Business news 25 May 2023

James Salmon, Operations Director.

Tata to build car battery plant in UK. Car making up for the third month running. Gilt yields soar after inflation disappoints. Trade barriers have cost British households £7bn since Brexit. Ofgem poised to lower cap on energy bills. Hunt rules out tax cuts . And more business news that we thought would interest our members.

Tata to build car battery plant in UK
The boss of Jaguar Land Rover-owner Tata is expected to finalise a deal to build a multi-billion-pound electric car battery plant in Somerset next week. Tata was considering another site in Spain for their car battery plant and the expected decision to choose Somerset will be presented as a major achievement for the UK Government, albeit at a cost of up to £500m in subsidies. Up to 9,000 jobs would be created at the Bridgwater site, close to the M5.

Car making up for the third month running
Figures from the Society of Motor Manufacturers and Traders show car production rose to 66,527 in April, up almost 6,000 on the month last year. The rise was driven by exports, with more than four out of five cars built in the UK heading overseas. Richard Peberdy, of KPMG, said: “The UK car industry’s post- pandemic recovery continues, with export growth a major factor.”

Gilt yields soar after inflation disappoints
Figures released by the Office for National Statistics on Wednesday show that UK inflation, as measured by the consumer prices index (CPI), came in at 8.7% for April, down from March’s 10.1% but far above the 8.4% hoped for by the Bank of England and the 8.2% anticipated by markets. The news sent expectations of further interest rate rises soaring and pushed the yield on two-year gilts up 0.24 percentage points to 4.37% – close to the levels seen last year when Liz Truss’s unfunded tax cuts rattled financial markets. Traders are now betting that rates will peak at about 5.3% by the end of the year. Core inflation for the month jumped to 6.8%, up from 6.2% in March, while food price inflation remained close to its 45-year peak, at 19.1% compared with 19.2% the month before. Quentin Fitzsimmons, a senior portfolio manager at US asset manager T Rowe Price, argued that the inflation pressure would force the BoE to raise interest rates aggressively beyond their current level of 4.5%. “I can’t see what will stop it, short of a very substantial recession,” he said.

Trade barriers have cost British households £7bn since Brexit
The cost of trade barriers on food imports from the EU since Brexit has cost British households an extra £7bn, according to a study by the London School of Economics (LSE). The cost of food in the UK had risen by 25% since 2019, the researchers claimed, but if the post-Brexit trade restrictions were not in place then this increase would be only 17%. Nikhil Datta, one of the report’s authors, said it was possible food costs would continue to rise as not all border checks have been instituted.

Ofgem poised to lower cap on energy bills
The energy regulator Ofgem is set to announce a lower cap on energy bills today. The move will drive the average gas and electricity bill down from £2,500 a year under the Government’s energy price guarantee to just over £2,053. Although this seems like a substantial drop, the figure remains almost double the level before Russia’s invasion of Ukraine. Rachel Reeves, the shadow chancellor, said: “As bills keep surging, families will be worried food prices and the cost of other essentials are still increasing. They will be asking why this Tory government still refuses to properly tackle this cost of living crisis, and why they won’t bring in a proper windfall tax on the enormous profits of oil and gas giants.”

UPDATE: Ofgem announced household gas and electricity bills will be capped at £2,074 annually for the three months from July 1, owing to lower wholesale prices. The cap was previously £3,280, though the government intervened to make the average household pay now more than £2,500. It represents the first time since the energy crisis began in early 2022 that consumer prices will fall, Ofgem said.

Hunt rules out tax cuts
Jeremy Hunt has ruled out tax cuts in the near future, citing the need to tackle inflation. Figures from the Office for National Statistics show inflation fell less than hoped to 8.7% in April, down from 10.1% in March. The Chancellor said: “What is a tax cut? A tax cut is putting money in people’s pockets so they can spend more. The biggest way that I can put money in people’s pockets so they have more to spend is to halve inflation because that is eroding 10% of the value of people’s pay packets or has been over the last year.”

Hunt: Britain is not in decline
Writing in the Sun, the Chancellor Jeremy Hunt says the British economy this week “proved more resilient than many feared – with inflation and energy bills finally on their way down.” He goes on to talks up Britain’s prospects, disputing claims of late that the country is in decline. A recent report from auditors PwC found that the UK was the third-most attractive country for CEOs expanding their businesses, Hunt notes to later point to an admission from a US bank that they were wrong on UK growth forecasts. “The Prime Minister has set out three clear economic priorities that we will deliver — halve inflation this year, grow the economy and reduce debt.”

The US Debt Ceiling

Credit Ratings Agency Fitch warned that the US’s pefect AAA credit rating would be downgraded, should the country fail to raise its debt ceiling before 1st June. They also placed America on a “rating watch negative” list because of the “increased political partisanship” hindering talks to resolve the looming fiscal crisis. House Speaker Kevin McCarthy’s optimism that White House and GOP negotiators would reach a deal in time to avert a potentially catastrophic default didn’t mollify analysts.

Stocks across Europe dropped 2% yesterday in response to the impasse.

Government launches call for evidence on non-financial reporting rules
The UK Government has issued a Call for Evidence on the future of non-financial reporting, including climate-related corporate reporting. The Department for Business and Trade said the review would shape the Smarter Regulation Non-Financial Reporting Review, which it is conducting in conjunction with the Financial Reporting Council. The Call for Evidence reiterated plans to consult on extending rules requiring the publication of Net Zero Transition Plans to large firms, but also stressed that the time was right for a fresh look at whether “the UK’s corporate reporting framework continues to deliver what investors and other stakeholders need to support economic growth and long-term value creation.” The Government said: “Our departure from the EU allows us to shape rules and processes so that they work for the UK’s specific circumstances, including for non-financial reporting.”

Industry responds to consultation on UK Corporate Governance Code
Responding to news of the public consultation on proposed revisions to the UK Corporate Governance Code, Peter van Veen, ICAEW Director of Corporate Governance and Stewardship, said the Financial Reporting Council’s proposed revision “is an important step in strengthening trust and confidence in UK business.” He added: “We at ICAEW welcome the opportunity to provide input into this key consultation and will be consulting with our members and stakeholders during the consultation period.” Elsewhere, Hemione Hudson, head of audit at PwC UK, echoed outgoing FRC CEO Sir Jon Thompson’s statement on good corporate governance contributing to “long-term company performance by helping to build an environment of trust, transparency, and accountability,” stating: “It’s good to see progress being made and we welcome efforts to continue driving up standards.” However, Ann Kiem, chief executive of the Chartered Institute for Internal Auditors, pointed to a lack of emphasis on internal audit in the FRC’s new proposals: “We welcome the proposals to strengthen company directors’ responsibilities for ensuring the internal controls are effective. However, we would also like to see the provisions in the Code regarding the requirement for premium-listed firms to have internal audit to also be strengthened and made clearer.”

Labour sets out economic agenda
Labour revealed its economic vision for the UK on Wednesday, with shadow chancellor Rachel Reeves unveiling the plans during a trip to the US. Ms Reeves pledged to rebuild Britain’s “industrial foundations” if Labour wins power, claiming the strategy would insulate the country against “global shocks”. As chancellor, she said she would aim to create high quality jobs in British businesses, and reduce the country’s dependence on foreign workers and goods. “Globalisation as we know it is dead,” she told an audience of economists in Washington DC. “We must care about where things are made and who owns them. We must foster new partnerships between the free market and an active state and between countries across the world who share values and interests.”

Students boycott insurers supporting fossil fuel projects
More than 500 students and recent graduates from top UK universities have pledged a “career boycott” of major insurers, including Lloyd’s of London, if they support controversial fossil fuel projects. The students have warned that they will not work for firms that fail to shift to climate-friendly policies. A Deloitte survey recently found that more than half of Gen Z recruits tended to research a brand’s environmental impact and policies before accepting a job, while one in six have already changed jobs or sectors over climate concerns. A further 25% say they plan to move roles because of their employers’ climate impact in the future.

London rent rises outpace record UK increase in April
Figures from the Office for National Statistics published on Wednesday show higher borrowing costs and a shortage of properties have pushed up prices for renters in the UK. Property rental prices across the country rose 4.8% in the 12 months to April, the biggest increase since 2016, while renters in London faced an even bigger increase of 5%, the highest rate since November 2012. “As long as mortgage rates remain elevated, more Britons will be inclined to rent rather than taking the plunge into home ownership,” said Myron Jobson, finance analyst at Interactive Investor.

Industry coalition launched to tackle UK pension inequalities
A new coalition of over 20 pension companies and organisations has been launched aiming to address pension inequalities in the UK. The Pensions Equity Group (PEG) was established in recognition that many in society are not saving enough for retirement, with previous industry research suggesting that the cost-of-living crisis could be worsening pension saving gaps. Pensions Minister, Laura Trott, welcomed the launch, stating: “It’s great to see the pensions industry coming together to help millions more people save for their futures. This government has transformed pension saving with automatic enrolment, especially for low earners, young people, and women.”

Tax-Free Childcare helps 650,000 families
Tax-Free Childcare has saved 649,935 families on their childcare costs during the 2022 to 2023 tax year, an increase of more than 137,500 from the previous year according to the latest statistics released by HMRC.

Apple

Apple announced a deal to develop 5g chips with Broadcom, an American chipmaker. The businesses had previously entered a three-year, $15bn agreement that was due to expire. This new deal is part of Apple’s commitment to invest $430bn in the American economy by 2026

Microsoft

Microsoft formally filed its appeal against the CMA’s decision to block its $69 billion Activision Blizzard deal. Microsoft lodged the suit at the Competition Appeal Tribunal yesterday. The Competition and Markets Authority said it was standing by its decision to halt the deal.

Giphy & CMA

Meta sold its GIF search engine, Giphy, to Shutterstock, a stock-image service, for $53m. The social-media giant acquired the business in May 2020 for $315m. But last year Britain’s Competition & Markets Authority (CMA) demanded that Meta sell Giphy as the acquisition could severely damage competitors.

Fresh call for probe as evidence shows BoE urged bankers to rig Libor
The Times carries an extract from BBC economics editor Andy Verity’s book entitled Rigged, which exposes how central banks and governments applied pressure to bank traders to rig the Euribor and Libor rates in late 2008. The extract details an interview US investigators initiated with Barclays’ senior Libor setter Peter Johnson during which Johnson revealed how the UK Government and the Bank of England had pressured Barclays bosses to change their Libor submissions in a way that violated the British Bankers Association’s definition. European central banks had done the same as had the US Fed. The coordinated move was an attempt to lower borrowing costs amid a credit crunch that wouldn’t loosen even after central banks injected tens of billions to recapitalise banks in the wake of the crash. These were the very same actions for which traders would later be jailed because Johnson’s interview was never made available to parliament, the press or the public, nor for juries in rate-rigging trials. Meanwhile, Tory MP David Davis has issued a fresh call for an investigation by parliament following the release of “damning evidence” that it may have been misled by the Bank of England, namely its former deputy governor, Paul Tucker, over interest rate rigging.

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.

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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.