UK facing a significant deep and hard recession says Chancellor

Britain is facing a “significant recession”, the chancellor has warned, with the economy in March having contracted at the fastest rate on record. Read more: UK facing a significant deep and hard recession says Chancellor

UK facing a significant deep and hard recession says Chancellor

Britain is facing a “significant recession”, the chancellor has warned, with the economy in March having contracted at the fastest rate on record.

The figures, which include just the first week of the lockdown, showed that Britain’s economy contracted by 5.8 per cent in March, the largest month-on-month fall since records began.

Over the first quarter the economy shrank by 2 per cent, according to the Office for National Statistics. This was the sharpest fall since the final quarter of 2008, when Britain was in the depths of the financial crisis.

An internal Treasury document found that the coronavirus crisis will cost the exchequer almost £300 billion this year and could require increases in income tax, a two-year public pay freeze and an end to the triple-lock on state pensions.

The document sets out a proposed “policy package” of tax rises and spending cuts and forecasts Britain will have a £337 billion budget deficit this year, compared with £55 billion in the March Budget. The report suggests that tax rises and spending cuts that would raise up to £30 billion may be needed to help fund the increased level of debt.

It says that in the worst-case scenario, an “L-shaped economic decline”, the deficit will rise to £516 billion in the current financial year, reaching a cumulative £1.19 trillion over five years. This scenario would require £90 billion in spending cuts or tax rises.

The best-case scenario, a V-shaped recovery, is described as optimistic and would still lead to a £209 billion deficit this year.

Details of the document were published by The Daily Telegraph as Rishi Sunak, the chancellor, announced that the government’s furloughing scheme will be extended until October at a cost of about £80 billion.

Grant Shapps, the transport secretary, said he did not recognise the figures but promised “we are not going back to the world of austerity”. He told Sky News: “Had we not done this [extended the furlough scheme] we would have ended up with a much bigger bill.”

John Apter, chairman of the Police Federation, said that freezing the wages of public sector workers would be “morally bankrupt”. He said: “The chancellor and thousands of others have clapped for our key workers every Thursday. To even consider freezing the pay of our essential public sector workers to help the financial recovery would be morally bankrupt and would be a deep and damaging betrayal.”

Responding to the growth figures, Mr Sunak told Sky News: “The first quarter was that bad based on just a few days of the impact of coronavirus in March. It is very likely that the UK is facing a significant recession at the moment and this year.

“It’s premature right now to speculate about that far in the future,” he said. “We are living in a time of unprecedented economic uncertainty. What we are thinking about most and foremost at the moment is protecting people’s health but also to protect.”

The economic figures underscore the damage wrought to the economy by the lockdown, which was imposed only in the final few weeks of the quarter.

Official figures are likely to show a much sharper contraction in the second quarter of the year as the data will capture the full effects of lockdown, which was introduced on March 23. Analysts said that the latest data suggested that the economy contracted by 21 per cent after the lockdown was imposed.

Mr Sunak announced his new furloughing package yesterday. Instead of reducing the amount that staff will receive, he announced that from August, all employers furloughing workers will have to contribute towards the cost of paying people’s salaries.

The amount they will have to pay has yet to be decided although Mr Sunak said that the government will pay the “lion’s share”.

All employers furloughing staff will be required to contribute, including those in sectors such as pubs, restaurants, cinemas, gyms and hotels, which will be among the last to reopen.

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UK facing a significant deep and hard recession says Chancellor

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Your lifeline to moving forward with international trade

International trade is on pause and the situation looks to be getting more complicated on a daily basis. Read more: Your lifeline to moving forward with international trade

Your lifeline to moving forward with international trade

International trade is on pause and the situation looks to be getting more complicated on a daily basis.

For many international businesses, and businesses looking to make their mark in new territories, it’s not going to be as simple as ‘life getting back to normal’ when the Covid ban on travel is lifted.

Goods held at depots worldwide that have perished have cost industries millions of pounds, and the same for non-perishables that are simply waiting to get to their purchaser but are held in a backlog not knowing if the company they are intended for will have survived the crisis.

These situations have meant that banks, lenders and insurance companies are all assessing risk in a brand new way. Money withheld from these core lenders is re-balanced only by companies refusing to pay their bills in a bid to protect their cashflow, adversely affecting others down the line. Contracts are being rescinded and this state of stillness has bred a desperate need for trade and money to flow again. Banks are working to guarantee payment risks across the board for private sector imports but financing trade flow across the globe is high risk in certain areas.

Now is the time to create a new business plan moving forward. Your target markets have changed, your suppliers and your competitors will all have been affected in some way by the Covid crisis and you must adapt your approach in order to succeed. 

Business Matters speaks to international trade and marketing expert Allyson Stewart-Allen, advisor to global brands including Burberry, Nike and HSBC for her thoughts to get you moving again … 

Create a plan, A, B, C through to Z.

Certain restrictions of movement are indeed being relaxed, however some countries may opt to stay closed, as indeed New Zealand is, placing greater restrictions on travel and the movement of goods for a long time yet to come. Check where your goods are sourced – do you have other options in the interim? You need to make backup plans with multiple options to react and survive.

How can a business best prepare and remain focused?

Re-write your business plan to take into account the above challenges and share it with everyone in your team.

Should you communicate as much with your clients even if your messages are uncertain at this time?

Absolutely. You have to appreciate that normal time scales have gone out the window and the person may actually not have the answer you’re looking for right now. But keeping that level of conversation open to be solution-focused will lead to higher chances of finding a solution that’s suitable for both parties while managing expectations during the process. You must be honest and set out clear boundaries for your abilities and limitations before you continue to trade.

Those companies that support each other by open and honest conversations during this incredibly testing time will only seek to further strengthen the bonds you have. In fact if anything, between your relevant clients and prospects, you might find that your honest approach in saying ‘hey things are a bit shaken up right now, but we’re moving forwards by doing X,Y and Z” only seeks to generate a greater engagement between you.

Can you still afford to trade as before?

Do you have the cashflow to stem you over times of late payment? Instead of functioning on 30-day payment agreements, international businesses might now want 90 days, which in business days is equal to 4.5 months. You need to have your cashflow worked out seriously in advance, whether it’s from your own bank, savings locked up or taking the decision to work under a percentage pre-order to tide you over until the remaining percentage is paid on completion.

Don’t forget to take into account that even though many insurance companies have refused to pay out during the crisis, their premiums are likely to rise post-crisis due to the extended risk factor. You must price in these costs, especially with shipping insurance to ensure that you’re covered. 

What can people do with some immediacy to extend their product offering to cover the new delivery times?

Offer downloadable extras? And if you weren’t showing delivery status updates as part of your service, perhaps now is the right time to do so? Consider what other value-added services you can offer such as warranties, guarantees, access to premium content for your customers to learn how to get the most from your products or services. You can also strike new partnerships with companies in adjacent sectors to create bundles that solve a wider range of problems your customers are looking to solve.

How plausible is it to look to renegotiate trade contract terms with suppliers now?

Anything is possible now in this Covid climate. I would suggest investigating all of your options at this time while suppliers are seeking new ways to make money. Covid is creating one of the most innovative business climates we’ve seen for some time.

Appreciate that one size does not fit all

Did it ever? Now more than at any other point in your business, an empathetic yet solution-focused approach needs to be delivered to each unique partner/client to help each other through. Adapt and conquer applies for every possible facet of your company right now and for that of your client’s too.

What is the essence for survival of international trade here? Is it patience and time? Cashflow?

It’s a combination of things. First, it’s about understanding the business culture of your customers so you can be effective as a negotiator, influencer and communicator. Then it’s about finding creative ways to solve – and own – the problem they’re trying to solve by using your products and services. Thinking laterally and looking for partnerships that solve the wider issue will engender long-term loyalty and with that, repeat business. Finally, it’s about looking at how you can innovate by constant discussion with your customers to discover what are some other applications or needs you can fulfill that draw on your current capabilities and resources.

What else can you be doing in the meantime to ensure you hit the ground running when businesses begin to reopen?

Now is the time to revisit your growth strategy. This might include refreshing your website, implementing a social media strategy, reformulating your value proposition. In terms of securing international trade agreements while the final signature is on hold – no air travel equals no execution of the final parts of meetings and due diligence that any firm could and should take – now is the perfect time to do your research online to uncover what new challenges your customers will face post-Covid and how you can best respond to the business opportunities that naturally will arise.

Read more:
Your lifeline to moving forward with international trade

Source : Business Matters More   

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