Published: 06 July 2022
Location: London, UK
By Suzanne Evans, Director, Political Insight
Chancellor Rishi Sunak and Health Secretary Sajid Javid resigned within minutes of each other from Boris Johnson’s Cabinet yesterday evening. Sunak suggested in his letter that the government was not being conducted properly and expressed his feeling that he and the PM had fundamentally different approaches. Javid’s letter said: “It has been an enormous privilege to serve in this role, but I regret that I can no longer continue in good conscience.” “We cannot continue like this,” he went on, concluding “it is clear to me that this situation will not change under your leadership – and you have therefore lost my confidence too”. A number of junior ministers also resigned yesterday: Bim Afolami, Conservative Party Vice Chairman; Parliamentary Private Secretary Saqib Bhatti, Nicola Richards and Jonathan Gullis; and Andrew Murrison, the Trade Envoy to Morocco. The former Conservative Party chairman Oliver Dowden had already quit, on 24thJune. Downing Street has since announced that Steve Barclay will be promoted to health secretary, replacing Sajid Javid, while Nadhim Zahawi - formerly the education secretary - was announced as the new Chancellor of the Exchequer.
In an early interview with Sky News, Britain's new Chancellor Nadhim Zahawi said the government needed to rebuild and grow the country's struggling economy, and he would look at all options to do that. "I will look at everything, there is nothing off the table," he said when asked about possible tax cuts. Zahawi also stressed the need for "fiscal discipline" and said the government would have to be careful about increases in public sector pay which could drive inflation higher. "The important thing is to get inflation under control, be fiscally responsible," he said.
Bank of England (BoE) Deputy Governor Jon Cunliffe has said the central bank will ensure that the recent surge in inflation does not become embedded in the economy. "It's our job to make sure that as this inflationary shock passes through the economy we don't find that leaves us with inflation being the new normal, the sort of embedded psychology," Cunliffe told BBC radio, saying: "We will act to make sure that doesn't happen." The BoE has forecast it will top 11% in October and has already raised interest rates five times since December. Last month it said that it would act "forcefully" if it saw signs of inflationary pressures becoming more persistent. Many commentators expect it will raise interest rates by another 0.5% on 4th August, the date of the next monetary policy committee meeting. However, Cunliffe also acknowledged that the economy is slowing. "What we expect is that the cost-of-living squeeze will actually hit people's spending and that will start to cool the economy," he said, adding there were signs that was already happening.
The threshold at which people pay National Insurance (NI) increases from £9,880 to £12,570 today. The Government has said the increase will benefit nearly 30 million working people, and will save a typical employee over £330 in the year from July. Seven in 10 (70%) workers who pay National Insurance contributions (NICs) will pay less, and 2.2 million people will be taken out of paying NICs altogether, the government said previously. The increase follows a controversial 1.25% hike in NI rates in April, ostensibly to help pay for health and social care, and a string of other bill hikes, including a jump in the energy price cap.
The Bank of England (BoE) issued a dire economic forecast yesterday, saying that the health of the UK economy has "deteriorated materially”. Banks were told to ramp up capital buffers to ensure they can weather the storm. The bank’s latest Financial Stability Report largely blamed the impact of the war in Ukraine for the fact the outlook for the economy is "very uncertain,” but insisted that British banks “have capacity to weather the impact of severe economic outcomes”. However, the BoE also stressed that less money would be flowing to borrowers, and that some households and firms will struggle to repay debt. Although around 80% of mortgages are currently on fixed interest rates, compared with just 30% nine years ago, 40% of these are set for renewal this year or next, pushing interest rates up for these households, the Bank said, adding that households with the lowest income, which spend the largest proportion on tax and essential items, would find it hardest to adjust spending in response to rising prices. Businesses with higher exposure to energy and fuel prices such as manufacturing and transport could also face higher costs the BoE said, even as falling household real incomes damp demand for discretionary spending. In the medium term, the BoE predicts that this slowing demand will lead to a rise in unemployment.
The central bank’s latest stability report also said the $2tn (£1.67tn) crash in the cryptocurrency market highlights vulnerabilities in the market and the need for tougher regulation. The market capitalisation of the sector has tumbled to about $900bn from a peak of almost $3tn late last year. “Both the experience that we’ve had in recent weeks and also the work that we’re doing both domestically and internationally, I think further draws out that there are issues both in the unbacked crypto world and the so called stablecoin,” governor Andrew Bailey said. He has previously told crypto investors to be “prepared to lose all your money”. The BoE report said: “These events did not pose risks to financial stability overall…but, unless addressed, systemic risks would emerge if crypto-asset activity, and its interconnectedness with the wider financial system, continued to develop”. “This underscores the need for enhanced regulatory and law enforcement frameworks to address developments in these markets and activities,” it added.
Rising worries about a European recession hit stock markets yesterday, as the euro slumped to a two-decade low against the dollar, dropping to $1.19 and the pound fell to its lowest since the start of the pandemic, falling. A jump in natural gas prices intensified the strain on the European economy, The Guardian said, although oil tumbled to its lowest since mid-May on the back of recession fears, Brent crude falling by more than 9% to below $103 a barrel, and b dropping through the $100-a-barrel mark. Consequentially, mining stocks, oil producers and airlines were among the big fallers in London, where the FTSE 100 share index dropped by 2.8%, or 207 points, to 7025. North Sea oil producer Harbour Energy slumped 9.6%, while Shell fell 8.5% and miners Anglo American and Glencore both lost 8%. Germany’s DAX index lost 3%, and France’s CAC fell 2.8%. Investors are anxious that rate hikes by central banks desperate to tackle soaring inflation will push economies into recession and further disruption to Russian energy supplies could also trigger a European downturn, analysts have warned.
According to the Telegraph, British Airways (BA) will scrap flights for up to 105,000 holidaymakers this month on popular routes ahead of the Summer holiday period. The UK's biggest airline has told airport slot authorities that it is grounding more than 650 flights from Heathrow and Gatwick airports in an effort to avoid a repeat of June's travel chaos. Over 76,000 seats are being axed from Heathrow and 29,400 from Gatwick on flights to more than 70 tourist hotspots, including Malaga, Ibiza, Faro, Palma and Athens, according to the reports. Airline flight data shows, BA cancelled 295 departures last month, while Europe's largest budget carrier easyJet axed 742 flights in the same month.
The UK car industry has been hit by its worst June for new car sales since 1996. According to the Society of Motor Manufacturers and Traders. registrations of new cars plummeted about 24% last month compared with June 2021.
Scandinavian airline SAS has filed for bankruptcy protection in the US after a pilots’ strike grounded its planes. Sharecast News said talks over pay between pilots and the airline collapsed on Monday, triggering both the strike and SAS's decision to seek Chapter 11 bankruptcy protection. SAS said the strike was likely to cost it between $10m and $13m per day, and urged SAS Scandinavia pilots' unions “to end their strike and engage constructively as part of this process".
Royal Mail managers have confirmed they take industrial action by working to rule on 15th – 19th July, before going on strike 20th – 22nd July. Unite, the union, said around 2,400 managers across 1,000 delivery offices would join the protest against what it claims are proposals by the Royal Mail to cut 700 jobs and reduce pay by up to £7,000. Royal Mail has yet to comment on the strike dates, but previously told the BBC it had closed 700 managerial roles through voluntary redundancy and redeployment, and had no plans for further job cuts. Around 115,000 Royal Mail workers who are members of the Communication Workers Union are currently voting on strike action, also over pay. The result is expected on 19 July.
Fake insurance claims have surged by 27% according to insurer Zurich, which attributes the rise to desperate households being willing to risk a criminal record to get extra cash to help them cope with the rising cost of living. Zurich says the most common lie is that jewellery, mobile phones or TVs have been damaged or stolen, and that on average, fraudsters are putting in claims for £8,800. So far this year, Zurich says it has foiled £4.2m worth of fraudulent claims, compared with £3.3m in the same period last year.
Sainsbury's says its first-quarter underlying sales have fallen 4% because shoppers have started to cut back on discretionary spending because of the cost of living crisis. The supermarket said there was a sharp fall in general merchandise sales, which declined 11.2% in the 16 weeks to June 25. Total retail sales excluding fuel were also down 4.5%, but were 5.4% higher than pre-pandemic levels. Grocery sales were down 2.4% compared with last year (when pandemic restrictions boosted spending at supermarkets), while sales at its Argos division fell 10.5% in the quarter. Sainsbury's maintained guidance for annual underlying profit before tax of between £630m and £690m, but CEO Simon Roberts warned that the pressure on household budgets "will only intensify over the remainder of the year" as inflation hits incomes. Roberts pledged again to invest £500m in attempting to keep prices low "especially on the products customers buy most often".
Butter brand Lurpak was trending on Twitter yesterday as shoppers expressed shock at the price of a 750g tub, which was £7.25 in Sainsbury's. Lurpak’s owner, Arla Foods, said: "Prices on the shelves have had to rise in recent months…Unfortunately, our farmers are facing a similar situation with prices for the feed, fertiliser and fuel they need to produce milk, all rising significantly in recent months. While we don't set the prices on the shelves, we do work closely with the retailers to ensure our farmers receive a fair price for the milk they produce."
Waste management company Biffa said yesterday that the UK Takeover Panel has extended the deadline for private equity firm Energy Capital Partners (ECP) to make a takeover offer. Earlier this month, Biffa said it had received an indicative non-binding proposal from ECP and that the PE firm had until 5 July to either make a firm intention to make an offer or walk away. That deadline has now been extended to 2 August to allow discussions between the two to continue. "There can be no certainty either that an offer will be made nor as to the terms of any offer, if made," Biffa said.
Five areas in the sea off Cornwall and Wales have been earmarked as possible floating wind farms, Sky News reports. The Crown Estate, which is responsible for leasing UK seabed space for renewable energy projects, has mapped out the potential offshore areas to deploy the technology, which they say is "the next frontier in green growth" as floating turbines can be sited in deeper water to capture higher winds than conventional offshore wind farms. If the development goes ahead, the sites would be open for competitive tender next year. Sky says that combined, they would have the potential to deliver four gigawatts of power by 2035, which is enough to run nearly four million homes.
Ben & Jerry's has announced it is seeking an injunction against parent company Unilever to prevent the end of its boycott of the occupied Palestinian territories, announced in July last year. The ice cream brand argues that reversing that decision harms its "social integrity". Unilever's decision was made without the consent of Ben & Jerry's independent board and goes against an agreement made when the company was bought by Unilever, as that gave the brand the ability to protect its founder's values and reputation, the complaint said. Unilever responded by saying it had the right to enter the new arrangement; had "never expressed any support" for the BDS movement; and that it would not comment on pending litigation.
Zimbabwe's central bank says it will start selling gold coins this month as a store of value to tame runaway inflation, which has considerably weakened the local currency. Central bank governor John Mangudyasaid in a statement that the coins will be available for sale from July 25th in local currency, U.S. dollars and other foreign currencies at a price based on the prevailing international price of gold and the cost of production.
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