Business news 14 September 2022
James Salmon, Operations Director.
Switching to renewable energy could save £10trn. Inflation. Boosting growth a ‘multi-year challenge. Grocery price inflation hits new record. Unemployment falls to lowest level since 1974 . And more business news.
Switching to renewable energy could save £10trn
Switching from fossil fuels to renewable energy could save the world as much as £10.2trn by 2050, an Oxford University study has found.
Prof Doyne Farmer, of the Institute for New Economic Thinking at the Oxford Martin School, said: “Our central conclusion is that we should go full speed ahead with the green energy transition because it’s going to save us money.” The study looked at historic price data for renewables and fossil fuels and modelled how they are likely to change in the future. The expectation that the price of renewables will fall is based on “probabilistic” modelling, using data on how large investment and economies of scale have made other similar technologies cheaper.
The report’s lead author, Dr Rupert Way from the Smith School of Enterprise and the Environment, said: “Our latest research shows scaling-up key green technologies will continue to drive their costs down, and the faster we go, the more we will save.”
Inflation
Quick take – UK Inflation slowed in August on the back of a fall in fuel prices, though food prices continued to rise as the country’s cost-of-living crisis persists. The consumer price index rose 9.9% annually, according to estimates published Wednesday by the Office for National Statistics, fractionally below a consensus forecast of 10.2% among economists polled by Reuters. It was also down from July’s figure of 10.1%.
Economists: Boosting growth a ‘multi-year challenge’
Economists have warned that Chancellor Kwasi Kwarteng’s target of 2.5% annual GDP growth could be hampered by tax cuts he is expected to announce in next week’s emergency Budget.
Mr Kwarteng has reportedly told Treasury staff that he wants his department to focus “entirely on growth in a bid to tackle the level of national debt. This comes with Prime Minister Liz Truss having spoken out over “Treasury orthodoxy” and “abacus economics” which put balancing the books ahead of wealth generation.
Paul Johnson, director of the Institute for Fiscal Studies, argues against pointing the finger at Treasury officials, saying: “If this is a new form of political leadership, which is putting more focus on growth, then good. Growth is really, really important. But it’s a bizarre thing to blame it on Treasury orthodoxy, as opposed to the decisions that politicians have been making.”
Meanwhile, James Smith, research director of the Resolution Foundation, says turning around sluggish growth will be a “multi-year challenge,” noting that increasing growth is “easier said than done.” He added: “This is not something they’re going to be able to do overnight. It’s not something that one set of tax cuts will achieve.”
Professor Sir Christopher Pissarides of the London School of Economics said it was “old-fashioned” for the Treasury to be targeting growth rates, adding: “I think that the numbers are unrealistic, but even more unrealistic is the idea that that the Treasury will have targets for GDP growth.”
Grocery price inflation hits new record
Grocery price inflation hit a record 12.4% in August, outpacing the previous record of 11.6% which had been set the month before. The increase means consumers are paying £571 more on average for their groceries than last year, with the average annual grocery bill increasing from £4,610 to £5,181.
Meanwhile, Aldi’s market share has increased, making it Britain’s fourth largest supermarket for the first time. The discounter’s sales rose by 18.7% over the 12 weeks to September 4, giving it a market share of 9.3%, while fellow discounter Lidl increased its sales by 20.9% and its market share to 7.1%. Morrisons’ sales dropped by 4.1% over the same period, with its market share falling to 9.1%. Tesco still leads the way, with a market share of 26.9%, followed by Sainsbury’s (14.6%) and Asda (14.1%).
40k SMEs expect to turn to finance-providers
More than 40,000 UK SMEs are expected to rely on finance-providers to help stay afloat amid challenges around rising costs, according to research from fintech lender Nucleus Commercial Finance (NCF).
While 15% of firms with 10 to 249 employees expect to need a loan to support the running of their business, just 1% of sole traders anticipate having to borrow. The poll also saw three quarters of SMEs say they are worried about the prospect of rising business costs over the next 12 months, with 29% saying they are very worried, according to the survey of 512 senior decision-makers at UK SMEs.
It was also found that just 38% of businesses are confident about being able to access affordable finance in the next year, with the proportion falling to less than a quarter among sole traders.
NCF chief executive Chirag Shah said SMEs “have been through the ringer over the past couple of years,” warning that the year ahead “could prove to be one of the toughest.” He added that finance-providers and the Government must work together to ensure the necessary support is provided.
Unemployment falls to lowest level since 1974
Unemployment hit 3.6% in the three months to July, with this the lowest level since 1974. Office for National Statistics (ONS) data shows that the number of people in employment grew by 40,000 over the period.
While regular pay, excluding bonuses, grew by 5.2% over the period, when inflation is taken into account, real pay fell by 3.9% year-on-year. Total pay including bonuses was up 5.5% in the three months to July but down 3.6% with inflation taken into account. In the private sector average regular pay growth over the May through July period was 6%, while in the public sector it stood at 2%.
The ONS figures also show that total weekly hours worked fell by 3.5m.
Yael Selfin, chief economist at KPMG UK, said: “Pay packets continue to be squeezed as nominal pay growth hasn’t kept up with soaring inflation.” Martin Beck, chief economic adviser to the EY Item Club, noted that single-month data “shows the number in work in July falling on three months earlier to the greatest extent since January 2021.” “This suggests that the weak economy is starting to have an adverse effect on the jobs market,” he added.
Long-term sickness rate rises to highest since 2005
The proportion of Britain’s workforce too sick to work has jumped to its highest level since 2005. In the May-July quarter, a record 2.464m people aged 16-64 cited long-term sickness as the reason why they were neither working nor seeking work, according to figures from the Office for National Statistics. This equates to 5.9% of the working-age population and marks the highest proportion since the three months to June 2005. The number of working-age people who are long-term sick and not in work has risen by 352,000 since the start of the pandemic and has increased by 127,000 since the three months to April. PwC economist Jake Finney said this was “likely owing to a combination of long Covid and large NHS waiting lists.”
Markets
The US Dollar rebounded strongly yesterday and US stocks fell after stronger than expected US consumer inflation was announced, with the year on year rate coming out at 8.3% when 8.1% was expected. The S&P 500 dropped by 4.3%, the Dow Jones Industrial Average by 3.9% and the NASDAQ Composite by 5.16%, their worst day since June 2020. Persistent inflation will maintain pressure on the FED to raise interest rates with investors expecting a 0.75% rise next week.
Fevertree
Fevertree Drinks shares surged yesterday, after it confirmed strong half-year top-line growth, and backed revised guidance despite intensifying cost headwinds. The London-based drink mixers producer said revenue rose 14% to £160.9 million in the six months that ended June 30 from £141.8 million a year prior.
Trustpilot
Trustpilot Group reported a double-digit rise in interim revenue and a narrowed loss as it backed its annual revenue outlook. The Copenhagen-based online review platform reported an 18% rise in revenue to $73.4 million from $62.4 million a year earlier, reflecting the ‘translational FX headwind that resulted from the material strengthening of the US dollar against sterling and the Euro during the period,’ it explained.
Buyers and owners are locking in mortgage rates
Financial Conduct Authority (FCA) data shows that the majority of homebuyers and owners are locking in their mortgage rates in anticipation of increases as the Bank of England looks to tackle inflation by raising the base rate.
FCA analysis shows that 95.5% of new buyers are taking out fixed rate mortgages, while the proportion of mortgaged homeowners fixing their rates is at an all-time high of 84.9%.
The FCA also found that the value of new mortgage commitments made by lenders grew by 1.7% to £83.9bn in Q2. Despite the increase, the figure remains 2.6% less than a year earlier.
Commenting on the report, Lawrence Bowles, director of research at estate agents Savills, said: “The move to lock into existing rates, which are still low in a historical context, will help to insulate the UK housing market from increasing interest rates in the short term. Especially as we expect the Monetary Policy Committee to raise rates once again later this month.”
PM’s tax and energy plan will give richest families twice as much support
The Resolution Foundation think-tank says tax cuts and an energy price freeze proposed by Prime Minister Liz Truss will give Britain’s richest households twice as much financial support as the poorest ones. It calculates that on average, the richest 10% of UK households will receive £4,700 in support from the Government’s energy price guarantee and cuts to National Insurance. However, support for a household in the poorest tenth would be worth £2,200.
The Resolution Foundation also said that with the PM opting against imposing a fresh windfall tax on energy producers, taxpayers will have to cover the cost of the Government’s support package. Torsten Bell, the Resolution Foundation’s chief executive, said: “The energy price guarantee was absolutely the right thing to do in terms of providing support where it’s needed. But, by ruling out any attempt to fund it through further windfall taxes, the welcome support today could have a nasty sting in terms of higher mortgage payments and higher taxes tomorrow.”
Pension savers face extra £165k tax bill because of inflation
A freeze on the lifetime allowance means pension savers face an extra £165,000 on their tax bill. In 2021, then Chancellor Rishi Sunak froze the upper limit at £1,073,100 for five years. Due to inflation, pensioners will have lost 27% of their lifetime allowance in real terms. Without the freeze, the lifetime allowance would have increased to £1,372,600, according to pensions experts at Aegon. The threshold will fall by £234,000 to £839,131 if inflation remains at 10% next year and then falls back down to 2% in 2024, as predicted by the Bank of England. Andrew Tully of pensions group Canada Life has described the allowance as a “draconian measure” that hits even those saving relatively modest amounts.
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