Interest rates hit 5.25%, Wilko in trouble
The business news that matters
Hello and welcome to the latest Off to Lunch…
The Bank of England has just announced that it has increased interest rates by another 0.25 percentage points to 5.25 per cent.
This is the 14th meeting in a row that the Bank has increased interest rates, although this increase is less than the 0.5 percentage point rise at the last meeting in June.
Financial traders had been split 60-40 on what the Bank’s monetary policy committee would decide. Markets had priced in a 60 per cent chance of a 25 basis point rise and a 40 per cent chance of a 50 basis point rise.
As it happens, the Bank’s nine-strong monetary policy committee was split three ways on what to do. Six members voted for a 0.25 percentage point increase, two wanted a 0.5 percentage point rise and one wanted to hold interest rates at 5 per cent.
The commentary and data released alongside the Bank’s announcement is also important. The Bank’s forecasts - based on pricing in financial markets - show interest rates peaking in the UK at just over 6 per cent and averaging 5.5 per cent over the next three years. That average is well-up from the 4 per cent in the Bank’s previous forecasts in May. The Bank says in its announcement that the UK economy should grow slightly in the second half of the year based on “more resilient household income and retail sales volumes, and most business surveys over recent months”. It said the labour market “remains tight but there are some indications that it is loosening”.
You can find the Bank’s announcement and the minutes from its latest meeting here. You can also read the Bank’s latest monetary policy report, which is full of forecasts and data, here
The latest inflation data released last month showed that the consumer price index was 7.9 per cent in June. This was better than expected and down from 8.7 per cent in May, but still well above the Bank’s target of 2 per cent and the rate of inflation in other western countries like the US, where it was 3 per cent in June.
In a sign of how fragile the UK economy is, less than an hour before the Bank announced its decision on interest rates it emerged that more than 12,000 jobs are at risk at Wilko, the discount retailer. Wilko has filed a notice on its intention to appoint administrators, which gives it 10 days to secure a rescue deal and avert liquidation before creditors can take action.
The first Wilkinsons store, the old name for Wilko, opened in Leicester in 1930 and the business is still owned by the Wilkinson family. The company has 400 shops across the UK and in recent weeks had been looking for a buyer that could provide emergency funds. Mark Jackson, chief executive, said:
“While we can confirm we’ve had a significant level of interest, including indicative offers that we believe would meet all our financial criteria to recapitalise the business, at present, we don’t today have an offer that provides the necessary liquidity in the time we have available, given the mounting cash pressures we’re faced with.
“Unfortunately, with this in mind, today we’re having to take the difficult decision to file an NOI.”
You can find a story on this from The Business Desk here and Bloomberg here
In terms of what the latest interest rate rise means for the economy, households and businesses, Torsten Bell, chief executive of the Resolution Foundation think tank, posted a useful graph…
While this from Ed Conway at Sky News demonstrates that most of the impact from higher interest rates is still to be felt by mortgage holders. The big increase in spending on mortgages looks like it will occur from 2024 onwards…
But despite this pressure, and the problems at Wilko, there is evidence that consumers are still pretty resilient, as the Bank says. Next, one of the UK’s biggest clothing retailers, has said today that sales rose by 6.9 per cent year-on-year in the 13 weeks to July 29 and that it now expects annual pre-tax profits to be £10 million higher than previously forecast at £845 million. You can find Next’s statement here
Other stories that matter…
1. The UK needs to focus on its strengths rather than trying to “recreate Taiwan in south Wales”, Paul Scully, the tech and digital economy minister, has said in an interview with the Financial Times. That means focusing on design and niche manufacturing rather than trying to bring global chip production to the UK, said Scully, who is leading the government’s digital economy strategy. FT piece here
2. The seven-time Superbowl winner and former NFL quarterback Tom Brady has bought a minority stake in Birmingham City Football Club and will become chairman of its advisory board. Brady has done a deal with US hedge fund Knighthead Capital, which bought Birmingham City last month…
Brady has posted a video explaining his involvement…
3. Hopin, a UK-based virtual events start-up, reached a valuation of $7.8 billion (£6.2 billion) during the Covid-19 crisis. That made its founder, Johnny Boufarhat, 29, the youngest self-made billionaire in the UK. However, Hopin announced yesterday that it has sold its event business and most of its assets to New York-listed RingCentral for an undisclosed sum and that Boufarhat will stand down as boss. Hopin has struggled since the end of lockdown and the undisclosed sum paid by RingCentral appears to be a tiny fraction of the previous valuation. You can find more details in a TechCrunch story here and FT Alphaville analysis here
4. British executive Tony Hoggett is leading an overhaul of Amazon’s grocery business that involves merging its different brands including Whole Foods and Amazon Fresh into one online offering and redesigning its Amazon Fresh shops. Hoggett used to be chief operating officer at Tesco and held a variety of senior roles there. He now lives with his family in Austin, Texas. “We’re serious about grocery,” Hoggett told Bloomberg Businessweek about Amazon’s strategy. Piece here
5. Manufacturers are finding that young employees lack some basic practical skills because they spent more time studying on computers than in the classroom during Covid-19 lockdowns. Wall Street Journal analysis here
And finally…
The Premier League returns next week and so does the Off to Lunch mini-league in Fantasy Premier League. To join the league and compete with other Off to Lunch subscribers please join here. Those who played last year will be automatically re-entered so you shouldn’t need to do anything. If you are asked for the code to enter the league it is g6n53m.
For help picking your Fantasy Premier League team and analysis throughout the season check-out our sister newsletter Fantasy Gameweek here
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Best
Graham