Business news 7 October 2022
James Salmon, Operations Director.
Tight gas supplies could lead to blackouts. IMF warns the world is edging closer to a global recession. UK businesses predict record price rises to offset higher wage bills. UK construction pessimism mounts. British shoppers tightening their belts. And more business news.
Tight gas supplies could lead to blackouts
British households could lose power for up to three hours at a time this winter if gas supplies run extremely low, National Grid has warned.
The company said it was an “unlikely” worse-case scenario, but added that supply interruptions were a possibility if the energy crisis escalated. National Grid said Russia’s invasion of Ukraine had created “unprecedented turmoil and volatility” in the energy markets.
National Grid will launch a voluntary scheme next month offering financial incentives to domestic customers with smart meters and businesses to reduce electricity usage during peak hours when supplies are tight.
Meanwhile, EU countries have formally agreed to a voluntary 10% cut in gross electricity consumption and a mandatory reduction of 5% during peak hours – in what have been labelled “extraordinary measures”. The European Council said: “Member states will identify 10% of their peak hours between 1 December 2022 and 31 March 2023 during which they will reduce the demand.
Finally, the UK is set to sign a memorandum of understanding with the North Seas Energy Cooperation, which focuses on supporting the construction of wind farms and distribution networks in the region.
IMF warns the world is edging closer to a global recession
The International Monetary Fund has warned countries against providing “indiscriminate fiscal support” to tackle rising energy prices as this would boost demand and make it even harder to fight inflation.
The comments have been read as implied criticism of policies put in place by the UK and Germany, which has launched a €200bn energy bailout, sparking criticism from fellow EU countries concerned that the move could distort energy markets on the Continent.
Kristalina Georgieva, the head of the IMF, urged governments to maintain a “laser-sharp focus on lower-income households”, adding: “We know that controlling prices for an extended period of time is not affordable – nor is it effective.” Ms Georgieva went on to say that there could be even more economic shocks facing the global economy. “Financial stability risks are growing: rapid and disorderly repricing of assets could be amplified by pre-existing vulnerabilities, including high sovereign debt and concerns over liquidity in key segments of the financial market,” she said.
UK businesses predict record price rises to offset higher wage bills
Higher wage costs driven by a tight labour market will drive up price rises at their fastest pace since 2017, businesses leaders have said, with price increases of 6.6% expected in the year ahead.
UK construction pessimism mounts
The latest S&P Global/CIPS construction purchasing managers’ index reveals that optimism fell to its lowest since July 2020 last month as the sector saw its worst month for new orders for almost two-and-a-half years. The report showed a reading of 52.3 in September, up from 49.2 in August. A reading above 50 indicates growth.
Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey, said: “UK construction companies experienced a modest increase in business activity during September, but the return to growth was fuelled by delayed projects and easing supply shortages rather than a flurry of new orders.”
Martin Beck, chief economic advisor to the EY Item Club, said: “The EY Item Club is doubtful that the construction sector can maintain September’s expansion. The recent increase in mortgage rates points to a significant slowdown in the housing market and most likely an outright decline in house prices, developments which would likely affect house building.”
British shoppers tightening their belts
A survey by BDO reveals sales performance was the slowest since shops reopened after COVID-19 lockdowns, with total like-for-like sales in September increasing by just 2.8% year-on-year. This comes after a rise of 3.6% in August, which was the previous lowest post-COVID performance. “The actual performance for retailers may be even worse than these results suggest. With rising inflation, data suggests that the actual volume of sales is down significantly while it is higher prices that is driving the growth,” Sophie Michael, BDO’s head of retail and wholesale said.
Chancellor could extend mortgage guarantee scheme
Kwasi Kwarteng is understood to be considering an extension to the Government’s mortgage guarantee scheme following a meeting with bank bosses on Thursday. CEOs from NatWest, Lloyds Banking Group, HSBC, Santander and TSB along with executives from Barclays, Nationwide, Virgin Money and Starling Bank were asked to comment on a number of options to support consumers struggling to secure mortgages.
The Chancellor is now mulling an extension to the mortgage guarantee scheme beyond its December deadline. The guarantee compensates a lender for losses suffered in the event of the property having to be repossessed and it is hoped that by extending it lenders will feel more confident offering reasonably priced low-deposit mortgages.
Ray Boulger, broker at John Charcol, said an extension of the mortgage guarantee scheme would be “good news for anyone in need of a mortgage with only a 5% deposit.”
Mortgage crisis spreads to buy-to-let loans
The number of fixed-rate mortgages available to landlords has fallen by 70% in recent weeks as lenders strip deals from the market. At close of business on Wednesday, just two two-year fixed rate mortgages for buy-to-let landlords purchasing through a company were available. Just under seventy two-year fixed-rate deals remain available for landlords purchasing as individuals. Lenders have also made affordability tests more strict, with some lenders asking landlords to prove they can afford rates of 8.49%, experts said.
Markets & The pound
Wallstreet fell lower on Thursday, as traders weighed sharp swings in stocks and rates to start the month and risk was taken off the table ahead of the payroll figures due out later today. Overnight, the DOW dropped -1.15% the S&P 500 dropped -1.02% and the NASDAQ dropped -0.68%. The pound is consolidating around $1.12 and 1.14euros. given the fiscal largess, the looming recession, US dollar strength and energy induced high inflation you can understand the 7% drop in the trade-weighted index this year for sterling weakness. The current account deficit doesn’t help either. Indeed, a simple model says 7% drop in the pound might be necessary to correct the deficit.
UK recruitment frenzy slows in September
A report by KPMG and the Recruitment & Employers Confederation has found that placements of permanent staff increased at their slowest pace since February 2021 last month. Although starting pay for permanent and temporary staff rose for the 19th month running in September, the pace of growth slowed. Claire Warnes, head of education, skills and productivity at KPMG, said the figures underlined the tensions in the economy between labour shortages, cost of living pressures and the economic outlook. She said staff shortages ensured that the jobs market remained tight in September.
Truss backtracks on cuts to 91,000 civil service jobs
The Government is likely to take a more gradual approach to cutting civil servant jobs after the Cabinet Office secretary Nadhim Zahawi described Boris Johnson’s plan to slash a fifth of civil service roles in the next three years as a “blunt instrument”.
JD Wetherspoon
The company said revenue in the 52 weeks to July 31 came in at £1.74 billion compared to £772.6 million year-on-year. Compared to financial 2020, revenue was down 4.3% from £1.82 billion. Pretax loss before exceptional items narrowed substantially to £30.4 million from £167.2 million on the year prior. Operating costs jumped to £1.7 billion from £872.9 million. It declared neither a dividend nor share buybacks, unchanged from the previous year.
Superdry
Superdry said revenue grew 9.6% in the year ended April 30, to £609.6 million from £556.1 million year-on-year. The clothing retailer swung to pretax profit of £17.9 million from a loss of £36.7 million. It proposed no dividends for the year.
Rees-Mogg backs Bank holiday for coronation
Jacob Rees-Mogg has declared his support for an extra bank holiday to mark the coronation of King Charles III and argued that the effect on economic growth would not be detrimental. The Business Secretary said: “The coronation is an important symbolic act with constitutional resonance about the stability of our system. To have a day off for that is perfectly reasonable, and the effect on growth will not be enormous.” The Government has previously modelled the cost of an extra bank holiday at £1.36bn but PwC believe this is an over-estimation and that the true cost is nearer to £831m.
Tory chairman defends Liz Truss’s growth plans
The chairman of the Conservative Party has said critics of the Government’s economic policies are offering a confused message – claiming to be pro-growth on the one hand while delivering policies that keep Britain languishing as a high-tax, low-growth economy. Jake Berry defended Liz Truss’s tax-cutting plans by saying that they are vital to business. Appearing on LBC, he added: “We have a plan to grow our economy so businesses can take that next step and invest, and the reason we want businesses to do that isn’t just some academic exercise… it’s about transforming the lives of people in this country.” His comments came as Labour leader Keir Starmer attempted to capitalise on recent market turmoil following the Chancellor’s mini-Budget by claiming Ms Truss had “lost control of the economy” with her “kamikaze mini-Budget”.
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