Published: 16 September 2022
Location: London, UK
By Suzanne Evans, Director, Political Insight
Chancellor Kwasi Kwarteng has announced that he will deliver a mini budget a week today, Friday 23rd September. Alongside fresh measures to tackle the cost-of-living crisis and boost growth, Kwarteng is also expected to set out the cost of the unprecedented multibillion-pound energy package announced by Prime Minister Liz Truss shortly before the Queen’s death, and how it will be paid for. The package focused on capping the average dual-fuel energy bill at £2,500 and boosting domestic energy supplies.
The World Bank has warned of a global recession because of simultaneous interest rate rises by Central Banks to combat persistent inflation. The three largest economies – the US, China and the eurozone – have been slowing sharply, and even a “moderate hit to the global economy over the next year could tip it into recession”, the bank said in a study. It said the global economy was now in its steepest slowdown since 1970, and that consumer confidence had already dropped more sharply than in the run-up to previous global recessions. World Bank president, David Malpass said he was concerned that these trends would persist, with devastating consequences for emerging market and developing economies. Synchronised interest rate increases may not be sufficient to bring inflation back down to levels seen before the Covid-19 pandemic, he added, as unless supply disruptions and labour-market pressures subsided, the global core inflation rate, excluding energy, could stay at about 5% in 2023, almost double the five-year average before the pandemic. To drive inflation lower, central banks may need to raise interest rates by an additional two percentage points, on top of the two-percentage point increase already seen over the 2021 average, his report concluded, but an increase of that size, along with financial market stress, would slow global gross domestic product growth to 0.5% in 2023, or a 0.4% contraction in per capita terms, which would meet the technical definition of a global recession. Malpass concluded that policymakers should shift their focus from reducing consumption to boosting production, including efforts to generate additional investment and productivity gains.
Brits are losing confidence in the Bank of England’s handling of inflation, according to the bank’s own regular survey. Last month, one-third of people in the UK were dissatisfied with how the central bank was controlling inflation as the cost of living surges, the worst reading since records started in 1999. Net satisfaction is now down to -7%, the only other negative result since May when it was -3%.
The latest Consumer Confidence Index (CCI) from YouGov and the Centre for Economics and Business Research (Cebr), which measures how optimistic people are feeling about the state of the economy, has also suffered its biggest fall since the early days of the pandemic. The CCI fell 4.2 points in August to 98.8, below the benchmarked 100 point which marks optimism as opposed to pessimism. Measures such as house prices and job security, although still positive, fell by 7.2 points to 124.9 and 2.4 points to 118.5 respectively. Kay Neufeld, head of forecasting at Cebr, said: "Following a short-lived improvement in July, the 4.2-point fall in the Consumer Confidence Index in August represents the steepest decline since the early days of the Covid-19 pandemic and drags the headline index into overall pessimistic territory…Most notably, consumers are more downbeat about the future value of their own home as rising mortgage rates are expected to trigger a price correction in the property market”. The survey was taken between 1 and 31 August, before Prime Minister Liz Truss announced her plan to freeze energy bills at £2,500 a year for a typical household, which led Emma McInnes, global head of financial services at YouGov, to say: "It's clear that the new prime minister is facing an uncommonly dour public mood, particularly in terms of personal finance."
According to the Office for National Statistics (ONS) that lack of confidence in the economy has dented UK retail sales, which it says declined in August at the sharpest pace in eight months. The quantity of goods sold in stores and online dropped by 1.6% from July, more than three times the 0.5% fall forecast by economists. All retail categories saw sales decline for the first time since July 2021. "Feedback from retailers suggests that consumers are cutting back on spending because of increased prices and affordability concerns," the ONS said.
Hard-pressed consumers who have reined in spending have led to a £99m loss in the first half of the year at the John Lewis Partnership, which puts the annual partner bonus at risk, it says. The employee-owned group, which includes Waitrose, made a pre-tax loss of £29m a year previously. Chair Sharon White said: "We have more customers year-on-year in both brands, but they are spending less. Inflation has increased our costs, which means we have to do more to meet our original efficiency targets because we have not passed on all of the increased costs to customers." She added: "A successful Christmas is key for the business given the first half. We will need a substantial strengthening of performance, beyond what we usually achieve in the second half, to generate sufficient profit to share a partnership bonus with partners”. John Lewis last scrapped the bonus in 2020, for the first time in its history, after being rocked by the pandemic. It was reinstated in the last financial year.
Almost 80% of the UK’s lowest paid workers say they are now facing the toughest financial squeeze of their lifetimes, according to research by the Living Wage Foundation, reported in The Guardian this morning.
Trade Unions have reacted with fury to the prospect of the government scrapping the cap on bankers’ bonuses. A typical comment is that from Unite’s general secretary Sharon Graham, who said workers would be “appalled and angry” that “when millions are struggling to feed their families and keep the lights on, the government’s priority appears to be boosting the telephone-number salaries of their friends in the City”. The Guardian editorial this morning says: “If Mr Kwarteng and Ms Truss think this is now the road to another Conservative election victory, they have taken leave of their senses”. The Bank of England however, has backed the idea, saying it had never supported the cap, imposed by the EU before Brexit, and telling the Daily Mail that there are “more effective measures to stop excessive risk-taking by bankers”.
The Prime Minister and the Chancellor are said by the Financial Times to be launching a bid to persuade SoftBank to list British technology company Armin the UK. They are seeking high-level talks with SoftBank executives next week after the official mourning period for the Queen ends, the newspaper says.
Hundreds of flights are being cancelled because of a French air traffic control strike today and the Queen’s state funeral on Monday. Ryanair has cancelled 420 flights, most of which were scheduled to fly over France, affecting 80,000 passengers, while easyJet has cut 76 flights, and British Airways has cancelled 22. Air France is only running 45% of its short-haul flights. Meanwhile, “to ensure the skies over London fall quiet” during the funeral, Heathrow Airport is altering 15% of its schedule, so that take-offs and landings on Monday do not occur for 15 minutes before and after the event. Flight cancellations for this reason include 100 British Airways flights and four Virgin Atlantic flights.
Oxford Biomedica, the UK pharma that teamed up with AstraZeneca to produce one of the covid-19 vaccines, has reported a 21% decrease in its first-half total revenue on Thursday, to £64m, because of a decrease in manufacture of the vaccines. The company recorded an operating EBITDA loss and an operating loss of £5.8m and £19.2m, respectively, swinging from an EBITDA profit and an operating profit of £27.1m and £19.7m in the same period last year. However, the company was upbeat about its prospects. "We have made significant strategic and operational progress towards our goal of becoming a global viral vector leader," said chair and interim chief executive officer Roch Doliveux. "In the first half of 2022 we achieved double digit revenue growth in our core business and since the start of the year have signed numerous new or expanded partnership deals…resulting in an over 70% increase in the number of customers with whom we work,” he said.
A Bloomberg report suggests that KKR & Co., Global Infrastructure Partners, and Swedish investment firm EQT AB are competing for a stake in Vodafone’s Frankfurt-listed Vantage Towers. Bloomberg says it understood that Vodafone has invited suitors to participate in an auction process, although the British telecom company hasn't made a final decision on the size of the stake it wants to sell. Vodafone currently holds around 82% of Vantage, according to data compiled by Bloomberg. A spokesman for Vodafone declined to comment on the story.
The Competition and Markets Authority (CMA) says it will launch an "in-depth investigation" into Microsoft's merger with video games giant Activision Blizzard, as it has “concerns that the proposed merger could "harm rivals" and result in a "substantial lessening of competition". "The CMA is concerned that Microsoft could leverage Activision Blizzard's games together with Microsoft's strength across console, cloud, and PC operating systems to damage competition in the nascent market for cloud gaming services," it said.
The first series production battery electric truck has rolled off the line at Tevva Trucks’ Tilbury factory. The British firm has secured more than £115 million in funding and expects to create 1,000 jobs at the new manufacturing plant in Essex.
The Amazon Prime subscription fee went up yesterday for the first time since 2014. The streaming service, which has around 13 million subscribers in the UK, now costs £8.99, an extra £1 a month for new customers. Annual membership has increased from £79 to £95.
Volkswagen will launch 911 Porsche shares on the Frankfurt Stock Market, in a nod to its most famous model, two sources close to matter have told Reuters. Investor roadshows are due to complete today the sources said, allowing time for senior executives to hold discussions over the weekend before opening the book building process early next week.
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