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  • Today's business and finance round up 6th October 2022

Today's business and finance round up 6th October 2022

Tesco tightens belts and freezes prices

6th October 2022

Bite-sized business news from the UK and beyond

Good morning

Today's stories

  • Tesco tightens belts and freezes prices

  • Oil group shocks with output cut

RETAILTesco tightens belts and freezes prices

What happened?Yesterday Tesco announced it would cut £500m in costs and freeze hundreds of prices to help struggling customers.Tesco wants to keep customers but it will hurt profitsThe UK’s biggest retailer expects profits for the 12 months to February to fall at the lower end of the £2.4-2.5bn range it gave earlier this year. That’s due to more expensive staff, stock and energy bills. The company will try to offset these rises by cutting £500m of costs with measures like taking out 300 head office roles.Tesco, like many of its rivals in the super competitive grocery sector, has committed to limiting how much extra costs it passes on to customers. The supermarket says it will lock the price of 1,000 everyday goods until next year.Customer behaviours are adapting to the rising cost of living The company said that households are buying more frozen food to cut waste, cutting back on buying non-food items and switching away from brands towards Tesco’s own-label goods. It also expects that shoppers could scale back spending for the crucial Christmas season by buying fewer, smaller gifts.Tesco is fighting to keep shopper loyalty as Britons decamp to cheaper rivals. Last month German discounter Aldi leapfrogged Morrisons to become the fourth largest supermarket, a clear sign that shoppers are looking to save on grocery bills.

Zooming out: The soaring cost of living presents big challenges for supermarkets that operate on notoriously thin margins. As the biggest grocer Tesco’s scale gives it buying power that should mean it’s well placed to weather these uncertain times.

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ENERGYOil group shocks with output cut

What happened?Yesterday OPEC+, the group of the biggest oil producing nations, announced it would cut production by 2m barrels a day, double what was expected and the biggest drop since 2020.How did we get here?Global oil supplies have been disrupted since Russia, one of the biggest producers, invaded Ukraine. The tight supply has driven already high oil prices, even higher. As a result the West has been seeking alternative energy partners to ease supply concerns.Saudi Arabia, the leader of Opec+, has been asked by the US and UK to increase output but to no avail. The Gulf nation has tried not to pick a side between the West and Russia during the Ukraine conflict. Russia is a key partner to Saudi Arabia and is a member of OPEC+. During the height of the pandemic in 2020 demand for oil collapsed sending prices through the floor as countries locked down. Now amid fears of a global economic slowdown oil prices have fallen recently, OPEC+ wants to cut production by 2m barrels a day – equivalent of 2% of global supply -  to boost prices.Zooming out: The US administration called OPEC+’s decision ‘shortsighted’ and showed that Saudi Arabia was colluding with Russia. Replacing the nation in the global energy market will be challenging. Very few oil exporters have the spare capacity to ramp up production and even if they do, existing political ties means they may be reluctant to do so. 

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