Market report: Self-employed boost government revenues

• FTSE 100 opens lower, following falls in Asia, as investors wait for PMI data
• Surprise UK government surplus of £5.4bn in January as tax receipts jump
• Brent crude falls slightly to $83.4, while EU natural gas futures slip to €48 a megawatt-hour
• Warnings from the NFU about a looming food security crisis.
• InterContinental Hotels Group announced share buy back and resurgent demand

Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘’A tale of shrinking economic activity is still unfolding in countries across the world, adding fresh nervousness to investor sentiment which is already wavering over worries about the path of interest rates. European  markets have taken a more downbeat cue from Asian trade, opening lower, with the FTSE 100 down 0.7% in early trade. Japan was hit by the fourth consecutive month of contracting orders at factories, with output and new business declining. Investors are now waiting for the latest health check on European economies with the PMI data due out this morning, offering a fresh glimpse of ailments in the manufacturing and services sectors.

There are pockets of hardiness despite the headwinds. Another chapter has been turned on the story of surprising resilience of the UK business sector. The army of self-employed poured in much more tax than expected into HMRC coffers in January, giving the government a surplus in its finances despite the splurge in spending to help households and businesses with energy bills.  It meant government shelled out less than it received in tax in the month by £5.4bn.  This will give UK finance minister, chancellor Jeremy Hunt more potential room for manoeuvre as he plans the budget next month, although the expectation still remains that he’ll hold off any bumper giveaways until closer to an election, particularly as he seems so glued to debt reduction plans.

Crude oil and natural gas prices have slipped back again which will be another salve for households and businesses and will mean government support schemes will also be less onerous going forward. While fears of an energy shock have subsided, there are fresh warnings of a food security emergency hitting the UK. With inflation still super-high, many farmers and growers are facing costs of production higher than the returns they get from selling them, putting businesses at risk according to the National Farmers Union. The latest data from the ONS backs up the NFU’s concerns, showing that while agricultural input price soared by a whopping 22,6% in the year to November, agricultural output prices rose at the still high, but significantly lower level of 20.6%. This still represents a horrible rise in prices which has been feeding through to our grocery bills, but it seems that many farmers have been shouldering a big chunk of the burden. It’s clear this is an unsustainable situation for many farmers, and there is clamour to put this much higher on the government’s agenda.

The pent-up demand for travel isn’t just fuelling a rocket recovery for budget airlines, but InterContinental Hotel Group is also benefiting from the resurgent popularity of holidays and mini breaks. This helped IHG exceed 2019 levels in terms of profitability and revenue per available room in the second half of 2022, with growth in the American market powering ahead, up 3.3% compared to pre-pandemic levels.

The company has announced a share buyback scheme to return $750m of surplus capital this year to investors, but the share price slipped back as overall the results were not quite as buoyant as the investors had been counting on. Restrictions in China proved a big block on recovery with revenue down a whopping 42% in the fourth quarter. Given how depressed business has been, the re-opening of the vast country and the renewed appetite for trips among wealthier Chinese should bode well for IHG’s ongoing recovery.’’