Market Loop - Economic outlook gets gloomier

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24th October 2022

Bite-sized business news from the UK and beyond

Good morning At 2pm today nominations will close for candidates to succeed Liz Truss as the next prime minister. As it stands former chancellor, and runner-up in the last contest, Rishi Sunak and leader of the House of Commons Penny Mordaunt have put their names forward. After growing speculation former PM Boris Johnson confirmed yesterday he wouldn't be running.
Candidates need the support of at least 100 of their fellow MPs to proceed to the next round and so far only Rishi Sunak has that which means he could be declared the winner by the end of the day.

Today's stories

Economic outlook gets gloomier
Zara launches first resale site in UK

ECONOMY
Economic outlook gets gloomier

What happened?
On Friday official figures showed that cost of living crisis is weighing on government borrowing, retail sales and consumer confidence in further signs of the economic challenges ahead for the UK.

UK public sector borrowing - the difference between how much the government generates in tax and how much it spends - soared to £20bn in September. That’s £3bn more than economists expected and £2bn more than the same period last year. The increase was driven by the record debt interest payments of £8bn. Around a quarter of the £2.4tr national debt is linked to the inflation rate – currently at a 40-year high - so soaring prices means higher repayment costs.

New chancellor, Jeremy Hunt, has vowed to do “whatever is necessary” to bring down national debt in the medium term. He said that the government will have to raise taxes and reduce spending to restore faith in the public finances, with details to come next Monday when he outlines his new economic plan.

Meanwhile last month retail sales fell by 1.4%, more than expected, with sales of food, motor fuels, furniture and other non-food items all falling. The rising cost of living and Queen Elizabeth’s state funeral weighed on consumer spending. September marks the first month that retail volumes have dropped to below pre-pandemic levels, suggesting pent-up demand post-Covid may have now fully unwound and adding to worries the UK economy is heading for a recession by the end of the year.

Related to this a closely watched survey, compiled by GfK, found that British consumer confidence remains close to a 50-year. The statistics covered the period between 3 and 13 October, when turbulence in the financial markets pushed up mortgage costs on the back of the mini budget.

Zooming out: The bleak economic environment has implications on the UK’s credit worthiness and therefore its ability to borrow money cheaply from international investors. On Friday Moody’s rating agency cut the UK’s outlook to "negative" from "stable" blaming the political instability and high inflation. Although the changes doesn’t mean the actual credit rating has been downgraded it does indicate that it could be downgraded if the situation doesn’t improve.

Other stories to keep you in the loop

UK faces tougher austerity era says ex-Bank of England chief
Tesco raises meal deal price
Deliveroo warns on sales growth as consumers tighten belts
Red Bull co-founder and billionaire dies
Snapchat owner's poor results sets off alarm bells in ad-reliant social media sector

RETAIL
Zara launches first resale site in UK

What happened?
Last week high street giant Zara announced it would enter the resale market with a pre-owned service in a bid to improve its sustainability credentials.

From next month the company will enable shoppers to book repairs and donate unwanted items online or via a store, and post now-unwanted Zara goods online for sale. Sellers will take pictures of goods with detailed product information provided by the retailer.

Zara said the UK had been chosen as the test market as its consumers “push us to improve and innovate”. If successful, the service is likely to be extended to other key markets.

How did we get here
The fashion industry is the second-largest industrial polluter, accounting for 10% of greenhouse emissions. In recent years high street brands have been under pressure to reduce their carbon footprint.

Consumers have also turned to second-hand clothes to do their part. The resale and refurbishment market is forecast to outgrow fast fashion in the coming years. It’s worth an estimated at $71.2bn in 2022, according to a recent Future Market Insights report, with the big hitters including the likes of Vinted and Depop.

Zooming out: Zara is the latest fast fashion name to launch a resale site, joining rivals like Shein and Asos. These companies have grown based on churning out low-cost items that many buyers typically dispose of soon after purchase. As consumers become more conscious of the impact of this model on the environment, the fashion world is pivoting to reduce waste and increase its sustainability.

Stat of the day

Chinese President Xi Jinping will serve a historic third term and remain in power for another 5 years having ruled for 10 years already

Interesting links from around the web

The BBC at 100
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Market Loop - Economic outlook gets gloomier

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