Economic Update16th February 2012

HMRC set to get protection from pre-pack losses

After dropping reforms that would have given creditors three days to object to a pre-pack, the government is to allow HM Revenue & Customs (HMRC) to ask ailing businesses for security, if it is feared a pre-pack might be used to avoid settling a tax liability.

From April, if HMRC thinks there is a serious risk that PAYE or national insurance contributions will not be paid over, companies can be asked  for a cash deposit or a bank bond, with the threat of a fine of up to £5,000 if the security is not produced.

The RHA is attending a meeting next week with the Insolvency Service to see what can be done to improve the system for creditors and competitor businesses as things stand.


Jobs market falters as unemployment spikes

Unemployment has risen 48,000 to 2.67 million in the three months to December 2011. The unemployment rate is 8.4%, according the Office for National Statistics.

Private sector businesses look set to cut jobs at the fastest rate since 2009 according to the Chartered Institute of Personnel and Development (CIPD). 

CIPD has predicted that unemployment could reach 2.85 million by end of 2012, as fears over the state of the economy and the euro crisis lead businesses to shed jobs.

However,  employment  prospects have improved slightly in the south of England, apart from London where things worsened. But according to CIPD there has been a significant deterioration in employment prospects in the north.


Construction contraction in Q4 of 2011

Construction output fell by 0.5% in the final quarter of 2011 compared to the third quarter of last year. However output was still up on the final quarter of 2010 by 0.9%. 

The fourth quarter of 2011 saw new work fall by 0.6%, while repair and maintenance dropped by 0.3% compared with the third quarter of 2011.

The figures come from the Office for National Statistics.


CPI inflation down to 3.6%

Consumer prices index (CPI) fell to 3.6% in January, down from 4.2% in December as the January 2010 VAT increase dropped out of annual statistical comparisons.

The biggest downward pressures on CPI annual inflation between December 2011 and January 2012 came from fuels & lubricants, products bought in restaurants & cafes, tobacco, vehicle maintenance & repair, the purchase of new vehicles and alcoholic beverages.

Retail Price Index or RPI inflation is now at 3.9% in January 2012, down from 4.8 % in December 2011.


Bank prints more money and holds rates

The Bank of England monetary policy committee has held the base rate at 0.5%, where it has remained since March 2009.

At the same time a decision has been taken to extend the programme of quantitative easing (QE) by pumping a further £50 billion into the UK economy. This will increase the QE total to £325 billion.

The measure is intended to support the UK economy at a time when there is a real risk of an extended contraction, even though the move could stoke inflation. However the Bank of England takes the view that inflationary pressures are reducing, so more QE will not cause a problem.

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