Monthly Archives: December 2015

UK growth estimate revised down to 0.4% for third quarter

Alexander Tredwell – Leaders in Specialist Professional Recruitment

The UK economy grew by 0.4% in the third quarter of the year, figures show, less than previously estimated.

The rate was revised down from 0.5% because the key services sector, which accounts for well over 70% of UK economic activity, grew more slowly than had been thought.

It is the third estimate for the quarter from the Office for National Statistics (ONS).

The ONS also cut its estimate of second quarter GDP growth from 0.7% to 0.5%.

In annual terms, growth in the third quarter of the year was revised down to 2.1% from the previous estimate of 2.3%.

The UK economy has been growing for 11 consecutive quarters.

A Treasury spokesman said in a statement that the figures “highlight that risks remain” to the UK economy despite it growing favourably compared with the Euro-zone.

Simon French, chief economist at stockbrokers Panmure Gordon, said the figures added to a picture of a fragile economy: “It’s been a bad 24 hours for the chancellor with bad public sector borrowing numbers [on Tuesday]. It is the fourth of seven quarters where the ONS growth estimate overestimated the strength of the economy.

He said the most worrying part was the weakness of the service sector, which is the engine of the UK economy.

Other figures released on Wednesday showed scant prospect of a pick up in that.

Figures for the service sector in October – the first month of the fourth quarter – only grew 0.1% between September and October, suggesting fourth quarter GDP has made a slow start. The previous month the index grew by 0.5%.

US economic growth was also revised down this week, but despite that slight weakening, the US economy is perceived by its central bank to be strong enough to withstand a rise in interest rates. Borrowing costs were raised by the Federal Reserve for the first time in nine years last week.

The Bank of England is widely expected to hold back from following the Fed’s lead until well into 2016.


Tata Steel in talks to sell Scunthorpe and Teesside plants

Alexander Tredwell – Leaders in Specialist Professional Recruitment

Tata Steel is in talks with an investment firm to sell its Long Products business, which includes plants in Scunthorpe and Lanarkshire.

Greybull Capital has signed a letter of intent to try to reach a deal to buy the business, including mills in Teesside and Northern France.

Tata Steel said it was “too early to give any certainty about the potential outcome of these discussions”.

But unions welcomed the announcement following steel industry job losses.

Roy Rickhuss, general secretary of the Community steelworkers’ union, said: “We welcome the interest from Greybull in giving Long Products a future outside Tata Steel.

“Of course, the devil will be in the detail of the deal and we will be seeking further discussions with both Tata Steel and Greybull to fully understand their intentions and the implications for steelworkers.

“We welcome any credible investor who has a vision for a sustainable business and is prepared to invest for the future.”

There have been waves of job losses in the steel industry in the UK, which the sector has blamed on cheap Chinese imports and a collapse in prices.

In October, Tata Steel announced nearly 1,200 roles to be axed in Scunthorpe and Lanarkshire.

The negotiations will centre on Tata Steel UK’s Scunthorpe steelworks, mills in Teesside and Northern France, Scottish mills in Dalzell and Clydebridge, an engineering workshop in Workington, a design consultancy in York, and “associated distribution facilities”.

The firm has about 4,700 employees in Long Products Europe, while Tata Steel Europe has some 30,000 employees, including about 17,000 in the UK.

Greybull Capital, which says it makes long-term investments in firms, bought a majority stake in low-cost airline Monarch in October 2014.

Staff agreed to 700 redundancies and pay cuts of up to 30% as part of a deal to save the Luton-based firm. Greybull Capital pumped £125m into Monarch as part of the deal.

The BBC understands that the firm would probably not go ahead with a Tata Steel deal that did not have the backing of unions and the UK government.

Negotiations, which will begin in earnest after the Christmas period, are expected to take about three months.


UK retail sales show signs of weakness

Alexander Tredwell – Leaders in Specialist Professional Recruitment

UK retail sales grew more weakly than retailers expected in December and the outlook for January sales figures is not strong, according to a survey by the business lobby group, the CBI.

There was a sharp rise in the balance of retailers reporting better sales than in November, but that was below levels expected by economists.

Hopes for sales next month are at their lowest since May 2012.

The CBI said 2015 was a tough year for retailers.

Barry Williams, the CBI’s distributive trades chairman, said retailers were expecting 2016 to start in “much the same vein”.

The survey showed the weakest expectations for business among retailers since May 2012.

The survey of 118 firms showed the volume of retail sales picked up in December, and was slightly above the average for the time of year, but was still below retailers’ expectations. Growth in retail sales volumes is expected to slow somewhat next month.

Following Black Friday on 28 November, internet sales volumes rose at their quickest pace since April, with the pace of growth expected to hold broadly steady in January.

Among the sectors, food outlets reported good sales, as did clothing shops, but footwear and leather sales growth fell.

Npower to pay £26m over billing and complaint failures

Alexander Tredwell – Leaders in Specialist Professional Recruitment

RWE-owned (RWEG.DE) utility npower has been fined 26 million pounds for failing to treat customers fairly, Britain’s gas and electricity market regulator Ofgem said on Friday.

The largest fine ever levied by the regulator against one of Britain’s ‘big six’ energy companies relates to billing issues which affected more than 500,000 customers and the company’s failure to handle complaints properly.

Ofgem said many of the problems related to the introduction of a new IT system in 2011 which led to some customers receiving inaccurate bills.

“The payment of 26 million pounds sends a strong message to the industry that we expect them to act quickly and effectively to ensure a good customer experience,” Ofgem Chief Executive Dermot Nolan said.

The money will be divided between some of the worst-affected customers and charity, Ofgem said.


UK frackers get more licences to explore

Alexander Tredwell – Leaders in Specialist Professional Recruitment

The Oil and Gas Authority has awarded a raft of new licences to explore for oil and gas on the mainland of the UK.

The 93 licences to explore 159 blocks of land could pave the way for more controversial hydraulic fracturing, known as fracking.

Large parts of North East and the North West have been opened up for exploration.

There are also licence blocks in the Midlands, the South of England and Wales.

Around 75% of the exploration licences relate to shale oil and gas, which typically requires fracking.

The Oil & Gas Authority said a total of 95 applications for licences were received from 47 companies, covering 295 Ordnance Survey Blocks

Among the biggest winners were Ineos, with 21 licences, Cuadrilla, IGas and Southwestern Energy.

Ineos said it was “committed to full consultation with all local communities and will share 6% of revenues with homeowners, landowners and communities close to its shale gas wells.”

The licences give rights to companies to explore for shale oil and gas, but do not give automatic permission to drill.

Planning permission to build rigs and drill land needs clearance from local or central authorities.

Areas opened up for exploration include land around Chesterfield, Sheffield, Barnsley, York, and Preston, Burnley Bolton, and Chester.

Blocks of land adjacent to national parks including the Lake District, the Peak District and the North York Moors are also now open for exploration.

This week, MPs voted to allow fracking for shale gas below national parks and other protected sites.

This doesn’t mean we’re about to see fracking wells springing up across the UK – far from it.

For a start, the planning process remains incredibly onerous – those companies that have just been awarded licences are embarking on a very long and trying journey.

Indeed many questions remain about whether producing meaningful amounts of shale gas in the UK will be possible.

Despite the government’s best efforts to push through fracking, some experts believe the obstacles are simply too great.


Energy Minister Andrea Leadsom said: “Alongside conventional drilling sites, we need to get shale gas moving… Now is the time to press ahead and get exploration underway so that we can determine how much shale gas there is and how much we can use.”

But environmentalists questioned the wisdom of the government’s policy on fracking.

“The government is ignoring evidence of the risks and the wishes of local communities, by weakening regulation and opening up more of the country to fracking,” said Rose Dickinson of Friends of the Earth.

“Spreading the fracking threat to new areas will only increase opposition to it. Despite having had licences for years, the industry still hasn’t been able to persuade anyone to give fracking the go-ahead.”

Fracking in the UK has encountered some strong local opposition.

Earlier this year, councillors in Lancashire rejected Cuadrilla’s application to drill a handful of shale gas exploratory wells.

There would be too much noise and the impact on the landscape would be too great, they said.

But the final decision will be made by central government.


National Living Wage to cost businesses ‘more than £1bn’

Alexander Tredwell – Leaders in Specialist Professional Recruitment

UK businesses face more than £1bn in costs from the introduction of the National Living Wage next year, according to government advisors.

From April, workers aged over 25 will receive a minimum of £7.20 per hour.

The Regulatory Policy Committee, which advises government, estimates the change will cost companies £804.4m in extra wages and staff costs.

A further £234.3m of “spillover” costs from keeping pay differentials will take it over £1bn, the body said.

The amount is slightly higher when including the public sector, where more workers are already paid above the National Living Wage.

According to the Institute of Directors (IoD), the figures show George Osborne must now “come good” on his promise to cut taxes.

IoD director Seamus Nevin said: “IoD members supported the introduction of the Chancellor’s living wage as part of a deal he made with business – lower taxes for higher wages.”

Mr Nevin said companies would pay £12bn over the next five years for the government’s new apprenticeship levy, as well as further costs from pensions auto-enrolment and extra reporting requirements.

He said: “It is imperative that the government now comes good on its promise of less red tape, fewer regulatory hurdles and a lower rate of corporation tax to help employers absorb these additional costs and raise pay.”

The National Living Wage is separate to the voluntary living wage, which is set at £8.25 per hour and £9.40 an hour in London.

More than 2,000 businesses, with almost 70,000 workers, are signed up to the scheme.


UK growth forecast cut by British Chambers of Commerce

Alexander Tredwell – Leaders in Specialist Professional Recruitment

The British Chambers of Commerce has cut its UK economic growth forecasts, blaming a weaker-than-expected trade and manufacturing performance.

The business lobby group has cut its growth forecast for this year to 2.4% from 2.6%.

In addition, it has has lowered its forecast for both 2016 and 2017 to 2.5% from 2.7%.

It said the manufacturing sector, which it expects to contract this year, had been hit by “falling global prospects”.

“Our persistently weak trade performance and current account balance are impacting our overall growth,” the BCC’s director general John Longworth said.

Slowing growth in the third quarter contributed to the downgrade, the BCC said.

In November, official figures showed the UK grew by 0.5% between July and September, marking a slowdown from the 0.7% rate in the second quarter.

Mr Longworth warned there was “still a long way to go” before the UK recovery was complete.

The BCC also cut its growth forecast for the dominant services sector – which accounts for more than 70% of GDP – and said the UK could not “rely so heavily on consumer spending to fuel our economy”.

Speaking to the BBC, Mr Longworth said growth in the UK was being fuelled by debt, which was behind rising consumer spending and asset prices, in particular housing.

“If it’s based on debt you then lead to a boom-and-bust cycle again,” he told BBC Radio 5 live’s Wake Up To Money programme.

Mr Longworth noted that in the last parliament the government said it would rebalance the economy towards manufacturing and exports. But he said efforts to encourage export growth had been “a complete failure”.

It expects interest rates – which have now been at 0.5% for more than six years – to rise again in the third quarter of next year.

But Mr Longworth warned: “We have been down this path before, and know that it leaves individuals and businesses exposed when interest rates do eventually rise.”


UK retail sales ‘dip in November’ despite Black Friday hype

Alexander Tredwell – Leaders in Specialist Professional Recruitment

November’s Black Friday sales failed to boost turnover at UK stores according to the British Retail Consortium (BRC) and accountants KPMG.

Sales in November at stores open for more than a year fell 0.4% from the same month in 2014.

The BRC/KPMG survey found shoppers held back in the hope of big discounts on Black Friday, 28 November.

But in the event, many retailers did not make the discounts that shoppers had been hoping for.

David McCorquodale, head of retail at KPMG, said: “November’s relatively flat sales figures are a reality check for the retail sector with consumers holding off for a Black Friday bargain pitted against retailers determined to hold onto their hard-earned margins.

“Despite the hype around Black Friday, there was minimal loosening of the family purse strings compared to last year.”

Total sales across all stores increased by just 0.7%, compared with a rise of 2.2% last year.

However, online sales of non-food item outperformed, up 11.8% on last year.

Black Friday produced the expected spike in sales, with trading up 25% compared with the beginning of the month. Sales in furniture, and large and small electrical appliances, were higher than last year.

However, the BRC said an increase in “omni-channel” shopping, with consumers using a mix of online and in-store purchases. made it hard to know how and when people would spend their money in the crucial Christmas shopping period.

Helen Dickinson, BRC chief executive, said: “As consumers and retailers continue to adapt to the changing patterns of omni-channel shopping, where the lines between channels become less and less relevant, this build-up to Christmas is one of the hardest to read in years.

“The conversion of people’s higher disposable income into retail sales shouldn’t be taken for granted.”


Oil price to remain low in 2016

Alexander Tredwell – Leaders in Specialist Professional Recruitment

The oil price is unlikely to recover next year, according to the boss of the French energy giant, Total. The price of Brent crude is currently under $43 a barrel, down more than 60% since last summer, while US light crude is trading below $40 a barrel. US prices have not been this low for more than 10 years.

Total’s Patrick Pouyanne “doesn’t anticipate a recovery in 2016”. In fact, he thinks supply will grow faster than demand next year.

He is not alone. Last Friday, Goldman Sachs put out a note suggesting prices could fall a lot further.

“While [we are] forecasting oil prices over the next few months to be near $40 a barrel, or roughly where they are trading today, there could be another 50% to fall,” the investment bank said.

Renewed concerns about supply and demand imbalances pushed the oil price sharply lower on Monday, with Brent down more than $1 a barrel and US crude $1.30 lower.

Oversupply is the reason for the slump in prices over the past 18 months, largely due to US shale oil flooding the market. At the same time, demand has fallen due to a slowdown in economic growth in China and Europe.

This has hit not just the oil industry, but also oil-exporting countries. Many big oil producers such as Libya, Algeria, Nigeria and Venezuela need an oil price well above $100 a barrel to balance their budgets. With the price down near $40, they are having to sell assets to make up the difference.

Indeed, a recent report from US data provider eVestment showed that sovereign wealth funds in the oil-rich Gulf are pulling money out of global fund management houses at the fastest pace on record.

Many of these Gulf states are members of Opec, the group that controls about 30% of the world’s oil supply.

Understandably, many are furious that the oil price has been allowed to drop so low.

Historically, Opec has cut production to support prices but, led by Saudi Arabia, the group has resolutely refused to trim supply this time.

Saudi’s motivation is simple – to drive US shale producers out of business, believing that they will fall victim to lower prices long before the traditional oil producers of Opec.

The group met last Friday and agreed again to maintain supply at about 31.5 million barrels a day.

It could go even higher. Following a nuclear deal with six world powers in July and the imminent lifting of sanctions, Iran has big plans to increase oil production in the coming years, from about three million barrels a day now, to five million by the end of the decade.

At the end of last month, Iran overhauled the way in which it offers contracts to foreign energy companies in a bid to attract up to $30bn (£20bn) of new investment, with a view to increasing output by 500,000 barrels a day once sanctions are lifted.

And Opec believes its strategy is beginning to work, as small US shale producers, many of which are heavily indebted, struggle to cope with low oil prices.

Indeed, the International Energy Agency has forecast that US shale production will begin to fall next year.

Mr Pouyanne agrees. “Non-Opec supply will contract… by mid-2016 we should see the contraction in US production,” he says.

Presumably not fast enough to have any material impact on oil prices, according to his own predictions.


High Street shops ‘face rates shake-up

Alexander Tredwell – Leaders in Specialist Professional Recruitment

High Streets in the UK are set to face radical changes in the amount of money they pay in business rates in future, new research suggests.

Property consultant Colliers International found 76 out of the UK’s main towns and shopping centres will see an increase in their rates bill.

Some parts of London will see an increase of more than 400%, it says.

The winners, mainly in the Midlands and north of England, will see business rates plummet, it adds.

Newport in south Wales could see bills fall by some 80%, the report found.

“The business rates losers are found only in London and the South East and it could turn highly profitable stores, including independent retailers, into failing businesses,” said John Webber, ratings expert at Colliers International.

Business rates are a tax based on property values. They are usually revalued every five years.

The last revaluation in England and Wales was in 2010, but this year’s revaluation was controversially postponed to 2017.

The Government’s Valuation Office Agency is busy updating its figures, but Colliers has done its own research on how the rating revaluation will affect High Street retailers, based on analysis of rental data from 2010 to 2015.

It says it found big variations across the country:

Marlow faces an increase of 58% in rateable value, followed by Guildford at 42%, and Brighton up by 18.5%.

But Rochdale in Greater Manchester, hit hard by the economic downturn, will see a decrease of 30%. Kidderminster in the West Midlands is down by 42%.

And in London, it is Dover Street which is the biggest loser, with an increase of 415%. Brixton faces a potential 128% increase in rateable value, although Ealing will see a decrease of 46%.

Mr Webber believes some retailers are going to be in for a nasty shock when the business rates change in 2018.

“Business rates is a major cost for retailers and it’s really important that they are able to budget for these once-in-a-generation changes,” he adds.

The government has promised a review of the current system and will deliver its findings by next year’s Budget.

Business rates are expected to raise around £28bn for the Treasury’s coffers this year, more than the sum it raises in council tax.

Retailers currently pay a quarter of this bill, more than any other sector, and are demanding wholesale change, saying the current system is unsustainable.

They say it is an arrangement that always produces winners and losers for individual businesses.