Business news 31 August 2022
James Salmon, Operations Director.
Consumer credit card debt rose 13% in July. Inflation could hit 22%, Goldman warns. Business confidence slips in August. Half of staff have not received a pay rise in over a year. And more business news.
Consumer credit card debt rose 13% in July
Data from the Bank of England shows that credit card borrowing grew by £730m in the 12 months to July, with the 13% increase the fastest rise since October 2005. The annual growth rate for all consumer credit, which also includes overdrafts, personal loans and car finance, increased to 6.9% in July, hitting £1.42bn.
This marks the highest rate since the 7.2% seen in March 2019. The annual growth rate for credit card borrowing was 13.0%, while for other forms of consumer credit it came in at 4.5%.
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “The annual growth rate of credit card borrowing has soared to its highest levels in 17 years amid the worst cost of living crisis in generations. July was a particularly agonising month for our back pockets, with inflation hitting double digits for the first time in 40 years.”
Paul Dales at Capital Economics commented: “As inflation surges further in the coming months, more households will probably need to borrow more to tide them over. But lots of other households will probably cut back on their spending and as a result, their borrowing. As such, we think the outlook for consumer credit is weak.”
Inflation could hit 22%, Goldman warns
UK inflation could hit 22% next year if soaring gas prices fail to come down, Goldman Sachs has warned.
Economists at the investment bank wrote in a research note: “In a scenario where gas prices remain elevated at current levels, we would expect the price cap to increase by over 80% in January (vs 19% assumed in our baseline).” They added that this would imply headline inflation peaking at 22.4%, well above their baseline forecast of 14.8%.
Economists from Citi last week said consumer price inflation was set to peak at 18.6% in January, far exceeding the Bank of England’s 2% target. Inflation currently stands at 10.1%.
Meanwhile, Sven Jari Stehn, chief European economist at Goldman, reflected on what officials may do in regard to interest rates, saying: “Despite the incoming recession, we continue to look for the Bank of England to hike by another 50 basis points in September and see upside risks to our expectation of 25 basis points hikes in November and December given continued upside inflation and wage growth surprises and the need to keep inflation expectations anchored.”
Business confidence slips in August
Confidence among British businesses is at its lowest since during the third national lockdown in early 2021, according to Lloyds Bank’s latest Business Barometer.
A net 16% of management teams said they were confident about their prospects for the year ahead in August, with soaring inflation hitting corporate confidence. This compares with 25% in July and a long-term average of 28%. August’s poll marks the third month in a row that confidence has slipped.
The poll of 1,200 companies saw 56% of bosses say they expect they will have to increase their prices over the next 12 months as input costs climb. Almost 40% flagged slowing economic growth both in the UK and globally as a concern. The report also reveals that less than half of businesses expect to see their trading prospects improve over the next 12 months, while more than a third expect to increase their headcount next year.
Half of staff have not received a pay rise in over a year
Nearly half of all UK employees have not received a pay rise in more than 12 months, despite inflation surging to 10.1%. Research from recruitment agency Aspire shows that 45.5% of workers polled have not received a pay rise in more than 12 months. Of those who had received pay rises, 46.7% have had pay rises of 5% or less – with this well below the rate of inflation. The survey of more than 500 people found that 32% of workers will look to change roles in the next 12 months, while 33.5% cited salary as the most important factor in a job. Paul Farrer, chairman and founder of Aspire, said: “With inflation pushing up energy and fuel costs, it makes sense that people are looking for new roles that offer them a competitive salary or a pay rise that can protect them from the rising cost of living.”
Tight labour market a threat to firms, say CEOs
A tight labour market threatens the growth of UK firms this year, according to a poll of chief executives carried out by leadership advisory firm Russell Reynolds, with bosses struggling to attract and retain staff. The survey saw 69% of the CEOs quizzed say the availability of talent and skills is the biggest threat to their firms over the next 12-18 months.
UK corporations suspected of underpaying £25.3m in post-Brexit taxes
New research from law firm Pinsent Masons shows that large UK corporations have been suspected of underpaying £25.3m in post-Brexit import duties from the EU. The law firm found that the amount of taxes under consideration by the HMRC has increased by 97.5% in the year to April 5, going up from £620,000 in 2021. “The amount of tax HMRC thinks big businesses are underpaying so far on EU imports might just be the beginning,” commented Pinsent Masons’ partner Steven Porter. He added: “Given the significant volume of goods that arrive in the UK from the EU, HMRC clearly sees this as an emerging area of tax risk.”
Remote office employees’ tax affairs to be reviewed
The Office of Tax Simplification is to look into the taxation of staff working from home or overseas, assessing the implications – and rules – for companies and employees
Mortgage lending declines
Mortgage borrowing decreased slightly to £5.1bn in July, from £5.3bn in June, figures from the Bank of England show. The data shows that gross lending rose to £26.1bn from £24.6bn the month before, while gross repayments increased to £20.8bn from £19.4bn. Approvals for house purchases, which serves as an indicator of future borrowing, increased to 63,800 in July, from 63,200 in June. Despite the increase, July’s figure still fell short of the pre-pandemic 12-month average of 66,800 recorded in February 2020. Approvals for remortgaging came in at 48,400, up from 43,300 the month before. This remains below the 12-month pre-pandemic average of 49,500. Martin Beck, the chief economic adviser to the EY Item Club, believes a dramatic slowdown in property price growth is becoming increasingly likely. He said: “The intensifying squeeze on household incomes, deteriorating growth outlook, and prospect of a higher peak for interest rates have increased the risk of a hard landing scenario playing out.”
Investor confidence low, warns investment platform boss
Chris Hill, chief executive of retail investment platform Hargreaves Lansdown, says investor confidence has hit at an all-time low amid soaring inflation and concerns over Russia’s invasion of Ukraine. He said: “Investor confidence is really, really low – probably the lowest we have seen.” He added that his firm is “aware of engaging with clients on the benefits of saving and investing over a long period of time,” saying: “If you build up your financial resilience you can cope with these short-term shocks. If you are investing for the long term you shouldn’t be so concerned about the short-term volatility.”
Royal Mail
Staff hold their second strike day disrupting business across the UK as mail is held up.
J Sainsbury
J Sainsbury said it will pump £65 million into its pricing next month amid ratcheting pressure on customers’ budgets in the UK. Chief Executive Simon Roberts promised the supermarket chain will stand with its customers “to ease the financial pressure they face”.
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