Business news 13 July 2022
James Salmon, Operations Director.
Company insolvencies rise by 45%. GDP surprises. Markets. UK Households worse off than European rivals. One in six households in ‘serious financial difficulties’. And more business news.
Company insolvencies rise by 45%
A report from Interpath shows that, with businesses struggling with rising energy bills and interest rates, company insolvencies shot up by nearly 45% during the first half to total 451. March saw 101 companies fall into administration – the highest monthly total since July 2020. Interpath, formerly the restructuring arm of KPMG before it was spun out last year, said that supply chain disruption, staff shortages, rising wage bills and political instability were also putting businesses under pressure. Interpath chief executive Blair Nimmo said firms were running down their cash buffers while lenders were becoming more cautious.
GDP surprises
The UK Economy grew in May, bouncing back after shrinking in April and March, official figures show. The economy grew by 0.5% in May, the Office for National Statistics (ONS) said, after it contracted by 0.2% the month before. Analysts had predicted growth of just 0.1%. Many have warned the UK risks going into recession later this year. Growth in the construction industry and a large rise in GP appointments helped to boost the economy.
Markets
Global shares were shaky while oil prices and bond yields dipped as investors worried about the prospects of further central bank tightening and worries about the health of the global economy. The US dollar’s has been the safe-haven go-to currency for investors concerned about the economic outlook in recent weeks, with the U.S. currency roaring to two-decade highs against multiple currencies, while the euro on the other hand almost hit parity with the dollar. as it it hit by the ongoing spike in natural gas prices on the regional economy and the war in neighbouring Ukraine, and with the European Central Bank behind rivals in raising interest rates and combating inflation. If Russia turns off the gas indefinitely, expect doomsday reactions in European markets. Sterling is in recovery today, and it’s supported by better than expected monthly GDP data. Overnight, DOW dropped -0.62%. S&P 500 dropped -0.92%. NASDAQ dropped -0.95%.
UK households £8,800 a year worse off than those in France or Germany
The average British household has been left £8,800 poorer than its equivalent in five comparable countries, according to research from the Resolution Foundation. A widening prosperity gap with France, Germany, Australia, Canada and the Netherlands was the result of poor productivity and a failure to narrow the divide between rich and poor, the think tank asserted. Its chief executive, Torsten Bell, said: “Britain is a rich country, with huge economic and cultural strengths. But those strengths are not being built on with the recent record of low growth leaving Britain trailing behind its peers” The foundation’s report, Stagnation Nation coincided with calls from the Confederation of British Industry (CBI) and the Treasury select committee for the Government to produce a coherent growth strategy.
One in six households in ‘serious financial difficulties’
Research conducted by Bristol University and abrdn Financial Fairness Trust has found that rising prices have pushed more people into “serious financial difficulties” than the pandemic. A total of 4.4m households – one in six across the country – are now estimated to be in such difficulties, up 1.6m over the last nine months, with single parents, renters, people with disabilities, and families with three or more children the groups facing the most difficulties. A quarter of households now have no savings, while credit card debt is rising. Mubin Haq, chief executive of abrdn Financial Fairness Trust, said the findings are “the first substantial deterioration we have seen since tracking people’s finances when the pandemic started”.
Ofgem: Energy bills will rise faster than predicted
The chief executive of Ofgem told MPs on Monday that the cost of domestic energy would rise more than expected this winter warning that the previous estimate for winter bills now looked too low. Jonathan Brearley said in late May that a typical household would pay £800 a year more from October, bringing the typical bill for gas and electricity to about £2,800. But he said on Monday that given the current “pricing dynamics” and the ongoing war in Ukraine meant the forecast was out of date. Brearley would not be drawn on exactly how much higher bills would be, but he didn’t dispute the suggestion they could hit £3,200. An analyst from Cornwall Insight last week said that the typical domestic customer was likely to pay £3,244 a year from October, then £3,363 a year from January.
Sales volumes fall steeply
Fresh data from the British Retail Consortium (BRC) and KPMG show retail sales by value fell 1.3% year-on-year last month – a sharp drop on the increase of 6.7% in June 2021. However, rising prices mask a 10% year-on-year fall in sales by volume. Helen Dickinson, BRC chief executive, said: “Sales volumes are falling to a rate not seen since the depths of the pandemic, as inflation continues to bite, and households cut back spending.” Paul Martin, UK head of retail at KPMG, said: “As the cost-of-living crisis continues to deepen, retailers face walking a fine line between protecting margins and further denting consumer confidence by passing on price rises whilst negotiating with their suppliers to share the cost increases.” Separate figures today from Barclaycard showed spending rose 6.2% year-on-year last month. But most, if not all, of it is likely to be due to rising prices.
Heathrow
Heathrow Airport has told airlines to stop selling summer tickets, as the UK’s biggest airport struggles to cope with the rebound in air travel. The airport is limiting the number of passengers who can depart each day over the peak summer months to 100,000, 4,000 fewer than currently scheduled. The cap on passenger numbers will be in place from now until 11 September.
BT
BT Group announced plans to nearly double its in-house digital talent across the UK and India this morning, growing to 6,300 people by 2024. The UK staff will be dotted around BT’s hub sites in Birmingham, Manchester, Bristol, Belfast, Ipswich and London, whilst the Indian hubs will be based in Bengaluru and Gurugram.
Bailey pledges to bring UK inflation back down to 2% target
Andrew Bailey, the Governor of the Bank of England, said on Tuesday that there would be “no ifs or buts” in the quest to bring down inflation to the Bank’s 2% target. However, rates may have to rise more sharply in the meantime in response to surging price rises. He said rising gas prices were a risk to inflation, hinting that a 50 basis-point rate rise could be on the cards at the next meeting of the Bank’s monetary policy committee in August. The Governor went on to defend the Bank’s record after more than a decade of stimulus measures, stating: “I reject the notion that we have stoked up domestic demand.”
OECD wants key part of global tax deal signed off by mid-2023
The Organisation for Economic Cooperation and Development said on Monday that its plans for a global tax deal are on course to come into effect in 2024. The group want the first pillar of the deal to be signed-off mid-2023. This will reallocate 25% of profits from the world’s largest multinationals for taxation in the countries where their clients are regardless of the companies’ physical location. But experts think the chances of the US Congress ratifying the deal are slim. Grant Wardell-Johnson, global tax policy leader at KPMG, said the likelihood of agreement being reached by US lawmaker was “very hard to evaluate” while Nick Blundell, a corporate tax partner at Moore Kingston Smith said political hurdles in both the UK and the US may prove “an intractable obstacle” to the plans. The second pillar aims to set global minimum corporate tax rate of 15% and the OECD said most countries were planning legislation to adopt this pillar so that it also enters into force in 2024.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.