Business news 2 December 2021
James Salmon, Operations Director.
UK economy will grow faster than the EU in 2021 and 2022 .Manufacturers see prices rise at the fastest pace in three decades. Omicron. Renewables. Inflation could add £1,700 to family costs. And more business news.
OECD: UK economy will grow faster than the EU in 2021 and 2022
The Organisation for Economic Co-operation and Development (OECD) has predicted the UK economy will grow at a faster rate than the EU’s over the next two years. It expects the UK economy will grow by 6.9% in 2021 and then 4.7% in 2022, while across the eurozone, it expects growth of 5.2% in 2021 and 4.3% next year. The OECD forecast suggests the UK will outpace the growth of other G7 nations this year and next. While its forecast for 6.9% growth this year is an upgrade on the 6.7% it forecast in September, the projection for 2022 is down from a previous estimate of 5.2%. The OECD lowered its global growth outlook to 5.6% for 2021, with this down from 5.7%, while it kept its 2020 estimate unchanged at 4.5%. Presenting the report, OECD chief economist Laurence Boone warned that the Omicron strain of Covid “is further adding to the already high levels of uncertainty and risks, and that could be a threat to the recovery.” Focusing on the UK, he also warned that a “prolonged period of acute supply and labour shortages could slow down the recovery.”
Manufacturers see prices rise at the fastest pace in three decades
Prices across Britain’s manufacturing sector have increased at their fastest rate in three decades, according to the latest IHS Markit/CIPS manufacturing PMI, with the cost of raw materials and crucial components climbing. Rob Dobson, director at IHS Markit, said a shortage in the raw materials market is “exerting massive upwards pressure” on input prices and pushing firms’ costs “relentlessly” higher. The PMI shows growth in the manufacturing sector sped up for the second month in a row in November, despite squeezed supply chains. The manufacturing PMI reading for November came in at 58.1, against 57.8 in October and 57.1 in September. This remains lower than the 60.3 score seen in August on an index where anything above 50 signals growth. Martin Beck, chief economic adviser to the EY Item Club, commented: “There was no sign of supply-chain issues abating. And higher fuel, energy and raw material prices, alongside input demand outstripping supply, contributed to cost pressures rising at the fastest rate in the survey’s 30-year history.”
Omicron
The head of South Africa’s National Institute For Communicable Diseases said the Omicron variant of covid-19 was spreading “exponentially” in the country, and now accounted for 74% of new cases in the country. 25 Countries have now discovered cases within their borders.
GlaxoSmithKline said that preclinical data showed sotrovimab, an investigational monoclonal antibody treatment, retains activity against key mutations of the new variant. The findings were generated through pseudo-virus testing of specific individual mutations found in Omicron. GSK, alongside collaboration partner Vir Biotechnology, are now completing in vitro pseudo-virus testing to confirm the results. An update is expected by the end of 2021.
Renewables
The International Energy Agency have predicted that renewable-energy capacity will jump to more than 4,800 GW by 2026, a 60% increase on 2020 levels. However, growth needs to speed up 80% if we are achieve net zero by 2050.
Inflation could add £1,700 to family costs
Analysis by the Centre for Economics and Business Research (CEBR) suggests a typical UK family will spend £1,700 more per year on household costs in 2022. The forecast for the BBC’s Panorama says a family of two adults and two children is set to spend £33.60 more per week compared with December 2020 due to inflation, with the report projecting that the inflation rate will rise to 4.6% by Christmas from the current 4.2%. The forecast is based on the prices of commonly bought items including food and drink, clothing and household goods. It also includes spending on utility bills, transport costs, and recreational activities.
Graduates warned over unscrupulous employers
Experts have warned that unemployed graduates are at risk from unscrupulous employers using the pandemic as an excuse to exploit them with low or no pay. This comes with competition for graduate jobs at a record high, with figures showing the unemployment rate for graduates aged 21 to 30 is 6.3%, compared to just 2.5% for those aged 31 to 40. A report by the Institute of Student Employers shows shows there are now more than 90 applications for every graduate position, a 17% increase on last year and the highest number since data started being collected in 1999. Tanya de Grunwald, founder of careers blog Graduate Fog and the Good + Fair Employers Club website, says the job market is currently a “wild west” for graduates, saying the “backdrop of the pandemic has given unscrupulous employers the perfect excuse to take advantage of young people who are either naive or vulnerable or desperate for a job.”
Gaming to be worth £60bn globally
Deloitte analysis suggests the games console market will generate over £60bn globally in 2022, a total that would mark a 10% increase from 2021. It predicts that there will be 900m console players and each will bring an average of £69 of revenue to the industry – compared to £17 per PC gamer and £37 per mobile gamer. Deloitte predicts console owners will have more than 200m gaming-focused subscriptions in 2022. By 2025, these subscriptions will likely generate more than £8.2bn in revenue globally, up from £4.9bn in 2020. Deloitte’s Digital Consumer Trends report also suggests traditional TV broadcasters’ share of viewing hours among UK consumers – which was 73% in 2017 – will fall to 53% in 2022 and 49% in 2023. Time spent viewing content on streaming video on demand is predicted to rise from 7% in 2017 to 27% next year and 31% in 2023.
Tax hikes are the wrong route to restoring public finances
The Times’ leading article says increasing corporate and business taxes marks the wrong approach to restoring public finances that have been dealt a blow by the coronavirus crisis. It cites former Chancellor Lord Lawson’s suggestion that “a good tax system should be broadly based, with low tax rates and few tax breaks”, arguing that national and local governments “need constant reminders of this sensible maxim.” Noting an Office for Budget Responsibility projection that the tax burden in Britain will reach 36.2% of national income by 2026/27, the piece argues that a notion suggesting that public finances can be repaired “painlessly” by raising taxes on business “is a fallacy.” It warns that “by raising the tax burden, governments cannot avoid eroding the living standards of individuals”, with the item concluding: “Britain would do well to rediscover the merits of the tax-cutting and tax-simplification strategies that were the hallmark of Conservative administrations of an earlier era.”
Economist questions Starmer’s wealth tax idea
An economist has warned Labour leader Sir Keir Starmer that his plans for a wealth tax will not work. Senior labour figures, including Sir Keir, have suggested that wealth tax increases would be a fairer way to pay for health and social care reform, while Andy Burnham, the mayor of Greater Manchester, has also called for a range of wealth tax increases. However, Julian Jessop of the Institute of Economic Affairs think-tank says wealth taxes “are not really a long term solution”, adding that a one-off wealth tax “might fix the short term problems”. He went on to say “there are a lot of problems with wealth taxes, for example they are sometimes actually quite hard to collect. It’s much easier to tax income than wealth.” Mr Jessop also warned that wealth taxes “can quite often be unfair” as they are retrospective “and can be double or even triple taxations”. However, AJ Bell analyst Tom Selby has suggested that wealth taxes are the “fairest way” for the Government to raise funds. Saying that such a move would ensure “those with the broadest shoulders are targeted” to take on the costs of paying for the pandemic, he warned that there would be “challenges around people avoiding bills.”
House prices climb 10% in a year
House prices have risen 10% in the past year, according to data from Nationwide. Analysis shows that the average house price rose 0.9% in November, climbing £2,367 from October’s average to hit £252,687. This means the typical home is now worth 10% more than in November 2020 and 15% more than at the start of the pandemic in March 2020. Robert Gardner, Nationwide’s chief economist, commented: “Activity has been extremely buoyant in 2021. The number of housing transactions so far this year has already exceeded the number recorded in 2020 with two months still to go.” He went on to note that the volume and value of sales is now similar to 2007, just before the financial crisis. Looking ahead, Mr Gardner said “the outlook remains uncertain”, saying it is unclear what impact the Omicron coronavirus variant will have on the wider economy and warning that a higher cost of living has left consumer confidence “well below” the levels seen in the summer. Considering the climate for the housing market, Martin Beck, senior economic adviser to the EY Item Club, said a recent decline in mortgage approvals “bodes well for the housing market avoiding a significant correction now that stamp duty has returned to its normal level”.
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