Business news 14 April 2022
James Salmon, Operations Director.
Inflation hits 30-year high. Abramovich. Cashing in on their chips. Online sales tax could boost town centres. And more business news.
Inflation hits 30-year high
Office for National Statistics (ONS) data shows that inflation hit a 30-year high of 7% in the year to March. This marks the highest level of inflation since the 7.1% rate recorded in March 1992.
Inflation for March was up from the 6.2% seen in February and also came in higher than the 6.7% expected by analysts. The increase does not take into account the average 54% increase in energy bills that came into effect two weeks ago, so April’s figure is expected to be even higher.
The Bank of England has predicted that inflation could peak at around 8% in April. A surge in fuel prices had the biggest impact on the inflation rate in March, with average petrol and diesel prices at record highs, while the cost of food, furniture, household equipment, clothes and shoes also saw increases of between 5% and 10%.
ONS chief economist Grant Fitzner said: “Broad-based price rises saw annual inflation increase sharply again in March.” He added: “The price of goods leaving UK factories has continued to rise substantially with metal and transport products both at record highs and food reaching its highest rate for over a decade. Raw material costs also rose, with a notable increase in the price of crude oil.”
Alpesh Paleja, lead economist at the Confederation of British Industry, said: “The latest rise in inflation will not be the last,” adding that this will mean “even higher costs for businesses, and a deep squeeze in the cost-of-living for households.”
Reflecting on the ONS data, Chancellor Rishi Sunak said: “I know this is a worrying time for many families, which is why we are taking action to ease the burdens by providing support worth around £22bn in this financial year.”
With analysts suggesting the Bank of England may increase interest rates in a bid to tackle soaring inflation, RSM economist Thomas Pugh believes the Bank is “under pressure” to raise rates in May.
Abramovich
A court in the Channel island Jersey, froze $7 billion of assets linked to the sanctioned Roman Abramovich. Meanwhile France seized 12 of Abramovich’s properties, including a £90m chateau in France near Cannes and his estate on the Caribbean island of St Barts
Cashing in on their chips
Taiwan Semiconductor Manufacturing Company (TSMC), the worlds biggest chip maker, has boomed due to the covid-19 pandemic. A surge in demand for chips, due to the faster-than-expected global economic recovery, has led to a global chip shortage. Chip prices soared and TSMC’s revenue has boomed. with results expected to see revenue rising 36%. However demand has been met by supply as new factories are popping up across the west so those results look short lived.
National Grid
National Grid has upped its earnings guidance as it said higher inflation in the UK has delivered a better than expected performances from its UK Electricity Transmission and Electricity Distribution businesses. The London-based power infrastructure firm expects its underlying earnings per share to be “modestly higher” than previous guidance
Online sales tax could boost town centres
Plans to introduce a so-called “Amazon tax” on digital retailers have been unveiled as part of moves to reverse the decline of Scotland’s town centres, with a joint report by the Scottish Government and local authority body Cosla saying Scottish ministers will “explore the taxation of digital sales” to ensure online businesses contribute to tax revenues. Dr Liz Cameron, chief executive of the Scottish Chambers of Commerce, warned: “The introduction of a Scottish-only online sales tax could negatively impact on businesses competitiveness and push up prices,” while Andrew McRae, the Scottish policy chairman for the Federation of Small Businesses, said: “While bricks-and-mortar shops have often felt that the online giants had unfair advantages, we wouldn’t want to see any online sales tax hit smaller operators.” The Times says that it is unclear whether Holyrood would be able to impose an Amazon tax without the UK introducing a similar policy as powers to institute new taxes are reserved to Westminster, noting that the UK Government launched a consultation into an online sales tax in February.
Inflation undoes benefit of NI raid
The Telegraph’s Tom Rees and Tim Wallace look at how surging inflation “has completely undone” the financial benefit of Chancellor Rishi Sunak’s National Insurance “raid”, saying that with inflation hitting 7%, the increase will drive up repayments on Government debt by £25bn, far more than the £17bn raised by the recent NI increase. They cite calculations by the EY Item Club showing that the Chancellor is facing an extra £25bn of debt interest costs in 2022/23, compared to official forecasts in October shortly after his £17bn National Insurance hike was announced. Martin Beck, chief economic adviser at the EY Item Club, said that in isolation “the rise in forecast inflation has more than wiped out what was expected to be raised from the National Insurance hike,” but noted that higher inflation alongside frozen tax thresholds will also boost Government revenues, helping to cushion the impact of the surge in debt servicing costs.
ONS: House prices rose 10.9% in February
UK house prices rose 10.9% year-on-year in February, Office for National Statistics (ONS) figures show. This is up from a 10.2% increase in January. February’s increase exceeded forecasts, with analysts predicting a 10.1% rise. Prices were up 0.8% month-on-month, following a 1.1% monthly rise in January. The increase recorded in February took the average house price to £277,000, with this £27,000 higher compared to the same month in 2021. House prices in England grew by 10.7% to an average of £296,000 in February. Wales reported a 14.2% rise to £205,000, while prices increased by 11.7% to £181,000 in Scotland and by 7.9% to £159,000 in Northern Ireland. Hargreaves Lansdown analyst Sarah Coles said: “The property market continues to defy gravity. Despite rising rates and runaway inflation putting the squeeze on affordability, February saw another record average price.” The ONS data also shows that the private rental prices increased by 2.4% in the 12 months to March, with the increase hitting 3.3% if London is excluded.
House prices up 1.4% in March – Halifax
Average UK house prices were up 1.4% in March, with this the biggest increase since September. Halifax’s latest House Price Index report shows that the value of the average UK property has increased by £28,113 in the past 12 months and by £43,577 since the first coronavirus lockdown in March 2020. Russell Galley of Halifax commented: “The story behind such strong house price inflation remains unchanged: limited supply and strong demand, despite the prospect of increasing pressure on households’ finances.” He added: “Although there is some recent evidence of more homes coming onto the market, the fundamental issue remains that too many buyers are chasing too few properties.”
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