Market Loop - Inflation hits double digits

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18th August 2022

Bite-sized business news from the UK and beyond
Good morning While most governments try to encourage their youth to drink less alcohol, Japan has taken the opposite approach. Yesterday the Japanese government launched a contest urging 20 to 39-year-olds to think of ideas to boost the drinks industry. That's because the younger generation drinks less alcohol than their parents - a trend that has hit taxes from beverages like sake or rice wine.
Today's stories
  • Inflation hits double digits
  • Leisure company woes
ECONOMY
Inflation hits double digits


What happened?
Yesterday official data showed that inflation in the UK jumped more than expected in July, to 10.1% from 9.4% in June - a new 40-year high, driven by more expensive food and energy.

While there’s been a lot of attention on the increase in food (+12.7%) and energy bills (electricity +54.0% and gas +95.7%), rampant inflation is widespread. Core consumer prices, which strip out volatile food and energy prices, rose to 6.2% last month more than the 5.8% expected by economists. 

Many economies around the world are all experiencing rising prices 
But the UK is the only major Western economy in which inflation has hit double digits. That’s because the UK imports much of its energy and is highly exposed to price rises in gas and oil, which have been made worse by the war in Ukraine.

While the government is supporting households through discounts on energy bills, other countries have taken more direct action. In France, which has a high supply of nuclear energy and a state-owned supplier, the government has capped electricity price rises at 4%.

Looking ahead: The hotter than expected inflation figures will add further pressure on:
  • The Bank of England to hike interest rates further from the current 1.75% to cool prices. Financial markets are anticipating another 0.5% rate increase in September with inflation forecast to reach 13.3% in October, largely due to rising energy bills.
  • The new prime minster to give more support to households especially with rising energy bills. The two candidates, Rishi Sunak and Liz Truss, have ruled out a freeze on the energy price cap. But with the UK facing a worsening cost of living crisis and a recession seemingly imminent, it will be hard for the government to ignore calls to do more. 
Other stories to keep you in the loop
  • Pace of UK house price rises slows to 11-month low
  • Royal Mail workers vote to strike for second time this summer
  • Asos shares slip after top exec announces departure
  • Boohoo snaps up further stake in Revolution Beauty 
  • Elon Musk sends social media into frenzy with Twitter joke about buying Man Utd
  • Google invests $1.5bn in crypto companies
  • Average pay of PwC partners tops £1m for first time
LEISURE
Leisure company woes


What happened?
Yesterday two prominent British leisure companies reported troubling news. 

Gambling giant Entain was fined a record £17m by the industry regulator for breaking its rules.  Charges against the group, which owns the Ladbrokes and Coral betting shops and online bingo platforms, include failing to act with social responsibility and not making appropriate anti-money laundering checks.

In one example the company didn’t carry out enough checks for a customer, who was known to live in social housing, deposited £186,000 in six months.

Next steps: This is Entain’s second regulatory breach in three years and the company could lose its licence to operate in the UK if there are any more slip ups.

Cineworld’s share price plunged 60% to just 8p after it announced that it was looking into a financial rescue package, blaming a lack of blockbuster films.

The UK based chain operates 751 sites with 9,000 screens in 10 countries and has struggled to bounce back to pre-pandemic levels of customers following lockdown closures.

The company admitted 95m moviegoers in 2021, up 75% on 2020 but well below the 275m who attended before Covid. 

It’s also racked up almost $5bn in debt and is facing a £700m payout for pulling out of a deal to buy its Canadian rival Cineplex.

Next steps: The company expects the lack of big name releases to impact trading until November. In the meantime it  said it will continue with cost-saving plans but will also look at new options to improve its financial position.
Stat of the day

16 to 24 year-olds in the UK spend an average of 53 minutes a day viewing traditional broadcast TV, just a third of the level a decade ago. This compares to 57 minutes a day spent on TikTok
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