Archive forOctober, 2017

Bank of England believes Brexit could cost 75,000 finance jobs

The Bank of England believes that up to 75,000 jobs could be lost in financial services following Britain’s departure from the European Union. I understand senior figures at the Bank are using the number as a “reasonable scenario”, particularly if there is no specific UK-EU financial services deal. The number could change depending on the UK’s post-Brexit trading relationship with the EU. But the bank still expects substantial job losses. Many jobs will move to the continent. The Bank of England has asked banks and other financial institutions, such as hedge funds, to provide it with contingency plans in the event of Britain trading with the EU under World Trade Organisation rules – what some have described as a “hard Brexit”. That would mean banks based in the UK losing special passporting rights to operate across the EU. The EU could also impose other “locations specific” regulations such as where trading in trillions of pounds worth of euro-denominated financial insurance products has to be based. That could mean trading jobs moving to Paris or Frankfurt. There have been a number of studies on the potential employment impact of Brexit. A poll of more than 100 finance firms by Reuters suggested the number of job losses would be just below 10,000 in the “few years” following Brexit. I understand the bank believes the 10,000 jobs figure is likely on “day one” of Brexit if there is no deal. The Brussels-based think tank, Bruegel, said that over time 30,000 jobs could move to the continent or be lost as London’s financial sector shrinks.

HSBC posts huge jump in profit as Asia business grows

Banking giant HSBC has reported pre-tax quarterly profits of $4.6bn (£3.5bn) for the three months to the end of September. The result marks a huge 448% increase from $843m posted in the same period a year ago. At that time, earnings were hit by a one-off loss of $1.7bn from the sale of its Brazilian unit. The latest result met market expectations and was helped by cost-cutting and a focus on Asia. “Our pivot to Asia is driving higher returns and lending growth, particularly in Hong Kong and the Pearl River Delta,” HSBC’s chief executive Stuart Gulliver said in a statement. The firm’s earnings were further boosted by higher premiums from its insurance and asset management businesses in Asia. HSBC’s shares were up more than 1% in afternoon trading in Hong Kong following the earnings update.

RBS sees £392m profit in third quarter

Royal Bank of Scotland has reported a £392m profit for the July-to-September period, bringing its profit for the year to date to £1.3bn. RBS said it was only the second time since 2008 that the bank had turned a profit for three consecutive quarters. However, the bank said it could not be sure of a full-year profit, since it was hoping to settle a dispute with the US Department of Justice. The cost of that settlement is likely to push RBS into a loss.The third-quarter profit compares with a loss of £469m for the same period last year. RBS said it had taken out £708m in costs as part of a simplification programme that had reduced the size of the business. The bank said it had made no further provision for mis-selling of payment protection insurance, while conduct and litigation costs were £125m for the quarter.

Forward Diary: 30th October – 3rd November 2017

Company and economic announcements planned for the week commencing 30th October 2017

BT to cut landline costs for up to one million people

From April 2018, the telecoms company will reduce the price of its monthly line rental by £7, a 37% decrease from the current cost of £18.99. The reduction will save households £84 a year and customers will be protected from price increases with rental costs capped at the rate of inflation. Ofcom expects other providers to follow suit. Nearly two-thirds of BT customers with only a landline are over 65, and more than three-quarters have never switched provider, the regulator said. Ofcom said they had been getting poor value for money in recent years, compared to those who buy bundles of landline, broadband and/or pay-TV services. The regulator also said it wanted to help those who buy a phone service from one provider and broadband from another. BT said it welcomes “a balanced voluntary agreement with Ofcom” and that it had “listened to the concerns of our line-only customers”.

Current account switching at new low

The number of people switching their current account to another provider has fallen to a new low, according to industry figures. Just 57,779 used the seven day switching service to move accounts in September, the lowest number since the scheme was launched four years ago. The drop came in spite of an advertising campaign during the month, designed to raise awareness. Adverts were placed on TV, radio, in national newspapers and online. The reluctance to move also comes in spite of the potential savings on offer, and financial incentives being offered by the banks. The Clydesdale and Yorkshire banks are currently offering account holders £250, for example, while HSBC is offering £200 if people move and stay loyal for a year.

Costa coffee chain’s profits go cold

Costa has reported a 10% fall in pre-tax profits to £59m for the first half of the year, partly due to coffee imports being more expensive. The UK’s biggest coffee chain also pointed to higher staff costs and business rates for the drop. However, the firm’s owner, Whitbread, saw group profits rise thanks to growth from its Premier Inn hotel business. Whitbread’s pre-tax profits increased by 20% to £316m on the back of a 7% rise in sales to nearly £1.7bn.

Brexit: Business leaders call for swift transition deal

Britain’s five biggest business lobby groups are calling for an urgent Brexit transition deal, or they warn the UK risks losing jobs and investment. In a joint letter being sent to Brexit Secretary David Davis, the groups, including the Institute of Directors and CBI, will say time is running out. Sources told the BBC the letter is still in draft form, but will be sent in the next day or two. A government spokesman said the talks were “making real, tangible progress”. The other lobby groups backing the letter are the British Chambers of Commerce, the Federation of Small Businesses, and the EEF manufacturing body. Together they represent companies employing millions of workers.

Bank of England under fire for lack of diversity

The Chancellor has been taken to task by MPs about the lack of diversity at the top of the Bank of England. Nicky Morgan has written to Philip Hammond asking for evidence proving that “all efforts” are being made to encourage gender and ethnic diversity in its recruitment process. The Treasury Select Committee’s concern follows two recent appointments to the Bank’s rate-setting committee. Silvana Tenreyro is now the only woman on the Monetary Policy Committee (MPC). She replaced Kristin Forbes, while deputy governor Sir Dave Ramsden filled the other vacancy on the MPC. That seat had previously been filled by Charlotte Hogg, who replaced Minouche Shafik in February. However, Ms Hogg resigned the following month for failing to declare that her brother worked for Barclays, which was deemed to be a conflict of interest. Ms Morgan has asked the Chancellor for “specific confirmation that all efforts are being made to encourage as diverse a range of candidates as possible” and that recruitment processes for the Bank’s policy committees followed the same rigorous standards used for other public appointments. The letter asked the Treasury to publish recent data, including a gender breakdown of applicants seeking a position on the MPC and the Financial Policy Committee. Ms Morgan said her committee wanted to hear evidence from Mr Hammond or another minister or senior official on the issue.

Forward Diary: 23rd – 27th October 2017

Company and economic announcements planned for the week commencing 23rd October 2017

UK banks exposed to money laundering in South Africa

UK banks may have been used to launder money stolen from South Africa, a former cabinet minister has alleged in a letter to Chancellor Philip Hammond. Lord Peter Hain said a South African whistle-blower had indicated the banks “maybe inadvertently have been conduits for the corrupt proceeds of money”. The Labour peer is due to raise the issue in the House of Lords later. The Treasury said it had sent his letter to financial regulator the Financial Conduct Authority (FCA). “We take allegations of financial misconduct very seriously, and have passed Lord Hain’s letter on to the Financial Conduct Authority and relevant UK law enforcement agencies, including the National Crime Agency and Serious Fraud Office, to agree the right action,” a spokesperson said.

Amazon and eBay warned by MPs about VAT fraudsters

Amazon and eBay are profiting from sellers who defraud UK taxpayers by failing to charge VAT, according to a report by MPs. The report estimates up to £1.5bn has been lost from third-party sellers on online marketplaces not charging the tax on sales they make in the UK. MPs in the Public Accounts Committee criticised HMRC for being “too cautious” in pursuing the “fraudsters”. Amazon and eBay said they were working with HMRC on the issue. Labour MP Meg Hillier, who chairs the committee, called online VAT fraud “hugely damaging” for British businesses and taxpayers. She added that “the response of HMRC and the marketplaces where fraudsters operate has been dismal”.

Vanguard boss warns on stock market highs

The boss of Vanguard, one of the world’s biggest investment funds, has expressed concerns about the record highs in stock markets. Bill McNabb, chairman of the US company, told the BBC the markets could be on course for a “decent-sized correction at some point”. US stocks closed at fresh highs on Monday, days after the UK’s FTSE 100 index hit a new record. Mr McNabb said Vanguard was also watching Brexit “very carefully”. Vanguard, which manages $4.5 trillion (£3.5tn) of funds worldwide, employs about 400 people in London. The firm’s main focus is on providing tracker funds for do-it-yourself investors which follow the rise and fall of indices such as the FTSE 100.

Interest rate rise should be delayed, EY Item Club says

The Bank of England should hold off from raising interest rates next month, according to a forecasting body. Bank governor Mark Carney has said rates could go up in the “relatively near term”, with many analysts expecting a hike in November. However, the EY Item Club said such a move risked hurting the UK’s “fragile economic outlook”. The group called on the bank to wait another year before raising the benchmark rate from 0.25% to 0.5%. It comes after the British Chambers of Commerce and ratings agency Standard & Poor’s suggested economic growth was not strong enough to warrant a rate rise. The EY Item Club, which uses the Treasury’s forecasting model, predicted GDP growth would slow to 1.5% this year and 1.4% in 2018.

BCC: ‘Robust’ manufacturing fails to boost UK growth

The UK economy grew at a muted rate in the third quarter of 2017 despite progress in the manufacturing sector, the British Chambers of Commerce says. The number of manufacturers reporting improved domestic sales and orders rose in the quarter to its highest level since early 2015, the BCC said. Export sales and orders in the sector also improved. But in services, domestic sales and orders remained static, as did the sector’s employment expectations. The BCC said its survey also showed the prevalence of recruitment difficulties facing UK businesses, which worsened further during the quarter. Almost three-quarters of manufacturers reported difficulties hiring staff, and in services, the percentage rose to its highest since early 2016.

Forward Diary: 16th – 20th October 2017

Company and economic announcements planned for the week commencing 16th October 2017

Sky deal: James Murdoch faces shareholders at annual meeting

James Murdoch is poised to defend his position as Sky’s (SKY.L) chairman at its annual shareholder meeting on Thursday. A trio of advisory firms have called on shareholders to rebel against Mr Murdoch, who is chief executive of 21st Century Fox and sits on its board. One investor, Royal London, which owns £44m in Sky shares, has criticised the dual position as “inappropriate”, amid Fox’s attempted bid to take over Sky. A Sky spokeswoman said Mr Murdoch was “uniquely well-placed” to be chairman. The spokeswoman cited his “deep knowledge of the global media industry”, adding: “It would be inappropriate for us to discuss these matters before all of our shareholders have voted.” Royal London, which has a 0.28% stake in Sky, resurfaced its concerns over the Fox-Sky deal ahead of the vote – saying the board’s chairman should have no affiliation to either company. “Minority shareholders at Sky would be better served by a truly independent chairman,” said Ashley Hamilton Claxton, the firm’s corporate governance manager. “Independent oversight of the board is particularly important given Fox’s ongoing bid to acquire Sky.”

Energy price cap ‘needs legislation’, Ofgem says

A price cap on energy bills proposed by the prime minister last week is unlikely to take effect before winter. Theresa May had promised to revive a plan to cap charges for an extra 12 million consumers. Howewer, Ofgem said it would ensure that all consumers on standard variable tariffs would be protected as soon as possible “if legislation is in place”. Until then a more limited price cap will be extended to another one million low income households, Ofgem said. Restrictions on the cost of gas and electricity for those with pre-payment meters already saves some four million households about £80 a year. The regulator wants to extend the scheme to about two million other people who get certain benefits.

Higher food and clothing prices drives retail sales growth

Higher prices for food and clothing prices driven up by the weak pound fuelled retail sales growth last month. British Retail Consortium (BRC) and KPMG figures showed that like-for-like retail sales rose 1.9% in September. That was far higher than the 0.4% increase for the same month last year. Total sales climbed 2.3%. Much of this growth was due to price rises filtering through, particularly in food and clothing, said BRC chief executive Helen Dickinson. “Retailers have worked hard to keep a lid on price rises following the depreciation of the pound, but with a potent mix of more expensive imports and increasing business costs from various government policies, something had to give at some point,” she said. “Spending is still being focused towards essential purchases; with consumers buying their winter coats and back to school items, but shying away from big ticket items such as furniture and delaying the renewal of key household electrical goods.” The survey showed that food sales rose by 2.5% on a like-for-like basis over the three months to September and 3.5% in total, while non-food sales rose by just 0.5%, or by 0.9% on a total basis. Non-food sales in stores slumped 2% last month, and slid by 1.5% in total in the three months to September. Yet online sales for non-food surged 10.7% in September – well above the three-month average of 10% – as shoppers responded well to online discounts. Paul Martin, KPMG UK’s head of retail, said: “With potential interest rate rises on the horizon, shaky consumer confidence and ever-increasing levels of household debt, uncertainty remains. “We’re now moving into the final quarter, which will ultimately define whether 2017 has been a good or bad year for retailers.”

UK retailers ‘need EU workers after Brexit’

Prices may rise and home deliveries could be slower unless the retail sector retains access to all EU workers after Brexit, a trade body has warned. EU citizens account for just 6% of the industry’s 170,000 workforce, the British Retail Consortium said. However, they are concentrated in warehouse and distribution jobs, its annual workforce survey suggested. More than half of retailers said their EU employees were worried about their right to remain in the UK. Just over a fifth of retail firms had had some European staff leave the UK already, the BRC survey suggested. The trade body said ending of free movement for EU nationals could lead to higher costs for businesses and consumers, “from the service delivered in a store to next day delivery of an online order… to the prices of what you buy”. It argued that the retail sector should keep access to non-graduate European workers without the need for employer sponsorship after the UK leaves the EU. BRC chief executive Helen Dickinson said the Brexit decision had created uncertainty for both business and their EU workers. “It is not right that 16 months after the referendum these people still don’t have the security they need to continue their lives,” she said. “And from our data it is clear that unless we have the right structures in place to support retailers attract, recruit and retain workers, consumers will soon start to see and feel an impact as they shop.”

Ryanair boss offers pilots better pay and conditions to stay

Ryanair chief executive Michael O’Leary has written to the airline’s pilots to offer them better pay and conditions. The improved conditions came after the airline was forced to cancel thousands of flights in recent weeks. In a letter to pilots, Mr O’Leary also apologised for changes that caused disruptions to their rotas and urges them not to leave the airline. His apology came after he accused the pilots of being “full of their own self-importance”. But in the letter seen by the Irish Independent newspaper, he urges pilots to stay with Ryanair “for a brighter future”. Ryanair has been in crisis after the rota changes – brought about to comply with new aviation rules – led to a shortage of pilots because the airline failed to plan for enough leave.

Forward Diary: 9th – 13th October 2017

Company and economic announcements planned for the week commencing 9th October 2017

Bank calls for Brexit transition deal by Christmas

The UK and Europe must agree on a Brexit transition deal by Christmas or risk banks triggering their contingency plans, the Bank of England has warned. Deputy governor Sam Woods said that while the UK is committed to an implementation period, the EU’s position “is not yet clear”. If no deal is reached, banks will begin a potentially disorderly shift of operations overseas. He said that would mean banks becoming more complex and harder to supervise. Speaking at the annual Mansion House City banquet in London, Mr Woods said: “If we get to Christmas and the negotiations have not reached any agreement on this topic, diminishing marginal returns will kick in.” He said: “Contingency planning is a sliding scale of increased commitment, investment and momentum through time. It is much more prudent and prosaic than hovering over the relocate button or rushing to the exit door.” While he said that the first phase of banks’ contingency plans would have a relatively modest impact on jobs, “re-structuring by firms will in general increase their complexity”. “I struggle to see an outcome in which banks and insurers do not get harder to supervise and harder to resolve for all involved,” said Mr Woods, who heads the Prudential Regulatory Authority, which oversees large lenders in the UK. In her speech in Florence last month, Prime Minister Theresa May said there should be a transition period of “about” two years after Brexit.

Tesco hails strong progress as sales rise again

Tesco chief executive Dave Lewis has hailed “strong progress” at the supermarket as sales rose for the seventh quarter in a row. Like-for-like sales, which strip out new store openings, rose 2.1% in the second quarter. Pre-tax profit was also up, rising to £562m for the first half compared with £71m for the same period last year. Tesco said that despite “challenging” market conditions, it had “worked hard to minimise price increases”. The results come as Tesco is awaiting the results of an in-depth competition probe into its proposed £3.7bn takeover of wholesale giant Booker. The Competition and Markets Authority (CMA) is expected to report its provisional findings next month, with a final decision due in December. The CMA has said there are 350 areas where there is an overlap between Tesco shops and Booker-supplied independent stores.

Equifax raises the impact of US data breach

Equifax has revealed 2.5 million more Americans than previously thought may have had information compromised in a huge cyber security breach at the firm. The credit report giant said on Monday about 145.5 million of its US customers might have been affected, up from a previous estimate of 143 million. The update came a day before former boss Richard Smith testifies in Congress about the attack. Mr Smith apologised ahead of the hearing for the firm’s failings. Critics say the company failed to take proper steps to guard information – such as Social Security numbers, birth dates and addresses – and waited too long to inform the public. Equifax disclosed the attack last month, estimating that about 400,000 Britons and 100,000 Canadians may also have had data compromised. On Monday, the firm raised its estimate for US customers, but lowered it to only 8,000 Canadians after further investigation.

Monarch flights cancelled as airline ceases trading

Monarch Airlines has ceased trading and its 300,000 future bookings for flights and holidays have been cancelled, the Civil Aviation Authority has said. About 110,000 customers are currently overseas and the government has asked the CAA to charter more than 30 planes to bring them back to the UK. The process is the UK’s “biggest ever peacetime repatriation”, Transport Secretary Chris Grayling said. Monarch employs about 2,100 people and reported a £291m loss last year. The airline – the UK’s fifth biggest and the country’s largest ever to go into administration – collapsed at 04:00 BST, while passengers were at airports. The airline reported a loss of £291m for the year to October 2016, compared with a profit of £27m for the previous 12 months, after revenues slumped. It had been in last-ditch talks with the CAA about renewing its licence to sell package holidays and had until midnight on Sunday to reach a deal, but failed to do so.