UK economy to fare worse than any other country in developed world this year, IMF forecasts

Published

1 year ago

January 31, 2023

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Britain’s economic reputation has been dealt a further blow after the International Monetary Fund (IMF) forecast that this year the UK economy will fare worse than any other country in the developed world – including Russia.

In the latest update of its economic forecasts, the IMF said that it expected the UK’s gross domestic product (GDP) to contract by 0.6% in 2023.

To add further humiliation for the chancellor and prime minister, even as Britain’s outlook was downgraded, most other countries around the world saw their forecasts upgraded.

But the Fund said that while the broader global economy was doing better than expected, with inflation having peaked and investment beginning to turn around, the UK economy would face a downgrade “reflecting tighter fiscal and monetary policies and financial conditions and still-high energy retail prices weighing on household budgets.”

The UK had previously been forecast to grow by 0.3% this year and 0.6% next year.

Now, said the Fund, it should expect -0.6% this year and 0.9% growth in 2024.

The comments are especially awkward for the Treasury, which has been criticised by some for its plans to raise taxes and reduce the budget deficit in coming years, resulting in an increase in costs for businesses and households, even as they continue to battle a cost of living crisis.

Up until recently, chancellor Jeremy Hunt had contextualised the UK’s relatively weak growth by pointing to the fact that the IMF’s recent forecasts projected that a third of countries were facing a recession.

However, the Fund has now upgraded its growth projections for Italy and Germany, with the result that both will now grow more than the UK in 2023.

Indeed, Britain’s -0.6% GDP is the worst of any economy included in its latest forecast update, including Russia – which despite facing sanctions from most of the West is projected to grow by 0.3%.

Chancellor says UK ‘not immune’ from pressure

Mr Hunt said of the forecast: “The governor of the Bank of England recently said that any UK recession this year is likely to be shallower than previously predicted, however these figures confirm we are not immune to the pressures hitting nearly all advanced economies.

“Short-term challenges should not obscure our long-term prospects – the UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years.”

The IMF said it now expected the global economy to expand by 2.9% in 2023.

Although this is down from the 3.4% in 2022, it is nonetheless 0.2 percentage points faster than the Fund previously forecast in October.

It said: “Adverse risks have moderated since the October 2022 [World Economic Outlook].

“On the upside, a stronger boost from pent-up demand in numerous economies or a faster fall in inflation are plausible.

“On the downside, severe health outcomes in China could hold back the recovery, Russia’s war in Ukraine could escalate, and tighter global financing conditions could worsen debt distress.”

After China’s decision to open up its economy and ditch its zero-COVID policy, the Fund upgraded its GDP projection from 4.4% to 5.2% this year.

It said the US would grow by 1.4%, rather than its previous projection of 1%.

Germany, which was previously forecast to shrink by 0.3%, is now slated to grow by 0.1%.

Business

Superdry plots emergency sale process if creditors block rescue plan

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1 hour ago

May 21, 2024

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Superdry plots emergency sale process if creditors block rescue plan

Superdry is preparing to run an emergency four-week sale process if creditors block its founder’s plans to inject up to £10m of his own money into the fashion chain in a bid to stave off insolvency.

Sky News has learnt that the accelerated M&A process would be launched if a restructuring plan is not approved by creditors in the coming weeks.

Under the proposed survival plan, Julian Dunkerton would stump up either £8m in an open offer available to other shareholders or £10m in a placing that would only be accessible to him.

The share sale would precede Superdry’s delisting from the London Stock Exchange.

The restructuring plan would need to be approved by creditors, including landlords, in the coming weeks.

According to a document circulated to creditors in recent days and seen by Sky News, rejection of the restructuring plan would be followed by a four-week sale process for Superdry, with the likely outcome of a pre-pack administration deal.

Sources said that Mr Dunkerton’s willingness to inject such a substantial chunk of his own fortune into the company reflected his confidence in the company’s turnaround prospects.

Superdry’s shares have slumped to a series of record lows in recent months amid dire trading and a failed sale process.

Last month, Sky News revealed that M&G, the asset manager which owns Superdry’s flagship store in central London, was weighing a challenge to its rescue plan.

M&G is believed to have been alarmed by the absence of their participation in a mechanism to allow creditors to benefit from any future recovery in the retailer’s performance.

The restructuring plan will not entail immediate shop closures but will impose sizeable rent cuts on landlords of dozens of Superdry outlets.

Sources said the firm is also planning to pull out of a number of overseas markets, including the US.

On Tuesday morning, shares in the company were trading at around 6.7p, giving the indebted company a market capitalisation of less than £7m.

It recently agreed an increased borrowing capacity with Hilco Capital, one of its existing lenders, while it also owes tens of millions of pounds to Bantry Bay.

Mr Dunkerton, who in 2019 returned to the company having previously been ousted, owns just under 30% of the shares.

In recent months, Superdry has raised cash by offloading its brand in regions including India and Asia-Pacific.

Superdry declined to comment.

Business

South West Water: Surge in profits for parent company of utility responsible for fixing contaminated supply in Devon

Published

3 hours ago

May 21, 2024

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South West Water: Surge in profits for parent company of utility responsible for fixing contaminated supply in Devon

The parent company of South West Water has insisted it is focused on returning safe water supply to Brixham in Devon as it announced an 8.6% increase in underlying operating profits to £166.3m.

Around 17,000 households in the Brixham area have been told to boil their drinking water since last week following an outbreak of cryptosporidiosis which left hundreds of people ill.

The condition, which can lead to vomiting and diarrhoea, is caused by a water-born parasite, and South West Water has said it was most likely triggered by animal faeces entering a damaged pipe.

Pennon Group, the listed company which owns South West Water, Bournemouth Water and Bristol Water, said normal service had been returned to 85% of customers as it announced its annual financial results.

“Whilst the results we are announcing today are based on our performance for the last financial year, we are 100% focused on returning a safe water supply to the people and businesses in and around Brixham,” said Susan Davy, the group chief executive.

“Normal service has returned for 85% of customers, but we won’t stop until the local drinking water is returned to the quality all our customers expect and deserve. Our absolute priority continues to be the health and safety of our customers and our operational teams are working tirelessly around the clock to deliver this.”

The company also revealed it is paying out about £3.5m in compensation to customers affected by the parasite outbreak in Devon.

‘Robust’ results – but firm defends money for shareholders

Describing financial results which include a 10% increase in revenues to more than £907m as “robust”, Ms Davy said dividend payments to shareholders, increasing by 3.8% to 44.37 pence per share, had been reduced to cover the cost of a £2.4m fine for multiple pollution incidents.

“At a time when media, public and regulatory scrutiny is high, it is important we do what is right for all. In the context of the wider group performance, we have carefully considered Ofwat’s new dividend guidance for water businesses. We have… adjusted the final dividend quantum by £2.4m, equivalent to the South West Water Court fine in 2023/24, signalling we are listening, clearing the way for long-term shareholder value.”

Pennon Group’s net debt rose by 10% to £5.18bn, a debt ratio of more than 63%, and capital expenditure rose by almost 80% to £642.4m.

Water companies are currently negotiating with regulator Ofwat over their spending and revenue plans for the next five years, and South West Water has proposed a 20% increase in customer bills.

Business

Former tech darling Cazoo crashes into administration

Published

3 hours ago

May 21, 2024

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Cazoo, the British online car retailer once-valued at well over £5bn, will crash into administration on Tuesday.

Sky News understands that insolvency practitioners from Teneo will be formally appointed just over a week after Cazoo filed to seek temporary protection from creditors.

More than 700 people have already lost their jobs as a result of the crisis at Cazoo, with the administrators expected to retain a number of staff to operate the remaining marketplace model while they explore a sale.

Motor industry sources said the entry into administration would allow Teneo to focus on a sale, with the marketplace model having drawn interest from a number of potential suitors.

On Monday, the group’s wholesale arm was sold to G3, another industry player, with Constellation Automotive, the owner of Cazoo’s rival, Cinch, also having acquired a number of assets from the stricken New York-listed company.

One industry source said that among the parties potentially interested in Cazoo’s marketplace, including its brand, were BMW, Motorpoint and Car Gurus.

Motors.co.uk, a privately owned used-car platform, also remains among the field of prospective buyers.

Cazoo was founded in 2018 by Alex Chesterman, the successful entrepreneur behind Zoopla, the property portal.

It raised several tranches of funding at ever-higher valuations before making its stock exchange debut in 2021, when investors ascribed a valuation of $8bn to it.

Cazoo spent tens of millions of pounds on sponsorship deals in football, snooker and darts in a rapid attempt to gain market share.

Among the assets which have been sold in recent weeks include its vehicle fleet, which sources said had been achieved at higher-than-anticipated values, reflecting a current shortage of used cars in the market.

One industry source said the pivot to a platform model had seen its inventory rise to more than 15,000 cars, with Cazoo now the only online vehicle marketplace where consumers can buy and sell cars under a single brand.

Mr Chesterman left the business several months ago in the wake of a balance sheet restructuring which saw hundreds of millions of dollars of debt converted to equity.

The entry into administration comes after a further wave of restructuring of its balance sheet and operations.

Cazoo declined to comment on Tuesday but had said last week: “Our new marketplace model, where consumers can both buy and sell cars, is revenue generating and performing ahead of expectations with interest from almost 100 car dealers including many household names wishing to trade on the Cazoo platform.”

The company added that it had “successfully restructured and significantly reduced the cash burn of the group”.

Teneo declined to comment.