Business news 20 May 2022

James Salmon, Operations Director.

Consumer confidence at an all time low. But retail Sales rise. UK card spending slows. Starting a business admirable but too stressful. IMF chief warns of multiple inflationary shocks. A row over the Online sales Tax. And more business news.

Consumer confidence at an all time low.

Consumer confidence has dipped to a record low, with GFK’s confidence index dropping two points to -40 in May, with this a point lower than the previous record of -39 set in July 2008.

GfK director Joe Staton said: “This means consumer confidence is now weaker than in the darkest days of the global banking crisis, the impact of Brexit on the economy, or the Covid shutdown.” He went on to warn: “The outlook for consumer confidence is gloomy, and nothing on the economic horizon shows a reason for optimism any time soon.”

KPMG analysis shows that a third of consumers who started 2022 with savings are now dipping into them to help meet their essential costs. Linda Ellett of KPMG said: “Consumers are increasingly searching out lower prices and offers. But retailers, faced with their own rising inflationary pressures, will find it harder to provide them.”

UK consumer confidence falling to its lowest level in the 48 years since records began, shows that the the current cost of living crisis has left people more gloomy than at the depths of the 1970’s energy crisis and during the recession caused by the financial crisis in 2008.

The figures add to pressure on Chancellor of the Exchequer Rishi Sunak to take steps to help those suffering the most and may also give the Bank of England reason to hold back when raising interest rates further. BOE Governor Andrew Bailey previously warned that rising food costs could have “apocalyptic” consequences for the country.

But retail Sales rise.

UK Retail Sales rose in April driven by strong food store sales, in particular alcohol and tobacco. The surprise jump of 1.4% in sales volumes followed a fall of 1.2% in March and means that sales remain above their pre-pandemic levels. However, over the three months to the end of April sales overall edged down by 0.3%, official figures show. Separately, a survey indicated that consumer confidence in May fell to its lowest level since 1974.


Sterling is treading water despite strong UK retail sales data.

UK card spending slows
Office for National Statistics data shows consumer spending on credit and debit cards slowed last week, having rebounded the week before when the Bank Holiday boosted spending. Card spending in the week to May 12 fell to 104% the average recorded in pre-pandemic February 2020. This marked a 6 percentage point decline from the previous week. Adjusting for inflation, card spending last week was around 94% of its February 2020 average.

Starting a business admirable but too stressful, poll suggests
A poll commissioned by AXA UK shows that while half of people admire the hard work of small business owners, many would not want the stress of being their own boss. On reasons that could deter them from starting a business, 31% pointed to the lack of security involved, while 11% did not want others relying on them.

On the elements that appeal, four in 10 liked the idea of being able to work on something they were passionate about. The survey saw 23% of people say they would be wary of starting their own business, while 31% would give financial help to a friend or family member who was doing so. The poll also asked what qualities a start-up owner needed to be successful, with the key traits being: hard working (53%), motivated (48%), organised (46%), and willing to take risks (35%).

CBI: Helping the hardest hit will not add to inflation
Tony Danker, the director general of the Confederation of British Industry (CBI), says helping those hardest hit by the cost of living crisis will not add to inflation. Telling BBC Radio 4’s Today that “helping people with heating and eating bills will not fuel inflation,” he insisted: “You have to help the hardest hit now.” Urging ministers to act, he said: “You need to stimulate business investment now.” This, he insisted, will not overheat the economy, adding: “It’s going to make sure that any downturn in our fortunes is short and shallow because growth is coming soon.”

IMF chief warns of multiple inflationary shocks
Kristalina Georgieva, managing director of the International Monetary Fund, has warned finance leaders to prepare for multiple inflationary shocks. Pointing to pressure on energy and food prices from Russia’s war in Ukraine, supply chain disruption and issues caused by China’s Covid policies, she said: “I think what we need to start getting more comfortable with is, that may not be the last shock.” Amid concern over a global economic downturn, Ms Georgieva said it is becoming harder for central banks to bring down inflation without causing recessions.

Online Sales Tax

Two major retailers have taken opposing views on whether the UK should introduce an online sales tax, with Sainsbury’s arguing the levy is needed help revive struggling high streets while Marks and Spencer argues it would have the opposite effect.

Kevin O’Byrne, the chief financial officer at Sainsbury’s, said: “High business rates on shops is destroying high streets up and down the country. We urgently need fundamental business rates reform.” He added: “We urge the government to introduce an online sales tax that funds a reduction in business rates for retailers of all sizes and levels the playing field between physical and online retailers.”

However, M&S CFO Eoin Tonge warned: “Far from levelling up, an online sales tax would lock us down.” He argued: “The solution we need is practical, pragmatic reform of business rates and better taxing of global players to ensure everyone pays their fair share.”

The Retail Jobs Alliance – a group including Sainsbury’s, Tesco, Co-op, Morrisons, Greggs, and Waterstones – recently called for an overall cut in business rates for all premises and said they were “open to the possibility” this could be funded through an online sales tax, arguing that the levy would help “level the playing field” between internet retailers and bricks-and-mortar stores.”

House prices up 9.9% to £297k in March
Land Registry data shows that house prices in England were up 9.9% year-on-year in March, hitting an average of £297,524. While prices continue to climb, March’s increase marks a slowdown on the 11% growth recorded in February. Property experts say the market has been cooled by rising mortgage rates and the squeeze on incomes caused by the cost of living crisis. Andrew Montlake, managing director of mortgage broker Coreco, expects the rate of price growth to slow during 2022 and into 2023, saying: “9% inflation, rising interest rates and a potential recession ahead will impact demand while lenders are becoming ever more cautious, which will restrict what people can borrow.”

PM’s advisers ‘on the warpath’ over windfall tax
Two of Boris Johnson’s most senior advisers are reportedly “on the warpath” over plans to impose a windfall tax on oil and gas companies. The Times’ Steven Swinford reports that David Canzini, a senior adviser to the Prime Minister, and Andrew Griffith, the head of the policy unit, are said to be “implacably opposed” to the idea. This, Mr Swinford says, leaves the Treasury and Downing Street divided on the proposed levy, with Chancellor Rishi Sunak and Treasury officials said to have been persuaded of the case in favour of the tax. Elsewhere, Sky News says “splits have emerged” between the PM and the Chancellor over how to respond to Labour’s call for the windfall tax. Mr Sunak reportedly regarded it as unhelpful that Tory MPs were ordered to vote against the policy, with the Chancellor’s team said to have “pushed hard” to abstain on the vote.

EU lawmakers back minimum corporate tax
The European Parliament has backed the EU’s adoption of a global minimum tax for companies. Some 136 countries agreed a global deal in October 2021 to ensure big companies pay a minimum tax rate of 15% and make it harder for them to avoid taxation. The European Commission proposal means companies with an annual turnover of at least €750m will be subject to the minimum tax rate from 2023. France, which holds the EU’s rotating six-month presidency, has pushed for a quick implementation of the deal in the bloc, where tax issues require unanimous approval. However, Poland is blocking a proposed compromise on how to implement the minimum tax.

Banks ordered to pull staff out of the City
The European Central Bank (ECB) has told eight unnamed banks to shift staff out of London, saying it has identified 56 groups of traders who should be doing their jobs from within the EU following an investigation into whether the institutions are seeking to dodge post-Brexit rules. The ECB reviewed 264 British-based trading desks and found about a fifth of them should not be located in the UK. In response it has warned of “targeted supervisory action” against the banks. It is noted that the number of professionals leaving the City post-Brexit has been much smaller than initially predicted. EY estimates that around 7,000 roles have moved abroad since 2016, far fewer than the 200,000 job losses that were forecast before the Brexit vote.

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