18 January 2024 | Business Sector Updates
Agriculture, Food & Drink
Statistics shared around the food industry (attached here). There are some interesting points to note; a large number of businesses with no employees. Oils and fats GVA is low due to the huge cost of handling. Aldi is now the fourth largest supermarket in terms of market share. Food inflation is still high although it has started to come down, and this has been a large contributing factor to overall inflation. The cost of raw materials is still high, particularly sugar which a large contributor to many products. There have been consumer price movements, some low, others much higher. It is possible that supermarkets could be influencing some of these.
The Christmas season for hospitality is generally good, and now slower as is usual in January. Some large brewers in the craft sector are still finding things difficult, for a combination of reasons, costs, management etc. Others are picking up opportunities. The grant system does not seem to be working for SMEs. What they need is grants for second hand equipment, quickly. Not pre-planned with a business plan, three quotes and long timescales. These businesses need to be able to make decisions quickly and on demand. The cost of living crisis is still bubbling away and the next uptick for the industry is Valentine’s day. The English wine market is growing nicely and the quality and interest from supermarkets is growing. This will possibly be one of the main growth sectors in alcohol over the next ten years. Online growth is also good.
Banking
There are currently many geo-political tensions, making it difficult to see where the base rate will go next. Towards the end of 2023, clients were looking to pay off loans. This has stopped now early in 2024 suggesting that people are holding on to deposits. Shipping costs are again a challenge, and the education sector are concerned about charitable status and the VAT impact (further examples of the current uncertainty). Other reports from key clients include construction – there are a range of views with some volumes down by 30% and where demand has slowed to some who have seen an increase in orders that have previously been held back. The supply of raw materials is better. Manufacturing – investment is regular but needs to see an increase in demand before more investment is made.
Cyber
The Christmas break and financial constraints are slowing down interest in cyber security and there is still a fear that it is seen as something that ‘is nice to have’. Training staff is hugely important so that they know what to look out for and this is the biggest risk that businesses face, mostly with regards to phishing emails and calls. The threat landscape used to be phishing (using links to click on) on emails with links but is now moving towards emails with PDF attachments, which give access directly to the attacker. Identity theft, the stealing of personal information, has risen to 50% and is again used to gain access and control of a system. The number of cyber attacks is now approximately 840,000 every three months. A West Mercia Safe/Security event is being held at the Cyber Centre on 31 January and is free of charge to book and attend.
Defence Procurement
The sector is expecting the UK General Election to occur in Spring or Autumn 2024, with trade bodies firmly predicting a Labour win. Exactly what this means for the sector is unclear, however, it is widely expected that a complete Security & Defence Strategic review (SDS) will be initiated by a new Labour government, and that will set the tone for what is prioritised (and therefore funded) across the sector. US politics are also being closely watched as the next president will have a potentially huge impact on the sector. Polls are suggesting the return of Trump/Republicans; they will adopt a more domestic focus, with likely impacts on NATO, significant reductions in aid to Ukraine and an unknown policy with respect to support to both Taiwan and Israel. The ‘second order’ effects of these strategic policies will shape global activities in this sector.
A UK Defence SME Board has been established. It’s focus is initially on fairness (making sure small companies get access to opportunities, not just the Blue Chips), the creation of realistic ESG criteria and guidance (current policies are vague and often unaffordable for small companies), and Prompt Payment (so small businesses are not compromised by late payments from Government and/or large defence companies. The Ukraine conflict continue to create opportunities for UK companies, although we expect them to reduce as industry establishes itself in Ukraine, and Central Europe. As we enter Q4 of the FY, Defence underspends will become the focus of MOD financial staff and this typically results in small, agile companies being able to benefit from ‘last minute’ orders.
Legal
Individual sectors vary. Corporate work is progressing well, perhaps driven by uncertainty in an election year and changes in interest rates. Work on restructuring and insolvency vary between the two counties. Family law is typically higher in January unfortunately. Herefordshire continues to find recruitment a huge challenge and this is linked more to area rather than the legal profession itself. Retention at the lower to middle levels are also still a challenge. However, numbers are still good as a full-service firm. Our strength is with our personal connections with our customers.
Manufacturing
The business environment is challenging as an example the changes around R&D tax relief leaving many genuine SME businesses wondering if it’s worth the effort. As a business that looks to develop new products the R&D tax relief really has helped us in the past. We have recruited the staff that we need for 2024, it is unlikely that we will grow the workforce any further this year although I’d like to be proven wrong. We are only anticipating modest growth in 2024 and no further capital expenditure on new machines until the last quarter of the year at the earliest. A reduction in interest rates might help the construction industry which would filter down to us.
Sports & Leisure
The retail/wholesale trade continues to be challenging. Most retailers are seeing a reduction in turnover from 2022. If they can match the previous year’s sales they are more than happy. There is no pressure to increase prices as manufacturing costs are fairly static. An immediate problem is shipping costs. Having come down to below pre-covid levels they are now increasing substantially due to the problems in the Red Sea. A concern is also that containers are taking longer to arrive at UK ports as the ships are having to take a longer route.
Transport & Logistics
The industry is usual slow in January and February. 2024 prices will be lower due to the reduction in fuel costs. Insolvencies in the sector doubled in 2023. Driver recruitment is currently positive but gaining drivers with relevant experience is still a challenge.