- Rishi Sunak resists pressure for tax raid U-turn despite borrowing boost
- Time to buy ‘exceptionally cheap’ London-listed shares, says JP Morgan
- FTSE 100 rebounds 1pc after Ukraine war fears rout
- Ambrose Evans-Pritchard: The EU’s ‘unforgivable failure’ over Ukraine
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U S stocks have dropped as fears over conflict in Ukraine and interest rate worries spark chaos on global markets.
Wall Street's three major indices fell at least 1pc, resuming a sell-off after volatile trading on Monday. The benchmark S&P 500 is on course to confirm a correction after falling 10pc from its record closing high earlier this month.
Meanwhile, the FTSE 100 rose 0.4pc as it rebounded from a rout that wiped £53bn off the blue-chip index on Monday.
Fears are mounting that Russia will move its troops into Ukraine, while investors are also bracing for the first post-pandemic interest rate hike in the US when the Federal Reserve finishes its meeting tomorrow.
I t’s that time of the evening again… The blog is closed for now but will be back tomorrow! While you wait, have a look at some of today’s key business stories:
- Electricity capacity boosted amid fears war in Ukraine will spark rolling blackouts
- Time to buy ‘exceptionally cheap’ London-listed shares, says JP Morgan
- Royal Mail faces union battle over plans to cut 700 jobs
- BrewDog founder James Watt threatens to sue BBC over documentary harassment claims
- Unilever slashes 1,500 management jobs in wake of failed Glaxo bid
India trade deal is a bigger prize than agreement with the US, says Resolution Foundation
A trade deal with India has the potential to deliver a bigger post-Brexit prize for the UK than one with the United States, according to a leading think-tank. Louis Ashworth reports:
A pact with New Delhi would bring benefits that would be "eventually comparable" with a transatlantic deal with Washington but carries bigger risks, said a report by the Resolution Foundation.
It said British companies could benefit from a "first mover" advantage by getting a foothold in India, which is notoriously protectionist, ahead of rivals in the EU and US.
International trade secretary Anne-Marie Trevelyan visited New Delhi earlier this month to kick off talks with India. The UK is looking to crack open one of the world's fastest-growing economies, but is likely to face demand for more liberal visa arrangements in return.
Manufacturer General Electric misses Wall Street's sales estimates
M anufacturer General Electric has missed Wall Street's sales expectations for the fourth quarter as it grappled with worsening supply-chain pressures, a stumble for boss Larry Culp as he readies a plan to break up the conglomerate.
Revenue in the period slipped to $20.3bn (£15bn), below the consensus of $21.4bn.
"We've got some short-term issues to work through but we feel very good about the setup coming into 2022," Culp said in an interview.
While he cited supply-chain challenges in the health-care unit as well as uncertainty over the US wind production tax credit, the company expects to return to sales growth this year.
Recruiter Staffline posts better-than-expected results as hiring demand soars
R ecruitment firm Staffline hailed “strong” hiring demand throughout 2021 as full-year results topped forecasts.
Profits hit £10m for the year, up from £4.8 million in 2020 and 11pc ahead of previous guidance.
The company said it expects positive momentum to continue through the current year, as it also highlighted a “strong” new business pipeline, a reduction in its overhead cost base and the predicted continuation of post-pandemic trends which have favoured the recruitment sector.
Shares jumped 8.1pc to 60p.
Bank stocks help FTSE 100 to close in the green
T he FTSE 100 clawed back some of yesterday’s losses, closing the session 1pc higher at 7,371.
The index was supported by major bank stocks as expectations of tighter monetary policy drove up bond yields, with lenders HSBC and Lloyds among the top risers.
Heavyweight oil stocks also rose as concerns of a military conflict in Ukraine and risks in the Middle East buoyed crude prices with the prospect of supply disruptions.
Thomas Hempell at Generali Investments said: “Global equity markets have retraced sharply recently amid worries about a looming Fed lift-off and tensions around Ukraine.
“An escalation of the conflict and subsequent sanctions by the West may add to worries about energy supply for Europe, adding to virulent inflation uncertainties.”
American Express boss says corporate travel will never be the same again after Covid
A merican Express chief executive Stephen Squeri said corporate travel will never be the same again after Covid-19 forced millions of employees to work from home.
US consumers staged a robust comeback in the final three months of the year, with spending on travel and entertainment surpassing pre-coronavirus levels. Such spending by AmEx's large and global corporate customers, meanwhile, remains just a third of what it was before the pandemic.
Squeri said: "People are skeptical about business travel because of all the remote workforce.
"Business travel is going to be completely different. And, I think, as you have more people in more remote locations, they may need to get together three, four, maybe five times a year to come to headquarters."
As the pandemic shut offices across the country, businesses shifted client and employee meetings online, reducing their spending on things like airfare and conferences. While AmEx expects a full recovery in travel and entertainment spending for individual consumers and small businesses by the end of the year, a similar rebound in corporate travel and entertainment spending will take longer.
Covid tests demand to plunge this year, British manufacturer Novacyt warns
S ales of Covid tests are set to plummet this year as ministers advise the public to learn to “live with the virus”, a company that makes PCR kits has said. Hannah Boland writes:
More than a fifth was wiped off the value of British test maker Novacyt after it signalled there was waning demand for its Covid tests, most of which are PCRs. It also makes some lateral flow kits.
Novacyt said it was now expecting Covid related-sales to drop by about 50pc this year compared to last year, amid easing requirements for testing in the UK.
Shares are now at their lowest level since spring 2020 at 184p.
The company suggested demand for tests was unlikely to pick up this year if things continued as they were, but added: “As observed over the last two years, and highlighted in the last two months, the course of this pandemic is unpredictable and so, therefore, is the predictability of testing demand.”
The UK has already pulled back on its use of PCR tests, with the Government saying earlier this month that people who test positive on lateral flow tests do not need to confirm their results through PCR tests, which have to be sent off for lab testing.
T hat’s all from me – thanks for following! Giulia Bottaro is in the driving seat for the rest of the day.
IMF: UK should consider ‘well-targeted’ action on energy bills
T he UK should consider more support for the poorest households facing a big increase in their energy bills.
That’s according to the IMF, which suggested the Government should intervene when the energy price cap rises in April.
Gita Gopinath, deputy head of the IMF, said: “Very targeted, well-targeted support is important.
“This should be well-targeted support to highly vulnerable households who are having to face very high cost increase… That would be useful. These energy costs are going to go up in April further.”
US consumer confidence cools
U S consumer confidence dipped in January for the first time in four months as Americans took a less optimistic view on the economy.
The Conference Board's index decreased to 113.8 from a downwardly revised 115.2 reading in December, according to the latest figures.
Fewer consumers expected the economy to improve, incomes to increase and more jobs to be available in the next six months.
At the same time, Americans were more upbeat about present business conditions. The share of respondents who said conditions were "good" rose to a six-month high, and buying plans firmed.
Wolseley Restaurant owners sue Axa for £4m over Covid claims
T he owners of high-end London restaurants including The Wolseley and The Delaunay are suing Axa for up to £4m for its failure to pay out for Covid-related claims.
Lawyers for Corbin & King told a court hearing that the insurance company was “bound” to pay a business interruption claim that it has refused to pay.
Axa argued its so-called denial of access policy – when businesses can’t use their premises – didn’t apply to nationwide restrictions imposed by the Government, but only to local incidents.
The trial is the first to come to court since the Supreme Court ruled on a test case related to Covid claims brought by the Financial Conduct Authority that sided with businesses.
Restaurateurs Chris Corbin and Jeremy King have run some of the capital’s most famous eateries, including Le Caprice and The Ivy.
Elon Musk says he’ll eat a Happy Meal on TV if McDonald’s accepts dogecoin
T witter fiend Elon Musk is at it again, and this time McDonald’s is the target of his musings.
The billionaire Tesla founder has vowed to eat a Happy Meal on TV if the fast food chain accepts payments in dogecoin. The cryptocurrency rose 5pc following the tweet.
It’s not the first time Mr Musk has tweeted in support of dogecoin – and moved markets in the process.
Last month he said Tesla would start accepting the digital coin, which is based on the meme of a Shiba Uni dog, as payment for merchandise.
Winklevoss twins and Logan Paul back Tom Cruise deepfake startup
T he Winklevoss twins and YouTube star Logan Paul are among a group investing in a tech startup best known for creating deepfake videos of Tom Cruise.
Metaphysic’s $7.5m (£5.6m) funding round was led by Google Ventures founder Bill Maris through his venture capital firm Section 32, alongside Winklevoss Capital Management and others including Facebook VR firm Oculus and Palantir backer 8VC
Tom Graham, cofounder and chief executive of Metaphysic, told Bloomberg the group also included a string of unnamed "very high-profile content creators, actors [and] sports people".
One of Metaphysic's other co-founders, Chris Umé, made headlines in March after he created a series of eerily realistic videos of Mr Cruise.
The clips, which used AI and synthetic media to swap out the face of a Cruise lookalike with the actor's image, raised concern about how such technology could pose a privacy violation of people's biometric data, as well as be used for malicious purposes.
BrewDog founder threatens to sue BBC over harassment claims
T he founder of BrewDog is threatening to sue the BBC over claims the broadcaster obtained private information by "underhand means".
My colleague Oliver Gill has more:
James Watt is also pursuing legal action against the publicly owned broadcaster following a series of allegations in the BBC's Disclosure documentary.
Former staff in the United States claimed Mr Watt made female staff feel "uncomfortable" and "powerless".
The hour-long programme included a series of other allegations, including claims that Mr Watt had invested £500,000 in Heineken, the Dutch brewer that the entrepreneur has long criticised and belittled in marketing campaigns. It also questioned the integrity of Brewdog's plans to be "carbon negative".
In a statement to The Telegraph, Mr Watt said: "I hugely regret if some of my team in the US have felt uncomfortable around me and I am totally committed to making sure I am always mindful about how my presence in our bars is a positive for everyone.
"But the personal allegations made against me in the programme were utterly false, based on rumour and misinformation. So with reluctance, I need to take action to protect my reputation on the basis these claims are false and defamatory."
Wall Street slides ahead of Fed meeting
W all Street has started the afternoon on the back foot as the Federal Reserve kicked off a two-day meeting that is expected to set the groundwork for interest rate rises.
The S&P 500 and Dow Jones fell 1.5pc and 1.1pc respectively, while the tech-heavy Nasdaq dropped 2pc.
Alongside inflation concerns, investors are also grappling with the rising threat of conflict in Ukraine and a raft of corporate results.
IMF cuts forecasts for US and China
T he positive outlook for the UK contrasts with forecasts for the US and China, which have both been sharply downgraded.
The IMF now expects the US economy to grow just 4pc – down from previous forecasts of 5.2pc – due to tighter monetary policy and persistent supply chain disruptions.
Britain's expansion will almost match China, which the IMF also downgraded on "pandemic-induced disruptions related to the zero-tolerance Covid-19 policy."
It also blamed the fallout from the financial turmoil coming from property developers. China will grow just 4.8pc this year, far slower than pre-pandemic trends of 6pc to 7pc, the IMF said.
IMF: UK growth to outstrip G7 for second year running
T here are some upbeat forecasts out from the IMF, which predicts that the UK will be fastest growing major economy for the second year running in 2022.
The IMF expects the UK economy to grow 4.7pc this year after a 7.2pc expansion in 2021, putting it at the top of the league table for G7 nations.
It comes after official data showed the economy returned to pre-pandemic levels in November, though this was before the full impact of omicron set in.
Although the IMF downgraded its growth forecasts for 2021 from 5pc, that was a smaller reduction than most other major economies.
Google changes course on cookies plan amid backlash
G oogle is said to have overhauled a key piece of technology it’s building to replace cookies following a backlash from the advertising industry.
It’s two years since the tech giant first announced plans to scrap cookies – which track users’ behaviour online – in favour of a new system.
But the plans have faced criticism over accusations Google hasn’t done enough to protect privacy and could end up gaining even more power in the online advertising market.
The company has now conceded that a part of its replacement for cookies, known as Floc, might not do enough to protect the identity of individuals online, and did not make it easy enough for web users to understand or control how their data are being used.
Vinay Goel, the production manager in charge of the project, told the Financial Times that Google decided to scrap Floc after "feedback" from publishers and others in the industry.
Factory costs rising at fastest pace since 1980, says CBI
C osts for British factories are raising at their fastest pace in three decades and there’s no signs of the pressures easing soon, according to the CBI.
A survey by the business lobby group found average costs were surging at the fastest rate since April 1980, with a similar pace expected over the next three months. This is translating directly into higher prices for consumers.
The figures reflect severe supply issues and labour shortages, which now stand at their highest since October 1973.
The survey also found that manufacturing output grew at a slower pace in the quarter to January than in December.
Rain Newton-Smith, chief economist at the CBI, said:
Global supply chain challenges are continuing to impact UK firms, with our survey showing intense and escalating cost and price pressures.
Meanwhile, against the backdrop of rising energy prices, which are adding to inflationary pressures, short-term action is needed from the UK Government to find urgent solutions for firms that are struggling.
Martin Gilbert seals £289m River and Mercantile takeover deal
C ity veteran Martin Gilbert has secured a deal to take control of River and Mercantile as he continues to build his asset management empire.
AssetCo, a vehicle led by Mr Gilbert, reached an agreement for an all-share takeover deal that values R&M at around £289m.
It’s the latest deal in an acquisition spree by AssetCo as the former Aberdeen Asset Management chief looks to build up a major new player in the market.
Shares in R&M rose 6.3pc following the announcement.
Time to buy ‘exceptionally cheap’ London-listed shares, says JP Morgan
B ritish stocks are undervalued and represent a golden buying opportunity despite recent market turmoil, two of Wall Street's biggest banks have declared.
Louis Ashworth has more:
Analysts at JP Morgan said London-listed companies look "exceptionally cheap", while their counterparts at Morgan Stanley said there is a "compelling case" for buying shares in FTSE firms.
The FTSE 100 has been comparatively resilient following a torrid start to the year for stock markets.
The blue-chip index was almost 1pc higher at 7,363 points on Tuesday and almost flat for the year to date after falling less sharply than European bourses in Monday's sell-off.
Graham Secker, Morgan Stanley's chief European equity strategist, said: "Rising real yields benefit [the] FTSE 100, which is one of cheapest global indices by some distance. UK equities are also more defensive than peers, offer twice the dividend yield of global stocks and are a big beneficiary of energy strength."
London tends to outperform during "risk-off" periods, beating European indices more than two thirds of the time during market sell-offs in the past two decades.
US futures fall as Fed meeting looms
U S futures fell this morning after turbulent trading on Monday as investors turn their attention to the Federal Reserve meeting and a string of major company results.
The Fed is set to kick off its two-day meeting later today, with markets expecting signals about interest rate rises.
Earnings season is also in full string, with Microsoft, Apple and Tesla all reporting this week. It follows mixed figures from big banks and disappointing subscriber growth for Netflix last week.
Futures tracking the S&P 500 and Dow Jones fell 1.3pc and 0.8pc respectively, while the tech-heavy Nasdaq tumbled 1.8pc.
Former Channel 5 boss named interim chair of Channel 4
D awn Airey, the former chief executive of Channel 5, has been appointed interim chair of Channel 4.
Ms Airey, who joined the broadcaster’s board in December as a non-executive director, will replace Charles Gurassa when he steps down on 27 January.
The media executive, who famously described Channel 5’s mantra as “films, football and f******”, is currently chair of the National Youth Theatre, the Women’s Super League and FA Women’s championship.
Channel 4 is still on the hunt for a permanent chair as it looks to fight off the prospect of privatisation.
Government to bulk up power capacity amid blackout fears
B ritain is planning to bulk up the amount of power capacity it has ready for next winter in an effort to prevent future blackouts.
The Government has set the target for the 2022-23 power capacity auction 14pc higher than National Grid’s recommendation, according to a letter from Business Secretary Kwasi Kwarteng.
Under the system, power stations receive payments to guarantee they will be available if needed to meet demand. Mr Kwarteng said the raised target "reflects the broader uncertainties within the power sector".
The country is facing a string of problems in the energy sector, including ageing power stations, surging natural gas suppliers and a flurry of supplier collapses. The upcoming closures of nuclear power stations are also threatening supply.
Oil rebounds from biggest one-day tumble this year
O il prices are rebounding alongside stocks this morning after the commodity suffered its biggest one-day tumble this year on Monday.
West Texas Intermediate climbed back above $84 a barrel after shedding more than 2pc at the start of the week, while Brent crude gained 1pc to push above $87.
The volatile trading comes as the Federal Reserve prepares for interest rate increases, while tensions are building over a potential conflict in Ukraine.
Oil has been on the rise so far this year amid lower stockpiles and resilient demand despite omicron. A Russian invasion of Ukraine could further disrupt supplies, pushing up prices even more.
FRC is in a ‘pretty poor state’, says potential new chair
T he Government’s candidate to chair the Financial Reporting Council (FRC) has said the regulator is in a “pretty poor state”.
Sir Jan du Plessis, who was ousted as chairman of BT last year, admitted it was perhaps “not wise” for someone in his position to comment on the watchdog’s previous performance, before adding: “I have to say the governance situation at the FRC today is in a pretty poor state.”
He told MPs: “They haven’t had a permanent chair for goodness knows how long, they’ve got three non-executive directors. It’s really, really not a way to run the regulator that should be setting the tone for the whole of British business.
“So I don’t know why it’s happened, I’m not sure what the background is, I’d prefer not to comment, but I think it’s really not good enough.”
Asked what he would bring to the role, Sir Jan said: “I don’t think I can bring magic. I can bring many years of experience of leading complex organisations as a chair.”
We’re not yet convinced on Unilever, says RBC
U nilever has announced 1,500 job cuts and an overhaul of its business structure, but it’s not enough to impress analysts at Royal Bank of Canada.
In a note, analyst James Edwardes Jones wrote:
We are still not hearing what we want from Unilever. The new operating model announced today might make divestments easier, but we would prefer them to focus on reinvesting cost savings behind their brands and categories.
There's also no signs of any culture change yet given all new segment heads are Unilever incumbents…
In summary, we still don't see enough indication of positive change at Unilever. Divesting Ice Cream before making a major acquisition is a better proposition than the one we saw last week, however it will take time for the new operating model to make such a divestment possible plus such a divestment will likely leave sizeable stranded costs.
We would rather Unilever focus on reinvesting, a culture change and setting realistic guidance.
Nvidia ‘quietly preparing’ to abandon Arm takeover
N vidia is said to be quietly preparing to abandon its planned $40bn (£30bn) takeover of British chipmaker Arm following resistance from regulators.
The US tech giant has told partners it doesn’t expect the deal to close, while SoftBank is stepping up preparations for a stock market listing of Arm as an alternative, Bloomberg reports.
The takeover, first announced in September 2020, has faced a fierce backlash from regulators and rivals in the chip industry.
The US Federal Trade Commission has sued to block the deal, saying Nvidia would become too powerful if it took control of Arm. In the UK, the merger is facing an investigation on both competition and national security grounds.
A spokesman for Nvidia said: “We continue to hold the views expressed in detail in our latest regulatory filings – that this transaction provides an opportunity to accelerate Arm and boost competition and innovation.”
Pound steadies near three-week low
S terling has steadied near a three-week low against the dollar as investors digest the dual threats of conflict in Ukraine and further interest rate hikes.
The pound has been under pressure as jitters grow over a potential war between Russia and Ukraine, with NATO putting forces on standby.
Markets are also braced for a meeting of the Federal Reserve this week that could signal the removal of its huge pandemic stimulus package.
The pound was flat against the dollar at $1.3485, not far from its lowest since 3 January hit on Monday. Against the euro, it edged up 0.3pc to 83.73p after sliding to its lowest level this year at the start of the week.
Vodafone to switch off 3G
V odafone has said it will start switching off 3G next year as part of a plan to gradually phase out the old network.
The mobile operator said it will begin retiring 3G in 2023, with the spectrum used to improve service on its more modern 4G and 5G networks.
Vodafone’s 3G network came into operation 17 years ago and has handled nearly 500bn minutes of calls. Today, less than 4pc of the company’s traffic travels on 3G.
Amigo Loans plunges as finance chief quits
T he chief financial officer of Amigo Loans is stepping down in the latest sign the subprime lender’s troubles show no signs of abating.
Mike Corcoran, who took up the role of finance chief just 14 months ago, will leave the business with immediate effect. Shares plunged 15pc.
It’s the latest setback for Amigo, which is battling to stave off insolvency after it was hit by a deluge of customer complaints regarding mis-sold loans.
In a statement on Monday the company warned it could collapse if it fails to receive court and creditor approval for its new business rescue plan.
German business confidence ticks up
C onfidence in Germany’s short-term outlook improved in January amid hopes the latest wave of Covid infections will have only a limited impact on the economy.
The latest gauge of business expectations by the Ifo institute rose to 95.2 – more than economists predicted.
Manufacturers said supply bottlenecks had begun to ease and even companies in the services sector were optimistic despite current restrictions.
Ifo president Clemens Fuest said Germany was starting the new year with a “glimmer of hope”.
It’s the latest indication that Europe’s largest economy has proved relatively resilient to the new measures rolled out to tackle the omicron variant.
While the Bundesbank said the economy probably contracted "slightly" in the fourth quarter, it foresees growth of 4.2pc this year. However, it warned inflation was likely to remain "extraordinarily high" in the short term.
Unilever confirms 1,500 jobs cuts
U nilever has confirmed plans to cut around 1,500 jobs globally as part of an overhaul it said will simplify its business structure.
The consumer goods giant will reduce senior management roles by around 15pc and junior management positions by 5pc.
As part of the changes, the company will be reorganised into five business groups – beauty & wellbeing, personal care, home care, nutrition and ice cream.
It follows Unilever’s botched £50bn bid for GSK’s consumer arm, while activist investor Nelson Peltz has built up a stake in the company, ramping up the pressure on bosses.
Chief executive Alan Jope said:
Our new organisational model has been developed over the last year and is designed to continue the step-up we are seeing in the performance of our business.
Moving to five category-focused business groups will enable us to be more responsive to consumer and channel trends, with crystal-clear accountability for delivery. Growth remains our top priority and these changes will underpin our pursuit of this.
Capricorn Energy jumps on higher production outlook
S hares in Capricorn Energy are flying high at the top of the FTSE 250 this morning after the company said it expects production to increase this year.
Capricorn, formerly known as Cairn Energy, expects output in Egypt to average between 37,000 and 43,000 barrels of oil equivalent per day in 2022.
As analysts at RBC point out, this represents an effective doubling in the size of the business since 2020.
Chief executive Simon Thomson said the company was “actively pursuing opportunities to grow our producing asset base”.
Shares jumped as much as 8.7pc at the open – the biggest leap since early August – before settling up 6.4pc.
Credit Suisse’s woes mount with profit warning
C redit Suisse has warned it’s likely to make a net loss in the fourth quarter, marking the latest trouble for the embattled Swiss lender.
The bank will set aside 500m francs (£404m) for legal costs relating to its investment banking business, while it warned business in its trading and wealth management divisions had slowed.
As a result, Credit Suisse expects to post a pre-tax income or loss of “approximately breakeven” for the fourth quarter.
It’s the latest blow in a terrible year for the bank, which is still reeling from the collapse of Archegos Capital Management and Greensill Capital.
It’s turnaround plan has also been cast into doubt after the dramatic ousting of chairman Antonio Horta-Osorio for breaching Covid quarantine rules.
Royal Mail to cut 700 jobs
U nilever isn’t the only one planning job cuts this morning – now Royal Mail is also wielding the axe.
The company said it’s begun consultations to slash around 700 management jobs as part of a wider cost-cutting plan. Bosses said the plans will cut costs by about £40m a year, with around £30m in its 2022-2023 financial year.
It came as Royal Mail revealed staff absences peaked at 15,000 in early January due to the spread of omicron, which sparked delayed for some postal services.
The firm said last year’s lockdown boom had eased off over the Christmas period as more shops were open, leading to falls of 4.9pc in parcel revenues and 7pc in volumes in the final three months of 2021.
However, these were still significantly ahead of pre-pandemic levels, thanks to a shift to online shopping and higher deliveries.
Shares rose 3.3pc following the update.
FTSE risers and fallers
T he FTSE 100 has rebounded from its one-month low, with energy and mining stocks leading the recovery.
The blue-chip index rose 0.3pc, with oil majors BP and Shell and miners Anglo American and BHP the top boost.
Royal Mail was among the biggest gainers, rising as much as 3.5pc after it announced plans to slash 700 management roles. By contrast, Unilever dropped amid reports it’s planning thousands of job cuts.
It marks a recovery after fears of a war between Russia and Ukraine tanked stocks on Monday. The threat of a supply to oil disruption has pushed crude prices higher, however.
The domestically-focused FTSE 250 rose 0.8pc. Pub group Marston’s gained 1.9pc even after it revealed an omicron hit to trading over Christmas.
Resolution Foundation: Sunak should tackle energy bills
J ames Smith , research director at the Resolution Foundation, has joined calls for a delay to the national insurance rise.
Borrowing for nine months of the fiscal year is now £13bn lower than October’s OBR forecast, mainly reflecting the stronger-than-expected post-furlough scheme labour market. This should give the Chancellor fiscal room for manoeuvre in setting out a plan to deal with the cost of living crunch.
With soaring energy bills set to push families into fuel stress, a targeted package to limit the rise in energy bills is the top priority, with the majority of gains from a delay national insurance increase going to the richest fifth of households.
Omicron hits beer sales at pub group Marston's
P ub group Marston's suffered a dent in sales over the crucial festive period as the spread of the omicron variant kept punters away.
The London-listed company said like-for-like sales had been growing in October and November, but dropped sharply in the eight weeks to January 12 as the virus spread.
Sales at Marston's, which makes Pedigree and Hobgoblin beer, were down 3.9pc across the whole 16-week period.
Bosses pinned the downturn on omicron and the Government's work-from-home order, with pubs in London suffering worse than elsewhere in England.
Pubs in Wales and Scotland were the worst affected due to tougher restrictions, though the company insisted it remained confident for the future.
FTSE 100 jumps at the open
T he FTSE 100 has gained ground at the open, clawing back losses after yesterday’s rout.
The blue-chip index jumped 0.7pc to 7,345 points.
More expert reaction: There’s leeway to tackle energy bills
M artin Beck , chief economic advisor to the EY ITEM Club, also says there should be leeway to tackle the cost-of-living crisis.
Similar pressures on spending are likely to persist over the remaining three months of the fiscal year but, as things stand, borrowing should still come in below the OBR's full-year forecast of £183bn. However, this will be influenced by what, if any, measures the Government announces to take the pressure off households' finances from rising energy bills.
The OBR's judgements on the medium-term outlook will play a role here. The EY ITEM Club thinks that the OBR is too gloomy on medium-term growth prospects, although the next forecast on 23 March is probably too soon for the OBR to make significant revisions.
There's also significant uncertainty about how the OBR's assumptions for inflation and interest rates will evolve. But the EY ITEM Club would be surprised if the OBR presented a forecast that reduced the degree of fiscal headroom available to the Chancellor, meaning there should be leeway to ease the pressures caused by high energy prices.
Expert reaction: Sunak has enough room to scrap tax hikes
B ethany Beckett , UK economist at Capital Economics, says strong tax receipts won't offset higher interest costs for much longer, but Rishi Sunak could still cancel planned tax increases.
Public sector net borrowing in December, at £16.8bn, was broadly in line with the Office for Budget Responsibility's forecast from last October. But, with inflation set to keep pushing higher until April, borrowing is likely to return to overshooting the OBR's forecast in the coming months.
As it stands, cumulative borrowing in 2021/22 is still on track to hit the OBR's forecast of £183bn. But we doubt that this will last: we expect retail price index inflation to average 2.8 percentage points higher than the OBR's forecast in 2022/23, which will push up total borrowing in 2022/23 to £105bn, well above the OBR's forecast of £83bn.
Even so, on our forecasts, the Chancellor would have enough fiscal room to cancel the scheduled increase in National Insurance taxes on 1 April, if he decided to cushion the blow to households from the energy crisis.
Tax receipts offset surging inflation
T he extra breathing space in public finances came despite an £8.1bn debt interest bill – the second highest on record.
This was fuelled largely by inflation and a surge in the retail price index, to which index-linked gilts are pegged.
The total increase in debt interest between April and December was £21bn – or 69pc – compared to last year.
However, tax receipts came in much higher as the economy held up better than expected. Corporation tax revenues were the highest on record.
The government’s debt interest payments were 3x higher in December than a year earlier. So despite the stronger-than-expected economy, borrowing matched the OBR’s forecast, for a 2nd month. Still, I doubt this will stop Sunak stepping in to ease the “cost of living crisis” soon pic.twitter.com/BErSPqqvFS
— Samuel Tombs (@samueltombs) January 25, 2022
Public borrowing undershoots forecasts
G overnment borrowing is on track to undershoot forecasts by about £10bn this year, marking a boost to Chancellor Rishi Sunak.
Public sector borrowing stood at £16.8bn in December, taking the total for the first nine months of the financial year to £146.8bn, according to the ONS. That’s £13bn below forecasts by the fiscal watchdog in October.
The figures raise the possibility of extra cash for Mr Sunak to help ease the cost of living crisis for households. Some economists have suggested he could cancel the planned rise in National Insurance in April.
Read more on this story: Rishi Sunak has room to delay national insurance raid, says IFS
Unilever plots job cuts
G ood morning.
There’s no shortage of news for Unilever at the moment.
After its disastrous £50bn move on GSK’s consumer arm – which was firmly rebuffed by the pharmaceutical giant and lambasted by shareholders – it’s now planning to slash thousands of jobs.
The cuts are said to target numerous regional and divisional roles that chief executive Alan Jope believes have slowed innovation.
Unilever is facing huge pressure to lay out its growth plans after the GSK bid fell through. This week it also emerged that billionaire activist Nelson Peltz had taken a material stake in the company, sparking speculation of further overhaul.
5 things to start your day
1) Govia Thameslink races to avoid nationalisation Sources confident of extending deal with franchise operator Go-Ahead despite accounting woes
2) ITV bolsters evening news as Piers Morgan prepares attack The broadcaster’s 6.30pm update will transform into an hour-long show in its biggest expansion in news for 20 years
3) UK to import record levels of liquified natural gas as Ukraine tensions mount Britain braces for new energy crisis amid concerns of upcoming shortages
4) Staff at City watchdog ballot for strike action over pay and bonuses Financial Conduct Authority staff could go on strike over new pay structure which includes new salary grades that vary depending on location
5) Rishi Sunak has room to delay national insurance raid, says IFS Delaying the national insurance increase by a year would be be ‘fiscally fine’, says director of the IFS
What happened overnight
Asian markets tumbled on Tuesday following a highly volatile day on Wall Street fuelled by fears about the Federal Reserve’s plans to hike interest rates. Tokyo was down two percent, while Hong Kong, Singapore and Taipei were off more than one percent.
Coming up today
- Corporate: Capricorn Energy, TI Fluid Systems (Trading update)
- Economics: Government borrowing (UK) , house price index (US) , consumer confidence (US)
- If GE debt gets junked, markets have reason to shudder
- European, US equities defy Asian slide
- Oil edges down despite resumption of Iran sanctions
- Futures extend slide on growth fears, government shutdown threat
- Why the odds of a recession are rising
- Japan's top currency official says govt ready to act to curb yen volatility
- European stocks tumble in 'perfect storm' as oil prices slump
- Asia stocks edge up, yen drops amid perceived progress on North Korea issues
- Goldman Sachs reports improved results
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