Business news 28 September 2022
James Salmon, Operations Director.
Pound slump will require ‘significant response. More workers have to take on second jobs. Rate hike could see house prices fall by a fifth. More lenders pull mortgage deals. And more business news.
BoE chief economist: Pound slump will require ‘significant response’
The Bank of England’s chief economist has warned that the pound’s slump to a record low against the dollar will require a “significant” response. Speaking at the International Monetary Policy Forum, Huw Pill said there will be “challenging times” to bring inflation back to the Bank’s 2% target, with recent market conditions creating “additional challenges.” Mr Pill said there have been “significant market consequences” following the Chancellor’s announcement of tax cuts last week, going on to say: “It is hard not to draw the conclusion that all this will require a significant monetary policy response.” He also described the Treasury’s decision to commit to a further, costed fiscal announcement with the oversight of the Office of Budget Responsibility in November as “helpful.”
More workers have to take on second jobs
A Royal London survey of 4,000 adults suggests millions of people have been forced to take on additional jobs due to the rising cost of living. The poll saw 16% of workers say they have taken on an additional job to help cover an increase in the cost of living. If this rate is matched across the wider workforce, it would equate to 5.2m people. It was also found that an additional 30% said they will need to take on another job if costs continue to rise. Over a quarter (28%) of full-time employees already work over 48 hours a week, according to the research, with a fifth of these working more than 56 hours every week. On the impact of rising costs, 31% of respondents said they are having to spend money they do not have, borrowing or using their overdraft.
Rate hike could see house prices fall by a fifth
City economists have warned that house prices could fall by more than 20% if the Bank of England is forced to hike interest rates steeply. Mortgage affordability – the ratio of a home purchase loan to the size of the borrower’s income – may have to drop from 3.5 to 2.5 if lenders start charging 6% on mortgages. Andrew Wishart, senior property economist at consultancy Capital Economics, said: “If that happened overnight, it would imply a 21% fall in house prices.” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that if the Bank did hike rates to the market’s expectations of 6%, it “would lead to a sharp rise in mortgage defaults,” adding that a sudden wave of borrowers being unable to service their mortgage debts could “set in motion a banking crisis.”
More lenders pull mortgage deals
Santander, HSBC and Yorkshire Building Society have suspended mortgage deals after a fall in the pound prompted forecasts of rising interest rates, joining Virgin Money and Skipton Building Society in halting mortgage offers for new customers. Meanwhile, Nationwide said it will lift rates on a range of fixed mortgages, Lloyds has paused some of its products and Halifax has removed mortgage products that come with a fee. Others to have pulled or amended deals include Clydesdale Bank, Scottish Building Society, Leek United Building Society, Nottingham Building Society, Bank of Ireland and Paragon Bank. The number of residential mortgages on offer by lenders fell to 3,596 yesterday, according to financial information firm Moneyfacts. This marks a drop from 3,961 on Friday – the day of the Chancellor’s mini-Budget
IMF: Government tax plan ‘likely to increase inequality’
The International Monetary Fund (IMF) has questioned the Government’s financial plans, warning that “large and untargeted fiscal packages” are likely to increase inequality and could undermine monetary policy.
The IMF has urged ministers to consider targeted support to families and business rather than sizable tax cuts and higher government spending. In a statement, the IMF said it was “closely monitoring” developments and urged Chancellor Kwasi Kwarteng to “re-evaluate the tax measures” set out in his mini-Budget, warning that the measures “will likely increase inequality.”
While the IMF said it understands that the “sizeable” fiscal package “aims at helping families and businesses deal with the energy shock and at boosting growth via tax cuts and supply measures … given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy.”
It added that the November 23 Budget “will present an early opportunity for the UK Government to consider ways to provide support that is more targeted and re-evaluate the tax measures, especially those that benefit high income earners.”
Lord Frost, the former Brexit minister, last night defended the Government’s plans, saying: “The IMF has consistently advocated highly conventional economic policies. It is following this approach that has produced years of slow growth and weak productivity.” He added: “The only way forward for Britain is lower taxes, spending restraint, and significant economic reform.” A Treasury spokesperson insisted ministers were “focused on growing the economy to raise living standards for everyone”, and promised that the Chancellor would set out measures in November to ensure that debt falls as a share of GPD “in the medium term.”
Food inflation
UK Food Inflation hit its highest ever rate on record, with shoppers now paying just under 11% more than they were a year ago. Overall UK shop price inflation accelerated to 5.7% in September, quickening from 5.1% in August, to mark another record since the British Retail Consortium-Nielsen IQ index began in 2005.
Energy firms must offer more help – Ofgem
Ofgem has said many energy suppliers must improve how they help those struggling to pay their bills. A review from the industry watchdog found failures in firms being able to identify which customers were having payment difficulties and a lack of help with payment plans. Ofgem chief executive Jonathan Brearley said its review found some suppliers had fallen short of the standards expected by the watchdog and urged them to “step up.” He added that while Government support which caps the typical household energy bill at £2,500 a year until 2024 “will provide some welcome relief,” it is “critical that, going into this tough winter, energy companies prioritise the needs of vulnerable customers struggling to pay their bills.” All the energy companies identified as having weaknesses have been asked to set out how they will improve their service.
Entertainment and media sector set for growth
Analysis from PwC points toward long-term confidence and growth in the entertainment and media industry, despite short-term uncertainty in the market. The report forecasts that the industry in the UK will climb at a compound annual growth rate of 4% over the next four years, with revenues reaching £97bn by 2026. This growth is reflected by an increase investor appetite, with deal activity in the sector up 72% in 2021 compared to the previous year. PwC’s Dan Bunyan said: “While investor confidence has slightly softened in the face of economic headwinds, we still expect high deal volumes in the years ahead.”
Ferguson
Ferguson reported a jump in full-year profit and sales, despite noting labour and supply chain challenges during the period, as a result it added it would move to a quarterly dividend schedule. In the year ended July 31, the plumbing and heating product supplier reported a pretax profit of $2.72 billion, jumping 45% from $1.86 billion the previous year.
Just Eat
Just Eat Takeaway.com said it is expecting to be profitable earlier than initially expected in the second half of 2022. The online food delivery firm said it expects to generate positive adjusted earnings before interest, taxation, depreciation, and amortization in the six months ending December 31.
Saga
Saga lowered annual profit guidance and a substantial impairment charge in its half-year accounts resulted in a pretax loss. Saga said the cost of sales rose to £124.6 million from £48.6 million, and Saga booked a hefty £269.5 million impairment of assets, compared to no such charge in the previous year. This led to a pretax loss of £257.5 million, swung from a profit of £700,000 a year before.
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