Business news 14 July 2022
James Salmon, Operations Director.
UK economy returns to growth. Brits £9k worse off than those in comparable countries. Inflation fear for HNWIs . Consumers tighten their belts. US Inflation. And more business news.
UK economy returns to growth
The UK economy unexpectedly returned to growth in May, with Office for National Statistics (ONS) data showing GDP rose by 0.5% following a revised 0.2% decline in April. Economists had expected zero growth amid concern over the impact from the cost of living crisis. The ONS figures show industrial output rose 0.9% month-on-month, with this driven by strength in the manufacturing sector, while the construction industry grew by 1.5%. Consumer-facing services fell by 0.1%, with this an improvement on the 0.8% decline recorded in April. Weakness in this sector “suggests the cost of living crisis is starting to take a toll on consumer spending”, said Thomas Pugh, an economist at RSM. Darren Morgan, director for economic statistics at the ONS, said the economy “rebounded” in May, noting that that there was “growth across all main sectors.” Institute of Directors chief economist Kitty Ussher said the figures were reassuring for business leaders while David Bharier, head of research at the British Chambers of Commerce, said May’s growth was “welcome news”, but “masks serious underlying issues of growing imbalances within the economy.” Paul Dales, chief UK economist at Capital Economics, warned: “With real household disposable incomes set to fall further in the third quarter, a recession is still a real risk.” Martin Beck at the EY Item Club said he still expects the economy to contract between April and June, but said it should avoid a technical recession as defined by two quarters in a row of falling output.
Brits £9k worse off than those in comparable countries
A report by the Resolution Foundation think-tank and the London School of Economics suggests British families are almost £9,000 worse off than those in comparable countries. Researchers say a “toxic combination” of low growth, low productivity and inequality mean the average UK household is £8,800 worse off compared to families in countries including France, Germany and Australia. The poorest households are at an even greater disadvantage, with their incomes 40% behind such nations, the study found. The report, Stagnation nation: Navigating a route to a fairer and more prosperous Britain, says: “While the top 10% of households in Britain are richer than those in many other European countries, middle-income British households are not.”
Inflation fear for HNWIs
High-net-worth-individuals see inflation as the most significant risk to their personal finances. The Saltus Wealth Index surveyed attitudes of over 1,000 people in the UK with investable assets of over £250,000 and an average net worth of £1.5m. When asked what represents the biggest threat to their finances, inflation came top (33%), followed by Covid-19 (30%), exchange rates (25%), cyber-security (25%), and geopolitical risks (22%). This marks a shift from last year, when Covid-19 was the top threat, followed by inflation, return on investments, Brexit, and climate change.
Consumers tighten their belts
Research by EY shows that consumers are cutting back their spending as inflation hits household budgets. Over a third (37%) of low and middle-income consumers are now only buying essential items, with this an increase of 11% compared to February, while 32% have switched to cheaper brands to try and save money. While almost half say they now feel financially worse off, only 39% say they feel in control of their lives. EY’s Silvia Rindone noted that consumers are “drifting towards two extremes,” saying: “At one end are cash-strapped consumers who are watching every penny, at the other are those who are willing to spend and want retailers and brands to excite and entice them to do so.”
US Inflation
US Inflation is rising at fastest rate for more than 40 years due to petrol and food costs remaining high, latest figures show. Inflation hit 9.1% in the 12 months to June and increased by 1.3% from May alone, the Labor Department said. US petrol prices hit record highs last month, averaging above $5 per gallon.
PM can cut taxes without stoking inflation, says OBR
The next Prime Minister will have room to cut taxes without stoking inflation, according to the Office for Budget Responsibility. David Miles, a member of the Budget Responsibility Committee and a former Bank of England rate setter, says tax cuts are less likely to drive prices higher due to an apparent economic slowdown. He told the Treasury Select Committee: “There are some indications, on forward-looking consumer sentiment and investment sentiment indicators, that the economy might be slowing.” He added: “So it could be that tax cuts, to the extent that they increase spending, come at a time when things are slowing down anyway and therefore that would have less of an effect on creating inflationary pressures.” Mr Miles said the impact on the economy and inflation “depends what kind of tax cuts they might be,” noting that measures which boost business investment could be particularly positive.
AI concern over jobseeker bias
Information Commissioner John Edwards has announced an investigation of the use of AI in job interviews amid concerns that companies could be deploying such technology “without doing due diligence.” He noted concern that there could be inherent biases based on gender, race or neurodiversity that meant applicants could become victims of automated discrimination. Zahira Jaser, an assistant professor at Sussex University who specialises in the area, said there was strong evidence that AI technologies could contain bias that can exclude some categories of job-seekers. The Telegraph notes that companies including Deloitte and Grant Thornton have used Hirevue technology to analyse language and facial expressions during their recruitment process, with the Government’s department for Business, Energy and Industrial Strategy also on its client list.
Interest in degree apprenticeships climbs
School leavers are seeking more apprenticeship opportunities, with university and college admissions service UCAS seeing an increase in interest in degree apprenticeships and other higher level positions. Degree apprenticeships allow students to study at university while earning a salary and without having to pay tuition fees and are offered by a number of large firms.
Demand cools but house prices climb
Property professionals saw fewer new inquiries from house hunters in June, but house prices continued to increase, according to the Royal Institution of Chartered Surveyors (RICS). More than a quarter (27%) of professionals reported a fall in interest from potential buyers, with this marking the third month in a row that interest from new buyers slipped. Despite the decline in demand, 65% of professionals saw an increase in prices, with this driven by a lack of available properties for buyers. The RICS poll saw 37% of respondents say they foresee prices continuing to climb over the next 12 months. RICS chief economist Simon Rubinsohn said: “Although buyer inquiries have predictably slipped a little of late, this needs to be placed in the context of the healthy level of demand in previous months.”
UK venture funding falls in Q2
UK venture capital funding slumped in the second quarter, with investments falling amid rising interest rates and the prospect of a recession. Analysis by CB Insights shows total cash injected by venture firms in the UK fell to $7.1bn across 478 deals between April and June, down from a record high of $9bn in Q1. Analysts at CB Insights said: “As investors scaled back, funding shrank across all major regions in Q2, including the US and Asia with a 25% quarter-on-quarter drop each.” They added: “While the US drove almost half of all funding ($52.9bn), Q2 marked its lowest funding amount since 2020. In contrast, Europe-based start-ups only saw a 13% dip in total funding quarter-on-quarter.” The report shows early stage start-up funding stayed comparatively buoyant in Q2, making up 64% of deals globally and 67% in the UK.
Demand for alternative assets set to rise
Demand for alternative assets is set to soar by 46% over the next 12 months, with rising inflation expected to drive up investor interest. A survey of 580 investors across the UK and Europe by alternative investment platform AssetTribe saw 53% say their appetite for alternative investments would grow over the next year. Some 62% of investors flagged the high rate of inflation as the leading reason for their interest in alternative assets, with the same proportion pointing to an increasing need to diversify existing portfolios and 53% citing higher possible returns. Real estate was cited as the most popular alternative asset, at 75%.
Barratt Developments
Barratt Developments reported that it delivered an “excellent” performance for the financial year ended 30th June, reflecting strong customer demand for homes and the productivity of its sites. The adjusted pretax profit is anticipated to be in the range of £1.05 billion and £1.06 billion, slightly ahead of current market consensus expectations at £1.048 billion, and up from £919.7 million in the previous year.
Severn Trent
Severn Trent has said it was enjoying a good start to the year operationally and expects at least £50m in customer outcome delivery incentives outperformance payments. In a trading update this morning, the company said it looks to retain its four-star Environmental Performance Assessment rating for 2021 and expect this to be confirmed by the Environment Agency soon. The firm made the announcement alongside its headline results for the full-year which included a 6.4 per cent spike in group turnover this year, as consumption across businesses and industries returns to pre-pandemic levels.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.