Business news 9 May 2022
James Salmon, Operations Director.
Construction struggles amid soaring input costs. Oil & Sanctions. Over 7m adults deemed food-insecure. Growth in spending and investment expected to fall. Friday afternoons off a ‘joke’ declares Lord Sugar. Landlords could be forced to rent out vacant buildings. Spending slows while footfall edges up slightly. And more business news.
Construction struggles amid soaring input costs.
Rising energy and raw material costs have hit the UK’s construction sector, the S&P Global/CIPS construction purchasing managers’ index (PMI) survey reveals. The index posted a drop to 58.2 in April after two months at 59.1. Brendan Sharkey, head of construction and real estate at MHA, commented: “The UK construction sector continues to ride a wave of strong demand. However, construction work is now less profitable due to inflation and interest rate rises. Russia’s invasion of Ukraine continues to be responsible for some staggering price increases. We’ve seen the price of certain raw materials surge by 20% or more within a month,” he added.
Oil & Sanctions.
The G7 have agreed to phase out or ban Russian oil during a virtual meeting with Mr Zelensky on Sunday. The US had already banned imports of Russian oil, gas and coal. President Joe Biden also announced new sanctions against three Russian media outlets and executives at Gazprombank, Russia’s third-largest lender.
The UK has also announced a fresh package of sanctions on Russia and Belarus targeting £1.7bn of trade. The new import tariffs will apply to goods including platinum and palladium which are used to make parts for mobile phones and computers. Export bans will also target chemicals, plastics, rubber and machinery. UK sanctions are now hitting more than £4bn in trade. The new import tariffs will cover £1.4bn of goods while the planned export bans are intended to impact products worth more than £250m in sectors of the Russian economy most dependent on UK goods.
Over 7m adults deemed food-insecure.
The latest survey of the nation’s food intake shows over 2m adults in the UK have gone without food for a whole day over the past month due to the “catastrophic” impact of the cost-of-living crisis. Research by the Food Foundation thinktank found a 57% jump in the proportion of households cutting back on food or skipping meals over the first three months of this year. This means one in seven adults (7.3m) are now estimated to be food-insecure, up from 4.7m in January.
Growth in spending and investment expected to fall.
Consumer spending and business investment will come in below forecasts this year because of the war in Ukraine, according to the EY Item Club, which predicts a fall in GDP to 4.1% from 4.2% as anticipated in March. Household spending will grow by 4.9% this year, down from a February estimate of 5.6%, while investment expectations have been downgraded to 10% growth, down from a 12.7% estimate before the war. Although the EY Item Club does not expect a recession, further downgrades to household spending later this year as a result of high inflation risk tipping the economy into a prolonged downturn. Martin Beck, chief economic adviser at the EY Item Club, urged households with a strong financial position to save less and borrow more to help avoid a recession: “Unsecured debt burdens are very low – they are the lowest they have been for 25 years, relative to incomes. There is still room to borrow. Saving less and borrowing more will avoid a recession, in our view.” Separately, the BDO inflation index for April rose by the most in ten years. “Businesses are feeling the full force of rising costs, more of which will be passed on to customers in the coming months,” it said.
Friday afternoons off a ‘joke’ declares Lord Sugar.
Lord Alan Sugar has branded PwC’s decision to give accountants Friday afternoons off in a summer working hours scheme a “joke”. The host of the Apprentice took to Twitter in a tirade against the decision saying the “lazy gits make me sick.” Lord Sugar said: “Call me old fashioned but all this work from home BS is a total joke. There is no way people work as hard or productive as when they had to turn up at a work location. The pandemic has had long lasting negative effect.”
Landlords could be forced to rent out vacant buildings.
Plans to introduce legislation allowing councils to force owners of shops left empty for a year to rent them out has been dismissed by the British Property Federation (BPF) as a political gimmick. As part of plans to rejuvenate Britain’s high streets, Boris Johnson said boarded-up premises were a “blight” on towns and cities and damaged local economies. “We are putting that right by placing power back in the hands of local leaders and the community so our towns can be rejuvenated, levelling up opportunity and restoring neighbourhood pride.” BPF chief executive Melanie Leech responded by saying: “No property owner wants their premises to be empty… But the burden of business rates and other occupational costs mean it is still unviable for many small and independent businesses to trade from town-centre premises.”
Spending slows while footfall edges up slightly.
BDO’s High Street Sales Tracker found the retail sector’s strong start to 2022 has started to falter, with like-for-like sales growth significantly slowing in the second half of April. Sophie Michael, head of retail and wholesale at BDO, said: “Consumer confidence is lower than at any point since the financial crash in 2008 so, when combined with high inflation, it’s no surprise to see growth trending downwards.” Meanwhile, figures from the British Retail Consortium show total UK footfall was down 13.1% last month on April 2019. But the figure marked a 2.3 percentage point improvement on March. BRC chief executive Helen Dickinson said: “After a slow start for footfall in April, as the weather improved, customers were more inclined to visit their favourite shopping destinations. Retail parks and shopping centres experienced the biggest improvement to footfall, as the public visited locations with the largest mix of shops to scope out the best deals.”
Treasury urged to act now over rising energy costs.
Keith Anderson, the chief executive of Scottish Power, has called on Rishi Sunak to announce further government help with the cost of living crisis as soon as possible to avoid an autumn emergency for struggling families. Scottish Power has proposed the Government underwrites a “deficit fund” that could allow energy suppliers to cut £1,000 off bills for low-income households. The money would be paid down over a decade by adding £40 a year to all household energy bills. However, ministers have not yet responded to the proposals. Meanwhile, Martin Young, a senior energy analyst at Investec, said: “If nothing is done, people’s energy bills will more than double on last year in October. If the Government doesn’t intervene and people have to choose between heating or eating there will be consequences for the health service. It makes sense to get on the front foot and act now.” Separately, the FT reports that debt advice groups have warned that, as the cost of living crisis deepens, households are being tempted into “buy now, pay later” schemes as they look to spread out payments on their electricity and gas bills.
HMRC receives record high £157bn from VAT.
Research by UHY Hacker Young reveals HMRC collected a record £157.2bn from VAT bills in 2021/22, a 55% increase on the £101bn collected the year before. The rise comes after the hospitality sector saw VAT increase from the 5% rate it was temporarily reduced to during the pandemic, to 20%, and companies which took advantage of the VAT holiday introduced between March and June 2020 were forced to make up for payments they deferred during the Covid crisis. “For all the good the VAT holiday did at the time it was introduced, it’s resulted in businesses paying the most VAT in recorded history the year after”, Sean Glancy, partner at UHY Hacker Young, said. He added: “The VAT holiday saved a lot of businesses in 2020 but it effectively just pushed the bills from one year into the next. Those increased payments in 2021 hurt for some of them. If inflation continues to run out of control the amount paid in VAT is only going to rise. Cutting VAT temporarily is one option the Government has to ease the cost of living crisis for individuals and businesses.”
Grangemouth’s future in doubt as Chinese eye exit.
PetroChina wants to sell its 50% stake in Grangemouth with the company reportedly tired of shelling out money on the refinery. The Falkirk refinery processes 150,000 barrels of crude oil a day and employs more than 600 people. In a joint venture deal with Ineos, PetroChina is understood to be responsible for most of Grangemouth’s financing requirements but is reportedly close to hiring restructuring experts to advise on its options.
McColl’s collapses into administration.
McColl’s has collapsed into administration with PwC appointed to find a buyer. The company said it hopes that the administrators will help to “implement a sale of the business to a third-party purchaser as soon as possible”. It is understood that Morrisons remains interested in a takeover, while there are also reports that forecourt giant EG Group, whose owners also own Asda, is interested in a deal. The collapse of the convenience store chain puts 16,000 jobs at risk.
Morrisons tables improved offer for McColl’s.
Morrisons lodged a last-ditch offer to seize control of McColl’s on Sunday in a move that promises to repay the convenience store chain’s lenders in full. McColl’s lenders rejected a solvent rescue offer from Morrisons on Friday that would have involved them rolling over more than £100m of debt into the supermarket chain but being repaid in full as the loans expired. It was reported last week that lenders were demanding immediate repayment, leading them to opt for a rival bid from EG Group, the owners of Asda. However, this offer required McColl’s being placed into administration, leading to concerns being raised by the trustees of McColl’s pension schemes that 2,000 retirement plan members would be left out of pocket. Morrisons swooped hours before a court was expected to formally appoint an administrator. This prompted EG Group to make a counter offer this time promising to take on the funding of McColl’s pension scheme. PwC, which was lined up to manage McColl’s administration, is also the adviser to McColl’s lenders. The firm was said to have told the Morrisons and EG Group to submit best and final bids before a decision is taken on Monday. Sky News’ Mark Kleinman says “questions are likely to be raised about PwC’s prospective dual role as adviser to McColl’s lenders and as administrator if the crisis leads to an inferior outcome in terms of job retention and pension payments.”
Barclays accused of avoiding almost £2bn in tax.
A lucrative arrangement in Luxembourg that allowed Barclays to pay less than 1% on profits for more than a decade saved the bank almost £2bn, the Guardian reports. In 2009, Barclays booked profits from the $15.2bn sale of its Barclays Global Investors in Luxembourg rather than in the UK where it is headquartered. The deal meant Barclays could offset future profits against a drop in the value of company shares it acquired as part of the deal. Labour MP Margaret Hodge said: “Why is Barclays setting up shop in Luxembourg at all, other than to avoid tax? Does this artificial financial arrangement mean that profits are shifted away from the UK, thus harming our tax coffers? Or have business investments been channelled through this tax haven instead of in Britain, harming our economy in the process?” Barclays said in a statement: “The structure of the BGI sale was not aimed at securing a tax reduction but intended to secure a simpler and more certain tax treatment and avoid volatility in the bank’s regulatory capital.”
BoE acted too slowly on inflation – Haldane.
The Telegraph’s Tom Rees interviews the former chief economist at the Bank of England, Andy Haldane, who claims the central bank squandered a chance to tackle the cost of living crisis because it failed to act on inflation fast enough. Mr Haldane had sounded the alarm on inflation in early 2021 but was the lone dissenter – the consensus was that price rises would be transitory. Mr Haldane told the Telegraph: “Acting early would have saved the need for quite the degree of tightening that might now be needed to keep the lid on inflation.” He added: “It was a stitch in time saves nine argument, basically.” His comments come after the BoE on Thursday raised rates to 1% and warned that inflation will surge above 10% by the end of the year, its highest level in 40 years.
Average house price heads swiftly towards £300k.
Figures from the Halifax show house prices rose by 1.1% last month, bringing the annual pace of growth to 10.8%. It is the tenth consecutive monthly rise – the longest run since 2016 and leaves prices nearly £28,000 higher compared to April 2021. The price of the average home is now £286,079 and the lender says that, at the current rate of growth, the price of a typical home could hit £300,000 by the end of the year. Halifax managing director, Russell Galley, said: “Housing transactions and mortgage approvals remain above pre-pandemic levels and the continued growth in new buyer enquiries suggests activity will remain heightened in the short-term.” Martin Beck, chief economic advisor to the EY ITEM Club, comments: “In theory, as falling real incomes, stretched affordability and rising mortgage rates bite, house price growth could slow significantly. But the unequal nature of cost of living pressures, which weigh heavier on low-income, primarily renting, households, than on better-off owner-occupiers mean theory may not align with practice.”
Chelsea agree sale terms with Todd Boehly.
Chelsea have agreed terms on the £4.25bn ($5.2bn) sale of the club to a consortium led by Todd Boehly, co-owner of the LA Dodgers baseball team. The consortium is led by Boehly, but Californian private equity firm Clearlake Capital will own a majority of the shares in Chelsea. Of the total investment being made, £2.5bn will be applied to purchase the shares in the club while a further £1.75bn will be committed for future investment in the club. Chelsea was put up for sale before owner Roman Abramovich was sanctioned for his alleged links to Russian president Vladimir Putin following the invasion of Ukraine. The proceeds of the sale will go into a frozen bank account to be donated to charity. The Sunday Telegraph notes that top-flight English clubs are expected to take home more than £3bn collectively this season from media revenues, according to Deloitte.
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