Business news 14 March 2022
James Salmon, Operations Director.
UK households face £38bn hit from rising energy bills. Food Prices to rise up to 15%. UK economy rebounds but Ukraine war clouds outlook. Bank expected to raise interest rates again. Restaurant insolvencies jump 20%. And more business news.
UK households face £38bn hit from rising energy bills
A study by Aurora Energy Research estimates that UK households face a £38bn hit to their budgets from rising energy costs – the equivalent of a 6p rise in the basic rate of income tax. In other energy news, the EU has said it will need five years to wean itself off Russian oil and gas. The Telegraph’s Juliet Samuel considers the options and concludes that Britain has been “hobbled by good intentions” while the Conservatives have forgotten how to get things done and only know how to pander to the finger-waggers. “The absurdity is that if only they could at least remember how to get the government out of the way, markets would fix the energy problem for us.”
Food Prices to rise up to 15%
With Russia and Ukraine being among the biggest exporters of Wheat and many other agricultural problems, the war is going to have a big impact on global supplies. Together they export 12% the calories traded internationally. Ukraine may not get to plant this years crop. And will anyone want to buy Russian exports? In any case both countries have banned exports. Belarus is also a major player in the fertilizer market.
UK economy rebounds but Ukraine war clouds outlook
Figures from the Office for National Statistics show the UK economy grew by a better than expected 0.8% in January, compared with a 0.2% contraction in December, as the effects of the Omicron Covid variant began to ease. This took the three-month-on-three-month growth rate to 1.1%, also ahead of expectations. ONS director of economic statistics Darren Morgan said: “All sectors grew in January with some industries that were hit particularly hard in December now performing well.” Following the release of the figures, the Chancellor said: “We have provided unprecedented support throughout the pandemic which has put our economy in a strong position to deal with current cost-of-living challenges.” But economists said the figures had been pushed into the rear-view mirror by the conflict in Ukraine, with Suren Thiru at the British Chambers of Commerce contending that Russia’s invasion had increased the risk of a recession in the UK, adding: “Raising interest rates and taxes at this time would weaken the UK’s growth prospects further.” Yael Selfin, chief economist at KPMG, said growth momentum was “likely to be derailed” by the war while Samuel Tombs at Pantheon Macroeconomics said that while it was a “safe bet” the MPC would raise interest rates to 0.75% next week, the recovery could stall in the second quarter of 2022.
Bank expected to raise interest rates again
The Bank of England is expected to increase the base rate from 0.5% to 0.75% on Thursday in a bid to bring inflation back under control. However, raising rates could derail a fragile economic recovery just as the world contends with the war in Ukraine. George Buckley, an economist at Nomura bank, said he expected a rate rise this week and again in May, August, November and February next year – taking the benchmark to 1.75%.
Restaurant insolvencies jump 20%
Data from UHY Hacker Young show restaurant insolvencies rose to 354 in the last quarter of 2021, up from 296 in the previous three-month period. Considerable challenges remain for the sector despite the end to coronavirus restrictions, the firm said, with prices rising and the Commercial Rents Bill due to come into effect on March 25th. This will enable commercial landlords to take action against tenants that have fallen into rent arrears during lockdown. Rising interest rates and the hike in National Insurance Contributions will add to the strain. Peter Kubik, Partner at UHY Hacker Young says: “The restaurant sector has emerged from one crisis only to face an onslaught of other challenges. Restaurants could at least rely on Government support during the worst of the pandemic. Now that these protections have come to an end, they’re having to face multiple challenges with zero help.” Kubik concluded: “Given the enormous pressures the restaurant sector is under, the Government should seriously consider scrapping or at the very least postponing, the Health and Social Care tax.”
Manufacturers call for Chancellor to act as price rises hit record high
Ongoing inflationary pressures have led manufacturers to increase prices at record levels, according to a report by Make UK and BDO. The study showed prices for UK exports increased for the fourth successive quarter, with prices likely to rise further because of the conflict in Ukraine. The poll of nearly 300 firms also found nearly one in 10 believed increases in energy and raw materials prices were a threat to their business. Stephen Phipson, Make UK’s CEO, said: “Companies are facing eyewatering increases in costs, which are becoming a matter of survival for many. While some of the increases are driven globally, the Government cannot use this as a shield from the fact some are self-imposed and, added together, are now forming a perfect storm for companies.” Richard Austin, head of manufacturing at BDO, added: “Manufacturers on the whole are currently managing to meet demand, but this will be difficult to sustain. Costs are rising at a speed that they cannot respond quick enough to. Combined with supply chain disruptions which will sadly now be exacerbated by the invasion of Ukraine, manufacturers will be turning to the Chancellor for immediate action.”
Chancellor urges businesses to cut links with Russia
Rishi Sunak has urged businesses to bring relationships with Russia to an end as part of efforts to “inflict maximum economic pain – and to stop further bloodshed”. The Chancellor said he welcomed “commitments already made by a number of firms to divest from Russian assets,” adding the Government will support any firms cutting ties with Moscow. Mr Sunak went on to discourage fund managers from picking up Russian assets on the cheap after their prices collapsed due to harsh Western sanctions. “There is no case for new investment in Russia,” the Chancellor warned, adding that firms should “think very carefully about their investments in Russia”. Meanwhile, Andrew Hill in the FT considers what problems could lie ahead for companies exiting Russia, with one ethics expert questioning why those that had withdrawn had not also left China – “I don’t see a qualitative or ethical difference,” she says
IMF says Russian default “not systematically relevant”
The International Monetary Fund has said that sanctions imposed on Russia were already having a “severe” impact on its economy and would trigger a deep recession there this year. The fund’s managing director, Kristalina Georgieva, also said that a Russian default on its debts was no longer “improbable” but contagion from such an event was unlikely as the exposure was “not systematically relevant”. However, the knock-on effects for countries reliant on imports of wheat and other commodities from Russia could be dramatic, Georgieva added. Separately, Moscow has said it is within its rights to pay international bondholders in roubles rather than dollars. The assertion comes ahead of a scheduled $117m interest payment due on Wednesday. Meanwhile, the US has warned China not to assist Russia after Moscow said it was counting on Beijing to help it withstand the blow to its economy from sanctions.
Loopholes in Economic Crime Bill will allow oligarchs to escape
The Government’s Economic Crime Bill won’t prevent Russian oligarchs or any other individuals from using the UK’s offshore tax havens to hide their cash, anti-corruption experts have said. Transparency International is calling for the Government to strike emergency deals with the UK’s Crown Dependencies and Overseas Territories in order to gain full access to their records and prevent the sale of assets bought with “dirty money from Russia and elsewhere”. The Tax Justice Network is dismayed that the legislation set to pass this week does nothing to address arrangements in offshore territories. The bill is almost worse than nothing,” said Alex Cobham, the group’s chief executive. “It still allows [oligarchs] to hide behind opaque corporate structures. And I would expect a lot of it to be done through overseas territories and crown dependencies. All it will do is formalise the UK’s continuing acceptance of dirty money.”
Alarm at Gove’s plan to seize homes from Russian oligarchs
Michael Gove’s plan to seize the homes of wealthy Russian and hand them over to refugees from Ukraine has created tensions within Government amid fears the move would undermine fundamental property rights. Foreign Office Minister James Cleverly and Treasury Minister John Glen have expressed their opposition to the Levelling Up Secretary’s idea, with senior figures in those departments declaring the plan “not legally workable” and condemned it as “gesture politics more suited to a banana republic”. Mr Gove was sticking to his guns during interviews on Sunday, saying the homes of sanctioned individuals should be used for “humanitarian and other purposes”, adding: “There’s quite a high legal bar to cross and we’re not talking about permanent confiscation.”
FSB: Chancellor should halt damaging tax hikes
Martin McTague, national chairman of the Federation of Small Businesses, comments on reports that the Chancellor will go ahead with the National Insurance rise despite Britons facing a cost-of-living crisis and businesses burdened by soaring costs. McTague said: “The Chancellor has a choice: plough on with damaging tax hikes or take steps to protect the most fragile and empower small firms to deliver his ‘culture of enterprise’ vision.” He adds: “The time to deliver a low-tax, high-investment, dynamic economy is now… The Chancellor cannot control the wholesale price of gas and oil, but he can control tax policy.”
Squeeze on hiring in financial services sector
New research from Talent.com has revealed that the financial services labour market has experienced an increased shortage of candidates and will continue on this trajectory throughout the year as a result of both COVID-19 and Brexit. The research revealed that, in March of last year, financial occupations experienced a 40% increase in tightness. With a large number of foreign workers in financial service jobs, and the effects of Brexit still yet to fully unfold, analysts are expecting that the tightness in hiring these high-skilled occupations is likely to continue throughout 2022.
Ten Evraz directors resign after Abramovich sanctioned
All non-executive directors at Evraz, the steelmaker in which Roman Abramovich owns a 29% stake, have quit the board after the Russian was sanctioned by the UK Government. Among the ten directors to depart are Alexander Abramov, who was its chairman and co-founded the business, and Sir Michael Peat, a former treasurer to the Queen. Sir Michael’s great grandfather founded accountancy firm Peat Marwick, which later became KPMG. Former Deloitte director Deborah Gudgeon and ex-Ford executive Stephen Odell have also stepped down. The UK claimed Evraz “is or has been involved in providing financial services, or making available funds, economic resources, goods or technology that could contribute to destabilising Ukraine” – allegations denied by Evraz. The FT notes that six members of Polymetal’s board have also stood down, including its British chair, while Richard Brasher, a former Tesco executive, left the board of X5, a Russian supermarket, and Joan MacNaughton departed En+. The Institute of Directors had called on all British executives to end involvement in businesses linked to the Russian economy. Tom Keatinge, director for the Centre for Financial Crime and Security Studies at think-tank Rusi, said: “These decisions have been forced on them. They waited until the last possible moment when it became untenable. They should not be applauded.”
Fraudulent insurance claims soar to cover cost of living rise
LV has reported a vast surge in fraudulent insurance claims with the company’s Matt Crabtree putting the rise was down to growing financial pressures on households. “Sadly, this is leading to an increase in motivation for certain individuals to stage an accident or exaggerate an insurance claim,” he said. The rise in fake claims has prompted the Association of British Insurers to issue a warning to policyholders about exaggerating claims, saying they would find themselves blacklisted from certain providers in future and could ultimately face prosecution.
Accelerating renewables drive key to energy independence
The Sunday Telegraph considered whether the conflict in Ukraine and the consequent ban on Russian oil and gas exports have influenced the momentum behind the push for renewable energy. The Government is preparing to increase domestic oil and gas production and in the short term, some coal-fired plants may need to stay open longer than planned to fill gaps in supply. But the long-term view, and the global move to clean energy, remains on track for investors, says Gavin Quantock, partner and head of energy M&A at KPMG. Emma Pinchbeck, chief executive of Energy UK, the cross-industry trade body, adds that the current crisis may actually accelerate the shift: “The drive to renewables clearly makes economic as well as environmental sense… But in a world where fossil fuel prices keep reaching unprecedented levels, that case becomes overwhelming.”
Comment: GDPR has been a disaster for British innovation
Matthew Lynn said in the Sunday Telegraph that the European Union’s General Data Protection Regulation (GDPR) has cost the UK billions. He cites a new study out of Oxford University which found the rules significantly reduced the profits and sales of digital companies with the harm concentrated on the smaller companies, leaving the American tech giants such as Facebook and Google largely unscathed. The report found that on average GDPR had reduced sales from tech companies by 2%, and profits by 8%. Lynn goes on to cite a report from PwC which revealed some European companies are spending €10m (£8m) a year on compliance. Adhering to GDPR is expensive for small businesses too, of course, with the net result being that innovation has been suppressed. There may be consequences if Britain scraps the rules, Lynn admits, but he insists that the sooner GDPR is dumped the better.
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