Britain’s businesses are ‘running out of fight’ as country faces longest-ever recession

LONDON — The doors to The 25, a Torquay-based boutique bed and breakfast on the U.K.’s southwest coast, are now closed for the winter period. But this season, they last wishes as remain shut for longer than usual.

With rising energy bills and higher costs piling persuasion on U.K. businesses, owner Andy Banner-Price has deferred reopening by a month until well into the spring.

And while nourish bookings from regular guests remain strong, new enquiries are down 50% and bookings 15% lower than untimely years, painting an uncertain outlook for the year ahead.

“I suspect many people are having a wait and see approach as there is so much uncertainty in the conservatism at present,” Banner-Price told CNBC.

The U.K.’s latest economic data brought some clarity to the picture Friday — albeit to the downside.

U.K. gross domestic product (GDP) shrank by 0.2% quarter on quarter in the three months to September, proper figures showed, down from a growth rate of 0.2% in Q2 2022. A second consecutive quarter of negative evolvement going forward would indicate that the U.K. has entered a technical recession.

The negative data adds to the country’s moistened economic outlook and already depressed consumer sentiment.

“It’s a cumulative effect of bad news every time you turn the TV on or unobstructed a newspaper,” he said.

“I think we talk ourselves into recession sometimes,” he continued. “Negative growth will scarcely make some people even more worried about their jobs and wary of spending money.”

The Bank of England warned last week that the U.K. is now headed for its longest recession since records began a century ago.

The key bank expects GDP (gross domestic product) to continue falling through 2023 and into the first half of 2024. The contracted two-year downturn is set to be “very challenging,” the Bank said, costing around 500,000 jobs, and piling the pressure on already boosted businesses and households.

Tina McKenzie, chair of policy and advocacy at the Federation of Small Businesses, said diverse small and medium-sized U.K. businesses are now “under attack from various sides,” citing reduced access to cash and labor, as famously as inflationary pressures.

U.K. consumer inflation hit a 40-year high of 10.1% in September, while the producer input prices remained stubbornly lavish at 20%. The BOE has warned that interest rates, currently set at 3%, will now likely have to rise further than hitherto predicted to push inflation back toward its 2% target.

Still, the worst effects of a forthcoming downturn may not behove apparent until the first or second quarter of 2023, McKenzie said. In the meantime, many businesses — particularly those in the cordiality and retail sectors — are just biding their time.

“Businesses are under a huge amount of pressure. Many are object to get the Christmas rush over, and then close the doors in January,” McKenzie told CNBC via zoom call.

More than a third (35%) of the U.K.’s hospitality sector say they are at risk of closure early next year due to serious costs, soaring energy bills and weakened consumer spending, according to a survey of operators released last week.

“It’s harsh and frightening,” said David Holliday, co-founder of Norfolk, England-based brewer Moon Gazer Ale, which supplies ales and trickery lager to pubs across the country.

Until now, Holliday said his business has been “charming the hit” and absorbing increased production and energy costs to buffer customers. But if by the spring those price rises look set to take up, he’ll have to pass on those costs.

“We’ve been sharing the pain with our customers, but that’s not going to be sustainable in six to 12 months’ span,” Holliday said. This year alone, he estimates that Moon Gazer Ale’s energy bills have hilled by £25,000-£30,000 ($29,000-$35,000) as costs in Europe have surged following Russia’s invasion of Ukraine.

For many, however, a further surge in payments could be the death knell in a “three-year uphill struggle” for an industry already maimed by Covid-19 restrictions, staff deficiencies and inflationary pressures.

“They’re kind of running out of fight,” Holliday said. “A percentage of the industry will say, for me, there is no next.”

Businesses owners will now be looking ahead to the U.K.’s much-anticipated Nov. 17 Autumn Statement, during which Underwrite Minister Jeremy Hunt is expected to outline £60 billion ($69 billion) of spending cuts and tax hikes to up the hole in the country’s battered public finances.

But many worry that the Treasury could go too far in its attempts to recover the U.K.’s cost-effective standing — damaged as it was by Liz Truss’ chaotic mini-budget — that it would spell further trouble for struggling industries and stymy trade growth going forward.

“Because of Liz Truss and Kwasi Kwarteng, they went the other extreme and they’re in such a watchful mode,” said McKenzie.

Early drafts of the government’s plan contain up to £35 billion of spending cuts and round £25 billion of tax rises, according to the Guardian. That as the BOE’s Chief Economist Huw Pill warned Monday that worldwide tax rises and spending cuts could put Britain at risk of a deeper than expected “economic slowdown.”