The announcement by the Chancellor that the UK will avoid a ‘technical’ recession will come as cold comfort to many organisations struggling with reduced revenues, higher costs, and reduced margins.
Whilst the news that inflation is likely to be down to 2.9% from 10% by the year end will be welcomed, this does not disguise the fact that many sectors of the economy are already in a deep recession. Sectors that have suffered most are those that rely on consumer disposable income including hospitality, retailing, consumer durables & home improvements. 100% tax allowances for capital investment are welcome, but this likely to be offset by the rise in Corporation Tax, higher interest rates and economic uncertainty. The projected drop of 10% in house prices as a result of higher interest rates and reduced disposable incomes will impact the construction sector.
Changes to encourage people to return or stay in work are welcome, but again are offset by the decision not to raise tax allowances, resulting in additional taxes of £120b over the next five years as more people are pushed into paying income tax or taxed at a higher rate.
Of particular concern is that the economy is projected to be .4% smaller in 2028 than in 2020 when the pandemic began.
So what do you do if you are running a business?
The key message is that for those hit by a margin squeeze it is highly unlikely that economic conditions will change anytime soon. The room that any Government has for manoeuvre is tight.
The priority now is to adjust your cost base which for logistics means focusing on:
- Infrastructure and resources
- Working methods to improve productivity and reduce costs
- Margin contribution by product or service
- Service provision – Is it affordable?
- Mix of fixed and variable resources
- Outsourcing
The UK economy is set for a bumpy ride before real living standards and disposable incomes start to improve. The priority now is to adapt to the current economic conditions.
If you would like to understand how Davies & Robson can help make your Business more competitive please call us 01327 349090
