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The UK economy contracted in March

   News / 12 May 2022

Published: 12 May 2022
Location: London, UK

By Suzanne Evans, Director, Political Insight

The UK economy contracted in March. GDP fell by 0.1% as the cost-of-living crisis threatens to push the country into recession. New data released by the Office for National Statistics (ONS) this morning also showed the UK’s service sector shrank by 0.2% in March and was the main contributor to March’s 0.1% drop in GDP. Output in consumer-facing services fell by 1.8%, following a 0.5% growth in February 2022. Looking at the first quarter, the UK economy grew by 0.8% between January and March, down from growth of 1.3% in the previous three months. Production also shrank by 0.2%, but construction expanded by 1.7%.
London School of Economics professor Charles Goodhart has warned MPs that the UK will probably have to go through a “mild recession” if not worse before inflation comes back to a more manageable level. Goodhart told the Treasury Select Committee that wages and prices were feeding off each other to push up inflation, and this could not be weakened without unemployment rising. His comments were echoed by Adam Posen, president of the Peterson Institute for International Economics. “The sad reality is there is going to have to be an economic slowdown in the UK beyond what is already on the cards in order to get inflation sustainably back to target,” he said.
Prime Minister Boris Johnson has apparently told his ministers to “go faster” in delivering ideas to alleviate the cost-of-living crisis. The Independent claims he is said to have urged Cabinet ministers to be “as creative as possible” as he seeks initiatives to reduce the pain without requiring fresh funding from the Treasury. Levelling Up Secretary Michael Gove, however, ruled out an emergency budget, which was receiving support from some Conservative backbenchers as well as Labour. Former Brexit secretary David Davis called for ministers to swallow their pride and initiate tax cuts before the summer at the latest. The Conservative MP told the PA news agency: “Ideally I want to see a reversal of the national insurance increase and an elimination of VAT on fuel because people are already suffering from a £600-£700 increase in fuel costs, they’re already suffering from increasing food costs and other inflation and so, from a point of view of the ordinary family, it’s vital we do something very soon.”
The Financial Times also claimed yesterday that the government is preparing to announce a new support package to help shield households from a further jump in energy bills later this year. The newspaper said Chancellor Rishi Sunak is looking to make an announcement in August, when the energy regulator prepares the next price cap, because he wants to wait to see how much further regulated energy prices rise before deciding what kind of extra support is needed. However, the Treasury seems subsequently to have played down the report.
Gloom among Britain’s about their personal finances hit a fresh all-time low in April, according to the monthly consumer sentiment survey from YouGov and The Centre for Economics and Business Research (Cebr). The gauge fell for a fifth month running to 102.9 in April, its lowest since November 2020, and down from 103.9 in March. "The YouGov/Cebr Consumer Confidence Index remains in free fall," said Kay Neufeld, head of forecasting at Cebr. A Reuters analysis this week also showed people were more downbeat about their finances and the economic outlook in Britain than in any other major European economy. A score above 100 is positive; if it falls below 100 households are expecting to be worse off.
“For some, not being able to afford their energy bills is literally a matter of life and death,” the Ofgem CEO Jonathan Brearley has said. Speaking at the All Energy event in Glasgow, Brearley said: “I talk to customers on a regular basis, and I know how tough rising energy prices are for many households and businesses,” adding that the sector as a whole has to “step up” to help customers. He backed his claims up with the story of how a woman suffering from cancer had told him she feels “more comfortable” in hospital than at home, because of worry caused by rapidly rising energy bills.
Prime Minister Boris Johnson downplayed the prospect of triggering a UK trade war with the EU by threatening to pull post-Brexit arrangements in Northern Ireland, yesterday, despite European warnings that he risks breaching international law. AFP reported how Johnson said London and Brussels must "fix" the so-called Northern Ireland Protocol which governs trade to and from the British province, but that both sides should keep a sense of proportion. "We're talking about really, in the scheme of things, a very, very small part of the whole European economy," he told reporters during an unrelated visit to Sweden and Finland. "Let me put it this way: I don't think there's any need for drama. This is something that just needs to be fixed." Johnson's government has warned it is ready to take unilateral action "to stabilise the situation in Northern Ireland if solutions cannot be found" to key sticking points with the protocol. Ministers have argued that it does not command cross-community support and that London needs to protect the 1998 Good Friday Agreement, which ended three decades of sectarian violence over British rule in Northern Ireland. But the European Union has repeatedly ruled out renegotiating the terms of the deal.
The government has announced plans to create thousands of “green jobs” following the inaugural meeting of the country’s first ever dedicated group for creating UK green job opportunities. The Department for Business, Energy and Industrial Strategy (BEIS) said the Green Jobs Delivery Group will create up to 480,000 skilled green jobs by 2030. Co-chaired with E.ON UK CEO Michael Lewis, the group is made up of global leaders from the business, industry, trade unions and academia sectors to help upskills the country's "green workforce".
Energy giant Shell has promised to install 50,000 electric vehicle (EV) charge points across the United Kingdom by 2030, in addition to the same amount announced last year. There are currently some 31,000 public charging points across the country, but ten times more are needed in the next ten years to support the switch to electric transport, according to the Climate Change Committee. Transport Secretary Grant Shapps said it is "crucial" for government and industry to collaborate on the green transport transition, and called Shell's move a "boost" for drivers.  In March the UK government set a new target to increase the number of electric car chargers to 300,000 by 2030, following criticism that public infrastructure wasn't keeping up with EV sales.
There is “little evidence” that the pace of house price growth is losing much momentum, despite surging living costs, according to a survey of surveyors. A limited supply of available properties and a steady growth in demand from buyers remain the overriding drivers of house prices, the Royal Institution of Chartered Surveyors (Rics) said. Rics reported a net balance of a 10% rise in new buyer inquiries and marked the eighth month in a row in which the survey returned a positive net balance.
Average home insurance costs have dropped over the past year, according to the Association of British Insurers (ABI). In the first quarter of 2022, the average price paid for buildings insurance was £225, according to the ABI. This was a 7% annual fall and the lowest average price since the ABI started collecting this data back in 2012.
Tui has told holidaymakers not to expect last-minute deals this summer, as bookings have surged and it is facing rising costs. The travel firm has halved its losses over the past six months in a pandemic bounce-back, and reservations have reached 85% of the level back in 2019. It is now predicting a “strong travel summer” as customers continue to book long-awaited holidays despite cost-of-living pressures. Bookings made by Brits are 11% higher than in summer 2019.
Lloyds staff will stage a protest outside the bank’s annual meeting today because of a dispute over pay. Members of the Unite union will tell those attending the meeting in Edinburgh: “Pay staff, not just shareholders” and asking shareholders and the bank’s board to take a small reduction in their share buyback programme to boost workers’ financial resources. Otherwise, the union claims, low paid employees will be unable to afford to heat their homes and may stop paying their pension contributions. Lloyds Banking Group said Lloyds said this year’s pay offer was worth 3.6%, giving a minimum pay increase of £1,000 for all employees, and for two thirds of junior staff, increases were 4% or higher. The minimum salary increased to £10.60 per hour (£19,292 a year). With other payments, this equates to a £20,000 minimum starting rate for new joiners. “We believe our reward package is fair and competitive, including pay, bonuses, flexible benefits, pensions, and great options for agile and flexible working,” the bank said.
Shares in The Compass Group soared after the company announced a £404m stock buyback programme yesterday, saying the return of office workers and reopening of schools helped it rebound to pre-COVID levels. The world’s largest caterer expects to generate 30% more sales this year, up from between 20% and 25% previously. Pre-tax half-year profits increased to £632m in the six months to 31 March from £133m a year earlier.
Bakery chain Greggs has come under fire because of high executive pay. Bonus payouts for Greggs’ outgoing CEO Roger Whiteside amounted to more than double his basic salary of £575,209, taking his total package to £1.9m including benefits, leading investment adviser Pirc to suggest shareholders should vote against the bakery chain’s remuneration report at the group’s annual meeting on 17 May. Pirc noted Whiteside’s pay amounted to 79 times that of a regular employee. Meanwhile proxy adviser Glass Lewis also pointed to a 11.4% rise in basic pay for Greggs’ finance chief Richard Huttonlast year, that was followed by a 3.5% increase this year to £393,300. He is also lined up for an exceptional share bonus payout of 150% of salary despite Greggs not paying back £87m in government furlough support received in 2020. Glass Lewis said Greggs’ board has “failed to provide a robust rationale” for the higher than usual bonus for Hutton – which would usually be limited to a maximum of 125% of salary.
It has been revealed that a top executive at a leading Covid vaccine manufacturer earned $700,000 in just one day after he quit abruptly amid an investigation at his former employer. Jorge Gomez took over as chief financial officer at Moderna on Monday but stepped down from the post a day later after his previous employer, Dentsply Sirona, announced it had launched an internal investigation into financial reporting.
BlackRock says it will vote against most shareholder green activism this year, as it is “too extreme”. The statement marks a significant u-turn by the world’s biggest asset manager, which has been at the forefront of Wall Street’s push to encourage companies to shun fossil fuels and transition to greener alternatives. In January 2020, CEO Larry Fink, said “climate risk is investment risk” and positioned BlackRock as a leader in ethical, social and governance (ESG) investing. He also warned that climate change posed the biggest ever risk to financial markets. Now, however, BlackRock says Russia’s invasion of Ukraine has impacted the transition to net-zero, and that short-term investment in traditional energy sources is required to boost security.
“We do not consider [the green proposals] to be consistent with our clients’ long-term financial interests,” a stewardship statement said. “Many of the climate-related shareholder proposals coming to a vote in 2022 are more prescriptive or constraining on companies [than last year] and may not promote long-term shareholder value.” Blackrock currently has more than $10 trillion (£7.3 trillion) assets under management, giving the company significant stakes and influence in many of the world’s largest corporations.
Aviva CEO Amanda Blanc says sexism and "unacceptable behaviour" has got worse and more "overt" the more senior she has become. Blanc, who joined the FTSE 100 group in 2020 as its first female chief executive, made the comments suffering a torrent of sexist abuse at the company's annual general meeting earlier this week. She wrote in a LinkedIn post: "I would like to tell you that things have got better in recent years but it’s fair to say that it has actually increased - the more senior the role I have taken, the more overt the unacceptable behaviour.” One individual investor said at the meeting on Monday that Blanc is "not the man for the job" and another asked if she should be "wearing trousers" while a third expressed appreciation for the gender diversity at the insurance giant's board before saying: "They are so good at basic housekeeping activities, I’m sure this will be reflected in the direction of the board in future".
Adidas sports bra adverts that featured photographs of bare breasts have been banned for showing explicit nudity. Images of the breasts of dozens of women of various skin colours, shapes and sizes in a grid format appeared on a tweet and two posters. The Advertising Standards Agency found all three versions likely to cause widespread offence. Adidas said the adverts "show just how diverse breasts are" and therefore how important the correct sports bra is.
Royal Mail is ramping up its dependency on drones to make deliveries by creating 50 new “postal drone routes”. Over the next three years, the postal service wants to deploy 200 drones to deliver mail across the UK, with the fleet will be expanded to 500 longer-term. Island communities across the Isles of Scilly, Shetland Islands, Orkney Islands and the Hebrides, where mail is typically transported by ferry or plane, will be the first to benefit from the new routes.
Office operator Regus is teaming up with Tesco in its New Malden superstore in Greater London to test out the inclusion of a 3,800 sq ft flexible working area within the space, with room for 12 private desks, 30 co-working spaces and a meeting room. It is thought likely that Tesco will open more flexible offer space if the idea proves popular.
Millions of British households could receive compensation for being overcharged on their electricity bills after a rip-off scheme by a "cartel" of cable companies, The Telegraph reports. A class action lawsuit has been brought against Nexans, NKT and Prysmian who were fined €302m (£259m) by the European Commission for conspiring to inflate the prices of cables sold to energy giants such as National Grid between 1999 and 2009. The prices paid for cables could have been passed on to British consumers if the buyers, typically infrastructure companies, passed on the cost through network charges that are included in energy bills. National Grid and Scottish Power have each already struck settlement deals with Prysmian after accusing the Italian firm of overcharging them millions of pounds. But a legal claim filed with the UK’s Competition Appeal Tribunal is now also seeking compensation on behalf of British consumers. It has been brought by law firm Scott + Scott and is being spearheaded by Clare Spottiswoode, a former energy regulator. The case must be approved by the tribunal if it is to proceed.
Speedy Hire CEO Russell Down plans to retire after seven years with the company. He joined Speedy Hire in April 2015 as group finance director and assumed the role of CEO in July 2015.
The Competition and Markets Authority (CMA) is expected to name Clive Bannister as its new chair to replace Andrew Tyrie, the Financial Times reported yesterday, citing people with knowledge of the process. Tyrie said he would step down in September 2020 and Jonathan Scott was appointed the interim chair. The competition watchdog has also opted to appoint Sarah Cardell, its general counsel, as interim CEO after Andrea Coscelliannounced he will leave in July.
Around 4.8 million jobs have been lost in Ukraine since the start of the Russian invasion in February, as the conflict shut down businesses, strangled exports and drove millions to flee, the International Labour Organisation(ILO) said yesterday. The job losses, which account for around 30% of Ukraine's workforce before the invasion, could climb to 7 million if hostilities continue, the ILO said in a study, adding that 3.4 million jobs could return rapidly in the event of a ceasefire.
Saudi Aramco has overtaken Apple as the world’s most valuable company after oil prices surged and inflation hammered technology stocks. Aramco traded near its highest level on record on Wednesday, reaching a market capitalisation of about $2.4 trillion (£1.9 trillion) and surpassing that of Apple for the first time since 2020. The iPhone maker meanwhile fell 4.4% in New York to $147.53, for a valuation of $2.3 trillion (£1.87 trillion).

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