Business news 6 May 2022
James Salmon, Operations Director.
BoE raises rates and warns of recession. Sunak urged to cut taxes amid recession fears. Car industry cuts sales forecast by 9%. Job ads jump to 1.8m. And more business news.
BoE raises rates and warns of recession.
The Bank of England has increased interest rates to the highest level in 13 years and warned that the cost of living crisis could push the economy into recession this year.
The central bank’s Monetary Policy Committee (MPC) voted 6-3 to raise the base rate from 0.75% to 1.00% – with the minority of three policymakers voting for a more aggressive 0.50% base rate hike.
The Bank of England also downgraded its growth forecast for the UK economy – causing Sterling to decline more than -2% to $1.2360. The Bank expects inflation, which currently stands at 7%, to hit 10.25% by the end of the year, far exceeding its 2% target. While officials do not expect two consecutive quarters of negative growth, they predict the economy will decline by 0.25% next year. Stocks prices drifted in late trading yesterday. It blamed the rise partly on the war in Ukraine, which has increased energy and food prices, and caused a downturn in spending.
It also warned that household disposable income is projected to fall by the second largest amount since records began in 1964 this year.
Yael Selfin, chief economist at KPMG, said: “Weakening economic growth makes it harder for the Bank to orchestrate a smooth return of inflation to target, with the risk that a steep rise in rates triggers an unnecessary recession just as price pressures ease.”
Martin Beck, chief economic advisor to the EY Item Club, said figures suggest GDP growth “will slow significantly in Q2.”
Barret Kupelian, senior economist at PwC, commented: “On growth, the Bank’s refreshed projections assume no net growth in GDP over the next two to three years. This is a significant deterioration compared to the Bank’s forecasts pre-the Russian invasion of Ukraine.”
Mazars’ Paul Rouse noted UK households’ “huge amount of debt”, saying: “Even a modest rise in the bank rate adds hundreds of millions of pounds to repayments almost immediately.”
Sunak urged to cut taxes amid recession fears.
Chancellor Rishi Sunak is under mounting pressure to implement tax cuts after the Bank of England warned that the economy could tip into recession next year.
The Times cites a cabinet minister who has called on the Chancellor to cut VAT to stimulate the economy, saying: “A recession feels inevitable, we may already be in one,” and going on to insist: “We need to incentivise growth.” Another cabinet minister told the paper: “Cutting corporation tax would raise more money … But you have to get spending under control because otherwise it would be inflationary.”
Reflecting on the economic climate, Shadow Chancellor Rachel Reeves commented: “Not only are ministers shrugging their shoulders at the spiralling cost-of-living crisis, they’ve made it worse by hitting working people and businesses with 15 Tory tax rises that will further stifle our economic growth.”
Car industry cuts sales forecast by 9%
The Society of Motor Manufacturers and Traders (SMMT) has cut its annual sales prediction from 1.89m new cars to just 1.72m, with the sector hit by semiconductor shortages and additional supply chain issues resulting from the conflict in Ukraine. SMMT data shows that the number of new cars registered in April fell by 15.8% year-on-year, with 119,167 logged compared to 141,583 in April 2021. Jamie Hamilton, automotive director and head of electric vehicles at Deloitte, noted that there have been signs of motor brands adapting to supply chain issues, while Richard Peberdy, UK head of automotive at KPMG, said demand has “remained relatively robust so far this year despite very limited supply.”
Job ads jump to 1.8m
Recruitment and Employment Confederation (REC) data shows that the number of job adverts is continuing to increase, with 1.8m vacancies advertised in the week to May 1. This marks an increase of around 15% on the same period a month earlier. The REC said there were notable increases in job adverts for accountants, financial managers and directors. Chief executive Neil Carberry said: “The data continues to show that employers across the UK are eager to hire new staff into their businesses.” He added that the number of new job postings “has remained relatively stable for the past few weeks, despite concern about rising inflation.”
Half of workers want to keep working from home
A survey of 500 UK workers shows that almost half want to work from home due to the high cost of commuting. However, the analysis by technology firm Citrix indicates that one in four workers will return to offices more often in the winter to reduce the cost of heating their home. Two thirds of UK-based workers surveyed believe their employers should help cover the costs of travelling to the office.
Shell’s record profits intensify windfall tax calls
Shell has posted its highest ever quarterly profit, with the energy firm making £7.3bn in the opening quarter. The huge profit, which comes in the same week BP logged Q1 profits of £4.9bn, has renewed calls for a windfall tax on energy companies. Lib Dem leader Sir Ed Davey hit out at the Government, saying a refusal to tax the “super-profits” of energy companies is “completely unforgivable when people are too terrified to heat their homes.” Labour’s Ed Miliband commented: “Another day, another oil and gas company making billions in profits, and yet another day when the Government shamefully refuses to act with a windfall tax to bring down bills.” Connor Schwartz, a campaigner at Friends of the Earth, said a windfall tax on fossil fuel companies could help cover the cost of insulating homes and delivering renewable energy, while Greenpeace UK’s Philip Evans said a tax on these unexpected record profits is the “fastest and fairest” way to help ease pressure on stretched household finances.
US Stocks
US markets on Wall Street saw big moves yesterday, with the tech-focused NASDAQ down by nearly 5%, its steepest decline since June 2020. The S&P 500 fell by 3.6% and the Dow industrial index by around 3%. Markets across Asia followed suit. The drops reversed the unexted rallies on Wednesday’s unexpected rally in the initial reaction to the doveish statements from the FED when it raised rates by 0.50%. Meanwhile the US dollar is strengthening as markets turned back into risk-off mode!
Covid
The covid-19 pandemic has caused 15m excess deaths between 2020 and 2021, according to the latest estimates from the World Health Organisation (WHO). Official national reports “only” tally to 5.4m deaths from covid-19 but this has always been said to be subject to under-reporting.
House Prices
UK House Prices have inched higher to an average of £286,079, another new record high, though spiraling prices are beginning to slow. The average price of a home climbed 1.1% since April, but has risen 10.8% year-on-year. While prices appear to have slowed in their steamroll, costs have grown for the tenth consecutive month – the longest run since 2016 – according to the Halifax Price Index.
McColl’s close to collapse
Convenience store chain McColl’s is on the brink of collapse, warning that it was “increasingly likely” it would fall into administration unless talks around a rescue deal were successful. Morrisons has reportedly proposed a rescue deal to McColl’s lenders in recent weeks, with this said to involve the supermarket chain injecting new capital. Earlier this week, McColl’s warned that its shares would be suspended at the end of May as it would be unable to meet a statutory deadline for filing its annual results. PwC, which has been advising McColl’s consortium of lenders, is understood to be lined up to handle any administration.
16m would have to borrow to pay unexpected £300
A poll by PwC and credit advice company TotallyMoney shows that 16m adults in the UK would have to borrow money to afford an unexpected bill of £300. The study also found that around one in three may struggle to access credit from high street lenders, representing a 50% rise in the last six years. Simon Westcott, strategy and UK financial services lead at PwC, commented: “Given the growth and significance of those struggling to make ends meet, action will need to be taken quickly to avoid more people facing challenging financial circumstances.”
Evraz
The U.K. government said Evraz plc, a steel manufacturing and mining company that operates in sectors of strategic significance to Russia, has been sanctioned.
Fund flows improve in April
Fund flows showed signs of recovery in April after outflows surged for a third consecutive month in March. With investors faced with uncertainty linked to tightening monetary policy and Russia’s invasion of Ukraine, total outflows from retail funds jumped from £2.5bn in February to £3.4bn in March, according to Investment Association data. While March saw a decline amid volatile equity markets, Emma Wall, head of investment analysis at Hargreaves Lansdown, said: “It is worth noting that April flows data has been more positive,” noting inflows over the past month, “particularly into broad-based active and passive equity funds.”
Air travel
International Consolidated Airlines believes the easing of global restrictions and the return of global travel will see it bounce back to profitability. The firm said its Q1 2022 passenger numbers were 65 per cent those seen in 2019, up from rates of 58 per cent in the previous quarter. The Anglo-Spanish airline said it expects rising passenger numbers to drive profitability in the remainder of 2022, as it posted a €731m loss for the first quarter, compared to a €1.08bn loss over the same period last year.
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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.