Business news 21 July 2023
James Salmon, Operations Director.
Consumer confidence falls. Mortgage rates fall for first time in two months. Retail sales rise. Natwest, Climate, recruitment, Supermarkets, Tesla, the Pound & more business news that we thought would interest our members.
Consumer confidence falls
Consumer confidence has fallen for the first time in six months, according to a measure of household sentiment compiled by GfK. With households facing pressure from rising interest rates and mortgage costs, the index fell by six points to -30 in July.
Joe Staton, client strategy director at GfK, said that recent consumer resilience had “suddenly collapsed,” saying there are “clear concerns for the coming year for our personal finances and for the wider economy.” He added: “Reality has started to bite and as people continue to struggle to make ends meet, consumers will pull back from spending.”
Linda Ellett, UK head of consumer markets, leisure and retail at KPMG, said: “While every household has been impacted by higher costs this year, the divergence in consumer confidence continues to be governed by current or near-future exposure to significant major cost increases,” “Despite efforts of householders to reduce costs where they can, for some those efforts are simply dwarfed by the sizeable jumps in mortgage or rent they are facing,” she added.
Mortgage rates fall for first time in two months
Mortgage rates have fallen for the first time in two months, with this coming after inflation fell from 8.7% to 7.9%. The average two-year fixed residential mortgage rate has dipped to 6.79% on Thursday from 6.81%, according to Moneyfacts, while the average five-year fixed residential mortgage rate edged down to 6.31% from 6.33%. This marks the first dip in average rates since a 0.01 percentage point fall seen at the end of May.
Nick Mendes of broker John Charcol said swap rates – the rates at which banks lend to each another – had seen a “significant drop” following the release of June’s inflation data, with markets lowering their expectations of how high the Bank of England’s base rate would get.
Retail sales rise
Retail sales rose 0.7% in June, from a revised 0.1% gain in May. Economists had forecast a 0.2% month-on-month increase.
“The recent resilience in economic activity hasn’t yet faded,” said Ashley Webb at Capital Economics. “It’s too soon to conclude that the rebound in retail sales will be sustained and that the economy will avoid a recession.”
Bank urged to up rates to tackle inflation
Experts have suggested that the Bank of England should continue to increase interest rates as part of its efforts to drive down prices rises, despite inflation falling to a lower-than-forecast 7.9% in June.
Yael Selfin, chief economist at KPMG UK, said: “While the Bank of England will welcome the fall in inflation, it is unlikely to substantially change its hawkish policy stance as inflation continues to run significantly above target.”
Natwest apologizes to Farage
Natwest CEO Dame Alison Rose apologised to Nigel Farage for the “deeply inappropriate” personal comments revealed in internal documents surrounding the decision of Coutts to close his accounts. She said in a letter to Mr Farage that the comments did not reflect the bank’s view. The government has announced new plans to force banks to explain account closures.
In her letter she said she believed “very strongly that freedom of expression and access to banking are fundamental to our society and it is absolutely not our policy to exit a customer on the basis of legally held political and personal views”.
The banking boss said that as well as apologising to Mr Farage, she was “commissioning a full review of the Coutts’ processes” on bank account closures. Coutts, a private bank for wealthy individuals, which is part of the NatWest Group.
Climate
Leading British climate scientist, professor Sir Bob Watson told the BBC he believes the target to limit global warming to 1.5C will be missed and he was pessimistic. “I think most people fear that if we give up on the 1.5 [Celsius limit] which I do not believe we will achieve, in fact I’m very pessimistic about achieving even 2C, that if we allow the target to become looser and looser, higher and higher, governments will do even less in the future.” he told the BBC. “We need to try and hold governments to start to act sensibly now and reduce emissions, but even governments with a really good target like the United Kingdom don’t have the policies in place, don’t have the financing in place to reach those goals.”
Lord Stern, Chairman of the Grantham Research Institute on Climate Change and the Environment, added “I think 1.5 is probably out of reach even if we accelerate quickly now, but we could bring it back if we start to bring down the cost of negative emissions and get better at negative emissions. Negative emissions means direct air capture of carbon dioxide.”
Lord Deben, said that other countries like the US and China were moving much faster, and that the UK was setting “the worst possible example to the rest of the world”.
Employers may have to offer free health checks
Employers could be legally required to offer free health checks to staff under new rules proposed by ministers. Under plans designed to reduce workplace absence, the Government could also expand tax breaks for services such as eye tests and basic medical check-ups to cover a wider range of medical services. In document setting out the consultation on tax breaks, Chancellor Jeremy Hunt and Work and Pensions Secretary Mel Stride warn there are now 6.5m working age people who are neither in work nor looking for a job, with 2.6m people economically inactive due to long-term sickness.
Mr Hunt and Mr Stride wrote: “Maintaining workforce participation is crucial to ensure that we have enough workers to support the future needs of the UK and maximise productivity growth.” A separate consultation from the Department for Work and Pensions suggests that larger firms could be required by law to offer a basic level of occupational health services to staff. Analysis shows that just 45% of British workers have access to occupational health services at work, with this falling to 18% among small businesses.
Businesses struggling to recruit staff
Employers are facing labour shortages, according to data from the Recruitment and Employment Confederation (REC). It found that there were 2.25m job advertisements active in the week to July 9, marking a 53% increase compared to the same period last year. Firms placed 193,000 new job ad postings, with this 9% higher than a year earlier.
The REC noted that employers are leaving job ads open for longer due to difficulties in finding people and suggested that shortages could lead to higher wages and inflationary pressures. REC research suggests that the hospitality sector is particularly affected, and despite high demand, businesses in the sector are reducing opening hours, trading days and services.
Neil Carberry, chief executive of the REC, said: “It is so frustrating for hospitality firms that they can’t take full advantage of the anticipated strong demand this summer because of the failure to overcome labour shortages.” The REC report contrasts with analysis from Reed, which last week reported that the number of jobs listed on its sites in the three months to June was down by about a quarter.
Supermarkets told to make pricing clearer
The Competition and Markets Authority (CMA) has told supermarkets to make their pricing clearer to help consumers find the best deals, saying those which fail to do so could face enforcement action. The watchdog called on retailers to “make the necessary changes” and also urged ministers to bring in reforms to tighten the law.
Sarah Cardell, chief executive of the CMA, said: “We’ve found that not all retailers are displaying prices as clearly as they should, which could be hampering people’s ability to compare product prices.” The CMA said that in some instances the same type of product was priced per unit using different metrics, “making it hard for shoppers to compare prices on a like-for-like basis.”
Ms Cardell said the CMA had found no evidence of profiteering on groceries, but said it was important to keep the market “under review.”
Grains
Grain, wheat, oilseeds and corn prices have jumped after Russia carried out air strikes on Ukraine’s grain silos as well as port infrastructure in Odessa.
Tesla
Tesla shares fell $20 per share after Elon Musk said further price cuts were required as a means of incentivizing buyers facing higher global interest rates. “We are in, I would call it, turbulent times, one day it sees the world economy is falling apart, the next day it is fine” said Musk.
Pound
The British Pound is making broad recoveries following stronger than anticipated retail sales. Against the USD its 1.286, and against the Euro 1.155.
Nasdaq
The Nasdaq dropped 2.05% yesterday – thie biggest fall in 4 months – as Tesla (down 10%) and Netflix (down 8%) falls hit the index.
The Nasdaq is also re-balancing its index, to reduce the dominance of a massive clutch of tech titans on Monday so higher trading is expected as trackers of the index trade to maintain their mirroring of the stock constituents.
Microsoft
The US Federal Trade Commission paused its action against Microsoft’s $69 billion acquisition of Activision Blizzard, giving way for potential settlement talks.
London Rents
Average asking rents in London hit a new record in the second quarter as demand outstripped supply and higher mortgage rates prompted landlords to raise rents. Tenants are now being asked to pay an average of £2,567 a month, up 13.7% YoY and up 28% from before the pandemic.
Politics
Conservative Party has lost by-elections in Selby and Somerset & Frome but held on in Uxbridge where protests over the roout of ULEZ by Labour London Mayor Sadiq Khan, hampered Labour’s efforts to take the seat. Press reports this morning have disclosed that the PM’s preference is for the next General Election to be held in November 2024 according to sources close to the PM.
Anti-strikes bill becomes law
A law designed to curb the effect strikes can have on some key services has been passed. The law will allow ministers to impose minimum levels of service during industrial action by workers in sectors deemed essential. Business Minister Kevin Hollinrake said the new law provided an “appropriate balance between the ability to strike and protecting lives and livelihoods.” The Trades Union Congress vowed to fight the law “tooth and nail,” with general secretary Paul Nowak saying the Government is “threatening to take a wrecking ball to our fundamental right to strike.” He added that while nobody should be sacked for trying to win better pay and conditions, “that is exactly what this draconian legislation will allow.” Labour has pledged to repeal the law if it gets into Government.
House prices predicted to fall 12%
The value of UK homes will fall by 12% from peak-to-trough by the end of 2024, according to S&P Global Ratings, while Moody’s expects prices to decline by 10%, falling by 4% this year and 6% next year. The ratings agencies expect the decline to be driven by high interest rates, with the Bank of England set to maintain its tight stance on monetary policy as it looks to bring inflation down. Official figures show that house price growth slowed to the weakest pace in nearly three years in May, rising by 1.3%. On a monthly basis, prices stagnated between April and May, leaving the average home valued at £286,000.
Public sector pension bill bigger than the economy
Britain’s public sector pension bill has exceeded the size of the economy for the first time. The cost of pension commitments for public sector workers rose by £116.7bn in the 2020/21 financial year, according to Treasury data, taking the total to £2.3trn. This exceeds annual GDP, which hit £2.1trn in 2021. The Office for Budget Responsibility estimates that the cost to the taxpayer of unfunded public sector pensions will hit £7.9bn this year. This is the equivalent of around 0.7% of total public spending, or £276 per household.
Pensions tax loophole to be closed
The Government is set to remove an income tax break for families inheriting pension savings. Currently, untouched pensions can be passed on free of inheritance tax, but if the person dies after the age of 75, their beneficiaries must pay income tax on withdrawals. If the person dies before 75, the pension is exempt from both IHT and income tax. The Treasury and HMRC are drawing up plans to remove this double tax break, with officials considering charging all beneficiaries income tax on inherited pensions, regardless of the age of the deceased.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.