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Daily News Roundup: Monday, 4th July 2022

Posted: 4th July 2022

BTG Advisory

Strikes, inflation and labour shortages threaten travel sector revival

Robert Insall of BTG Advisory has warned that airline strikes, staff shortages, high inflation and the cost of living crisis could slow the summer travel revival, with flight cancellations prompted by fresh Covid-19 outbreaks in Europe also having a negative impact. He highlights that Heathrow has forecast annual passenger numbers of 54.4m in 2022, with this equal to 67% of 2019’s total. TUI Group, the world’s largest tourism company, estimates that summer holiday demand is expected to reach 85% of the 2019 total. Mr Insall also points to data suggesting that in the hotel sector, domestic and short-haul tourism is recovering, while long-haul business travel – the most lucrative segment – remains weak. He reflects that for businesses across the travel sector, operating costs are rising faster than improving revenues “and, in many cases, cannot be absorbed.”  He adds: “The longer-term consequences include a more protracted pivot to domestic travel demand with the potential for further sector distress and insolvencies, particularly as government support schemes have now unwound.”


British banks see profits soar

British banks have generated more profits than their French rivals for the first time since 2015, according to analysis by The Banker magazine. UK-based banks recorded $55.1bn (£45.5bn) in pre-tax profits in 2021, compared with $54.8bn for France and $13.9bn for Germany. British banks also saw a higher aggregate return-on-assets ratio (0.50%) than French (0.37%) and German banks (0.23%) – as well as outperforming the European average of 0.44%. The Top 1,000 World Banks report saw HSBC the only European bank to make the top 10 for the 11th year running, with the rest of the slots taken by Chinese or American firms. Outside the top ten, Barclays was ranked 24th, Lloyds Banking Group placed 42nd, Standard Chartered was 51st and Nationwide Building Society came 106th. The report reveals that UK banks collectively made more profits than any other European country, with this driven by a post-pandemic economic rebound, a soaring housing market and a boom in private equity deal-making. Joy Macknight, editor of The Banker, said: "After taking a profitability hit in 2020, the UK banking sector has rebounded and recorded a more than 200% increase in pre-tax profits.” She noted that, as with many banks across the world, “much of the boost can be attributed to a reduction or reversal in last year's credit impairment charges for expected loan losses that didn't materialise.”

£1trn held in low-paying accounts

Bank of England data shows that savers have close to £1trn in low-paying easy-access accounts offering an average rate of just 0.18%. Analysis shows that the lowest rate for an any easy-access savings account is just 0.01%, while the highest is the 1.56% offered by Virgin Money. Over the course of a year, someone with £50,000 held in an account paying 0.18% interest would earn £90 – whereas someone on the best rate would earn £785. Moneyfacts notes that while the average easy-access rate now stands at its highest level since 2020, nine in ten still fail to match the Bank Rate of 1.25%. The analysis also shows that while in many cases savers have yet to feel the benefit of rate rises, some banks have passed on higher mortgage costs to customers. The interest rate paid on new mortgages increased by 0.13 percentage points to 1.95% in May.

Credit card borrowing falls as consumers feel squeeze

Consumers cut back on credit card borrowing in May, according to figures from the Bank of England. Consumer borrowing fell to a four-month low of £800m in May, from £1.4bn in April, with May’s total also below the pre-pandemic average of £1bn. Analysis shows that credit card loans accounted for £400m of the total. The average interest rate on personal loans fell to 6.49% in May. Rates on credit cards rose to 18.38% from 18.08% in April. The data also shows that mortgage approvals rose to 66,200 in May from 66,100 in the previous month, showing that demand remains strong. Overall mortgage borrowing was at £7.4bn, up from £4.2bn in April and above pre-pandemic averages.

Banks will be forced to reimburse all victims of online fraud

Banks will be ordered to reimburse all victims of online fraud under laws. Financial regulators are set to be given powers to require banks to compensate those who have been ripped off, with new measures reportedly to be included in the Financial Services and Markets Bill later this month. The law will place a duty on the Payment System Regulator to tackle the issue, and give the watchdog powers to order the banks to comply. Treasury Minister John Glen said: “The current situation where customers can't be absolutely sure they will be reimbursed for fraud is not acceptable.” He added: “The banks have done some work but there has been an inconsistency. We want to make this mandatory so that people can be 100% sure that action will be taken.”


Bailey opposes Treasury plan to overrule regulators

Bank of England governor Andrew Bailey has expressed concern over Treasury plans that would allow ministers to overrule financial watchdogs on key areas of City regulation. He has reportedly voiced his opposition to a 'call-in power' that will be included in the Financial Services and Markets Bill due to be introduced this year. The clause is designed to only be invoked in circumstances where ministers believe it would be in Britain's national interest to intervene. Mr Bailey is said to believe that the clause would undermine perceptions of the Bank's independence. Sky News says the power to overrule the Prudential Regulation Authority would be held in reserve, citing a source who says it would rarely, if ever, be used. They added that, if invoked, any attempt to overrule regulators' decisions would be expected to need parliamentary approval.

More people turn to high-cost lenders, says charity

Charities have warned that struggling households are turning to high-cost lenders in growing numbers amid the cost of living crisis. The Joseph Rowntree Foundation says that more than one in 10 low-income households have taken on credit in order to pay their bills, while 870,000 households are planning on doing that in the coming months. Research by the foundation shows that one-fifth of low-income households were in debt with a licensed high-cost credit lender, and 84% of those were in arrears with at least one household bill. The concerns come as subprime lender Amigo, which has agreed to pay compensation to customers sold unaffordable loans, revealed plans to launch using a new brand called RewardRate. It wants to offer a personal loan with an annual interest rate of 49.9% and a guarantor loan at 39.9%.

Insurers face FCA probe

Insurers are being probed by the Financial Conduct Authority (FCA) over concerns they are hitting customers with hefty price hikes when they renew home or car cover policies. New rules introduced in January were supposed to ban insurers from charging existing customers more than new ones. However, amid reports of some customers facing big price rises on renewal, the FCA has asked between 60 and 100 insurance companies and brokers to prove that they have eliminated the loyalty premium, warning that any companies guilty of a fragrant abuse of the new rules face “serious consequences.”

FCA urged to extend time period for BSPS redress scheme

MPs have called on the Financial Conduct Authority (FCA) to extend the time period its proposed redress scheme for British Steel Pension Scheme (BSPS) members applies to. The FCA earlier this year set out plans to deliver £71.2m in compensation to former members of the BSPS who received unsuitable advice to transfer out of their pension. A letter written by MP Nick Smith and supported by 27 cross-party MPs voices concern that not all those who could reasonably expect compensation will end up securing it if the redress scheme only covers March 1, 2017 to March 29, 2018.

Insurance broker faces £10m suit for Covid losses

Insurance broker Pound Gates is facing a landmark £10m legal claim from childcare nurseries whose policies did not pay out for losses incurred during the pandemic. Law firm Fieldfisher said it was planning to sue the broker over alleged professional negligence related to policies provided by insurer Ecclesiastical. Business disrupted by the pandemic were told they did not have a valid claim as Covid-19 was not among a list of pre-specified diseases on their policy. However, other nurseries’ business interruption policies with different insurers have paid out.


UBS and Reef to invest £900m in life sciences cluster

A joint venture between UBS Asset Management and Reef Group will invest up to £900m developing one of Europe's largest clusters for life science companies at a research facility in Stevenage. The project has acquired 33 acres of land from pharma firm GSK. Subject to planning permission, parts of the hub will open for business in 2025. It is expected to deliver 1.4m sq ft of laboratory and office facilities.


Stonegate looking to sell pub portfolio

The UK's largest pub operator, Stonegate Group, is considering selling 75 of its sites in London and south-east England for as much as £100m. The company - which is owned by private equity group TDR Capital - has hired bankers to gauge interest in the portfolio. 


Manufacturing growth slows in June

Britain’s manufacturing sector saw a slowdown in June, with growth in factory output nearing a standstill. The S&P Global / CIPS UK Manufacturing PMI shows that activity rose at the slowest pace in two years, with new orders falling for the first time since the third coronavirus lockdown in January 2021. The PMI fell to a two-year low of 52.8 in June, down from 54.6 in May on an index where a figure above 50 represents growth. Business optimism fell to its lowest since May 2020, with just 47% of manufacturers expecting growth in output compared with 55% in May.


City law firm hikes junior lawyer pay again

City law firm Herbert Smith Freehills has given its junior lawyers pay rises totalling 24% over the past six months, meaning its graduates now join on a starting salary of £120,000. It has increased salaries by 14% for its newly qualified solicitors, having already boosted salaries for junior lawyers by 10% in December. Research shows that the 23 law firms in the City that pay the highest salaries to junior lawyers are all from the US. Akin Gump leads that way, paying solicitors £164,000 on the day that they qualify. The highest-paying English firms in the City for junior lawyers are Clifford Chance and Freshfields Bruckhaus Deringer, which offer starting salaries of £125,000. Slaughter and May and Linklaters pay starting salaries of £115,000 and £107,500, respectively. Allen & Overy imposed a pay freeze this year, having increased salaries for newly qualified solicitors to £107,500 in November.


Longer loans could boost home ownership

Ultra-long mortgages of up to 50 years are being considered as a way to get young people on the housing ladder, with the Prime Minister seeking “creative ways” to increase home ownership. Under plans being worked on in Downing Street, people could be encouraged to take out longer-term mortgages that their children would be able to inherit, talking on the debt along with the property. As officials look to get more people on the property ladder, Boris Johnson last month promised “many more” 95% mortgages as Housing Secretary Michael Gove launched a review of mortgage finance. Ian Mulheirn, chief executive of the Tony Blair Institute, said there was “definitely scope for significant innovation” but added that “it’s not clear that 50-year mortgages are the key”. He said “mortgages that can pass down the generations are not a bad idea in principle”, but warned that “there are questions for the Government about whether this is the right time to be saddling people with long-term debt.”

Mortgage costs expected to grow

The cost of a mortgage is expected to grow by £2,500 by the end of this year compared with December 2021, according to Zoopla. Economists anticipate mortgage rates to rise in the coming months, with the Bank of England looking to tackle soaring inflation, which is at 9.1% and set to climb. Average rates for a five-year fixed-rate mortgage on a £250,000 loan, including a 25% deposit, currently stand at 3.37% - with this up from 2.64% in December. The rates increase over the six-month period is the equivalent of more than £870, which Zoopla says will jump to £2,500 in extra costs should rates rise by another basis point.

End of fixed mortgage deals will hit disposable income

Homeowners coming off fixed-rate mortgages and shifting to a new deal this year are set to see their disposable incomes shrink by 7%. UK Finance calculates that 1.3m customers are set to reach the end of their fixed-rate deals this year and, unless they re-mortgage, will move on to their lender’s standard variable rate. The trade association said: “On average, we estimate the combined impact of cost-of-living and re-mortgage onto a new deal would result in around a 7% decrease in their free disposable income.”


Food price rises to get worse before they get better - FDF

The Food and Drink Federation has warned that increases in the price of food may not hit their peak until next year, with chief executive Karen Betts saying prices would "absolutely" get worse before they get better. The industry group, which represents UK food and drink makers, said it usually takes 7-12 months for producers' costs to reach shop shelves. While Office for National Statistics data shows that food and drink price inflation rose to 8.7% in the year to May, Ms Betts said the peak “could well be into next year” and that prices could rise “some way above 10%.”


Eurozone inflation hits record high

Inflation across the eurozone hit a record high of 8.6% in June. Data from EU statistics agency Eurostat shows consumer price inflation increased from 8.1% in May. The European Central Bank is planning its first interest rate hike in 11 years this month, followed by another increase in September.


Over a third of Brits think cryptocurrencies are a Ponzi scheme

More than one in three people think cryptocurrencies are a Ponzi scheme, according to a poll by Tally Money. A survey of 2,000 Britons saw 36% say they thought cryptocurrencies were a Ponzi scheme, while less than a third consider them a trustworthy investment. Researchers found a gender divide on the issue, with 23% of women saying they trust crypto compared to 35% of men. It was also shown that nearly half of 18 to 24 year-olds said they still trusted crypto despite prices crashing in recent months, while just 1 in 6 of the 55 to 64-year-olds polled said they trusted it.

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