The week’s news included; UK interest rates rise as recession anticipated, BP reports $8.45bn profit last quarter, JD sells Footasylum for £50m loss, H&M sued over greenwashing.
Below are our top 10 stories that you need to know about. Be sure to check our twitter page, Facebook page and Instagram Page, for regular posts of important headlines. Get all the important stories and insights straight into your inbox by subscribing to our mailing list here.
Opinion articles of the week:
Opinion articles of the week:
- City A.M. – We will resign ourselves to geopolitical irrelevancy unless we re-invest in science
- CNBC – Does the Inflation Reduction Act violate Biden’s $400,000 tax pledge?
- BBC News – Was the Bank of England right to raise interest rates?
- City A.M. – FCA rules could strip people of the choice to take a risk
1. UK INTEREST RATES RISE AS RECESSION ANTICIPATED
The Bank of England’s Monetary Policy Committee voted to raise interest rates to 1.75%, up 0.5%. This is the largest increase since 1995 although at 1.75%, rates are still well below the 5% averaged in the early 2000’s. The decision came as the Bank warned that the UK faces economic recession in the last quarter of 2022 and that inflation could soar to a whopping 13%.
Rising energy prices are the primary driver of the current inflation spike. An energy price cap increase in October is set to increase household bills more significantly than anticipated. Average household energy bills are expected to rise by 70% up to £3600. Increasing interest rates is designed to discourage borrowing and spending thus tapering demand and driving down inflation. The current outlook is concerning as consumer demand in the economy is already weak but prices are still rising.
The rising interest rates will have a large impact on all borrowers, businesses and households alike. Those on average tracker mortgages will pay roughly £650 extra annually due to the latest rate hike. This is in addition to the higher rates payable following previous interest rate hikes.
2. BP REPORTS $8.45BN IN PROFIT
Oil and gas giant BP reported $8.45 billion profits last quarter, its largest profit since 2008. This marks the company’s second highest quarterly profits in its history. BP, like its competitors, is benefiting from soaring oil and gas prices, largely driven by the war in Ukraine. Exxon, Chevron, Shell and TotalEnergies made profits of around $51bn last quarter – almost double what they made in the same period last year. UN Secretary General Antonio Guterres slammed oil and gas companies for their “grotesque greed”. He said their profiting from the global crisis is immoral and they should face special taxes.
In the UK, campaigners are calling for a larger windfall tax to be imposed on oil and gas firms. The government already introduced a 25% windfall tax on UK profits for energy firms. Energy firms are currently shelling out dividends to shareholders and share buybacks with BP paying out £3.6 billion to shareholders over the next quarter. With the energy price cap due to rise again in October, average household bills could soar to £3600 per year, many argue more can and must be done to support households.
3. JD SELLS FOOTASYLUM FOR £50M LOSS
JD Sports has sold Footasylum after the Competition and Markets Authority ordered the companies to split. Footasylum has been sold to German investment firm Aurelius for £37.5 million. This is a significant markdown from the £90 million that JD paid for Footasylum in 2019. The CMA found that the merger would substantially reduce choice and harm consumers due to the close competition between JD and Footasylum. Earlier this year, JD was reprimanded for prematurely sharing sensitive financial information and CEO Peter Cowgill was fined £4.3 million (see previous top 10). Despite JD’s protest to the CMA’s decision, they cooperated with the regulator and found a suitable buyer to put an end to this chapter.
4. CHALLENGER FIRMS TAKE LARGER AUDIT SHARE
New figures from the Financial Reporting Council Challenger auditing firms have snapped up a larger market share from the Big Four. Challenger firms, BDO, Grant Thornton, PKF, Littlejohn, RSM and Crowe audited 24 of the FTSE 350 companies in 2021, compared to 19 in 2020. Their combined income from audit fees increased by 12.5% over the period. By comparison, the Big Four’s audit businesses increased by just 6.5%. The Big Four however, are bolstering their non-audit services, primarily consultancy. Between 2020 and 2021, Big Four non-audit fee income grew by 10.3%.
The Big Four, PwC, KPMG, Deloitte and EY evidently dominate audits for the largest firms. They have the most resources and experience to deal with the biggest companies. These latest figures could indicate the beginnings of a shift away from the Big Four but currently, challengers simply aren’t equipped to deal with the large audits so a major shift anytime soon is unlikely.
These figures come as Big Four auditors are exploring breaking up their audit and consultancy businesses. Furthermore, they could be forced . The audit landscape looks set to go through significant change over the coming years.
5. H&M SUED OVER SUSTAINABILITY CLAIMS
H&M is being sued over its allegedly misleading sustainability claims. An individual, Chelsea Commodore, claims that H&M’s environmentally friendly products are completely unsubstantiated. She claims the company falsified information that was not with the underlying data and that they are “taking advantage of consumers’ interest” in sustainability. This practice, greenwashing, is becoming an increasing problem. Companies are keen to capitalise on consumers’ desire for environmentally friendly and sustainable products, by any means necessary it seems. Regulators are now cracking down on companies that greenwash their services and products to prevent consumers being misled. The Fashion Law looks closer at the lawsuit.
6. BA SUSPENDS SHORT-HAUL FLIGHTS
BA has suspended sales of short-haul tickets from Heathrow to comply with the airport’s new passenger cap. Heathrow Airport introduced a cap of 100,000 passengers per day, a reduction of 4000. This is due to a staffing shortage which has led to severe delays and travel disruption at Heathrow. During the pandemic, Heathrow cut its workforce but now that demand is returning to pre-pandemic levels it doesn’t have enough staff. Now, the airport told airlines to cut flights or reportedly, face legal action.
Last week, BA announced that no tickets for domestic and European flights from Heathrow will be sold until at least 8 August. Existing flights will not be affected. BA is the largest airline at Heathrow and is the most severely affected by the cap. The airline has not ruled out further sale suspensions in order to meet its reduced capacity limit. Emirates has criticised Heathrow’s actions in a scathing letter (see previous top 10).
7. BANK OF ENGLAND SCRAPS MORTGAGE AFFORDABILITY TEST
The Bank of England has scrapped mortgage affordability tests to make it easier for buyers to get on the housing ladder. Lenders have been required to assess whether potential buyers could financially cope with a 3% rise in interest rates. The removal of the affordability test does not mean the end of restrictions for mortgage applicants. There will still be stringent loan to income ratio restrictions that must be maintained. Furthermore, banks can still set their own limits or requirements according to their risk appetite. Nonetheless, this will still help some buyers get on to the housing ladder.
This comes as house prices soared by 11% over the past year. Demand in the housing market has remained strong and shows no signs of slowing down. The average house price is currently £271,209.
8. UK GOVERNMENT SHUTS DOWN TIKTOK ACCOUNT
The UK government has shut down its TikTok account over security concerns. MPs had warned of the risk of data from the app being sent to the Chinese government. TikTok’s owner ByteDance has denied that the Chinese government has control over it and claims it has never been asked to provide TikTok user data to the government. But the UK, along with other Western allies are sceptical. A number of MPs wrote a letter to both speakers of the Houses of Parliament to review the matter. They said the data security risks posed by the government having a TikTok account were “considerable”. The government account has now been locked and content has been deleted.
TikTok in the US recently admitted that some Chinese staff had total access to US user data. Similar admissions were made in TikTok Australia. Although Chinese staff having access to the data is not inherently problematic, it does leave the door open for abuse. These security concerns however, are nothing new to TikTok. In 2020, President Trump threatened to ban new downloads of TikTok unless a US based company bought its American arm. Microsoft and Oracle explored a purchase but this fell through. The deadline lapsed and no action was taken against TikTok.
9. AMAZON WORKERS PROTEST PAY OFFER
Workers at Amazon’s warehouse in Tilbury, Essex began protesting after the tech giant offered them an “insulting” pay rise of just 35p per hour. Hundreds of workers at the warehouse walked out of work in protest. This protest later spread to other depots in the UK. Amazon warehouse workers currently receive £11.10 per hour so the proposed pay increase of 35p per hour amounts to just over 3%. With inflation set to hit 13% later this year, workers were outraged at the offer. They are seeking a £2 per hour increase to reflect rising cost of living and the demands of their job.
Amazon turned over £23.2 billion in the UK alone last year and made profits of £204 million. Workers in the UK have no recognised trade unions unlike in New York where they recently forced the tech giant into recognising a trade union (see previous top 10).
10. TOYOTA THREATENS UK WITHDRAWAL
Toyota has said it could pull out of the UK if the planned ban on new hybrid sales in 2030 goes ahead. The carmaker has said the plans would have a significant impact on its business. Consequently, Toyota has told the government that such plans would lead to constrained investment and business activities in the UK. As part of the UK’s net zero strategy, the government had committed to banning sales of new petrol and diesel vehicles from 2030. New hybrid cars would be banned from 2035. This is to phase out petrol cars and bring in more electric vehicles to the roads. Car makers who fail to comply with the rules will face large fines. There are reportedly plans to bring forward the ban on hybrids to 2030. Toyota is opposed to the plans to bring the ban forward. Whether the plans will be altered or even scrapped remains to be seen.