Business news 1 March 2022
James Salmon, Operations Director.
Inflation expectations climb to record high. Inflation set to trend higher as wages climb. Climate. Inflation set to trend higher as wages climb. UK companies feel post-Brexit rules pain. And more business news.
Inflation expectations climb to record high
Britons’ expectations for inflation in ten years’ time have hit at a joint record high, a survey by Citi and YouGov has found. Households think the cost of living will land at 4.1% in a decade’s time, up from 3.8% last month. Inflation is currently at its highest rate in nearly 30 years, according to the Office for National Statistics, hitting 5.5% in January.
While the Bank of England (BoE) has said the rate of price rises will peak at 7.25%, analysts believe soaring prices and the increased energy price cap could see inflation hit the 8% milestone in April, with forecasts of peak inflation increased in the last week over concern that Russia’s invasion of Ukraine could have an impact on the supply of energy.
Financial markets expect the BoE to increase interest rates to 0.75% from 0.5% this month, and for rates to reach 1.5% by August.
Reflecting on the poll’s findings, Benjamin Nabarro, an economist at Citi, said the data, “especially the level of long-term expectations, suggest a growing risk that expectations could become de-anchored.”
Inflation set to trend higher as wages climb
Inflation will trend higher in the coming months as businesses lift prices to cope with intensifying wage pressures, according to research by Lloyds Bank.
The poll of 1,200 companies shows 25% of businesses plan pay rises of 1%-2% over the next 12 months, while 23% plan 2%-3% pay rises and around a quarter expect pay to rise by 3% or more. With half of firms expecting to hike pay over the coming year, they are set to increase prices to protect margins.
The survey also found that despite inflationary fears, business confidence climbed to a five-month high of 44%, with this driven by optimism about supply chain disruption easing and improving trading conditions.
Hann-Ju Ho, senior economist at Lloyds, said: “It’s extremely encouraging to see such an improvement in business confidence reaching its highest level since September, fueled by trading prospects reaching their highest level since the start of pandemic.”
Climate
The Intergovernmental Panel on Climate Change released their latest report that showed at least 3.3 billion people are “highly vulnerable” to the impacts of rising temperatures. The report also showed that adaptation and mitigation are not going nearly fast, or far enough.
High street sales bounce back
High street sales returned to higher than pre-pandemic levels in January, outdoing levels seen two years ago in around three-quarters of local authority areas. Spending in the average local authority was 4% higher than in January 2020. High streets seem to be bouncing back after a challenging two years amid the pandemic, with more than 17,000 chain outlets closing across 2021. There was a net decline of 10,059 last year after 17,219 chain store branches closed, compared with just 7,160 openings, according to PwC.
UK companies feel post-Brexit rules pain
Small firms have found it hardest to adapt to post-Brexit customs and export rules, with the Federation of Small Businesses saying SMEs are still waiting for a promised reduction in red tape.
UK to launch world’s ‘most attractive’ visa system for entrepreneurs
Upcoming changes to the UK’s visa system will make it the “most attractive” destination in the world for high-skilled workers and entrepreneurs, with a “scale-up visa” to allow fast-growing companies to easily hire overseas workers and a “high-potential individual” visa to allow graduates from leading universities to obtain a UK visa even if they do not have a job offer.
Meanwhile, the proposed “innovator” visa will make it easier for entrepreneurs to set up a business in Britain by scrapping the requirement for applicants to have £50,000 of investment funds. Speaking at the Bayes Business School, Chancellor Rishi Sunak said: “I believe we now have the public’s backing to create one of the world’s most attractive visa regimes for entrepreneurs and highly skilled people.”
McColls
Convenience store chain McColl’s which owns 1,100 convenience stores and newsagents has confirmed it is seeking a capital injection to stave off insolvency. The firm insists it continues to receive credit support from its key commercial partners as it tries to secure a long-term agreement with lending banks. They also confirmed that they had received a takeover approach but it was later withdrawn.
Croda
Croda International said it delivered a record performance in 2021 with all of the speciality chemical company’s businesses trading ahead of pre-pandemic levels. For 2021, pretax profit was £411.5 million, up 53% from £269.5 million in 2020 on revenue of £1.89 billion, up 36% from £1.39 billion.
Travis Perkins
Travis Perkins has turned round a £35m loss in 2020, into a £241m profit in 12 months, despite inflationary headwinds. Revenue jumped 24 per cent to £4.5bn in the year to December 31, as the building materials business continues its pandemic-era momentum, which saw many households undertaking DIY projects during lockdown.
Business groups call for permanent superdeduction
Business groups argue that lower tax and enhanced investment support could stimulate economic growth and revive productivity, with the CBI saying such measures could yield £100bn for the UK economy by 2030. Outlining steps it says could help the UK to achieve a “more ambitious” economic growth rate of 2.5%, the CBI has called on Chancellor Rishi Sunak to make the superdeduction permanent. While the superdeduction, which allows businesses to knock 25p off their tax bill for every £1 invested in certain equipment, ends next year, the CBI estimates it would boost business investment by £40bn a year by 2026 if made permanent.
Bank of England mulls affordability stress test rethink
Rules introduced in 2014 to restrict the amount mortgage applicants could borrow may be reversed following a review by the Bank of England (BoE). The Financial Conduct Authority introduced strict rules governing how lenders assessed mortgage applications in the wake of the credit crunch, saying lenders had to consider the applicant’s income and expenses instead of lending borrowers a multiple of their annual salary. On top of these affordability assessments, rules from the BoE force lenders to “stress” this affordability should their mortgage rate be 3% more than its standard variable rate for two-year fixed rates. The Bank now believes the affordability stress test could be removed completely without jeopardising the economy’s stability.
Record total pulled from cash ISAs
Savers withdrew a record amount of money from cash ISAs in the second half of 2021, with a total of £7bn withdrawn according to analysis of Bank of England data by AJ Bell. Laura Suter, head of personal finance at AJ Bell, said this marks the biggest outflows from ISAs since they were launched in 1999, noting that “poor interest rates, the cost of living crunch and the dwindling appeal of cash ISAs have all played into these outflows.” Data from Moneyfacts shows that the average stocks and shares Isa fund returned 6.92% between February 2021 and February 2022, while between March 2020 and March 2021 the average return was as high as 13.55%. In contrast, the average cash Isa rate returned 0.51% between February 2021 and February 2022 and 0.63% between March 2020 and March 2021.
2022 set to deliver dividends record
Global dividend payments will hit a new record this year, fund manager Janus Henderson has predicted. The firm, which compiles a global dividend index, estimates that worldwide payouts will reach $1.52trn this year, exceeding the $1.47trn paid out the year before. The report suggests that mining and banking dividends would be the “main engine of 2022 dividend growth”. Banks accounted for about $50.5bn of the total dividends paid last year, while miners distributed $96.6bn.
EC to propose windfall tax on energy firms’ profits
Sources say the European Commission is set to propose that member countries tax profits energy companies have made from the recent surge in gas prices and invest the revenues in renewable energy and energy-saving renovations.
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