Business news 30 June 2022
James Salmon, Operations Director.
Bailey: BoE can’t rule out August rate rise
Bank of England governor Andrew Bailey has not ruled out raising rates by 50 basis points at the next meeting. He told the European Central Bank’s (ECB) conference that policymakers “have the option” of acting more forcefully to rein in inflation if needed. He said: “There will be circumstances in which we will have to do more … We’re not there yet in terms of next meeting. But that’s on the table. But you shouldn’t assume it’s the only thing on the table.” Mr Bailey also warned: “I think the UK economy is probably weakening rather earlier and somewhat more than others.” With the Bank expecting inflation to surpass 11%, markets say there is an 80% chance that it will raise rates by 50 basis points in August. Meanwhile, Federal Reserve chair Jerome Powell warned it was important to avoid persistent inflation. He said: “The clock is kind of running on how long you will remain in a low inflation regime.”
MPC appointee backs ‘very gradual’ moves on rates
Incoming Bank of England policymaker Swati Dhingra believes the Bank should tighten monetary policy gradually because the economy appears to be slowing faster than previously thought. Dr Dhingra, who joins the Monetary Policy Committee as an external member in August, said that while she might have leaned towards a half-point rise at this month’s meeting, she now feels this would have been a mistake, due to a sharp fall in consumer sentiment. She told the Treasury Select Committee: “In hindsight now I think that maybe there is some room for a very gradual approach here,” adding: “Newer data is starting to show that possibly a slowdown has become much more imminent than we thought before.” Dr Dhingra also noted that the impact of Covid and that of Brexit are still difficult to differentiate, saying there is a need for “much more granular assessments of how things are panning out.”
World Bank economist sceptical global recession can be avoided
World Bank chief economist Carmen Reinhart is sceptical that global economies can avoid a recession amid a climate of surging inflation and higher interest rates. She told Reuters: “What worries everybody is that all the risks are stacked on the downside.” The World Bank earlier this month cut its global growth forecast by nearly a third to 2.9% for 2022. It added that global growth could fall to 2.1% in 2022 and 1.5% in 2023 if downside risks materialised.
Steel
The United Kingdom has moved to extend steel tariffs on China and other countries for a further two years in a move that could set up a row with the World Trade Organisation. The decision was made after the government decided that the trade barriers were needed to protect the UK steel industry from cheaper overseas imports.
Lookers
Lookers said it was pleased with its performance in its first half and as a result expects its full-year profit to be ahead of expectations. For the first half of 2022, the used car dealer now expects underlying pretax profit of £45 million. This is 10% below the previous year but Lookers noted it was a strong comparable period, particularly during the second quarter when lockdown restrictions were lifted.
Online sales tax would hit consumers, think-tank warns
The introduction of an online sales tax could hurt consumers and would raise minimal revenue, according to a study by the Institute for Economic Affairs (IEA) think-tank. It warns that internet retailers would pass on the cost of the tax to customers, adding that such a levy would be “a nightmare to administer” as most businesses have an online and a physical presence. The IEA report comes just a week after a report by the Centre for Policy Studies said the added cost of an online sales tax “would be borne disproportionately by the poorest and most vulnerable”.
Mulberry boss in tax-free shopping warning
Thierry Andretta, CEO of luxury brand Mulberry, has called for the return of tax-free shopping, saying the end of the VAT retail export scheme has hurt London and the wider retail sector. The change, which came into effect in January 2021, means tourists can no longer reclaim tax. He also voiced concern over taxes, saying: “As an international City, London also has the highest business rates in the world.
Market turbulence hits IPO plans
A new poll shows that fast growing UK firms are shelving plans for initial public offerings due to concerns over a recession and inflationary pressures which are hitting public markets. The survey by Coupa Software saw 87% of pre-IPO firms say they were now looking to delay plans for a shift onto the public markets. Business leaders surveyed said that delays were driven by the turbulent economic backdrop, with 31% pointing to rising interest rates as the key reason for the delay and the same proportion citing turmoil on equity markets. Only one in five of those surveyed said they are confident they have the financial stability to meet growth plans laid out prior to the economic downturn. Meanwhile, data shows a steep decline in London’s IPO market in Q1. Flotations on the London Stock Exchange raised £308m between January and March, compared to £5.6bn last year, according to analysis by EY.
AIM IPOs at lowest level since 2009
The UK’s Alternative Investment Market had the lowest number of IPOs since 2009 in Q2. Analysis by UHY Hacker Young shows that just one company floated in Q2, raising £6m. This marks the lowest quarter for IPO activity since Q1 2009, which saw just one IPO that raised £3m. In contrast, the second quarter of 2021 had 16 IPOs that raised £218m. Colin Wright, UK group chairman at UHY Hacker Young, said: “A lot of AIM IPOs have been shelved over the last few months,” adding: “Interest rate rises have seen a lot of investors hit pause on their investment in growth shares and rotate into value shares instead.”
Hilco snaps up Cath Kidston
Investment and restructuring firm Hilco Capital has bought retailer Cath Kidston. The sale comes after Baring Private Equity Asia, which took full control of Cath Kidston in 2016, instructed advisers at PwC to find it a new owner. The brand relaunched two years ago after it collapsed into administration with the loss of nearly 1,000 jobs and 60 UK stores.
Remortgage sales hit highest level since early 2020
Remortgage sales hit 92,558 in Q4 2021, marking the highest level of activity since before the pandemic. Analysis from digital lender Freedom Finance shows remortgage sales outnumbered all other types of home loans for the first time since the third quarter of 2020. Meanwhile, sales of mortgages for first-time buyers (112,005) and house mover mortgages (133,890) – which both reached a five-year peak in Q2 2021 – slumped in the fourth quarter to 89,542 and 75,726, respectively. Andrew Fisher, chief commercial officer at Freedom Finance, said: “The gloomy economic environment and the consecutive rate rises from the Bank of England are only likely to drive further demand in the remortgage market as borrowers look to lock in to fixed-rate loans either from variable rate mortgages or as their existing deals come to a close.”
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