Business news 23 March 2023
James Salmon, Operations Director.
Inflation, fraud, manufacturing, Savings rates, US interest rates, markets, Sunaks tax statement and more business news.
UK inflation jumps unexpectedly in February
Figures from the Office for National Statistics (ONS) show UK inflation rose more than expected last month to hit 10.4%, up from 10.1% in January. Economists had predicted a slight drop to 9.9%. The rise was driven by a continued rise in food costs, which increased by 18.2% in the year to February, the fastest rise since 1977. Rising prices in restaurants and cafes, and for food and clothing also pushed the figure up. Core inflation, which strips away volatile components like gas and energy, rose from 5.8% in January to 6.2% in February.
Ruth Gregory, of Capital Economics, says: “The rebound we saw in core inflation was much stronger than anticipated. I think that was the most worrying.” Martin Beck, of the EY Item Club, is less concerned. “I think it’s a blip. Let’s not get too alarmed,” he says. Dickens, of Pantheon Macroeconomics, also thinks the increase in prices is temporary, adding: “More broadly, the factors that are impacting inflation are pointing to it falling for the rest of the year.” Yael Selfin, of KPMG, suggest the latest data could mean a rate hike of 0.25% is likely today after back-to-back 0.5 percentage point
Fraud
The latest NICE Actimize Fraud Insights Report reveals that attempted fraud transactions in 2022 have skyrocketed by 92% and attempted fraud amounts have soared by 146%. when compared with 2021.
Train strikes
The train strikes planned for March and April have been called off after RMT members at Network Rail voted to accept a pay deal.
UK manufacturing weighs on productivity growth
Research published by PwC shows productivity in the manufacturing industry has risen by only 7% in the decade since the financial crisis, which is just a third of 21% growth recorded in the decade prior. The slowdown in manufacturing productivity has played a “significant role” in dragging down economy-wide productivity, the firm said. But over the past two years yearly productivity has nearly doubled to reach an average rate of 0.9%, up from an average of 0.5% in the ten years after the financial crisis. Jake Finney, an economist at PwC UK, said: “It is likely that this uptick in productivity growth was driven by exceptionally high consumer demand following the pandemic, and our view is that this will start to unwind as demand work availability normalises over the course of 2023.”
MPs press FCA on savings rates
The Treasury Select Committee has written to the Financial Conduct Authority to demand the watchdog takes action to ensure banks pass on higher interest rates to savers. Conservative MP Harriett Baldwin, who chairs the committee, said in a letter to Nikhil Rathi, the chief executive of the FCA: “While consumers should continue to shop around for the best rates, the information we’ve received from the UK’s biggest high-street banks demonstrates there is much more that can be done. We anticipate that the financial regulator will want to look into this issue in further detail, in particular whether the market is truly competitive and if retail banks are relying on customer inertia to keep savings rates low.”
FED & markets
The US Federal Reserve hiked interest rates by another 25 basis points (0.25%) on Wednesday , although it expressed caution about the recent banking crisis. It also indicated that hikes are nearing an end. The Federal Open Market Committee said in a post-meeting statement that it “will closely monitor incoming information and assess the implications for monetary policy.” The Federal Open Market Committee voted unanimously to increase its target for the federal funds rate by a quarter percentage point to a range of 4.75% to 5%, the highest since September 2007, when rates were at their peak on the eve of the financial crisis. Fed projections call for just one more hike this year.
US markets fell on Wednesday as the Federal Reserve continued hiking rates, while at the same time acknowledging turmoil in the banking sector could slow the already fragile economy. Overnight, the DOW dropped -1.63%, the S&P 500 dropped -1.65% and the NASDAQ dropped -1.60%. The US Dollar faced a broad sell-off overnight after the less hawkish than expected Fed rate hike and press conference, with Euro emerging as the biggest winner against the greenback. Sterling and Swiss Franc followed suit, while Australian and New Zealand dollars also strengthened but lagged on a weekly basis. European Stocks dropped this morning as investors mull the Fed rate hike before the BOE announcement due later today.
The BOE is expected to follow suit after inflation unexpectedly rose last month. Economists and investors predict policy makers will raise the benchmark lending rate a quarter point to 4.25%.
Brexit
Sunak won decisively the parliamentary vote on his new deal with the EU to solve the NI problem by an overwhelming margin of 515 votes to 29 on Wednesday, despite a rebellion by 22 Tories, including the previous 2 prime ministers, Johnson and Liz Truss.
SVB
Bank of England Governor Andrew Bailey said the UK unit of Silicon Valley Bank had been under scrutiny long before its collapse, and concerns about the bank had been raised with the US.
Bailey said in a letter to the UK’s Treasury Committee “Over the last 18-24 months, concentration risk, and overlap of clients on the asset and liability side of the balance sheet, had been areas of focus for supervision”
Rishi Sunak releases tax statement
The Prime Minister has published a summary of his taxable income, capital gains and tax paid, showing millions of pounds earned from investments held in the US. Rishi Sunak earned almost £4.8m over three years, paying an effective tax rate of 22%, according to analysis by the Telegraph. In the last tax year to March 31, 2022, he earned more than £1.6m in capital gains from his US investments along with more than £172,000 in dividends. His salary as chancellor was a little over £156,000. Mr Sunak’s accountants, Evelyn Partners, said in a note that all the PM’s investment income and capital gains related to a “single, US-based investment fund”. This was the blind trust into which the prime minister put his investments upon entering government. Chris Etherington, partner at RSM, pointed to the weighting in favour of investments that produced capital gains, rather than dividends. “It is understood that he does not influence the investment strategy of the blind management arrangement but it appears he has benefited from the difference in tax rates between capital gains and dividend income,” Etherington said. Elsewhere, Nimesh Shah, the chief executive of Blick Rothenberg, said: “To get a full picture of Sunak’s tax affairs I’d have liked to see the full return. This only tells part of the story.”
Anger after Eurotunnel train driver, 66, loses benefits
Natalie Elphicke, MP for Dover, has called for a change in the law to prevent companies from stripping people over retirement age from their workplace benefits. Her call comes after Eurotunnel told Stephen Horne, a 66-year-old train driver, that he could not be made to retire and could continue working but benefits including health insurance, life assurance and medical cover would cease. Ms Elphicke said what had happened to Mr Horne was “shocking and unacceptable”, adding: “What’s even more shocking is that it is currently legal.”
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