UK business activity falls for the first time since January; B&M buys up to 51 Wilko stores – business live

Newsflash: discount retail group B&M European Value Retail has confirmed that it has agreed to buy up to 51 Wilko stores, at cost of up to £13m.

In a statement to the City, B&M says:

The consideration is fully funded from existing cash reserves and the acquisition is not expected to be conditional on any regulatory clearances.

An update on the timing of these new store openings will be provided in the H1 interim results announcement on 9 November 2023.

This follows reports this morning that hopes of a broader rescue deal involving the HMV owner were faltering, as some key suppliers want outstanding debts repaid upfront.

The UK private sector has shrunk for the first time since January, with firms hit by weakening activity as higher interest rates hit demand.

The latest survey of UK purchasing managers, just released, shows that the UK services sector shrank slightly in August, due to weaker business and consumer spending.

New orders fell, as higher borrowing costs hit client demand.

This pulled the S&P Global / CIPS UK Services PMI down to 49.5 in August, down from 51.5 in July and the lowest since January. Any reading below 50 indicates a contraction.

This follows a sharp fall in the manufacturing PMI last Friday, which raised fears that the UK could be falling into recession.

Overall, there was a “marginal” reduction in private sector output during August, with the composite PMI dropping to 48.6 from 50.8 in July.

Tim Moore, economics director at S&P Global Market Intelligence, explains:

“Service providers saw customer spending reverse course during August as higher borrowing costs, subdued business confidence, and stretched household finances all acted to curtail sales opportunities.

After a modest recovery over the past six months, service sector businesses are now clearly feeling the impact of rising interest rates on client demand. Worries about the broader business climate also dampened spending in August, with firms suggesting that faltering UK economic growth and sticky inflation were weighing on the outlook.

Adding to signs of reduced pressure on business capacity, the latest survey indicated that backlogs of work decreased at the fastest pace for over three years. Service providers appear to have gently put the brake on staff hiring, with job creation easing to its lowest since March.

Sky News are reporting that B&M European Value Retail is poised to swoop on scores of Wilko stores as hopes falter of a broader rescue deal involving the HMV owner.

They say:

Sky News has learnt that B&M could announce the acquisition of around 50 Wilko shops as soon as Tuesday morning, with the chain’s administrators said by industry sources to be on the brink of announcing the first closures from its estate.

One retail executive said that Doug Putman, who had been edging towards a rescue deal in recent days, was now engaged in talks about reshaping the transaction to incorporate approximately 200 stores.

Mr Putman is said to have encountered difficulties during talks with Wilko suppliers despite having provisionally secured financing from Gordon Brothers for a deal to acquire about 300 stores.

Reminder, we reported last night that some of Wilko’s key suppliers want outstanding debts repaid upfront to guarantee continuing to provide products to the chain, which is hampering efforts to agree a deal.

It’s official: UK new car registrations rose by 24.4% year-on-year in August, as the new car market enters second year of growth.

The Society of Motor Manufacturers and Traders (SMMT) has reported that 85,657 new vehicles were registered last month, almost 16,800 more than a year earlier. It’s the 13th monthly rise in sales in a row, as expected (see opening post).

But, that still leaves the market around 7.5% below its pre-pandemic levels.

Battery electric cars took their highest monthly market share for the year, accounting for 20.1% of new cars reaching the road – with 17,243 BEVs registered in August.

The SMMT explains:

Demand for electrified vehicles continued to grow, accounting for almost four in 10 (37.8%) new cars reaching the road.

Battery electric vehicle uptake swelled by 72.3% to secure a 20.1% market share, an August record and the highest recorded since last December.

Plug-in hybrid uptake also rose significantly, by 70.0%, to account for 7.7% of new registrations. Hybrid volumes remained relatively stable with a 6.8% increase, comprising 10.0% of the market.

Sales of diesel cars were down 18% to 3,647, while perol registrations rose almost 10% to 34,756.

Just in: output in the eurozone economy declined at the fastest rate in nearly three years in August, as services activity across the region declined.

The latest survey of eurozone purchasing managers, just released by S&P Global shows that activity fell at the fastest rate since November 2020.

The declined was broad-based, with service sector activity shrinking for the first time in 2023. New orders also dropped the most since late-2020, prompting companies to completing outstanding work at the fastest rate in over three years.

Worryingly, input price inflation accelerated for the first time since September 2022, as firms paid more for their raw materials and other costs.

But the average increase in prices charged for goods and services was the slowest in two-and-a-half years.

Shares have opened lower in London, as the slowdown in China’s service sector worries investors.

The blue-chip FTSE 100 index is down 56 points, or 0.75%, at 7397 points this morning.

Susannah Streeter head of money and markets at Hargreaves Lansdown, explains:

Sentiment has turned downbeat again on China as fresh brushstrokes are painted on the picture of its slowing economy. The closely watched Caixin PMI data showed growth in the services sector decelerating by more than expected.

Services had been a brighter spot in the economy, with hopes that consumers would continue to spend on trips out and education, but demand is turning more sluggish with any stimulus efforts to spur spending not hitting the mark.

UK retailers such as B&M (-5.5%), Ocado (-3.3%), Tesco (-2.8%) and Sainsbury (-2.2%) are also in the fallers.

Victoria Scholar, Head of Investment at interactive investor, says:

“European markets have opened in the red, taking their cues from a weaker session overnight in Asia. The FTSE 100 is under pressure dragged down by Ashtead Group after the equipment rental company cut its annual UK revenue growth forecast.

Retail stocks like B&M Europe Value Retail, Tesco and Sainsbury’s are also near the bottom of the basket amid a busy day for economic data in the sector with retail sales and consumer spending figures out this morning.

My colleague Hilary Osborne has been investigating the growing problem of Skimpflation for some time.

Back in July, she highlighted how supermarkets and manufacturers have been quietly changing recipes and reducing the size of some products to keep shelf prices down.

Examples of this new unwelcome trend include:

• Morrisons Guacamole The ingredients used to include 80% avocado and 5% red onion but now show 77% avocado and an unspecified amount of onion.

• Aldi Specially Selected Pesto Rosso 190g This used to contain 33% extra virgin olive oil and 26% rehydrated sun-dried tomatoes; now it is 27% extra virgin olive oil and 23% rehydrated sun-dried tomatoes.

• Tesco Soft Extra Large Tissues These had been 300mm x 260mm but measured 280mm x 235mm in Guardian Money’s test.

• Tesco Springforce Jumbo Kitchen Towel Sheets used to be 210mm x 210mm but are now 195mm x 200mm, according to our test.

• Aldi Bramwells Real Mayonnaise It used to list 9% egg yolk but now lists 6% egg and 1.5% egg yolk.

• Bertolli, Morrisons and Sainsbury’s olive oil spreads In these spreads, too, 21% olive oil has been reduced to 10%.

More here:

Speaking of banks….More than one in eight UK bank branches that were open at the start of 2023 will have closed by December, the Financial Times reports this morning.

This means that almost three-fifths of the network will have vanished since 2015, making banking harder for customers in more rural areas or who haven’t embraced electronic banking.

“A closed bank branch doesn’t just mean one less place to withdraw or deposit cash locally,” said Sam Richardson, deputy editor of consumer rights magazine Which? Money.

“[It] also makes getting access to face-to-face banking services harder — something that is particularly important for more vulnerable customers.”

Financial Times analysis, based on data from ATM provider LINK, shows that a total of 636 bank branches are due to close by the end of this year, with 424 having closed so far.

Some 42 more have already been announced for 2024.

An executive at the Financial Conduct Authority (FCA) has warned banks that the regulator will take action if they wrongly deny politicians or their families access to services.

Following the row over Nigel Farage’s bank account at Coutts, FCA executive director Sarah Pritchard said they are reviewing whether financial institutions are being “proportionate” in their risk assessments of politically exposed persons (PEPs).

Writing in the Daily Telegraph today, Pritchard says the FCA will take action if it finds that banks and others are “more tick-box than risk-based” in their approach to PEPs.

She explains:

The UK is one of more than 200 countries and jurisdictions that have signed up to additional financial checks on senior figures in public life, known as Politically Exposed Persons. Here, Parliament has written those standards into law.

In response to these requirements, it is necessary and proportionate for banks to ask those with power for more information about sources of wealth and financial connections, for example. But an appropriate level of inquiry should not feel like the financial equivalent of someone rifling through your bin. We have heard that often it has, particularly for the families of political figures.

City minister Andrew Griffith has welcomed the move:

Richard Partington

Britain’s retailers have received a boost from consumers making themselves beach-ready by increasing their spending on skincare and makeup before their summer holidays, despite the cost of living crisis.

The British Retail Consortium (BRC) said sales of health and beauty products helped drive up spending on the high street as shoppers made the most of brief spells of sunshine in August, although squeezed consumers were holding back elsewhere.

Separate figures from Barclays showed that pharmacy and health and beauty stores benefited from pre-holiday purchases, with a 5.2% rise in sales likely due to holidaymakers buying suncream and other toiletries for trips away.

The BRC said total sales rose by 4.1% compared with a year earlier, above the annual average growth rate, to recover from a disappointing month in July. However, much of the rise was the result of high inflation pushing up the value of goods being sold, masking weaker sales volumes.

UK consumers are suffering from a bout of “Skimpflation”, as manufacturers downgrade the ingredients in certain food and drink products.

Over half the Brits surveyed by Barclaycard reported that some of the food and drink products they buy have been downgraded in terms of quality or the quantity of premium ingredients, yet still cost the same or more than they used to.

Within this group, the most frequently cited skimpflation examples include crisps (44 per cent), sweets and chocolate (43 per cent), and cakes and biscuits (36 per cent).

A fifth also feel takeaways (22 per cent) and restaurant meals (20 per cent) are decreasing in quality without a corresponding fall in price.

Barclaycard also report that this ongoing trend also extends to non-food products, such as clothing, toilet paper and toiletries and cosmetics.

Food and non-food producers have been hit by rising input costs over the last 18 months, prompting them to turn to cheaper raw materials.

They’ve also been cutting the size of some items – the practice known as “Shrinkflation”. Chocolate, crisps and packs of biscuits remain the top products identified as being impacted by this ongoing trend.

Barclays also reports that consumer card spending grew 2.8% year-on-year in August. That’s below the rate of inflation (6.8% in July), indicating that shoppers bought less.

Esme Harwood, director at Barclays, explains:

“The rainy weather impacted high street and hospitality venues in August, but Brits were still keen to spend on memorable summer experiences. The huge Box Office success of ‘Barbie’ and ‘Oppenheimer’ meant entertainment enjoyed another strong month, while holidays abroad boosted international travel and pharmacy, health & beauty stores.

“Shrinkflation – and now “skimpflation” – are increasing concerns for value-seeking shoppers. However, Brits’ confidence in their household finances is unwavering, suggesting they remain resilient in the face of these inflationary pressures.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK car sales have now climbed for more than a year, despite the cost of living squeeze, as motorists shift to electric vehicles.

Data due this morning is expected to show that new car registrations in Britain rose for the 13th consecutive month in August, rising more than 20% from a year earlier.

That’s according to preliminary industry data from the Society of Motor Manufacturers and Traders (SMMT), with the final data due at 9am.

A growing number of those cars will be EVs from China – its share of the European electric car market has more than doubled in less than two years.

My colleague Jasper Jolly explains:

The UK is the largest market in Europe for Chinese electric car brands, accounting for almost a third of sales in 2023 so far, according to data from Schmidt Automotive Research on the 18 largest European car markets. About 5% of all new car sales in the UK were from Chinese brands in the first seven months of 2023, a market share second only to Sweden.

Sales are accelerating: Chinese carmakers sold almost the same number of electric cars in Europe in the first seven months of 2023 as they did in the entirety of 2022.

Chinese brands have long struggled to break into Europe because of a reputation for lower-quality cars. However, some analysts believe the advent of new battery electric technology has wiped the slate clean for Chinese brands, and sales are booming.

Also coming up today

The latest surveys of purchasing managers at UK service sector companies, and across the eurozone.

We’ll be tracking the situation at stricken UK retailer Wilko, which fell into administration last month.

It emerged last night that a rescue deal to save the majority of Wilko’s stores has been put at risk as some key suppliers want outstanding debts repaid upfront to guarantee continuing to provide products to the chain.

Investors will be digesting Australia’s central bank’s latest meeting overnight, where it left interest rates on hold again:

The agenda

• 9am BST: UK car sales report for August

• 9.00am BST: Eurozone service sector PMI report for August

• 9.30am BST: UK service sector PMI report for August

• 10am BST: Eurozone PPI survey of producer prices

• 10.30am BST: South Africa’s Q2 2023 GDP report

• 3pm BST: US factory orders for July