Business news 13 January 2023

James Salmon, Operations Director.

GDP rose in November. Energy bills predicted to fall. Online job adverts fall. MPC’s Mann: No over-tightening risk yet.  And more business news.

GDP rose in November

The UK Economy unexpectedly grew in November, helped by a boost from the World Cup, official figures show. The UK’s gross domestic product rose by 0.1%. The ONS said pubs and restaurants contributed to growth as people went out to watch World Cup games. However, in the three months to November, the economy shrank by 0.3%.

Energy bills predicted to fall
Projections from Investec suggest energy bills could fall further than previously forecast later this year. While reduced Government support means a typical household gas and electricity bill is expected to rise from £2,500 a year to £3,000 a year in April, falling wholesale gas prices mean annual bills could fall below this from July. Investec predicts customers will be paying £2,478 a year from this summer. A recent forecast by energy consultancy Cornwall suggested that bills would settle at about £2,800 a year.

Online job adverts fall
The number of job adverts posted online has fallen below pre-pandemic levels for the first time in nearly two years, according to data gathered by job search website Adzuna and published by the Office for National Statistics (ONS). The number of postings fell below those seen before the pandemic in the first week of this year, marking the first time since April 2021 that the number of vacancies dropped below the benchmark. Job adverts fell by 3% in the week to January 6 compared with the previous week.

The largest drop was recorded in the human resources and recruitment industry, which had a 19% fall. Vacancies hit a high of 1.3m in the three months to May 2022, according to ONS figures, but fell for several consecutive quarters to reach 1.19m in the three months to November. An exodus of about half a million workers from the labour market reduced the supply of workers for companies during the pandemic. However, with the cost-of-living crisis hitting demand for goods and services, companies now have less of a need for workers.

MPC’s Mann: No over-tightening risk yet
Catherine Mann, a member of the Monetary Policy Committee (MPC), says that while the Bank of England continues to increase interest rates, it is not at point where it needs to worry about the risk of over-tightening.

Ms Mann said she assessed the risk of over-tightening based on metrics including mortgage rates, equity valuations and currency strength. The Bank increased the base rate from 3% to 3.5% in December. Financial markets say there is a 60% chance that the MPC will vote to raise interest rates to 4% in February, with a 40% chance of a rise to 3.75%.

Workers may be able to still claim sickness benefits
Proposals being considered by the Government could see some people claiming sickness and disability benefits allowed to keep receiving payments if they find work. At the moment, benefits can be reduced or withdrawn altogether when a claimant returns to work. The Treasury is also said to be considering offering tax breaks to incentivise people to return to work.

With figures showing that 2.5m people are missing from the labour market because of medical conditions, Work and Pensions Secretary Mel Stride has been tasked with finding ways to reduce the number of people out of work.

Prime Minister Rishi Sunak last week said: “We need to look at how our welfare system is operating… we would like to make sure that we are supporting and incentivising people who can be, to be in work.”

Debt for Nature

Global banks are looking at some of the world’s most fragile countries for a new experiment in financial engineering – offering debt relief in exchange for environmental protections. Given the monika “debt-for-nature swaps,” they present an intriguing solution for the rising number of nations in distress and environmental issues. As much as $2 trillion of debt may be eligible.

Sadiq Khan on Brexit

London Mayor Sadiq Khan warned of the “immense damage” Brexit is doing to the capital’s City financial district, and accused the government of ignoring the wider impacts on Britain.
In a keynote speech to City leaders on Thursday evening, Khan said it’s wrong to “pretend” that the UK’s exit from the European Union isn’t causing harm. “The reality is that the City of London is being hit hard by the loss of trade and talent to our competitors because of Brexit,”  he said. “London cannot afford to fall behind any of our international competitors.”

Royal Mail warns of severe disruption to international parcels after ‘cyber incident’
Royal Mail was hit by a cyber incident to its international export services  and is experiencing severe disruption.  The company said it was temporarily unable to send items abroad, with letters and parcels among the items affected. “We have asked customers temporarily to stop submitting any export items into the network while we work hard to resolve the issue,” the company said. “Some customers may experience delay or disruption to items already shipped for export.”

Brexit

The Government and the European Union are preparing to enter an intense phase of negotiations next week in order to overcome the Northern Ireland dispute with the the anniversary of  peace agreement looming in April. UK foreign minister James Cleverly and European Commission Vice-President Maros Sefcovic are looking for a path forward in negotiations as the Sunak government takes a more friendly approach to the relationship with our neighbours.

Rare Earth minerals

Sweden’s energy minister announced the discovery of a rare-earth elements in the country’s Arctic north. It is Europe’s largest known deposit and is much welcome as currently 98% of the continent’s rare-earth demand – used in green technology and all kinds of electronics – is imported from China. It’s no quick fix though as it estimated that it will take 10-15 years to develop the find before they can be used.

Markets

US inflation dropped 0.1% month on month, falling to 6.5% annually and US jobless claims claims came in lower than expected at 205k giving US markets a boost.  This marks the sixth consecutive month where inflation declined.  Gold rallied above $1900 for the first time since May and the dollar dropped as the FED was seen to have more room to maneuver regarding the rate of interest rate hikes. While Dollar sold off overnight, the decline was however less severe than originally expected, with cable climbing to $1.223.  European markets also responded positively with the FTSE 100 climbing over 1% to 7807 with Eurostoxx 50 up 0.8%.  Overnight, the DOW rose 0.64%, the S&P 500 rose 0.34% and the NASDAQ rose 0.64%.

House prices could drop by 15%
Japanese bank Nomura predicts that UK house prices could fall by around 15% by the middle of 2024. Nomura said house prices are likely to need to fall by between 10% and 20% from a peak seen in 2022 for the ratio between higher monthly interest payments and squeezed incomes to return to normal levels. Nomura economists said: “We have thus settled on a central forecast of a 15% fall by mid-2024, which while in the middle of the above range would be a larger fall than assumed by the Bank of England, Office for Budget Responsibility and consensus.” Nomura said the declines would feed through into the Bank of England’s monetary policy, saying; “A weaker housing market, and economy to boot, should provide justification for the Bank to end its tightening cycle soon… and begin easing policy in 2024.”

Tax breaks for just 0.1% of people cost £4bn
Tax breaks which benefit just 70,000 people are costing the Government about £4bn a year in lost revenue, according to analysis of HMRC data by the Resolution Foundation think-tank. The report says the figure covers just five tax reliefs which are available to some of the wealthiest individuals in the country.

They include business asset disposal relief, which allows people selling companies to pay as little as 10% tax on the profits they make from the sale; investors’ relief, which allows people who earn shares in unlisted companies to pay a reduced rate of capital gains tax when they sell their shares; and a tax relief that allows couples to pass on a house worth up to £1m tax-free when they die.

The Resolution Foundation said there was little justification for the reliefs, noting that they only benefit 0.1% of the population. Adam Corlett, principal economist at the think-tank, said: “The UK’s myriad of tax reliefs are hugely expensive, and yet are rarely scrutinised for their value for money in the way that public spending is.” Arguing that there are “far better ways for the Government to spend £4bn,” Mr Corlett said Chancellor Jeremy Hunt “should have these poorly justified tax breaks in his sights as he approaches a tax-reforming Budget in March.”

Treasury could target tax breaks to balance the books
HMRC data has revealed the tax breaks which save people the most money. The most lucrative tax break was private residence relief. The perk, which lets homeowners pay no tax on any profits made when selling their main home rather than buy-to-let properties, saved taxpayers £37.3bn in capital gains tax between 2021 and 2022. This marks a 24% year-on-year increase and means the amount saved via the scheme has jumped by £7.1bn in five years. Claire Roberts of Moore Kingston Smith described the increase in private residence relief as “staggering.” She suggests that with the Treasury looking to balance the books, the tax break could be scrapped, with the Government possibly tempted to replicate the US system where homeowners pay tax on capital gains in excess of $250,000 made from selling a primary home.

The HMRC report also shows that pension schemes saved taxpayers £26.9bn in income tax and £24.7bn in National Insurance contributions last year, while ISAs saved taxpayers £3.5bn in income and capital gains tax. Taxpayers also saved £3.3bn through a relief which means the transfer of assets between spouses and civil partners is exempt from inheritance tax.

Taylor Wimpey

The housebuilder said annual profit was in line with expectations and its margin improved, despite a slowdown in the UK housing sector. Taylor Wimpey expects 2022 operating profit, including joint ventures and excluding exceptional items, in line with consensus of £921 million. Operating profit a year earlier amounted to £828.6 million.

ITV

The broadcaster hailed a strong launch for its streaming platform, helped by the World Cup increasing viewership. ITV reported a 55% increase in its streaming hours between December 8 to January 7, compared to the same period a year earlier. The ITVX streaming platform launched on December 8. “During the launch month ITV’s online users increased by 65% compared to the same period last year. The latter stages of the World Cup were big draws while ITVX’s new exclusive content also performed strongly, attracting new and light viewers to ITV,” the company added.

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.