Business news 22 July 2022
James Salmon, Operations Director.
Consumer confidence severely depressed amid soaring prices. UK debt interest payments jump to all-time high. Rishi Sunak & Liz Truss on tax cuts. And more business news.
Consumer confidence severely depressed amid soaring prices
The latest survey of consumer confidence by GfK reveals optimism remains “severely depressed” as households grapple with soaring food and fuel prices. Joe Staton, client strategy director at GfK, said: “Consumer confidence remains severely depressed this month as the impact of soaring food and fuel prices and rising interest rates continues to darken the financial mood of the nation.” Linda Ellett, head of consumer markets, retail and leisure at KPMG, said it was surprising that spending had remained robust despite the negative mood among consumers. “Whilst retail sales have fallen, the monthly 1% decrease in sales that we are currently seeing certainly doesn’t marry up to consumer confidence levels being at record lows, even when inflation adjusted,” she said. Meanwhile, Deloitte separately found the rising cost of living has driven consumer confidence below the previous record set during the lockdown of March 2020 to an all-time low. Celine Fenech, consumer insight lead at Deloitte, said: “With inflation going up faster than average earnings, there are now more consumers feeling the cost-of-living pinch than not. In a sign of the times, the biggest jump in spend this quarter is on energy and housing costs, including rent and mortgages.”
UK debt interest payments jump to all-time high
UK interest payments on government debt jumped to the highest level on record in June hitting £19.4bn – £10.3bn more than in the same month last year. The surge in debt servicing costs pushed borrowing up to £22.9bn in June, the highest figure for the month outside of the pandemic. However, tax receipts jumped by £5.1bn to £51.4bn as the Exchequer benefited from the hike in National Insurance and the frozen tax thresholds pulling more earners into higher bands. Hoa Duong, economist at PwC, said the figures indicate the next government has “a choice between focusing on managing the deficit or tackling the cost of living rises, but not both”. Elsewhere, Michal Stelmach, senior economist at KPMG UK, commented: “Today’s figures put paid to the idea that inflation is an effective tool for reducing debt. The accrued debt interest in June is sufficient to fully offset the £18bn expected yield from the income tax threshold freezes by 2025-26, which push people into higher tax brackets as their nominal incomes rise.”
Rishi Sunak refuses to match Liz Truss on tax cuts
Rishi Sunak, the former Chancellor, has played down the prospect of personal tax cuts before autumn 2023 if he becomes prime minister, separating himself from the position of fellow Tory leadership candidate Liz Truss, who has promised an emergency tax-cutting Budget should she succeed Boris Johnson. Mr Sunak fears inflation will not start to fall until next summer at the earliest and has restated his argument that bringing down taxes before then would worsen the problem. However, the Foreign Secretary on Thursday claimed Mr Sunak’s approach risked driving the economy into recession. The latest polling of Tory party members show Truss is backed by 62% compared with just 38% who would vote for Sunak.
Sunak’s tax stance under fire from donors and business leaders
Sir Rocco Forte, the hotelier and top Tory donor, has denounced Rishi Sunak’s “ridiculous” plans for the economy arguing that the former Chancellor’s decisions to increase corporation tax and national insurance were “not a Conservative approach to doing things”. “You should look at tax policy over the long term, not in the short term. And this whole Treasury orthodoxy which exists at the moment has completely captured Rishi Sunak – and he sort of goes along with their point of view, which I disagree with completely.” Sir Rocco said he favoured Liz Truss’s position on taxation and Brexit adding that he didn’t know where Sunak stands on anything expect taxation. Elsewhere, Lord Bilimoria, the founder of Cobra beer and former president of the Confederation of British Industry, sided with Ms Truss on tax, stating: “Consumers need all the help they can get. I would reverse the national insurance increase – that’s a tax on jobs. I would reverse that straightaway… I would not put through the corporation tax rise. It’s a huge incentive to attract inward investment.”
Confidence in HMRC slumps with depleted service levels
HMRC’s latest customer survey reveals satisfaction has slumped across all of HMRC’s customer lines, with the largest fall among accountants and book-keepers acting on behalf of individuals and businesses.
ECB raises rates
The European Central Bank (ECB) raised interest rates by 0.5 percentage points yesterday, its first increase in 11 years, raising rates from minus 0.5% to 0%.
Markets
Overnight, DOW rose 0.51%. S&P 500 rose 0.99%. NASDAQ rose 1.36%. However US market futures slipped in pre-market trade as investors reacted to a fresh batch of corporate earnings and disappointing results from Snap, which sent its shares lower and hit futures on the tech index.
UK dealmaking slumps in value amid recession fears
The volume of deals in the UK’s financial services sector rose to a seven-year high in the first half of the year, according to EY. However, the value of transactions plunged due to concerns over a looming recession and ongoing economic uncertainty. A total of 136 deals were announced in the six months to June – up from 118 in the same period in 2021 – but deal value slumped from £10.5bn to £8.6bn. “UK M&A activity had a strong start to the year as expectations that the economy would bounce back to pre-pandemic levels were high,” said Tom Groom, UK Financial Services Strategy and Transactions Leader at EY. “However, although we are looking at a seven-year H1 deal volume peak, activity fell between the first two quarters of this year as geopolitical tensions began to impact the market and have led to rising inflation and supply issues.”
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