Business news 2 November 2022
James Salmon, Operations Director.
Manufacturing sector contracts again. Retail inflation. Call to extend UK energy price cap to hold inflation. Britain faces £89bn fiscal hole. BP profit sparks calls for bigger windfall tax. And more business news.
Manufacturing sector contracts again
The manufacturing sector shrank for the third month in a row in October, according to the latest S&P/CIPS purchasing managers’ index. It scored just 46.2 on an index where anything below 50 is considered a contraction. This compares with a reading of 48.4 in September. Rob Dobson, director at S&P Global Market Intelligence, said: “UK manufacturing production suffered a further decline at the start of the fourth quarter, with the sector buffeted by weak demand, high inflation, supply-chain constraints and heightened political and economic uncertainties.” Mike Thornton, national head of manufacturing at RSM UK, said: “The October manufacturing PMI paints a bleak picture, and, with the exception of the 2020 lockdown, when manufacturing stopped almost entirely, this is the lowest level we’ve seen since the 2008 financial crisis.”
Retail inflation
Prices in UK shops rose at the highest rate recorded since 2005 in October as the cost-of-living crisis piles pressure on consumers. The British Retail Consortium said shop-price inflation accelerated to 6.6% last month, a record for the index which started 17 years ago, and up from 5.7% in September. Food price increases hit 11.6%, another record, with items such as tea bags, milk and sugar all experiencing significant spikes. Inflation is hitting consumers from all angles with rising bills across food, fuel and energy.
Extend UK energy price cap to hold inflation back, says IPPR
The IPPR has said that Chancellor Jeremy Hunt should allow the energy price cap to run beyond the existing six-month deadline to act as a “shock absorber” that would reduce inflation and give consumers £90bn of extra spending power. The think-tank said the energy price cap could repay the exchequer in lower wage demands and lower interest rates, boosting economic growth and raising tax receipts.
Britain faces £89bn fiscal hole without tax rises
The Resolution Foundation think-tank has warned that without spending cuts or tax rises, the Government’s deficit could soar to £89bn by 2026/27. The report says Prime Minister Rishi Sunak and Chancellor Jeremy Hunt will need to outline £40bn worth of departmental and investment spending cuts and tax rises in the upcoming Autumn Statement if they are to hit their financial targets. Reinstating the National Insurance rise would raise £15bn by 2026/27, while around £2bn could be raised by extending the stealth freezes in income tax threshold by a further year to 2026-2027, the think-tank said. The Foundation has warned that the Office for Budget Responsibility could predict a recession next year, with GDP forecasts cut by up to 4% by the end of 2024.
BoE in £750m bond sale
The Bank of England has sold £750m of government debt, with the bond auction heavily oversubscribed. The Bank received £2.44bn worth of bids for the debt. Despite the sale, the Bank still owns over £837bn of government debt. While quantitative easing (QE) saw the Bank buy up government bonds to support spending and bring down interest rates, selling bonds – quantitative tightening (QT) – is expected to raise market interest rates and discourage bank lending. Tighter financial conditions should reduce demand in an economy and tackle inflation. Antoine Bouvet, senior rates strategist at ING, warned that the Bank has sold bonds that were already in high demand, meaning there may be an issue once longer-dated debt sales begin. “So far so good I would say but clearly gilts cannot afford an underwhelming budget or investors questioning the BoE’s tightening strategy,” he added. Martin Beck, adviser to the EY Item Club, has warned that now may be the “wrong time” to ask investors to buy UK government bonds, which have suffered steep falls in price since August.
BP profit sparks calls for bigger windfall tax
The Government has been urged to increase the scale of the windfall tax on energy firms after oil giant BP reported global profits of £7.1bn between July and September. Despite the vast profit, BP expects to pay $800m in UK windfall taxes this year. Rival Shell recently said it will pay none this year due to investments in the UK but expects to pay the levy next year. While the Treasury expects the levy to raise £17bn this year and next, Ed Miliband, shadow climate change secretary, said that BPs’ profits were “damning evidence of the failure of the Government to levy a proper windfall tax.” He said ministers have left “billions of windfall profits in the pockets of oil and gas companies, while the British people face a cost-of-living crisis.” Former Business Secretary Alok Sharma tweeted that more money needs to be raised from the windfall tax, while Liberal Democrat Treasury spokesperson Sarah Olney said the tax was “incredibly weak.” Friends of the Earth said BP’s figures highlight the need for a bigger windfall tax, accusing oil and gas companies of using “ridiculous loopholes” to pay “the bare minimum.”
Stealth tax to hit middle earners
Analysis for the Times shows that middle earners will face a hit of more than £3,500 a year due to a stealth raid on income tax set to be rolled out by the Prime Minister and the Chancellor. It is believed that Rishi Sunak and Jeremy Hunt have agreed to extend a freeze on income tax thresholds that had been due to end in 2026 until 2028 as they look to plug a £35bn gap in public finances. HMRC figures published in June shows that 6.1m people paid the higher rate of income tax because of the freezing of thresholds, up from 4.2m in 2019. Analysis conducted by Blick Rothenberg shows that someone earning £50,000 a year would have paid £3,659 more in tax overall by 2028 if thresholds were frozen instead of rising with inflation. Someone earning £100,000 a year would be £8,229 worse off. The Government believes that extending the freeze in thresholds at the next Budget, due to be delivered on November 17, would raise about £5bn a year by 2027/28.
House prices slip 0.9% in October
House prices fell for the first time in more than a year in October, according to figures from the Nationwide Building Society. The average price dropped 0.9% to £268,282 last month, while year-on-year growth slowed from 9.5% to 7.2%. Robert Gardner, Nationwide’s chief economist, said a “sharp rise” in mortgage rates has had an impact, commenting: “Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation.” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the fall in prices “provides the strongest signal yet that house prices will buckle in the face of the surge in mortgage rates and the squeeze on real disposable incomes.”
Tax credit fraud a ‘major scandal’ – Lord Turnbull
Lord Turnbull has told the House of Lords that fraud related to tax credits is a “major financial scandal” and criticised the tax authority over its failure to prevent misuse of the research and development tax credit scheme. This came after HMRC data revealed that losses to fraudsters and erroneous claims totalled at least £469m last year
PM scraps target for civil service job cuts
Rishi Sunak has scrapped a target of civil service job cuts introduced when Boris Johnson was Prime Minister, ordering departments to find efficiency savings instead. While the Prime Minister has removed a target of shedding 91,000 jobs, Downing Street said a reduction in headcount was still required. Mr Sunak stressed the importance of ensuring “every taxpayer pound goes as far as it possibly can,” adding: “I do not believe that top-down targets for Civil Service headcount reductions are the right way to do that.” The Prime Minister’s official spokesman said reductions in civil servant numbers would be up to individual departments, and no targets would be set. Responding to the news, the Trades Union Congress tweeted: “Big win for civil servant trade unions.”
Ocado
Ocado announced a partnership between Ocado Solutions and Lotte Shopping, the largest retail affiliate of the South Korean conglomerate Lotte Group. The online grocer said the pair will develop a network of customer fulfilment centres in South Korea, with six planned by 2028. Ocado plans to roll out its in-store fulfilment solution in 2024, with the first CFC to go live in 2025.
Ryanair
Ryanair reported its October traffic statistics, with a 38% year-on-year rise in passengers during the month to 15.7 million. Load factor also improve to 94% from 84% a year before. On a rolling 12-month basis, passenger numbers nearly tripled and load factor was 12% higher.
GSK
GSK reported revenue of £7.83 billion in the third quarter, rising 18% from £6.63 billion a year before. Pretax profit dropped 15% to £1.01 billion from £1.19 billion
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