Business news 26 June 2024
Investor warns over government borrowing. Barclays, HSBC and NatWest cut mortgage rates. Used car price a ‘stumbling block’ to insolvency. Cars, markets, insolvencies & more business news that we thought would interest our members.
James Salmon, Operations Director.
Investor warns over government borrowing
Investor Jon Mawby, co-head of absolute and total return credit at Pictet, says government debt could be at risk of a sell-off if the next government needs to increase borrowing by more than expected. He said the UK yield curve will steepen after the election as investors price in higher risk for long term gilts. Mr Mawby said the next government could “either increase taxes quite aggressively, which is not going to be good for the economy, or issue a load more debt and … try and get the Bank of England to monetise it.” Warning that the UK market is “smaller and much more prone to bond vigilante type runs,” Mr Mawby said: “Even with rate cuts you could see instability in the back-end of the yield curve.”
Barclays, HSBC and NatWest cut mortgage rates
Three major lenders have cut mortgage rates, prompting speculation that the cost of home loans may start to fall more broadly. Barclays, NatWest and HSBC have all reduced rates and the average rate on a two-year fixed deal now stands at 5.96%, according to Moneyfacts. The average five-year deal has a rate of 5.53%. While the Bank of England last week opted to hold the base rate at 5.25%, officials are expected to deliver cuts later in the summer as inflation has fallen back to the Bank’s target of 2%. Nicholas Mendes, mortgage technical manager at broker John Charcol, said: “We can anticipate that lenders will escalate their strategies significantly over the next few weeks.” David Hollingworth, from broker L&C, said banks opting to reduce rates “suggests that the recent edging up in rates is now unwinding and most cuts are being made in small steps.”
Used car price a ‘stumbling block’ to insolvency
A rise in the cost of used cars has been a barrier to people entering insolvency in recent years, according to analysis by financial aid provider Money Wellness. As of Friday, the total amount someone with a debt relief orders (DRO) can have will increase from £30,000 to £50,000 and the value of a vehicle they can own when they enter a DRO will rise from £2,000 to £4,000. Sebrina McCullough, director of external relations at Money Wellness, said a rise in car values “has proven to be a real stumbling block for those seeking a DRO” in recent times, adding that the changes are likely to mean an increase in people who are eligible for a DRO. In April, a £90 administration fee to enter a DRO was abolished. Insolvency Service figures show that the number of people taking out DROs increased to record highs in both April and May.
Stellantis boss warns UK production could end over EV rules
Stellantis, the maker of Peugeot, Citroën, Vauxhall and Fiat vehicles, has threatened to end its car making in the UK due to electric vehicle (EV) production rules. UK laws say fully electric cars, as opposed to hybrids, must make up 22% of all automakers’ sales but data from the Society of Motor Manufacturers and Traders shows that just 16% of sales are EVs. Producers face fines of £15,000 per non-electric vehicle sold. Warning that “the fact is that demand is not there,” Stellantis managing director Maria Grazia Davino said production in the UK “could stop.” She said Stellantis will make a decision on whether or not to end UK production in “less than a year,” adding: “Let me be clear, I want to keep the production in the UK.”
House-building
Bloomberg reports that if the UK were to catch up with the house-building of European peers, it would require a London sized city to fill the hole, emphasing the lack of development of the last five decades that has lead to the housing crisis in the UK as Nimbyism and complicated planning rules have stiffled the house building market.
Markets
Yesterday, the FTSE 100 closed down 0.41% yesterday at 8247.79 after nearly going through 8300 and the Euro Stoxx 50 closed down 0.30% at 4935.97. Overnight in the US the S&P 500 rose 0.39% to 5469.30, the Nasdaq rose 1.26% to 17717.66 as Nvidia staged a rebound of 7% after a series of losses and as Federal Reserve officials said they wanted more evidence of cooling inflation before lowering interest rates. Traders in the US rates options market are still betting on a massive 3 percentage points worth of US interest rate cuts in the next nine months.
UK & European stocks are expected to follow their US peers higher today.
This morning the pound is currently worth $1.268 and €1.185. Brent is at $85.4, Gold is at $2310.
London listings increase
The London IPO market has shown signs of recovery with an increase in the number of floats in the past three months. Analysis by UHY Hacker Young shows there were five floats on the London Stock Exchange and AIM market over the quarter, compared to three in the same period last year. The increase follows a lull in activity, with just 13 IPOs in London last year. This marked the lowest level since the London Stock Exchange started publishing data in 1995.
EU interest rates
Policymaker Olli Rehn said market expectations for two more cuts this year, taking the deposit rate to as low as 2.25% in 2025, were “reasonable.” He said that while ECB officials must ensure inflation returns to 2%, they shouldn’t overly dampen growth activity.
Climate and fossil fuels
The Barclays CEO CS Venkatakrishnan said it would be unrealistic for the finance industry to follow the calls from climate activists to cut off fossil-fuel clients and go ‘Cold-turkey’. While Barclays is “very much moving away from” coal and oil, the “reality is that for quite some time, fossil fuels will be with us” and that’s especially true of natural gas, said the CEO . The “glide path” toward cleaner energy is long.
VW
German car maker Volkswagen said it would invest up to $5 billion in Rivian, an American electric-vehicle firm. The investment will fund a joint venture between the companies and give Volkswagen access to Rivian’s EV technology.
G20 report calls for global tax on the super-rich
A new report commissioned by Brazil for its G20 presidency has proposed a global tax on the super-rich. The report suggests that individuals with more than $1bn in total assets should pay 2% of their wealth in income tax. Currently, global billionaires pay only 0.3% of their wealth in taxes. The proposed tax could raise $200bn to $250bn per year globally, with the report suggesting that this could be used to fund public services and combat climate change. French economist Gabriel Zucman, the author of the report, said: “There is overwhelming public support for this idea.” He added: “There is now clear evidence that contemporary tax systems, instead of being progressive, do not effectively tax the wealthiest individuals.” Amitabh Behar of Oxfam International has welcomed the report, saying: “All G20 countries should support Brazil’s push to secure the first-ever global deal to tax the super-rich.” However, Tom Clougherty, executive director of the Institute of Economic Affairs, said a 2% tax on wealth could effectively wipe out a large share of returns on investments, undermining the incentive to expand businesses and drive economic growth.
Parties pledge to plug the tax gap
Mike Warburton in the Telegraph says that as elections near, political parties tend to promise to raise funds by cracking down on tax avoidance. However, the figures they present lack detail and explanation. He says that while measures have been introduced to reduce tax avoidance, further improvements can be made by simplifying the tax system and providing better guidance from HMRC. Mr Warburton details that ahead of next week’s election, the Conservatives say they will raise a further £6bn a year from tackling tax avoidance and evasion by the end of the Parliament; Labour says it will raise £5.1bn a year by the end of the Parliament through the modernisation of HMRC and investing in new technology; and the Lib Dems say they can raise over £7bn a year by tackling tax avoidance and evasion.
Pension schemes criticised over opposition to FCA’s listing changes
City figures have criticised pension schemes for opposing the Financial Conduct Authority’s (FCA) proposed shake-up of listing rules. The proposed rule changes would allow firms to use long-term dual-class share structures and would not require shareholder consultation on certain deals. The International Corporate Governance Network and a number of pension firms have expressed concerns that the changes would weaken shareholder protection. The FCA has defended its plans, arguing that they were the result of extensive industry consultation. While pension funds argue that these changes would dilute shareholder rights, City figures have dismissed the complaints and argue that retirement money has been flowing out of the market for years under the current regime. Charles Hall, head of research at investment bank Peel Hunt, said: “The current position is unsustainable given the scale of exits from the UK, both of companies and funds.”
Fintech boss wants pension funds to invest more in Britain
Tim Levene, CEO of Augmentum Fintech, says that a Labour government could boost the fintech industry by pushing pension funds to invest more in Britain. Noting that Labour “recognises the huge success that the UK fintech industry has had,” he said there is “a lot of support for what the industry is doing, what it has done, and what they can do to help continue to allow it to thrive.” One thing Mr Levene suggested could have a “really positive impact” is to encourage pension funds to “move quicker.” He said: “Hypothetically, if I was coming in as Chancellor, that’s one of the first things I would be looking to do.” Mr Levene also warned that “complacency is something that we need to be wary of,” noting that a “huge” amount of government support for the French tech sector has “really transformed the French start-up space.”
Atos warns of ‘material uncertainty’ over UK arm
The British subsidiary of Government contractor Atos has expressed concerns about its ability to continue as a going concern. The company’s auditor, Grant Thornton, said Atos UK is reliant on cash from its parent company, which may not be forthcoming due to the French business’ financial difficulties. Atos, which has €2bn in debt set to mature this year, says meeting its financing maturities will probably be contingent on it obtaining new bank financing or issuing more debt or equity. Atos UK holds nearly £1bn in contracts, including providing IT infrastructure to the NHS and the Ministry of Defence. A Government spokesman said: “We undertake regular reviews of suppliers and on occasion will undertake further due diligence to ensure public services can be maintained in a variety of scenarios.”
Diversity programmes have altered how professionals speak
A study which analysed over 1,600 conversations involving British people in 1994 and 2014 has found that workplace diversity programs have influenced the way middle-class professionals speak. The study shows that individuals in working-class jobs, which have had less exposure to equality initiatives, still speak in the same manner as they did in the mid-90s. However, researchers observed an increase in “resonance” in the speech of those in middle-class jobs such as managerial roles, politics, and the university sector. Resonance refers to the imitation and adoption of words used by others in conversations. The increase in resonance is attributed to the implementation of corporate social responsibility and equality, diversity, and inclusion policies in various institutions. The study suggests that these ideologies have affected how people interact with each other. The report suggests that the change in speech patterns is not influenced by factors such as gender, age, or accent, but rather by the social grade of a person’s vocation.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.