Archive forOctober, 2016

Bank says ‘nothing has changed’ on Mark Carney decision

The Bank of England says “nothing has changed” following contradictory reports on how long governor Mark Carney will remain at the bank. “The governor has said he will make his decision public by the end of the year,” a spokesman told the BBC. Mr Carney took over as governor in June 2013 for an eight-year term, but with an option to leave after five years. The Times reported he is likely to quit in 2018, but the FT said he is “leaning strongly” towards staying until 2021. According to the Financial Times, Mr Carney will make an announcement this week “to put an end to damaging speculation”. Some believe the announcement could come on Thursday when Mr Carney will hold a news conference following the publication of the Bank’s Quarterly Inflation Report and the announcement of the result of its latest interest rate meeting.

Royal Bank of Scotland sees more losses in third quarter

Royal Bank of Scotland (RBS.L) has reported a £469m loss for the July-to-September period as “legacy issues” continue to overshadow its performance. The bank received a £45.5bn bailout during the financial crisis and has been tackling a range of problems. But once restructuring costs and provision for litigation were excluded, the bank made an adjusted quarterly operating profit of £1.3bn. A spokeswoman said RBS’s core business was producing “really strong profits”.

Forward Diary: 31st October – 4th November 2016

Company and economic announcements planned for the week commencing 31st October 2016

Samsung operating profit plunges 30% in wake of Note 7 fiasco

South Korean technology giant Samsung has seen profits plunge after the recall of its Galaxy Note 7 smartphone. Operating profit between July and September fell 30% from a year earlier to 5.2tn won ($4.6bn, £3.8bn) – the lowest level in two years. The world’s largest smartphone manufacturer stopped making the Note 7 after reports of them catching fire. Meanwhile the firm’s shareholders have backed Samsung heir apparent Lee Jae-yong joining the board. He is grandson of the firm’s founder Lee Byung-chull. and the son of Samsung chairman Lee Kun-hee. The appointment is being seen as a big major step towards his overall control of the family-run group. But Mr Lee’s appointment has raised some questions from critics who say he has not held any major role at the firm and was taking a place on the board through birth rather than by merit.

Lloyds sets aside extra £1bn for PPI

Lloyds Banking Group has set aside a further £1bn to pay compensation for mis-sold payment protection insurance (PPI). The extra provision was expected after the deadline for PPI claims was extended to June 2019. The announcement came as the bank announced that pre-tax profits for the three months to the end of September fell 15% to £811m. Underlying profits for the quarter were down by 3% to £1.92bn. Lloyds is 9%-owned by the taxpayer.

Manufacturing exports boosted by pound

Manufacturing exports have received a significant boost from the weakness of sterling, according to the the latest report from the CBI. The Industrial Trends Survey showed that export volumes grew that their fastest pace for two and a half years in the three months to October. The pound has fallen by nearly a fifth against the dollar since the EU referendum at the end of June. Export orders are expected to rise further over the next three months. However, manufacturers are worried about a potential shortage of skills. Nearly a quarter of the 459 firms which responded to the CBI survey said that “skilled labour availability” could limit output over the next few months.

Banks ‘set to relocate out of UK’

Large banks are getting ready to relocate out of the UK early next year over fears around Brexit, the British Bankers’ Association (BBA) has warned. Writing in The Observer, its boss Anthony Browne also says smaller banks could move operations overseas by 2017. “Their hands are quivering over the relocate button,” he wrote. Most banks had backed the UK remaining in the EU. Mr Browne also said the current “public and political debate at the moment is taking us in the wrong direction.” His comments build upon those he made at the BBA annual conference last week, when he said banks had already “set up project teams to work out what operations they need to move by when, and how best to do it”.

Forward Diary: 24th – 28th October 2016

Company and economic announcements planned for the week commencing 24th October 2016

British American Tobacco in $47bn Reynolds merger deal

British American Tobacco (BATS) is to merge with its US partner Reynolds in a deal valued at $47bn (£38bn). BAT wants to buy the 57.8% of Reynolds it does not already own. The merger would bring together some of the tobacco industry’s best-known brands, including Rothmans, Dunhill and Camel cigarettes. BAT has been a shareholder in Reynolds since 2004 and the company said the merger was “the logical progression in our relationship”

Travis Perkins says 600 jobs at risk amid branch closures

The UK’s biggest builders merchant, Travis Perkins (TPK.L), is closing 30 branches, putting 600 jobs at risk. The company, which employs 28,000 people and has 2,060 stores, said it was taking the steps due to an “uncertain UK outlook” for next year. Profits will also be lower than expected this year due to weak sales in its plumbing and heating division. The firm is closing branches of Travis Perkins, Benchmarx, BSS and PTS, but not its DIY store Wickes.

Major pension plan shelved by government

The government has given up on plans to allow pensioners to raise cash through selling their annuities to insurance companies. The idea was initially brought to light within the March 2015 Budget by the then Chancellor George Osborne as part of his plan for “pension freedoms”. Despite coming to the conclusion last December that the plan would come into affect next April, the government has since changed its mind. It addmitted that several pensioners might be lured into making the wrong decision.

Ryanair cuts profit forecast after fall in pound

Ryanair (RYA.L) has reduced its forecast for full-year profits, blaming the drop in the pound following the Brexit vote. The budget airline said net profit would be €1.3bn to €1.35bn (£1.17bn-£1.2bn), 5% below its earlier guidance. Ryanair said the “primary cause” of the lower forecast was the 18% fall in sterling since the Brexit vote. Ryanair boss Michael O’Leary said while better cost control and stronger growth would help to offset the impact it was “prudent” to adjust its guidance.

UK economy ‘faces prolonged weakness’

Britain’s economy faces a “prolonged period” of weaker growth as consumer spending slows and business curbs investment, according to a report. Although the EY Item Club think tank predicts the economy will grow 1.9% this year, it expects that performance to fizzle out as inflation rises. The economy’s stability since June’s Brexit vote was “deceptive”, EY said. It expects inflation to jump to 2.6% next year before easing back to 1.8% in 2018. That will cause growth in consumer spending to slow from an expected 2.5% this year to 0.5% in 2017 and 0.9% the year after, the report said. Business investment is also forecast to fall due to uncertainty surrounding Britain’s future trading relationship with the EU, dropping 1.5% this year and more than 2% in 2017. EY predicts that the impact of weaker consumer spending and falling investment will cause UK GDP growth to drop sharply to 0.8% next year, before expanding to 1.4% in 2018.

Forward Diary: 17th – 21st October 2016

Company and economic announcements planned for the week commencing 17th October 2016

Tesco and Unilever end price dispute

Issues surrounding the supply of leading brands including Marmite to Tesco (TSCO.L) have now been resolved, Unilever (ULVR.L) has said. The supermarket giant and the UK’s largest food manufacturer had been locked in a battle over wholesale prices. Unilever had wanted to raise its prices by about 10% to compensate for the steep drop in the value of the pound. Brands including Hellmann’s Mayonnaise had been removed from Tesco’s website. “Unilever is pleased to confirm that the supply situation with Tesco in the UK and Ireland has now been successfully resolved,” Unilever said. “We have been working together closely to reach this resolution and ensure our much-loved brands are once again fully available. For all those that missed us, thanks for all the love.”

Tesco removes Unilever brands in row over rising prices

Tesco (TSCO.L) has stopped selling dozens of its most famous household brands to its online shoppers because of a dispute with its biggest supplier, Unilever (ULVR.L). Included are Marmite, PG Tips tea, Pot Noodles and Surf washing powder. The row is said to have developed when Unilever – which says it faces higher costs because of the fall in sterling – attempted to increase wholesale prices. The products are still being sold in stores but Tesco said its shelves were running short of several products. It said it was “currently experiencing availability issues on a number of Unilever products”. “We hope to have this issue resolved soon,” the company added. However, it did not indicate when that might be. Sterling has dropped by 16% against the euro since the UK’s Brexit vote. Unilever is the UK’s biggest food and grocery manufacturer with many famous brand names. Those currently absent from Tesco’s website also include Comfort fabric conditioner, Hellmann’s mayonnaise and Ben & Jerry’s ice cream.

Pound sees further volatile trading

The pound is stronger in early Asian trading, regaining some of the ground lost from a sharp drop late on Tuesday. The currency was trading at $1.2259, up 0.8% from its fall the previous day. On Tuesday, it had dropped more than 2%, falling below $1.21, while against the euro it fell below €1.10. The pound has now fallen about 18% against the dollar since the referendum, to levels not seen since 1985.”Unfortunately this volatility in the pound is unlikely to end until there is greater clarity around Brexit,” said market analyst Angus Nicholson of IG in Melbourne. He added that the rise in Asian trading may be driven by Prime Minister Theresa May making a late amendment to the terms of a debate on Wednesday, seen by traders as effectively giving Parliament a vote on the terms of Brexit.

Pensions regulator wants more powers to protect workers

The Pensions Regulator is asking for new powers to stop final-salary pension schemes being dumped when companies are sold. Lesley Titcomb would like firms with large pension deficits to be required to inform her if a sale is imminent and powers to intervene if necessary. At the moment, companies do not have to inform the regulator before a sale. The government insists it has a robust and flexible system for regulating occupational pensions. The risk to final-salary or defined-benefit schemes when a company is sold has come under the spotlight following the collapse of BHS. The retail group went into administration shortly after being sold for £1 by former owner Sir Philip Green. The pension scheme is reported to have a deficit of nearly £600m and is now likely to go into the pension’s lifeboat, the Pension Protection Fund. Workers who have not yet retired will get 90% of the pension they expected.

RBS squeezed struggling businesses to boost profits, leak reveals

Royal Bank of Scotland secretly tried to profit from struggling businesses, leaked documents show. The bank bought up assets cheaply from failing businesses it claimed to be helping, the confidential files reveal. Staff could boost their bonuses by finding firms which could be squeezed in what it called a “dash for cash”. RBS said it had let some small business customers down in the past but denied it deliberately caused them to fail.

Economic productivity in UK touches pre-crisis high

The UK’s economic productivity, which is a key indicator of living standards, has rebounded to levels before the start of the financial crisis. As per data from the Office for National Statistics, workers’ hourly output in the UK in the three months to June increased 0.4% y-o-y, in line with the growth at the end of 2007. The rise was primarily due to higher employment, including more foreign migrants.

Forward Diary: 10th – 14th October 2016

Company and economic announcements planned for the week commencing 10th October 2016

UK’s services sector expands at slower pace in September

As per Markit, the UK’s services PMI fell to 52.6 in September from 52.9 in August, marking the second consecutive month of expansion, albeit at a slower rate than the previous month. New business grew at the fastest pace in seven months in September. Moreover, outstanding business levels increased for the second consecutive month after recording the steepest drop since September 2009 in July amid the EU referendum.

Global growth forecast for 2016 remains unchanged

The IMF maintained its overall global growth forecast at 3.1% for 2016 and 3.4% for 2017 after cutting the outlook for five consecutive quarters. It expects advanced economies to grow at 1.8% and emerging markets at 4.6%. The Fund lowered its growth forecast for 2016 in the US to 1.6% from 2.2% forecast in July 2016.

UK’s manufacturing sector grows sharply in September

As per Markit, the UK’s manufacturing PMI rose to 55.4 in September from 53.4 in August, marking the highest reading since June 2014 and beating market expectations of a score of 52.1. The improvement was mainly due to stronger growth in output and new orders, shrugging off uncertainty over the Brexit vote.

UK’s GDP growth revised to 0.7% in Q2 2016

As per an estimate by the Office for National Statistics (ONS), the UK’s GDP growth was revised to 0.7% in Q2 2016, higher than the earlier estimate of 0.6%, marking the 14th consecutive quarter of expansion. The agency revised the annual growth for Q2 2016 to 2.1% from 2.2%. In addition, ONS stated services output grew 0.4% m-o-m in July. On a y-o-y basis, services output increased 2.9%.