Business news 16 September 2022
James Salmon, Operations Director.
Mini Budget set to deliver tax cuts .Retail sales collapse. World Bank economist concerned over stagflation. Recession fears could hit labour market. And more business news.
Mini Budget set to deliver tax cuts
Chancellor Kwasi Kwarteng is expected to deliver a mini Budget on September 23, with the “fiscal event” set to outline tax cuts promised by Liz Truss during her leadership campaign.
The Prime Minister has vowed to cut taxes to boost the economy and help those hit by the soaring cost of living, with a reversal of this year’s 1.25% National Insurance increase among measures she pledged to deliver. Ms Truss has also said her government will cancel a planned rise in corporation tax.
Mr Kwarteng could also detail the estimated cost of plans to cap energy prices. The scheme, which will mean typical energy bills of around £2,500 a year until 2024, could cost up to £150bn. The Chancellor is also expected to provide details of a separate scheme to limit energy price rises for businesses.
Retail sales collapse
UK Retail Sales fell last month as the cost of living crisis prompts Brits to dial back spending. Sale volumes fell by 1.6% in August, continuing a downward trend since summer 2021. Both food and non-food stores, as well as non-store retailing and fuel forecourts all saw lower sales over the past month, the Office for National Statistics found last month.
World Bank economist concerned over stagflation
World Bank chief economist Indermit Gill has voiced concern over stagflation, pointing to the possibility of low growth and high inflation in the global economy. Saying that six months ago the Bank was “really concerned” about a slowing recovery and very high prices of some commodities, he noted that it is now “much more concerned about a generalised stagflation,” saying it “brings back really bad memories of the mid-1970s and the lost decades.” Mr Gill also warned that a growing number of middle-income countries are under pressure and face high debts, adding that the current economic climate means poverty reduction has dropped.
Trust in Bank’s efforts to tackle inflation falls
Trust in the Bank of England’s ability to keep inflation under control has fallen to a record low. The Bank’s latest Inflation Attitudes Survey shows that the balance of those satisfied with its action on the cost of living crisis dipped from -3% to -7% in August. Myron Jobson, senior personal finance analyst at Interactive Investor, said the results will “turn up the heat” on the Bank’s Monetary Policy Committee. The rate-setting committee has made six consecutive hikes to interest rates since December 2021 and is expected to increase rates again next week. Inflation stood at 9.9% in August and while this was down from July’s 10.1%, it remains far above the Bank’s 2% target.
Recession fears could hit labour market, says BDO
The labour market is at a “turning point” after 10 months of hiring, according to a report from BDO. The firm expects concerns over a possible recession to prompt a fall in the number of jobs on offer. Kaley Crossthwaite of BDO said the firm is awaiting “the first signs of a fall in employment figures”, adding: “We’re already seeing the impact of a challenging environment, with many businesses forced to make cuts and in some cases consider whether the business will continue to be viable.”
Brits are saving two-thirds less than last year
Analysis by Paragon Bank suggests that the amount people in the UK are saving is falling dramatically. The total saved in June was two-thirds down on June 2021’s total, with soaring living costs seemingly having an impact on the money people can set aside. The analysis shows £400m was saved in accounts with CACI member banks from May to June 2022, taking the total held in such accounts to £995.1bn. Between May and June 2021, CACI member banks – a group of more than 30 leading savings providers – took in more than £1.2bn. The report shows that as of June, roughly half of easy-access savings accounts held £500 or less, with 37% holding £100 or less. Derek Spawling, Paragon Bank’s savings director, said the data “provides further reason to believe that savings growth is becoming more challenging,” adding that inflation is “starting to hit home.”
Queen’s funeral drives surge in demand for London firms
London businesses are set to see a surge in demand as visitors descend on the capital ahead of the Queen’s funeral. Richard Burge, chief executive of the London Chamber of Commerce and Industry, said: “The influx of mourners into London from across the UK and internationally means businesses are seeing an increase in footfall and revenue,” noting that this is “particularly the case for the hospitality and service industry.” UKHospitality chief executive Kate Nicholls said hotel operators in London have experienced “a surge” in bookings since the Queen’s death was announced, with demand “certain to remain high right up until next Monday’s state funeral.”
Markets
Oil Prices fell 3% on Thursday as expectations of weaker demand and a strong US dollar ahead of a potentially large interest rate increase outweighed supply concerns. The pound has dropped on the retail figuures, down to US$1.38 and 1.14 Euros. Overnight in the US, DOW dropped -0.56%. S&P 500 fell -1.13%. NASDAQ lost -1.43%.
German Gas
Berlin said it has taken control of the German operations of Russia firm Rosneft, which runs several refineries, to secure energy supplies which have been disrupted after Moscow invaded Ukraine. Rosneft’s German subsidiaries, which account for about 12% of oil refining capacity in the country, were placed under trusteeship of the Federal Network Agency, the economy ministry said in a statement.
Wickes
Wickes Group lifted its dividend and backed its full-year guidance on solid interim revenue growth, due to a recovery in ‘do-it-for-me’ sales. The Watford, England-based home improvement retailer reported a pretax profit of £33.5 million for the six months that ended July 2, down 6.2% from £35.7 million a year before.
DFS
DFS Furniture reported a disappointing annual performance, in a year plagued with operational challenges. In the 52 weeks to June 26, the Doncaster-based soft furnishings retailer said revenue grew 8.5% to £1.15 billion from £1.06 billion a year before.
Kier
Kier Group reported an annual profit rise and said it has kicked off its new financial year in decent shape, despite inflationary pressure. The firm reported pretax profit of £15.9 million in the year ended June 30, up from £5.6 million a year earlier. Profit was boosted by finance costs falling 28% to £29.9 million from £41.8 million.
Kwarteng could scrap bankers’ bonus cap
The Chancellor reportedly wants to remove a bonus cap which restricts banking executives’ pay. The cap, which limits bankers’ pay at twice their annual salary and was brought in as part of EU-wide efforts after the financial crisis, has drawn criticism from commentators who warn that it is anti-competitive. While the cap puts London in line with Frankfurt and Paris markets, there are concerns that it has given New York and Singapore an advantage when it comes to attracting the sector’s top talent. Chancellor Kwasi Kwarteng wants to scrap the cap as part of efforts to revitalise the City and deliver a post-Brexit shake-up of regulations. Meanwhile, the Bank of England says it was never in support of the policy to limit earnings. A spokesperson for the Bank said there were better ways to ensure banks account for risks than the restriction, commenting: “The Senior Managers Regime and remuneration rules requiring deferral of bonus payments are more effective tools for ensuring bankers take proper account of risks.”
US audit inspectors to review Chinese companies’ files
Inspectors from the US Public Company Accounting Oversight Board (PCAOB) are preparing to travel to Hong Kong to begin reviewing the audit files of publicly traded Chinese companies, Securities and Exchange Commission chairman Gary Gensler has told lawmakers on the Senate Banking Committee. Washington and Beijing last month reached an agreement to allow the PCAOB to travel to Hong Kong or mainland China to inspect the audits of Chinese companies listed on US exchanges. China had previously denied US regulators routine access to such documents on the grounds of national security. The agreement could prevent 200 Chinese companies from being kicked off US stock exchanges in 2024
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