Treasury News Network

Learn & Share the latest News & Analysis in Corporate Treasury

  1. Home
  2. Cash & Liquidity Management
  3. Cash Flow Management & Forecasting

Industry roundup: 18 March

Bank of England raises interest rates again to combat inflation

The Bank of England (BOE) hiked interest rates for the second time in three months on Thursday, as the UK faces its highest inflation rate in 30 years.

The BOE’s decision comes a day after the US Federal Reserve (Fed), the central bank of the United States, announced its first rate hike since 2018 to battle inflation that’s at a 40-year high.

The Bank’s Monetary Policy Committee increased its interest rate by 0.25 percentage point to 0.75%, taking it to its pre-pandemic level.

The UK’s central bank said the invasion of Ukraine has sparked "large increases” in prices for energy and other commodities and is likely to exacerbate supply chain problems that have disrupted shipments of many raw materials. The BOE now expects inflation to last longer and peak at a higher rate than it did before the war.

"Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the United Kingdom, is likely to slow,” the bank said in a statement.

The BOE now expects inflation to accelerate to nearly 8% by the end of the second quarter of 2022, and perhaps even higher later in the year.

The hike in interest rates will make credit more expensive – everything from corporate loans to mortgages – thus slackening demand, curb borrowing, reduce spending, slow economic growth and rein in inflation over time.

Oil could hit $200 a barrel even if Russian-Ukraine conflict ends

French hedge fund manager Pierre Andurand sees oil prices hitting $200 a barrel this year even if the Ukraine war ends.

Andurand, who is known for his winning commodities bets in volatile times, told Bloomberg News that oil prices need to hit $200 to reduce demand and "balance the market" as Russia leaves a permanent hole in the supply.

“Oil producers around the world will struggle to replace Russian barrels,” said Andurand to Bloomberg. He believes that around 4 million barrels per day (bpd) of Russian oil supply is already out of trade on the market after the West imposed economic sanctions on Russia over its invasion of Ukraine and after many Western majors and traders refuse to deal with Russia’s oil. 

“I don’t think that suddenly they stop fighting, the oil comes back. It’s not going to be the case. The oil’s going to be gone for good. We'll have to live with higher prices to keep demand down." Andurand told Bloomberg.

He believes that the West is likely to maintain sanctions on Russia until it feels confident Vladimir Putin will not launch an attack on another country, or until there's a new, trustworthy regime. And that may take a while.

To replace the hole in the market created by Russia, Andurand estimates the Middle East could perhaps increase production by 1.5 million barrels daily, still leaving a 2.5 million-barrel gap. To make up the difference, the world will need to find ways to reduce demand.

"We have to accept demand destruction," he said. "We have to save energy as much as we can."

His warning follows a similar but less gloomy report from the International Energy Agency (IEA) on Wednesday, as has been reported in Business Insider. According to the report, the energy watchdog said Western sanctions and lower demand for Russian oil could spark the “biggest supply crisis in decades.”

As per the IEA, upwards of 2.5 million barrels per day of exports could be at risk, though any alleviation in the war could ease shortages. 

American Express to enter metaverse

Payments giant American Express (AXP) is preparing to foray into the metaverse, recent trademark applications show. The payment titan’s entry in the metaverse comes as Wall Street considers the metaverse to be an opportunity worth trillions of dollars.

The corporation applied for trademarks for its logos and products, such as “American Express,” “AMEX,” “Membership Rewards,” “Centurion” and the “Shop Small” initiative, expressing its intention to engage in virtual payments and electronic business transactions for digital media and non-fungible tokens (NFTs). Specifically, Amex is considering providing card payments, ATM services, banking services, fraud detection, NFT backed multimedia and cryptocurrencies to customers in the metaverse.

Amex’s applications come as traditional finance and large corporations increasingly aim to boost their metaverse exposure. In January, electronics giant Samsung opened a version of its New York store in Decentraland, and in November Barbados became the first sovereign nation to establish a metaverse embassy, also in Decentraland.

JPMorgan recently opened a lounge in Decentraland, a virtual world based on blockchain technology. and released a paper exploring how businesses can find opportunities in the metaverse. JP Morgan, the largest bank in the U.S., is the first bank into the metaverse.

Britain’s P&O Ferries mass sackings highlight devastation wreaked by Covid on travel industry

The shocking move of mass redundancies in one fell swoop at P&O Ferries to stem “unsustainable” financial losses is another reminder of the devastation COVID-19 has wreaked on the travel industry.

P&O is the leading ferry operator on the Dover-Calais crossing, the main sea link from Britain and Europe, and also sails from Hull to Rotterdam, Liverpool to Dublin and Cairnryan in Scotland to Larne.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said, “From airlines to cruise companies, hotel chains to tour operators, it’s been a hugely challenging two years, with many companies faced with taking on a huge burden of extra debt to try and stay in business.

P&O has faced woes before, and financial problems stretch back two decades when once popular routes were scrapped. That was blamed on low-cost airlines and channel tunnel bookings eating into the once steady stream of holidaymakers heading on its vessels to the continent every summer.”

But the pandemic plunged the operator into a fresh crisis. It had to deal with mass cancellations as lockdowns were enforced and then cope with the fluctuating travel restrictions and quarantine rules, which continued to dent bookings.

“Although P&O benefited from furlough support and a freight support grant, it failed to secure a £150 million bail out from the UK government,” Streeter commented.

According to the Guardian, Dubai-based DP World bought P&O Ferries for £322 million in 2019, more than a decade after it sold it. DP World has deep pockets but clearly is not willing to keep subsidising the loss making venture without fresh drastic cost-cutting.

The nature of the redundancy announcement is unlikely to help it win back customers, with staff reportedly refusing to leave ship. This could fast turn into a severe reputational headache for the company, with a big union fight looming ahead.

“Disruptions to the flow of commodities due to the ongoing Russia-Ukraine conflict are set to continue to cause a headache for businesses. For companies in the UK, a fresh migraine has erupted with major disruption to freight at ports around the UK after mass job losses were announced by P&O with no warning. The suspension of services has caused severe log jams around Dover, in particular, which handles a third of the goods trade between Britain and the EU. For business reliant on road haulage this is yet another set-back, just at a time when logistical problems brought on by Brexit and then Covid had begun to ease,” remarked Streeter.

Like this item? Get our Weekly Update newsletter. Subscribe today

Also see

Add a comment

New comment submissions are moderated.