business news 21 September 2021
James Salmon, Operations Director.
Evergrande fears weigh on global stocks
Concerns are growing that an imminent collapse of China’s second largest property company could spill into the global economy and broader financial system. US, European and UK markets fell on fears of contagion from the company’s collapse. Evergrande is buckling under the weight of $300bn (£275bn) of debt and warned creditors this week that it is likely to default on loan repayments. Louis Tse, managing director at Wealthy Securities, a Hong Kong-based broker, said a shockwave could ripple across China if the business went bust: “Evergrande is just the tip of the iceberg … it has a chain effect.” However, investors are not just concerned with the Evergrande debacle. There is nervousness over meetings at the US Federal Reserve and the Bank of England this week when discussions will take place over rising inflation and a possible tapering of pandemic support.
Energy companies
On Monday the British government held crisis talks with the country’s energy industry and regulator. Last week electricity prices soared to £540 per megawatt hour, up from £147 a few weeks ago. The Government has said it won’t bail out failed energy companies, and it expects to see some businesses go bust in the coming weeks as gas prices marked new record highs. Business Secretary Kwasi Kwarteng said the country faces a “long, difficult” winter with high energy prices tipping power suppliers into bankruptcy, after three days of inconclusive talks over how to navigate the potential chaos.
Government Borrowing
Government Borrowing stood at £20.5bn in August, down from £26bn the previous year, according to official data. The ONS said last month’s figure was the second highest August borrowing since records began. The data shows borrowing so far this financial year has reached £93.8bn since the end of March – £88.9bn less than the same period a year ago.
Compass
Compass expects fourth-quarter performance slightly ahead of its expectations, led by its sports and leisure business amid improved outdoor sports attendance, and strong customer spending. Revenue performance in the fourth quarter is expected to improve to about 86% of 2019 revenues, slightly ahead of its guidance of 80-to-85%, the company said.
Kingfisher
Kingfisher outlined plans to return £300 million to shareholders after raising its outlook for the second half of the year following a jump in first-half profit.The company said £300 million would be returned to shareholders via share buyback programme, citing ‘strong cash generation and confidence in its outlook.’
Oxford Instruments
Oxford Instruments expects full-year trading to be ‘slightly ahead’ of expectations, even as it faces currency headwinds. ‘Order and revenue growth has been strong in the first five months of the year, supported by positive underlying demand across our markets, and across both commercial and academic customers,’ chairman Neil Carson said in an AGM trading update.
Travis Perkins
Travis Perkins said it would return the proceeds from a £325 million sale of its plumbing business to shareholders via a special dividend and share buyback. The company had in May announced the sale of the plumbing and heating unit to an affiliate of HIG Capital, and that it planned to return the proceeds to shareholders.
Half of borrowers will still be paying mortgages off after 65
More than half of new mortgage borrowers do not expect to pay off their loans before they turn 65, according to a recent study. Research published by UK Finance said longer mortgage terms coupled with the ageing population was driving a trend towards borrowing later in life. Some 52% of new homeowner mortgage lending in 2021 has been for terms that will end beyond the main borrower’s 65th birthday, it found. It is the first time the proportion has exceeded 50%, the group said, suggesting that later-life mortgage lending is set to become increasingly significant in coming years. In 2014 about a third of new homeowner mortgage lending went beyond the age of 65. Charles Roe, director of mortgages at UK Finance, said: “There’s been growing demand for mortgages from those aged over 55 and this is set to continue as more people live and work for longer.”
Retailers call for rates reform
The British Retail Consortium (BRC) has called for reforms to the business rates system, as the Treasury prepares to publish its long-awaited review. A survey by the BRC found that 83% of major retailers are likely or certain to close stores unless the upcoming review leads to lower payments. The poll also showed that the burden from the rates was a factor in two thirds of store closures over the past year. The BRC wants rates restored to the same level they stood at in 1990, when they were introduced, as well as an overhaul of how properties are valued to ensure “accurate valuations”. It also wants an “improvement relief” that would ensure rates bills do not rise immediately as a result of investment in a property.
HMRC recoups record £4bn in lost taxes
Data from HMRC examined by tax insurance investigation firm PfP show investigations and compliance work by HMRC saved £4bn in taxes from being lost in the last quarter, nearly double the £2.2bn for the same period last year. PfP said the increase in the amount of taxes saved will be due in part to the winding down of the furlough scheme and HMRC having more personnel and time available. “It is no wonder that HMRC has stopped more tax from being lost now than at the same point last year. They will be under immense pressure to recoup revenue as the Government looks to offset the huge sums spent throughout the pandemic, as quick as possible,” Kevin Igoe, Managing Director at PfP said. “With the increased pressure on HMRC it is likely the number of tax investigations will rise. To prepare for a potential investigation businesses and individuals should ensure they have cover in place – to safeguard against the significant impact on finances an investigation may have,” he added.
City minister flags cut to tax surcharge on UK financial sector
John Glen has vowed to lobby the Chancellor for “competitive tax rates” for the City ahead of the Budget, raising hopes that the 8% surcharge on banking profits could be cut. The cap on bankers’ bonuses would also be kept under review, the City minister added. The MP went on to reveal that he was optimistic about the post-Brexit future of the UK’s financial services pointing to a “booming” London following “the best year since 2014 in terms of equity raising and IPOs”. He said: “What I want is an efficient and effective marketplace for financial services in the context of the global marketplace,” adding that he hoped to strike a financial services deal with the US.
Property prices hit record high amid soaring demand
Property prices and the demand for homes are at a record high, research from Rightmove has revealed. Industry experts say the average cost of a property nationwide is £338,462 while the demand for homes has more than doubled since before the pandemic. Wales, the East Midlands and the southwest, southeast and east of England are experiencing annual asking price growth of more than 8%. “The high ratio of buyer demand to properties for sale means that the property market remains stock-starved despite the summer lull lessening overall activity,” said Tim Bannister, the director of property data at Rightmove. “Competition among potential buyers is now more than double what it was this time in 2019.” The average asking price for a home has increased by 0.3%, or £1,091, month-on-month in September. Experts say that buyers who are ready to move are “out-muscling” those who still need to sell their homes. Bannister added: “To be in pole-position you need to have greater buying power than the rest of the field.”
BIS warns of green asset bubble risk
The Bank for International Settlements has warned of the growing risk of a price bubble in environmentally friendly-focused asset markets. ESG-focused assets have risen to a value of $35trn and now account for more than a third of all assets professionally managed by banks and investment funds, experts estimate. Exchange-traded funds (ETFs) and mutual funds with ESG or socially responsible investment (SRI) mandates have seen even faster, tenfold growth, to approximately $2trn. Claudio Borio, head of monetary and economic department at the BIS, warned of a “green bubble” risk and also of “definitional risk” and of so-called “greenwashing”, where the environmental benefits of certain assets were potentially being over-exaggerated. If those exaggerations are exposed, values could then plunge.
World Bank fixed report to flatter China
The World Bank has cancelled Doing Business, a prominent report rating the business environment of the world’s countries, after an investigation concluded that senior bank management pressured staff to alter data affecting the ranking of China and other nations. Implicated individuals include then-World Bank Chief Executive Kristalina Georgieva, now managing director of the International Monetary Fund, and then-World Bank President Jim Yong Kim. A review published on Monday was written by a group assembled by the World Bank in December 2020, after a series of internal audits revealed data irregularities in reports on China, Saudi Arabia, the United Arab Emirates and Azerbaijan. “We have been informed of multiple cases where national governments have attempted to manipulate the DB scores by exerting pressure on individual contributors,” the report said. The experts faulted the Doing Business series for lack of transparency about the underlying data and questionnaires used to calculate the rankings, called for a firewall between the Doing Business team and other World Bank operations, and creation of a permanent, external review board.
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