Business news 7 September 2022
James Salmon, Operations Director.
Truss moves quickly to provide energy relief package. Truss’s energy rescue plan could curb inflation rise. Britain can look forward to a prolonged economic malaise. UK construction output falls for second month in a row. Truss’s new chief economic adviser is a safe pair of hands. And more business news.
Truss moves quickly to provide energy relief package
On her first day as Prime Minister, Liz Truss pledged to get Britain working again and said her government would “transform Britain into an aspiration nation”, adding: “As strong as the storm may be, I know that the British people are stronger.”
Ms Truss made her close ally Kwasi Kwarteng her new Chancellor, while James Cleverly is now Foreign Secretary and Suella Braverman is Home Secretary. Jacob Rees-Mogg has been promoted to Business Secretary and Brandon Lewis is now Justice Secretary.
The PM is reportedly planning to borrow as much as £170bn to spend on support for families and businesses struggling with their energy bills. Truss intends to cap household energy bills at about £2,500 – they had been scheduled to jump to £3,549 next month. The PM will link the energy package to long-term market reforms and a commitment to increase oil and gas production, along with fracking for shale gas if local communities approve.
Truss’s energy rescue plan could curb inflation rise
Analysts have said Liz Truss’s plan to borrow heavily to fund an energy price freeze could tamp Bank of England plans to increase interest rates.
Elizabeth Martins, senior economist at HSBC, branded the policy a “near-term game changer” adding that freezing the energy price cap at current levels “would potentially reduce inflation expectations and the likelihood of a wage-price spiral – the two key reasons why the BoE chose to get ‘forceful’ in August.”
Neil Shearing, group chief economist at Capital Economics, also said Truss’s plan would lead to inflation peaking at 11% next month, rather than 14.5% in January as currently forecast.
If Truss does freeze energy bills for households and business, Britain’s inflation rate may have already peaked.
Britain can look forward to a prolonged economic malaise
A new report from PwC predicts the UK will be plunged into recession this year as high energy costs drive inflation higher, wiping thousands of workers’ take home pay.
PwC thinks the UK economy could shrink as much as 1.3% and 0.3% in 2023 and 2024, respectively. Under a more positive scenario, the economy would grow 0.2% and 0.6% next year and in 2024.
Nick Forrest, UK economics consulting leader at PwC said: “It is now likely that the UK will enter recession this year, although the path of natural gas prices and degree of government support will influence the potential size and scale of a downturn.” He continued: “Businesses and consumers could face two ominous milestones in the months ahead: a potential five-decade high in the inflation rate, and the largest fall in real wages since records began.”
PwC’s report also points out that £71.6bn could be added to the total UK output per year if all regions [of the UK] improved productivity in their respective industries to at least the national industrial median.
UK construction output falls for second month in a row
Construction output in the UK dipped for the second consecutive month in August as concerns about wider economic prospects led to a fall in demand. The S&P Global Construction PMI stood at 49.2 in August – up fractionally from the previous month but still below the crucial 50.0 mark and therefore a second month of contraction.
Martin Beck, chief economic advisor to the EY Item Club, said: “The near-term outlook for construction appears challenging. The cost of living crisis is likely to weigh on housing market activity and reduce demand for home improvements.”
Construction specialists called on incoming prime minister Liz Truss to step up support. Joe Sullivan, partner at the accounting association MHA, said: “The number one priority must be to guard against soaring energy costs causing a rash of business failures.”
Truss’s new chief economic adviser is a safe pair of hands
The UK’s new Prime Minister Liz Truss pledged yesterday to get Britain working again through “a bold plan to grow the economy through tax cuts and reform”. To advise on her plans, Ms Truss has appointed Deloitte director Matthew Sinclair as her chief economic adviser. He has also worked on projects for both the UK and European parliaments and was formerly CEO of the Taxpayers’ Alliance.
Matthew Elliott, founder of the Taxpayers Alliance, who hired Mr Sinclair, said: “He is very much an ideas person but he’s able to deliver the detail in spades. That’s going to prove very useful in government.” He campaigned against the so-called “fuel duty escalator” and has described green levies, as a “cover story for higher taxes”.
Andrew Lilico, chairman and executive director at Europe Economics, which hired Mr Sinclair as a consultant, says in the Telegraph that Sinclair “has impeccable centre-right instincts on spending, tax and regulation, understanding the value of competition but with genuine real-world experience of the process of regulation and practical policy-formation at the bureaucratic level, how that works and why it matters.”
Rees-Mogg may tamp climate alarmism
Climate activists could be disappointed by the appointment of Jacob Rees-Mogg to lead the Department for Business, Energy and Industrial Strategy, Reuters suggests. Rees-Mogg’s previously expressed concerns about “climate alarmism” could be a sign that he will delay the target of reducing net zero emissions by 2050, Reuters speculates. The Guardian also touches on Rees-Mogg’s new energy brief with Greenpeace UK and Friends of the Earth both expressing alarm over the appointment.
Markets
UK markets were flat yesterday while US markets slumped in a volatile trading session as investors weighed what strong economic data and rising rates mean for the Federal Reserve’s aggressive tightening campaign. Overnight, DOW dropped -0.55%. S&P 500 dropped -0.41%. NASDAQ dropped -0.74%. While the USD strengthened as treasury yields rose.
House prices
House Price growth slowed in August according to the Halifax House Price Index. Annually, house prices were up 11.5% in August, but this was slower than the 11.8% annual rise in July. August’s print was also behind market consensus, which had forecast a 12.5% rise. Versus the previous month, house prices increased by 0.4% in August, picking up from July’s 0.1% drop. The typical house price reached another high in August of £294,620.
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