Business news 12 September 2022
James Salmon, Operations Director.
Fall in real wages one of highest in the OECD. Nation in mourning casts gloom over economy. Households return to notes and coins to help with budgeting. A strong dollar will soon reverse and lift sterling. Energy price freeze will ease recession risk. And more business news.
Fall in real wages one of highest in the OECD
Figures from the Organisation for Economic Co-operation and Development show the UK has suffered one of biggest drops in the real value of wages across the group of 38 countries. Real pay, which is the value of incomes after adjusting for the impact of inflation, is on course to fall by 2.9% from 2021 to 2022, compared with an average of 2.3% across the OECD. During the pandemic, the UK suffered one of the biggest declines in the rate of employment among the least qualified, and was one of a “handful” of countries in which employment among workers aged 55 or over was still below pre-crisis levels at the start of the year. Mathias Cormann, the OECD secretary-general, said: “Despite widespread labour shortages, real wages growth is not keeping pace with the current high rates of inflation. Governments should implement targeted and means-tested measures to temporarily support the poorest households.”
Nation in mourning casts gloom over economy
Analysts are downgrading their forecasts for the UK economy in the wake of the death of Queen Elizabeth II. Economists say a bank holiday for the Queen’s funeral will wipe £2bn off GDP and ensure output shrinks for a second consecutive quarter. But Simon French, chief economist at Panmure Gordon, said: “There are few parallels for this moment and that makes forecasting particularly difficult. We may not simply be talking about an extra bank holiday. There could be a prolonged period of national mourning.”
Households return to notes and coins to help with budgeting
Consumers are withdrawing cash more frequently to help with managing money during the cost of living crisis. Analysis by money app Snoop shows two in every three consumers used a cash machine this summer, with the typical shopper using a cash machine five times between May and July of this year, withdrawing £60 on average. Scott Mowbray, of Snoop, said easy access to cash was “vital” to help households manage their daily budgets. “Some of our customers only feel truly in command of their finances when they can see, touch and spend physical money,” he said. However, shoppers are struggling to access cash and spend notes and coins as free-to-use cash machines shrink in number and businesses refuse to accept notes and coins.
A strong dollar will soon reverse and lift sterling
Investors should buy the pound after it hit its weakest level since 1985, says Bill Gross, co-founder of Pimco. The fund manager told investors that he was “long the pound” because he believed the dollar was overvalued against all major currencies. “Continued large trade deficits and a ceiling on the Fed’s ability to raise rates to anticipated levels due to future recession will limit further depreciation of the pound and likely lead to future relative increases compared to the dollar,” Gross said. The Sunday Times notes that some analysts have warned that the UK is at risk of a currency crisis. But Neil Shearing at Capital Economics said the pound “is not an emerging market currency”.
Economists: Energy price freeze will ease recession risk
Economists believe an energy price cap announced by new Prime Minister Liz Truss as part of a rescue package significantly cuts the chances of Britain going into recession. Martin Beck, chief economic adviser to the EY Item Club, said: “The proposed household cap is generous, so should reduce the risk of the economy falling into recession, as well as helping to ease the uncertainty which has surrounded its prospects.” He said he expects inflation to peak below 11% in October, “rather than 15% or so which might have materialised.” Mr Beck added: “A lower peak for inflation may dampen inflation expectations among the public, a development which would reassure the Bank of England’s Monetary Policy Committee (MPC).” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, predicts that inflation will drop back to 10% by January, 5% in June and then to the MPC’s official target of 2% towards the end of 2023. As a result, he thinks the MPC will only need to raise its base rate twice more as part of its bid to tackle inflation.
Energy industry calls for details of support package
Sources from within the sector say the energy industry needs details of the Prime Minister’s promised support for businesses on power bills, warning that more information is required within days for it to take effect this winter. Liz Truss last week set out plans to freeze energy bills at £2,500 for the average home and promised “equivalent support” for businesses. While details were given on support for households, little was revealed about support for businesses, with the Government pledging to unveil a more complete plan as soon as possible. Industry figures say details need to be shared with the sector urgently to give suppliers time to process them and make sure companies can benefit this winter. A source at a major power provider told the Telegraph: “We are talking in days — we have to come up with a solution.” They added that providing help to businesses is “hugely complex” because of the way in which companies pay for energy. Business Secretary Jacob Rees-Mogg is understood to have held joint meetings with his predecessor, Chancellor Kwasi Kwarteng, and energy bosses over the matter.
Traditional finance is letting SMEs down
Research from finance and payment solutions provider Sonovate reveals that 38% of SME business owners think banks fail to understand their needs, while 41% believe banks’ lending policies have not kept pace with their demands. “It is evident that business owners across the country are struggling to access finance through traditional means,” said Sonovate co-founder and co-chief executive Richard Prime. However, despite the UK being a hive of fintech firms and alternative lenders, only 5% of small firms secured a loan or accessed invoice finance from one in the past 12 months. But those that have used non-traditional forms of finance have seen real benefits, Sonovate found, with three quarters saying invoice financing tools had greatly benefited their business, while 64% said transactions were faster.
Liz Truss to announce tax-cutting mini-Budget even if Parliament not sitting
The Sun on Sunday has learned that Liz Truss will go ahead with a mini-budget even if Parliament is still closed after the death of the Queen. Parliament will be shut for a total of 13 days, which includes 10 days of official mourning and extra time to allow MPs to swear a new oath of allegiance to King Charles III. The only day left available to deliver the plans is when the PM is travelling to the United Nations in New York. A source close to the PM said: “Officials are working to adapt plans to work around the mourning period so that it can be delivered on time while maintaining respect for the late Queen.”
EDF in talks to cap price rises
French energy giant EDF is in talks with ministers over a voluntary cap on the price of electricity produced by its five UK nuclear plants. Matt Sykes, managing director of EDF’s generation business, points out that most of EDF’s output for next year had been sold some time ago so the company had not benefited from high, short-term prices. EDF indicated that a cap on its prices was preferable to market volatility. “The industry likes stable returns,” Sykes said.
BoE to resist Truss’s plan to axe City red tape
The Sunday Telegraph predicts a clash between Downing Street and the Bank of England over the easing of regulations for financial services. The paper reports that the Bank’s Prudential Regulation Authority (PRA) is set to launch a consultation on the final package of the post-crisis banking reforms, known as Basel 3.1, by the end of the year and is likely to insist on a robust implementation of the rulebook. With the European Union set to ease its own Basel rulebook and diverge on certain key areas, British banks could be forced to implement more stringent standards than their Continental rivals. Industry lobby group UK Finance has expressed concerns about the design of the latest Basel package and City bosses have urged Liz Truss to make promoting global competitiveness a “primary objective” of the PRA and the Financial Conduct Authority. The PRA’s move to embed tighter rules will go against attempts by Ms Truss and her Chancellor Kwasi Kwarteng to unleash a “Big Bang 2” in the City of London.
Bounce back loan row could spark improved anti-fraud measures
The Times reported Saturday on the war of words between Starling Bank and former anti-fraud minister Lord Agnew, who accused the bank of failing in its anti-fraud duties when engaging with the Government’s bounce back loan scheme. New data released last week suggested Starling had identified 5.8% of loans drawn under the scheme as suspected fraud, higher than the 2.3% average for banks in the programme. Starling’s small business lending totalled more than £2bn as of March 31 this year, of which more than £1.8bn was subject to government-guarantee – a huge expansion on the small business loan book of only £115,000 at the end of November 2019. Several observers say uncritically that Starling obviously took advantage of the scheme to expand, and the bank’s founder Anne Boden has hit back at Agnew’s claims, arguing that its fraud detection processes are state of the art. As the bounce back loan row continues, Agnew hopes that perhaps now lenders and the Government will begin to put some proper investment into counter-fraud measures.
Energy crisis spurs Germany to loosen insolvency rules
Germany will temporarily relax insolvency rules to help companies struggling with debts brought on by high energy costs, the country’s finance minister has announced. Marco Buschmann said his plan would exempt firms from the obligation to file for insolvency if an expert finds they have a “positive going concern prognosis” for four months, down from 12 months now. Germany saw a 26% rise in insolvency proceedings in August.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.