Business news 13 April 2023
James Salmon, Operations Director.
GDP, the bank of England still focused on inflation, levelling up freezing out growth hubs, house prices, Northern Ireland and more business news.
GDP flat
The UK Economy registered no growth in February, as a contraction in services and production offset strong growth in construction, according to the Office for National Statistics this morning. ONS estimated that in February, real gross domestic product registered no growth from the previous month.
This compared with the upwardly revised 0.4% growth seen in January. January was initially estimated at 0.3% growth. February’s reading was below the 0.1% market consensus. ONS explained that falls in services and production were offset by growth in construction.
The various strikes by teachers and civil servants certainly played a significant effect on the 0.1%. fall in service output with education falling 1.7% and public administration falling 1.1%.
However, Chancellor of the Exchequer Jeremy Hunt said yesterday that the UK economy will do “significantly better” than the International Monetary Fund’s bleak outlook earlier this week for r the coming 24 months when they predicted GDP to fall 0.3% in 2023 and only rise 1% next year.
Bailey: BoE focused on inflation with banking crisis unlikely
Bank of England governor Andrew Bailey says a recent period of turmoil in the banking sector has not distracted the Bank from trying to tame inflation. Mr Bailey told an International Monetary Fund event that financial instability has not “in any sense” prompted the Monetary Policy Committee (MPC) to “aim off our preferred setting of monetary policy.” With the banking sector hit by the collapse of Silicon Valley Bank and Credit Suisse’s rescue by UBS, Mr Bailey said he has full confidence in the global banking system navigating a higher interest rate environment. He said reforms to bank regulation that were brought in after the financial crisis have worked, insisting: “I do not believe we face a systemic banking crisis.” He added: “When I look at the UK banks, they are well capitalised, liquid and able to serve their customers and support the economy.” Meanwhile, Mr Bailey also said the Bank is working on reform of the bank deposit insurance guarantee scheme, suggesting the UK might need to increase its limit for guaranteed deposits above £85,000.
UK levelling up plans risk freezing out growth hubs, business leaders warn
Business leaders have voiced concern over plans to wind Local Enterprise Partnerships into local authorities, with the LEP Network saying it “could significantly diminish or even silence the voice of local business.”
House prices and sales fall
House prices, sales and demand from new buyers are all declining, according to a survey of 295 chartered surveyors by the Royal Institution of Chartered Surveyors. Falls were recorded in buyer inquiries, agreed sales and the number of new landlords instructing agents on an index where a negative figure suggests more respondents are seeing a fall than a rise. The net balance of inquiries came in at -29% in March compared with -30% in February. The net balance for agreed sales fell to -31%, down from -25%, while the net balance for house prices came to -43%, from -47% the month before. Meanwhile, data from Nationwide shows prices dipped 0.8% in March, taking the average value of a home in the UK to £257,122 – with this 3.1% down, year-on-year.
New-build sales fall
Data from analyst TwentyCi shows that sales of new-build properties fell by 24% year-on-year in February, while sales for second hand homes were down 18%. Experts noted that many new-builds are geared toward first-time buyers, who are heavily reliant on mortgages as they have smaller deposits. Moneyfacts data shows that the average two-year fixed mortgage rate has nearly doubled from 2.85% to 5.35% in the past year. The Help to Buy scheme has also ended, making it harder for first-time buyers with small deposits to buy. Halifax figures show house prices have risen by 1.6% in the last year, adding further pressure on buyers
Bank authorities must ‘learn lessons’ from crisis
Klaas Knot, chair of the Financial Stability Board (FSB) regulatory body, says financial authorities need to learn lessons from the collapse of Silicon Valley Bank. Noting that the financial sector has been hit by shocks such as the pandemic and Russia’s invasion of Ukraine, he added that “unlike most other recent shocks,” turmoil in the banking sector “had its origins within the financial system.” In a letter to G20 finance ministers and central bankers, Mr Knot praised the “rapid and effective actions” taken to contain the fallout from SVB’s collapse and issues which saw Credit Suisse rescued by UBS but warned that “we cannot be complacent” and urged authorities to “remain vigilant.” He added that the FSB is working closely with the Basel Committee on Banking Supervision and other standard-setting bodies to identify the “priorities for future work.”
Northern Ireland
As part of his four day trip to Ireland to mark the 25 year anniversary of the Good Friday agreement, US President Joe Biden urged Northern Ireland’s politicians to restore power-sharing (which has been suspended since Unionists walked out in opposition to the Brexit deal), promising to pour money into the economy when they do.
US Inflation
US Inflation fell to its lowest level in almost two years. Inflation came in at 5%, down from 6% in February. The slow-down was mostly due to a fall in energy costs. However, the Federal Reserve, is still expected to raise interest rates by 0.25%next month.
Tesco
Tesco said annual group sales in the year to February 25, excluding value-added tax and fuel, rose 5.3% year-on-year to £57.66 billion from £54.77 billion. Total annual revenue rose to £65.76 billion from £61.34 billion. The revenue figure excludes VAT but does include fuel. Pretax profit fell 51% year-on-year to £1.00 billion from £2.03 billion
EY uncertainty as split plan is scrapped
The Times’ Tom Howard considers the climate for EY now its plans to separate the audit and consulting businesses have been shelved. He notes that the plan – dubbed Project Everest – led to disagreements between partners about which bits of the business would go where, with the fate of the tax teams “especially contentious” in the US division. Mr Howard also says there is “a school of thought that the split was ditched because senior bosses could no longer make the numbers stack up.” He goes on to say that with the planned split having fallen through, “EY in an awkward spot,” with “quarrelling factions … now expected to be harmonious colleagues again.” On what the future holds, he says: “Eventually, it seems, the plan is to have another go at a break-up.” Mr Thomas also looks at the leaders who pushed for the project to go ahead and whether they will remain in place, noting that some partners have suggested that Carmine Di Sibio, global chairman of EY, “should go now his big idea has been canned.” The FT also reflects on the fallout of Project Everest being scrapped, citing an EY partner who says: “I don’t think anybody knows what happens next.”
City law firm Ince Group collapses
City law firm Ince Group has collapsed, with the listed company planning to enter administration after missing deadlines to publish last year’s results. Finances have been under pressure because of a protracted auditing process, which remains incomplete, with BDO having determined there were “matters outstanding” with accounts in Hong Kong. The company said the lengthy auditing process had put “increasing pressure” on its cash flows. Ince said it has held discussions with its main lender and HMRC but has “no choice” but to go into administration after a major creditor said it would no longer support the business. Quantuma will be tasked with selling Ince, which has a history dating back 150 years.
Public sector pay rises to remain below inflation
Public-sector pay rises are set to remain below inflation until price rises come under control, with the International Monetary Fund (IMF) warning against easing off in the fight against inflation and Bank of England governor Andrew Bailey suggesting policymakers will continue to keep interest rates high. The IMF said the UK is likely to have a larger increase in public debt than some other large economies because it is “contemplating further increases in public wages and other social spending.” It added that the impact of government wage hikes on private wages and consumer price inflation “are significantly larger and longer-lasting when labour markets are tighter.” Meanwhile, Treasury officials have warned Chancellor Jeremy Hunt that there is a danger of a wage-price spiral, with high public-sector pay sparking wage inflation in the private sector.
Average earner must work 400 years to benefit from pension tax reform
Workers with average earnings would have to save for 400 years to benefit from a tax cut announced in March’s Budget. Chancellor Jeremy Hunt last month abolished the tax-free limit on pensions savings, which had stood at £1.07m. Labour analysis of Office for National Statistics (ONS) data shows that the average 55 to 64-year-old approaching retirement age has an average of £107,300 in their pension pot. Labour deputy leader Angela Rayner commented: “Someone starting out their career today would have to work until the year 2423 before they’d see a penny from the Tories’ tax giveaway to the top 1%” The Government says the tax cut, which will cost £2.75bn over the next five years, will encourage senior doctors, teachers and police officers to stay in work. The Office for Budget Responsibility estimates that the move could boost the workforce by 15,000, with people who might otherwise have retired to avoid breaching the lifetime allowance opting to remain in work. Paul Johnson, director of the Institute for Fiscal Studies think-tank, argues that the change “won’t play a big part, if any, in increasing the number of people in work”.
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