Introduction 

Business confidence in the UK is now at a record low and this is in part due to concerns about growing costs of production and consumption. Energy prices are also to blame as they are expected to rise even further this winter. Chancellor Rachel Reeves and her advisors are preparing the November Budget which should hopefully tackle these problems. 

Breakdown 

The survey from the Institute of Directors collected almost 600 responses in the latest iteration. Its Economic Confidence Index dropped down to -74 this September, which is the lowest it has ever been since the Index began taking measurements in 2016. Various sub-indicators are also reflecting a bleak picture. The cost expectations index, for example, hit +89 in September. This index is a measurement of how much directors believe their prices will rise. 

Business Case 

There are multiple reasons for this unwanted development. Businesses are complaining about higher wages, including higher statutory costs such as national insurance contributions. Supply chains and steadily growing energy prices also cause concerns for UK directors. Although energy costs have come down from their peak, they might be expected to rise again. 

Firms that expect weaker demand become more adverse to investment and hiring. The UK is also the G7 nation with one of the highest hiring freezes as employers are advertising less positions and candidates are stuck with fewer prospects. 

Legal Team Involvement 

Various law firms and clients will be affected by this news in multiple ways. Here are some of the most important: 

  • Employment: Employers could start acting in a more defensive manner to ensure that they avoid tribunal hearings for any layoffs or cost-cutting measures. For businesses which have to undergo a restructuring of their workforce, the Employment team would advise on outsourcing, automation considerations, and changes to their employment contract templates.
  • Corporate/M&A: As more companies face the brunt of higher costs and concerns about output, acquisitions of struggling businesses might increase. Private equity houses with diversified portfolios would target companies with growth potential, to improve their prospects in exchange for equity stakes in the business. Lawyers will be particularly relevant when advising on deferred consideration, earn-outs, and downside risk allocation. They may even advise on acquiring competitors at a discount which may involve obtaining clearance from the Competition and Markets Authority.
  • Real Estate: Businesses which are experiencing considerable financial strain may reduce their office space, sublet or assign their leases elsewhere. Landlords could face more defaults from tenants unable to pay their rent on time, so lawyers will be engaged to manage the requests of their client and help to negotiate new lease terms. Tenants wishing to exercise their break rights would approach lawyers to assist in the termination of the tenancy relationship.
  • Banking & Finance: Companies which are highly geared (i.e. take on considerable loans and debt) may find it harder to repay in equal tranches if higher costs continue to loom over their businesses. Lawyers would likely be engaged to negotiate debt restructuring provisions in the loan agreements with the lenders, especially for those who impose tighter covenants on borrowers. B&F teams can also be engaged in refinancing negotiations.

Future Outlook 

As businesses in the UK signal growing distress at the current economic landscape in the country, law firms and their various departments will be engaged to help distressed clients navigate these conditions. For companies which are severely affected, firms will have to work hard to help management keep them afloat and ensure they are able to pay their debts. As the UK awaits the November Budget, distressed companies will continue to hope for better days.