Competition watchdog launches market study into UK’s road fuel market – business live | Business

Key events:

CMA: Fuel retailer profit margins have not pumped up prices

The CMA’s review of the petrol and diesel market has not found evidence that profiteering by petrol stations has been a major factor driving up pump prices.

It says:

Although there are concerns about fuel retailers profiting from the current situation, our review finds the gap between wholesale prices and retail prices (the “retailer spread”) has not been a significant contributor to the overall rise in pump prices.

In particular, the share of the overall price accounted for by the retailer spread was lower in the three months after the 23 March duty cut than in the last six months of 2021; and in absolute terms, the spread fell from 11.2p to 9.9p.

The retailer spread also includes covering costs they incur:

Retailers told us that they have also seen increases in a range of costs, including transportation, wages and utilities.

Photograph: CMA

BUT…. the CMA has spotted that the spread has widened recently, as wholesale prices fell back but prices didn’t.

That will be part of its new market review:

In relation to the most recent spike in retailer spreads, the CMA will be looking closely, as part of its market study, into how far and how fast these fall back to reflect recent declines in wholesale prices.

CMA launches formal market study into road fuel markets

Britain’s competition watchdog is to hold a formal market study into the UK’s road fuel sector, following concerns that motorists may be being charged too much.

The move comes as the Competition and Markets Authority says it hasn’t found evidence of retailers profiting by not passing on fuel cuty cuts.

Instead, it says, petrol and diesel prices have been pushed up by higher crude oil prices, and a widening gap between the price of crude oil entering refineries and the wholesale price of petrol and diesel leaving them.

Result for petrol retailers from the CMA price probe. The watchdog lays most of the blame for high prices at the door of refineries, noting that the gap between crude and wholesale fuel prices has tripled in the last year

— Alex Lawson (@MrAlexLawson) July 8, 2022

The review will consider three key areas — including those large profit margins being enjoyed by refiners, and whether competition between supermarkets has softened.

The Competition and Markets Authority says this study will cover:

  • refining, including why refining spreads are so high and what, if anything, ought to be done to bring them back down;
  • wholesaling, including the impact of long-term exclusive supply agreements between independent retailers and wholesalers; and
  • retailing, including how far local price variation is being driven by weak competition, and whether there has been a softening of competition from supermarkets.

The CMA has also published a review of the sector, requested by the government last month amid claims that retailers were not passing on the 5p/litre fuel duty cut announced in March’s Spring Statement.

The CMA says:

We have seen no evidence – nor is it clear from our analysis – that retailers in aggregate have profited from failing to pass on the fuel duty cut.

It explains that supermarkets cut prices by just over 5p per litre immediately following the duty cut, and probably incurred a cost as they’d paid the old rate when they bought their fuel from refiners.

Prices charged by other types of retailer also fell in the days following the duty cut — around 3.5p in the case of oil company-operated sites, and 2.1p in the case of independently operated sites.

But, the CMA says, wholesale prices were rising at the time:

These price reductions occurred in a period where – absent the duty cut – retail prices might otherwise have been expected to rise.

The CMA’s initial report into the fuel market, just released, highlights how prices have soared:

The price of a litre of both petrol and diesel has gone up by over 60p in the last year. Households now pay on average more than £500 per year extra to run a medium-sized petrol car, and for those living in rural areas, the impact will generally be greater.

More than half of motorists have changed their behaviour in response to this increased cost.

UK financial assets could suffer from the political upheaval following Boris Johnson announcing his resignation yesterday, warns Mark Dowding, CIO of BlueBay Asset Management.

In his latest weekly analysis, Dowding writes:

Even with his resignation, he remains emboldened to continue as a caretaker PM until the autumn while a new leader is selected, eager to push through his economic agenda and make one final stand.

Needless to say, at a time when the UK economy is already on its knees, these developments may continue to add to the negative sentiment and weigh on the outlook for UK financial assets.

Dowding also tells clients:

  • Euro recession: Recession fears look much more justified in Europe. With the Eurozone likely to experience a contraction, BlueBay thinks that it will be hard for the ECB to hike rates as much as is discounted, even as inflation continues to overshoot.
  • Bond yields: Fixed income is bearing much of the brunt, with implied volatility in rates markets and credit spreads both close to their covid crisis peaks a few years back.
  • Energy costs: Further moves upwards in natural gas prices continue to feed recession fears, yet there may be little that policy makers can do about this, save for caving in to Putin.
  • US economy: BlueBay believes that US growth fears may have been exaggerated as this week’s ISM services gauge pointed towards a steady business conditions.
A JD Sports store in London, Britain.
A JD Sports store in London, Britain. Photograph: May James/Reuters

Retail news: JD Sports has hired former Morrisons chair Andrew Higginson as its new chairperson, succeeding Peter Cowgill who was ousted in May.

Cowgill suddenly stepped down six weeks ago, after 18 years at the helm. That came after several missteps, including:

1) JD Sports being fined more than £4m for breaching the competition regulator’s rules with clandestine meetings with a takeover target.

2) a shareholder revolt over pay after Cowgill was paid almost £6m in bonuses despite the company accepting more than £100m in pandemic government support.

Cowgill had also objected to the board’s plan to split the roles of chair and chief executive, which he has jointly held since 2014, my colleague Sarah Butler reported here.

Higginson is an experience hire for the FTSE 100-listed retailer, as Victoria Scholar, head of investment at Interactive Investor, explains:

Higginson is the previous chair of the supermarket Morrisons when it was taken over by private equity last year and he’s worked at Tesco in top positions for many so he has plenty of experience working at a high level in FTSE 100 companies.

The company is still on the hunt for a CEO though, so uncertainty lingers in the C-suite for Morrisons after the chairman and chief executive roles were split up last year.

Shares in JD Sports initially spiked to the the top of the FTSE 100 but have since pared gains. The market is receiving the appointment of Higginson positively, but shares are down almost 50% since the highs in November.

JD Sports initially spiked to the top of the FTSE but has since pared gains after the appointment of a new chairman. The company is still on the hunt for a new CEO. The stock is down nearly 50% since November.

— Victoria Scholar (@VictoriaS_ii) July 8, 2022

Ashley Alder appointed to run City watchdog

Mark Sweney

Mark Sweney

The Financial Conduct Authority head offices in London.
The Financial Conduct Authority head offices in London. Photograph: Toby Melville/Reuters

The Financial Conduct Authority (FCA) has appointed Ashley Alder, the head of Hong Kong’s securities watchdog, as its new chairman.

Alder, who has run the Securities and Futures Commission (SFC) since 2011, joins as the UK’s financial watchdog remains mired in internal strife amidst strikes by staff over pay and conditions.

Alder, who two years ago was in the running to become chief executive of the FCA, will join as chairman in January for a five year term.

He replaces interim chair Richard Lloyd, who ran consumer watchdog Which? for five years until 2016, who was appointed after Charles Randell stepped down as FCA chair in May – a year before the official end of his five year term.

The appointment of Alder, who also chairs the Board of the International Organisation of Securities Commissions (IOSCO), follows a turbulent few years for the FCA.

The City watchdog, which is responsible for supervising thousands of companies, was criticised for its handling of two major consumer scandals in 2019: The £236m collapse of London Capital & Finance, which sold unregulated minibonds on investors, and failure of Neil Woodford’s equity fund.

The FCA has also found itself battling with staff since the appointment of Nikhil Rathi as chief executive in 2020, replacing Andrew Bailey who became governor of the Bank of England. This led to a walkout this summer, in a row over pay.

The jobs market isn’t the only part of the economy slowing. Consumers are cutting spending in the shops as high inflation and the cost of living squeeze hits their budgets.

The BDO High Street Sales Tracker shows that retail sales have grown at their lowest rate since February 2021, with like-for-like sales in June increased by 8.4% compared with a year ago.

An 8.8% drop in homeware sales suggests that consumers are postponing large purchases.

Lifestyle sales through online channels fell for the eighth consecutive month, as consumers cut their discretionary spending in the sector (which has seen its lockdown boost fade).

Sophie Michael, head of retail and wholesale at BDO, says retailers face a concerning outlook:

With consumer confidence at historically low levels, real wages falling to a 20-year low and interest rates set to rise further, there are few signs of encouragement for retailers.

All four English regions monitored by KPMG and REC saw a slowdown in permanent job placements, with the North of England only seeing a fractional upturn.

London saw the sharpest increase in temporary jobs in June, while the softest expansion was registered in the Midlands.

UK wage growth
Starting salary inflation eased to the softest since
August 2021, while temp wage growth edged down to a 12-month low.
Photograph: Graeme Wearden/KPMG/REC

Starting salaries continued to climb last month, KPMG and the REC’s UK jobs report shows.

The shortages of skilled candidates forced firms to lift their starting pay — good news for workers looking for help in the cost of living squeeze.

Pay pressures did moderate slightly, though, with starting salary inflation edging down to a ten-month low. That could ease the Bank of England’s worries of a wage-price spiral breaking out.

The report says:

The ongoing imbalance between the supply and demand for workers drove further steep increases in rates of starting pay during June.

Though sharp and well above the series average, the rate of starting salary inflation eased to the softest since August 2021, while temp wage growth edged down to a 12-month low.

Introduction: UK jobs market loses steam

Good morning, and welcome to our rolling coverage of business, the world economy, the financial markets and the cost of living crisis.

The UK’s employment market is losing steam, in a sign of the challenge that will face the next government to strengthen the struggling economy.

British employers slowed their hiring through recruitment agencies again in June, with vacancies rising at the weakest rate in over a year.

The slowdown is due to rising economic uncertainty, spiralling costs, and a shortages of candidates, according to UK Report on Jobs, from KPMG and the REC (Recruitment & Employment Confederation).

The survey shows that permanent staff appointments and temporary positions both expanded at the softest rates for 16 months in June, as the labour market lost some strength.

UK jobs report
UK jobs report Photograph: KPMG and REC

Recruiters also reported another steep fall in overall candidate availability.

That’s partly due to a drop in foreign candidates…. and a reluctance to switch jobs in the current climate, as the so-called Great Resignation fizzles.

Recruitment consultancies often attributed lower candidate numbers to a generally low unemployment rate, fewer foreign workers, robust demand for staff and hesitancy to switch roles in the increasingly uncertain economic climate.

The report follows a slowdown in May….

….and shows we are past the peak of the “post-pandemic hiring spree”, as Neil Carberry, chief executive of the REC, explains:

That pace of growth was always going to be temporary – the big question now is the effect that inflation has on pay and consumer demand over the course of the rest of the year. Whether we will see the market settle at close to normal levels, or see a slowdown, is unpredictable at this point.

“Part of the reason for unpredictability in the market is a slower economy accompanied by severe labour and skills shortages. These are already proving a constraint on growth in many firms. The government should be thinking about how to ensure all its departments enable greater labour market participation and encourage business investment funds to help address this.

Also coming up today

After recovering on Thursday, the pound is hovering around $1.20 as the City waits to see who will emerge to succeed Boris Johnson as Prime Minister (a process which could take a few months).

There could be paralysis in the aftermath of yesterday’s dramatic resignation announcement, with Johnson promising no major policies, tax decisions or other changes of direction during his caretakership.

Daniele Antonucci, chief economist & macro strategist at Quintet Private Bank, says:

A Conservative leadership election is likely to begin within days. While his resignation could add to near-term uncertainty, so far the market response has been fairly muted.

Looking further out (past the current loss of growth momentum), the UK economy and its financial markets could perhaps benefit from more certainty.

Eleswhere, Britain’s competition watchdog, the Competition and Markets Authority, should be releasing its report into the fuel retail market today, following a request by Business Secretary Kwasi Kwarteng.

The latest US jobs report, June’s non-farm payroll, is expected to show that job creation slowed last month.

Economists predict the NFP will rise by 268k, down on the 390k US jobs created in May. A weak reading could lead to more worries about a possible US recession.

Strong odds for an economic data surprise tomorrow from non-farm payrolls. Consensus expects 0.17% monthly growth in payrolls, while the yearly and quarterly trends are running above this estimate. Our positioning runs the risk of a surprise here, so important to watch:

— Prometheus Research (@prometheusmacro) July 7, 2022

GOLDMAN SACHS: “We estimate nonfarm payrolls rose 250k in June, somewhat below consensus of +268k … We estimate an unchanged unemployment rate at 3.6%—in line with consensus—reflecting a solid rise in household employment offset by a 0.1pp rise in labor force participation”

— James Pethokoukis (@JimPethokoukis) July 8, 2022

European stock markets rallied yesterday, but are on track for a subdued open today.

The agenda

  • Morning: CMA expected to release report on UK motor fuel market
  • 9am BST: Italian industrial production for June
  • 12.55pm: ECB president Christine Lagarde takes part in a session at the Les Rencontres Economiques event in Aix-en-Provence, Franc
  • 1.30pm BST: US non-farm payroll jobs report for June

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