Closing summary
South East Water has said it needs a cash injection from investors to stay in business as it gears up for a major Ofwat ruling on its future spending plans.
The struggling water company – which serves 2.3 million people across Kent, Sussex, Surrey, Hampshire and Berkshire – said it is “in discussions with lenders and shareholders regarding additional liquidity”.
The talks are at an “advanced” stage and bosses “expect” to raise the extra funding, but the company has not struck a deal on the investment.
“If it is not possible to raise the additional liquidity, the group and therefore company would not have sufficient liquidity for the going concern period,” it said in a results statement on Wednesday.
It added that “the risk that the funding will not be received constitutes a material uncertainty that may cast significant doubt on the ability of the group and company to continue as a going concern”.
The UK’s new environment secretary, Steve Reed, has summoned the bosses of Britain’s water companies for urgent alks tomorrow, amid signs that Labour will take a tougher approach to the industry than the previous Tory government.
Reed will host talks with executives from all 16 water suppliers in England and Wales, including Thames Water, Yorkshire Water and Severn Trent.
The meeting comes as Ofwat, the water industry watchdog, is due to publish draft determinations on companies’ spending plans for the next five years tomorrow morning.
Our other main stories today:
Thank you for reading. We’ll be back tomorrow. Take care – JK
The Bank of England’s chief economist Huw Pill said that while UK services inflation remains strong, there are signs that “inflationary pressures have now been contained”.
In a speech at Asia House in London, he said:
At annual rates still not far from 6%, annual services price inflation and wage growth continue to point to an uncomfortable strength in those underlying inflation dynamics.
But the latest data also remains consistent with the view that these inflationary pressures have now been contained, and may be starting to revert towards levels that are more consistent with the achievement of the inflation target.
Markets are expecting the central bank to start cutting interest rates in August or September.
Here is my full story on today’s housebuilding news from Barratt, Crest Nicholson and Travis Perkins:
Blackwall and Silvertown tunnels will cost up to £4 at peak times, says TfL
Drivers will be charged up to £4 at peak times for a one-way trip through either the Blackwall tunnel or the new Silvertown tunnel after the latter opens in 2025, Transport for London has announced.
However, TfL is proposing to halve these charges for low-income local residents in east London to use either of the road tunnels under the Thames, as well as exempting buses, black taxis and zero-emission cabs.
Standard off-peak journeys will cost £1.50 for car drivers paying automatically, TfL said, as an eight-week consultation over the proposals opened on Wednesday.
The Blackwall tunnel has been free to use since opening more than a century ago, but TfL has argued since first developing plans for the new Silvertown crossing back in 2012 that both routes under the Thames should incur a charge.
Royal Mail to stop using its own freight trains after almost 200 years
Royal Mail is to stop using its own trains to transport post after almost 200 years.
The company has confirmed it will decommission its remaining freight trains by 10 October, with a plan to increase the amount of post it moves by road.
The move comes as Royal Mail’s parent company, International Distributions Services (IDS), is the subject of a £3.6bn takeover bid from Czech billionaire Daniel Křetínský.
Royal Mail began running trains to transport post in 1830, with the service reaching its peak in the lead up to the second world war when more than 130 trains were used on the network. It now runs just six, which are almost 30 years old and considered at the end of their operational lives.
Thames Water has failed to complete more than 100 upgrades to ageing sewage treatment works to meet legal pollution limits, the Guardian can reveal.
The schemes costing £1.1bn were supposed to cut pollution into rivers by increasing the capacity at sewage works, adding phosphorus removal to the treatment process, and installing new storm tanks. The upgrades, which were promised in 2018, are being paid for by customers as part of a five-year spending round to 2025 but will not be delivered within that timeframe.
Meanwhile, Thames Water awaits a crucial decision on Thursday from the regulator Ofwat on the company’s new five-year business plan. Thames wants to increase customer bills 59% by 2030 to pay for record investment of £19.8bn to tackle sewage pollution, leaks and water shortages after decades in which the company has sweated assets and underinvested.
The company is asking the regulator to allow the late projects to be rolled over into the new spending round, known as PR24.
Ash Smith, the founder of the campaign group Windrush Against Sewage Pollution, said customers had already paid for the projects to upgrade ageing sewage treatment works, and were being asked to pay again.
“Thames Water failed to deliver around 108 schemes that were funded in the last spending cycle and we question whether that a deliberate act to keep it financially afloat. A proper investigation into this company is long, long overdue.”
Smith added: “It has broken our sewerage infrastructure while extracting cash, right under the noses of regulators and the government.”
A Wessex Water TV advert about its plans to tackle storm overflows has been banned as misleading because it omitted key information about its record on sewage pollution.
The Advertising Standards Authority investigated after receiving a complaint about the ad for the supplier, which provides water to 1.4 million customers and sewerage services to 2.9 million people in the south-west of England.
The ad said Wessex was investing £3m a month to tackle storm overflows and featured a voiceover that claimed it was “building more storm tanks to increase storage” and “separating rainwater from sewage”, adding that “a better way, for our waterways, is already under way”.
The ASA said it had upheld a complaint that the advert, which aired in February, was misleading because it omitted significant information about Wessex Water’s environmental impact. It said the advert should not appear again in the same form, concluding “that the ad omitted material information and therefore was likely to mislead”.
How privatisation changed the water industry
There was a time when privatised British water companies were as unpopular as they are now, writes our financial editor Nils Pratley.
During the hot summer of 1995, the managing director of Yorkshire Water, Trevor Newton, achieved notoriety when he urged customers to use less of his company’s product by issuing a motivational message: “I personally have not had a bath or shower for three months.”
After a round of jokes about “the filthy rich” – because megabucks pay for water company bosses was also in the headlines in those days – Newton invited the press to watch him washing with a flannel and bowl. It later emerged he had been popping out of Yorkshire for a soak at his parents’ and in-laws’ homes.
The serious aspect of the farce was that, just as now, the public was outraged by the mismatch between rewards for investors and the standard of service being provided by a privatised utility. Yorkshire had just paid a £50m dividend to shareholders and yet the city of Bradford was at risk of running dry. A new grid was behind schedule and the company was reduced to transporting water by tanker through the Dales. “Public anger exploded,” recalled Sir Ian Byatt, the first head of the Office of Water Services, or Ofwat, the regulatory body created at privatisation in 1989, in his account of his career.
The saga also underlined the rotten state of the water infrastructure, the reason given for privatisation in the first place. The UK was regarded as the “dirty man of Europe” on account of pollution on beaches and in rivers. Spending by the industry on overhauling its pipes and sewage-treatment works had been falling from the mid-1970s to the mid-1980s and now the UK had to meet new European Community standards on pollution.
Updated
South East Water’s parent company, HDF Holdings, is owned by NatWest’s pension fund, an Australian infrastructure investor and a Canadian pension fund.
The company is already on regulator Ofwat’s watchlist for financially at-risk companies, alongside Thames Water and other regional monopolies.
The company’s financial update will be followed on Thursday by a draft verdict from Ofwat on water companies’ five-year spending plans and bill increases to 2030.
That will kick off six months of negotiations with Ofwat, ahead of its final decision in December.
South East Water has put forward plans that would see spending rise to £1.9bn to maintain and update its infrastructure. However, that would also involve increasing customer bills by 22%.
The search for funding comes after South East Water’s owners provided a £150m loan to a unit in the utility group earlier this year.
South East Water’s pre-tax loss narrowed to £36m for the year to 31 March, down from £74m the year before. Turnover rose 9% to £281m.
It is also still under investigation by Ofwat for an incident in June 2023 when the company failed to deliver water to thousands of customers for more than a week. The consequences could include a hefty fine from the regulator.
South East Water says needs cash injection to stay afloat
South East Water said it needs a cash injection from investors to stay afloat, as it gears up for a key ruling from the water regulator on its future spending plans tomorrow.
The struggling water firm, which serves 2.3 million people across Kent, Sussex and Surrey, said it is “in discussions with lenders and shareholders regarding additional liquidity”.
The talks are at an “advanced” stage and bosses expect to raise the extra funding, but the company has not struck a deal on the investment.
If it is not possible to raise the additional liquidity, the group and therefore company would not have sufficient liquidity for the going concern period.
It added that “the risk that the funding will not be received constitutes a material uncertainty that may cast significant doubt on the ability of the group and company to continue as a going concern”.
Updated
Wetherspoon’s boss Tim Martin praises economic ‘pedigree’ of Rachel Reeves
Tim Martin, the politically outspoken boss of the JD Wetherspoon pub chain, has praised the new Labour chancellor’s economic “pedigree”, as he called for tax changes to help the struggling hospitality sector.
Martin regularly publishes economic and political commentary alongside his company’s results and has previously voiced support for Brexit and Boris Johnson.
However, today he made overtures to Rachel Reeves, as he blamed the previous government for failing to relieve the tax burden on the struggling hospitality sector. Martin said:
The last government failed to implement tax equality between pubs and supermarkets, leading to pub closures and underinvestment.
Wetherspoon hopes that the current chancellor, with a Bank of England pedigree, will understand how many beans make five, and rectify this inequality.
The head of Water UK has defended asking customers to pay for what he described as “important” investment in the water network.
When asked how water companies can justify rising bills on BBC Radio 4’s Today programme, David Henderson, chief executive of the trade association for the water industry, said:
We have not built a reservoir in 30 years - even though our population has risen by 20% in that time - and that’s because we’ve been blocked by regulators and planning officials around the country.
We need to increase our water supply and if we don’t make these investments we won’t get it.
Unfortunately the investment will paid for up front by the shareholders of the companies and then slowly recouped over time.
UK environment secretary to hold urgent talks with water bosses
The UK’s new environment secretary, Steve Reed, has summoned the bosses of Britain’s water companies for urgent alks tomorrow, amid signs that Labour will take a tougher approach to the industry than the previous Tory government.
Reed will host talks with executives from all 16 water suppliers in England and Wales, including Thames Water, Yorkshire Water and Severn Trent.
The meeting comes as Ofwat, the water industry watchdog, is due to publish draft determinations on companies’ spending plans for the next five years tomorrow morning.
Thames Water is in the most precarious position among the water companies. It said yesterday it intended to tap investors for fresh funds as it would run out of money by next June without a cash injection, raising fears over its potential collapse.
The Liberal Democrat environment spokesman, Tim Farron, has called for Thames Water to be brought into public ownership.
Speaking to the BBC Radio 4’s Today programme this morning, the former Lib Dem leader said:
Thames Water is a special case. I think they are the most egregious offender, if you like, and the simple answer is Thames Water should be taken back into administration and directly run by the government for the time being.
Updated
European shares rise after gains in Asia, Nikkei hit new record
European shares are pushing higher following gains in Asia and on Wall Street, with Japan’s Nikkei hitting a new record level of 41,831, up 0.6%.
The FTSE 100 has regained some of the ground lost yesterday, as airlines and precious metals miners gave the market a lift. The FTSE has climbed 31 points, or 0.4%, to 8,171. The German Dax and the French CAC have both gained 0.3% while Italy’s FTSE MiB is 0.4% ahead.
In London, IAG, which owns airlines such as British Airways, Iberia and Vueling, is leading gains on the FTSE 100, trading more than 4% higher. EasyJet is another big riser, up 2.2%.
They appear to have been boosted by research from TSB showing that Britons are cutting back on DIY and households goods purchases, but are splashing out on one-off treats such as holidays and days out.
Stock markets have rallied over the past fortnight on growing expectations of US interest rate cuts.
AJ Bell investment director Russ Mould said:
Testimony from Federal Reserve chair Jerome Powell before the US Senate saw him flag a return to normality in the labour market. While he made no commitment on rate cuts, jobs data is one of the most important influences on the Fed’s decision making because tight labour market conditions and rapidly rising wages can lead to inflation becoming entrenched.
“Labour may have made a big play of getting Britain building but the industry is not yet responding in kind,” said Russ Mould, investment director at the stockbroker AJ Bell.
Tellingly, Barratt Developments is expecting a further slowdown in completions in the current financial year.
Its year-end trading update shows completions have already dropped dramatically from the levels seen in the 2022 and 2023 financial years and it means Barratt will only be building modestly more homes than it did at the height of Covid when restrictions put building work on hold.
The long wait for interest rates to be cut is clearly affecting demand as the cheaper mortgages everyone was expecting this year haven’t materialised, at least not to the extent that was initially anticipated.
On a brighter note, there are clearly signs that the cost inflation experienced by the sector in recent years is beginning to ease. Notably, the company is expecting to buy more land going forward which suggests that the current financial year could represent a nadir in terms of the volume of homes built.
Barratt will hope its proposed merger with Redrow gets the all-clear from the competition authorities – a combination helping to build scale and, both parties will hope, resilience.
Travis Perkins appoints ex-Taylor Wimpey boss Pete Redfern as CEO
In other housing news, the building materials merchant Travis Perkins has appointed the former Taylor Wimpey boss Pete Redfern as its new chief executive.
Redfern ran Taylor Wimpey, one of Britain’s biggest housebuilders, for 14 years until 2021 and was involved in the company’s creation –- he was the boss of George Wimpey before it merged with Taylor Woodrow in 2007.
He is taking over from Nick Roberts at Travis Perkins, which also appointed a new chair, Geoff Drabble.
Drabble also chairs Ferguson, the building materials distribution business listed on the New York and London Stock Exchanges, which mainly operates in North America, and is also chair of the packaging firm DS Smith, and has sat on the board of kitchen supplier Howdens in the past. DS Smith has agreed to a £5.8bn takeover by its bigger US rival International Paper, and Drabble is likely to relinquish his chairmanship when the deal goes through.
Housing analyst Stephen Rawlinson said:
The appointments will be a bit of a shock as both might have been seen as entering a quieter phase of their careers but awakening the sleeping giant that is Travis Perkins is clearly too great an attraction.
We are surprised at the moves at Travis Perkins but can see how Pete and Geoff could be motivated to get stuck into their new roles, as both will remember what Travis was in the past and how it has declined in the last decade, and the platform for renewal it now represents.
Redfern will receive an annual salary of £760,000, and will be in line for an annual cash bonus and restricted share plan award at the same level as his predecessor. There are no forfeited awards from previous employment to be bought out.
Updated
Crest Nicholson 'minded to recommend' revised Bellway offer
Another UK housebuilder, Crest Nicholson, just said that its board is “minded to recommend unanimously” to its shareholders a sweetened of £720m all-share takeover deal from its bigger rival Bellway, if it tables a firm offer.
Crest shares, listed on the FTSE 250, rose 2.8% to 245.2p on the news.
The company explained:
The boards of Bellway and Crest Nicholson believe that there is compelling strategic and financial rationale for a combination of Bellway and Crest Nicholson. The revised proposal would bring together the strength of each business with complementary brands to reinforce Bellway’s position as a leading UK housebuilder, while enabling Crest Nicholson shareholders to benefit from the scale of the combined business.
A month ago, Crest rejected a £650m approach from Bellway. The business has been struggling, racking up losses in the first half of year. It slashed its dividend in its latest profit warning last month as it continued to be hit by volatile mortgage rates and slowing demand in the housing market.
Updated
Barratt shares sink on housebuilding target
Barratt, Britain’s biggest housebuilder, said it expects to build up to 7% fewer homes this year than last, sending its shares down almost 3%.
The shares are the biggest faller on the FTSE 100 index this morning, trading 2.9% lower.
Barratt expects completions to drop by up to 7% to 13,000-13,500 this year, from 14,004 homes in the year to June. That total was down by 18.6% from the previous year when it built 17,206 homes.
Even so, it estimates that adjusted profit before tax will be slightly ahead of its previous expectations. Markets had forecast £355m.
First-time buyer activity has stabilised and shown some recovery, accounting for 27% of private sales, up from 25% the previous year. Demand among existing homeowners remained resilient, albeit with continuing elevated levels of sales incentives and increased use of part exchange, at 16% of private reservations in the year.
Barratt has agreed to buy another housebuilder, Redrow, in a £2.5bn deal, and both sets of shareholders approved it in mid-May.
David Thomas, the chief executive, said the business looks forward to working with the new Labour government on tackling the UK’s housing crisis.
We welcome the new government’s urgency and focus on housebuilding and reform of the planning system as key to both unlocking economic growth and tackling the chronic undersupply of new homes. We look forward to working with government and wider stakeholders to address supply side constraints and deliver the new homes, of all tenures, the country needs.
Updated
Eye doctors say private cataract operations have hurt the NHS
The vast majority of eye doctors believe increased outsourcing of cataract operations to private clinics in England in recent years has negatively affected their NHS departments, research has found.
Almost three-quarters of ophthalmologists surveyed said that outsourcing of cataracts to the private sector had a negative impact on their NHS eye care departments, with 54% flagging a large negative impact and 16% a small one.
The survey of 200 eye doctors by the Centre for Health and the Public Interest (CHPI), shared with the Guardian, came after Wes Streeting, the new health secretary, pledged to divert billions of pounds from hospitals to GPs to “fix the front door to the NHS” and met junior doctors on Tuesday to try to end a long-running pay dispute.
Nearly 60% of the ophthalmologists polled said outsourcing had a negative impact on NHS staffing, 62% said the same for staff training, and 46% said it harmed the ability of public eye care departments to treat patients with more complex conditions. Issues raised about staffing included the loss of consultants, nurses and optometrists to the private sector.
Oil prices fall on easing US Gulf supply concerns, weak China inflation
Oil prices have fallen as the impact from Hurricane Beryl faded and inflation data highlighted weak consumer demand in China, the world’s biggest importer of crude.
Brent crude, the global benchmark, dropped by 50 cents, or 0.6%, to $84.15 a barrel while US West Texas Intermediate crude slipped by 0.5% to $80.99 a barrel.
There are signs that the Texas energy industry was little affected by Hurricane Beryl after it swept through the region on Monday, easing concerns over oil supply.
Suvro Sarkar, DBS Bank’s energy sector team lead, told Reuters:
Hurricane Beryl blowing over seems to be the biggest driver for the time being and an opportunity for traders to lock in some profits after a bullish run over the last two weeks.
The latest inflation figures from China showed annual consumer price inflation dipped to 0.2% in June from 0.3% in May despite Beijing’s measures to revive consumer demand.
Brent Falls After China Inflation Data
— TRADING ECONOMICS (@tEconomics) July 10, 2024
Brent crude futures dropped towards $84 per barrel on Wednesday, erasing earlier gains, as traders digested recent inflation data from China, the largest crude importer. Ch...
More here: https://t.co/NfyOcailXE pic.twitter.com/KkiFRFifuT
Introduction: Britons spend on rollercoasters and beaches over DIY and clothes; China inflation slows
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britons are cutting back on DIY and households goods purchases, but are splashing out on one-off treats such as holidays and days out, according to a report from TSB entitled How Britain spends.
There was a 9.2% increase in spending with airline and travel companies between January and June compared with a year earlier.
People spent more on entertainment such as concerts, theme parks, going to the cinema and theatre (up 5.1%), with spending on amusement parks jumping by 20.2%.
Spending in pubs is also up, by 7.2% — driven by spending over Easter and the May Bank holidays rather than during the euro tournament, as spending in pubs fell by 2.5% in June compared to May.
As people try to manage their household costs, many are shelving renovations or home improvement projects, with overall spending on DIY, electrical and furniture falling by 15.5%. They also spent less on new clothes, down 4%.
As food price growth has slowed, supermarket spending has risen by 3.4%.
The report, a six-monthly analysis of TSB debit card transactions, shows consumers spent £9.5bn in the first half of the year. While this is up 1.7% compared to the same period in 2023, it is lower than the rate of inflation of 2%.
Delphine Emenyonu, head of loans and credit cards at TSB said:
While many household budgets are under pressure, consumers are remaining optimistic – with many prioritising spend on treats such as holidays and entertainment.
Consumers are feeling more confident about their finances, and with a potential interest rate cut later in August, we may see increased spending levels in the second half of the year.
In China, consumer prices grew for a fifth month in June, but less than expected, while producer price deflation persisted, with domestic demand in slow recovery mode despite Beijing’s support measures.
The Chinese government has sought to revive consumer demand following a lacklustre post-Covid recovery but people remain worried about the housing downturn and job insecurity.
The consumer price index rose 0.2% in June from a year earlier, compared with a 0.3% rise in May, according to the National Bureau of Statistics. Economists had expected an annual rate of 0.4%. Food prices fell by 2.1% year on year despite supply disruptions caused by poor summer weather.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, said
The risk of deflation has not faded in China. Domestic demand remains weak.
The producer price index fell by 0.8% in June from a year earlier following May’s 1.4% decline.
Asian shares remained close to two-year highs hit at the start of the week. Japan’s Nikkei rose 0.6% to a new record high, while Hong Kong’s Hang Seng slipped by 0.1% and the Shanghai market fell by 0.57%.
Stocks have rallied on the back of growing expectations that the US Federal Reserve could start cutting interest rates soon, with Fed chair Jerome Powell saying yesterday that the US is “no longer an overheated economy”.
The Agenda
2.30pm BST: Bank of England chief economist Huw Pill speaks
3pm BST: US Federal Reserve chair Jerome Powell speaks
4.30pm BST: BOE policymaker Catherine Mann speaks on a panel at Manchester Business School
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