Business news 4 November 2021
James Salmon, Operations Director.
MPC to weigh up rate rise . Disposable income growth at record low. Services sector activity climbs in October. Firms must produce strategies for cutting emissions. And more business news.
MPC to weigh up rate rise
The Bank of England is mulling a rise in interest rates, with the rate-setting panel meeting today to weigh up whether an increase is needed to prevent inflation from soaring higher. Martin Beck, a senior economic adviser to the EY Item Club, said the Bank’s Monetary Policy Committee (MPC) may well choose to wait for more evidence from the economy before raising rates, saying the pressures “still look predominantly to be the result of the adjustment pains of an economy emerging from hibernation, which should give pause for thought.” Andrew Montlake, managing director of mortgage broker Coreco, believes the MPC will be “keen to avoid anything that might derail a recovery on one side, or hold off too long to be behind the curve on the other leading to faster, sharper rises.” He added: “Whilst these decisions remain on a knife-edge, one thing we do know is that we should all be preparing for rate rises sooner rather than later.” Strategists at Bank of America said that they expected a six-to-three vote by MPC rate-setters in favour of a 15-basis-point interest rate rise. The Times’ shadow MPC, which includes former rate-setters, believes the Bank should move to tackle the threat of inflation by raising interest rates, voting eight to one for an immediate increase. Seven members want a 15-basis-point rise to 0.25%, while Bronwyn Curtis, a non-executive director at the Office for Budget Responsibility, has called for a 25-basis-point increase.
Rate rise will add £900m for floating rate debt interest
If the Bank of England’s Monetary Policy Committee (MPC) opts to increase interest rates today, UK households will face an immediate £900m increase in interest payments for floating rate debt, such as credit cards and floating rate mortgages, according to analysis by Mazars. The firm calculates that households will pay a combined £1.9bn extra on their mortgage costs if the base rate increases to 0.5%. Paul Rouse of Mazars warned that the household debt load is now so big, “that even the most marginal increase in interest rates adds almost £1bn in extra costs almost overnight.”
Disposable income growth at record low
Analysis by the Resolution Foundation think-tank suggests the current government will oversee the worst rate of disposable household income growth on record. Figures show that people will only receive a 0.5% increase in their real incomes over the course of the current parliament, which is scheduled to end in 2024.
In this period, average annual household incomes will expand by 0.1%. Noting the impact of economic shocks such as the financial crisis and the pandemic, Adam Corlett, principal economist at the Resolution Foundation, comments: “The result of having so many crises in such quick succession, without any strong sustained growth periods, means that the 15 years from 2007 to 2022 are forecast to be the worst on record for household income growth.”
Services sector activity climbs in October
Monthly data from the IHS Markit/CIPS Services PMI has revealed a stronger-than-expected rise in activity in Britain’s dominant services sector during October. According to the IHS Markit/Cips survey of 650 companies in the services sector, business and consumer spending increased last month, while operating expenses and the prices charged by services firms rose at the steepest rate since records began in 1996. The purchasing managers’ index for October came in at 59.1, up from 55.4 in September in a measure where anything above 50 points indicates activity is rising. About 30% of the survey panel reported an increase in employment numbers during October, while only 13% signalled a reduction. Martin Beck, senior economic advisor to the EY Item Club, said October’s services PMI offered “some reassurance that the economic recovery is far from out of steam”.
Global pollution price could cut greenhouse gases by 12%
A report from the World Economic Forum and PwC suggests that creating an international price for carbon emissions could reduce global greenhouse gases by 12% at a cost of less than 1% of global GDP. The report analysed a scheme proposed by the International Monetary Fund under which companies with high greenhouse gas emissions, in high-income countries, would be subject to a carbon price of $75 for every tonne of carbon dioxide emitted. For middle-income countries the rate would be $50 a tonne, while for polluters in low-income countries it would be $25 a tonne. In the UK, a carbon price floor was introduced in 2013 at a rate of £16 per tonne, with this since rising to £18.08. Bob Moritz, global chair of PwC, said setting a global carbon price could make a “significant contribution to tackling global warming by accelerating emissions reductions”.
Chancellor: Firms must produce strategies for cutting emissions
Chancellor Rishi Sunak has announced that all listed companies in Britain will have to produce a strategy to reduce their carbon emissions or face fines.
In a bid to make the UK the first carbon neutral financial centre, businesses, investors and banks will be required to detail how they will move towards becoming net zero by 2050. A task force under the control of the Financial Conduct Authority will set the standards under which companies are required to report, with it designed to ensure firms cannot greenwash data or offer pledges that could not be verified. Under the financial net zero reporting scheme, companies will be required to set out detailed plans to reduce their reliance on fossil fuels, with the strategy required to be set out by 2023.
Former Bank of England governor Mark Carney said companies will have to be completely transparent about their plans, reporting their own emissions, those of clients, how much they have gone down, and their pathway to net zero. Kay Swinburne of KPMG said the initiative will provide the financial services industry with “a valuable set of unified metrics to measure progress towards decarbonisation”.
6 in 10 FTSE firms join 2050 net zero pledge
The majority of Britain’s biggest listed businesses have signed up to eliminate their greenhouse gas emissions by 2050, with 60 companies in the FTSE 100 part of the United Nations’ Race to Zero campaign.
With 13 FTSE 100 firms joining the campaign since August, it means UK businesses with a total market capitalisation of more than £1.2trn and a combined annual turnover of £700bn are now involved.
CBI director-general Tony Danker is set to call on all companies to “step up and lead” and he will warn that “businesses who fail to embrace net zero will get left behind”. In a speech in Glasgow as part of the COP26 climate summit, he will also urge policymakers to play a part, saying: “Where governments have yet to agree, such as on carbon pricing, then the private sector cannot solve these shortcomings … Delivery will be fragmented and patchy.” Mr Danker will warn: “Misalignment in policies and standards will undermine different industry sectors reforming radically enough.”
Average property price passes £250k
House prices have hit record highs, with the average property price passing the quarter of a million pounds mark for the first time. Nationwide’s House Price Index shows that the typical house price is now £250,011. This comes after values rose by 0.7% in October, up from 0.2% in September. Year-on-year, prices were up 9.9%, with this down slightly on the 10% recorded in September. The analysis shows there were 72,645 mortgage applications in September. Nationwide notes that possible base rate hikes from the Bank of England are pushing up mortgage rates, saying this may dent the property market. Robert Gardner, Nationwide’s chief economist, said demand for homes has remained strong, despite the stamp duty holiday coming to an end on September 30. “However, a number of factors suggest the pace of activity may slow. Consumer confidence has weakened in recent months”, he warned. Suggesting that the outlook was “extremely uncertain,” he added: “Even if wider economic conditions continue to improve, rising interest rates may exert a cooling influence on the market, though the impact on existing borrowers is likely to be modest.”
Ultra-low mortgage deals vanish as Bank mulls rate rethink
The number of ultra-low mortgage rates has dipped amid speculation and debate over whether the Bank of England base rate will increase soon. Research by financial information website Defaqto shows that on October 25 there were 82 fixed-rate mortgages available at 0.84% to 0.99% but by November 2, there were just 22 deals available. The study also shows that the average two-year fixed mortgage rate for a first-time buyer putting down a 5% deposit was 2.45% last week but now it stands at 2.69%.
COP26
More than 40 countries agreed to phase out the use of coal by either 2030 or 2040, although the US, Australia, India and China – the worlds biggest users – were not party to the agreement.
The US FED
The Federal Reserve in the US announced it will start tapering its QE, reducing bond purchases by $10billion a month. Down from $80billion per month. And it will reduce its purchase of mortgage backed securities down from $40bn to $35bn too. US stocks surged to new records overnight despite the Fed’s tapering announcement – DOW rose 0.29%. S&P 500 rose 0.65%. NASDAQ rose 1.04%
Construction
Markit/CIPS UK Construction PMI UP to 54.6 from 52.6
BT
BT reported a 3% interim revenue drop due to weak trading at its global and enterprise divisions leading to a 50% drop in net profit.
Currys
Currys reported a 15% jump in organic sales and said it would buyback £75m of its shares. It expects a strong Xmas period helped by ongoing demand for video games.
Sainsbury
Sainsbury said interim pre-tax profit reached £541m after a £137m loss after a 5.3% rise in revenues. The grocer said it expects to hit £660m underlying profit for FY22.
Rates review may tax streaming services and online goods
A Treasury report on a review of business rates says it will soon launch a consultation on a new online sales tax which could see streaming services, digital publications and click-and-collect goods liable for the levy on internet-focused goods and services.
Should such a levy be created, the report says “design choices” would need to be made on what should be taxable, including digital products, sales agreed online, and essentials which currently do not attract VAT. The consultation also noted that any extra cost of the tax could be passed on to consumers at a high rate, suggesting it would be “regressive”.
The report said a new tax set at 1% to 2% would not raise enough money to replace business rates, but could “help to rebalance the tax burden between bricks and mortar shops and online retail”. It added that there was no case for a fundamental revamp of business rates, a property tax which brings in £25bn a year. Reflecting on policy around business rates, the Guardian notes that, in his recent Budget, Chancellor Rishi Sunak said he would help small retail and hospitality businesses with a temporary 50% cut, while Labour has said it will scrap business rates and undertake the “biggest overhaul of business taxation in a generation” if voted in at the next general election.
PM defends bankers’ tax contributions
Boris Johnson has defended the contribution of bankers to the economy after a Budget policy to cut the banking surcharge in April 2023 was criticised.
Labour’s deputy leader Angela Rayner noted that while the move is expected to save banks £4bn in taxes over five years, Resolution Foundation calculations show households are set to see taxes climb £3,000 by 2026. Saying that her constituents are “feeling the pinch” and arguing that the Budget “did nothing to help them”, she asked the Prime Minister to detail the tax cut given to banks.
Mr Johnson insisted banks and bankers “are paying far more proportionally as a result of our tax measures to cover the cost of the NHS”, adding that 50% of the £36bn comes from “the 14% of the richest in this country, overwhelmingly from the banks and financial services industry who can pay the most.”
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