Reasons to be optimistic...
Yes, there are some...
Much has already been written about the challenges facing Liz Truss as prime minister, including surging inflation, the tumbling pound, and the war in Ukraine. Much has also been written about the many proposals and promises she made during the leadership campaign and the concerns around them. These concerns include the cost of freezing energy prices and scrapping the planned increases in national insurance and corporation tax. So, today let’s look at some of the reasons for optimism, because a few are emerging….
I plan to do a detailed look at what next for levelling up when we know more about Truss’s approach. Despite suggestions that she might scrap the phrase, if not the policy, the early signs are that it will remain. Simon Clarke has been appointed secretary of state for levelling up, housing and communities, replacing Michael Gove, who held the role under Boris Johnson, and Greg Clark, who held it briefly after Johnson sacked Gove. This appointment is promising. Clarke was chief secretary to the Treasury under Johnson and at just 37 years old is seen as something of a rising star. He has previously spoken about the power of devolution and regeneration in boosting local communities. This is what he said on social media last night…
Interestingly, there seem to be some suggestions that the Northern Powerhouse concept - first introduced by David Cameron and George Osborne - could get more prominence in the Truss government. One to watch…
Anyway, those reasons for optimism….
Bank of England officials have said that Truss’s plans to freeze energy bills for households at current levels (details to be confirmed tomorrow, cost potentially £150 billion) could lower the peak that inflation hits. Huw Pill, chief economist of the Bank, told MPs on the Treasury Committee this morning: “Net-net on the implications for headline inflation in the short term, I would expect that to see a decline.” Jeremy Warner writes in his Telegraph column this morning that Capital Economics is forecasting that freezing bills could reduce peak inflation from 14.5 per cent to 11 per cent and that Pantheon Macroeconomics has said inflation could be back down to 2 per cent by next year. A note of caution on these forecasts (which are everywhere in the papers this morning). Economists remain concerned that while peak inflation could be reduced, freezing bills could lead to consumer spending being more robust than expected and risk inflation staying higher for longer and becoming endemic.
Could gas prices be about to go down anyway? David Smith gives a great explanation of why they could in his Times column today. This column is based on research from the Kyiv School of Economics. In short, gas prices could drop due to falling demand, Europe’s reduced dependency on Russian gas, progress in encouraging heavy gas users to cut back, and the capacity of the Groningen gasfield in the Netherlands. Full column here.
Truss has filled her cabinet with supporters and got rid of those who supported rival Rishi Sunak. Based on Monday’s Off to Lunch - harmony at the top is overrated - this is not good for the government’s decision-making. But Danny Finkelstein has an alternative take in his excellent Times column today:
Having a broad cabinet, such as the one Thatcher appointed in 1979 and still had in the first half of 1981, didn’t unite the government. It destabilised it. It couldn’t agree on its central policy and there was always a feeling that the leader or her programme might be overthrown. In 1981, when Thatcher reshuffled and changed the political balance of her ministerial team, she strengthened her position immensely.
So it is right that Truss has chosen to weight her cabinet heavily to reflect her political position. I think this is, counterintuitively, the best hope for unity. My problem isn’t that Truss has picked a side of the party. It is that I think that she has picked the wrong side.
The full column is here.
Trading updates from the retail sector are not terrible right now, suggesting consumer spending is robust, for the moment at least. WH Smith said this morning that revenues have now exceeded pre-Covid levels thanks to a recovery in travel boosting sales at its airport and station shops. However, its high street business recorded just 80 per cent of its 2019 pre-Covid revenues in the 26 weeks to August 27 2022, although this was in-line with the company’s expectations. Halfords, the car parts and bicycle retailer, also said it was performing in-line with expectations. Revenue fell 1.9 per cent on a like-for-like basis in the 20-weeks to August 19, which the company said reflected a strong performance in the same period last year as shops reopened post-lockdown. Cycling sales were down 12.7 per cent but sales from Halford’s autocentres rose 19.4 per cent. There were some concerning signals in the trading update, however. Halfords said that cycling sales have been hit by “reduced discretionary spend” and chief executive Graham Stapleton warned that cash-strapped households could keep running their cars for longer, posing a threat to road safety.
Finally, could the housing market and house prices hold up better than feared? Logic suggests a sharp fall in prices is coming. House prices are at historic affordability levels - the average property costs nine times average annual earnings, the worst (highest) since records began. Cheap debt - ie low mortgage rates - has been used to fill that gap. However, now interest rates and mortgage rates are going up. Helen Thomas in the FT has written about the “shaky foundations” in the housing market today. The share prices of Britain’s leading housebuilders have fallen more than 40 per cent this year, suggesting a sharp fall in house prices is coming. But, what if the low supply of homes in the UK offsets what looks like an inevitable drop in demand? This could put a floor under house prices and stop them falling. House prices rose 0.4 per cent month-on-month in August and are 11.5 per cent higher than a year according to the latest report from Halifax. However, Halifax also warned of a “more challenging period” approaching for the housing market…
Corporate subscriptions…
I am delighted to say that Substack has now introduced a great new feature for corporate and group subscriptions, making it really easy for you to sign-up. To everyone who has already signed up to a corporate subscription, thank you and don’t worry, nothing changes for you.
To everyone who hasn’t yet and wants to, it just got easier. If you click on this link you will be taken to the group subscription page where all you need to do now is say how many people you want it for, the email address for the group administrator, and pay. A minimum of four people is needed for a corporate or group subscription. For a short-time only corporate and group subscriptions will be offered at a 50 per cent discount to the individual rate - so £25-a-year for each person. If I may say so myself, that is a bargain…
Other stories that matter…
Heineken has bought the 51 per cent of London craft beer brand Beavertown that it doesn’t already own, meaning they now own 100 per cent of the business. Logan Plant, Beavertown’s founder and chief executive (and son of Led Zeppelin's Robert Plant) will become an adviser (Drinks Business)
A University of Bath spin-out has raised £1.1 million to fund its work developing what it says could be the first completely needle-free blood sugar monitor (BusinessLive)
Another promising UK healthtech company, Healthily, has raised $20 million to expand in the US and has secured a partnership deal with Walmart, the biggest retailer in America. Healthily used to be known as Your.MD and uses AI to help check your symptoms and decide what to do next, such as see a doctor (Sifted)
The value of the cryptocurrency market has fallen below $1 trillion (Bloomberg)
Indian industrialist Gautam Adani is on course to become the richest person in the world after an extraordinary surge in his wealth in 2022. Yet I am guessing that many of you haven’t heard of him before. His net worth has increased from $64.8 billion to $141.4 billion, a near doubling, while all the American and European billionaires at the top of the list have seen their wealth fall sharply. He is now the third richest person in the world behind Elon Musk and Jeff Bezos, overtaking Bernard Arnault, Bill Gates, Larry Page and Warren Buffett this year, according to the Bloomberg Billionaires Index. Adani controls a collection of energy and ports businesses whose value has surged amid rising oil and gas prices. However, there are concerns about the debts behind his business empire. Adani has an extraordinary backstory, including being held for ransom and being among the hostages in the 2008 Mumbai terror attacks (Bloomberg)
And finally…
I am slowly making my way through the opening episodes of Amazon’s new The Lord of the Rings: The Rings of Power and it genuinely feels like you are watching the start of a long film, which is not surprising given the budget is a rumoured $1 billion, making it the most expensive TV series of all-time. As a fan of the books and the original Peter Jackson trilogy (less-so the Hobbit films) it has been a promising start and there is clearly potential to expand on the array of stories outlined by Tolkien in his appendices. Some of these stories, shock horror, may actually be more interesting than what happens in the Lord of the Rings. However, one concern is how much scene-setting and world-building there is and how long this will continue before we get to the heart of the story. Do audiences have the appetite for this? I am not sure I do. The eighth series of Game of Thrones did not finish that long ago and now there is a spin-off for that too.
Anyway, for those not interested in re-entering the world of Tolkien or entering it at all, check out Netflix’s documentary series Untold, which takes a detailed look (1 hour+) at sporting stories and scandals. The episode on the mental health challenges that faced US tennis stars Mardy Fish and Andy Roddick and the episode on the basketball referee caught betting on NBA matches are particularly worth your time…
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Best
Graham