Business news 28 February 2022
James Salmon, Operations Director.
Ukraine crisis set to drive inflation higher still. Ukraine invasion chills investors. How sanctions could break the web of Russian influence in the City. Energy price hike could hit real incomes. UK consumer confidence plunges. Confidence climbs among small businesses. And more business news.
Ukraine crisis set to drive inflation higher still
Economists believe Russia’s invasion of Ukraine will deliver a steeper rise in inflation, pointing to Russia’s position as the world’s biggest natural gas exporter and second-largest for oil.
Michael Strobaek, global chief investment officer at Credit Suisse, said the impact of the Russian invasion marks the “dawn of a new world order” for the international economy, saying higher inflation and financial market volatility can be expected. He warned that Russia’s invasion of Ukraine “marks nothing less than a shift away from the largely US/western-dominated world order that has prevailed since the fall of the Berlin Wall.”
Noting that Russia and Ukraine are major exporters of not just oil and gas, but also food, Karen Ward, chief market strategist at JPMorgan Asset Management, has warned the economic fallout from the conflict could result in inflation reaching 8%.
Pantheon Economics says the outlook for the UK economy had “darkened” following Russia’s invasion and has raised its inflation forecast to 8.2% in April, from a previous estimate of 7.7%.
Elsewhere, Investec has warned household energy bills could exceed £3,000 a year in part due to the conflict. Reflecting on what steeper inflation could mean for interest rates, Thomas Pugh, an economist at RSM, commented: “A geopolitical crisis like this would normally cause policymakers to become more cautious.
However, the Monetary Policy Committee (MPC) has made clear that it is more concerned about the upside risk to inflation from higher energy prices than the damage to economic growth. So, unless the crisis gets much more severe, the MPC will probably continue to normalize interest rates.”
Ukraine invasion chills investors
The Sunday Times says large parts of the City have ground to a standstill as investors and banks monitor Russia’s invasion of Ukraine and the widening spread of sanctions. British companies and the fund managers investing in them have been facing questions over links to the Kremlin and Russian oligarchs. Bankers said the bond market had largely dried up, with one saying not a single major bond issue had been done since the Russian invasion last week. Plans for stock market flotations have also been put on hold pending more clarity on the outcome of the crisis.
How sanctions could break the web of Russian influence in the City
The Sunday Telegraph examined the influence of the Russian elite in Britain, “whose financial power in the country has, in some cases, been propped up by City firms.” It notes that accountants at Mazars, who were brought in to trace the riches of former National Bank Trust chair Ilya Yurov, have filed an application to a London court relating to accounts held by Yurov at NatWest, Barclays, Metro Bank and Santander.
Energy price hike could hit real incomes
With concern that the Russian invasion of Ukraine could push up global energy prices, UK households may see the biggest annual fall in real incomes since the 1950s. Analysts at Bank of America said a sustained rise for wholesale oil and gas markets could see household real income fall by 3.1% in 2022 compared with a year earlier. This would mark the biggest annual drop since 1956. Increases in petrol and diesel prices last week came at a time when inflation is already at the highest level since 1992, having reached 5.5% in January. Robert Wood, UK economist at Bank of America, noted that there is “a lot of volatility”, warning: “We’re looking at this year a very large reduction in households spending power compared with previous years. How the economy navigates through that is quite uncertain.” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, calculates that sustained elevated prices for oil and gas will heap an additional 1.5 percentage points on to the cost of living, resulting in a 2.2% erosion in real disposable income this year. Meanwhile, Torsten Bell, chief executive of the Resolution Foundation think-tank, commented: “In time the conflict will … broaden and deepen the living standards squeeze here at home.” He added: “The chances of low- and middle-income households getting some respite from the growing squeeze on living standards later this year are receding rapidly.”
UK consumer confidence plunges
UK consumer confidence fell sharply in February with households holding back spending as surging living costs hit morale. The consumer confidence index, compiled by research company GfK, fell seven points to minus 26 in February – the lowest score since January 2021.“Fear about the impact of price rises from food to fuel and utilities, increased taxation and interest rate hikes has created a perfect storm of worries that has shaken consumer confidence,” said Joe Staton, client strategy director at GfK. Linda Ellett, head of retail and leisure consumer markets at KPMG, said: “It’s little surprise in a landscape of rising costs of goods, bills and taxes, that despite the improvements in Covid outlook, consumer confidence is falling.”
Confidence climbs among small businesses
Research by Sage shows that more than three quarters of SMEs expect to return to pre-pandemic levels of profitability in the next 12 months. The poll by the accounting and payroll technology provider also found that two in five smaller businesses expected to hire more people in 2022, with half of those planning to increase their workforce by more than 20%. The poll, conducted before Russia’s invasion of Ukraine, saw nearly a quarter of respondents flag increasing costs and inflation as their most pressing issue, with 43% saying they expect cost pressures to increase in the next 12 months. Steve Hare, chief executive of Sage, said small businesses have “had to be very adaptable over the last couple of years and that agility has given them confidence”.
Car production hit decade-low in January
New figures from the Society of Motor Manufacturers and Traders (SMMT) show car production fell to its lowest January total in a decade, despite an increase in the manufacture of electric vehicles. Almost 68,800 cars left factories in January, down by 20% on a year ago and the worst figure for that month since 2009. Mike Hawes, SMMT chief executive, said global supply issues and model changes affecting production schedules had resulted in another torrid start to the year. “The UK automotive manufacturing industry is, however, fundamentally strong and recent investment announcements are testament to the potential for growth, not least in terms of rising EV production,” he said.
Hays sees profits surge over 300%
Significant skills shortages in the technology and accountancy sectors in particular have helped drive a more than 300% increase in profit for Hays, the recruitment giant said. Fees for the half year to the end of December were up 39% and operating profit soared 327% to £101.6m. UK fees climbed 39% on a like-for-like basis pushing operating profits up to £18.2m compared to a £1m loss in the same period in 2020. Boss Alistair Cox said: “As the economic recovery accelerated globally, client and candidate confidence strengthened, leading to significant skill shortages across all our markets.”
Homeowners could see property prices plummet as cost of living mounts
House prices could fall by a tenth next year as rapid inflation and the cost of living crisis deflate the property market boom. Karl Thompson, of the Centre for Economics and Business Research, believes house prices will fall 1.5% every three months after the summer, and then by 1% year-on-year in 2023. Paul Cheshire, professor at the London School of Economics, said: “In a rational world, you would see a significant house price correction within six months to a year from now. That would be a fall in real prices of about 10%.” He added: “The people who are at risk are those who paid too much for their homes in order to meet the stamp duty deadline. Also, first-time buyers who stretched themselves to buy will be affected. They will be hit as real incomes fall and interest rates rise.” Analysis from Capital Economics forecasts that the Bank Rate will rise to 2% towards the end of 2023 and that the average mortgage rate on new lending will jump from 2.4% today to 3.2%.
Scientists fear brain drain over post-Brexit funding
British science is facing a brain drain that could see top young researchers leaving the country, while several major British-led international projects are in jeopardy following a delay in funding by the EU. While ministers had agreed a post-Brexit deal that would allow Britain to continue to play a major role in Europe’s vast research programme, the failure of talks over Northern Ireland has led to a delay with this arrangement. Martin Smith, head of policy at the Wellcome Trust, has warned: “There is a real prospect that bright young scientists will decide it will be best for their careers if they leave the UK.” Liam Smeeth, director of the London School of Hygiene and Tropical Medicine, said: “British scientists are now in the position where they are getting no research funding from the EU and no funding from the UK government to fill that gap.”
BP
BP is to offload its 19.75% stake in Russian state-owned oil firm Rosneft after Russia’s “act of aggression in Ukraine”. The oil giant had come under pressure from the UK government to make the move since Thursday’s invasion. It has held the shareholding in the Russian company since 2013.
Minorities more likely than whites to work in a professional role
A study by Civitas has found that ethnic minority British workers are now more likely than their white counterparts to be employed in a professional role. The think tank found that one in six non-white British workers were in top professional roles compared with one in eight white British workers. However, in a breakdown of different racial groups, Civitas found that 24% of British Indian and Chinese workers were in the top “higher managerial and professional” classes – twice the proportion of white Britons. In contrast, only 7% of black British workers occupied top roles.
Firms demand all-female and all-minority shortlists, says headhunter
City headhunter Kate Grussing says she has noticed that “demand for all-female or all-ethnic minority shortlists is booming” among companies looking to fill board posts as they “realise pressure from regulators and the media is not going away”. The Telegraph’s Lucy Burton notes that such a practice “is not understood to be commonplace” due to fears that it could leave companies open to discrimination claims from those left out of the process, but cites a source at the Equalities and Human Rights Commission who said there are specific circumstances where such shortlists are allowed. She adds that former Business Secretary Vince Cable backed recommendations for headhunters to draft women-only shortlists for board-level posts in 2014, but the idea was blocked by the UK equalities body.
Primark
Associated British Foods, which also owns budget retail chain Primark, has said it is on track to surpass pre-pandemic levels of sales and operating profit. The food manufacturer has been battling against inflation, alongside the rising costs of energy, but anticipates grocery revenue to inch two per cent higher than 2021. While Primark sales for the first half of this year are expected to be “well over” 60 per cent ahead of last year, which equates to around four per cent lower that pre-pandemic levels.
Bunzl
Bunzl continued to perform strongly during the pandemic, with ongoing growth in 2021, prompting the distribution firm to raise its dividend. Bunzl posted a pretax profit of £568.7 million, up 2.3% from £555.7 million in 2020, on revenue of £10.29 billion, up 1.7% from £10.11 billion.
Happiness officers and caring corporations
Amelia Hill in the Guardian on Saturday looked at the role of ‘happiness officer’, a position that is rising in prominence as firms increasingly look to ensure that staff feel cared for and that their wellbeing is important to their employer, She notes the role played by Timpson’s director of happiness and the suggestion that law firm Clifford Chance could look to appoint a chief happiness officer. Ms Hill goes on to highlight that the Happy Coffee Consulting company has trained hundreds of budding happiness officers through its certified chief happiness officer training. The firm’s chief happiness officer, Sarah Metcalfe, says: Happiness at work comes from doing great work together with great people.” She adds: “This might sound fluffy, but trained specialists have evidence-based frameworks and programmes that precisely define how each company can achieve this.” Andrew Mawson, the founder of the management consultants Advanced Workplace Associates, believes happiness officers will become more common, saying: “There’s a ‘people versus the bosses’ thing going on in many companies at the moment … The people will have to win because employees are going to vote with their feet in the end.”
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