Recession fear 'later this year' and threat to Kent businesses, warns Rick Schofield of Azets UK


More news, no ads

LEARN MORE

The UK is on course to slump into a recession later this year, a business expert in the county has warned.

And they fear that could sound the death knell for many of the county's small and medium sized firms.

As the inflation rate soared to a 40-year high this week of 9% - meaning the average cost of goods have risen 9% year-on-year - the cost of living crisis is expected to worsen later this year when energy costs rise yet again in the autumn.

The Bank of England has warned inflation will peak at 10.25% later this year. The sign of a healthy economy is for a gradual 2% rise.

With businesses hit by increased costs and the prospect of a collective reduction in spending by consumers, economic activity is set to take a hit.

Recession in the UK is defined by two consecutive quarters of the year seeing a decline in what's known as gross domestic product (GDP). GDP is the total amount of services and products produced by the nation; a decline shows the economy shrinking.

GDP fell by 0.1% in March, the last month the figure was released. February saw no growth.

Budgets are being squeezed and, it is feared, we're staring down recession
Budgets are being squeezed and, it is feared, we're staring down recession

Rick Schofield is a partner at the Ashford offices of accountants and business advisory group Azets UK. He fears for the direction of travel for companies facing rising costs in the supply chain.

"For firms which deal with other businesses, it's not the end of the world for them, as most of them will pass the increased costs on," he explains.

"Those that deal with customers - such as retail and hospitality - that's a complete nightmare for them. We're all thinking do we need to spend this, should I save a bit more? So those hit by Covid are now getting hit again.

"You can either increase the prices - and many are trying to do that - and then think about saving your costs to keep yourself viable.

"And that then has a horrible implication that we could end up going into recession, as well as having inflation and that would be a nightmare scenario for everybody.

Chancellor Rishi Sunak is being urged to act now
Chancellor Rishi Sunak is being urged to act now

"Unfortunately towards the end of the year I can see a recession happening. People are going to stop spending money and it's all going to spiral slowly downwards."

The UK was last in recession, albeit briefly, during the Covid crisis when many businesses and factories were forced to shutdown.

Prior to that, the most recent was in 2008 and into the first half of 2009 - the deepest since the Second World War - caused by the financial crash.

Adds Rick Schofield: "Hopefully it will be short this time, inflation [currently] is pre-dominantly caused by fuel; that will come back relatively quickly. So hopefully a short recession but I think there will be one.

"Unfortunately I think we'll see more firms in Kent forced to close down. There will be lots of businesses that will struggle."

'I think we'll see more firms in Kent forced to close down...'

Businesses have been calling for Chancellor Rishi Sunak to call an emergency budget in which to deliver immediate aide to those firms fearing the worst.

Among the calls are for the recent National Insurance rise to be reduced again in order to put more money in consumers' pocket and VAT on business energy bills to be reduced, temporarily, from 20% to 5%.

Adds Rick Schofield: "If we think of the last two years, the government has done a huge amount for businesses to get them through Covid. They've spent a fortune.

"The question is how much do they have left in the tank to help people again? I think they'll do something, but they'll have to target it at those who need it most; those who are struggling to eat and warm their homes.

"Businesses are, and this may be a bit harsh, but they're a little further down the priority list."

Businessman using modern laptop with graph.Business startup.Analyze strategy conceptsBusinessman using modern laptop with graph.Business startup.Analyze strategy conceptsStrategy text with business icon on modern laptop screen with graph chart background.marketing success and goals concept ideas. (56763036)
Businessman using modern laptop with graph.Business startup.Analyze strategy conceptsBusinessman using modern laptop with graph.Business startup.Analyze strategy conceptsStrategy text with business icon on modern laptop screen with graph chart background.marketing success and goals concept ideas. (56763036)

Generally, inflation rates are sparked by increased consumer spending creating a scarcity in supplies which then see prices rise.

The normal way to combat this is for the Bank of England to raise interest rates - good news for savers, but not so much for those with mortgages or taking out loans. A rise in interest rates is designed to slow our spending down.

However, this post-Covid situation we currently find ourselves in is exacerbated by the war in Ukraine, creating a shortage of many items imported from the war-torn country or Russia, and the after effects of the global lockdowns during the pandemic.

In addition, it is contributing to a rise in energy prices which were already increasing rapidly from the end of last year.

And it is energy and fuel costs which are hitting families the hardest right now. An interest rate rise - and they are anticipated again later this year after being at historically low levels for many years - will only add to basic living costs for many.

Close This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies.Learn More