Business news 1 December 2022
James Salmon, Operations Director.
Food inflation hits a record high. Consumer confidence slips in Q3. Brexit played a part in surging inflation. Confidence slips among London firms. Tax as a share of the economy hits 33.5% . And more business news.
Food inflation hits a record high
Food prices rose at a record rate in the year to November, with British Retail Consortium (BRC) data showing that food inflation hit 12.4% last month. This was up from the 11.6% recorded in October, with the increase coming on the back of a sharp rise in the price of meat, eggs, dairy and coffee. Fresh food prices were up by 14.3%, compared with 13.3% in October. Overall shop price inflation accelerated to 7.4% year-on-year in November, up from 6.6% in October. This is the fastest rate since the index began in 2005. BRC boss Helen Dickinson said winter looked “increasingly bleak” as price pressures continued “unabated,” going on to warn: “Christmas gifting is also set to become more expensive than in previous years.”
Bad Health is holding back the UK economy
The Bank of England’s chief economist and British Medical Association have both remarked that the aftermath of the covid pandemic along with the burdens on an overstretched National Health Service are leaving more people unable to work. As a result there are a significant number of people basically being dumped out the labor market because of poor health.
Consumer confidence slips in Q3
Soaring inflation had a negative impact on consumer confidence in Q3, according to a survey by Danske Bank. The bank’s consumer confidence index shows that 56% of respondents felt worse off than last year, while just 18% felt their finances had improved. The survey reveals that consumers felt less confident about current finances, future finances, job security and expected spending on expensive items. While 63% of respondents thought their finances would worsen in the next year, just 15% thought they would improve. Danske Bank chief economist Conor Lambe said: “Looking forward, demand in the economy is projected to be weaker in 2023 and the rate of inflation is expected to decline gradually. However, the rate of price rises is still expected to exceed the 2% target when averaged over the year, with annual consumer spending being squeezed as a result.”
BoE chief economist: Brexit played a part in surging inflation
The Bank of England’s chief economist believes Brexit may have played a part in driving up inflation. Huw Pill said Brexit has reduced trade between the UK and Europe, with this having a knock-on effect on labour, productivity and prices. Warning that Brexit “has probably reduced some of the competitive pressure in the goods market” as it is harder to import things from Europe, he said: “Some of that loss of competitive pressure probably means there is greater pricing power at some points in value chains in the UK, and that has probably proved to be somewhat inflationary.” Asked to what extent he feels Brexit is to blame for the UK’s current economic position, Mr Pill told an economic summit run by the ICAEW: “I think Brexit plays a part, but I don’t think it’s necessarily the whole story, probably only part of the story.”
Confidence slips among London firms
Lloyds Bank’s Business Barometer shows that optimism among businesses in London fell 27 points over the last month to 22%, with this marking one of the biggest falls on record. Despite the decline, firms in the capital are the second most confident in the UK. Overall, UK business confidence dropped five points to 10%.
Becci Wicks, regional director for London at Lloyds Bank commercial banking, said: “While it’s disappointing to see London firms’ confidence take a knock, overall they remain optimistic about their trading prospects and what the year ahead will bring.” The survey shows that a net balance of 16% of companies in the capital are increasing recruitment, with this down more than 20 points over the last month.
Tax as a share of the economy hits 33.5%
Organisation for Economic Co-operation and Development (OECD) data shows that taxes as a share of the British economy rose by 1.4 percentage points to 33.5% in 2021. That was the biggest rise among G7 economies apart from Germany, with the increase also exceeding those seen in traditionally high tax countries Sweden, Finland and Denmark. Britain’s tax burden is at its highest since 1988 and the figures do not take into account the tax increases set out in Chancellor Jeremy Hunt’s Autumn Statement.
Despite the increase, the UK’s overall tax burden remains lower than those of its European counterparts. France’s tax-to-GDP ratio currently stands at 45.1%, while Italy’s hit 43.3% in 2021. Across all countries measured, the average tax-to-GDP ratio rose by 0.6 percentage points in 2021, hitting 34.1%. This marks the second-steepest year-on-year increase since 1990.
Global wages fall for the first time this century
Global wages have fallen for the first time this century, according to the figures from the International Labour Organisation. Salaries fell by an average of 0.9% globally in real terms during the first half of 2022. Of the G20 advanced economies, only Italy has suffered a bigger drop than the UK since the financial crisis. China experienced the strongest wage growth among the group, with the average employee in the country earning 2.6 times more than in 2008 in real terms.
HMRC slashes target for recovering Covid fraud losses
HMRC expects to recover £1.1bn from fraudulent and erroneous claims through certain pandemic-related support schemes, despite previously declaring a goal of £2bn. HMRC estimates that £4.5bn was lost through fraud or error.
HSBC
HSBC has said it will close 114 furthwe bank branches across the UK from next April in the face of declining footfall as more customers migrate to digital banking. The bank said it is investing tens of millions of pounds in updating and improving its remaining branch network, which will total 327 following the closures. HSBC said the decline in customers using branches has accelerated so much since the Covid pandemic that some of those closing are serving fewer than 250 people a week.
Markets
US tech stocks extended their rally Wednesday with the S&P 500 rising 3.09% and the NASDAQ climbing 4.41%. Market returned to full risk-on mode after Fed Chairman Jerome Powell affirmed that smaller rate hike would be delivered in December and that ‘it makes sense to moderate the pace of rate hikes’ . Positive sentiment continued in Asia with China softening some of its pandemic restrictions. Meanwhile the US dollar sold odd and cable rose to £1.21
House Prices
Nationwide announced UK house prices fell 1.4% in November taking the annual decline to 4.4%. This was above the 0.4% economist prediction. The decline stems from the recent jump in UK mortgage rates.
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