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Bank of England (BoE), has signalled another likely raise in interest rates in the coming months

   News / 10 Aug 2022

Published: 10 August 2022
Location: London, UK

By Suzanne Evans, Director, Political Insight

Dave Ramsden, deputy governor of the Bank of England (BoE), has signalled another likely raise in interest rates in the coming months. The spread of inflation was showing up in rising UK pay and companies’ pricing plans, having originally been triggered by the reopening of the world economy from Covid-19 lockdowns and then by Russia’s invasion of Ukraine, Ramsden told Reuters. Last week, the BoE put up UK interest rates by 50 basis points to 1.75% - the sixth consecutive monthly increase, and the biggest interest rate hike in 27 years since the Monetary Policy Committee (MPC) was set up back in 1997 - to combat runaway inflation, which it predicts will peak at 13% in October. The central banks expects inflation to return to the BoE's 2% target as the economy goes into recession and borrowing costs rise, Yahoo Finance says.
The Institute for Fiscal Studies (IFS) reckons the Treasury will need to top up spending plans by £44bn in the next three years to protect public services from the global economic shocks impacting the nation. The think tank claims inflation will wipe out over 40% of the current planned spending increases. Ordinarily, higher inflation boosts tax revenues as the incomes and spending on which taxes are levied grow more quickly, according to the IFS, but it argues that soaring prices also "squeeze" public services as budgets are set in cash terms and therefore do not "automatically increase in the face of higher-than-expected inflation". "The government’s spending plans are now less generous than they were originally intended to be when set out last autumn, while public services – most notably the NHS – are under considerable, and visible, strain," it said.
The Communication Workers Union (CWU) has announced that some 115,000 Royal Mail workers will strike on 26th and 31st August and 8th and 9thSeptember in a dispute over pay. Dave Ward, CWU general secretary said workers deserved a wage increase that "covers the current cost of living". "Nobody takes the decision to strike lightly, but postal workers are being pushed to the brink," he said, adding that people "can't keep on living in a country where bosses rake in billions in profit while their employees are forced to use food banks". Ricky McAulay, operations director at Royal Mail accused the union of failing to engage in "any meaningful discussion" after more than three months of talks on changes to modernise the company. "The CWU rejected our offer worth up to 5.5% for CWU grade colleagues, the biggest increase we have offered for many years…In a business that is currently losing £1m a day, we can only fund this offer by agreeing the changes that will pay for it,” he said.
Energy consultancy Cornwall Insight (CI) has upped its predictions for the cost of a typical household dual fuel bill – again. CI now says the average bill could hit £4,266 next year, or £355 a month, instead of £164 a month currently, citing regulator Ofgem's decision to change the price cap every three months instead of six and higher wholesale prices for its high forecast. However, Ofgem said no forecast for next year could be "robust" at this stage and had "limited value". "We cannot stop others from making predictions, but we would ask that extreme caution is applied to any predictions for the price cap in January or beyond," it said.
The amount of total debt owed to energy companies by households is three times higher than in September last year according to comparison site Uswitch, which surveyed 2,000 homes and found almost a quarter of households owe £206 on average. Citizens’ Advice also says it has helped more than 47,000 people with energy debts so far this year, with the average debt amount of those approaching them more than £650. Uswitch advised people falling into debt to speak to their provider to work out a more affordable payment plan.
British Gas owner Centrica said yesterday that it has signed a 15-year £7bn agreement with Delfin Midstream in the US for the purchase of 1 million tonnes per annum of liquified natural gas (LNG) from the Delfin Deepwater Port, located 40 nautical miles off the coast of Louisiana, which is expected to begin operations in 2026. Centrica chief executive Chris O'Shea said: "Additional US gas export capacity will help increase UK, European and global energy security, reflecting the increasing importance of LNG in the global gas supply chain. I'm delighted to sign this Heads of Agreement with Delfin as we continue to deliver our new strategy, growing Centrica's LNG portfolio and ensuring that we increase our access to a diversified range of reliable gas supplies for our customers."
Analysis of data from the Department for Work and Pensions (DWP) by independent specialist pension provider Broadstone has found that around a fifth of workers at small and medium sized (SMEs) enterprises eligible for a workplace pension are not participating in schemes. Broadstone says this means some 1.2 million SME employees could be falling through the "pension accumulation gap" and risking a lower income and quality of living in retirement. Broadstone estimates that around 20% of workers eligible for a workplace pension are not participating at firms with between five and 49 members of staff, while at businesses with 50 to 249 staff, 12% of eligible employees are not participating. Staff are missing out on billions of pounds of "free money", Broadstone said, and encouraged employers to encourage employee participation.
German investment bank Berenberg is reportedly axing more than 5% of its London employees. The Telegraph says the bank told staff on Monday that around 30 jobs will be cut as deal-making dries up and recession fears mount. A spokesman for the bank told The Telegraph: "After the reduction of 50 jobs in the USA, communicated in June, there are currently no other major changes in the number of employees beyond the usual adjustments that always take place. We have postponed the staff growth planned at the beginning of the year for the time being due to geopolitical events and developments in the markets."
Spain's Ferrovial is reportedly considering selling its 25% stake in London's Heathrow Airport according to Reuters, which has cited sources as saying that Ferrovial’s advisors are in early stage discussions with private equity firm Ardian, which itself considering a possible joint proposal with Saudi Arabia's Public Investment Fund (PIF). Both Ferrovial and Ardian declined to comment on the story, and PIF did not respond to a request for comment. Reuters says JPMorgan analysts calculated in May that Heathrow is worth about €24.3bn (£20.5bn) including debt, estimates which value Ferrovial's Heathrow stake at around €611m (£517m).
Shares of professional services firm RPS Group surged over 74% yesterday after it agreed to be bought by rival WSP for around £591.1m.  RPS chairman Ken Lever said: “This is a compelling offer from WSP which fully values the business and its future prospects”. The announcement came as RPS released interim results showing that adjusted pre-tax profit rose to £16.1m from £9.8m in the same period a year earlier, and fee revenue increased to £267.4m from £233.5m, exceeding board expectations.
Shares in the world’s second largest crypto-exchange, Coinbase, soared over 75% from a 52-week low after a partnership was announced with major fund manager BlackRock, allowing institutional clients to buy bitcoin.
Domino's Pizza has shut up shop in Italy after franchise holder ePizza SpAfiled for bankruptcy, Bloomberg reports. Domino's had struggled to win over customers in the birthplace of pizza since its launch there in 2015, when it had aimed to stand out from the country's traditional pizza makers with a comprehensive home delivery service and a distinctive menu including US-style toppings like pineapple. However, it faced increasingly stiff competition during lockdowns as local restaurants signed up to food delivery platforms like Deliveroo and Just Eat. "The Covid-19 pandemic and subsequent and prolonged restrictions from a financial point of view have seriously damaged ePizza," the company said. Domino’s is the world's largest pizza chain has more than 18,300 stores in over 90 international markets globally, most of which are run as franchisees.
US President Joe Biden has signed a “CHIPS and Science Act” law committing $280bn (£232bn) to high tech manufacturing and scientific research amid fears the country is becoming too reliant upon and losing its technological edge to China. The US currently produces roughly 10% of the global supply of semiconductors, which are key to everything from cars to mobile phones, down from nearly 40% in 1990. The BBC reports that the investments include tax breaks for companies that build computer chip manufacturing plants in the US, to help address the global shortage. The Chinese Embassy in Washington had opposed the semiconductor bill, calling it reminiscent of a "Cold War mentality."
Tesla boss Elon Musk has sold another 7.92 million shares in the electric car maker, worth around $6.88bn (£5.7bn). Musk says he needs the money in case he is forced to buy Twitter for $44bn.

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