection rates, eight key growth indicators and the
level of the FTSE 100. Faced with the deepest global recession since the Great
Depression, the Covid crisis watch also monitors Britain’s performance compared
with other countries.
After
suffering one of the worst death rates in the world from Covid-19 and the
deepest economic slump in the G7, Britain’s economy has recovered faster than
expected and is forecast to grow at the fastest rate among the group of wealthy
nations this year. However, economic growth has dropped close to stalling point
despite the end of most pandemic restrictions.
Official
figures show that weaker retail sales and shortages of workers and raw
materials dragged down GDP growth in July to 0.1% on the month, and the IoD
survey will add to fears that the economy has flatlined in the third quarter.
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