Inflation, geopolitical uncertainty, skills challenges and increasing supply chain issues are continuing to squeeze the outlook for business investment, according to the new EY ITEM Club Spring Forecast.

UK business investment is now forecast to grow 10% this year, having been expected to grow 12.7% in February’s Winter Forecast and 11.3% in March’s Interim Forecast. This represents an estimated £5.5bn shortfall from February’s forecast. With a sluggish recovery last year presenting a disappointing starting point for 2022, investment is now not expected to reach pre-pandemic levels until the end of this year.

The EY ITEM Club has also downgraded the outlook for UK growth overall, with UK GDP now expected to grow 4.1% in 2022 – down from the 4.2% predicted in March – before growing 1.9% in 2023 and 2.2% in 2024. Growth will be dependent on under-pressure households continuing to spend by saving less and borrowing more – and the EY ITEM Club says that the possibility they may not raises the risk of recession.

Hywel Ball, EY UK chair, says: “Uncertainty about the pandemic has been replaced by geopolitical uncertainty, which has also had consequences for the cost of capital goods and supply chain frictions. The temporary super-deduction tax incentive should support an investment pick-up this year, but its impact is being countered by strong headwinds.

“Some businesses also appear to be grappling with labour shortages and aren’t always able to access the talent needed to identify or deliver investment opportunities. At the same time, many large businesses are actually well-placed to invest, having paid down bank debt during the pandemic and built cash holdings which could can be used to fund new projects.”

The EY ITEM Club estimates that, as of February 2022, UK corporates had accumulated approximately £150bn in extra cash holdings – 5.5.% of GDP – compared to what they would have had access to had pre-pandemic deposit trends continued.

Hywel Ball adds: “Investment prospects could rely, in part, on the labour market outlook – and whether the pandemic-linked rise in non-participation can be reversed. Focusing on skills and talent will be key for businesses, society and the wider economy. Until business investment is unlocked, the UK economy will be even more dependent on consumers, who are facing their own challenges.”

The UK unemployment rate fell to 3.8% in the three months to February 2022, but the number of ‘inactive’ working-aged people is 490,000 higher than two years ago, mainly because of rising numbers of people on long-term sick leave or taking early retirement. Employment is down by over half a million people compared to pre-pandemic levels.

Consumer squeeze continues – and the risk of recession rises

While the EY ITEM Club’s central forecast does not see the UK economy entering a recession, it warns that there is a “serious risk” of this happening later in 2022 if consumer spending does not meet expectations, or if October’s energy price cap review results in a higher-than-expected rise in bills.

Consumer spending is now forecast to rise 4.9% in 2022, down from the 5.1% and 5.6% expected in March and February. Growth of 1.5% is predicted in 2023, down from the March and February forecasts of 1.7% and 2.9%.

Inflation, meanwhile, is still expected to have peaked at 8.5% in April, while average inflation for 2022 is now forecast to be 6.7% (up from 6.5%), the highest level since 1991. With average earnings forecast to rise by just over 4% this year, British workers are set to see the biggest fall in real wages since 1977.

However, consumer spending – and the economy – is expected to benefit from households continuing to release the almost-£180bn worth of ‘excess’ savings (8% of GDP) built up during the pandemic. The EY ITEM Club notes that the household savings ratio fell more rapidly in Q4 2021 than expected, falling to 6.8% from 7.5% in Q3 and a lockdown-induced 18.3% in Q1, but is still above the immediate pre-pandemic average of 4.9% (2017-19).

Martin Beck, chief economic advisor to the EY ITEM Club, says: “The UK economy is not without supports. Momentum at the start of the year should help offset new headwinds to deliver calendar-year growth for 2022. The balance sheets of many households and businesses are unexpectedly strong, having built up a combined £300bn of ‘excess’ savings over the course of the last two years.

“But accumulated savings are not a panacea for the economy. There is a significant risk that consumers, faced with a sustained squeeze on their finances, may cut spending in response. And while the rising cost of living will affect almost all households, some are more vulnerable than others. The distribution of savings built up in the pandemic is heavily skewed towards richer households, while lower income groups will be disproportionately affected by higher energy bills and benefits increases being outpaced by inflation this year.

“The forecast for households improves significantly in 2023 and 2024, but we’re not there yet. Economic growth this year will depend heavily on squeezed households being willing to spend, which, in turn, will rely on falls in real incomes being offset by households saving less or taking on more debt. There is scope for households to do this but there are no guarantees consumers will come to the rescue.”

The EY ITEM Club expects pressure on households to ease from next year. Energy prices are predicted to fall across 2023 and 2024, pushing down on inflation, which is forecast to average under 2% in 2024. The benefits uprating in April 2023 is likely to be over 7%, well ahead of prices rises. And while high inflation will mean the four-year freeze on tax allowances and thresholds will affect more taxpayers than intended, this will be mitigated by a 1p cut in the basic rate of income tax from April 2024.

Businesses based in Boston Town can now benefit from fully-funded support and training to help them to prosper and grow. The Centre for Food and Fresh Produce Logistics has been set up by the University of Lincoln’s National Centre for Food Manufacturing (NCFM) in association with Boston College. Funded through the Boston Town Deal this forms one of the eight projects within an overall funding package of £21.9 million to Boston provided through the Town Deal Initiative by the Department for Levelling Up, Housing and Communities. The funding is aimed at businesses in: Agri-Food Technologies, Port & Logistics, Manufacturing, Engineering & Packaging, Equipment & Technical Services plus Food Service including Retailers and Restaurants. The delivery partners provide an outstanding resource base and work in collaboration with Boston businesses to identify growth needs and provide suitable solutions. The ambition is to enable businesses to grow through adoption of innovation, digital technologies, scientific research, training and development of workforce, products and process development plus business advice. There is also a Capital Grant element to help towards equipment purchases. Benefits are tailored to suit the needs of the business and employees with a focus on: Business Support to Enhance Productivity, Profitability and Job Creation Access to technical services and consultancy provided by a dedicated team of experts at the National Centre for Food Manufacturing (NCFM), Boston College, Lincoln Institute of Agri-Food Technology and University of Lincoln College of Science. Project examples include – Digitalisation, Automation, Product Trials and New Product Development, Processes, Packaging, Robotics, Finance, Marketing, Crop Storage, Scientific Research and General Business Consultancy. Knowledge Transfer and Networking Programme members benefit from business networking and knowledge sharing activities such as – Events, Equipment Demonstrations, Masterclasses and Signposting to other sources of relevant support. Workforce Development through enhancement of Skills and Knowledge Boston College provides the lead for the development and delivery of training programmes to match the growth needs of programme businesses. Topics aim to upskill the workforce and enhance the effectiveness of business leadership and management. Sector activities will also campaign for career awareness, create a talent pipeline and encourage new entrants. Some courses will be delivered via distance learning and course costs will be covered by the programme, thus avoiding the main barriers to workforce development. Capital Grants Potential for Capital Grant funding contribution towards the purchase of equipment identified as required to meet project needs established during programme engagement. Up to 50% of purchase cost to a maximum of £5000 could be available, subject to application and panel approval. Councillor Paul Skinner, leader of Boston Borough Council, said: “This new opportunity which focuses on skills development for the food chain and technology sector is something we have been looking forward to for many months now. The Centre for Food and Fresh Produce Logistics forms part of the wider South Lincolnshire food knowledge cluster centred on the South Lincolnshire Food Enterprise Zone in Holbeach. Getting this project underway by enhancing and developing our younger generations education is key to future successes.” Chair of the Boston Town Deal Board, Neil Kempster, said: “I am delighted to see the official launch of the Centre for Food & Fresh Produce Logistics which is a key component within the portfolio of projects being supported through the funding from the Boston Town Deal. “It targets some of the key sectors of the local economy providing support and access to funding and resources that will enable local businesses to prosper, as well as helping to educate our younger generations of the significant opportunities available to them in this specialist and diverse environment. I would encourage as many local businesses as possible to take advantage of this initiative which I believe will make a real difference to the local economy.” Dean of The University of Lincoln Holbeach Campus and head of NCFM professor Val Braybrooks MBE said: “The new Centre for Food and Fresh Produce Logistics will enable Boston Town to play a pivotal role in achieving the Local Enterprise Partnerships UK Food Valley ambitions to grow and promote our world class food sector as a major talent and investment hub. “It will help to drive business partnered enterprise, innovation, and research, with an aligned skills offer to enhance productivity and provide access to high quality career opportunities for Boston’s agri-food sector and community.” Principal & CEO of Boston College, Claire Foster, said: “We are delighted to be associated with this Boston-focussed project to support our food and logistics sector. Never before has it been more important for colleges, universities and businesses to combine our efforts for innovative collaborations, mutual support and benefit, increasing productivity for the shared prosperity of all. We look forward to being integral to the success of our local industries, providing skills and employment opportunities for now and the future.”

The deal to take Derby County out of administration and under the ownership of American businessman Chris Kirchner is nearing completion, according to the EFL Board. In a newly released statement, the EFL noted that evidence of source and sufficiency of funding has now been provided, but there still remain a number of outstanding challenges to be resolved. The Board has instructed the Executive to continue its discussions with Kirchner in regard to finalising the terms of a Membership agreement. A significant issue highlighted is the status of the stadium. The EFL said: “It is clear that the complexity associated with this aspect of the transaction is the biggest hurdle to overcome.” Kirchner continues in dialogue with the relevant parties as to how this can be resolved. The joint administrators of Derby County, Quantuma, named Kirchner as the preferred bidder for the club last month, after the businessman had initially expressed an interest in acquiring the club in late 2021. Quantuma noted that the bid is for the purchase of the football club only, with the terms of the club’s ongoing occupation of Pride Park stadium to be negotiated with external stakeholders. The EFL’s statement said: “The EFL Board has today been advised that a deal to take Derby County out of administration and under the ownership of Mr Chris Kirchner is nearing completion. “Evidence of source and sufficiency of funding has now been provided but there still remain a number of outstanding challenges to be resolved. “As a result, the Board has instructed the Executive to continue its discussions with Mr Kirchner and his representatives in regard to finalising the terms of a Membership agreement. “However, a significant issue remains in respect of the status of the stadium and Mr Kirchner continues in dialogue with the relevant parties as to how this can be resolved. It is clear that the complexity associated with this aspect of the transaction is the biggest hurdle to overcome. “The EFL acknowledges the current time pressures relating to Mr Kirchner’s position as preferred bidder and will seek to conclude matters as soon as possible in line with requirements as set out in the League’s Insolvency Policy. “The League will be making no further comment at this time.”

Ward has joined the sponsor line up for the East Midlands Bricks Awards 2022, supporting the Developer of the Year category for another year. Speaking with Business Link, Donald Ward, operations director at Ward, said: “Supporting the achievements of our friends, customers, colleagues and suppliers in the building and construction sector is important to us, that’s why we’re pleased to be sponsoring the Bricks’ Developer of the Year category again this year. “As a business we support developers and contractors to maximise recycling and achieve potential returns through segregating waste streams on site. Part of our ongoing sustainability strategy is to work with the construction sector and its supply chain to reduce waste to landfill, improve environmental credentials and realise financial and operational efficiencies through effective metal recycling and waste management.” The awards, which will take place on Thursday 15 September at the Trent Bridge Cricket Ground, celebrate the outstanding work of those shaping the landscape of our region, recognising development projects and people in commercial and public building across the East Midlands – from offices, industrial and residential, through to community projects such as leisure schemes and schools. Nominations are now OPEN for East Midlands Business Link’s annual Bricks Awards. To submit a business or development, please click on a category link below or visit this page.