News

Britain saw its smallest budget deficit for any September in the last 10 years, according to official figures.

Last month’s deficit stood at £5.902bn, down almost 11% compared with the same month last year, the Office for National Statistics (ONS) said.  With many economists having forecast a deficit of about £6.5bn, the news will be a boost for Chancellor Philip Hammond ahead of next month’s Budget.  The deficit for August was also revised down by about £1bn to £4.716bn.  September’s figures marked the third straight month in which UK public finances were better than analysts had forecast.  The ONS said public sector net debt, excluding state-owned banks, had increased by £145.2bn since September last year to £1,785.3bn, equivalent to 87.2% of gross domestic product.
A Treasury spokesman said:

Whilst we’ve made great progress getting the deficit down by over two thirds, government borrowing is still far too high at over £150m a day.  We will continue to take a balanced approach that deals with our debts and allows us to invest in our public services.

Spending cuts

The ONS said the lower borrowing in September was helped by stronger receipts from VAT, income and the stamp duty property tax, although corporation tax revenues were down slightly on a year ago.  However, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said lower borrowing was still predominantly driven by spending cuts, not a rebound in tax receipts.  He said government spending rose by just 2.2% year-on-year in September, half the 4.4% increase anticipated by the Office for Budget Responsibility (OBR), which provides independent analysis on the UK’s public finances.

By contrast, tax receipts increased by just 3.4% year-over-year in September, only a touch above the OBR’s 2.7% full-year expectation and below the 3.8% average of the first five months of the fiscal year.  The chancellor, therefore, is unlikely to soften the existing plans in next month’s Budget enough to prevent the fiscal consolidation from intensifying next year,

Mr Tombs said.  The borrowing data would, however, bring “some cheer” for the chancellor ahead of the Budget, said John Hawksworth, chief economist at PwC.  He said:

Both the half year borrowing total and the deficit in September alone were the lowest since before the financial crisis in 2007.  The ‘black hole’ that opened up in the UK public finances after the crisis has largely been filled, albeit at the cost of a much higher accumulated public debt stock.  It should mean the chancellor can find some extra money for priorities like housing and the NHS, but any giveaways are likely to be offset to a significant degree by fiscal take-backs.

Retail sales suffered an unexpectedly sharp fall of 0.8% in September, reversing a jump in August, according to the Office for National Statistics.

It meant that third-quarter retail growth slowed to a year-on-year rate of 1.5%, its lowest since the second quarter of 2013.  The figures come at the Bank of England contemplates its first interest rate rise in a decade.  Sterling fell as traders bet the data made imminent rate rise less likely.  Despite September’s sales fall, Kate Davies, ONS statistician, said:

There is a continuation of the underlying trend of steady growth in sales volumes following a weak start to the year, and a background of generally rising prices.

The ONS said retail prices continued to rise across all store types and were up 3.3% from a year earlier, the highest year-on-year increase since March 2012.  The biggest downward pressure on sales volume and value in September was in non-food stores.  Food stores also reported falls in both measures, but to a lesser degree than non-food outlets, the ONS said.  Online sales values increased year-on-year by 14%, accounting for approximately 17% of all retail spending.  Ian Gilmartin, head of retail and wholesale at Barclays Corporate Banking, said:

It’s important to avoid overstating the negatives in September’s retail sales, as retailers did manage to post year-on-year growth despite the range of headwinds they are battling currently.

However, he said September’s fall, following strong sales in August, was “worse than predicted”.  Neil Jones, Mizuho’s head of hedge fund currency sales in London, said the retail data was “not encouraging”.  The value of pound fell immediately after the figures were released, with sterling down almost half a cent to $1.3126, suggesting traders believe a rate rise next month is less likely.  Bank governor Mark Carney has said rates could go up in the “relatively near term”, with many analysts expecting a hike in November.

Alvin Tan, currency strategist at Societe Generale, said that he still felt a rate rise next month was possible, but said a second rise early next year was now very unlikely.  Ian Geddes, head of retail at Deloitte, said a November rate rise “could come at a challenging time for the retail sector”.  With rising inflation and increasing consumer debt, a rate hike just as the industry enters the key Christmas period would be “an additional headache for retailers”, he said.

UK unemployment fell by 52,000 in the three months to August to 1.4 million, leaving the jobless rate unchanged at 4.3% from the previous quarter.

However, pay still failed to keep pace with inflation, with the real value of earnings down 0.3% over the past year.  Total earnings, excluding bonuses, rose by 2.1% from June to August, said the Office for National Statistics.  The news will increase expectations that the Bank of England will raise interest rates on 2 November.  However, Kathleen Brooks of traders City Index said the Bank faced a tricky decision next month.

The prospect of raising interest rates when real wages are in negative territory will make this potential hike a tricky one for the Bank to justify,

she said.  The unemployment rate is still at the joint lowest level since 1975, although the claimant count increased by 1,700 to 804,100 last month.  The UK’s key inflation rate rose to 3% in September.

There were 32.1 million people in work in the UK in the June to August period, 94,000 more than between March and May and 317,000 more than in the same period in 2016.
The employment rate was 75.1%, up from 74.5% a year earlier, while the total number of unemployed people was 215,000 fewer than at the same time last year.
Employment Minister Damian Hinds said: “Our economy is helping to create full-time, permanent jobs which are giving people across the UK the chance of securing a reliable income.

We’ve boosted the income for people on the lowest pay by increasing the national living wage and delivered the fastest pay rise for the lowest earners in 20 years.

The female unemployment rate is at a joint record low of 4.2%, while job vacancies have gone up by 3,000 to a 783,000.  The number of people classed as economically inactive, including those looking after a sick relative, on long-term sick leave, early retirement or who are not looking for a job, fell by 17,000 to 8.8 million.  Commenting on those figures, senior ONS statistician Matt Hughes said:

Many labour market measures continue to strengthen. Employment growth in the latest three-month period was driven mainly by women, with a corresponding drop in inactivity. Vacancies remain robust, at a near-record level.

Margaret Greenwood, shadow employment minister, expressed her fears at the continuing fall in the real value of wages.  She said:

With a record number of working people living in poverty, the news that real wages have fallen yet again is deeply concerning.  While the overall increase in employment is welcome, it’s also clear from today’s figures that too many people are struggling to find employment because of their age, ethnicity, disability, or where they live.

TUC general secretary Frances O’Grady commented:

Britain desperately needs a pay rise. Working people are earning less today (in real terms) than a decade ago.  The chancellor must help struggling families when he gives his Budget next month. This means ditching the artificial pay restrictions on nurses, midwives and other public sector workers. And investing in jobs that people can live on.

Reversing the Brexit process would boost the UK economy, the international economic body, the OECD has said.

A new referendum or a change of government leading to the UK staying within the EU would have a “significant” positive impact on growth, the OECD said.  It also warned “no deal” would see investment seize up, the pound hit new lows and the UK’s credit rating cut.  It said the outcome of the Brexit negotiations was hard to predict.
The Chancellor, Philip Hammond, said the UK would consider the Organisation for Economic Co-operation and Development (OECD)’s report and act where it could.

At a press conference following the release of the report, Mr Hammond reiterated that companies in the UK and the European Union would benefit from the certainty of a limited transition period after Brexit. He said:

By delivering a time-limited transition period, avoiding a disruptive cliff-edge exit from the EU, we can provide greater certainty for businesses up and down the UK, and across the European Union.

The OECD’s secretary general, Angel Gurria, said that any future relationship with the European Union should be close:

It will be crucial the EU and the UK maintain the closest economic relationship possible.

The organisation’s report highlights other challenges for the UK, including productivity and the growth of zero-hours contracts.  It says rules should be tightened to restrict self employment to “truly independent entrepreneurs”.

But its most forceful language is on the subject of Brexit.  As well as foreseeing a fall in the pound and a freezing of business investment, it says heightened price pressures would “choke off” private consumption.  It also says the current account deficit could be harder to finance, as a fall in the UK’s credit rating could lead to higher interest rates to attract lenders from other countries.

Productivity question

The group also commented that UK productivity growth had come to a “standstill”, adding that the picture was weakest outside Greater London and the south east of England. It said that pattern “may lead to, or be the result of, important differences among people in terms of income and wealth, jobs and earnings, and education and skills”.  It said these “may have been one of the causes of Brexit, as less-educated workers in remote regions might have perceived to benefit less from the European project”.

Among its recommendations for boosting productivity are increasing policies that give more power to the regions.  A Treasury spokesperson responded to the OECD’s recommendations on productivity.

Increasing productivity is a key priority for this government, so that we can build on our record employment levels and improve people’s quality of life.  Today, the OECD has recognised the importance of our £23bn National Productivity Investment Fund which will improve our country’s infrastructure, increase research and development and build more houses.

the spokesperson said.  The OECD suggests the growing use of what it calls “non standard” forms of employment, including self-employment and zero-hours contracts, can be “detrimental” to the acquisition of skills and the job quality of low-skilled workers.

Schools are closed and hundreds of thousands of people remain without electricity in Ireland after Ophelia battered the British Isles.

All schools in Northern Ireland and the Republic of Ireland remain closed for a second day as the clear-up continues.  Some 245,000 homes and businesses are without electricity in Ireland, 3,800 in Northern Ireland, 2,000 in north Wales and 1,100 in Scotland.  Weather warnings have now been lifted after the storm moved away from the UK.  Three people were killed on Monday in the Republic of Ireland as hurricane-force gusts hit the country.  Father-of-two Fintan Goss, 33, was killed near Ravensdale, County Louth, when a car he was in was struck by a tree.  Clare O’Neill, 58, died when a tree fell on her car in strong winds near Aglish Village in County Waterford.  Michael Pyke, 31, died in an incident when he was clearing a fallen tree with a chainsaw in County Tipperary.

Some 20,000 households are without water in Ireland, and it is expected to take days for electricity to be restored for those without it there.  In Northern Ireland, flights and ferries were cancelled as a result of the storm, and many roads are still closed due to fallen trees.  More than 400 incidents of weather-related damage in the country have left people without electricity – mainly in Counties Down, Armagh and Antrim – with Northern Ireland Electricity having restored power to nearly 50,000 customers overnight.  Schools in Northern Ireland are due to be reopened on Wednesday.

In Scotland, a clear-up is under way after roofs were torn off and trees brought down overnight, causing disruption to some rail services.  In Glasgow, part of a derelict block of flats already earmarked for partial demolition collapsed overnight, and a Scouts hall roof was blown off in Dumfries and Galloway as the region took the brunt of winds up to 77mph (123km/h).  Some 1,100 homes are without power in south-west Scotland but are expected to be reconnected later on Tuesday.  Some train services in northern England have been disrupted as a result of trees falling across railway lines, including on the line between Halifax and Bradford Interchange.  More than 130 trees were cleared from roads on the Isle of Man.

The Irish Republic’s Electricity Supply Board said help from Northern Ireland and the rest of the UK was expected to be drafted in on Wednesday to help restore power.  Crews are already working to fix power lines but officials have warned that repairs will take several days, and up to 10 in the worst-hit areas.  The Health Service Executive in the country said there had been a significant impact on health services.  And it warned of disruption in the “coming days”, with some cancellations and delays expected to appointments and discharges from hospital

Strong winds of up to 70mph (112km/h) wreaked havoc in Cumbria on Monday night, damaging the roof of Barrow AFC’s stadium and forcing police to close roads in the town.  Cumbria Police said they had reports of roofs and debris on the roads and overhead cables coming down – and it urged people to make only essential travel.  Ophelia was not only responsible for stormy weather – it also drew tropical air and dust from the Sahara, causing a reddish sky and red-looking sun throughout parts of the UK on Monday.  The charity Asthma UK warned the phenomenon could trigger “potentially fatal asthma attacks” and advised at the time that severe sufferers should stay indoors.

The wi-fi connections of businesses and homes around the world are at risk, according to researchers who have revealed a major flaw dubbed Krack.

It concerns an authentication system which is widely used to secure wireless connections.  Experts said it could leave “the majority” of connections at risk until they are patched.  The researchers added the attack method was “exceptionally devastating” for Android 6.0 or above and Linux.  A Google spokesperson said:

We’re aware of the issue, and we will be patching any affected devices in the coming weeks.

The US Computer Emergency Readiness Team (Cert) has issued a warning on the flaw.

US-Cert has become aware of several key management vulnerabilities in the four-way handshake of wi-fi protected access II (WPA2) security protocol. Most or all correct implementations of the standard will be affected.

Computer security expert from the University of Surrey Prof Alan Woodward said:

This is a flaw in the standard, so potentially there is a high risk to every single wi-fi connection out there, corporate and domestic.  The risk will depend on a number of factors including the time it takes to launch an attack and whether you need to be connected to the network to launch one, but the paper suggests that an attack is relatively easy to launch.  It will leave the majority of wi-fi connections at risk until vendors of routers can issue patches.

Industry body the Wi-Fi Alliance said that it was working with providers to issue software updates to patch the flaw.  This issue can be resolved through straightforward software updates and the wi-fi industry, including major platform providers, has already started deploying patches to wi-fi users.

Users can expect all their wi-fi devices, whether patched or unpatched, to continue working well together.

It added that there was “no evidence” that the vulnerability had been exploited maliciously.  Tech giant Microsoft said that it had already released a security update.

Security handshake

The vulnerability was discovered by researchers led by Mathy Vanhoef, from Belgian university, KU Leuven.  According to his paper, the issue centres around a system of random number generation known as nonce (a number that can only be used once), which can in fact be reused to allow an attacker to enter a network and snoop on the data being sent in it.

All protected wi-fi networks use the four-way handshake to generate a fresh session key and so far this 14-year-old handshake has remained free from attacks, he writes in the paper describing Krack (key reinstallation attacks).  Every wi-fi device is vulnerable to some variants of our attacks. Our attack is exceptionally devastating against Android 6.0: it forces the client into using a predictable all-zero encryption key.

Dr Steven Murdoch from University College, London said there were two mitigating factors to what he agreed was a “huge vulnerability”.

The attacker has to be physically nearby and if there is encryption on the web browser, it is harder to exploit.

The UK’s key inflation rate climbed to 3% in September from 2.9% in August, its highest for more than five years.

The Consumer Prices Index (CPI) was last at 3% in April 2012, but has been driven higher by increases in transport and food prices.  The increase in inflation raises the likelihood of an increase in interest rates next month.  The figures are significant because state pension payments from April 2018 will rise in line with September’s CPI.  Business rates will go up by September’s Retail Prices Index (RPI) of 3.9%.

The fall in the pound since last year’s Brexit vote has helped to push up inflation.  The basic state pension is protected by the “triple lock” guarantee which means it will go up next April by a rate equal to September 2017′s CPI, earnings growth or 2.5% whichever is the greatest.  However, Chancellor Philip Hammond could amend that in next month’s Budget.  At the moment, the full new state pension is £159.55 per week, equivalent to £8,296.60 per year.  Bank of England, Mark Carney, has narrowly avoided having to write a letter to the chancellor, only necessary if inflation reaches more than 1% either side of the 2% target.  ONS Head of Inflation Mike Prestwood said:

Food prices and a range of transport costs helped to push up inflation in September. These effects were partly offset by clothing prices that rose less strongly than this time last year.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said:

The tick upwards in inflation will increase expectations of a rate rise from the Bank of England later on this year, stoked by a flurry of hawkish rhetoric coming from Threadneedle Street.

However, he added, it is not a foregone conclusion, “so it’s probably best not to count those chickens until they’re hatched”.  Pensioners will be celebrating again. Today’s CPI inflation figure means they will get a 3% rise next April, their largest pension increase for six years. Those on the new state pension will see their weekly income rise to £164.

Compare that to workers, who’ve seen their earnings rise by 2.1% over the last year.  This is all thanks to the triple lock, which sees the state pension rise by the highest of earnings, prices or 2.5%.  Food for thought for the Chancellor, perhaps, who’s reported to be considering tax concessions for younger people in his forthcoming budget, to even up the inter-generational unfairness that the triple lock has contributed to.  The 2.5% element of the triple lock is due to be dropped in 2021.

The 2017 winners of the Hounslow Business awards:

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Best new Business – Chump Productions Ltd

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Best Business in Customer Service – So Energy

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Best Eatery – Jackson & Rye

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Entrepreneur of the year – Waqas Iqbal

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Innovator of the year – Russell Finex

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Best International Business – Mapmechanics

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Best Business in Marketing & Social Media – Russell Finex

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Logistics Business of the year – Consolidated Logistics Services Ltd

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Best Employer – Jungle VIP

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Best Charity – Spark!

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Best SME Business – Love Give Ink

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The Green Award – Farah Qureshi

BUSINESS OF THE YEAR: Russell Finex

 

The UK economy grew at a muted rate in the third quarter of 2017 despite progress in the manufacturing sector, the British Chambers of Commerce says.

The number of manufacturers reporting improved domestic sales and orders rose in the quarter to its highest level since early 2015, the BCC said.  Export sales and orders in the sector also improved.  But in services, domestic sales and orders remained static, as did the sector’s employment expectations.  The BCC said its survey also showed the prevalence of recruitment difficulties facing UK businesses, which worsened further during the quarter.  Almost three-quarters of manufacturers reported difficulties hiring staff, and in services, the percentage rose to its highest since early 2016.

Action needed

BCC director general Dr Adam Marshall said:

The uninspiring results we see in our third-quarter findings reflect the fact that political uncertainty, currency fluctuations and the vagaries of the Brexit process are continuing to weigh on business growth prospects.  The chancellor’s autumn Budget is a critical opportunity to demonstrate that the government stands ready to incentivise investment and support growth here at home.  While much of Westminster and Whitehall is distracted by Brexit, business needs action now on the home front. The solutions to some of the biggest issues currently facing our firms – including high up-front costs, a lack of incentive to invest, and a need for better infrastructure – are entirely within the power of the UK government to deliver.

The BCC also said that in the current economic climate, it seemed “extraordinary” that the Bank of England was considering raising interest rates.

We’d caution against an earlier than required tightening in monetary policy, which could hit both business and consumer confidence and weaken overall UK growth

said BCC head of economics Suren Thiru.

While interest rates need to rise at some point, it should be done slowly and timed to not harm the UK’s growth prospects.

Startling results

Buoyancy in the UK manufacturing sector is not universal at the moment, one company said.  Andrew Varga, managing director of Seetru, a Bristol-based manufacturer of safety valves for industry, told the BBC’s Today programme his firm was “slightly more pessimistic” than the BCC.

We see some startling results. Despite the buoyant European economy, we see an accelerating reduction in order pull from Europe. Clearly uncertainty is having a really significant effect on customers’ choices of which country they buy from, and they’re not buying from the UK any more.

He added that the UK market was “depressed”.

Like-for-like sales are clearly down – down about 10%,” he said. “This is all due to uncertainty at the moment.

Clare Flynn Levy, founder and chief executive of financial behavioural analytics software firm Essentia Analytics, told the BBC that for her company “life’s a bit more optimistic”.

But I’m not surprised to hear that the services sector is static, because there is a massive energy suck toward people decisions and mobility decisions that are caused by Brexit, and the uncertainty is just causing energy that would otherwise be devoted to selling and delivering services to clients to be pulled into scenario planning… so people are sort of frozen.

Banking giant HSBC has named John Flint, current head of retail banking and wealth management, as its new boss.

Mr Flint, who takes over from outgoing chief executive Stuart Gulliver, will start his new role next February.  The move sees Europe’s biggest bank once again promote a company insider to run the firm.  The appointment is the first big decision by the bank’s new chairman, ex-AIA Group boss Mark Tucker, who joined HSBC at the start of this month.  Mr Tucker said that the new incumbent, who takes over on 21 February 2018, had a “broad and deep banking experience across regions, businesses and functions”.
He added:

Over the coming months, before he formally takes over the group CEO role from Stuart, we will be working closely together to develop and agree the key actions required to ensure we build on and enhance HSBC’s current momentum.

Mr Flint, who has been at HSBC since 1989, said that the bank had to “innovate and accelerate the pace of change required” to meet the expectations of shareholders, customers and employees.  The 49-year-old had been widely tipped to take over in the hot seat, after Mr Gulliver announced his intention to retire during 2018.  Mr Gulliver has been chief executive since 2011. After stepping down, he will continue to advise the bank until he formally retires on 11 October 2018.