Friday May 06, 2022
UK retailer McColl’s collapses, 16,000 jobs at risk
People enter a McColl’s convenience store in London, on Friday. Reuters
British convenience store chain McColl’s said on Friday it had gone bust in the face of weak consumer spending as inflation soars, putting 16,000 jobs at risk.
McColl’s, which has about 1,100 stores across the UK selling food and household products, is entering administration, whereby a troubled company calls on outside help aimed at minimising job losses.
It added in a statement that the company’s main lenders had refused further funding.
Reports said talks on a last-ditch rescue from supermarket giant Morrisons had failed.
McColl’s operates about 200 of its stores under the ‘Morrisons Daily’ brand.
“In order to protect creditors, preserve the future of the business and to protect the interests of employees, the board was regrettably... left with no choice other than to place the company in administration,” McColl’s said in the statement.
PricewaterhouseCoopers has been appointed as administrators. McColl’s said it expected PwC “to implement a sale of the business to a third-party purchaser as soon as possible”.
The group’s share price was suspended on the London Stock Exchange prior to the announcement.
In early trading Friday, its market value had shot up more than 20 per cent on hopes of a rescue deal.
McColl’s last month revealed in a trading update that the company was being “impacted by reduced consumer spending and continued supply chain disruption across the industry”.
Friday’s developments come as Britain faces a cost-of-living crisis, with UK annual inflation sitting at seven per cent, or 30-year high.
The Bank of England on Thursday warned that British inflation would top 10 per cent, a four-decade high, by the end of the year, fuelled by soaring energy prices.
And the BoE added that Britain risks falling into recession, as the central bank raised its main interest rate by a quarter point to one per cent -- the highest level since the global financial crisis in 2009.
The BoE acted after the Federal Reserve’s decision Wednesday to raise US interest rates by half a percentage point as inflation soars also in the world’s biggest economy.
Consumer prices are surging worldwide as economies reopen from pandemic lockdowns, and in the wake of the Ukraine war that is aggravating already high energy costs.
Britain’s cost-of-living crisis is meanwhile being blamed in part on British Prime Minister Boris Johnson’s Conservative party losing control of key London councils in local elections Thursday.
A hit from high inflation: People and businesses in Britain need to realise they are unlikely to recover the income lost to high inflation any time soon, the Bank of England’s chief economist said on Friday in the latest warning from the central bank of tough times ahead.
A day after the BoE forecast inflation would surpass 10% later this year, causing a sharp economic slowdown - and possibly a recession - Huw Pill said the central bank was unable to cushion people from surging energy and goods prices.
“What we are buying is becoming more expensive relative to what we are selling,” Pill told an online briefing for businesses hosted by the BoE.
“That does imply some sort of squeeze... on the real spending power of domestic residents in the UK. How that is distributed across firms, across wage-earners, across pensioners and so forth, monetary policy does not have much to say about that.” On Thursday, the BoE raised its benchmark interest rate to 1.0%, its highest since 2009, and said Britain’s economy was set to flat-line in 2023 and 2024 as it suffered from this year’s inflation surge.
After that, the BoE’s forecasts for Britain’s medium-term economic potential were weak by historic standards, Pill said.
“Maybe the benchmark shouldn’t be that wage growth gets back to inflation growth quickly, because there is a need at some point for some parts of society to accept the reality that this real income squeeze is taking place.” Companies might also absorb some of the hit via smaller profit margins, Pill said.
“Just to be clear about it, over the next 18 months, the squeeze in real income is a very large squeeze, reflecting the very large shock to the economy.” Earlier this year, BoE Governor Andrew Bailey prompted an angry response from trade unions when he called for restraint in pay deals to avoid fuelling the rise in inflation.
On Thursday, Bailey said people able to preserve their income level were likely to be doing so at the expense of those with the least bargaining power in society.