Business news 4 October 2022
James Salmon, Operations Director.
CEOs optimistic despite downturn fears. Chancellor to set out debt plan earlier than planned. Government U-turns on plans to scrap top tax rate. Workers should get tax incentive for attending. Manufacturing sector shrinks again. And more business news.
CEOs optimistic despite downturn fears
Analysis by KPMG shows that while most chief executives are preparing for a downturn, most expect it to be short-lived and are confident about the longer-term economic outlook. KPMG’s annual CEO Outlook quizzed 1,300 bosses and found that eight out of ten are anticipating a recession, while seven in ten expect it to knock up to a tenth off their profits. However, three quarters of chief executives were confident about the resilience of the economy over the coming six months. Just over two thirds of leaders said they were confident about global growth over the next three years. The poll shows that economic outlook is the top concern for chief executives in the UK, with uncertainty over the pandemic, political uncertainty and regulatory risks also concerns.
Chancellor to set out debt plan earlier than planned
The Chancellor will set out his plan to get UK debt falling earlier than planned, with Kwasi Kwarteng expected to publish details on how the cuts will be paid for later this month, having previously said he would wait until November 23. He told the Conservative party conference his medium-term fiscal plan will come “shortly,” saying he wanted to “move forward” with no “distractions.” The Office for Budget Responsibility (OBR) will cost all the policies announced by the Chancellor and publish forecasts for economic growth. Mel Stride, chairman of the Treasury Committee, said he had “pressed the Chancellor very hard on this and to his credit he has listened,” adding that bringing the OBR forecast forward should “should calm markets more quickly and reduce the upward pressure on interest rates.”
Government U-turns on plans to scrap top tax rate
The Government has U-turned on controversial plans to scrap the 45p rate of income tax for higher earners, with Chancellor Kwasi Kwarteng saying: “We listened to people, I get it.” Saying that the proposals announced as part of his mini-Budget had become “a massive distraction,” he told BBC Breakfast the proposal was “drowning out a strong package”, including support for energy bills, and cuts to the basic rate of income tax and corporation tax. Asked whether his previous comment that there was “more to come” on tax cuts still stood, Mr Kwarteng said there would be no tax cuts ahead of the next Budget in the spring. Plans to scrap the top rate of tax had drawn opposition from the markets, other parties and several Conservative MPs. Following news of the U-turn, former Cabinet minister Michael Gove said he will now back the Government’s mini-Budget in its current form. He said debate over the 45p tax increase “obscured” the fact “there were lots of good things … and some potentially interesting things” in the plans set out by the Prime Minister and Chancellor.
IFS voices tax cut concern
The Institute for Fiscal Studies (IFS) has said that while the U-turn on the top rate of tax may ease market nerves, there are still concerns over how other tax cuts announced in the mini-Budget will be funded. IFS director Paul Johnson said scrapping the 45p rate of tax “was, if anything, possibly the smallest measure from a fiscal point of view, if not a political point of view, in the mini-budget,” noting that it is “about 5% of the tax cuts.” Tony Danker, head of the Confederation of British Industry, welcomed the U-turn saying that calming markets was an “absolute pre-condition to investment and growth.” He added that debate over the top rate of tax had been a “distraction” from other important reforms promised by the Chancellor.
UN: High interest rates may push economies into recession
The UN has called on central banks not to increase interest rates and depart from the monetary policy being pursued by a large number of regulators, saying tightening policy and hiking interest rates could deliver recessions. The United Nations Conference on Trade and Development has expressed “worries that an unduly rapid tightening of monetary policy in advanced economies in combination with inadequate multilateral support could turn a slowdown in to recession.” Its Trade and Development Report 2022 adds that this would trigger “vicious economic circles in the developing world with the damage more lasting than after the global financial crisis or Covid shock.”
Rees-Mogg: Workers should get tax incentive for attending
Business Secretary Jacob Rees-Mogg has suggested that there should be tax incentives for those who travel to the office, saying he is “interested in” the idea of making commuting costs tax deductible. Speaking at a Conservative conference fringe event, he said: “If we want economic growth and productivity growth we need people to get back to their offices.” Insisting that there is a need for people to go back to work, he said: “It’s worth bearing in mind that people do get a tax deduction for working from home.” He added: “There’s a carrot currently for working from home, is that a good idea?”
Manufacturing sector shrinks again
Manufacturing output contracted for a third month in a row in September, taking a hit from falling exports and uncertainty about whether the economy is on the brink of recession, according to the S&P Global/CIPS UK Manufacturing PMI. The index rose to 48.4 from August’s 27-month low of 47.3. Despite the climb, it remained below 50 — the level that divides growth from contraction. The report said manufacturers “faced weak global market conditions, rising uncertainty, high transportation costs reducing competitiveness and longer lead times leading to cancelled orders.” New export orders fell at the quickest pace since May 2020, while input cost inflation rose for the first time in five months. Rob Dobson, director at S&P Global Market Intelligence, said “existing headwinds” are likely to be exacerbated by volatility in financial markets, growing economic uncertainty and increases in borrowing rates. “The industrial sector is likely to remain in the doldrums during the coming quarter to add to deepening recession risks,” he added.
In the US, The Institute for Supply Management’s manufacturing PMI, an index tracking factory activity, fell to 50.9. its lowest level in 2 years.
Mortgage rates rise sharply
Leading mortgage lenders are increasing the cost of home loans, with data from financial information service Moneyfacts showing that the average two-year fixed rate is now close to 6%. A typical two-year fixed mortgage deal is currently 5.75%, up from 4.74% on the day of the mini-Budget. In December, the average two-year fixed deal was 2.34%. Rates have risen as interest rates have increased and the recent slump in the pound has driven fears of steeper interest rates, prompting lenders to reprice deals. In recent days, major lenders such as NatWest, Nationwide and Virgin Money have increased their rates. Lenders have also withdrawn hundreds of products in the last week. Moneyfacts said that there were 3,961 deals available on the morning of the mini-Budget, compared with 2,262 at the start of this week – a 43% fall.
Fund collapse fears ‘overreaction’ – PwC executive
Raj Mody, global head of pensions at PwC, says concern that the Government’s mini-Budget could have driven a wave of pension fund insolvencies was an “overreaction.” He said: “While there were undoubtedly some scary and challenging moments in some institutions, some of the narrative which has come out could have been unnecessarily scary for others.” Concern over the issue saw the Bank of England step in to start a £65bn bond-buying programme to steady gilt yields.
Markets
US markets rallied sharply higher on Monday, as Treasury yields eased from decade highs. Overnight the DOW rose 2.66%, the S&P 500 rose 2.59% and the NASDAQ rose 2.27%. In Japan the Nikkei was showing similar gains. The pound continues to rally, up above $1.13 and 1.15Euros.
Heathrow
London Heathrow Airport has told airlines it will lift a cap on passenger numbers at its terminals later this month
Water Co Fines
Water companies that dump sewage in UK rivers and seas will face fines of as much as £250 million under new plans set out by Environment Secretary Ranil Jayawardena.
Greggs
Greggs said total sales were up 15% for Q3 and backed its full year expectations. It continues to expect around 150 net shop openings in 2022, and left its cost inflation outlook unchanged for the year at around 9%. “As expected, year-on-year growth moderated in August given the particularly strong ‘staycation’ effect seen in 2021, however, momentum returned in September.
Ryanair
Ryanair showed improved performance in September, with passenger numbers rising 49% year-on-year to 15.9 million, and load factor improving to 94% from 81% a year prior. Its rolling 12-month passenger numbers surged to 153.0 million from 49.5 million a year before, with its rolling 12-month load factor rising to 90% from 77%.
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