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Surging inflation could add an extra £5.4bn to Chancellor Rishi Sunak's debt interest bill next year

   News / 09 Nov 2021

Published: 09 November 2021
Location: London, UK

By Suzanne Evans, Director, Political Insight

The Telegraph reports that surging inflation could add an extra £5.4bn to Chancellor Rishi Sunak's debt interest bill next year. Economists at Citiexpect the RPI measure of inflation to run at around 6% next year for months, as energy prices rocket and supply shortages bite. This is a full percentage point higher than the Office for Budget Responsibility (OBR) forecast a month ago. As around one-quarter of the Government’s £2.2 trillion national debt is in bonds linked to RPI, this indicates an extra net cost to the Government of £5.4bn, and a total debt servicing cost of around £45bn next year, compared to the £39.9bn forecast by the OBR. The official forecaster had already put up its debt interest predictions because of higher inflation, adding £13.8bn to the bill for this financial year and £10.3bn for the next one. Citi predicts RPI inflation will peak at 7.1% in May 2022, a month after the energy price cap on consumer bills is adjusted to take account of higher wholesale energy costs. This will be the highest since 1991 when RPI was on its way down from a peak of almost 11% in 1990.
Consumers starting their Christmas shopping earlier than usual amid concern over supply chain shortages and rising prices helped drive a recovery in UK retail sales last month, the Guardian reports. The British Retail Consortiumsaid total sales were up 1.3% in October from the same month a year ago, and up 6.3% from the same month in 2019, before the government’s covid policies tipped the UK into the worst recession for 300 years. In September, the Office for National Statistics recorded its fifth month of contracting sales volumes, the longest slump to hit the sector since 1996. Separate figures from Barclaycard showed that overall spending on credit cards grew by 14.2% in October from a year earlier, with particularly strong growth in spending on travel, digital entertainment and subscription services. Spending on cinema tickets also grew on an annual basis in October for the first time since the pandemic started, with sales helped by the release of the new James Bondfilm, No Time to Die. However, analysis from YouGov and the Centre for Economics and Business Research showed consumer confidence dropped to the lowest level since March in October, amid cuts to government benefits, increased taxes, and inflationary fears. The YouGov/CEBR household finance index, compiled from a survey of more than 6,000 people on the outlook for their finances over next 12 months, slumped by 9.7 points to 81.1 in October, compared with a month earlier. A score of 100 is neutral; anything above that value indicates optimism, while lower values indicate pessimism.
Reuters reports that the pan-European exchange Euronext will clear all trades on its newly acquired Milan-based Italian platform by 2024, helping the European Union cut its reliance on the London Stock Exchange (LSE). Currently most Euronext clearing in stocks, derivatives and commodities is handled by the LSE's LCH unit in Paris, which Euronext has not been able to buy outright. Euronext Chief Executive Stephane Boujnah said the group, which operates seven stock markets across Europe, thought closer ties with LCH – now controlled by a company outside the EU since Brexit - was not as attractive as expanding in-house clearing. Although Euronext business is only a "small part" of LCH in France, the exchange will pay a break-up fee to the LSE when it serves a one-year notice period in 2023 on the current contract, which was due to run until 2027. Since Britain left the EU last December, Amsterdamhas become the biggest stock market in Europe and the Dutch capital has also attracting international listings that would otherwise have gone to London, Boujnah said. The LSE said the loss of Euronext business is less than 1% of group revenue.  
Travel company Expedia has stopped selling holidays that involve performances by dolphins and whales in captivity. A spokesman told the Mail on Sunday that the company will continue to sell tickets to "seaside sanctuaries that provide captive animals with a permanent seaside living environment" if they "are accredited and do not feature interactions or performances". The tourism practice has come under criticism from prominent figures like Carrie Johnson, the prime minister's wife, as well as animal rights activists.
Harland & Wolff, the shipyard and energy infrastructure group, has announced that its subsidiary, Harland & Wolff (Appledore) has signed a framework agreement spanning ‘multiple years’ with the Royal National Lifeboat Institution (RNLI) for the haul-out, repairs, maintenance, refurbishment and associated works for the RNLI’s fleet of lifeboats. The RNLI currently has a fleet of 431 lifeboats and 238 lifeboat stations that will require repairs and maintenance on a regular basis. The value of the contract has not been released.
THG (The Hut Group) shares rallied on Monday after CEO Matt Mouldingappeared to suggest he could take the company private. In an interview with GQ magazine at the GQ Heroes Conference, Moulding expressed regret at floating the business in London rather than New York (in September 2020) and said he was keeping an open mind about taking the company private again. "I should have IPO'd in America. That's obvious. I didn't do it because I wanted to do everything in Britain. We create thousands and thousands of jobs," he told GQ. "I'd be lying if I said the share price doesn't bother me, because it's like having your homework marked every single day”. Billions of pounds have been wiped off THG's value after a series of challenges over its structure, its corporate governance, and a deal with Japanese investor Softbank to buy a stake in its technology business Ingenuity. In early October, Goldman Sachssold £180m worth of shares in the company, closely followed by a £110m sale by Blackrock. Shares also tumbled after a capital markets day focused on its e-commerce technology platform Ingenuity failed to reassure investors.
Discount fashion chain Primark is still recovering from the effects of pandemic store closures, with annual sales down by 12% on pre-Covid levels, the BBCreports. The retailer is also struggling with supply chain problems, as well as the rising cost of wages and raw materials. Primark’s FTSE100-listed parent firm, AB Foods, said Primark had lost one-third of its trading days in the 53 weeks to 18 September and that adjusted pre-tax profits had fallen by 1% to £908m for the year, with the dip in sales at Primark offset by "strong" sales in its food business. Unlike most High Street retailers, Primark has no online retail operations.
Independent wealth manager Succession Wealth is reportedly preparing to put itself up for sale for around £400m. According to Sky News, the majority shareholder in Succession has picked bankers to undertake a review of strategic options for the business. City sources told Sky that private equity firm Inflexion, which took a controlling stake in 2014, was expected to launch a formal auction of Succession during the early part of next year. According to its website, Succession has around £8.2bn in assets under administration and employs approximately 170 wealth planners.
Anglo-Dutch oil giant Royal Dutch Shell and Norwegian aluminium maker Norsk Hydro have signed a memorandum of understanding to jointly produce hydrogen from renewable electricity in a push to decarbonise their own operations as well as supply heavy industry and transport customers, Reutersreports. So-called green hydrogen is a zero-carbon gas made by electrolysis using renewable power to split water into hydrogen and oxygen, increasingly promoted as a way to decarbonise emissions-intensive industry and transport sectors reliant on fossil fuel. Shell and Hydro will initially identify which European locations are best suited to produce renewable hydrogen for the companies' own consumption as well as for the broader market and expand into other locations at a later stage.

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