Business news 17 March 2022
James Salmon, Operations Director.
Interest rates rises. Economists expect rate rise. High street vacancy rate declines . Rishi Sunak prepares big overhaul of UK corporate tax system. And more business news.
Interest Rates Rises
The US Federal Reserve raised interest rates in the US by a quarter and signaled six more interest rate rises this year as they seek to tackle rampant inflation. The financial markets have responded rather well to Fed’s rate hike overnight. In Asia, Nikkei was up 3.49%. Hong Kong HSI is up 5.86%. China Shanghai SSE is up 2.24%. In the US, the DOW rose 1.55%. The S&P 500 rose 2.24%. And the NASDAQ rose 3.77%. Today it’s the turn of the Bank of England to lift rates, with a quarter point increase also expected for the third successive meeting.
Economists expect rate rise
The Bank of England is set to increase interest rates for a third time in a row, with economists expecting the Monetary Policy Committee (MPC) to lift rates by 25 basis points to 0.75%. Experts also believe May will see a further increase, taking the rate to 1%. This comes with inflation hitting a 30-year high of 5.5% in the year to January and Office for National Statistics data showing that the unemployment rate fell to 3.9% in the three months to January.
Paul Dales of Capital Economics said that the unemployment rate falling “to within a whisker of the pre-pandemic rate will only encourage the Bank of England to raise interest rates.” Saying that rates are likely to be increased from 0.50% to 0.75%, he added: “What’s more, we think a low unemployment rate and high wage growth will prompt the Bank to raise rates to 2% next year.”
Martin Beck, chief economic advisor to the EY Item Club, believes that the MPC will be concerned that “a tight jobs market risks inflationary second-round effects, as workers seek to offset cost of living pressures by asking for higher wages.” This, he added, “means it’s now even likelier that the committee will raise interest rates.”
Elsewhere, the Times’ nine-strong shadow MPC have all called for rates to increase. Four members voted to raise rates by 0.25 points to 0.75%, while another four opted for an increase of 0.5 points to 1% and one – Bronwyn Curtis, a non-executive director at the Office for Budget Responsibility – voted to raise rates by 0.75 points to 1.25%.
High street vacancy rate declines
Figures from the Local Data Company show that the number of empty shops and restaurants in Britain has fallen for the first time since 2018. The vacancy rate declined by 0.1% in H2 2021 compared to the first six months of the year to reach 14.4% of all shops. The retail vacancy rate hit a record high of 15.8% last year but has since decreased to 15.7%. While there has been a 0.3% reduction in the vacancy rate in shopping centres, the number of vacancies is still 19.1%. The leisure vacancy rate dropped from 11.3% to 11% over the six months — the biggest fall since records began in 2013. Lucy Stainton, commercial director at the Local Data Company, said that the figures “finally point to a reversal of the structural decline we had seen accelerate with the onset of the pandemic.”
Rishi Sunak prepares big overhaul of UK corporate tax system
The FT reports that Chancellor Rishi Sunak will use next week’s Spring Statement to commit to a major overhaul of Britain’s corporate tax system to encourage more capital spending by companies.
Threshold freeze to net Treasury £20bn
The Institute for Fiscal Studies (IFS) says the Chancellor’s decision to freeze tax thresholds will pull in £20bn, far exceeding the £8bn initially forecast. The think-tank said the tax hike is set to be £12.5bn higher than previously thought due to soaring inflation. Income tax thresholds usually rise in line with inflation to ensure pay rises are not cancelled out by higher tax bills, however the freeze will mean a larger proportion of workers will have to pay more. Since the Chancellor announced the freeze in his March 2021 Budget, inflation has surged beyond economists’ expectations, with some experts saying it could hit 10%. Noting that the “tax hike” is set to be two and a half times what was originally expected, IFS senior research economist Tom Waters said: “This episode highlights the danger with setting tax thresholds in nominal terms for long periods of time – unexpected changes in inflation can make the size of a planned tax rise much bigger or smaller than expected.” As well as the freeze on thresholds, National Insurance is set to increase by 1.25% in April, with this set to add a further £13bn to the tax take. Labour has urged the Chancellor to cancel the increase, with the party’s Treasury spokesperson Pat McFadden saying that the National Insurance rise was equivalent to 0.5% of GDP in additional taxes, at a time when households are facing a cost of living crisis. Labour research shows that Germany has tax cuts totalling 0.5% of GDP lined up for 2022, while Italy and France will roll out cuts worth 0.2% and 0.1%, respectively. Elsewhere, the Centre for Policy Studies think-tank has repeated its call to raise the income threshold for paying employees’ National Insurance, with director Robert Colvile saying that in doing so, “the Government can alleviate some of the cost of living pressures and allow households a small degree of respite.”
BTL landlords could see tax bills rise by a third
Landlords could see stamp duty bills jump by a third if Rishi Sunak introduces a new tax in his Spring Statement, reports Melissa Lawford in the Telegraph. She notes that the Office for Budget Responsibility, the Government’s spending watchdog, left a note in autumn Budget documents pointing to the three percentage point stamp duty surcharge on additional properties increasing to four. While this change was not rolled out, Ms Lawford says that with the Treasury “on the hunt for cash, landlords could once again be in the crosshairs.” Ben Beadle, of the National Residential Landlords Association, says a four percentage point charge would shut out new investment at a time when rental supply was at an extreme low, warning: “Increasing stamp duty would lead to a sharp fall in the supply of homes to rent.”
Central London prices see fastest rise in seven years
Analysis by Knight Frank shows that the pace of house price growth in central London is climbing at its fastest rate since July 2015. Prices in Prime Central London – the capital’s inner boroughs – were up 1.9% in the year to February, with this marking a tenth consecutive month of annual house price growth. Across parts of the capital’s luxury property market beyond the inner districts, average prices rose 4% in the 12 months to February, with this the highest figure since May 2015. The research shows Wandsworth (9%), Wimbledon (8.6%), Richmond (8.3%), Dulwich (6.4%), Islington (5.8%) and Bayswater (5.2%) led the way
First-time buyer numbers almost double
First-time buyers take an average of eight years to save the deposit on their first home, according to Barclays Mortgages’ First Time Buyer Index. The research also found that the number of first-time buyers in the UK has almost doubled in the past year. However, 56% revealed that they would have struggled without support from their family. First-time buyers paid an average of £281,000 for a house in 2021, down £12,600 compared to 2020 but more than the £249,700 average seen in 2019.
Ocado
Ocado Retail, the joint venture between Ocado Group and Marks & Spencer, said revenue declined by 5.7% in the 13 weeks that ended February 27 from a year before but was up 32% from 2020. Retail revenue fell to £564.7 million from £599.1 million a year before.
Deliveroo
Deliveroo has reported widening losses of £131m as the food delivery firm warned of the impact of hiked costs. The firm said its core adjusted loss had widened compared to a loss of £11m in 2020, citing increased marketing spend and investment into technology.
Cineworld
Cineworld revenue has skyrocketed by £760m in the past year, as record-breaking blockbuster releases such as Spider-Man: No Way Home lured in viewers. Revenue surged more than 111 per cent to £1.3bn in the year to 31 December according to the theatre chain’s preliminary results this morning.
Oil
Oil Prices climbed about 3% after the International Energy Agency said markets could lose three million barrels a day of Russian crude and refined products from April.
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