Business news 20 January 2023

James Salmon, Operations Director.

Falling energy prices offer ‘easier path’ out of inflation crisis. .Inflation concern drives consumer confidence lower . Retail sales fall in December. Regulatory Reform Group lobbies for smart change.  And more business news.

Falling energy prices offer ‘easier path’ out of inflation crisis, Bailey says
The Governor of the Bank of England said on Thursday that inflation is likely to fall rapidly this year after energy prices dropped sharply on the back of an unusually mild winter. Andrew Bailey said December’s fall in inflation to 10.5%, reported this week, had been expected but was “the beginning of a sign that a corner has been turned”. The lower energy prices have not yet fed through into inflation, Bailey added, meaning there was more optimism that the path through the next year will be an easier one. Traders are betting the BoE will continue raising rates to a peak of 4.5% by the summer. But Bailey would not endorse this view, pointing to pressures in the UK labour market that have been fuelling wage growth.

Inflation concern drives consumer confidence lower
GfK’s Consumer Confidence Index dropped three points in January to -45 amid inflation woes and growing concern about another jump in energy bills. Confidence in the general economy for the coming 12 months fell one point to minus 54 and remains 22 points lower than last January, while the forecast for personal finances increased to minus 27 but is still 25 points lower than this time last year. The major purchase index fell six points to minus 40 – some 30 points lower than last January. GfK client strategy director Joe Staton said: “Consumers have a New Year hangover but it’s of the economic kind, with high levels of pessimism over the state of the wider economy.” Linda Ellett, UK head of retail and leisure consumer markets at KPMG, said: “Higher essential costs, a fear of further increases yet to come – particularly the April energy price cap rise – are weighing on consumer confidence, whilst increased spending on credit at Christmas is also weighing on many minds.”

Retail sales fall in December

UK Retail Sales fell 1% in December as shoppers cut back on spending. The figures were down 5.8% from a year ago including fuel sales, the sharpest decline since records began in 1997. Economists had predicted a 4% fall. The fall was on non-food sales as the Office of National Statistics said that retailers told them “consumers are cutting back on spending because of increased prices and affordability concerns”. There was a sharp drop at non-food stores, but food stores also reported a fall in sales. The ONS also revised down figures for November. It said that sales volumes fell by 0.5% instead of the original estimate of a 0.4% drop.

The weight of inflation on  consumers’ spending power showed that sales were 13.6% higher in value terms in December compared with pre-Covid levels, but volumes were 1.7% lower. I.e. consumers are  paying more to buy less.

Regulatory Reform Group lobbies for smart change
Backbench Conservative MP Bim Afolami has written to Rishi Sunak calling for a “regulatory framework which is pro-innovation, pro-investment and [which] will help the UK to become a more globally competitive economy”. Mr Afolami is part of a group of parliamentarians and private sector chiefs who have joined forces to examine whether regulators are acting as a barrier to investment in Britain. Mr Afolami wrote to the Prime Minister in his capacity as chair of the Regulatory Reform Group, which includes Lord Tyrie, former chair of the Competition and Markets Authority, and MPs such as Sir Robert Buckland, Vicky Ford and Mark Garnier as members. A private sector advisory council chaired by Tracy Blackwell, chief executive of Pension Insurance Corporation, will work in concert with the parliamentarians. NatWest Group, CVC Capital Partners and London Stock Exchange Group will be represented on the council.

Chancellor wants 5p fuel duty cut to run for another year
Jeremy Hunt, the chancellor,  wants to extend the 5p cut in fuel duty for another year if the economic outlook allows it, having agreed there is a “strong precedent” for freezing fuel duty at the lower rate as raising it and imposing additional costs on motorists would be “politically toxic”.

Labour will end North Sea investment, Starmer says
Sir Keir Starmer addressed business leaders and policymakers at the World Economic Forum in Davos on Thursday. The Labour leaders outlined the party’s commitment to the environment by pledging to end new investment in North Sea fossil fuels if Labour wins the next election. Sir Keir called on countries to form a “clean power alliance”. This would see “countries that are in the advance when it comes to net-zero share information, co-operate and share investment with a view to driving the global prices down. So, this is an inverse Opec. Instead of trying to ensure prices stay at a certain level, it’s to drive them down, to see the common benefit, whether it’s in the UK or across the globe.”

Labour also edged closer to becoming the government-in-waiting that the polls imply after Starmer courted the rich and powerful at Davos.  Keir Starmer and his shadow chancellor, Rachel Reeves were said to have impressed in their attempt to demonstrate that they are a party that is “open to business.”

Sir Martin Sorrell: UK must cut taxes
Advertising veteran Sir Martin Sorrell has said the Government needs to lower taxes and remove red tape if it wants to drive long-term growth. The founder of WPP and executive chairman of S4 Capital agreed with entrepreneur Sir James Dyson’s assessment that a long term growth plan was needed. “It will [involve] lower taxes and less regulation. But in the long term, it’s got to be a comprehensive plan that covers all areas.”

Chancellor warns not to expect tax cuts in March Budget
Jeremy Hunt has warned Conservative MPs not to expect tax cuts in his March Budget. The Chancellor told colleagues it would be irresponsible to cut taxes at a time of high inflation, suggesting that fiscal constraints could be loosened next year when inflation should be coming under control. Mr Hunt also said he wants to extend the 5p cut in the price of petrol and diesel for another year if the economic outlook improves, having accepted there is a “strong precedent” for freezing fuel duty. Meanwhile, Rishi Sunak has reiterated the argument for keeping taxes high, telling an audience in Lancashire that only an “idiot” wouldn’t recognise how the pandemic and the war in Ukraine had ruined the economy. The Prime Minister said: “I’m a Conservative, I want to cut your taxes… I wish I could do that tomorrow quite frankly, but the reason we can’t is because of all the reasons you know. You’re not idiots, you know what’s happened.” His comments come after a group of Conservative MPs aligned with Liz Truss’s tax-cutting agenda formed the “Conservative Growth Group” and business leaders such as Sir James Dyson and Sir Martin Sorrell called for the tax burden to be slashed to encourage growth.

HMRC targets social media influencers
HM Revenue and Customs has begun a new “nudge” campaign, this time targeting social media influencers it suspects of underpaying or not paying tax. HMRC told the Telegraph it will send letters to more than 2,000 people who generate an income from creating content on digital platforms and 2,000 to those who make money from online marketplace sales, asking them to either make a disclosure to HMRC or state they have nothing to report. Noel Mooney, of tax firm RSM, said receiving a nudge letter may be concerning, but those who received one should consider if the information in it is accurate first. He added: “If you do have income from such sources, you will then need to consider a number of issues before deciding whether to approach HMRC directly or whether you need to speak to an adviser specialising in tax disclosures. These will include, how long you have been receiving the income, the level of income, whether it is from a UK or an overseas source, if payment was received in forms other than money.”

Brexit pushes up number of EU bankers earning above €1m
The number of bankers and investment professionals in the EU earning more than €1m hit a record high in 2021 after Brexit propelled more top earners to the continent. The European Banking Authority (EBA) said Brexit-related relocations increased the number of bankers in the EU earning seven figures or more by two fifths in 2021. The EBA said the increase in millionaires was “linked to the overall good performance of institutions, in particular in the area of investment banking and trading and sales, continuing relocations of staff from the UK to the EU and a general increase in salaries”. Italy, France and Spain took the lion’s share of the increase, with 70%, but Germany remains the member state with the largest population of high-earning bank employees, with 589. EY estimates that around 7,000 roles have moved abroad since 2016, compared to forecasts of as many as 200,000 job losses before the vote. About 1.1m people work in financial services in the UK.

Netflix

Netflix posted better than expected quarterly turnover and subscribers (it added 7.7m)  but then announced co-founder Reed Hastings is stepping aside as chief executive officer of the company he’s led for more than two decades since 1997, leaving the position to be shared by his two longtime colleagues, Ted Sarandos and Greg Peters. Ted Sarandos – already co-CEO,- will be the company’s public face in Hollywood while Peters, previously chief operating officer, will oversee  product development and the move to an advertising based model. Hastings will now serve as executive chairman.

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.