Shares in UK retailers fall as sector counts cost of NICs tax rise – business live | Business

Yesterday, the Bank of England showed that it expects Rachel Reeves’s budget to add almost half a percentage point to inflation at its peak in just over two years’ time.

That’s due to measures such as the addition of VAT to private school fees and the £1 increase in the bus fare cap to £3, plus the assumption that the long-running fuel duty-freeze will end (although Reeves extended it last week).

Today, the central bank’s chief economist says it must look beyond the temporary inflation boost from last week’s budget.

Huw Pill has explained that it’s important to focus on anything that might add to longer-term price pressures.

In a briefing to businesses, Pill says:

“To a large extent, we will have to look through and interpret [the measures in the budget] in a way that allows us to have a good sight of these underlying and more persistent components of inflation that really have to be the focus of what’s driving our policy decisions.”

Jasper Jolly

Richard Molyneaux, JLR’s finance chief, also called for changes to the UK’s zero emission vehicle (ZEV) mandate, which threatens fines if carmakers do not sell an increasing proportion of electric cars each year.

He said that while “everyone is aligned to the destination” of shifting to electric cars, weaker growth in electric demand should prompt the UK to re-examine the ZEV mandate.

He said:

It’s clear that it’s going less quickly than hoped. The details of the ZEV mandate, they probably do need to adjust to reflect this reality.

He said the government should shift from “penalisation” through fines towards incentives to make it more attractive for carmakers to make the move.

JLR CEO: Everybody hates taxes and tariffs

Jasper Jolly

The boss of Land Rover manufacturer JLR has said the company is opposed to tariffs, after Donald Trump won the US presidency for the second time promising levies on all goods imports.

Adrian Mardell, JLR’s chief executive, said that the company would be “resilient” if tariffs were increased, although he added that he was hopeful that future policy “isn’t quite what it’s being said today”.

The British carmaker, which is owned by Indian conglomerate Tata, exported 95,000 cars to the US in the year to March, more than a quarter of all the cars it produced. Those exports would face a 10% tariff if Trump follows through on a repeated pledge to impose a “baseline tariff” on all goods.

Mardell expressed his objection to increased taxes on business during the UK budget, as well as the prospect of “potentially even more significant” changes ahead in response to a question about Trump.

Speaking as JLR unveiled a profitable quarter to September (see earlier post), he said:

Everybody hates taxes and tariffs. This is the environment we are in. Of course all of us would dislike an environment where we go into larger tariffs.

The company said it was too early to say whether it would raise prices or seek to start producing vehicles within the US if tariffs were imposed.

Shares in UK retailers have dropped this morning, as they continue to count the cost of last week’s budget.

Marks & Spencer (-4.5%), JD Sports (-2.7%) and Tesco (-2.5%) are all among the fallers on the FTSE 100 today, pulling it down to a three-month low.

On the smaller FTSE 250 index, bakery chain Greggs (-6.8%) and pub group Mitchells & Butler (-6.7%) are also weakening.

Companies across the economy have been adding up the cost of Rachel Reeves’s decision to lower the earnings threshold at which employers start paying national insurance contributions from £9,100 to £5,000, and increase the rate from 13.8% to 15.0%.

M&S said it faced a £60m bill, while Sainsbury’s is facing a £140m cost.

It’s not just retailers, of course; BT said the measures in the budget would cost it £100m. while Serco flagged a £20m bill this morning.

And supermarket chain Asda has just warned that it also faces a £100m bill from tax changes in last week’s Budget, which could lead to higher prices.

As the Bank of England explained yesterday, there are four ways that companies can deal with the increase in NICS contributions. They could raise prices, they could swallow the cost through lower profits or becoming more efficient, they could raise wages by less than otherwise, or they could cut staff.

Asda’s chairman Lord Stuart Rose has called the increase in employer taxes is “a big burden for business to carry”.

Rose says it is likely to lead to higher prices in the shops:

“We are a very efficient industry, as retailers. We will do everything we can to mitigate this cost.

“But of course, you can’t deny it will probably be inflationary to some degree. We’re just working through the details of that now… We’re looking at the impact.”

Prison contractor Serco is also among the stock market fallers, after being hit by a double-whammy of bad news.

Serco told shareholders this morning that it had failed to retain a key contract with the Australian Government’s Department of Home Affairs to provide onshore immigration detention facilities and services for detainees held there.

Ths contract will run out on 10 December. Had Serco won it again, it would have bene worth £165m of revenue in 2025 and £18m of underlying operating profit.

Serco also reported that the UK government’s changes to employer national insurance contributions will cost it around £20m per year.

Shares are down 10%, at the bottom of the FTSE 250 index of medium-sized companies.

Britain’s stock market has dropped to its lowest level since the market wobble this summer.

The blue-chip FTSE 100 share index is down 72 points today, or -0.9%, at 8068 points. That’s the lowest since 8th August, and the index’s fourth daily fall in a row.

Miners are still among the top fallers, reflecting concerns that China’s latest stimulus measure isn’t beefier.

Housebuilder Vistry is now down almost 20% after it issued a second profit warning in as many months and said cost overruns on building projects were worse than previously thought.

UK supermarket chains Tesco (-2.9%) and Sainsbury’s (-2.5%) are also among the fallers; yesterday, Sainsbury’s warned that it will face a £140m bill from changes to employer national insurance contributions [NICs].

Aluminium shortages dent JLR profits

Jasper Jolly

Land Rover maker JLR has reported a 10% year-on-year drop in quarterly profits after shortages of aluminium held back production.

Sales dropped by 6% to £6.5bn in the quarter ending in September compared with a year earlier, while profit before tax – excluding some one-off items – was £398m, the company said today.

Despite the supply chain difficulties, it marked two years of profits for Britain’s largest automotive employer, which has undergone a turnaround programme to try to earn more money from each car it makes.

Those efforts appear to have paid off as JLR has avoided the steep fall in profits experienced by several manufacturing rivals. Stellantis and Nissan this week announced thousands of job losses, but JLR said that it was continuing with a £500m investment in upgrading its factory at Halewood, Merseyside.

The company said the aluminium shortage was only temporary, and that it still expected to make revenues of £30bn this year.

Adrian Mardell, JLR’s chief executive, said the company was still seeing “strong global demand for our products”. JLR has been slower than rivals to switch to electric production, which could make it difficult to meet emissions targets, but has meant it is much less exposed to slowing growth in demand for electric cars.

Mardell said:

JLR has delivered a resilient performance in [the second financial quarter], resulting in a 25% increase in first half profits year-on-year. Our teams responded brilliantly to the aluminium supply shortages we experienced in the quarter, so we could deliver as many orders as possible to clients.

Mark Sweney

Back in the UK, the government has been told it could offer its own low-cost baby formula under a brand such as the NHS to combat the high prices and lack of choice in the market.

The Competition and Markets Authority (CMA) said another “backstop” measure could be for the government to regulate and set a price or profit-margin cap on retailers as a way to bring prices down for parents more quickly.

The potential measures formed part of the CMA’s interim report on the infant formula market after the watchdog identified that a lack of competition in the market had led to soaring prices, taking advantage of an ingrained belief among parents that higher cost equates to better quality for their children.

The CMA report set out a number of potential recommendations including extending the ban on the advertising of infant formula to follow-on formula, or going as far as “prohibiting all brand-related advertising”.

We’ve had a lot of stimulus moves from China in recent weeks, culminating with today’s £1tn plan to bail out local governments… which Kathleen Brooks, research director at XTB, says is a disappointment.

Brooks says:

The bulk of the stimulus is linked to local government. Beijing has agreed to raise the debt ceiling from local governments to 35.5 trillion yuan, which will allow them to swap ‘hidden debt’ to the tune of 6 trillion yuan. There is also another 4 trillion yuan of special 5-year bonds that will be available to local government.

The news has fallen flat with financial markets. Chinese stocks are lower, the CSI 300 is down more than 1%, and European stocks are lower across the board. The S&P 500 is expected to open above the key 6,000 level, which is a further sign of American exceptionalism and the US’s immunity to the rest of the world’s woes. There is a risk off tone to markets today, bond yields are lower across the board and oil and some industrial metals are also lower today.

The problem with China’s stimulus measures is that they are not stimulus. They are essentially a debt swap to shore up local government’s finances. The market reaction shows that traders do not see these measures as boosting consumption, and instead they are designed to stop a financial crisis domestically in China.

The Chinese Ministry of Finance’s announcement today of 10 trillion yuan of new measures to alleviate local government debt issues (see earlier post) is a “decisive move to address local government debt woes”, says Lynn Song, chief economist for Greater China at ING.

Song says the plan will free up local governments to drive “forceful” fiscal policy for Beijing:

Other than the obvious impact of addressing short-term debt risks, arguably the most important aspect is that it will free up local governments to once again implement stimulus measures where appropriate and necessary. These measures will likely take time to roll out, but today’s moves at least set the foundation for further fiscal stimulus rollout. Indeed, the press conference also signalled that China would be implementing a more “forceful fiscal policy” next year.

Though it was not explicitly addressed, it is likely that local governments and SOEs will play a large role in the moves to stabilise the property market in the future.

We anticipate there will be direct acquisitions of unsold homes to coordinate with the earlier PBOC [central bank] policies to expand the re-lending programme to banks.

Mining companies listed in London, who are sensitive to China’s growth prospects, are among the fallers on the stock market this morning.

Copper producer Antofagasta are down almost 5%, followed by Rio Tinto (-3.9%) and Anglo American (-3.6%).

AJ Bell investment director Russ Mould says:

“After a hectic week investors had more to digest in the form of further Chinese stimulus but what has been announced so far doesn’t seem to be moving the needle and the risks to China from a second Trump presidency are now overshadowing efforts to get the economy moving. The question on investors’ lips will be whether this encourages Beijing to unveil a bolder package of measures.

“Asian stocks sputtered overnight and the UK-listed miners who are reliant on China for much of their demand were also on the back foot.