Charlotte Street Partners

DAILY BRIEFING

DAILY BRIEFING

Winter of discontent

Written by Li-Ann Chin, associate
Edited by Scott Reid, associate partner

27 September 2021

Good morning,

The Bank of England published its prediction last Thursday that the annual inflation rate is likely to peak above four per cent by the end of 2021 as a result of surging household energy bills. The persistent pressure on living costs is expected to last through to the middle of next year.
 
Meanwhile, Oil giant BP was forced to restrict deliveries of fuel and shut stations because of a lack of HGV drivers while supermarkets warned of food shortages in the coming weeks.
 
Taking these together, it is perhaps no exaggeration to state that, after an ephemerally joyous summer which saw most of the UK revel in the lifting of Covid restrictions, the long winter ahead is looking rather more solemn. But things are set to get a lot harder for some more than others.
 
As many as 1.5 million working people could be forced into hardship this winter as universal credit is cut back to its pre-pandemic level on October 6, a mere 11 weeks before Christmas. The government provided an additional £20 per week to claimants at the outbreak of the pandemic but has signalled that it intends to abolish the uplift as planned by early next month, despite increasing pressure from ministers, Tory MPs and campaigners.
 
According to the Child Poverty Action Group, almost 50% of families with three or more children are currently below the poverty line. The £20 cut to universal credit will push 500,000 more people and 300,000 more children in poverty, taking the child poverty rate to one in every three children.
 
And with energy prices on the rise, it is likely that families will be forced to choose between food or heating, a choice that no person should ever have to make. Writing an impassioned article in The Guardian, former prime minister Gordon Brown called it the most morally indefensible thing he had witnessed in UK politics. Footballer and activist Marcus Rashford warned of a “child hunger pandemic”.
 
In response, Simon Clarke, chief secretary to the Treasury, said the £20 uplift had only ever been a temporary measure and that the government is concentrating on creating a thriving jobs market after the pandemic. “The world in September 2021 is very different to the one of March 2020 . . . the best anti-poverty strategy is a jobs strategy,” he said.
 
Understandably, the bold proclamation fails to strike confidence in the hearts of many. The Kickstart scheme designed to boost youth employment was found to have created only 2,000 jobs from September 2020, when it was first launched, to February this year.
 
It would cost £6 billion a year to make the £20-a-week uplift permanent, which the government has indicated they cannot afford. But with the cost-of-living crisis and soaring inflation set to hit British families hard this winter, the real question should be: can the government afford not to?

News

All eyes have been on Germany’s federal election which took place over the weekend. The centre-left Social Democratic Party (SPD) and their chancellor candidate, Olaf Scholz, have gained 25.7% of the vote, giving them a slim lead over their centre-right CDU rivals which sank to a historic new low with 24.4%. The greens, led by Annalena Baerbock, secured their best result in a national poll, with early results placing them at 14.8% in third place, ahead of the liberal Free Democratic Party.
 
Parties will now embark on “exploratory talks” to form a coalition government, with a three-way coalition considered most likely at this point. Discussions are expected to be a lengthy process, with talks lasting three months in 2017.
 
Detectives investigating the murder of teacher Sabina Nessa have detained a 36-year-old man on suspicion of murder in what Scotland Yard called a “significant development”. The tragedy has once again highlighted public anger over violence against women, coming six months after the huge public outcry when Sarah Everard was found to be abducted and murdered by a Metropolitan Police office.
 
Kate Martin, chair of the Traditional Farm-fresh Turkey Association warned that the UK could face a “national shortage” of turkeys in the lead-up to Christmas as a result of a shortage of skilled European employees following Brexit. Some poultry farms have reportedly received five times more orders this year than the same time in 2020.
 
Shadow chancellor Rachel Reeves is set to tell the Labour party conference in Brighton today that a new Labour government would abolish and replace business rates in what is being billed as “the biggest overhaul of business taxation in a generation.” The announcement was praised by the Confederation of British Industry (CBI) and Federation of Small Business (FSB) – two of the UK’s largest business advocacy groups – in a move that will heap pressure on the UK treasury to reform taxation.

Business and economy

The government’s decision to offer temporary visas to foreign lorry drivers has been criticised by the Petrol Retailers Association for not solving the “ultra-short term” problems in fuel supply caused by panic buying. The CBI slammed the solution as being limited in scope and called for a committee of key government ministers, similar to those set up for emergencies like flooding or pandemic, to be established to alleviate these short-term pressures.
 
As many as 40,000 new homes are being delayed, posing a threat to government targets on addressing housing shortages, as developers are barred from moving ahead on a number of building sites in England over fears that construction will increase the level of nitrates and phosphates in waterways. At high concentrations, these nutrients cause excess algae to grow which may stifle other aquatic life. (£)
 
Britain’s lowest-priced supermarket Aldi is planning a £1.3bn investment in the business after sales surged to record levels in the 2020 financial year. It plans to open 100 additional stores, create 2,000 new jobs and expand its logistics infrastructure to include a 1.3 sq ft site in Leicestershire by 2023.

Columns of note

We are incredibly reliant on fossil fuels – the recent CO2 crisis is a timely reminder of that. Oil and gas are shot through every part of our economic and social lives and that will remain the case for many decades to come. Change will happen, of course. The green transition will take place. But we have to be realistic about the timescales, writes Merryn Somerset Webb in the Financial Times.
 
Mere days after her US Open victory, Emma Raducanu was quick to join a select group of other A-list celebrities including Anya Taylor-Joy, Beyoncé and Jay-Z who are ambassadors for Tiffany. Writing in The Guardian, Catherine Bennett zeroes in on Tiffany and LVMH’s blatantly obvious strategy to inject Raducanu’s radiant and youthful but still blissfully apolitical energy into a range of jewellery that hasn’t looked interesting to shoppers since the 80s. The endorsement is not so much a win for Raducanu, but for Tiffany, she points out.

Cartoon source: The Mirror

Markets

The week ahead

All eyes have been on the German federal election that took place over the weekend, with Chancellor Angela Merkel stepping down after four terms in office.
 
Electoral arithmetic suggests that Germany is likely to see a new coalition moving forward, comprising of a combination of the SPD, CDU, Greens and FDP parties, though any deal to form a new government will take time. We expect that the markets will be focused on this for the coming weeks and months.
 
On the corporate front, results are due from Ferguson, Next, Boohoo and transport operator Go-Ahead next week.
 
Clothing, footwear and home products retailer Next will report half-year results on Wednesday. Particular attention will be paid to staff costs, given current staff shortages across the retail sector. Investors are also likely to home in on any updates regarding the company’s deal with Gap to manage the US firm’s online business which was announced in September.
 
Go-Ahead will report full-year results on Thursday. The market is expected to focus primarily on the current pace of recovery in the UK regional bus division and the company’s expectations of future patronage. Commentary on fees the company expects to receive for running UK rail operations in the future and an update on the challenges faced with the German rail operations are highly anticipated.
 
In terms of economic data, the UK and US will release their GDP Q2 data on Thursday. There is some optimism amongst the markets that the final iteration of UK’s GSP data might see an upwards revision. The UK economy has performed markedly better than expected at the beginning of 2021, despite concerns over a slowdown in Q3.
 
And while initial expectations for an expansion in US GDP in Q2 were placed at an ambitious 8.5%, it is likely that next week’s release will point towards an expansion of 6.5% to 6.6%, or around 6.7% at best.
 
Eurozone flash CPI data and global manufacturing PMIs for September are set to be published on Friday. There has been talk among some European Central Bank policymakers that the central bank needs to start reigning in its pandemic emergency purchase programme (PEPP) given the sharp rises we’ve started to see in headline CPI data. If September’s flash reading indicates a worrying uptick in inflation, the markets can probably expect a significant slowdown in the pace of monthly PEPP purchases.

What’s happening today?

Trading Updates

United Utilities

Interims

FireAngel Safety Technology
I3 Energy
Instem
Medica
Minds + Machines

Finals

Oxford Cannabinoid Technologies

AGMs
Okyo Pharma
Sutton Harbour
Van Elle

Source: Financial Times

did you know

According to a survey for National Doughnut Week in 2017, the UK’s favourite doughnut flavour is raspberry jam. Custard came second.

Parliamentary highlights

House of Commons

The House of Commons is in recess. The House will next sit on 18 October 2021.

House of Lords 

The House of Lord is in recess. The House will next sit on 11 October 2021.

Scottish parliament 

No business scheduled.

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