Published: 28 February 2022
Location: London, UK
Russian sanctions: The UK government has joined with the US and the EU to announce new sanctions against Russia's central bank, banning British people and businesses from making transactions with the bank, its finance ministry, and its wealth fund. Chancellor Rishi Sunak said the measures demonstrated the UK's "determination to apply severe economic sanctions in response to Russia's invasion of Ukraine." Western nations also announced at the weekend that they would impose sanctions on Russia’s central bank to prevent it from selling its vast reserves of some $630bn to prop up its own banks and companies. On Saturday the EU, the US, the UK and other allies finally agreed that some Russian banks should be banned from Swift, the international payment system. Russia is heavily reliant on the Swift system for its key oil and gas exports. Germany had originally held out against the ban. Announcing the measures, Ursula von der Leyen, president of the European Commission, said: "The European Union and its partners are working to cripple Putin's ability to finance his war machine."
The Norwegian government also announced late last night that it plans to remove Russian assets from its $1.3 trillion sovereign wealth fund.
BBC Economics Editor Faisal Islam writes: “Russia's financial system is being hit from this morning with something far from a normal set of sanctions, and better seen as a form of economic war…and it is designed to push the whole of Russia in to as deep a recession as possible, with the added chaos of bank runs.” “Central banks are meant to have ‘sovereign immunity’ which means transactions with them are supposed to be free, in order to protect global financial stability,” he says, “but these actions from the US, EU and now the UK are designed to promote the financial instability of Russia as a conscious tactic…Targeting a central bank of a G20 nation is unprecedented. In the words of the European Commission, it is intended "to paralyse" the ability of the Russian Central Bank to defend the Russian financial system from sanctions”. Islam cites The White House saying: "We are planning to impose measures to ensure Russia cannot use its Central Bank to support its currency and undermine the impact of our sanctions," and Foreign Secretary Liz Trusssaying the allies are "doing all we can to degrade the Russian economy".
The UK government is to fast-track legislation to target money-laundering by foreign oligarchs, with Prime Minister Boris Johnson insisting that there is "no place for dirty money" in the UK. "We are going faster and harder to tear back the façade that those supporting Putin's campaign of destruction have been hiding behind for so long," he said. "Those backing Putin have been put on notice: there will be nowhere to hide your ill-gotten gains". The Economic Crime Bill will include a new register that will mean foreign owners of UK property must declare and verify their identities with Companies House to prevent overseas criminals and oligarchs from using agents to create companies or buy property for them in the UK. The register will apply to property bought by overseas owners up to 20 years ago in England and Wales and from December 2014 for property in Scotland. The National Crime Agency's 'Kleptocracy' cell, announced last week, will also begin to investigate sanctions evasion and be able to seize crypto-assets used for money-laundering. The legislation also strengthens Unexplained Wealth Orderswhich were powers brought into force in January 2018 in the fight against suspected criminal money invested in property.
Economic sanctions are beginning to bite in Russia. The Russian government has been forced to more than double its key interest rate – from 9.5% to 20% - after the rouble slumped by 30% against the US dollar, in a bid to halt the rapid depreciation, which threatens to wipe out the currency's buying power and destroy the savings of ordinary savers, the BBC reports. At the weekend, Russia's central bank issued an appeal for calm amid fears of a run on the banks, saying it had the "the necessary resources and tools to maintain financial stability." Videos on social media appeared to show long queues forming at cash machines and money exchanges in Moscow, and last week, the Russian central bank was forced to increase the amount of money it supplies to ATMs after demand for cash reached the highest level since March 2020. Will Walker-Arnott, senior investment manager at Charles Stanley, told the BBC's Today programme that "it looks like Russia is increasingly becoming an economic pariah, increasingly isolated from the global financial system".
On Friday last week, BP was summoned by Business Secretary Kwasi Kwarteng via video link to explain its multibillion-pound investment in Rosneft, the Russian state energy company fuelling the trucks and tanks rolling into Ukraine. BP was apparently told of the uneasiness their ties to Vladimir Putin are now causing, and a Whitehall source told the Telegraph that BP “left the meeting with no doubt about the strength of the Business Secretary's concern about their commercial interests in Russia.” Now BP has announced it is to exit its holding in Rosneft. BP CEO Bernard Looney has also resigned from the Rosneft board with immediate effect, as will BP's other nominated board member, former CEO Bob Dudley. Looney said he was "deeply shocked and saddened" by the situation in Ukraine and insisted that the exit was in the "long-term interests" of BP. BP has held a 19.75% stake in the Russian firm since 2013, but BP has not said whether it plans to sell that stake, or simply walk away. Estimates suggest the latter could cost BP up to $25bn; the firm confirmed it expected to report a "material non-cash charge" of around that sum in the first quarter 2022 results in May. The move will have a significant financial impact: BP’s Rosneft stake contributed $2.7bn in underlying profit last year and accounted for just over 21% of BP's $12.8bn group profits, plus around half of its oil and gas reserves. Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "The decision to exit the Rosneft stake will be an eye-wateringly expensive one for BP…It marks a huge shift in the position for Looney, who just two weeks ago indicated that he Rosneft slice remained a core part of BP's operations." Banco Santander SA analyst Jason Kenney told Bloomberg: “Given the circumstances and Russia’s aggression in Ukraine, finding such a buyer may prove very challenging. As it stands right now “a write-off is likely” although the situation in changing fast.” Any potential buyer would have to navigate a tightening web of economic sanctions that would make any transaction extremely difficult. Kwasi Kwarteng has welcomed the news of BP’s Rosneft divestment.
Norway’s biggest energy company Equinor ASA has also begun to withdraw from Russia in response to the invasion of Ukraine. Equinor, which is 67% state owned, said the decision to pull out from joint ventures in Russia will affect the book value of its assets in the country and lead to impairments, but did not quantify the size of the hit, according to a statement released to Bloombergthis morning. The company had $1.2 billion in non-current assets in Russia at the end of 2021. “In the current situation, we regard our position as untenable,” CEO Anders Opedal said. “We will now stop new investments into our Russian business, and we will start the process of exiting our joint ventures in a manner that is consistent with our values.”
British airlines have been banned from landing at Russia's airports and from crossing its airspace, the Russian civil aviation regulator has said. Russia said the move was a response to "the unfriendly decisions by the UK aviation authorities". On Thursday, the UK banned Russia's national airline Aeroflotfrom landing in Britain.
Technical problems forced British Airways to cancel dozens of flights over the weekend. At Heathrow, all short-haul departures were grounded throughout Saturday morning, and some passengers faced lengthy delays on planes after landing, as well as long waits for luggage. Passengers also faced delays at Gatwick and London City airports. BA's website and app were offline for hours on Friday night, stopping customers from checking in online or booking flights. It is BA's second outage in 10 days. BA insists the problems were related to a hardware issue and not a cyber-attack.
Mike Ashley's Frasers Group (FG) has bought Studio Retail (SR) out of administration, saving the troubled firm and 1,500 jobs. FG already owned a 28.9% percent stake in the digital retailer, and Ashley attempted a takeover back in 2019. The deal includes an undisclosed cash sum and a £26.8m payment to Studio Retail's lenders. FG has also agreed to act as guarantor over "certain payments" relating to the SR group pension scheme. SR filed for administration last week, after failing to secure a new working capital loan and suspended its shares on the London Stock Exchange. SR sells clothes, shoes and home and electrical products on flexible payment terms. It has about 2.5 million customers and made sales of £578.6m and profits of £41.7m last year.
McColl's Retail Group, one of Britain's biggest convenience store chains, is racing to secure new funding to stave off a collapse that could put thousands of jobs at risk. The company, which is listed on the London Stock Exchange, employs about 16,000 people, or roughly 6000 on a full-time equivalent basis. It trades from approximately 1,100 convenience stores and newsagents across Britain, with about 200 of them now trading under the Morrisons Daily format through a partnership with the supermarket giant. Sky News has learnt that McColl's is working with advisers on attempts to find a buyer or third parties willing to inject fresh capital into the business. EG Group, the petrol stations giant controlled by Mohsin and Zuber Issa and the private equity firm TDR Capital, is said to have held discussions about making an offer for McColl's but decided against doing so earlier this week. Wm Morrison, which agreed to a £7bn sale to the private equity firm Clayton Dubilier & Rice last year, is understood to be monitoring McColl's situation closely with a view to possibly acquiring hundreds of its stores out of insolvency. It is, however, not thought to be in active discussions about a takeover bid for the company. If McColl's fails to secure new funding and is forced into administration, it would be the largest insolvency in the UK retail sector by the size of the workforce since the collapse of Edinburgh Woollen Mill Group in 2020.
Marks & Spencer has been crowned the UK's favourite supermarket in a survey by consumer group Which?. Yahoo Finance UK says M&S ranked highly on the in-store shopping experience, store appearance, product range and value for money, receiving a 78% customer score in the survey of 3,000 UK shoppers, not least for its customer service and the quality of its own brand and fresh products. Aldi came a close second, with a 77% customer score. The budget retailer was the only supermarket to receive top marks for value for money but was let down by its long queues. Waitrose rounded out the top three with 75%; the supermarket was awarded full marks for the appearance of its stores, helpfulness of staff, short queues and the quality of its fresh produce, but fell short on value for money.
Global aircraft orders and deliveries are continuing to recover from the impact of the pandemic. The backlog of orders for aircraft currently stands at 13,072 - worth £186 billion to the UK's aerospace manufacturing sector.
Department store chain John Lewis has said it will drop its "Never Knowingly Undersold" price pledge this summer, the BBC reports. The price promise, which began in 1925, means the retailer matches prices on branded products with national retailers, but not online-only sales. John Lewis said the pledge was becoming less relevant as shopping moves increasingly online. Instead, the employee-owned retailer says it will spend £500m on keeping prices down.
UK business confidence bounced back to its highest level in five months, boosted by better trading prospects and higher economic optimism, according to the latest Lloyds Bank Business Barometer. Lloyds said confidence was up five percentage points to 44%, moving ahead of the long-term average of 28%. The net balance for trading prospects reached its highest level since the onset of the pandemic (up four points to 45%). Optimism for the wider economy rose six points to 43% from 37%.
UK car production sank to its lowest January in a decade as semiconductor shortages continued to cause disruption, new figures from the Society of Motor Manufacturers and Traders (SMMT) show. Fewer than 68,800 cars left factories in January, down by 20% on a year ago and the worst figure for that month since 2009, the SMMT said. Production for overseas and domestic markets fell by 17.5% and 30.8% respectively. Exports accounted for more than eight in 10 cars made, with the EU remaining the largest destination for UK-made cars, taking 59.1% of exports, followed by China (10.4%) and the US (10%).
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