Business news 19 January 2022
James Salmon, Operations Director.
Inflation soars! Insolvencies climb. Unemployment rate falls to 4.1%. Firms fail to adjust at their peril. Experts expect interest rate increase. And more business news.
Inflation soars!
Inflation surged to a 30 year high as CPI came in this morning at an annual rate of 5.4% (Surveys had indicated 5.2%). While RPI came in at 7.5% (estimates had been 7.1%) We will cover this in more detail tomorrow. But with the energy price cap set to rise % in April, inflation is not going away.
Insolvencies climb
Statistics from the Insolvency Service show that the number of registered company insolvencies in England and Wales in December was 33% higher than the number registered two years ago, just before the pandemic. The data shows that there were 1,486 registered company insolvencies in December, with this 20% higher than a year earlier.
The sharp jump way above pre-covid levels was to be expected as government support schemes ended and the number of covid cases sent much of the economy into an unofficial lockdown again.
The rise was dominated by a 73% increase in voluntary liquidations as many bosses of insolvent companies decided to jump before they were pushed.
Thousands more businesses are on a knife edge following a difficult holiday season, high covid absences, mounting debts and rising late payments. Surging Inflation, rising interest rates and the coming increased taxes could be the straw to break the camels back.
Firms fail to adjust at their peril, says BlackRock boss
BlackRock founder and CEO Larry Fink has told chief executives that firms who fail to adjust to the changes brought about by the pandemic “do so at their own peril.” In his annual open letter to corporate bosses, he wrote: “Companies expected workers to come to the office five days a week. Mental health was rarely discussed in the workplace. And wages for those on low and middle incomes barely grew.” “That world is gone,” he added, warning: “Companies not adjusting to this new reality and responding to their workers do so at their own peril.”
Unemployment rate falls to 4.1%
As mentioned briefly yesterday, Office for National Statistics (ONS) data shows that the unemployment rate dropped from 4.5% to 4.1% between September and November.
The figures reveal that unemployment dropped by 184,000, with the number of people on the payroll climbing to 30m. Analysis shows that the employment rate was estimated at 75.5%, with this lower than before the pandemic but higher than in the June to August period. Darren Morgan, director of economic statistics at the ONS, noted that the number of employees on payrolls is “now well above pre-pandemic levels.” He added that in the three months to November, the unemployment rate fell to near pre-pandemic levels while the number of people who had recently been made redundant fell to a record low.
The ONS report also shows that the number of job vacancies in the three months to December rose to an all-time-high of 1.247m. While the rate of growth in vacancies has been slowing, there are now a record 4.1 openings for every 100 employee jobs. It was also shown that weekly earnings, excluding bonuses, rose by 3.8% in the three months to November compared to the same period a year earlier. However, the figures revealed a slowdown in growth, with the rate falling short of the 4.3% recorded between August and October.
While earnings rose, soaring rates of inflation mean workers suffered a real-terms cut in their pay packets. Inflation hitting a 10-year high of 5.1% in November effectively means workers have seen a 1.6% cut in pay. With pay rises being cancelled out by the cost of living for the first time in a year and a half, Martin Beck, chief economic advisor to the EY Item Club, described the situation as “an unwelcome development which is likely to worsen over the next few months.”
Experts expect interest rate increase
City analysts believe the surging jobs market may see the Bank of England (BoE) opt for further increases to interest rates next month. The Bank last month voted to increase the base rate to 0.25%, having previously opted against an increase due to fears over the strength of the jobs market. With Office for National Statistics (ONS) figures showing an increase in the number of staff on the payroll while unemployment has continued to fall and redundancies have hit record lows, experts believe further interest rate rises are coming.
RSM economist Thomas Pugh believes the chances that rates will be increased at February’s Monetary Policy Committee (MPC) meeting have been boosted by the jobs figures, suggesting that the MPC “is likely to conclude that the labour market is strong enough to absorb higher interest rates.”
Shane O’Neill, head of interest rate trading for Validus Risk Management, said the ONS data “represents another box ticked on the path to more rate hikes.”
Dan Boardman-Weston, chief investment officer at BRI Wealth Management, believes the Bank will need to exercise “caution” due to predictions inflation may start to fall from May onwards, saying: “The last thing the Bank will want to do is either raise rates too far or too soon.”
Analysts at Capital Economics said the labour market figures “support our view that interest rates will be raised from 0.25% to 0.50% on February 3.” Panmure Gordon analyst Simon French said that with inflation likely to peak around 7% in Q2 and energy prices remaining high, “the BoE is likely to retrace the path back to pre-pandemic interest rates of 0.75%.”
Microsoft to buy Activision Blizzard
In massive merger news, Microsoft are set to buy gaming company Activision Blizzard for almost $70bn. With its titles “Call of Duty”, “Candy Crush” and “World of Warcraft” and 400m monthly gamers, the merger should boost Microsoft’s gaming credentials and support X-box’s battle with Sony’s playstation.
Super-rich call for tougher tax hit and fairer system
A group of 102 global millionaires and billionaires have called on governments to hit them with heftier taxes to help cover the costs of the pandemic, arguing that the current tax system is rigged in their favour and needs to be rewritten to make taxation fairer.
In an open letter, they say: “We know that the current tax system is not fair,” adding: “Most of us can say that, while the world has gone through an immense amount of suffering in the last two years, we have actually seen our wealth rise during the pandemic – yet few if any of us can honestly say that we pay our fair share in taxes.” They have called for the introduction of “permanent wealth taxes on the richest to help reduce extreme inequality and raise revenue for sustained, long-term increases in public services.”
The group say an annual wealth tax on those with fortunes of more than $5m could raise more than $2.52trn. The proposed tax would see those with more than $5m pay 2%, rising to 3% for those with more than $50m, with a 5% rate for billionaires. Analysis shows that taxing the UK’s wealthiest 119,000 people at these rates would raise an estimated £43.7bn a year.
Calling for a heavier taxation hit, the super-rich signatories urged: “The world – every country in it – must demand the rich pay their fair share. Tax us, the rich, and tax us now.”
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