Business news 21 September 2023
James Salmon, Operations Director.
Rishi Sunak delays net zero policies. Investors slash bets on UK rate rise after inflation falls to 6.7%. Port Talbot jobs to be cut within months. New tech brings new, higher quality jobs. And more business news that we thought would interest our members.
Rishi Sunak delays net zero policies
The Prime Minister on Wednesday announced a significant shift in the Government’s net zero policy, scrapping a range of targets that he claimed would have wrought unacceptable costs on the UK public. Rishi Sunak delayed the ban on new petrol car sales from 2030 to 2035, pushed back the ban on new oil boiler sales from 2026 to 2035, and abandoned tougher energy efficiency rules for landlords.
He went on to warn that without a properly informed national debate on net zero the public backlash would risk putting the “wider mission” in jeopardy. He added: “No one in Westminster politics has yet had the courage to look people in the eye and explain what’s really involved. That’s wrong. And it changes now.”
The move brought a mixed response from Tory MPs and business. The automaker Ford complained about the goalposts shifting, but Toyota welcomed the move, pointing to how alternatives to battery technology can have a role to play in shifting cars away from petrol and diesel.
“He is doing it to turn the environment into a US-style political wedge issue, something the UK has avoided all my political life,” said Zac Goldsmith, a former climate minister who quit government in June over what he called Sunak’s retreat from the UK’s environmental pledges. “Sunak is chucking the environment into a political fire purely to score points. It is reprehensible.”
“It is the opposite of good economics,” Nicholas Stern, chairman of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, said before the speech. “Kicking the can down the road will make the pathway to net zero more expensive, not less.”
Lisa Brankin, Ford Motor Co. UK chair, released a pointed statement on Wednesday morning, saying, “Our business needs three things from the UK government: ambition, commitment and consistency. A relaxation of 2030 would undermine all three.”
Investors slash bets on UK rate rise after inflation falls to 6.7%
Figures from the Office for National Statistics on Wednesday showed UK prices rose less than expected in August. The annual rate of inflation fell to 6.7% last month, much lower than the rise from 6.8% in July to 7% economists had expected. Core inflation, excluding food, energy, alcohol and tobacco, stood at 6.2% in August, down from 6.9% the previous month. Analysts had expected no change. The surprise figures led swaps markets to reduce the probability of a 0.25% rate rise from the Bank of England today from 80% to 50%.
Yael Selfin, chief economist at KPMG UK, said that the 25% increase in oil prices since June would mean inflation would moderate slowly, so the MPC was still likely to vote for an increase. But Suren Thiru, economics director at the ICAEW, warned against another hike. Pointing to the long lags between interest rate rises and the effects on inflation, he said, “additional tightening unnecessarily risks aggravating the financial struggles facing households and businesses”.
Government debt
UK Government Borrowing was higher than economists had expected in August, new official figures show. Borrowing rose to £11.6bn last month, according to the Office for National Statistics. That was £3.5bn more than a year earlier and the fourth highest August borrowing since monthly records began in 1993.
Port Talbot jobs to be cut within months, unions say
Unions have warned that workers at vast Port Talbot steelworks in south Wales will be made redundant within months rather than years following discussions with Tata bosses on Wednesday. About 3,000 jobs are expected to be lost across Tata’s 8,000-strong UK workforce as a result of a deal struck with the UK Government, which will see taxpayers plough £500m into the company to support its transition to greener production methods. Tata will inject about £725m into the project. The Business Secretary, Kemi Badenoch, said the deal was justified, warning that without intervention 8,000 jobs across the Tata business were at risk along with thousands across the rest of the supply chain.
New tech brings new, higher quality jobs
Research by the Institute for the Future of Work (IFOW), Imperial College London and Warwick Business school has found that the adoption of artificial intelligence (AI), robotics and automated equipment has an overall positive impact on jobs. Of the more than 1,000 UK firms surveyed, over three-quarters said that use of the technology had created new roles within the company. Additionally, some 69% said they believed the technologies had improved job quality either a little or a lot. “This report not only highlights that the adoption of AI is well under way across UK firms, but also that it is possible for this tech transformation to lead to both net job creation, and more ‘good work’ – great news as we try to solve the UK’s productivity puzzle,” said Anna Thomas, director of IFOW.
Mortgage lenders cut rates after inflation falls
UK banks including NatWest have cut their mortgage rates after an unexpected fall in UK inflation. Bank of Ireland UK and specialist lender LiveMore Capital also cut their rates and brokers expect many more lenders to follow. Steven Hargreaves, an adviser at the Mortgage Co, said NatWest was the third large lender this week to reduce its fixed rates, “suggesting the rate war is now truly under way.”
CBI shelves plans for tie-up with Make UK
The Confederation of British Industry has scrapped plans to merge with Make UK, the manufacturing body, preferring instead to rely on a member-led bailout. The CBI is facing a major cash crunch after nearly 100 companies paused or suspended their membership following allegations of sexual attacks and harassment by senior figures. Sky News reports that NatWest is considering rejoining the CBI and supporting a rescue funding package with a group of other large banks. In the meantime, the British Chambers of Commerce (BCC) formed a new “business council” in an attempt to influence economic policy and held its first meeting last week, chaired by the BCC’s president, Martha Lane Fox.
PwC to review Wilko dividends
Administrators are set to conduct a review of the dividends paid out by Wilko, the UK retailer, in the decade leading up to its collapse. PwC’s review will focus on the £77m in dividends paid to majority shareholder Lisa Wilkinson and other directors. Calls have been made for the Wilkinson family to address the £56m shortfall in workers’ pension funds. The review comes as the company’s pension fund is taken into the Pension Protection Fund (PPF), potentially leading to reduced retirement payments for pensioners. The review will investigate the causes of insolvency and determine if any claims should be brought against the directors.
Fed leaves interest rates unchanged, for now
The US Federal Reserve decided against raising its base interest rate on Wednesday but warned further hikes may be necessary. Policymakers expect the central bank’s benchmark overnight interest rate peaking this year in the 5.50%-5.75% range, just a quarter of a percentage point above the current range. They also feel monetary policy will need to be kept significantly tighter through 2024 than previously expected, with rates falling by only half a percentage point next year compared to the full percentage point of cuts anticipated at the meeting in June. Fed Chair Jerome Powell said officials are “prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we’re confident that inflation is moving down sustainably toward our objective.”
Stocks dropped in the US after the Federal Reserve signaled interest rates will be higher for longer and as traders awaited a Bank of England policy decision that hangs in the balance.
Next
Next said sales in the six months to July rose 5.4% year-on-year to £2.64 billion from £2.50 billion, as pretax profit rose 4.8% to £419.8 million from £400.6 million. The retailer increases its guidance for full price sales in the second half to 2.0% annual growth, compared to its previous guidance of 0.5%. This would take full-year growth to 2.6%.
Toshiba
Toshiba announced it would be going private after an investment group bought nearly 80% of the Japanese conglomerate in a deal worth $14bn.
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