17th December 2021
Bite-sized business news from the UK and beyond
Good morning Cream cheese has become the latest food item to be hit by supply issues. To combat the shortage Kraft – owner of Philadelphia cream cheese – has announced a new promotion where it will pay customers $20 to not make cheesecake for Christmas.
- BoE surprises with interest rate hike
- Boohoo falls out of fashion as supply chain problems bite
BoE surprises with interest rate hike
What’s going on?
Yesterday the Bank of England unexpectedly announced that interest rates will rise for the first time in three years from 0.1% to 0.25%.
Interest rates were cut to 0.1% in March 2020 to support the economy during the first lockdown.
Why is this important?
As we reported yesterday inflation hit 5.1% last month - a decade high – and economists predict it will reach 6%, or 3x the 2% target, by Spring.
Under normal circumstances an interest rate rise would be expected as a way to cool down prices. But the emergence of the Omicron variant of Covid threw a spanner in the works. There are fears that the combination of Omicron-induced weak consumer confidence and higher costs of borrowing would damage the economy.
Because of this, at the start of the week the market thought there was only a 20% chance that interest rates would rise this month so the Bank of England’s announcement came as quite a surprise.
The Bank’s rationale is that runaway inflation is a bigger threat to the economy than Omicron. For months it had insisted that rising consumer prices were temporary and would resolve themselves once the global supply chains went back to normal.
But the Bank has finally conceded that higher prices could be around for longer hence the need to push the button on interest rates now.
The Bank of England has become the most high-profile central bank to hike rates since the pandemic began and indicated that more could be on the way. Borrowers will be the most impacted by the change. Millions of homeowners with mortgages linked to the Bank’s rate will see monthly payments increase by over £100 a year.
Boohoo falls out of fashion as supply chain problems bite
It was boohoo for Boohoo investors yesterday after the online retailer warned sales and profit would be lower than expected this coming year, sinking shares by 23%.
The company blamed higher return rates and supply chain disruption hitting international demand.
It now forecasts sales growth in the year to February to come in between 12-14%, down from its previous 20-25% range.
As a fast fashion retailer Boohoo is known for two things – cheap clothes and fast delivery but recent events are threatening that position and profitability.
The company’s cost base has soared driven by rising shipping costs and input prices on the back of disrupted global supply chains. But it’s tricky to pass on the costs to price-sensitive customers without hurting demand.
On top of that the effective cancellation of the festive party season, due to Omicron fears, has meant all the fancy outfits purchased in the past few months have been returned in droves, meaning more costs for Boohoo. It also flagged that continued Covid uncertainty could weaken demand going into 2022.
This is the second time in four months that Boohoo has downgraded profits but it’s hopeful that the problems are temporary and will ease in the coming months.
Stat of the day
Bruce Springsteen sold his music rights to Sony Music for $500m
Other stories to keep you in the loop
- Rishi Sunak flies back from California to help Covid-hit businesses
- M&S suing Aldi for alleged copying of its products – again
- Former McDonald's boss hands back £75m over staff relationship
- Reddit: Social media platform files to go public
- Domino's shares jump more than 25% after ending lengthy dispute
- Daily Mail publisher to delist from stock market after 90 years
- UK’s top earners give less to charity despite jump in income
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