Business news 6 September 2022
James Salmon, Operations Director.
Liz Truss to be UK PM after winning Tory leadership race. Truss told to act now to save the economy. Markets react to new PM. Latest PMI shows UK economy fell into contraction in August. Gas Oil and energy. And more business news.
Liz Truss to be UK PM after winning Tory leadership race
Liz Truss has won the Tory leadership race, defeating Rishi Sunak by 21,000 votes in the membership ballot. She will enter Downing Street on Tuesday after meeting the Queen at Balmoral. In her victory speech, Ms Truss praised her predecessor and reiterated her promise to “deliver a bold plan” to cut taxes and grow the economy. The Home Secretary Priti Patel has since resigned and in her letter to Boris Johnson urged her successor to back her policies on illegal migration. Ms Patel’s successor is widely expected to be Suella Braverman, the current attorney-general. Meanwhile, Lord Frost, the former Brexit negotiator, will not be in Liz Truss’s first Cabinet after turning down two roles that were offered to him, according to the Telegraph.
Truss told to act now to save the economy
Business leaders warned Liz Truss on Monday that the new Prime Minister must take swift and bold action on rising costs or the economy will drift into worse territory. The Institute of Directors said members were crying out for clear direction from the Government while Tony Danker, director-general of the CBI, said the circumstances were exceptional and households and businesses required immediate support. Sarah Howard, chairwoman of the British Chambers of Commerce, warned that time is running out and unless Ms Truss addresses the problems head-on, then “the outlook for both businesses and consumers will be bleak indeed.”
Her first act will be to address rising energy bills. A plan to fix bills at their current rate could cost £130 billion over the next 18 months.
Markets react to new PM
The FTSE 100 recovered early losses yesterday to finish in positive territory following the confirmation of Liz Truss as the next PM. Truss beat out rival Rishi Sunak at the end of the two-month contest and will be appointed as Prime Minister by the Queen tomorrow in Balmoral. Truss won just over 57% of the vote in a closer result than predicted. In her victory speech Truss promised to deal with long term issues concerning energy supply and energy bills.
Latest PMI shows UK economy fell into contraction in August
The monthly business survey from S&P Global and the Chartered Institute of Procurement and Supply (Cips) has revealed a “severe and accelerated” decline in manufacturing output in August, alongside weaker activity in the UK’s dominant service sector. The index fell from a revised reading of 50.9 in July to 49.6 in August, indicating a contraction in output. It marks the first drop below the all-important 50 no-change mark in 18 months. Chris Williamson, S&P Global chief business economist, said: “Demand for consumer-facing services such as restaurants, hotels, travel and other recreational activities is collapsing under the weight of the cost-of-living crisis, with demand for business services also coming under pressure amid concerns over rising costs and the darkening economic outlook.” He added: “The incoming Prime Minister will be dealing with an economy that is facing a heightened risk of recession.”
Gas & Oil
The closure of the Nordstream I gas pipeline which appears to be an ‘indefinite’ closure drove natural gas prices up by 35%. Oil Prices rose more than 3% in afternoon trading, extending gains as OPEC+ producers agreed a small oil production cut to bolster prices.
Russia blames European leaders for soaring energy costs
Wholesale gas prices soared by as much as 30% across Europe yesterday after Russia’s state-backed energy firm Gazprom said it would not resume the pumping of gas to Europe via the Nord Stream 1 pipeline unless Western sanctions were lifted. In the UK, the natural gas price was at £4.96 per therm on Monday, up 86p or 21%. At the start of 2021 it was at just 40p per therm. Concerns over the UK’s economic prospects and energy supplies sent the pound down to $1.1444, its weakest level since March 2020, whilst the euro fell to below 0.99 cents against the dollar for the first time in almost 20 years. The Kremlin said on Monday that anger within the EU over rising energy prices was the result of “harmful” decisions by EU governments.
EC is reportedly recommending an emergency wholesale price cap. Germany has halted the planned closure of two of its three remaining nuclear plants.
Meanwhile a leaked report has shown that Russia is predicting a longer and deeper recession than previously thought due to sanctions taking their bite.
Inflation kept August sales growth in positive territory
Figures from the British Retail Consortium show sales slowed significantly in August. The BRC-KPMG retail sales monitor revealed that total sales grew by 1% over the month, compared with 3% over the same month last year. It comes after 2.3% retail sales growth in July. Helen Dickinson, chief executive of the BRC, said: “While inflation in retail prices is lower than general inflation at over 10%, this still represents a significant drop in sales volumes.” Don Williams, retail partner at KPMG, said: “The heatwave saw strong growth for health items such as suntan lotion, whilst food and drink sales for summer barbeques grew by 5% year on year and home accessories also saw growth for the first time in months. Online sales dipped by over 6% in August, however the locked-in step-up of online penetration remains.” Elsewhere, Barclaycard revealed that consumer card spending grew by 4.7% in August, representing the smallest uplift since March 2021.
TalkTalk under pressure from growing debts
TalkTalk has been warned by Deloitte, its auditor, that it would need to reclassifying more of its everyday costs as exceptional in order to meet the covenants on its £1.1bn debt pile. Highlighting an increased level of risk to the broadband provider’s status as a going concern, auditors added: “We have identified a key audit matter related to going concern as a result of the judgements required to conclude there is not a material uncertainty related to going concern.”
Brewdog boss calls for emergency tax relief
The chief executive of Brewdog has called for emergency tax relief for the hospitality industry as pubs battle the “genuinely existential threat” of rising energy bills. James Watt urged ministers to reverse an increase in employers’ national insurance contributions introduced in April and said bars should also be given support in the form of a 50% reduction in business rates for a year, and for VAT to be cut to zero for a year too. State-backed loans should also be offered which pubs could start repaying in a year’s time, Watt added.
New car registrations rise slightly in August
New figures from the Society of Motor Manufacturers and Traders (SMMT) show new car sales rose 1.2% last month compared with August 2021, marking the first monthly growth since February. However, sales of new cars during the year so far are 35.3% down on the same period in the pre-pandemic year of 2019. Richard Peberdy, UK head of automotive at KPMG, said: “A slight easing of global supply shortages is leading to a welcome increase in UK car production and new car sales. But a rising cost of living threatens consumer appetite, whilst rising energy and other inflationary costs are putting pricing under pressure.”
Truss urged to keep bank tax cut to boost competitiveness
The UK’s largest financial services trade body has called on Liz Truss to slash taxes on banks in order to return the UK to a more competitive position with the EU and the US. Former Chancellor Rishi Sunak last year announced a cut in the UK bank surcharge on profits from 8 to 3% to offset the effect of a planned increase in Corporation Tax. With the incoming Prime Minister having pledged to cancel the planned increase in Corporation Tax, TheCityUK hopes she could still implement the cut in the bank surcharge. Labour has described the cut in the bank surcharge as a “stealth tax cut for banks” but City veteran David Buik said he would be “mortified” if the bank surcharge cut is scrapped as it would “send the wrong message to global investors”. A recent survey by PwC found that if the Treasury pressed on with the corporation tax rise, the total taxation rate for UK banks would rise to 50.5%, against 36% in New York, 38.6% in Frankfurt and 37.5% in Amsterdam. A Truss spokesperson said the incoming PM’s “bold plan to cut taxes, boost investment and drive growth will ensure we get the economy moving”.
Number of business support hubs now exceeds 750
A report from the Centre for Entrepreneurs (CfE) reveals that the number of start-up incubators and accelerators in the UK has doubled to more than 750 in the past five years. In total they have supported almost 20,000 fledgling businesses. Wales and Northern Ireland have seen the number of hubs increase at a faster rate than England, while Scotland has slightly fewer than in 2017. Matthew Smith, a senior fellow at the CfE, said: “In uncertain times it’s a good thing that there is such strong start-up business support in every local enterprise partnership in the country, which was not the case five years ago.” However, there is concern that business support providers are not communicating with their local authorities about post-Brexit replacement funding as well as they could be. “We are concerned that those conversations are not happening,” Smith said.
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