Business news 25 October 2022
James Salmon, Operations Director.
Rishi Sunak to become UK prime minister. Restaurants closing every hour as burdens mount. Political turmoil and soaring prices could plunge UK into recession. SME Funding Passports could help bridge funding gap. Adults turn to social media for financial advice. And more business news.
Rishi Sunak to become UK prime minister
Rishi Sunak was crowned Tory leader on Monday after MPs overwhelmingly backed the former Chancellor. He will be installed as the UK’s latest Prime Minister after an audience with the King today.
Mr Sunak lost to outgoing PM Liz Truss in September, but this time Tory members were denied a vote as Mordaunt failed to reach the threshold of 100 nominations, leaving many livid and dozens quitting the party. Mr Sunak’s leadership rival Penny Mordaunt withdrew from the latest contest minutes before the result was announced, admitting it was “clear that colleagues feel we need certainty today”.
Mr Sunak, a former chancellor of the exchequer, warned of the “profound” economic challenges ahead and promised to lead with “integrity and humility”. The new Prime Minster will have to clean up the mess made by his predecessor, get the country through the energy crisis and address the country’s poor growth and productivity.
As Britain’s third prime minister in as many months weeks, he will also be the country’s first non-white leader.
Labour and the Liberal Democrats called for an immediate General Election arguing that Mr Sunak had no mandate to lead the country.
Restaurants closing every hour as burdens mount
Restaurants and cafés are currently closing at the rate of about one every hour, according to the latest figures from AlixPartners and CGA.
The Telegraph’s Ben Wright says that with inflation rampant, staff costs sky high, rising interest rates and energy costs, along with unreformed business rates, “had a team of vicious sadists spent months working on a plan, it is hard to imagine they would have come up with a better means of inflicting maximum torture on restaurants.”
Even as the economic conditions have been turning from bad to worse throughout this year some businesses have managed to remain on an even keel, he continues. But restaurants and the wider hospitality industry will be the canaries in the economic coal mine. “Already too many are falling off their perch.”
Political turmoil and soaring prices could plunge UK into recession
The latest S&P/CIPS PMI survey indicates that Britain’s private sector economy shrank sharply this month, with contraction rates returning to levels last seen in January 2021 when the country was in the grip of the longest COVID-19 lockdown. The index for October slid from 49.1 in September to 47.2 – well below the 50 point threshold that separates growth and contraction.
The services PMI fell to 47.5 from 50, driven by ”squeezed household budgets, recession concerns and delayed business investment decisions due to political uncertainty,” the survey said. The PMI for the manufacturing sector fell to 45.8 in October from 48.4. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that with Liz Truss now ousted UK fiscal policy will likely weigh heavily on households. Their reduced disposable income could plunge the UK into a “protracted recession” he added.
Elsewhere, Martin Beck, chief economic adviser to the EY Item Club, said the weakening UK economy could prompt the Bank of England to row back on an expected one percentage point rise in interest rates and instead opt for a 75 basis point hike.
SME Funding Passports could help bridge funding gap
Research by tech firm Codat shows 55% small business owners in the UK are taking out personal loans to fund their firms due to the troubles they face in securing external capital. Some 47% had faced difficulties in accessing external capital.
Codat co-founder Alex Cardona said, “The small business credit landscape is not set up for businesses or lenders to succeed. Lenders don’t have the necessary insight to make accurate decisions and the application process is so awful for SMEs that they’d often rather take out a personal loan to fund their business – or even make do without the cash they need.”
A research paper by the company argues that new technology in the form of “SME Funding Passports” – containing all the information required to apply for external funding – could make it easier for small businesses to secure the financing they require.
Adults turn to social media for financial advice
According to new research from retail mall operator Westfield, one in three adults have turned to social media platforms, such as TikTok, for money saving tips and financial advice. The research suggests that a quarter of adults find financial advice easier to understand on social media than from other sources – from tips on budgeting and investing money, to how to find the best discounts. On average, a third (35%) of young people have learnt skills such as budgeting money, how to save (34%), and even how to invest (34%), on social media and via influencers.
Markets
UK blue chips rebounded following Rishi Sunak securing an uncontested leadership election for leader of the conservative party and Prime minister when one minute prior to the 2pm submission deadline, challenger Penny Mordaunt MP pulled out of the race, saving herself having to disclose her support. Rishi Sunak secured well over half of Conservative MPs and will become the UK’s new PM. Long dated gilts jumped between 3.5%-5% as investors took the view that as PM Rishi Sunak would opt for spending cuts and endorse tougher medicine for the fight against inflation. Banking stocks also jumped on the hope they had avoided windfall taxes.
US markets posted gains, with the three major indexes closing higher Monday as traders tried to add to sharp gains seen last week and weighed the latest moves in rates. The S&P 500 rose 1.19% and the NASDAQ rose 0.86%.
FCA to probe Big Tech’s move into payments
The Financial Conduct Authority (FCA) has launched a review into Big Tech’s move into payments, deposit taking, consumer credit and insurance. While the FCA acknowledged that the involvement companies such as Alphabet, Amazon, Apple and Meta could bring innovation and benefits to consumers “by increased efficiency and delivering healthy competition”, it said they “could pose competition risks if they rapidly gain market share, and they are able to exploit market power”. Sheldon Mills, executive director of consumers and competition at the FCA explained: “Across the world, we’ve seen the capability of Big Tech to offer transformative new products in areas such as payments, deposits and consumer credit”. He added: “We want to make sure that these benefits are fully realised while, at the same time, ensuring good consumer and market outcomes. This is vital when we consider the role of Big Tech firms in the provision of key technological infrastructure like cloud services.”
UK finance can lead on climate transition
Former Bank of England governor Mark Carney told MPs on Monday that Britain can lead the world on climate reporting. He cited former Chancellor Rishi Sunak’s plans to make the UK the world’s first ‘Net Zero Aligned Financial Centre’ at Cop 26 last year. Mr Carney, now UN Special Envoy on Climate Action and Finance, said Mr Sunak’s push had spurred British regulators to set the most ambitious targets on net zero by subjecting firms to mandatory climate reporting requirements, in line with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. As a leading international financial centre, Carney continued, it is right that the UK plays a leading role in shaping climate transition policies and by developing a “gold standard” plan it would encourage other countries to follow. However, Mr Carney’s project has been rocked by setbacks in recent months, with a slew of major companies withdrawing amid concern they could face legal action from shareholders and regulators for taking guidance on investment decisions from a UN campaign.
Labour ‘should bring in workplace pension for self-employed’
A report by the Fabian Society has said that a future Labour government should look to establish a workplace pension for self-employed workers. The think-tank called on the next Labour government to implement a shakeup in workplace pensions, primarily calling for the introduction of workplace pensions for the more than 3mn self-employed workers earning over £10,000 annually. Under the proposal, people’s digital tax records would be automatically linked to a pensions account and 5% of earnings would be deducted by default, with the right to opt out.
HSBC
HSBC reported a decline in profit and revenue in the third quarter. In the three months to September 30, the China-focused bank reported pretax profit of $3.15 billion, down 42% from $5.40 billion a year before. “We maintained our strong momentum in the third quarter and delivered a good set of results. Our strategy produced good organic growth in all three global businesses, and net interest income increased on the back of rising interest rates.
Whitbread
Whitbread reported strong growth in the first half of its financial year, topping pre-pandemic business levels, as it boasted of its Premier Inn hotel chain outperforming the market. In the 26 weeks to September 1, Whitbread recorded a pretax profit of $307.4 million versus a $19.3 million loss the year prior. Revenue more than doubled to $1.35 billion from $661.6 million.
Apple
Apple announced the increase in prices for its TV and music services (music from $9.99 to $10.99 and Tv from $4.99 to $6.99) due to increased costs.
Luxury car owners increase by nearly 10%
Ownership of luxury cars has increased by 9.2% over the past year, according to research by UHY Hacker Young. The firm’s David Kendrick explains that sales were boosted by a combination of the economy bouncing back from the pandemic’s effects as well as a windfall from cryptocurrency, which created “overnight millionaires.” Porsche cars remained the most sought after, with a 10% increase in the number of vehicles on the road on 2020 levels, while Maseratis grew the fastest. However, “with interest rates soaring and the crypto bubble bursting, it is unlikely that people will have the appetite to spend so heavily on luxury vehicles,” Kendrick added. “The luxury car market should expect a big challenge until some of the clouds lift from the economy.”
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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.