Client Weekly Update – Friday 18 November

Misery for millions as economy slumps into recession

The UK faces a collapse in living standards, higher bills, tax hikes and increased unemployment as the economy slumps into recession. Chancellor Jeremy Hunt told MPs yesterday that he was having to make difficult decisions to ensure a “shallower downturn”, but the economy was still expected to shrink 1.4% in 2023.

A majority of households will be worse off as a result of Mr Hunt’s decisions, which will see the cap on energy bills increase and the tax burden rise to its highest sustained level since the Second World War.

The Chancellor blamed Russian president Vladimir Putin’s invasion of Ukraine for a “recession made in Russia”, with the spike in energy prices driving up inflation, but he was also being forced to manage the financial turmoil caused by his predecessor Kwasi Kwarteng’s mini-budget in September.

Mr Rees-Mogg, who quit when Rishi Sunak became Prime Minister, told Channel 4 News: “I think we need to look at the efficiency of government to make sure money is well spent before reaching for the easy option of putting up taxes.”

The Office for Budget Responsibility (OBR) forecast unemployment would rise by 505,000 from 3.5%, to peak at 4.9% in the third quarter of 2024.Inflation is expected to be 9.1% over the course of this year and 7.4% next year, contributing to a dramatic fall in living standards.

The OBR’s assessment said: “Rising prices erode real wages and reduce living standards by 7% in total over the two financial years to 2023-24 (wiping out the previous eight years’ growth), despite over £100 billion of additional Government support.”

“In an effort to get a grip on the public finances, Mr Hunt set out plans for almost £25 billion in tax increases and more than £30 billion in spending cuts by 2027-28. The OBR said the tax burden – the ratio of taxes as a share of gross domestic product (GDP), a measure of the size of the economy – would peak at 37.5% in 2025-25 “which would be its highest level since the end of the Second World War”.

Recession ‘will not be as crippling as 15 years ago’

The recession will not be ‘as bad as some people fear’ and will not be ‘as crippling as the financial crisis of 15 years ago’, according to a leading UK economist. Speaking to clients and staff at an event in the Island last week, Investec London chief economist Philip Shaw warned that Jersey would feel the ‘chill winds’ of the downturn and that all ‘businesses would find it tough’.

During his talk, which came just days after Jersey’s Fiscal Policy Panel issued a report, which said the Island’s economy was in a good position to weather the global economic downturn, Mr Shaw said: “

One of the more positive factors is that back in 2008/9, the government had to order the banks to go easy on pulling the plug from businesses. Now the banking sector is in much, much better shape and there’s less pressure on the banks to call in loans. So, yes, it’s going to be difficult but we are looking at a situation that has fewer negative features than the aftermath of the global financial crisis 15 years ago.”

While figures released last week showed that the UK’s economy had lost momentum, Mr Shaw said the bank-holiday weekend for the late Queen Elizabeth’s funeral was partly responsible for this and that he expected to see a ‘fairly big bounce back’ in October, with the final quarter of the year perhaps seeing a rebound.

However, he believes that the UK will slip into recession early next year, although he said that projected rises of up to 5% in interest rates were unlikely to materialise and that the recession would not be as long as feared.

“I don’t think we’re going to see a whole two years as the Bank of England was saying. What is more likely is that we will see a clear weakening in the economy in the new year and a recession throughout the year but, towards the second half of the year, we should see clearer evidence that inflation is coming down and that should encourage the Bank of England not to raise interest rates but also to think about a cut in rates towards the end of 2023,” he predicted.

Mr Shaw is also much more optimistic about sterling recovering some of its losses, which has had an impact on the costs of importing goods to the Island.

“The (UK) fiscal ship has been righted and the authorities there are re-establishing their credibility,” he explained. “That being the case, we see sterling continuing to rise. Added to that, US inflation is coming down so I think that will encourage the Federal Reserve not to be quite so aggressive in raising interest rates and, perhaps at some point next year, pausing and ultimately cutting rates as the US economy begins to labour. That’s a situation in which we think the dollar will lose some of its allure and, by the end of next year, we can see sterling rising to perhaps 1.20 or 1.25 against the US dollar.”

Latest House Index report – average cost of Island home now more than £700,000

The average cost of a home in the Island is now more than £700,000, according to the latest figures from Statistics Jersey. The House Price Index report for the third quarter of 2022 showed that one-bedroom flats, two-bedroom flats and three-bedroom houses had all reached their highest mean price to-date, recorded at £370,000, £557,000 and £904,000 respectively.

The average cost of a four-bedroom home remained essentially the same in comparison to the previous quarter – at £1,329,000 – while the average price of a two-bedroom house decreased by £32,000 to £632,000 over the same period. Turnover of properties was 8% higher than it was a year ago.

Overall, the average price of a Jersey home stood at £709,000, more than doubling the UK figure of £294,000.

Jersey’s Chief Minister at British Irish Council along with UK Prime Minister Rishi Sunak

Jersey’s Chief Minister had an opportunity to meet another politician recently elected to the top job when she met UK Prime Minister Rishi Sunak at the British-Irish Council Summit in Blackpool this week. Deputy Kristina Moore was joined by chief executive Suzanne Wylie in representing the Island at the summit, which concluded on Friday.

The meeting was hosted by UK Minister for Intergovernmental Relations Michael Gove and brought together the representatives of BIC member administrations, including the Republic of Ireland, Northern Ireland, Wales, Scotland and the Crown Dependencies.

Deputy Moore said the theme of the event – sustainable growth and regeneration – was topical and of particular significance to Jersey.

“As a government we continue to advance and develop our Carbon Neutral Roadmap,’ she said. “We are focused on facilitating sustainable growth by ensuring our key sources of emissions – transport and buildings – are minimised. ‘It was insightful to hear how other member jurisdictions are tackling what is a shared challenge,” she said.

Mrs Wylie added: “It is crucial Jersey continues to maintain representation at what is an important international forum, one that brings together some of our closest partners to tackle the biggest challenges of our time.”

Jersey Seigneur sells his ancient feudal title – and it could be yours (if you have £25,000)

A Seigneur is advertising his recently acquired ancient feudal title to raise funds for Jersey Overseas Aid’s humanitarian relief work in Ukraine. Earlier this year, on the death of his father, Sam Le Quesne became Seigneur of the Fief ès Poingdestre – and he saw an opportunity.

He said: “It is an unearned privilege which has come to me purely because I was born as the person who would inherit that title. To me it’s something which doesn’t fit with my world view but there is a definite value in it for people who want to become part of that tradition and who are fascinated by it.”

Mr Le Quesne explained that he now wanted to use the sale of the title to make a contribution where it was most needed. “I realised that it had a monetary value. Various people have said to me that they know people who would be interested and just to let them know the details,” he added.

The title of Seigneur du Fief ès Poingdestre is one of the few in the Island never to have been sold, passing down 19 generations by natural descent. While the title – attached to the Island’s most northerly fief from Sorel down to Sion – no longer comes with land, residential rights or property, it retains significant ceremonial value.

Its holder is required to attend the prestigious annual Assise d’Héritage ceremony in the Royal Court in September where title-holders acknowledge their duty to the Crown, known as ‘comparence’, in a ceremony normally presided over by the Bailiff with the Lieutenant-Governor in attendance.

They can also style themselves Seigneur – or Dame in the case of a woman who assumes the title – rather than being addressed in a more prosaic form to which the majority must resign themselves.

Seigneurs, originating from the French word for lord, enjoyed privileges and powers under the feudal system, including typically practices like the corvée – the carriage of the Seigneur’s wood, wine and hay wherever required – and receipt of rentes, recurring payments from tenants related to the agricultural productivity of their land.

Most of the rights once enjoyed by Seigneurs were abolished by law in 1966.

Mr Le Quesne explained why he had taken the decision to donate the proceeds of the sale, once legal fees and other costs had been deducted, to Jersey Overseas Aid’s humanitarian relief work in Ukraine:

“I started to speak to Simon Boas from Overseas Aid and he was really interested in it. I have such incredible admiration for the way the Ukrainian people have responded to what’s been happening to them. They have not yielded to one of the most tyrannical and oppressive forces that we’ve seen for a long time, and I just think that anything that can possibly be done to show financial and moral support for them needs to be done.”

Final call to save Jersey’s historic De Havilland Heron

An 11th-hour call to help safeguard the future of a historic Island aircraft has been issued by the man who saved it from the scrapheap. Matt Palmer bought the De Havilland Heron – which used to fly between the Channel Islands, the UK and continental Europe – for £1, after the company that previously owned it went into liquidation.

Mr Palmer, who leads the government’s Cyber Emergency Response Team, stepped up to buy the aircraft last year when it became clear no one else was prepared to save the propeller-driven passenger plane from the scrapyard.

Since then, he has been searching for ways to keep the Duchess of Brittany, which first took off in the 1950s, in the Island as a static exhibit as a visitor attraction and for educational purposes.

He said that the prospect of getting the Cold War-era aircraft flying again had been considered, but a combination of ‘regulatory hurdles’ and running costs had ruled that option out. “Part of the challenge is because we are on an island, and access to things like hangarage and engineering services are limited. Whereas if you were in mainland UK or France, you have more access to classic aviation services.”

The Heron has been located at the Airport on a section of tarmac without cover since 2019, but Mr Palmer said its future was ‘by no means certain’.

“The challenge is, even with a decommissioned aircraft, we need space – and at the moment we have no viable location in Jersey. We want to create a future for it, so we need to ensure protection and that means some form of coverage. Ideally I would like to be able to do that here and keep her in Jersey because of the heritage story that she tells, but I have not been able to locate a place to do that,” he said.

Mr Palmer explained that, as an alternative solution, he was also in discussions with UK aviation charities and museums that had expressed an interest in the aircraft.

“Of course, what that would mean is she would cease to be available in terms of a heritage and educational opportunity for Jersey, and we would lose a little bit of our Island history forever. ‘However, it would preserve the aircraft and would still tell the story of that period of aviation.”

Retailers press on with late-night opening despite switch-on delay

Town centre shops have decided to continue opening late despite the Christmas light switch-on being delayed until next week. Businesses are hoping that festive discounts – and sparkling wine – will still tempt shoppers out despite the weather.

The Parish of St Helier postponed the switch-on, which usually heralds the start of late-night town shopping, from today until 24 November, after saying high winds and heavy rain had made it impossible for the event to go ahead safely on the day.

Voisins still held their annual gala evening to kick-start Christmas shopping and offering free gifts, discounts and glasses of fizz to mark the start of the key shopping season.

Voisins head of marketing Sarah Sacriste said they did not want to disappoint customers by a late change of plans. She added:

“We think the delay to the Christmas lights may impact on our footfall in the evening but it might just spread it out throughout ‘The weather forecast could be bad for a number of weeks to come and all of us will be impacted by it, so we thought it’s worth doing this now.”

River Island also said they would be staying open until 9pm.

Assistant manager Monika Golebiewska said: “It’s such a lovely event with champagne, Santa and his elf on the shop-floor, sweets all around. I think lots of people will be coming in. It’s going to be beautiful.”

Mixed markets

European markets are broadly higher today with shares in Germany leading the region. The DAX is up 1.27% while France’s CAC 40 is up 1.26% and London’s FTSE 100 is up 0.93%.

The Dow Jones Industrial Average slipped 7.51 points, or 0.02%, to 33,546.32 — after falling as much as 314 points in the session. The S&P 500 fell 0.31% to 3,946.56. The Nasdaq Composite declined 0.35% to 11,144.96.

Asian markets finished lower today with shares in China leading the region. The Shanghai Composite is down 0.58% while Hong Kong’s Hang Seng is off 0.29% and Japan’s Nikkei 225 is lower by 0.11%.