Weekly Media Briefing

This week’s topics: 

• PwC’s Kevin Ellis comments on lifting of work-from-home guidance  

• Office landlords should embrace ‘hackable’ strategies to meet green objectives 

• December’s insolvency statistics put rising insolvency trends into sharp focus

• Latest GDP, labour market and CPI figures raise likelihood of interest rate increase in February

PwC comments on lifting of work-from-home guidance

Commenting on yesterday’s announcement that work-from-home guidance in England has been lifted, Kevin Ellis, chairman and senior partner at PwC, said:

- To say this is welcome is an understatement. The number one question I’m being asked from our people is when can we get back to the office - they value time with colleagues, alongside the flexibility to work from home when helpful. 

- After the last lockdown restrictions were lifted, it took us two months to get back to 80% capacity. We’re expecting a faster bounce back now - people know the drill - and this is great news for small businesses and city centres that rely on office workers.

Office landlords should embrace ‘hackable’ strategies to meet green objectives

As part of Energy Saving Week (17th-23rd Jan), PwC looks at what office landlords should do to best meet their sustainability goals. 

Derrick Tate, director at PwC, said:

- It is important to manage space with sustainability goals in mind. A hybrid workforce may mean you need less office space, but this space needs to be more flexible - or ‘hackable’ - and better managed. An example might be where employees are located from ground floor up as people enter the office, so upper floors need only to be heated or cooled as and when they are used. 

- Technology is key. If landlords can collect and analyse data on both how people use a building and how the building performs it will enable them to make informed decisions, operational and strategic, in support of their sustainability goals.  

- Sustainability goals, and progress towards them, should be shared with tenants, suppliers and building users. It is important for landlords to maintain high levels of tenant satisfaction. Combating climate change is increasingly important to people and improvements in a building's sustainability is a really tangible way to show progress. 

December’s insolvency statistics put the rising insolvency trends into sharp focus.

In December 2021 insolvencies rose by a fifth year-on-year and by a third compared to December 2019, according to the Government latest insolvencies figures. 

Commenting on these figures, Zelf Hussain, restructuring partner at PwC, said:

- The buffering effects of government support have been crucial for many and have undoubtedly suppressed company failures. December 2021’s numbers are stark, and will take into account the impact on the retail and hospitality sectors of consumers staying out of city centres and other hubs due to the Omicron variant. 

- Some businesses, especially the smaller operators, will simply have been unable to tide themselves over,  which is reflected by the number of Creditors’ Voluntary Liquidations. 

- However, the figures may be masking issues that could come to the boil over the next few months as the December statistics reveal other types of company insolvencies, such as administrations and CVAs, remained lower than before the pandemic.

- A quiet January is likely to increase the pressure on companies’ bottom lines but market sentiment is already hardening in other areas. 

- Winding up petitions and CCJs have been on the increase since furlough support was ended. But this does not include winding-up orders for commercial rental liabilities built up during the pandemic, which remain off the table until the end of March 2022 - as does landlords’ ability to evict tenants. Businesses need to be prepared and get ahead of the issues before they are overtaken by them.

- Our recent Global CEO Survey supports this view with three quarters of CEOs saying they were concerned about the uncertainty and volatility in the markets which almost certainly will impact their performance.

Toby Banfield, restructuring partner at PwC, added: 

- The headline numbers for December’s insolvency statistics put the rising insolvency trends into sharp focus. Tracking insolvency data across 2021, PwC has observed sectors including business services, engineering and construction, manufacturing, retail, and hospitality sectors, and real estate management as being particularly exposed, despite sustained government support. 

- Initial statistics from an upcoming PwC analysis of insolvency trends puts the financial impact of these procedures into focus. By the start of December 2021, more than 24,000 companies had entered into an insolvency procedure across the year, impacting total assets of more than £139bn and turnover of more than £36bn.

- The crucial first few months of this year will be centred on companies working with lenders, suppliers, landlords including local councils, and the tax authorities to shore themselves up and restructure where needed, preserving capital and without having to take protection from creditor action by entering insolvency. 

Latest GDP, labour market and CPI figures raise likelihood of interest rate increase

ONS figures released over the past week have highlighted that the UK economy started to recover to pre-pandemic levels in November, but rising costs make it more likely that the Bank of England will increase interest rates in February.

Commenting on November’s GDP figures, PwC’s chief economist Jonathan Gillham said:

- November’s data has surprised on the upside. Growth is coming in strongly at 0.9% for the month and has taken the economy past its February 2020 pre-Covid level by 0.7%. 

- There were strong performances from consumer sectors and a bumper Black Friday helped drive the economy forwards (almost 27% of retail sales were made online in November). The construction sector grew at 3.5%, benefitting from milder weather conditions and an easing of supply chain pressures. 

- However, the rapid acceleration of the Omicron variant throughout December and January may well put the brakes on the recovery. The hospitality industry was hit hard (again) by the rise in Covid-19 cases and the introduction of Plan B measures. Rises in sickness absence will also hit underlying productivity measures. 

Commenting on December’s labour market figures, PwC economist Jake Finney said:

- The UK labour market continued its strong recovery in November but there are tentative signs it may be starting to lose steam, with the headline unemployment rate falling to 4.1% in the three months to November, only slightly above the pre-pandemic levels of around 4%.

- Meanwhile, vacancies have broken records once again as they climbed to 1.2 million in the three months to December. However, vacancy growth has slowed for the second consecutive period, suggesting demand for labour could be close to its peak.

- High demand for labour is also not translating into higher wages for workers, who saw their real wages falling by 0.9% in November. This will provide no respite to workers who will see their taxes and energy bills rise sharply in the coming months.

Commenting on December’s CPI figures, PwC economist Hannah Audino said:

- The same culprits - higher energy, transport and household goods prices - pushed the 12-month CPI rate to a 30-year high of 5.4% in December. 

- Intensifying cost of living pressures, combined with relatively positive GDP and labour market data this month, make it more likely that the Bank of England will consider another modest rise in interest rates in their next MPC meeting in February. 

- However, given it takes around 12-18 months for the full impact of an increase in rates to be realised in the economy, inflation is expected to continue to rise in the short-term.

Something to listen to:

The pandemic has presented challenges for us all but, for some small businesses, these challenges have turned into opportunity. Join Armoghan Mohammed, PwC’s regional chair for the North, as he learns more about five enterprises that have weathered the storm thanks to their passion and determination in the latest episode of the Northern Lights podcast.

Something to read:

Providing unique insight into the thinking of corporate leaders around the world, PwC’s 25th Annual Global CEO Survey explores top of mind issues for companies today. The survey identifies key trends and patterns in the global economy that affect important management decision-making by business leaders. Explore the findings here. 

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