Published: 22 October 2021
Location: London, UK
The European Central Bank (ECB) is pushing lenders to add hundreds of extra employees and billions of additional capital to their operations in continental Europe after Brexit failed to spark a big shift, the Financial Times reports. Relatively few banking jobs have left the City of London since Brexit, confounding predictions that tens of thousands would relocate, but the ECB has begun doubling down on demands that resources are moved away from London, according to executives, lawyers and supervisors speaking to the newspaper. One executive said his bank would have to move hundreds more people than expected because of a tough ECB line on managing risk of EU trades from the UK. "We're ramping up our European model enormously," the executive told the FT. The demands risk aggravating tensions between the ECB and the Bank of England which is concerned banks are under pressure to relocate to poach business from London rather than to support financial stability.
The Bank of England's new chief economist has warned that UK inflation is likely to hit or surpass 5% by early next year. Huw Pill, who succeeded the Bank of England's former chief economist Andy Haldane last month, told the Financial Times he would "not be shocked" to see inflation reach 5% or above in the coming months. "That's a very uncomfortable place for a central bank with an inflation target of 2% to be," he said, noting that the Bank would have a "live" decision to make at its next interest rate-setting meeting on 4 November. His comments follow those made earlier by governor Andrew Bailey who said the bank "will have to act" on inflation. The UK interest rate has been at a historic low of 0.1% since March 2020. Although inflation growth slowed to 3.1% in the year to September, it is expected to increase because of rising energy costs, higher wages to fill record vacancy numbers and supply chain disruption.
The Treasury has announced it will begin phasing out the 2% digital services tax (DST) on revenues made by tech giants such as Facebook, Google and Amazon now global reforms have been agreed to discourage multinationals from shifting profits overseas to lower tax regimes, a tax avoidance measure the DST was introduced to compensate for. Last year, the DST raised £300m. Under a deal agreed by 136 countries earlier this month, expected to come into force in 2023, the largest and most profitable multinationals will be expected to pay a "fair share" of tax in the markets where they do business and not just where they have their headquarters. The rules will apply to any firm with a profit margin above 10%. A quarter of any profit made above that margin will be reallocated and subject to taxes where they operate.
The government has launched a consultation on ‘buy now, pay later’ (BNPL) services, Yahoo Finance UK reports. Millions of shoppers have been offered loans from companies such as Klarna, Clearpay, and Laybuy, which provide the option to split payments for goods at the checkout, so the full cost is not paid upfront. Their usage has risen steeply during the coronavirus pandemic and a growing number of retailers now offer BNPL services, including Asos, JD Sports, H&M and Marks and Spencer, among others. There are concerns however that consumers will be encouraged to spend beyond their means, not least as BNPL is not currently regulated by the Financial Conduct Authority (FCA), so there is no obligation for providers to conduct creditworthiness assessments when taking on new customers or entering into individual agreements. The FCA urged the government to step in and assess the BNPL industry back in February, and yesterday the Treasury set out “policy options to achieve a proportionate approach to regulation of BNPL,” saying: “There is always a balance to be struck to ensure that consumers are given appropriate protections without unduly limiting the availability and cost of useful financial products”. The department will receive feedback on its suggestions until 6 January.
Australia's central bank meanwhile has prohibited BNPL firms from continuing to prevent merchants from passing on surcharges for their services, robbing the fast-growing sector of one of its key advantages, Reuters reports. Following a two-year review, the Reserve Bank of Australia (RBA) said earlier today it was now engaging with the Treasury on "regulatory approaches" to enforce its decision - a move fiercely opposed by the industry. The RBA noted BNPL services tend to be quite expensive for merchants to accept and it "has now concluded that there is a public interest case for BNPL providers to remove their no-surcharge rules." Australia is home to some of the world's biggest BNPL firms including Afterpay Ltd, which this year agreed to be bought by Square Inc for $29 billion. Afterpay's shares were slightly lower in Friday trade while shares of rivals Zip Co Ltd and Sezzle Inc fell 1.8% and 0.7% respectively.
The world's first green savings bond has been brought to market in the UK. The Green Savings Bonds are available from NS&I’s website and offer a 0.65% fixed annual rate over a three-year term, backed 100% by the government. They are open to anyone aged 16 and over and will help fund projects such as zero-emissions buses, offshore wind, and innovative low-carbon technologies, along with programmes such as flood defences, tree planting and sustainable agriculture to help the country adapt to a changing climate. The hope is that with demand for environmentally friendly investments growing, particularly amongst young people, the bonds will offer savers a way to generate both financial and environmental returns. According to the Treasury, research has found 80 percent of 25-44-year-olds are interested in a green savings product.
The government has raised £6bn for climate-friendly projects in its second green gilt sale, bringing the total raised when including the first sale last month to £16 billion. The order book was 12 times oversubscribed, and the combined size of the two transactions now means the UK is one of the top three biggest national issuers of green bonds in the world. “Our Green Gilt shows that the UK continues to be world leaders in green finance, helping to fund vital projects across the country and creating jobs as we drive progress to net zero," said chancellor Rishi Sunak.
Second-hand car prices are rising at "unprecedented rates", the AA says, as they fill the gap left by a shortage of new vehicles because of a global shortage of computer chips used in car production, as well as other materials such as copper, aluminium and cobalt. Research by the motoring group suggests the price of the UK's most popular cars have increased up to 57% since 2019. Three to five-year-old Ford Fiestas, the most popular on its AA Cars website, were now valued at £9,770 compared to £7,448 two years ago. "Nearly new" used cars are said to be particularly in high demand.
Retail sales fell for the fifth month in a row in September, dipping by 0.2%, as people spent less in shops despite Covid restrictions easing in the summer. The Office for National Statistics (ONS) said non-food stores were hit hardest by the decline, while fuel sales rose 2.9%, pushed up by a spike in demand. Darren Morgan, director of economic statistics at the ONS, said: "Household goods were the main driver of this month's decline, with a fall of nearly 10%, while food sales ticked back up after falling last month." Online sales,however, rose to 28.1% in September, from 27.9% the month before - substantially higher than pre-pandemic levels. Department stores also reported an increase in sales of 4.3%. Helen Dickinson, chief executive of the British Retail Consortium (BRC), said that shop owners would be "concerned" by the slump in sales in the run-up to the key Christmas trading period. Tony Brown, chief executive of New Start 2020, which owns Bealesdepartment stores, told the BBC's Today programme that people's shopping habits had changed since restrictions had eased.
Unilever, which produces foods such as Marmite, Cornetto ice creams and Hellmann's mayonnaise alongside goods including Dove soap, said it had raised prices by 4.1% in its third quarter and expected price pressures to intensify even further next year as it battles "unprecedented cost inflation" around the world.
Sainsbury's has ended talks about selling its banking operation after concluding approaches it first received in November 2020 did not offer good value for shareholders. "Whilst the Board of Sainsbury's believe that it was in the best interests of shareholders to explore these expressions of interest, it has concluded that these do not offer better value for shareholders than will be realised through retaining Sainsbury's Bank," it said in a statement.
Investing.com reports that Twitter Inc has acquired Sphere, a group chat app co-founded by British entrepreneur Nick D’Aloisio. The company has seen investment from Airbnb Inc co-founder Brian Chesky, Tinder co-founder Sean Rad and Sequoia venture capitalist Mike Moritz. 20 Sphere employees will be joining Twitter and Sphere will wind down its standalone product next month. Financial details of the deal have not been disclosed.
BP has called for more investments in longer term energy contracts, storage and the diversification into various fuels to build a robust energy system in future, in response to the current surge in coal, oil and gas prices that is fuelling inflation and putting global recovery from the COVID-19 pandemic at risk. “I think the real question is not about how it looks today because, in general, things are being supplied today, I think the question is what would it look like as we head into the winter months," BP Chief Executive Bernard Looney said at the Indian Energy Forum. "People are doing what they can to get ready for that but I think what it means in the longer term...we must invest into things like longer term contracts, invest into natural gas which remains a great balancer in the system, invest into storage and invest into diversification." Some countries are already topping up energy storage to avoid shortages during winter, Looney said. He also spoke of strengthening BP’s energy-trading operation, one of the world's largest, which will benefit from the company's new focus on electric vehicle (EV) charging business.
Lightsource bp, in which BP plc owns a 50% stake, has entered the Polish market through a 757-megawatt deal that will see nine solar projects developed with a local renewable energy company. Half of them should be construction-ready next year and, once the projects come online, they can effectively power 362,870 homes.
Ryanair is not sure it will reach its "very ambitious target" of powering 12.5% of its flights with sustainable aviation fuels by 2030, Group Chief Executive Michael O'Leary told CNBC television on Thursday. But he said Ryanair, Europe's largest low-cost airline, was confident of reaching at least 10% and called for the European Union to set a similar target. "The European Union has set a target of 5% of sustainable aviation fuel by 2030," O'Leary told the television station. "We think we can do better than that – I think we'll get to 10%."
The Bank of Ireland has agreed to buy "substantially all" of KBC's Irish performing assets for €5 billion as the Belgian financial group confirmed it would become the latest lender to leave the shrinking Irish market. Reutersreports the two banks have been in talks about the deal since April, just weeks after NatWest began winding down its Ulster Bank business in the Irish Republic. The departures leave Ireland with just three retail banks. Bank of Ireland, the country's largest bank by assets with a loan book of €77bn, said it would acquire €8.8bn of performing mortgages, €100m of performing commercial and consumer loans and €4.4bn in deposits. A portfolio of around €300m of non-performing mortgages would also be acquired as part of the transaction, the joint statement from the two banks said.
The Financial Reporting Council has begun an investigation relating to BDO's audit of construction company NMCN for the year to the end of December 2019. NMCN fell into administration earlier in the month after a planned refinancing of the business collapsed. The rescue deal had been dependent on it being able to file delayed 2020 accounts.
Inheritance tax has again been crowned the most hated tax in Britain in an Opinium survey of 2,000 people for Hargreaves Lansdown. 24% placed it at the top of their list. Paid by just 4% of people in Britain each year, inheritance tax accounted for £3.1bn of the £334.3bn tax take between April and September this year. “In many cases, it’s more of an ideological resentment,” Hargreaves Lansdown said, with women more likely to hate inheritance tax than men, 27% compared to 22%. Tax on income took second place (17%), which included income tax and national insurance. Taxes on spending, such as VAT, and taxes on investments came in joint third place at 15% each, while one in 10 saying the most hated tax are so-called “sin” taxes, which include taxes on things such as alcohol, tobacco, fuel and sugar.
The S&P 500, the stock market index tracking the performance of 500 large companies listed on stock exchanges in the USA, reached a record closing high yesterday, helped by gains in consumer discretionary and technology shares, and a jump in US Treasury yields. The US dollar also strengthened, boosted by better jobs and housing data, including data showing the number of Americans filing new claims for unemployment benefits dropped last week to a 19-month low.
China’s Evergrande Group has supplied funds to pay interest on a US dollar bond, days before a deadline that would have seen the developer plunge into formal default. Evergrande remitted $83.5m to a trustee account at Citibank on Thursday, allowing it to pay all bondholders before the payment grace period ends on Oct. 23. “News of the remittance will likely bring relief to investors and regulators worried about a default's wider fallout in global financial markets, adding to reassurance from Chinese officials who have said creditors' interests would be protected,” says Reuters. “Still, the developer, saddled with $300 billion in liabilities, will need to make payments on a string of other bonds, with the next major deadline to avoid default on Oct. 29 and little known about whether it is in a position to pay.”
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