Business news 16 June 2022
James Salmon, Operations Director.
Interest rates set to hit 1.25%. Hammond: UK heading for recession. US announces biggest rate rise since 1994. Northern Ireland protocol. Senior Tories back PM’s call to axe tax hike. And more business news.
Interest rates set to hit 1.25%
The Bank of England is expected to increase interest rates by 0.25 percentage points to 1.25% today, taking rates beyond what is already a 13-year high in an effort to rein in inflation. This will mark the fifth consecutive rate increase amid the cost of living crisis. Lord King of Lothbury, a former governor of the Bank of England, has suggested the Prime Minister should outline the realities of the situation to the public, saying: “Our leaders need to give us a clear narrative explaining why recent events will inevitably lower our national standard of living, how that burden will be shared, why it is important to bring inflation down, and why measures to raise economic growth and reduce regional disparities will take many years to come to fruition but will work only if we make a start now.”
Hammond: UK heading for recession
Former Chancellor Lord Hammond has warned that the UK is heading for a recession, saying “all the data points that way.” Saying he expects the economy to slow down quite sharply in the autumn, Lord Hammond said this was the “next part of the cycle” that began with the pandemic and the “enormous government response.” “To think that we can somehow move on from that, leave the tab on the table and act as if nothing had happened is unrealistic, is naïve,” he told Sky News. Lord Hammond said an economic slowdown is “probably a good thing,” adding that it will mean “we stand a real chance of bouncing back next year in much better shape.” Asked if ministers should increase spending or cut taxes, he said people are “looking for instant and pain-free solutions” and warned that “you can’t solve an inflation problem by injecting more liquidity into the economy – that is pouring fuel on the fire.”
US announces biggest rate rise since 1994
The Federal Reserve has announced its biggest interest rate rise in nearly 30 years, with the US central bank increasing its benchmark rate by three quarters of a percentage point to a range of 1.5% to 1.75%. The Fed has already raised rates twice this year, by 0.25 percentage points in March and another half point in May. Policymakers expect their key rate to reach a range of 3.25% to 3.5% by the end of the year, the highest level since 2008. The increases come amid soaring prices, with figures released last week showing that inflation rose to 8.6% in May – the fastest pace since 1981. Martin Beck, chief adviser to the EY Item Club, said higher US interest rates and the lower pound puts more pressure on the Bank of England to accelerate rate rises.
Northern Ireland protocol
The European Union announced plans to resume legal proceedings against Britain over plans to unilaterally break the Northern Ireland protocol part of the Brexit deal that was signed 2020. The EU says the planned legislation giving ministers to override the protocol is a unilateral breach of an international treaty and is illegal.
Senior Tories back PM’s call to axe tax hike
Several senior Conservatives have backed calls for a planned increase to corporation tax to be scrapped or scaled back. This comes in the wake of reports that Prime Minister Boris Johnson wants to reverse the planned increase, even though doing so could leave a £15bn-a-year black hole in Treasury finances. Chancellor Rishi Sunak last year announced that corporation tax would increase from 19% to 25% in 2023, arguing that it is “fair and necessary” to ask firms to contribute to the recovery of the national finances following the pandemic. He noted that even after the increase, the UK would still have the lowest Corporation Tax in the G7. Senior Tories have now welcomed suggestions Mr Johnson is willing to push against the tax increase, with former Cabinet minister Lord Frost saying it was “good news” before noting: “Treasury will of course oppose – they always do oppose tax cuts.” Ex-Brexit minister David Jones also suggested reversing the tax hike is the way to go, commenting: “The last thing we want to do right now is to impair the profitability of companies that are providing employment to so many people.” Mr Sunak has vowed to deliver greater tax breaks for businesses, pledging to cut the tax rates on business investment in his Budget this autumn. Paul Johnson, director of the Institute for Fiscal Studies think tank, said: “We know Rishi Sunak is thinking about significant changes to the corporate tax system, in particular how it could be reformed to encourage investment,” adding: “That’s likely to mean changes to the structure of the system rather than a reversal of the rate increase.”
Financial services must remember the lessons of the financial crisis
MPs have told the financial services sector it must not forget the lessons of the financial crisis, with Parliament’s Treasury Committee saying ministers and regulators should be careful of pursuing competitiveness at the expense of strong standards. The Future of Financial Services Regulation report recommends that regulators such as the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority should be given a secondary responsibility for promoting long-term growth. MPs also recommend that the FCA should allow large firms to be more experimental in developing and selling innovative products, so long as at the start they set aside ring-fenced capital to compensate customers if issues arise. The report’s other proposals include a call for the City watchdog to promote financial inclusion, with the FCA urged to publish an annual report on the issue.
Home buyer interest falls for the first time in eight months
Demand from prospective home buyers fell in May, according to the Royal Institution of Chartered Surveyors. Property professionals reported that new buyer inquiries fell in May, with a net balance of 7% reporting falls rather than rises. This was a turnaround from April when a balance of 8% reported rises in buyer inquiries rather than falls, and May’s result brings to an end eight consecutive months of positive results for new buyer inquiries. New instructions to sell homes were largely flat during May, while a net balance of 73% of professionals reported an increase in house prices during the month. Looking ahead over the next 12 months, expectations point to sales falling, with a net balance of 24% of professionals expecting declines rather than increases.
Retirees ‘relying on state pension as main income source’
One in five (20%) people retiring this year plans to rely on their state pension as their main source of income. The survey by asset manager abrdn’s personal wealth business also found that only a quarter (25%) of this year’s retirees feel very confident that they have saved enough for later life. Two-thirds (66%) of new retirees aim to continue working in retirement in some form.
Dorries calls on tech firms to boost diversity
Culture Secretary Nadine Dorries has urged tech companies to boost diversity and opportunity within their businesses, calling for firms to make a greater effort to find people from broader backgrounds and “any walk of society.” She also encouraged firms to look beyond London as a base for their companies and to areas with social deprivation to help improve them with investment. Speaking at London Tech Week, Ms Dorries highlighted Government plans to boost digital skills, including the new Digital Skills Council being established as part of the updated Digital Strategy, which will explore ways to upskill people across the country.
Accountants take the kissing crown
Accountants are the best kissers in Britain, according to a poll by dating site Plenty of Fish. Number-crunchers secured almost a quarter of the votes, beating doctors and nurses (19%) and engineers (14%) to the top spot. Civil servants came in last with just 2%, while bankers and lawyers made up the bottom three.
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