Business news 1 August 2024
Bank of England decision day! Home sales climb. Tax, markets, insolvencies & more business news that we thought would interest our members.
James Salmon, Operations Director.
Bank of England decision day!
The Bank of England (BOE) is expected to lower rates for the first time since the start of the pandemic, a day after the Fed held still. Consensus is for a 0.25% reduction from 5.25% to 5%, though investors and economists say today’s meeting is a close call.
As Bank of England policymakers prepare to vote on whether to cut interest rates, financial markets suggest that there is a 65% chance that the Monetary Policy Committee (MPC) opts for a lower rate. With inflation falling to the Bank’s target rate of 2% in May and June, some economists think the MPC could reduce the base rate from 5.25% to 5%.
James Smith, developed market economist at ING, believes it will be a “close call” but expects policymakers to vote for 0.25% rate cut, saying inflation “is the “guiding light” for Bank policy.
Sanjay Raja, senior economist for Deutsche Bank, also predicts that rates will be cut to 5%, but says it will be a “delicate balance.”
Andrew Goodwin, chief UK economist at Oxford Economics, says policymakers could opt to hold rates at 5.25% and use August’s meeting to “lay the groundwork” for a 0.25 percentage point reduction in September.
Experts at Pantheon Macroeconomics also suggest that the MPC could keep rates on hold but “signal they expect to cut rates in the coming months.” Suggesting that the MPC’s August vote will be more “symbolic than substantial,”
Laith Khalaf, head of investment analysis at AJ Bell, said a rate cut “marks an entry into a new phase of interest rate policy, but at street level the reality is financial conditions won’t change much.”
Home sales climb 8% in June
HMRC data shows that the number of home sales rose by 8% year-on-year in June, with an estimated 91,370 transactions taking place. On a monthly basis, sales were down slightly compared to May’s total, with the dip less than 1%.
Elsewhere, Nationwide reports that first timer buyers are now spending an average of 37% of their take home pay on mortgage payments, well above the long term average of 30%. Hose prices grew 2.1% last month they say. The report that the average price of a house increased to £266,334 last month, up 2.1% from the previous year, however, prices are still below the all-time highs recorded in the summer of 2022.
US interest rates held again
The US Federal Reserve has voted to hold interest rates for the eighth consecutive meeting, with the federal funds rate to remain in a range of 5.25%-5.50%. While the Fed did not say when it expects to lower rates, it said there has been “further progress toward the committee’s 2% inflation objective” in recent months. Chairman Jerome Powell said the Fed’s confidence “is growing because we’ve been getting good data.” Capital Economics economist Paul Ashworth believes officials “are positioning themselves for a cut at the next meeting in September.”
Markets
Yesterday, the FTSE 100 closed up 1.13% at 8367.98 and the Euro Stoxx 50 closed up 0.66% at 4872.94. Overnight in the US the S&P 500 rose 1.58% to 5522.30 and the NASDAQ rose 2.64% to 17599.40 on the back of the FED signalling for September.
The Nasdaq was boosted after Meta reported better than expected sales figures and Nvidia, the worlds third most valuable company climbed 13%, rebounding from a 7% fall the day before.
This morning on currencies, the pound is down in anticipation of the cut and is currently worth $1.2767 and €1.1842. On Commodities, Oil (Brent) is at $81.63 & Gold is at $2433. With stock markets, the FTSE 100 is down 0.3% at 8343 and the Eurostoxx 50 is down 1.15% at 4817.
Hunt accuses Labour of ‘great tax betrayal’
Chancellor Rachel Reeves has been accused of a “great tax betrayal,” with predecessor Jeremy Hunt saying Labour was “always planning” tax hikes but “didn’t have the courage to be honest about it.” This came after Ms Reeves admitted that taxes will be raised in the Budget as the Government looks to plug a £22bn hole in public finances. Mr Hunt has criticised Labour for choosing to raise taxes instead of “taking the difficult decisions needed” to reform welfare and increase productivity. He also disputes Labour’s claim of a “black hole” in spending commitments, saying official Government spending estimates do not mention a funding gap. Noting that Labour had denied it would raise taxes 50 times during the election campaign, Mr Hunt said: “Decent people will be astonished at the speed at which Labour’s promise has been broken.”
Chancellor’s tax pledge in doubt
Experts say Rachel Reeves’s promise not to hike taxation on “working people” is in doubt after she admitted she would need to put taxes up this year. Stuart Adam, a senior economist at the Institute for Fiscal Studies, warned that it would be almost impossible to avoid hitting the pockets of workers while increasing the tax burden. He said: “It’s a question of, what do you mean by a tax on working people? Some taxes are more directly on employment, or fall more on working people. But clearly, pretty much any tax rise is going to affect in some sense people who can be called working people.”
The taxes Reeves might target
Allister Heath in the Telegraph looks at Chancellor Rachel Reeves’ plans to increase taxes in her first Budget, saying that while income tax, National Insurance, and VAT rates will remain unchanged, other levies – such as capital gains tax, inheritance tax, pension tax relief, council tax, and Isas – are all up for consideration.
US jobs
US Private Job Growth slowed further in July while the pace of wage gains hit a three-year low, payrolls processing firm ADP reported Wednesday. Companies added just 122,000 jobs on the month, the slowest pace since January and below the upwardly revised 155,000 in June. Economists surveyed by Dow Jones had been looking for a gain of 150,000.
Shell
Shell posted stronger-than-expected second-quarter profit despite lower refining margins and weaker liquified natural gas trading. The oil and gas major reported adjusted earnings of $6.3 billion for the three-month period through to the end of June, beating analyst expectations of $5.9 billion, according to estimates compiled by LSEG. Shell’s second-quarter profits were down 19% when compared to the first three months of the year. The company reported adjusted earnings of $5.1 billion in the second quarter of 2023.
Taylor Wimpey
Taylor Wimpey said it is on track to meet full-year guidance as the company emerges from a more challenging first half. The Buckinghamshire-based house builder said in the first half that ended June 30, pretax profit fell 58% to £99.7 million from £237.7 million the previous year. Revenue reduced 7.3% to £1.52 billion from £1.64 billion, while cost of sales fell 4.5% to £1.23 billion from £1.28 billion.
Finance watchdogs ‘lapdogs of the industry’
The UK’s financial watchdogs have been criticised by Lord Sikka, who accuses them of being “lapdogs of the industry.” Addressing the House of Lords, he said that after the financial crisis, “the regulators’ duty to promote the industry was abolished and they were primarily required to be what I call watchdogs and guide.” However, he added, the last government “changed that legislation and now regulators are required to promote competitiveness and growth of the industry.” “The regulators have effectively become puppies and lapdogs of the industry. Regulatory actions requiring stringent oversight or lower gearing ratios could be interpreted as a tax on competitiveness and potential growth of the industry,” Lord Sikka added.
FCA: Consumer duty having ‘tangible impact’ on customer outcomes
Sheldon Mills, executive director of consumers and competition at the Financial Conduct Authority (FCA), says the consumer duty “is already having a tangible impact on consumer outcomes.” He added that the duty – which obligates financial firms to improve consumer protection standards – “has been driving improvements in firm culture, conduct and governance too, which over time will drive better outcomes still.” Describing the duty as “good for consumers, good for firms, and good for growth in the economy,” Mr Mills said the City watchdog has seen “many examples of positive and impactful changes” since it came into force a year ago. The duty was launched for new and existing products and services that are open for sale or renewal. With a second phase having come into force on July 31, the duty now covers closed products and services.
Eurozone inflation rises unexpectedly
Official figures show that eurozone inflation accelerated in July, rising by 2.6% and exceeding economists’ estimates of a 2.5% increase. Core inflation – which excludes factors such as food and energy – held at 2.9% when economists had expected a slowdown. The data could have an impact on European Central Bank policy and whether it opts to cut interest rates. The central bank cut interest rates in June, marking the first reduction in five years, but held rates in July amid concerns over inflation.
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Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have supported our members through all sorts of difficult trading environments. With high interest rates and a struggling economy and elevated insolvencies, our services can help your business navigate these difficult waters.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.