Business news 22 March 2023
James Salmon, Operations Director.
Inflation, The Bank of England, UK borrowing, The City’s competitiveness, raising the pension age and more business news.
February Inflation
UK Inflation unexpectedly jumped in February, as food and energy bills continued to rise. The consumer price index increased by an annual 10.4%, above the 9.9% consensus forecast among economists in a Refinitiv poll and up from 10.1% in January. On a monthly basis, CPI inflation was 1.1%, exceeding a forecast of 0.6%. The Consumer Prices Index including owner occupiers’ housing costs rose by 9.2% in the 12 months to February 2023, up from 8.8% in January.
BoE should maintain focus on curbing inflation
The Times’ shadow Monetary Policy Committee, which includes the likes of Karen Ward, chief market strategist at JP Morgan Asset Management, and Andrew Sentance, former external member of the Bank of England MPC and senior economic adviser to PwC, believes the Bank should carry out another interest rate rise this week with a majority opting for a 25 basis-point change. Sentance explained his reasoning: “It is quite appropriate for the MPC to keep tightening gradually until we see inflation coming down more significantly. It is not clear that the issues in the banking sector are sufficiently widespread or severe to require a monetary policy response.” Meanwhile, Jeremy Hunt told the House of Lords economic affairs committee on Tuesday that he thought the Bank should remain focused on bringing down inflation. The Chancellor accepted that the speed of recent interest rate rises was “the root cause of the volatility we have seen in recent months” but added: “Inflation is itself destabilising. It’s not an answer to say we are suddenly going to change our minds and says it’s acceptable to have a rate of inflation that is as destabilisingly high as 10%.”
UK borrowing rises to a new February high
Figures from the Office for National Statistics (ONS) show government borrowing in February rose to its highest level for the month since records began in 1993. Borrowing hit £16.7bn last month, an increase of £9.7bn compared with the same month in 2022. Interest on government debt came in at £6.9bn, £1.3bn less than a year earlier. The amount borrowed exceeded expectations and followed a surprise surplus in the public finances in January. The increase was driven by a £6.4bn rise in spending on subsidies such as the energy price guarantee, which caps the average household energy bill at £2,500 a year. Jeremy Hunt, the chancellor, said: “Borrowing is still high because we’re determined to support households and businesses with rising prices…What will bring these costs right down is lower inflation, which is why it remains one of our top priorities to halve it this year, alongside growing our economy and reducing debt.” Michal Stelmach, senior economist at KPMG UK, said: “We expect the outlook for public finances to improve over the coming months thanks to an expected £40bn fall in energy and cost-of-living subsidies in 2023-24, as well as the recent fall in government bond yields and RPI inflation which together determine the cost of servicing debt.”
Census
The census reveals that the UK is even more reliant on overseas workers since Brexit. The census taken in March 2021 showed 48.6 million over 16 year olds in the UK, with 80.9% born in the UK and 19.1% born overseas. In 2011 just 13% were born overseas. Although immigration has fallen from the EU, it has more than covered by immigration from other countries. The UK’s employment rate was 71.2% it was highest among those from the EU at 78.2% while only 64.9% of non-EU people were in work.
Elementary occupations, such as agricultural, cleaning, food preparation and refuse collectors, were the most reliant on the non-UK-born workforce, with 31.2% of their staff coming from abroad. But the most reliant were packers, bottlers, carriers and fillers at 60.7%. Warehouses, cleaners, delivery operatives and security guards were in the high thirties. Waiters and waitresses were at 32.4%. But it is not just low skilled roles. 47.5% of the UK’s specialist medical practitioners are from abroad.
Chancellor committed to boosting City’s competitiveness
UK Chancellor Jeremy Hunt will go ahead with plans to reform banking regulation to make the City of London more competitive, a Treasury source has told the Telegraph. They said the recent crisis in the banking sector had not dissuaded the Chancellor from continuing on the path set out in his Edinburgh Reforms set out in December. These include relaxing ring-fencing rules on smaller banks, mandating financial regulators to focus on boosting economic growth and loosening rules that hold bankers personally responsible for rule breaking on their watch. Speaking before the House of Lords Economic Affairs Committee on Tuesday, Mr Hunt said: “Sticking with the status quo is not necessarily the best thing to do to ensure financial stability.”
Plan to raise state pension age shelved as life expectancy falls
A plan to bring forward a rise in the state pension age to 68 is expected to be scrapped amid a decline in life expectancy and fears the change would alienate a core demographic of Conservative voters. The state pension age is due to increase from 66-years-old to 67 between 2026 and 2028. It is scheduled to rise to 68 by the mid-2040s. The Government wanted to bring this forward to 2037-2039, with the plan due to be confirmed in May. But key cabinet ministers now think the decision should be postponed until after the next election. Steve Webb, former pensions minister and partner at LCP, said: “In many ways, people in their 50s are probably your swing voters. Upsetting people in their 50s is probably not what you want to do just 18 months before an election, especially if you don’t get any money until the 2030s.” Baroness Ros Altmann, a former pensions minister, said the fall in life expectancy projections means the cost of long-term state pension provision may already be overestimated. “This is of course partly due to the pandemic’s impact on older people, but the ongoing NHS backlogs and crisis in elderly care are also likely to prevent a sudden resumption of life expectancy rises,” added Altmann.
Craft gin maker slides towards administration
Oxfordshire-based British Honey Company (BHC), which makes products including craft gins, has revealed plans to call in administrators after failing to secure long-term funding and a sale of the business. Its shares on the Aquis exchange have been suspended pending the formal appointment of partners at FRP Advisory.
FTSE companies to be scrutinised on climate change and diversity
The Investment Association (IA) has said investment managers are stepping up their focus on diversity and climate change reporting at the UK’s top public companies as the AGM season begins. The trade body for investment managers is increasing its existing diversity targets to issue a red top to FTSE 350 companies where women represent 35% or less of the board, and 30% or less of the Executive Committee and their direct reports. Warnings will continue to be issued to FTSE 100 companies that have not met the Parker Review target of at least one director from a minority ethnic group, the IA added. Investment managers will also be looking for businesses to explain how climate change will impact them and how they are mitigating the risks. In its Annual Review of Corporate Reporting 2021/22, the Financial Reporting Council (FRC) said although “companies in our review had generally risen to the challenge of mandatory TCFD [Task Force on Climate-Related Financial Disclosures] reporting, climate-related reporting could be significantly improved.
Silicon Valley Bank losses embolden calls for US accounting rule reform
The Financial Accounting Standards Board is being urged to force banks to recognise unrealised losses on securities following the run on Silicon Valley Bank. Using fair value for their long-term market securities “would force banks to deal with rises in interest rates as they occurred rather than putting it off until a stress point,” accounting professor at New York University, Stephen Ryan, said. In the UK, Andrew Fisher, the former director of policy at the Labour Party, says auditors should be liable when they sign off on accounts for strategically important businesses like banks. “This feels reminiscent of 15 years ago – and, like then, I have no confidence that our politicians, finance chiefs, regulators and auditors have any clue about what they’re doing, nor that they will act in our interests,” Fisher complains.
Princess of Wales launches early years initiative
The Princess of Wales has assembled some of the most influential business leaders in Britain for a new taskforce that will back her early years initiative. In the long term, it is hoped that the taskforce will create broad principles about staff wellbeing that big business will adopt. Nine global firms, including Unilever, Ikea, Aviva, Deloitte, Co-Op and Lego, have already signed up and it is hoped many more will join. The meeting was hosted at the NatWest headquarters by Dame Alison Rose, the bank’s chief executive, who said: “Fundamentally, the growth of the economy is inseparable to the growth of our nation’s children. The businesses represented in the room today all play a vital role in driving the change needed to ensure that children, families and communities up and down the country are empowered and equipped to meet their potential, both within and outside of our organisations.”
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