Manufacturers’ costs rise – business news 16 September 2021

James Salmon, Operations Director.

Manufacturers’ costs rise at fastest pace in a decade. Energy problems loom! Most office workers will never return full-time. Small businesses receive £1bn in insurance payouts and other business news.

Manufacturers’ costs rise at fastest pace in a decade
Data from the Office for National Statistics (ONS) show that UK manufacturers’ costs rose at their fastest pace in a decade last month. Input prices, which reflect materials used in the day-to-day running of manufacturing businesses, were up 11% in August, the sharpest rate of growth since late 2011.

Oil and fuel prices that have jumped amid a surge in global demand as lockdown restrictions have eased were the main contributor to cost increases, with the price of metals the next largest contributor.

The manufacturing sector also saw challenges stemming from supply chain issues that left raw materials in short supply. Higher production costs saw manufacturers raise prices to protect margins, with prices for factory goods up 5.9% over the last year.

Energy problems loom!

National Grid said a fire and planned maintenance at a site near Ashford in Kent means a cable bringing electricity from France to the UK  will be totally offline until 25 September, sending wholesale energy prices soaring.

Half of its capacity, one gigawatt of power, is expected to remain unavailable until late March 2022.

Glenn Rickson, head of European power analysis at S&P Global Platts Analytics, told Reuters: “The outage is going to lift the potential for price volatility as long as it’s offline… and of course demand will get higher as we move further into winter.”

In addition to higher electricity prices, gas prices have also been soaring. On Wednesday, a major fertiliser manufacturer, CF Industries, said it was halting operations at its UK plants at Billingham and Ince “due to high natural gas prices”.

Britain is a net importer of electricity and France is our biggest supplier of power through cables that run under the English Channel.

Most office workers will never return full-time

According to a survey done for the BBC, 79% of Business leaders and 70% of workers said that it is likely that workers will never return to the office at the same rate they did before the pandemic. The majority of workers said that they would prefer to work from home either full-time or at least some of the time.

Small businesses receive £1bn in insurance payouts
Small companies which demanded that their insurers cover claims for losses accrued during the pandemic have received more than £1bn in full and interim business interruption payouts to date, the Financial Conduct Authority (FCA) has said. Firms won the right to insurance payouts after judges ruled that many policies should cover losses caused by lockdowns. The FCA, which brought a test case against major insurers on behalf of policyholders, says 27,248 companies out of the 42,308 which had claims accepted have received at least an interim payment.

August sees record inflation rise
As covered briefly yesterday, Office for National Statistics (ONS) figures have shown that inflation rose to 3.2% in August from 2% in July, with this marking the largest increase on record.

The consumer prices index (CPI) measure of inflation was the highest since March 2012 and the rate exceed a 2.9% estimate put forward by economists polled by Reuters. The increase was driven by restaurant and cafe prices which were steeper than a year ago as August 2020 saw prices far lower due to discounts offered under the Government’s ‘Eat Out to Help Out’ scheme.

Transport costs were up as petrol prices hit a high not seen since 2013, while food prices and the cost of used cars also helped drive the spike.

Jonathan Athow, deputy national statistician at the ONS, said much of the increase in inflation is “likely to be temporary”. Yael Selfin, chief economist at KPMG, said higher inflation will “inevitably raise questions for the Bank of England on the timing of tightening monetary policy and interest rate hikes to contain inflationary risks further down the line.”

PwC economist Hannah Audino commented: “We expect inflation to continue to follow a bumpy path this year, as different factors feed irregularly into the monthly data.” On whether the jump in inflation will be temporary, Thomas Pugh at RSM said: “The way back down the inflation mountain should be just as quick.”

Only 13 FTSE 100 employers reveal ethnicity pay gaps
Analysis of the FTSE 100 by the Chartered Institute of Personnel and Development (CIPD) shows that only 13 of the firms have revealed their ethnicity pay gaps. With a number of major employers yet to declare figures, the CIPD said progress on delivering data was too slow and inconsistent. The analysis comes ahead of MPs debating a call to make ethnicity pay gap reporting mandatory. All employers with more than 250 staff must already publish gender pay gap figures but have no such obligation when it comes to ethnicity, with the Government’s Commission on Race and Ethnic Disparities saying earlier this year that reporting should only be done on a voluntary basis. Ruby McGregor-Smith, who led a Government-commissioned review of race in the workplace in 2017, said: “It is only once we see organisations publicly start to report the diversity of their workforce that we will see real change start to happen.” Peter Cheese, chief executive of the CIPD, said gender pay-gap reporting has accelerated progress, “and we believe the same is needed for ethnicity pay reporting”. He added that reporting pay gaps would “help create fairer workplaces and societies and kickstart real change”. It is noted that Office of National Statistics figures for 2019 suggest the ethnicity pay gap across England and Wales stands at 2.3%.

FCA launches investment campaign
The Financial Conduct Authority (FCA) has launched a campaign designed to improve the way people manage their money, with the watchdog looking to reduce the number of savers with money held in poor-paying savings accounts while also reducing the number of investors putting money they cannot afford to lose into high-risk investments. The initiative will see the FCA encourage 1.7m people in the UK to invest their money by 2025, with the financial regulator targeting a portion of the estimated 8.6m people that have more than £10,000 in cash. The FCA will look to halve the number of retail investors taking too much risk, with FCA analysis suggests 45% of those who had invested without advice did not understand that they could lose money. The City watchdog also plans to increase efforts to block investment fraud and ensure that savers know how to seek compensation if their investments go wrong. With the regulator looking to overhaul rules and impose tougher requirements on operators seeking approval for financial promotions, EY’s Simon Turner said: “The challenges for the industry will not be immaterial. Firms should expect a tightening of regulatory standards and greater scrutiny.”

Average house price fell £10k in July
The average UK house price fell by £10,000 month-on-month in July, according to data from the Office for National Statistics (ONS). The average price in July was £256,000, with this down on the record high of £265,448 seen in June but up £19,000 on July last year. While average prices were up 8% in the year to July, this marked a decline on the 13% climb recorded in the year to June. Much of this decline has been attributed to the fact buyers rushed to complete deals before the stamp duty holiday tapered at the end of June, driving a surge in activity that month. The year-on-year increase differed across the four nations of the UK, with Scotland’s 14.6% rise marking the steepest growth as average prices north of the Border hit £177,000. Wales saw prices climb 11.6% to an average of £188,000, while Northern Ireland recorded a 9% increase and a typical value of £153,000. England saw the smallest increase, at just 7%, but saw the highest average price at £271,000.

Property tax reform call
The Institute for Public Policy Research argues that stamp duty and council tax should be abolished and replaced with a single, simple annual levy on the value of a property. It believes that a “proportional property tax” would reduce regional inequalities by targeting the most valuable houses in the most affluent areas, calculating that such a move would leave three quarters of households better off. The think-tank says an annual tax rate of 0.48% of the value of a property would be “revenue neutral”, costing £1,230 a year for a home valued at the average UK price of £256,000

CGT could hit 45% if aligned with income tax
An expert has warned that the capital gains tax rate could rise to 45% if the Prime Minister and Chancellor opt to action a plan that would see the levy aligned with income tax.

Tom Selby, an analyst at AJ Bell, says it is “very possible” that the rates could be aligned, noting that an Office for Tax Simplification proposal “edged towards aligning the two taxes”. The impact of such a move, he adds, “would be someone disposing of an asset would pay significantly more tax than they do at the moment.”

Noting that CGT is charged at 10% or 20% depending on whether the individual is a lower rate or higher rate taxpayer, he says aligning the charge with income tax could see the rate climb to 20%, 40% or even 45%. “If you went down that route, anyone with significant assets or multiple properties could see a big impact on the value of their property”, Mr Selby warned.

Big Cap News

Ashtead raised its outlook on full-year performance after reporting ‘strong’ first-quarter results. The forecast for annual revenue was raised to a range of 13% to 16% from 6% to 9% previously. ‘We now expect business performance this year to be ahead of our previous expectations,’ the company said. For the three months ended 31 July, pre-tax profit jumped 74% to $416 million year-on-year as revenue increased 21% to £1.85 billion.

Wickes said it expected annual adjusted profit at the upper end of expectations after swinging to a first-half profit amid ‘buoyant’ demand from local trade and underpinned by our digital capability. The company expected adjusted pre-tax for the full year to come in towards the upper end of analyst expectations range of £67-to-£75 million.

IG Group reported a rise in first-quarter adjusted revenue, as slowing client growth was offset by a boost from the recently-acquired tastytrade. Excluding the foreign exchange hedging gain associated with the financing of the tastytrade acquisition which completed on 28 June 2021, adjusted net trading revenue was £221.7 million, up from the prior-year period’s £209.0 million.

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