Business news 27 October 2022
James Salmon, Operations Director.
Demand for credit expected to rise. Manufacturers suffer worst skills shortage since 1973. PM delays fiscal plan until mid-November. Start-ups rely on debt to fuel growth after funding frenzy. Only criminal sanctions will deter tax fraud . And more business news.
Demand for credit expected to rise
Heightened demand for credit continues as consumers struggle to cope with the rising cost of living, according to the EY Item Club.
“The forecast is for significant credit growth this year as cost of living and inflationary pressures deepen,” the group said. It predicts demand for credit will climb 7.2% or £14bn this year and by a further 5.1% or £11bn next year. This is after demand fell more than 10% during the pandemic. Mortgage lending is predicted to grow 4% this year but it will slow to 0.7% in 2023 – the lowest level since 2011.
EY managing partner Anna Anthony said: “Affordability is stretched and mortgage and business lending are likely to slow to a rate similar to that post-financial crisis.”
Manufacturers suffer worst skills shortage since 1973
The Confederation of British Industry (CBI) has warned that Britain is suffering from its worst shortage of skilled industrial workers in five decades. In its latest quarterly industrial trends survey, the number of manufacturing companies citing of a lack of key personnel has soared to 49%, up from the 39% only three months ago.
Although UK manufacturers were hopeful of an uptick in output in Q4, the backdrop of rising costs “remaining exceptionally strong” and new orders were falling sending sentiment on a rapid downward track.
“It’s a tough time for manufacturers,” Alpesh Paleja, the CBI’s lead economist, said. “Price pressures remain acute, availability of materials is still a big issue and it is 49 years since manufacturing firms were this worried about being able to find workers with the skills they need. It’s really no surprise that sentiment has deteriorated further.” He called on the new prime minister “to address the skills challenge” immediately, starting with reform of the Government’s deeply flawed “apprenticeship levy” that has resolutely failed to feed the required number of skilled young workers into the economy.
PM delays fiscal plan until mid-November
Rishi Sunak has delayed the announcement of the Government’s fiscal plans from 31 October to 17 November. The Prime Minister said the extra time was needed to ensure the right decisions were made. The Treasury has said the new date will now be a full Autumn Statement. Chancellor Jeremy Hunt said he agreed with the move and explained that the change of plans had been discussed with the Bank of England’s governor, Andrew Bailey. Hunt added: “I want to confirm that it will demonstrate debt falling over the medium term, which is really important for people to understand. But it’s also extremely important that that statement is based on the most accurate possible economic forecasts and forecasts of public finances.”
Elsewhere, the head of the Debt Management Office, Sir Robert Stheeman, told MPs that the crisis in government debt markets seen after the disasterous Truss budget was “without a shadow of doubt” caused by domestic factors, and not global tremors, as some ministers had been suggesting.
Budget delay could provide more fiscal room
The Telegraph suggests that Rishi Sunak may be able to row back on some of the tax rises and spending cuts penciled in for the Halloween statement after it was delayed for two weeks.
Analysis by the Resolution Foundation think tank said that the fortnight delay would save the Treasury between £10bn and £15bn, as falling interest rates on government debt can be factored in to the Treasury’s decisions. The yield on 30-year gilts climbed as much as 0.11 percentage points following the announcement, before falling back to 3.67%, little changed on the day and well below the levels reached before markets knew Mr Sunak would be installed as PM. Ministers had been facing an estimated black hole of around £35bn. However, the later Autumn Statement also means the Bank of England will now set interest rates on November 3rd without knowing the new taxation and spending policy.
Start-ups rely on debt to fuel growth after funding frenzy
City AM talks to Erin Platts, chief of Silicon Valley Bank UK, who says venture capital investors “lost discipline” in a funding frenzy last year when capital was cheap and now, faced with soaring energy costs, sharp rate rises and market volatility, investors have pulled back from bets on growing technology firms. Ms Platts says the lack of funding was pushing firms towards borrowing to fuel their growth. Her comments come after a report last week from KPMG revealed that VC investment slumped further to $18.7bn in the third quarter of the year – down from $31.1bn in the second quarter – with VC investment in the UK tumbling by 50%.
Young professionals targeted by investment scams
A survey by UK Finance reveals young professionals looking to make extra money to cope with the soaring cost of living are being targeted on social media by fraudsters offering investments promising quick, high returns. The poll found more than a third (34%) of 18 to 34-year-olds said they would respond to an unprompted approach from someone offering an investment opportunity or a loan, with 30% saying they might also provide their personal or financial details to secure the arrangement. “The rise in the cost of living can be worrying and stressful and for many, keeping on top of finances might be a struggle,” said Katy Worobec, managing director of economic crime at UK Finance. “It’s important for everyone to be conscious of criminals taking advantage of people’s anxieties around finances by staying alert for fraud.”
MPs: Only criminal sanctions will deter tax fraud
The All-Party Parliamentary Group for Anti-Corruption & Responsible Tax and TaxWatch have published a joint report outlining how supposedly “legal” tax avoidance could be prosecuted as tax fraud. The relevant criminal offence – “cheating the public revenue” – is extremely wide and MPs believe it could include tax avoiders and the advisers that devise, market and enable tax avoidance schemes. Dame Margaret Hodge MP, chair of the APPG on Anti-Corruption & Responsible Tax, said HMRC should be “enforcing the laws of the land”, and not the rules of the “tax fraud game” which she claimed were allowing tax avoiders and their enablers off the hook. “We need a real deterrent to stop bad behaviour or these tax cheats will continue to flout the rules while most taxpayers struggle with the cost of living crisis.”
UK urged to lay out ‘clear plan’ on new infrastructure projects
Melbourne-based pension fund manager IFM Investors has called for a “clear plan” for infrastructure projects from the UK Government if it wants to attract more foreign investment.
NHS backlogs not responsible for older people leaving work
The Institute for Fiscal Studies (IFS) has said neither NHS waiting lists nor so-called long Covid were the reason for hundreds of thousands of older people dropping out of the workforce. Its analysis suggests that many of these workers had already retired before the pandemic hit and have since fallen ill – so even if the Government focuses on getting them fit, many will not look for work again. Speaking in front of the Work and Pensions select committee, Jonathan Cribb, an associate director at the IFS, said: “Our analysis suggests that what is actually happening in the main is that more people are leaving work for retirement. And more retired people who are already out of work are getting sicker, and labelling themselves as out of work for reasons of sickness.” Additionally, 700,000 over-50s have left the workforce since the pandemic hit and Cribb said a maximum of 10% of these would return to work.
Pensions triple lock and benefits under review
Downing Street has refused to confirm that the pension triple lock will remain in place after November’s Autumn Statement. Prime Minister Rishi Sunak refused to commit to the policy or to uprating benefits in line with inflation. Under the triple lock, a Conservative Party manifesto commitment, the state pension is increased every April in line with the highest of either inflation, wage growth or 2.5%.Steven Cameron, of the pensions provider Aegon, said: “The Government say that they want to create stability and confidence but they are not doing so for pensioners.” Cameron continued: “Mr Sunak said that he would honour manifesto commitments, but the triple lock is an extremely expensive policy and is being paid for by the working population. I fully expect that in the next manifesto there will be a move away from the triple lock. The real question now is how long it can last.”
Older homeowners increasingly turning to equity release
A record number of homeowners aged over 55 have turned to equity release to support their cash-strapped families through the cost of living crisis. According to the Equity Release Council, 13,452 plans were taken out by older homeowners between July and September – an increase of 8% from the previous three months. Total lending to new and returning customers grew by 49% compared to last year, the trade body added. Stephen Lowe, of the Equity Release Council, said: “These figures highlight the increasing appetite for people to make use of the wealth stored in their homes to meet their lifestyle aspirations whether they are seeking to help their families, generate extra retirement income, or pass on lump sums as part of an inheritance planning strategy.”
Banks upbeat on house price growth
UK banks are predicting that house prices will continue to rise over the next two years despite rising interest rates. Barclays, HSBC and Santander were all positive, but Halifax is predicting a sustained slowdown amid soaring inflation and mortgage rates that are hovering near 14-year highs.
Proposals for audit and governance reform should proceed as planned
Proposals to reform the UK’s audit and corporate governance regime should proceed as planned despite the current political turmoil, representatives of the accountancy profession, business and regulators told an event last week. The Department for Business, Energy and Industrial Strategy is now drafting a bill on reforming audit and corporate governance that, among other things, will lead to a new statutory regulator, to be known as the Audit, Reporting and Governance Authority (ARGA). This will take over and build upon the existing functions of the Financial Reporting Council (FRC).
Shell
Oil giant, Shell reported a third-quarter profit, but lower refining and trading revenues marked an end to its run of record quarterly earnings. Shell posted adjusted earnings of $9.45 billion for the last quarter, matching analyst expectations of $9.5 billion. More than doubling the $4.1 billion Shell posted over the same period a year ago. The oil major also announced yesterday a new share buyback program, which is set to result in an additional $4 billion of distributions and expected to be completed by its next earnings release. It also revealed plans to increase its dividend per share by around 15% for the fourth quarter 2022, to be paid out in March 2023.
Lloyds
Lloyds Banking Group said its third quarter was “robust”, thanking its income growth, balance sheet “momentum” and “resilient” customer focus. In three months to September 30, pretax profit slumped 26% to £1.51 billion from £2.03 billion
Unilever
Unilever reported strong growth in the third quarter, with all of its units seeing double-digit growth, except for Nutrition. In the three months to September 30, turnover rose 18% to EUR15.8 billion, with underlying sales growth at 11%. “Price growth has sequentially improved in each of the past seven quarters, reaching 13% in the third quarter. While pricing had, as expected, some negative impact on volume, underlying volume growth improved in four Business Groups compared to the second quarter,” Unilever explained.
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