Archive forJuly, 2017

HSBC sees half-year profits rise by 5%

HSBC has reported a 5% rise in profits in the first half of 2017. Europe’s biggest bank reported a pre-tax profit of $10.2bn (£7.8bn) for the first six months, up by about $500m. As widely expected, the bank has also announced a share buyback of up to $2bn which it expects to complete by the end of 2017. HSBC’s share price has rallied in the past year, helped by the weak pound which makes profits earned abroad more valuable when repatriated to the UK. Since the 2008 financial crisis, HSBC has been cutting jobs and selling assets to make the group more profitable while still making dividend payments to shareholders. “In the past 12 months we have paid more in dividends than any other European or American bank and returned $3.5bn to shareholders through share buy-backs,” HSBC’s chief executive Stuart Gulliver said. The bank has used share buybacks to offset the impact of shares being paid out as dividends. The announcement takes the total of HSBC share buybacks since the second half of 2016 to $5.5bn. Over the past year, HSBC’s share price has risen from less than 500p to 743p. “Like many of the other banks, HSBC has beaten modest expectations,” said Peter Hahn, of the London Institute of Banking and Finance. HSBC said it had spent about $500m on splitting its retail from its investment banking arm, which it described as “one of the largest projects ever undertaken by the group”. The bank’s new Birmingham headquarters for its UK retail business will begin operating in July 2018. “The ring-fence is a big expense creating lots of uncertainty,” said Mr Hahn. “It’s not just the headquarters, it’s separating lots of the systems in the bank.”

Air France-KLM is buying 31% of Virgin Atlantic

Air France-KLM is buying almost a third of Virgin Atlantic, leaving Sir Richard Branson’s parent company, Virgin Group, with a minority stake in the airline he founded. Air France-KLM is taking a 31% stake, worth £220m, in Virgin Atlantic as part of a four-way joint-venture with US partner Delta. Virgin Group’s share will fall from 51% to 20%, while Delta will retain 49%. Sir Richard said he would remain “very much involved” after the deal. He said in an open letter that the new joint-venture would be “extremely beneficial” to the airline, customers and the brand, and recalled key moments in Virgin Atlantic’s history, striking a valedictory tone. Jean-Marc Janaillac, chief executive of Air France-KLM, said the deal would give customers “even more choice between Europe, UK and the United States via twelve hubs on both sides of the Atlantic”.

Forward Diary: 31st July – 4th August

Company and economic announcements planned for the week commencing 31st July 2017

Car production falls almost 14% as UK sales dip

UK car production fell by 13.7% in June compared to a year earlier – the third month in a row that output has fallen. The Society of Motor Manufacturers and Traders (SMMT) said the UK market was cooling in line with forecasts, following a long period of record growth. The industry is likely to fall short of its ambition to produce more than two million cars a year by 2020, it said. The SMMT said uncertainty over Brexit was an added cause for concern. But a spokesperson for the Department for Exiting the European Union said the government was determined that the UK would continue to be “one of the most competitive locations in the world” for automotive manufacturing. The fall in production mirrored a decline in UK car sales. Over the first six months of this year, sales were distorted by a rise in Vehicle Excise Duty in April, which prompted drivers to bring forward purchases of new cars. But comparing the first six months of 2017 with the equivalent period in 2016 still showed a fall of 9.5% in UK sales, the SMMT said.

New diesel and petrol cars face 2040 ban

New diesel and petrol cars and vans will be banned in the UK from 2040 in a bid to tackle air pollution, the government is set to announce. Ministers will also unveil a £255m fund to help councils tackle emissions from diesel vehicles, as part of a £3bn package of spending on air quality. The government will later publish its clean air strategy, favouring electric cars, before a High Court deadline. Campaigners said the measures were promising, but more detail was needed. They had wanted government-funded and mandated clean air zones, with charges for the most-polluting vehicles to enter areas with high pollution, included in the plans. After a protracted legal battle, the government was ordered by the courts to produce new plans to tackle illegal levels of harmful pollutant nitrogen dioxide. Judges agreed with environmental campaigners that previous plans were insufficient to meet EU pollution limits. Ministers had to set out their draft clean air strategy plans in May, with the final measures due by 31 July.

Rise in personal loans dangerous, Bank of England official says

A sharp rise in personal loans could pose a danger to the UK economy, a Bank of England official has warned. Outstanding car loans, credit card balance transfers and personal loans have increased by 10% over the past year, the Bank’s financial stability director Alex Brazier said. In contrast household incomes have risen by just 1.5%, he said. “Household debt – like most things that are good in moderation – can be dangerous in excess”, Mr Brazier said. Mr Brazier, in a speech to the University of Liverpool’s Institute for Risk and Uncertainty, added that this increase in debt was “dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy”. He warned that High Street banks were at risk of entering “a spiral of complacency” about mounting consumer debt levels. “Lending standards can go from responsible to reckless very quickly. “The sorry fact is that as lenders think the risks they face are falling, the risks they – and the wider economy face – are actually growing,” Mr Brazier added. Mr Brazier hinted that the Bank of England could force banks to take further safeguards against the risk of bad debts if it was deemed necessary.

IMF downgrades US and UK growth

The UK and US economies will expand more slowly in 2017 than previously predicted, according to the International Monetary Fund (IMF). It said “weaker-than-expected activity” in the first three months of the year meant the UK would grow by 1.7%, compared with an earlier 2% forecast. And the IMF revised down its US outlook from 2.3% to 2.1%. However, its overall global economic predictions – of 3.5% growth in 2017 and 3.6% in 2018 – remain unchanged. Meanwhile the outlook for several eurozone economies is brighter than initially thought, with countries including France, Germany, Italy and Spain seeing growth forecasts revised up. In its latest World Economic Outlook, the IMF said the “pick-up in global growth” that it had anticipated in its previous survey in April remained “on track”. But it added that while the global growth projection was unchanged that masked “somewhat different contributions at the country level”.

UK air traffic controllers warn of over-crowded skies

Air traffic controllers are warning that UK skies are running out of room for record numbers of planes. Friday is likely to be the busiest day of the year, with air traffic controllers expecting to handle more than 8,800 flights – a record number. They have called for a drastic modernisation in the way aircraft are guided across UK airspace. It comes as the government launches a discussion to shape the UK’s aviation industry for the next 30 years. Air traffic controllers expect to manage a record 770,000 flights in UK airspace over the summer – 40,000 more than last year. But the ability of the the UK’s National Air Traffic Control Service (Nats) to deal with this surge is being stretched to the limit, it is claimed.

Forward Diary: 24th – 28th July 2017

Company and economic announcements planned for the week commencing 24th July 2017

One-third of card payments contactless

More than a third of all card payments are now contactless, according to new figures which also show a jump in pest control purchases. Trade association UK Finance said 33% of all spending on plastic was settled with a tap instead of a swipe in May. This is a rise from 18% in the same month last year. It also said that shopping on cards were strong at “pest control merchants”, followed by chemists. There was a particular rise in travel-related purchases, such as foreign currency exchanges and airport terminals. A total of £4.5bn was spent through contactless payments in May, out of £57.2bn on credit and debit cards. Compared with last May, people spent more on debit cards at £40.6bn, up from £37.9bn the year before. Credit card purchases increased to £16.6bn from £15.2bn.

Credit and debit card surcharges to be banned

Consumers are no longer to be charged extra for paying by debit or credit card, the government has said. From January next year, businesses will not be allowed to add any surcharges for card payments. The worst offenders currently are airlines and food delivery apps, and small businesses which typically add a fee for cards. In 2010 alone consumers spent £473m on such charges, according to estimates by the Treasury. It follows a directive from the European Union, which bans surcharges on Visa and Mastercard payments. However the government has gone further than the directive, by also banning charges on American Express and Paypal too. Campaigners welcomed the move, saying it was great news for consumers.

Netflix says it now has 104 million subscribers worldwide

Netflix shares surged on Monday after the firm said it now had about 104 million subscribers, a larger-than-expected number that boosted revenues. Company leaders said the gains were a sign that investment in new shows and movies was paying off as online television becomes more popular. The firm is behind shows such as 13 Reasons Why, about teen suicide, and political drama House of Cards. Boss Reed Hastings said it was “the rewards of doing great content”. Netflix shares rose more than 10% in after-hours trading following the announcement of its second-quarter earnings. Company leaders said new content creation was critical to competing against other online rivals such as Amazon and YouTube, as well as traditional television. They said generating new content also meant streaming services were expanding the size of the overall market. “The largely exclusive nature of each service’s content means that we are not direct substitutes for each other, but rather complements,” company leaders wrote in a letter to shareholders. “The shift from linear TV to on-demand viewing is so big and there is so much leisure time, many internet TV services will be successful.”

HS2: Route through Sheffield to be announced by ministers

The final route of the Manchester and Leeds branches of HS2 will be announced later, including a decision over its path through Sheffield. Contracts worth £6.6bn will also be awarded for work on the first stretch of the new high speed rail line between London and Birmingham. The transport secretary said HS2 would “drive economic growth and productivity in the North and Midlands”. But critics say the project will damage the environment and is too expensive. The first trains are not expected to run until 2026. The decision over its route through the North of England has been delayed for several years due to a series of disagreements, the most controversial of which has been which route it should take through Sheffield.

Treasury Committee head seeks wider scope

Nicky Morgan, the new chair of the influential Treasury Committee, has said she wants the body to extend its scope beyond banks and Brexit. Ms Morgan, a former education secretary, told the BBC she wants to look “at the wider Treasury remit”. She said: “We want to look at the management of the economy, public spending decisions. “We’ve got a Budget coming up, with issues like household debt, tax policy, investment in infrastructure. “These are all the things that actually our constituents put us in the House of Commons for, the things that make a difference to household budgets and to their economic security.” Ms Morgan, the first female chair of the Treasury Committee, saw off competition from five other Tory MPs to land the role heading the committee of MPs that scrutinises the Treasury. In the past few years, its members have grilled chancellors of the exchequer and governors of the Bank of England, as well as numerous chief executives.

Forward Diary: 17th – 21st July 2017

Company and economic announcements planned for the week commencing 17th July 2017

Estate agents have lowest stock of homes for 40 years

The UK housing market is in a state of lethargy, according to property surveyors, with estate agents reporting the lowest stock of properties for nearly 40 years. In another gloomy survey, members of the Royal Institution of Chartered Surveyors (Rics) said the market might continue “flatlining” for a while. New instructions in June fell for the 16th month in a row. Most surveyors also saw further falls in the number of properties being sold. The average number of homes on the books of estate agents fell to 42.5 – the lowest number since the survey started in January 1978. “Political uncertainty” was given by 44% of surveyors as the main reason for the pessimism – nearly double the number who blamed Brexit. Simon Rubinsohn, Rics’ chief economist, said that uncertainty seemed to be “exerting itself on transaction levels, which are flat-lining, and may continue to do so for a while, particularly given the ongoing challenge presented by the low level of stock on the market”.

Lloyds ends fees for unplanned overdrafts

Fees for unplanned overdrafts are to be scrapped for the 20 million customers of Lloyds Banking Group, which includes the Halifax and Bank of Scotland. From November this year, any customer going over their overdraft limit will face no fees at all, Lloyds said. However, the bank may continue to block payments from the account until the overdraft is paid off. It follows criticism of high charges by consumer groups and the Competition and Markets Authority (CMA). The Financial Conduct Authority (FCA) is also expected to propose measures on overdraft fees within the next few weeks, as part of its inquiry into high-cost creditPreviously Lloyds customers taking out unauthorised overdrafts faced interest payments at an annual rate of 19.89%, a daily charge of up to £10, the monthly charge of £6, and up to £30 a day for returned (unpaid) items. These will all now be abolished. Fees for missed payments from basic bank accounts will also disappear. Lloyds said that it expected to make less money as a result of the changes, although it said fewer people now use an unauthorised facility than used to be the case. As well as scrapping charges for unplanned overdrafts, Lloyds is also simplifying fees for planned overdrafts, making it cheaper for many customers to borrow. Those with overdrafts of less than £500 are likely to pay less, while those borrowing more than £1000 are likely to see higher charges.

Taylor Review: UK should end cash-in-hand economy

The author of a government review into work practices is calling for the end of the “cash-in-hand economy”. Matthew Taylor, whose report is out on Tuesday, said cash jobs like window cleaning and decorating were worth up to £6bn a year, much of it untaxed. Instead, the work should be paid through “payment platforms”. The review, commissioned by Theresa May, also tackles low-paid work, zero hours contracts and the gig economy. Mr Taylor, who is chief executive of the Royal Society of Arts and a former Tony Blair advisor, is set to call for cash jobs to be paid through platforms such as credit cards, contactless payments and PayPal. This would make it harder for customers and workers to avoid paying tax.

Minimum wage push for gig economy workers

A government review into the rapidly changing world of work is to demand a radical overhaul of employment law and new guarantees on the minimum wage. The review is set to call for a new category of worker called a “dependent contractor”. Those workers – likely to cover riders for firms like Deliveroo and Uber – should receive benefits such as sick pay and holiday leave, it will say. And they will be covered by some of the minimum wage requirements. This will help clear up the present grey area between a fully employed and a self-employed person – presently called a “worker” in employment law. The review by Matthew Taylor, the head of the Royal Society of Arts and a former Tony Blair adviser, will outline a structure obliging firms to show that a person working for them can earn at least 1.2 times the present national living wage of £7.50 an hour for over-25s. The companies will do that by modelling the number of tasks – or “gigs” – an average person working at an average rate can achieve.

Deliveroo opens door to benefits win for gig economy workers

The food delivery firm Deliveroo has said it will pay sickness and injury benefits to its 15,000 riders in the UK if the law is changed. In a submission to the government’s review of the “on-demand” economy seen by the BBC, the firm says that at present the law prevents it from offering enhanced rights because it classifies its riders as self-employed. Deliveroo says it uses that classification to provide its riders with the flexibility to work when they want. It says employment rules should be changed so that people who work for companies like Deliveroo and Uber can receive enhanced benefits and not lose that flexibility. Sources say that the firm is willing to looking at enhanced payments to riders to cover things like sickness pay – and that the money would probably be administered under a government controlled scheme similar to national insurance or pensions contributions.

Forward Diary: 10th – 14th July 2017

Company and economic announcements planned for the week commencing 10th July 2017

Butter could cost more by Christmas, Arla boss warns

The boss of dairy giant Arla has warned that there could be a butter and cream shortage in the UK this Christmas. Peder Tuborgh, chief executive of the farmer-owned firm, says that the shortage will bite across Europe. “We know that as an industry, I know that from our forecasting,” Mr Tuborgh told the BBC’s Today programme. “It is going to play out differently in different markets. The first sign we will see of it is that the price of butter rises very sharply.” Mr Tuborgh, whose company is the UK’s biggest milk buyer, said prices rises would be different in different European nations, but did not want to predict a UK figure. He added: “At the moment we are trying to get as much butter and cream out of our producers.” Arla Foods is a massive European milk co-operative, owned by dairy farmers including British ones. Its brands include Anchor and Cravendale, and it has annual revenues of 9.6bn euros (£8.4bn).

London ‘still Europe’s top tech hub’

London remains Europe’s number one hub for technology investment despite Brexit, with record levels of capital flowing in, say officials in the city. In the first half of 2017, private equity investment in the capital’s tech sector totalled £4.5bn, said the Mayor of London’s agency, London & Partners. At the same time, venture capital invested £1.1bn in London’s tech firms. That total was more than in any other six-month period in the past decade, the agency said. The city’s “fundamental strengths” as a centre for technology and business were unchanged, said London & Partners. “The Brexit vote has understandably created some uncertainty, but it is no surprise to see that London continues to attract more than double the amount of investment [of] any other European city,” said Laura Citron, chief executive of London & Partners. “We have everything companies need to be successful: policymakers, finance, infrastructure, world-class universities and talent.”

Senior MPs urge post-Brexit EU drug regulation deal

The UK will continue to co-operate with the European Union on medicine testing after it leaves the bloc, two senior ministers have suggested. Business Secretary Greg Clark and Health Secretary Jeremy Hunt said such a deal would be “in the interests of public health and safety”. “The UK would like to find a way to continue to collaborate with the EU,” they wrote in a Financial Times letter. There are fears Brexit may cause delays in UK patients getting new drugs. Currently the London-based European Medicines Agency (EMA) authorises drugs for use across the EU, including the UK. However, it is expected to move out of the UK after Brexit, raising uncertainty over whether the UK will need to develop its own separate drug approval system. Industry experts have warned that if this happens pharmaceutical firms could be slower to seek permission for their drugs to be used in just one country, focusing instead on getting their drugs approved for larger, more lucrative markets. The UK pharmaceuticals trade association has also warned that Brexit could undermine future investment, research and jobs in the country.

New energy bill cap considered

A price cap on energy bills could be extended to many more households on low incomes, under plans being considered by regulator Ofgem. A limit on the cost of gas and electricity for those on pre-payment meters already saves about four million people £80 a year. This could be extended to others on certain benefits. The proposals come after a much wider cap in the Conservative manifesto was absent from the Queen’s Speech. Instead, the government said ministers were “considering the best way” to protect those on the poorest-value tariffs. Business Secretary Greg Clark wrote to Ofgem to challenge the regulator to use its existing powers to reduce bills. The announcement from Ofgem lists a range of proposals covering billing and switching.