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European Edition
5th August 2022
 
THE HOT STORY
BoE raises rates to 1.75% and warns of year-long recession
The Bank of England raised interest rates by 0.5 percentage points to 1.75% on Thursday, the biggest increase in 27 years, with a prediction that inflation would hit 13% by the end of the year. It was the sixth consecutive raise and the biggest single increase since 1995 and officials said the Bank was ready to act “forcefully” on interest rates if inflation persists. The Bank said Britain would enter five consecutive quarters of recession with GDP falling by as much as 2.1%, while real household incomes are expected to fall by 3.7% across 2022 and 2023 – the largest hit since records began in 1963. BoE Governor Andrew Bailey said families faced a "very big" shock to their finances but it was right to take a strong hand to inflation. "The alternative is even worse in terms of persistent inflation," he said. Meanwhile, the BoE’s Monetary Policy Committee said on Thursday it was "provisionally minded" to start a bond sale programme next month, offloading some of the debt it purchased during more than a decade of quantitative easing. Sales of UK gilts by the Bank will launch at a pace of roughly £10bn per quarter, with the aim of reducing the total stock by £80bn within 12 months. Commenting on the move, James Smith, an economist at ING, said: "Assuming a reduction of £80bn per year, this means private investors will have to increase their exposure to gilts by the same amount, on top of regular deficit financing. This is clearly a risk.”
OPERATIONAL
More businesses to go bust after rate rise
Research from Mazars shows UK businesses face an immediate increase in interest payments of more than £2bn following the Bank of England’s interest rate rise. UK businesses are currently paying £14bn annually in interest payments on their £409bn in floating rate debt. With rates rising by 0.5%, annual interest payments on that debt will increase to £16bn almost overnight. Adam Harris, partner at Mazars said rising borrowing costs will only accelerate business closures. 
TAX
Treasury collects highest CGT haul on record
The Treasury collected the highest amount of capital gains tax (CGT) on record in the tax year just ended, with a crackdown on buy-to-let properties and soaring house prices responsible for a 42% gain for the Treasury. Tax paid on capital gains rose to £14.3bn after an all-time high of 323,000 people were forced to pay the duty, with the average bill hitting £44,272. Heather Powell of Blick Rothenberg said: "There has been a lot of increased regulation in the market, including a change in rules regarding evicting tenants and the deduction of interest against rent. Landlords are also fearful that the capital gains tax rate could go up while house prices are not rising so fast." Experts have also blamed the surge on proposals form the Office of Tax Simplification to aligned CGT rates with income tax. Chris Etherington of RSM commented: "There is no doubt that fears over this change have pushed entrepreneurs to sell their businesses earlier than planned to remove the uncertainty around current tax policy from their succession planning. Entrepreneurs deserve better and need more clarity quickly."
FRAUD
FCA warns of rising fraud as cost of living soars
The Financial Conduct Authority (FCA) has sounded the alarm over rising fraud rates as scammers take advantage of struggling consumers. Loan fee fraud – where scammers ask people to pay up front for loans that never materialise – has been rising particularly sharply. “The rising cost of living is making 2022 a hard year financially. And there are scammers out there looking to make it even harder,” said Mark Steward, executive director of Enforcement and Market Oversight and Sheldon Mills, executive director of Consumers and Competition at the FCA. The watchdog has now relaunched its campaign to stamp out loan fee fraud and urged borrowers to check whether any lenders are on the FCA register. The FT details the myriad means by which scammers extract funds from victims online, whether through social media, crypto trading platforms or simple email. UK Finance says the country is facing an “epidemic of fraud” while consumer group Which? is calling for “protections fit for the digital age.”
ECONOMY
Eurostat reports slowdown in Eurozone retail sales
Eurozone retail sales fell 1.2% in June from May, adding to concerns that the 19-country single currency zone is heading for recession. Statistics office Eurostat also said sales were down 3.7% on an annual basis. Economists polled by Reuters had expected unchanged monthly sales and an 1.7% annual fall. Germany, Europe's biggest economy, showed the steepest drop in retail sales of 8.8% year-on-year, while in Italy they fell 2.8%. In France, sales inched up 0.6%. The drop in retail sales, a proxy for consumer demand, came as producer prices rose 1.1% month-on-month in June for a 35.8% year-on-year surge, Eurostat said.
Construction industry hit by first slowdown in 18 months
The construction industry contracted in July as soaring inflation and recession fears dragged the sector to its first slowdown for 18 months. The purchasing managers' index data from S&P Global fell to 48.9, where any reading below 50 indicates a contraction, versus 52.6 in June. Housebuilding fell for the second consecutive month, and civil engineering firms reported their worst result for almost two years, with a reading of 40.1. Commercial construction work grew, but more slowly than during the previous month. 
WORKFORCE
Employers become more cautious about hiring
The latest KPMG and Recruitment & Employment Confederation UK Report on Jobs, compiled by S&P Global, found that hiring in the UK has slowed amidst uncertainty over the economy, with July seeing the slowest increase in the number of permanent jobs filled for 17 months. Ongoing skills shortages, a drop in foreign workers and hesitancy from candidates to move jobs had all led to a tighter supply of suitable staff, the report said. "The trend of uncertainty in the UK jobs market of the last few months continues," said KPMG's Claire Warnes. "Employers are rightly hesitant about their hiring plans . . . So, a focus on up-skilling existing workers and attracting talent remains absolutely essential for UK business to play its part in driving forward the economy."
Wolt delivery workers are split over Israeli court ruling
Israel’s labour court has ruled that delivery people working for the Wolt platform are considered employees of the company. Until the court’s ruling, Wolt delivery workers had not been considered employees of the Helsinki, Finland headquartered company and did not enjoy rights such as vacation days and insurance. Dr Lilach Lori, a senior lecturer in labour studies at Tel Aviv University, said the court’s ruling is one of the "most important decisions in Israel and the world." Nevertheless, The Jerusalem Post observes that Wolt delivery people are split over court ruling making them employees. "I think it can be a blessed step," said one delivery man from Tel Aviv. But another delivery worker from the city of Ramat Gan doesn't agree. "It's a disaster," he said. "Now we'll have to work shifts. We can forget about working whenever we want and for however long we want.”
LEGAL
Banned Russian oligarchs exploited UK secrecy loophole
Sanctioned Russian oligarchs from President Vladimir Putin's inner circle exploited a UK secrecy loophole left open by the government, reports the BBC. Arkady Rotenberg and Boris Rotenberg used a type of company that was not required to identify its real owners. Government ministers have acknowledged concerns that these companies, known as English Limited Partnerships (ELPs), have also been abused by criminals. A joint investigation by the BBC and Finance Uncovered has discovered evidence linking a number of ELPs to fraud, terrorism and money laundering. In 2016 and 2017, the government introduced measures that forced almost all UK companies to identify their real owners. ELPs were not covered by these new transparency laws. Since then, more than 4,500 of them have been set up.
Bain & Co mulls legal action against UK over state contract ban
Bain & Co is considering legal action against the UK government after a three-year ban on bidding for state contracts was imposed on the firm for its “misconduct” in a corruption scandal in South Africa.
STRATEGY
Credit Suisse mulls thousands of job cuts
Credit Suisse is looking at cutting thousands of jobs across its operations as well as examining inefficiencies in its middle and back office, according to Bloomberg. The move comes after the Swiss bank named restructuring expert Koerner as CEO to scale back investment banking and slash costs to help the bank recover from a string of scandals and losses.
PwC crypto head sets up digital asset fund in Dubai
Henri Arslanian has left his role as global crypto lead at PwC to set up a digital assets fund in Dubai. Nine Blocks Capital Management has been granted provisional regulatory approval by the Gulf city. The $75m crypto hedge fund will be focused on institutional investors and is backed by $75m from Hong Kong-based hedge fund Nine Masts. Dubai’s business-friendly approach to crypto reportedly influenced Arslanian’s decision to establish his fund there. Nine Blocks has also positioned three portfolio managers in the Cayman Islands.
Phoenix keen on more takeovers after Sun Life deal
The UK's largest retirement business, Phoenix Group, is targeting £1bn of takeovers after reaching a deal to buy Sun Life's UK unit for £248m. The purchase brings a closed book of about 480,000 policies and £10bn of assets under administration into Phoenix. CEO Andy Briggs said the group was “enthusiastic to pursue further M&A opportunities” beyond Sun Life UK. “We would happily look at any size of deal, nothing would be too big,” he said.
Digital GP cancels NHS contracts
Digital GP app Babylon has cancelled a 10-year contract with an NHS trust eight years early, warning the work was “not economically viable.” However, Tim Rideout, Babylon’s UK General Manager, insisted the company had no plans to cut back on its GP at Hand service.
CORPORATE
Buyout firm puts Azets up for sale
Hg Capital has hired JP Morgan to oversee an auction of Azets, one of Britain's fastest-growing accountancy firms. A sale could value Azets at close to £1.5bn, sources say. The firm claims to be the largest provider of services such as accounting work, payroll and tax to small and medium-sized businesses in northern Europe.
GEOPOLITICAL
UK parliament closes TikTok account
The UK parliament has shut down its TikTok account after lawmakers raised concerns about the social media platform's links to China. Use of the popular app, which is owned by Chinese parent firm ByteDance, had been an attempt by MPs to engage young people with the work of Parliament, but the relationship between the UK and China is under strain after a group of MPs was sanctioned by Beijing for speaking out about human rights abuses in China. A UK Parliament spokesman said: “Based on Member feedback, we are closing the pilot UK Parliament TikTok account earlier than we had planned. The account was a pilot initiative while we tested the platform as a way of reaching younger audiences with relevant content about Parliament.”
REPUTATION
Irish judges have a rethink about Dubai court job
Two prominent former Irish judges have resigned just days after being appointed to a court in Dubai amid controversy in their home country over their new roles. Former High Court President Peter Kelly and former Chief Justice Mr Justice Frank Clarke were among four appointed as judges of the Dubai International Financial Centre (DIFC) courts in an online swearing-in ceremony presided over by Sheikh Mohammed bin Rashid Al Maktoum, vice president and prime minister of the United Arab Emirates and ruler of Dubai. Former barrister Bill Shipsey wrote in The Irish Times that, by accepting the appointments, the two men had risked undermining the reputation of the Irish judiciary. Donncha O'Connell, a law professor at National University of Ireland Galway, wrote in a social media post that “Retired Irish judges should simply not be lending credibility to one part of the judicial system of a highly oppressive regime to create the impression . . . that there's something approximating to the rule of law in that regime.” In a statement, Clark said: “I am concerned that the current controversy could impact on the important work of the Law Reform Commission to which I am committed.”
Visa and Mastercard cut ties with ad arm of Pornhub owner MindGeek
Visa and Mastercard are to cut ties with the advertising arm of MindGeek, the owner of Pornhub, after a court found that Visa could be held liable for illegal content on the website.


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