7th October 2022
Bite-sized business news from the UK and beyond
- UK’s credit rating takes a blow
- Elon Musk plans ‘super’ Twitter future
UK’s credit rating takes a blow
Yesterday Fitch, one of the world’s biggest credit rating agencies, lowered the UK’s credit outlook to ‘negative’ from ‘stable’ citing the risks posed by the government’s recent mini-budget. It comes after fellow agency S&P made a similar move last week.
How did we get here?
Two weeks ago the chancellor announced a £45bn package of debt-funded tax cuts - the biggest in 50 years – with the aim of jumpstarting the economy. However the lack of independent detailed plans on how the debt would be repaid spooked financial markets with the pound falling to a record low against the dollar and the interest on UK government bonds spiking.
Fitch said this has damaged the government’s credibility for managing the economy and therefore reduces the UK’s credit-worthiness.
This week the government reversed its decision to scrap the 45p top rate of income tax (worth £2bn), a sign that it had conceded how unpopular the budget was. However Fitch said this was not enough to repair the damage caused by the initial announcements.
Why does it matter?
Like it is with a person, a weaker credit rating generally increases the cost of borrowing. International debt investors could view the UK as a riskier prospect.
However credit rating agencies lost credibility themselves in the wake of the 2008-09 financial crisis after that gave top ratings to companies that later collapsed. But their views on governments are still closely watched.
Elsewhere the fallout from the mini-budget continued… Yesterday the Bank of England shared more details of why it was forced to take emergency action in the bond market after the chancellor’s announcements. The central bank said that if it had not pledge to buy up to £65bn of government bonds then a large number of pension funds were in danger of going bust.
Other stories to keep you in the loop
- Banks call for more support on mortgages amid surging rates
- Amazon frontline workers to get special payment of up to £500
- Peloton to cut 12% of workforce in fourth round of layoffs this year
- Williams sisters back London-based investment app in $40m funding round
- Aldi kickstarts festive hiring spree with 3,000 new jobs this Christmas
- Adidas puts Kanye West Yeezy deal under review
Elon Musk plans ‘super’ Twitter future
As the will-they-won’t-they saga of Elon Musk buying Twitter is seemingly coming to an end, all eyes are now on what the world’s richest man plans to do with the social media platform under his ownership.
Musk has ambitious targets of quintupling revenues to $26.4bn and reaching 104m paying users by 2028. (Twitter has just 217m free users currently.)
Musk hinted at his vision on this week, tweeting that his purchase of Twitter would accelerate the creation of an “everything app”. more commonly known as a superapp, called X.
Superapps integrate pretty much everything you need into your life, including social media, payments, travel and food delivery into one mobile app. WeChat in China is commonly cited as the world’s foremost superapp, with an estimated 900m daily active users, but others, like Singapore-based Grab, have also reached superapp status.
Musk has signalled his intentions of building a WeChat clone before, telling Twitter’s staff this summer that if they can recreate WeChat with Twitter, “we’ll be a great success.”
Bottom line: Building a superapp in 2022 could be challenging given that Europeans and Americans use mobile payments far less than Chinese people and that WeChat’s success is directly tied to the moment in time (2011) that it launched. But that probably won’t stop Musk from trying.
And finally: The Twitter deal hasn’t closed just yet, and the judge presiding over the trial is still preparing to start in 10 days.
Stat of the day
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