Business news 30 July 2024
Chancellor reveals £22bn hole in public finances and faces ‘difficult decision’ on taxes. Consumer borrowing, mortgages, retail sales, AI, WFH, markets, insolvencies & more business news that we thought would interest our members.
James Salmon, Operations Director.
Chancellor reveals £22bn hole in public finances
Chancellor Rachel Reeves has announced a number of spending cuts, having warned that there is a near £22bn hole in the public finances. With the Treasury having identified a “forecast overspend” of £21.9bn for this year, Ms Reeves announced cuts worth £5.5bn which include: scrapping Winter Fuel Payments for around 10m pensioners who do not currently receive means-tested benefits; scrapping a cap on the amount people in England pay for social care; cancelling plans for a new qualification to replace A-levels and T-levels in England; stopping “non-essential” government spending on consultants; and scaling back government communication and marketing spending. Hitting out at the Conservatives over the black hole in public finances, Ms Reeves said the “inheritance from the previous government is unforgivable,” adding: “They spent like there’s no tomorrow because they knew someone else would pick up the bill.” In response, Shadow Chancellor Jeremy Hunt argued that the Treasury audit is a “shameless attempt to lay the ground for tax rises.”
Chancellor faces ‘difficult decision’ on taxes
Having revealed that there is a £22bn hole in the public finances, Chancellor Rachel Reeves has warned of a “difficult decision” on tax in the Budget on October 30. While Labour has ruled out increases in income tax, National Insurance and VAT, it has been suggested that ministers may target inheritance and capital gains taxes. James Smith, research director at the Resolution Foundation think-tank, said Ms Reeves was facing tough choices on further tax rises or spending cuts in the Budget. He warned that any new tax rises “would add to the £23bn a year in tax increases announced, but not yet implemented, by the previous Government.” Meanwhile, the Government has confirmed that a manifesto pledge to charge 20% VAT on private school fees will begin in January 2025. Officials also confirmed plans to replace non-domiciled tax status with a new residence-based regime from April 2025. Meanwhile, a windfall tax on the profits of energy and gas companies will rise by 3% from November. Ministers have also told private equity firms that they have until August 30 to offer input that will inform its reform of private equity taxation.
Rate of consumer borrowing increase ‘dipped’ to 8%
Non-mortgage borrowing fell slightly last month, with Bank of England data showing that the annual growth rate for consumer credit – which includes credit cards, personal loans and overdrafts – dipped to 8% in June from 8.4% in May. The annual growth rate for credit card borrowing fell to 10.5%, from 10.8% in May. The report also shows that household deposits with banks and building societies rose by £8.4bn in June, with this driven by the additional £3.4bn deposited into ISAs. Karim Haji, global and UK head of financial services at KPMG, said: “The slight dip in consumer borrowing in June reflects the fact that the more positive economic outlook – with growth forecasts being revised upwards – is yet to be felt by consumers.” He added: “Borrowers may well be awaiting movement on the Bank of England’s base rate before deciding to take out more credit although the recent fall in mortgage rates may lead to increasing confidence and appetite.”
Mortgage approvals steady in June
The Bank of England said the number of mortgage approvals in the UK was “broadly stable” in June, with 59,976 mortgages for house purchases agreed last month compared to 60,134 in May. Figures from the Bank also show that net borrowing of mortgage debt increased from £1.3bn in May to £2.7bn in June.
CBI: Retail sales fell in July
The Confederation of British Industry (CBI) says weak trading conditions and poor weather hit UK retailers in July, with its monthly retail sales balance dipping to -43 from -24 in June. Retailers expect the index to improve to -32 in August. CBI principal economist Martin Sartorius said: “While the downturn in sales volumes is set to continue next month, some firms expressed hope for an improvement in market conditions post-general election.” Official retail sales data shows that sales volumes fell by 1.2% in June compared to May.
Consumers cut back on spending
UK consumers have reduced their spending due to poor weather and the cost of living crisis, according to the British Retail Consortium. The report shows that annual shop price inflation remained unchanged at 0.2% in July, the lowest rate since October 2021. Non-food price deflation continued at 0.9%, as retailers reduced prices to attract consumers.
AI can improve workers lives and boost economy, says Google exec
Debbie Weinstein, the managing director of Google UK and Ireland, says AI can help “improve the lives” of workers and boost the economy. With Google analysis showing that nearly two-thirds of jobs across the UK could be enhanced or improved by the use of AI, Ms Weinstein said: “What this research really unpacks is this idea that not only is there this big economic opportunity for the country, but actually it’s an opportunity to improve the working lives of millions of British people.” She added that the research shows that there is a “£400bn economic opportunity for the UK by 2030” if AI tools are used to help workers.
Markets
Yesterday, the FTSE 100 closed up 0.08% at 8292.35 and the Euro Stoxx 50 closed down 0.97% at 4815.39. Overnight in the US the S&P 500 rose 0.08% to 5463.54 and the NASDAQ rose 0.07% to 17370.20, with investors holding back ahead of the central bank meetings later this week.
This morning on currencies, the pound is currently worth $1.2857 and €1.1868. On Commodities, Oil (Brent) is down at $79.63 & Gold is at $2389. With stock markets, the FTSE 100 is down 0.45% at 8254.82 and the Eurostoxx 50 is up 0.49% at 4838.77.
Europe’s biggest companies are lowering their targets on weak consumer demand. Nestle, Kering and Mercedes have lead the way in cutting forecasts.
City welcomes FCA plan to revive IPO market
With the Financial Conduct Authority (FCA) having announced plans reduce red tape and costs across London’s listings market as part of its efforts to attract more firms to the London Stock Exchange, the City has welcomed the proposals. Mark Austin, a partner at Lathan & Watkins who led a government-commissioned review of the UK’s capital markets, said the plans “will reduce the costs of being listed on UK markets, make capital raising easier and drive increased retail investor participation.” Delphine Currie, a partner at Reed Smith, said the new listing framework “represents a critically important step towards putting the London market back on an equal footing with competitors in the US and the EU.” Richard Austin, a partner at BDO, commented: “Making listing more accessible, broadening government grants and streamlining R&D tax credits to cover businesses of all sizes under one scheme could make it easier for them to remain in the UK and unlock millions of pounds of potential private sector investment.”
Younger workers most likely to be in the office
Analysis shows that younger workers are the most likely to go into the office but less likely than older peers to do so on a Friday. Virgin Media O2’s business movers’ index shows that Generation Z workers – those born between 1997 and 2012 – are the most likely to prefer to work in the office, while employees in Generation X – those aged 45 to 54 – are the least likely. It was also shown that 53% of workers aged between 18 to 24 commute five times a week or more, compared to just 39% of those aged 55 to 64 – although Generation Z workers are the least likely to commute on a Friday.
Natwest
Chancellor Rachel Reeves has ruled out a retail offer for the government’s remaining 20% of NatWest saying such an offer “would entail too much of a discount”. NatWest added 9p in response.
Mortgage approvals
UK Mortgage Approvals for house purchases fell modestly to just below 60,000 in June, while approvals for remortgaging decreased from 29,300 to 27,500 over the same period. Consumer credit came in at £1.16 billion, down from £1.49 billion, slightly more than expected.
Reckitt Benckiser
Reckitt Benckiser slumped almost 9% following a US litigation decision involving Abbott Labs and a jury in Missouri who awarded US$495m after finding that an Illinois girl developed a dangerous bowel disease due to Abbott’s formula for premature infants. The award came in substantially higher than $60m-$100m investor expectations, however the problem remains that almost 1,000 lawsuits have been filed in US courts concerning this type of liability against both Abbott and Reckitt. Reckitt said that “verdicts like these, where the science and opinions of healthcare professionals are ignored make it difficult to supply these products indefinitely.” The verdict is thought to make a Reckitt spin off of the unit, mooted only last week, as virtually impossible due to the problem of unquantifiable liability.
Pensioners urged to act on annuity rates
Annuity rates have crept back past 7%, prompting calls from experts for savers to lock in deals. A healthy 65-year-old with a £100,000 pension pot can now buy an annuity paying £7,083 a year until they die, according to Standard Life. This is an increase of £182 since January, when average rates stood at 6.81%, compared to 7.08% in June.
McDonalds
McDonalds sales figures showed a drop of 1%. The burger chain announced a return to value meals in a bid to win back consumers.
BP
BP reported stronger-than-expected net profit for the second quarter and raised its dividend despite previously warning of significantly lower refining margins. The oil and gas major posted underlying replacement cost profit, used as a proxy for net profit, of $2.8 billion for the second quarter. That beat analyst expectations of $2.6 billion, according to an LSEG-compiled consensus. BP reported net profit of $2.7 billion for the first three months of the year and $2.6 billion for the second quarter of 2023.
Diageo
Diageo has reported a fall in annual sales and profit, but increased its dividend payout as it eyed a return to growth. Group sales declined 0.6% to $20.3 billion due to a 3.5% drop in sales volumes, mostly from a 21.1% plunge in Latin America and the Caribbean, while North American sales were down 2.5%. Organic operating profits fell 4.8% to $6 billion.
Greggs
Greggs posted stronger revenue for the first-half of the year, though profit edged lower. In the 26 weeks to 1st July, revenue expanded 14% to £960.6 million from £844.0 million. Pretax profit, however, slipped 7.4% to £74.1 million from £80.0 million. Distribution and selling costs were 14% higher on-year at £465.4 million, the baked goods seller said. Greggs raised its interim dividend 19% to 19.0 pence per share from 16.0p.
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Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have supported our members through all sorts of difficult trading environments. With high interest rates and a struggling economy and elevated insolvencies, our services can help your business navigate these difficult waters.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers and be warned of any potential risks.
Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the value of their debts maybe!
Rather than to turning to more debt, CPA suggests that business owners tackle the problem at its source. If late payments are a strain on your cash flow, then talk to CPA about how we can help you reduce those late payments.
CPA has been improving business cash flow for over 100 years, by tackling late payers and campaigning against the late payment culture in the UK. CPA’s overdue account recovery service is a polite, efficient service designed to encourage prompter payments while maintaining goodwill. We direct your customers to pay directly to you, not to us and want to support and reinstate your direct relationship with your customer, not take it over, destroying goodwill.
Unlike other credit management companies, our overdue account recovery service is available to our members on a fixed annual subscription so you can pass any overdue accounts to this service and it is included in your subscription!
Our Overdue account recovery service resolves over 80% of accounts referred to us although our collections department is there to escalate the collections process on the remaining few if you require it.
Just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!
If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?
CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.
Once you have enjoyed that success then you can consider the more cost effective membership which includes our Overdue Account Recovery service and Status/Credit reports as well as a range of other complimentary services.
Just call 020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
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Check our compensation calculator to see how much your business could be owed!
Discover NOW the potential value of late payment compensation hidden in your sales ledger!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.