Glass half empty?
5 October 2021
In sharp contrast to the largely fine September weather, the wet and dull conditions heralding the arrival of October last week were matched by a wave of negative economic developments and unexpected difficulties. This has led to pessimism being expressed in some quarters about future business prospects.
As the blog has maintained since its inception nearly 18 months ago, Covid-19 and its aftermath will present many ongoing challenges, requiring people to keep cool, calm and collected. It’s no different now.
In the next post after this one, as a follow-up, I’ll suggest ten reasons why we should maintain a positive outlook. First, however, to give the other side of the coin for balance (and posterity), here are ten dark clouds that some see on the horizon, making them regard their glass as half empty:
1. End of furlough. On 30 September the Government’s unprecedented furlough programme (officially the Coronavirus Job Retention Scheme) ended. Introduced back in March 2020 and ultimately costing £68 billion, the scheme allowed employers affected by Covid to furlough employees, who could stop working and have 80% of their wages paid by the state. Some estimates suggest 1 million people were on furlough when the scheme ended. There are fears that many will now find their old jobs are unviable and face redundancy in the weeks ahead. A subsequent unemployment rise could cause economic slowdown.
2. HGV driver shortage. The blog reported back in August that hirers were amongst businesses finding it difficult to recruit lorry drivers. Furlough, an ageing workforce nearing retirement, some truck drivers opting to work for the likes of Amazon and DPD that have boomed during lockdown, Brexit, and the lack of a European employee pool have been cited as factors for a shortage of perhaps 100,000 drivers, adding to supply chain difficulties including…
3. Petrol supplies. With fewer HGV drivers, fuel deliveries were disrupted last week and rumours of shortages led to nationwide panic-buying and knock-on delays for businesses sending or receiving goods. Some fuel industry sources suggest the problems could last until Christmas and beyond if people remain selfish and fill-up unnecessarily.
4. Energy volatility. The wholesale price of gas has risen dramatically owing to global demand, causing some suppliers to suddenly cease trading, with more reportedly on the brink. The cost of electricity and gas is set to increase further and organisations (let alone households) will have to absorb that.
5. VAT. On 1 October, VAT on hospitality and some related areas rose from 5% to 12.5% (and it goes back up to the standard 20% rate next March). Some analysts think business and jobs in these sectors might suffer as a result.
6. China. As global demand accelerates post-lockdown, and with so many products being made in the Far East, China has stepped up production – only to find that its power supplies can’t keep pace. Some provinces are even experiencing electricity outages. Ironically, Beijing aims to be carbon neutral by 2060 and coal production has been reduced as power stations turn to gas, but now, as the cost of the fuel rises and coal is in short supply, production capacity is reducing.
7. Supply chain disruption. If supplies from Chinese producers are reduced and alternatives cannot be found quickly, some manufacturers say their production will fall. And with people staying in during lockdown and buying TVs, games consoles and other home entertainment, demand for the printed circuit boards that are now found in so much plant and equipment also rocketed and went to other markets.
8. Inflation. The blog earlier expressed doubts about the Bank of England’s assertion that a rise in inflation would only be ‘transitory’. Following the demand spikes and supply disruptions, the Bank now believes inflation will reach 4% and stay there for longer than first anticipated, which is likely to put upward pressure on wage growth. One analyst has even suggested that the inflation rate could reach 6% in the New Year.
9. Interest rates. If inflation stays high, pressure will become stronger for interest rates to rise from their current historically low levels. That will increase the burdens on borrowers, including businesses with government-backed CBILS (coronavirus business interruption loan scheme) and bounce back (BBLS) loans.
10. Darker days. As stated at the start, the autumnal weather made people realise that they’ll soon be switching on their heating (if they haven’t already) and that their lights will burn for longer when the clocks go back on 31 October. For once, perhaps, the hard-pressed energy companies won’t be pleased.
So, is your glass half empty? In the next post I’ll suggest some reasons why it could actually be seen as half full.
In many ways it’s about concentrating on your own situation and outlook rather than the ‘macro’ economic picture, and adhering to sound management practices… Read it here.
Photo: Mister Mister/Pexels