Bank of England hikes rates and raises economic alarm

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5th August 2022

Bite-sized business news from the UK and beyond

Good morning If you’re ever feeling bad about your spending habits, this might cheer you up: Warner Bros. has canned its upcoming ‘Batgirl’ film despite shelling out $90m to make it. It’s reported that the ‘Batman’ spinoff performed so poorly with audiences during test screenings that the studio binned it before it could see the light of day.

But it’s not just Warner Bros. that’s out of pocket. Business owners in Glasgow, where ‘Batgirl’ was filming, were forced to endure months of disruption and are now calling for compensation.

Today's stories

Bank of England hikes rates and raises economic alarm
There’s a new meme stock in town

ECONOMY
Bank of England hikes rates and raises economic alarm

What happened?
Yesterday the Bank of England delivered the long expected news that it would raise interest rates by 0.5% to 1.75%. But the central bank unexpectedly shared a double whammy of gloomy forecasts: 1) inflation will peak even higher than previously thought and 2) the UK is heading into the longest recession since the financial crisis in 2008-09

How did we get here?
The announcement of the biggest interest rate hike in 27 years is aimed at choking off the worst inflation in 40. Prices rose on average to 9.4% in June driven by higher energy and food prices, first due to a post-pandemic jump in consumer demand and now made worse by the war in Ukraine.

The base rate increase means that for consumers and businesses, credit cards, loans and mortgages will get pricier. It’s hoped that by increasing the cost of borrowing will lower the demand for goods and services and cool inflation to its target level of 2%.

But balancing the need to lower inflation without putting the brakes on the economy too much is tough and the Bank said a recession is unavoidable. The Bank has sharply lifted its forecast for peak inflation later this year from 11% to 13%. It also warned that the UK will enter a recession in the final three months of this year and remain in one throughout 2023.

This leaves the next prime minister with a growing cost of living crisis to deal with
Wages are only rising by about half the rate of inflation which means that living standards will be squeezed harder than at any time in more than 60 years. The surge in oil and gas prices caused by Russia’s invasion of Ukraine, is the biggest contributor to inflation.

Energy bills are expected to treble from the start of the year to over £3,300 for the average family this autumn. So far the government has pledged £400 energy discount to every household with extra support for those on the lowest incomes.

The two contenders for PM have both proposed ideas to reduce bills further: Rishi Sunak has suggested a suspension of VAT of £160, whereas Liz Truss has suggested removing green charges which total £153. But given how large the increase in bills will be along with rising prices elsewhere in the economy, the new PM will be under pressure to do more.

Other stories to keep you in the loop

'Very challenging winter ahead' Ofgem says as it confirms quarterly update of energy price cap
Next forecasts bigger profits as summer dresses and suits lift sales
UK construction industry declines for first time in 18 months
Gordon Ramsay's restaurants let 300 staff go as they lose nearly £7m
Rolls-Royce blames supply chain woes and Covid hit to aviation for £111m loss
City law firm ups newly-qualified lawyers salaries to £105,000

STOCK MARKET
There’s a new meme stock in town

What happened?
AMTD Digital, an obscure stock that listed on the New York Stock Exchange last month, briefly had a stock market value higher than Facebook owner Meta this week due to retail investor activity that has driven up the stock price up 21,000%.

Who?
AMTD is a Hong Kong-based fintech company with a team of around 50 people. Last year it made $25m in revenue mainly by charging fees and commissions for its digital financial services business.

Two weeks ago is made its debut on the US stock market pricing each share at $7.80. On Tuesday it jumped to $2,555 giving the company a value of over $300bn, well over that of Wall Street giants like Goldman Sachs, Mastercard and Disney. Since then, it has fallen to $1,300 but is still up 16,500%.

What’s behind it?
The company said there are “no material circumstances” for its stock spiking, but nonetheless thanked investors for their support.

It’s led to the theory that AMTD has become the latest company in the meme stock phenomenon, in which everyday retail investors push up the price using social media platforms like Reddit to promote it. Due to the nature of their popularity, trading in meme stocks is often extremely volatile.

Last year American retailer GamesStop and cinema chain AMC were two of the most high profile meme stocks that saw their shares rocket thanks to hype created on Reddit.

Stat of the day

Metaverse-related job openings plunged 81% from April to June as Meta, Google and Apple rolled back meta-hiring

Interesting links from around the web

Why companies are rescinding job offers
Notre Dame Cathedral's $865m restoration is set to reopen in 2024
Tips for getting better at giving and receiving feedback

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Bank of England hikes rates and raises economic alarm

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