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Brompton’s profits fell as inflation and supply chain pressures took their toll

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Brompton, the UK’s biggest bike maker, has suffered a sharp drop in profit after inflation and supply chain risks upended the fortunes of one of the country’s most prominent corporate success stories during the pandemic.

The west London-based producer of folding bikes reported late Thursday that the rising cost of parts and labor was impacting margins, adding that it would struggle to offset this with higher prices in the cost-of-living crisis.

Brompton also warned of rising costs due to Russia’s invasion of Ukraine, as well as plans to diversify the supply chain in Asia in the face of geopolitical tensions surrounding Taiwan, long a major supplier of parts for the bicycle industry.

Brompton red flags are the latest sign of Troubles facing European industry. Last month, the Make UK trade group reported that investment in British manufacturing was set to fall for the first time in nearly two years as its members cut spending.

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But inflationary and supply chain shocks have had a particularly stark effect on Brompton, which has only recently occurred cash it in Sales are on the rise thanks to a cycling boom during the Covid-19 lockdowns.

The group said revenue continued to rise in the 12 months to March 2022, with the number of bikes sold increasing by more than a third, to 93,460. But that was more than offset by a 49 per cent increase in costs to £99.6m, which cut profit before tax by about a quarter to £7.3m.

The pressure on Brompton continued in the months that followed, as conflict in Ukraine drove up the cost of the metal. Brompton announced Historic launch From the UK’s first titanium folding bike just weeks before war broke out between the two countries, both are suppliers of the lightweight metal.

“This restriction in supplies from Russia and Ukraine means more people are going to China, and the price of titanium is going up. Will Butler Adams, chief executive, told the Financial Times in December, as the company founded in 1976 to announce the production of its millionth bicycle.

“You combine the cost of raw materials with the cost of labor, I’ve never seen that in my professional life. It’s extraordinary,” he said, adding that Brompton plans to introduce “cost of living for employees.” [pay] The hike “in March that would be higher than 5 percent last year.”

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Separately, geopolitical tensions in Asia have raised questions about Brompton’s dependence on Taiwan, where up to 40 percent of its supply base is located. In August, then-US House Speaker Nancy Pelosi’s visit to the island prompted China to conduct unprecedented military exercises around Taiwan.

Butler-Adams said Brompton has been diversifying its supply chain in the region, though he added that this is part of a broader strategy and the group will continue to source from these countries while diversifying across Asia.

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Economic

BoE Pill Sees Persistent Inflation Risk, Even If Gas Price Falls By Reuters

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© Reuters. FILE PHOTO: A general view shows the Bank of England building in London, Britain on November 3, 2022. REUTERS/Toby Melville

By David Milliken

LONDON (Reuters) – Britain risks persistent inflationary pressures from a tightening labor market, Bank of England chief economist Howe Bell said on Monday, even if prices stabilize or fall.

Bell said in a speech he will deliver in New York later on Monday.

“(This) will strongly influence my position on my monetary policy in the coming months,” he added.

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The Bank of England has released a transcript of Bell’s comments ahead of the speech he plans to give to the Capital Market Association at New York University.

The Bank of England raised its key rate to 3.5% in December, up from 0.1% a year earlier, and financial markets expect the central bank to raise interest rates again to 4% in its next policy announcement on February 2nd.

However, economists and markets are divided on how much further the price hike will be beyond that. Inflation has fallen slightly since it hit a 41-year peak of 11.1% in October, and the British economy appears to be entering a shallow recession.

Bell said that even if there was a drop in natural gas prices, the main driver of the latest spike in inflation, that was no guarantee that underlying price pressures would fall enough for inflation to return to the BoE’s 2% target.

Bell said businesses and workers need to accept lower inflation-adjusted profit margins and wages than they were before the energy shock.

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“The more companies try to maintain real profit margins, and employees try to maintain real wages at pre-energy price shock levels, the more likely it is that domestically generated inflation will pick up its own momentum,” Bell said.

Britain is currently facing a wave of strikes as trade unions seek to reduce the impact of inflation on their members’ salaries.

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Strong economic data points to a shallow recession in the Eurozone

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Unemployment in the eurozone hit a new record low, while output from German factories rose in November, boosting hopes of a milder economic slowdown than fears in the single currency area.

Figures from Eurostat, the European Commission’s statistics office, showed that the number of people in the labor market without work fell slightly in November. Eurostat reported that 10.849 million workers were without jobs, 2,000 fewer than the previous month and the lowest since records began. The unemployment rate has remained unchanged since October at 6.5 percent.

Meanwhile, Germany’s Federal Statistics Office reported that industrial production rose 0.2 percent between October and November, a reading slightly better than the 0.1 percent expansion forecast by economists polled by Reuters.

Francesca Palmas, chief economist for Europe at Capital Economics, a research firm, said the rise confirmed that German manufacturing strength “held up better than expected” during the fourth quarter of 2022.

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On Friday, Germany’s statistics office is set to publish its first estimate of last year’s gross domestic product, which economists expect to show the economy contracted by a modest amount during the last three months of 2022.

The rise in energy prices last spring after Russia’s invasion of Ukraine raised fears of energy shortages and a deep recession in the eurozone. However, economists have steadily raised their growth estimates in recent months on the back of better-than-expected incoming data and falling wholesale gas prices.

Investor sentiment regarding the Eurozone economy also improved. The Syntex market sentiment index, also published on Monday, showed the third consecutive increase in January to the highest level since June 2022. Patrick Hussey, managing director of Syntex, said.

The resilience of the eurozone economy and its labor market it is expected that It leads to more interest rate increases by the European Central Bank.

With unemployment stuck at historically low levels, “the ECB’s hawkish tone is likely to multiply with further tightening in the coming months,” says Paolo Grignani, economist at Oxford Economics.

Markets are pricing in a 50 basis point increase in interest rates when the European Central Bank meets on February 2nd. That would be up from the 2.5 percentage point increases since June last year, which took the deposit rate to 2 percent in December.

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A tight labor market could boost wage growth and keep core inflation higher for longer. While the headline inflation rate fell to single digits in December, come in at 9.2 percentCore inflation — which excludes changes in food and energy costs and is seen as a better measure of long-term price pressures — rose from 5 percent to 5.2 percent.

Line chart of 2022 GDP growth forecasts, by forecast date showing that economists have revised their 2022 economic growth forecasts for the Eurozone

Bert Collin, chief eurozone economist at ING, noted that the strength of the labor market “makes it a key risk for the ECB’s second round inflationary effects.” With a tight labor market, Cullen added, “unemployment is unlikely to rise enough to make labor shortages a thing of the past.”

Between October and November, the unemployment rate in Italy, France and Spain fell by 0.1 percentage point to 7.8 percent, 7 percent and 12.4 percent, respectively. It remained at 3 percent in Germany.

Melanie Debono, chief economist for Europe at Pantheon Macroeconomics, said fiscal support across the eurozone should prevent a “significant increase in unemployment,” despite the economic downturn.

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UK and EU Hit Break in Brexit Talks on Sharing Trade Database By Bloomberg

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& Copy Bloomberg. A Royal Mail Plc transporter trailer is loaded onto a ferry at the Port of Larne in Larne, Northern Ireland, UK, on ​​Tuesday, July 5, 2022. British Prime Minister Boris Johnson wants Parliament to pass his plan to override the Brexit deal by The end is from 2022, but it could take up to a year to become law if the House of Lords gets involved. Photographer: Emily McInnes/Bloomberg

(Bloomberg) — The European Union is preparing to agree to use the UK’s live database to track goods moving from Great Britain to Northern Ireland, the first sign of progress in a long-running dispute over post-Brexit trading rules.

An agreement was finalized at a lunch between British Foreign Secretary James Cleverly and European Commission Vice President Maros Sefkovic on Monday, according to people familiar with the matter.

Someone said that the block completed the test of the database proposed by the United Kingdom last year, and suggested several areas for improvement. The person added that the UK had agreed to work on the comments.

This development is the first hurdle cleared since talks began again last year after eight months of deadlock. Although a technical step, the database deal will raise hopes of a further agreement on trade flows, and may help reduce customs checks between Northern Ireland and the rest of the UK.

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The UK government did not immediately respond to a request for comment.

© 2023 Bloomberg LP

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