UK government seeking to "work together" with investors
The government has tried to strike a collaborative tone at a conference full of private equity and venture capital bosses this afternoon, despite tension over Labour’s plans to close a £500m tax loophole benefiting industry executives.
Speaking at the British Private Equity & Venture Capital Association (BVCA) Summit on Thursday, City minister Tulip Siddiq, issued a call for “action and collaboration” between government and the sector, saying:
“I really believe that it’s only by working together that we will deliver greater returns for private capital investors, scale up high growth innovative UK firms, and we will be able to deliver the change and the growth that our country desperately needs.”
However, she made no mention of Labour’s proposals to hike taxes on carried interest - which is the share of profits that fund managers in private equity and make on successful deals – to 45%, from 28% currently.
The party has said carried interest should be treated as income, since it is effectively a bonus for general partners, and should be taxed as such. It has estimated that doing so would help raise another £500m for government coffers.
However, the industry argues that carried interest is a key incentive for staff to find lucrative investment opportunities, including promising companies that are key to UK growth.
The government closed a four week consultation on the matter at the end of August, and is expected to announce its final decision on tax levels at the 30 October budget.
Closing post
Time for a recap…
A teenager has been arrested following a cyberattack on London’s public transport body last week in which some personal customer data was accessed.
The 17-year-old male from Walsall was detained last week, and has been released on bail.
TfL said it was contacting about 5,000 customers as a precaution to warn that their email and bank account details could have been accessed. It is understood to relate to those who had applied for refunds on journeys made using Oyster cards.
News of the arrest came as BT reveals it identifies 2,000 signals indicating a potential cyber-attack across its networks every second.
The UK telco says an “AI arms” race is developing between businesses bolstering their defences and increasingly sophisticated hackers.
The European Central Bank has cut interest rates in the eurozone again, but also trimmed its growth forecasts.
Britain’s fiscal watchdog has warned that the national debt could almost triple over the next 50 years, as the rising cost of an aging population and climate change push up borrowing.
John Lewis has declared it is on track for “significantly higher” full-year profits, after narrowing its losses in the first half of the financial year.
The owners of the Grangemouth oil refinery have confirmed it will shut by the end of June next year, in a blow to Scotland’s industrial base and the site’s 500 employees.
Here’s our news story about the latest developments in the TfL hack:
Shashi Verma, TfL’s Chief Technology Officer, has said that TfL did not expect any significant impact to customer journeys from the cyber attack but that some temporary disruption was possible.
Verma added that the transport operator was taking measures to improve security, including an all-staff IT identity check, saying;
“We ... are working at pace with our partners to progress the investigation.”
TfL: bank account numbers and sort codes for around 5,000 customers may have been accessed
Transport for London is warning customers that some personal data has been accessed through the hack.
TfL have emailed customers today, saying that they are “currently dealing with an ongoing cyber security incident” which was first detected on 1 September.
TfL says that “the situation is evolving”, and that it has identified that certain customer data has been accessed.
This includes some customer names and contact details, including email addresses and home addresses where provided.
Some Oyster card refund data may have also been accessed. This could include bank account numbers and sort codes for around 5,000 customers, TfL warns.
TfL adds:
If you are affected, we will contact you directly as soon as possible as a precautionary measure, and will offer you support and guidance.
Teenager arrested over Transport for London cyber attack
Newsflash: A teenager has been arrested in Walsall by the National Crime Agency, as part of the investigation into a cyber security incident affecting Transport for London (TfL).
The 17-year-old male was detained on suspicion of Computer Misuse Act offences in relation to the attack, which was launched on TfL on 1 September.
The teenager, who was arrested on 5 September, was questioned by NCA officers and has been bailed.
The NCA, which is leading the law enforcement response, says it is working closely with the National Cyber Security Centre and TfL to manage the incident and minimise any risks.
Deputy Director Paul Foster, head of the NCA’s National Cyber Crime Unit, says:
“We have been working at pace to support Transport for London following a cyber attack on their network, and to identify the criminal actors responsible.
“Attacks on public infrastructure such as this can be hugely disruptive and lead to severe consequences for local communities and national systems.
“The swift response by TfL following the incident has enabled us to act quickly, and we are grateful for their continued co-operation with our investigation, which remains ongoing.“The NCA leads the UK’s response to cybercrime. We work closely with partners to protect the public by ensuring cyber criminals cannot act with impunity, whether that be by bringing them before the courts or through other disruptive and preventative action.”
Last week, TFL was forced to cut some live data feeds serving travel apps such as Citymapper and TfL Go, as it dealt with the cyber-attack.
Updated
Q: What impact will lower interest rates have on the eurozone economy, given that some – if not most – of its problems are structural?
Christine Lagarde cites the new report from Mario Draghi into Europe’s competitiveness, which warns that Europe needs an €800bn EU investment boost and a new industrial strategy.
Lagarde believes the European Central Bank’s job would get easier if the proposals made by her predecessor at the ECB were implemented, saying:
“Mario Draghi’s report includes so many important structural reforms that are going to be the responsibility of governments that will require the leadership of the Commission and the leadership of those leaders in Europe who are determined to strengthen Europe, to give it more sovereignty, to give it more capacity.
“I’m really certain that monetary policy will do what it has to do, which is to provide price stability and to deliver on its mandate, while structural reforms are not the responsibility of a central bank, they are the responsibility of the government.”
Q: You say that rates must remain “sufficiently restrictive for some time”; how many times can the ECB cut interest rates until they are no longer sufficiently restrictive?
Christine Lagarde declines to speculate as to what the neutral rate of interest (known as r* in economic circles) might be.
She argues r* is an unobservable concept – but when the ECB gets close to it, it will have a better feel for it.
Q: Does the ECB welcome the news that Italy’s UniCredit has unveiled a 9% stake in Germany’s Commerzbank?
Christine Lagarde says the ECB doesn’t normally comment on such commercial moves, but also points out that “many authorities” had hoped to see crossborder mergers for some time.
It will be “very interesting” to see how the process unfolds in the weeks to come, she adds.
[This morning, the boss of Unicredit said its investment in Commerzbank has laid the basis for talks over a tie-up with the German lender].
Q: Will you know a lot more, or just a little, by the time of your next meeting in October?
Lagarde says there are just six week’s until October 17th, a “relatively short” period of time compared to previous intervals between meeting.
She reiterates that the ECB will be data-dependent, and is not precommitting to a specific path for rates.
Here are the new, lower, growth forecasts from the ECB today:
President Christine @Lagarde introduces the economic growth outlook for the euro area pic.twitter.com/jYYPKBswGp
— European Central Bank (@ecb) September 12, 2024
Reaching for a glass of water, Lagarde – who has a little cough - jokes “I drink to the future”.
Updated
Q&A begins: Lagarde says decision was unanimous
After Christine Lagarde reiterates the key points from her statement, we’re onto questions.
Q: Why did the ECB choose to cut its deposit rate by 25 basis points, rather than 50bp?
Lagarde says the decision to cut by 25 basis points (or a quarter of one percent) was unanimous, after the governing council had analysed the latest data.
That data gives the ECB confidence that inflation is heading towards its 2% target in a timely manner, she says.
[eurozone inflation fell to 2.2% in August].
Extreme weather events and the unfolding climate crisis could drive up food prices, which would be inflationary, Lagarde adds.
The risks to economic growth remain tilted to the downside, ECB chief Christine Lagarde warns.
Lower demand for euro area exports, due to a weaker world economy or an escalation in trade tensions, would weigh on eurozone growth, she points out.
Growth could also be hit if the lagging impact of tighter monetary policy is stronger than expected, she admits.
But on the other hand, if inflation falls faster than expected then growth could be higher.
Lagarde: We are not pre-committing to a particular rate path
Our interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission, Lagarde continues.
She declares:
We are not pre-committing to a particular rate path.
We are determined to ensure that inflation returns to our 2% medium-term target in a timely manner, Christine Lagarde tells journalists in Frankfurt, adding:
We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim.
Lagarde: wages are still rising at an elevated pace
ECB president Christine Lagarde is holding a press conference now to explain why the central bank has cut its benchmark interest rate by a quarter of one percent today.
She’s reading out the statement released half an hour ago, which explained that the ECB believes it is now appropriate to take another step in “moderating the degree of monetary policy restriction,” due to the inflation outlook.
Lagarde explains that the ECB’s headline inflation forecasts are unchanged (as flagged earlier), but adds that projections for core inflation have been revised up slightly.
Lagarde then warns that earnings growth is pushing inflation in the eurozone:
Domestic inflation remains high as wages are still rising at an elevated pace. However, labour cost pressures are moderating, and profits are partially buffering the impact of higher wages on inflation
KPMG: Faltering economic outlook has driven cut to eurozone interest rates
Europe’s “Faltering economic outlook” has spurred the ECB into action by cutting rates today, says Yael Selfin, chief economist at KPMG.
“Today’s decision to cut interest rates comes amidst a sluggish economic backdrop. Growth in the Eurozone has underperformed expectations with activity likely to weaken in the second half of the year. The ECB may have been wary of falling behind the curve, especially as growth in the Eurozone has lagged behind the US, with the Fed looking poised to cut rates next week.
Looking ahead, the path for interest rates remains uncertain, Selfin adds:
While there is widespread consensus on the Governing Council that policy restrictiveness should be eased, divergent views remain around the pace of cuts. We expect a further one in December this year, taking the deposit rate down to 3.25%. If the outlook weakens further, it will strengthen the case of more dovish policymakers to increase the pace of cuts in 2025, towards a terminal rate of around 2.25%.
President Lagarde once again gave little away in today’s statement, choosing instead to maintain flexibility ahead of the October and December meetings. This will allow the Governing Council to take stock of the data in the coming months as it considers its next move.”
Worryingly (although not surprisingly), the European Central Bank has also cut its growth forecasts.
ECB staff now expect the economy will grow by 0.8% in 2024, rising to 1.3% in 2025 and 1.5% in 2026.
This is a slight downward revision compared with the June projections, mainly owing to a weaker contribution from domestic demand over the next few quarters, the ECB says.
ECB staff projections now show a much weaker demand-side of the economy, but that having a muted impact on core inflation. This is interesting, especially as their external factors are largely unchanged. The priority of inflation over growth could leave them playing catch up soon
— Simon Harvey (@_SimonHarvey) September 12, 2024
The ECB has also decided to lower its other two key interest rates.
The interest rate on its main refinancing operations – the rate banks pay when they borrow money from the ECB for one week - falls from 4.25% to 3.65%.
And the marginal lending facility – charged when banks need overnight credit from the Eurosystem – drops from 4.5% to 3.9%.
[Back in March, the ECB decided that the gap between the interest rate on the main refinancing operations and the deposit facility rate should be 15 basis points.]
Updated
European Central Bank cuts interest rates
Newsflash: The European Central Bank has cut borrowing costs across the eurozone, from the second time this year.
The interest rate on the ECB’s deposit facility, which banks can use to make overnight deposits with the Eurosystem, has fallen from 3.75% to 3.5%.
The ECB’s governing council says:
Based on the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to take another step in moderating the degree of monetary policy restriction.
This is the second rate cut by the ECB this summer; it started lowering rates from their record high of 4 per cent in June.
The ECB says it remains optimistic that inflation will drop towards its 2% target in 2025, explaining:
Staff see headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026, as in the June projections.
Inflation is expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices will drop out of the annual rates. Inflation should then decline towards our target over the second half of next year.
More trouble in Europe’s car industry.
Manufacturer Stellantis has decided to suspend production of the fully electric Fiat 500 small car for four weeks due to sluggish demand.
In a statement, Stellantis says:
“The measure is necessary due to the current lack of orders linked to the deep difficulties experienced in the European electric (car) market by all producers, particularly the European ones.”
The 500 is made in the northwestern Italian city of Turin, the birthplace of the Fiat brand, at the historic Mirafiori plant.
The suspension of production will start on Friday, Stellantis said, adding it was “working hard to manage at its best this hard phase of transition”.
UK banks have agreed to open 350 “banking hubs” by the end of the parliament, following a meeting with City minister Tulip Siddiq today.
These hubs will offer services like paying in cheques, cash depositing and face-to-face conversations with a Community Banker.
The commitment will see around 230 hubs delivered by the end of 2025, with a further 120 rolled out by the end of the Parliament, according to the Treasury. The banks have also agreed to consider having printers in its hubs, to help people print off statements or documents.
Before the election, Labour pledged to open ‘at least’ 350 banking hubs over next Parliament, to help customers who have lost their local branch.
City Minister Tulip Siddiq says today:
“Banking hubs are a lifeline for local communities that have lost their final bank branch. I’m confident that the banks will deliver on the commitment made today, as well as take a more active approach to meeting the needs of local communities.”
TUC General Secretary Paul Nowak has issued a statement welcoming USDAW’s landmark victory at the Supreme Court against Tesco over proposals to ‘fire and rehire’ workers on less favourable terms.
“This is important victory for USDAW - and for workers across the country.
“Victorian-style employment practices like fire and rehire have no place in a modern economy.
“No company should force staff to reapply for their jobs on worse pay and conditions just to boost profits.
“This case is an urgent reminder of why we need the government’s Employment Rights Bill to be delivered in full.
“It’s time to end the Tories’ race to the bottom on workplace protections and to drive up labour market standards in Britain.”
Boots has promoted its retail director Anthony Hemmerdinger to take over from Seb James as managing director for the UK and Ireland in November.
Prior to joining Boots two years ago, Hemmerdinger was chief operating officer at Asda, where he spent six years. He previously held senior operational and strategy roles at Greene King, Sainsbury’s and Carphone Warehouse, after 17 years at Marks & Spencer.
James, who led the business for six years, announced that he was stepping down in June just days after it emerged that Boots’ parent group Walgreens Boots Alliance had decided against a sale or stock market flotation of the chain for the second time in two years.
The group has shut hundreds of stores and revamped its beauty departments under his leadership. Hemmerdinger said:
“I am honoured to be appointed managing director of Boots, one of the UK’s most trusted brands and a place where I began my retail career with my first Saturday job as a teenager.
Boots is a terrific business that holds a unique position at the heart of the UK’s health and beauty sector, and I am extremely proud of all we have achieved over the last few years.”
Tesco says it accepts the Supreme Court’s judgment in its ‘fire and rehire’ case.
A Tesco spokesperson explains:
“Our colleagues in our distribution centres play a really critical role in helping us to serve our customers and we value all their hard work.
“Our objective in this has always been to ensure fairness across all our DC colleagues.
“Today’s judgment relates to a contractual dispute brought on behalf of a very small number of colleagues in our UK distribution network who receive a supplement to their pay.
“This supplement was offered many years ago as an incentive to retain certain colleagues and the vast majority of our distribution colleagues today do not receive this top-up.
“In 2021, we took the decision to phase it out. We made a competitive offer to affected colleagues at that time and many of them chose to accept this.
“Our aim has always been to engage constructively with Usdaw and the small number of colleagues affected.”
Ed Miliband, the UK’s Secretary of State for Energy Security and Net Zero, says the government will provide support to Grangemouth workers losing their jobs when the oil refinery closes next year:
1/ It is deeply disappointing that Petroineos have confirmed their previous decision to close Grangemouth oil refinery.
— Ed Miliband (@Ed_Miliband) September 12, 2024
2/ We will stand with the workforce in these difficult times, that is why we are announcing a package of investment today.
— Ed Miliband (@Ed_Miliband) September 12, 2024
3/ This will help the workforce find good, alternative jobs, invest in the community and seek a viable industrial future for the Grangemouth site, with potential for future support from the National Wealth Fund.
— Ed Miliband (@Ed_Miliband) September 12, 2024
4/ Workers and their families should be in no doubt this is a Government that stands with workers, trade unions, and businesses to fight for jobs and investment in Scotland.
— Ed Miliband (@Ed_Miliband) September 12, 2024
Inflation in Ireland has dropped to its lowest level in over three years, which may cheer the European Central Bank as it prepares to announce its interest rate decision in a couple of hours.
Ireland’s Consumer Price Index (CPI) rose by 1.7% between August 2023 and August 2024, down from an annual increase of 2.2% in the 12 months to July 2024.
This is the first time since June 2021 that Ireland’s official measure of annual inflation, has been below 2.0%.
The head of the TUC, Paul Nowak, says Tesco’s defeat in its ‘fire and rehire’ case is “brilliant news”:
Brilliant news. @UsdawUnion wins significant ‘fire and rehire’ case.
— Paul Nowak (@nowak_paul) September 12, 2024
👏🏼👏🏼✊🏼 https://t.co/7S7K0QXji8
BT warns of AI arms race driving cyberattacks
BT has revealed that it identifies 2,000 signals indicating a potential cyberattack across its networks every second, and warned of an “artificial intelligence (AI) arms race” as hackers become more sophisticated.
The telecoms company - which owns mobile operator EE, the Openreach subsidiary that runs the UK’s broadband network and has international business operations - said that hackers are increasingly looking to weaponise AI for cybercrime.
BT’s digital surveillance of its networks has identified a more than 1,200% increase in new malicious scanning “bots” attempting to access systems in the last year.
The company said the surge reflects how cyber criminals are increasingly scanning for vulnerabilities through automated, “one time use” disposable bots, in an attempt to evade existing blocking and security measures.
“Today, every business is a digital business,” said Tris Morgan, managing director, security at BT, at the company’s Secure Tomorrow conference on Thursday.
“Tools like AI provide new routes of attack, but they can also be the first line of defence.”
BT said its data showed that web-connected devices are scanned over 1,000 times a day by known malicious sources.
The company said that while just over a fifth of scans are for legitimate security monitoring, 78% were malicious indicating that hackers are looking for weaknesses in the online systems.
BT said that its analysis shows that while the IT, defence, and financial services sectors are the most popular targets for cyberattacks, sectors such as retail, education and hospitality are becoming an increasingly popular target for hackers.
Recent high-profile companies targeted by cyberattacks include Transport for London, which last week was forced to cut some live data feeds serving travel apps such as Citymapper and TfL Go as a result.
No customer data was accessed and TfL said the incident was not a ransomware attack.
In June, US ticketing giant Ticketmaster, which is embroiled in a backlash over its dynamic ticket pricing strategy for the Oasis reunion tour, was hit by an attack that had the potential to affect hundreds of millions of customers.
Ben Owen, the former spy who fronts Channel 4’s Hunted, said that AI has not only lowered the bar for “rookie” hackers but is increasing the volume of possible attacks overall.
“Businesses are connecting more devices and adopting new AI tools every day,” said Owen, speaking at the event being held at BT’s Adastral complex near Ipswich.
“But hackers are using the same tech to break their defences. It’s an AI arms race that companies can’t afford to lose.”
Updated
Petroineos confirms Grangemouth oil refinery to close next year
Scotland’s oil industry has just been dealt a blow.
Petroineos has confirmed it will close Scotland’s only oil refinery, at Grangemouth, in the second quarter of next year, a spokesperson for the company said on Thursday.
Around 400 jobs will be lost as a result of the closure of the 150,000 barrel per day capacity oil refinery, located on the Firth of Forth. A total of 75 jobs will be retained at the site for when it is converted into a fuels import terminal, Reuters reports.
Petroineos announced last November that the Grangemouth oil refinery would cease operations as soon as 2025.
But there were hopes that jobs could be saved, after Keir Starmer described Grangemouth as a “real priority” in July, on his first visit to Scotland since he was elected as prime minister.
Updated
Paddy Lillis, Usdaw’s general secretary, has welcomed today’s Supreme Court ruling.
Lillis says:
“Usdaw has been determined to stand by its members in receipt of this valuable benefit that constituted a key component of their pay.
“We recognised that they had been afforded this payment because of their willingness to serve the business and it was on that basis that we agreed with Tesco that it should be a permanent right.
“When we said permanent, we meant just that. We were therefore appalled when Tesco threatened these individuals with fire and rehire to remove this benefit.
“These sorts of tactics have no place in industrial relations, so we felt we had to act to protect those concerned.
“We were very disappointed with the outcome in the Court of Appeal but always felt we had to see this case through.
“We are therefore delighted to get this outcome, which is a win for the trade union movement as a whole.”
Union wins 'fire and rehire' court case against Tesco
Over in the UK’s Supreme Court, a union has won a battle over Tesco’s plans to “fire and rehire” workers on less favourable terms.
Five Supreme Court justices have ruled unanimously today that Tesco should be blocked from dismissing staff at some distribution centres and rehiring them on lower pay, PA Media reports.
The case arose after Tesco planned to close some of its distribution centres in 2007 and offered staff increased “retained pay” for them to relocate.
In 2021, the chain wished to bring “retained pay” to an end and told staff that the enhancement would be removed in return for a lump sum, or their contracts would be terminated and then re-offered on the same terms, but without the increased salary.
The Union of Shop Distributive and Allied Workers (Usdaw) took legal action over the supermarket chain’s proposals. The High Court ruled in the union’s favour in 2022, but Tesco successfully appealed the decision the same year.
The union then took the case to the country’s highest court, and was successful today.
Usdaw argued that “retained” pay was described as “permanent” in the staff’s contracts, meaning it could not be removed.
Tesco argued that bosses were using a “contractual mechanism” open to employers.
In a judgment backed by Lord Reed, Lord Leggatt and Lord Lloyd-Jones, Lord Burrows and Lady Simler said:
“Objectively, it is inconceivable that the mutual intention of the parties was that Tesco would retain a unilateral right to terminate the contracts of employees in order to bring retained pay to an end whenever it suited Tesco’s business purposes to do so.
“This would have been viewed, objectively, as unrealistic and as flouting industrial common sense by both sides.”
Updated
The OBR’s new report also shows how fixing Britain’s health problems would lead to less spending and borrowing, and a lower national debt in half a century:
In our better health scenario borrowing is 3.7% of GDP lower and debt 44% of GDP lower in 50 years’ time.
— Office for Budget Responsibility (@OBR_UK) September 12, 2024
In our worse health scenario borrowing and debt are 4.1% and 49% of GDP higher respectively.#OBRfiscalrisks pic.twitter.com/hh2IP81vIv
Assuming governments continue to meet demand, public health spending will grow at over 3% per year on average over the next 50 years, around twice the real growth rate of the economy. As a result, it is projected to rise from 7.9% of GDP now to 14.5% of GDP by the 2070s.… pic.twitter.com/Gx7AxOoAKC
— Office for Budget Responsibility (@OBR_UK) September 12, 2024
The OBR are posting the key points from their new report on X (Twitter):
2024 Fiscal risks and sustainability report published – more highlights and charts to follow 📗 #OBRfiscalrisks
— Office for Budget Responsibility (@OBR_UK) September 12, 2024
Data and supporting documents now available on our website: https://t.co/407ehyLwkX pic.twitter.com/Co8gBQm6Lv
Public debt is projected to rise to over 270% of GDP over the next 50 years in our baseline forecast.
— Office for Budget Responsibility (@OBR_UK) September 12, 2024
Higher future rates of productivity growth can materially improve debt sustainability, but only if government doesn’t spend the proceeds.#OBRfiscalrisks pic.twitter.com/814awL7iFn
Based on current policy, the ageing of the population is projected to drive a growing gap between government spending and government revenue over the next 50 years, reaching over 20% of GDP by the mid-2070s.#OBRfiscalrisks pic.twitter.com/MrYKp3DcVa
— Office for Budget Responsibility (@OBR_UK) September 12, 2024
Government spending and revenues are sensitive to the age structure of the population. Net fiscal contributions are negative for most young people, turn positive during working age, before turning negative around the age of 70 as health and pension spending grows.… pic.twitter.com/TBbLRhJNRr
— Office for Budget Responsibility (@OBR_UK) September 12, 2024
UK population is also set to become significantly older over the next 50 years, owing to a declining birth rate and a rising life expectancy.
— Office for Budget Responsibility (@OBR_UK) September 12, 2024
The share of people of working age is set to fall from 61% to 58% while the share of people over 65 rises from 19% to 27%.… pic.twitter.com/705PTPevk5
Chief secretary to the Treasury Darren Jones has used the OBR’s new Fiscal risks and sustainability report as a weapon to berate the former Conservative government.
Jones says:
“The OBR has laid bare the shocking state that our public finances were left in by the previous government.
“Highest debt since the 1960s, highest taxes since the 1940s and debt on track to be almost three times our GDP.
“That’s why this Government began work immediately to address the inheritance with tough choices on spending alongside ambitious action to drive growth.
“By fixing the foundations, we will rebuild Britain and make every part of the country better-off.”
The OBR’s new report also shows that rising temperatures will hurt the UK economy in the decades ahead.
It estimates that around 3% would be knocked off real GDP in 50 years, in a scenario where temperatures rises are kept below 2°C – the goal of the Paris Agreement.
But if temperature rises are only kept below 3°C, real GDP would be around 5% lower by 2074.
Temperatures have risen by over 1°C and will keep rising until we reach #netzero emissions.
— Office for Budget Responsibility (@OBR_UK) September 12, 2024
We looked at 2 scenarios for the fiscal impact of climate-related damage:
One where countries ramp up mitigation to keep temp rises below 2°C. And one based on current policies (below… pic.twitter.com/YD03QlF2Rn
Updated
BUT! There are ways to prevent the debt load soaring so high, the OBR adds.
The fiscal watchdog explains that if governments tackle the growing pressures on the public finances today, that will lower the term costs.
Today’s report explains:
limiting the rise in global temperatures to less than 2°C rather than 3°C could alleviate around 10 percentage points of upward pressure on the debt-to-GDP ratio;
improving the health of the population could reduce the rise in debt by a further 40 per cent of GDP; and
boosting the productive potential of the economy, if it does not simply result in higher public spending, could make the biggest difference of all, with every 0.1 per cent increase in productivity growth reducing the rise in the debt-to-GDP ratio by 25 percentage points. A full 1 percentage point increase, equivalent to a return to prefinancial crisis rates of productivity growth, could keep debt below 100 per cent of GDP throughout the next 50 years.
UK public debt projected to almost triple by the mid-2070s
Newflash: Britain’s national debt is on track to almost triple over the next 50 years, the UK’s fiscal watchdog has warned.
In its latest Fiscal risks and sustainability report, just released, the Office for Budget Rsponsibility warns that the UK – and other countries around the world – face several long-term pressures, such as an ageing population, climate change, and rising geopolitical tensions.
Based on current policy and the latest demographic projections, public debt is projected to almost triple from under 100% of GDP to over 270% of GDP over the next 50 years, the OBR says.
It explains that the UK public finances will be hit by:
an ageing population, with a falling birth rate and the ‘baby-boom’ cohorts moving through retirement putting downward pressure on revenues and upward pressure on spending;
climate change, including the fiscal costs of completing the transition to net zero while also coping with damage from rising temperatures and more severe weather; and
rising geopolitical tensions, with both the previous and current UK Governments aspiring to raise defence spending to 2.5 per cent of GDP.
Those pressures, and other challenges, risk putting the UK public finances onto an “unstainable path” eventually, the OBR fears.
It says:
Over the next 50 years, public spending is projected to rise from 45% to over 60% of GDP, while revenues remain at around 40% of GDP. As a result, debt would rise rapidly from the late 2030s to 274% GDP in our baseline projection.
This chart shows the OBR’s projections.
The watchdog suggests that debt is projected to rise further to over 300% of GDP, when further shocks and pressures are taken into account [currently, the national debt is around 99.4% of GDP, or 91.9% of GDP if you exclude the Bank of England].
This is a sobering message for chancellor Rachel Reeves to digest as she draws up next month’s budget.
[Incidentally, last year the OBR warned that debt was on an accelerating trajectory to 310 per cent of GDP by the mid-2070s, so today’s forecasts aren’t a radical change].
The OBR suggests today that governments will need to take “mitigating policy action” to prevent a debt spiral taking hold. That means spending cuts or tax rises – or likely both.
The OBR says:
On our baseline projection, to return debt to its pre-pandemic levels would require an average fiscal tightening of 1.5 per cent of GDP per decade over the next 50 years.
Updated
Markets rally on interest rate cut hopes
European stock markets are rallying this morning, as traders anticipate an interest rate cut from the European Central Bank this afternoon.
Germany’s DAX index is up 1.1%, while France’s CAC 40 is 0.6% higher.
In London, the blue-chip FTSE 100 index hit a one-week high in early trading, and is currently up 71 points, or 0.9%, to 8265 points.
Analysts at RBC Capital Markets say it would be “a major surprise” if the ECB didn’t cut interest rates today by a quarter of one percent this afternoon.
They told clients:
The market is firmly priced for a 25bp rate cut at next week’, We and the analyst consensus are expecting a 25bp rate cut and most ECB speakers have already endorsed such a move.
IEA cuts 2024 oil demand growth forecast due to China slowdown
Slowing economic growth in China has prompted the International Energy Agency to cuts its forecast for oil demand this year.
The IEA has trimmed its 2024 oil demand growth forecast by 70,000 barrels per day (bpd), or about 7.2%, to 900,000 bpd.
That’s sharply lower than in 2023, when oil consumption rose by 2.1 million barrels per day.
In its latest monthly oil market report, just released, the IEA cites a slowdown in Chinese demand as the main driver of weaker global demand growth.
The report says:
The recent slowdown in China has seen its oil consumption declining y-o-y for a fourth consecutive month in July, by 280 kb/d.
The IEA now expects Chinese demand to grow by only 180,000 bpd in 2024 – citing a “broad-based economic slowdown” and an accelerating substitution away from oil in favour of alternative fuels.
Ryanair sees fares 5-10% lower for the rest of 2024
Budget airline passengers can look forward to lower fares this autumn.
Ryanair expects average fares to be 5% to 10% lower than last year for the remainder of this year, group chief executive Michael O’Leary told reporters before the Irish airline’s annual meeting on Thursday, Reuters reports.
Tonic maker Fevertree cuts revenue forecast due to wet weather
John Lewis isn’t the only company citing bad weather this morning.
Fever-Tree, the mixer maker, has reported that “poor weather in the second quarter across the UK and Europe” hit its revenues in the first half of this year.
Temperatures in June were dubbed “disappointing” by the Met Office, which will have deterred some drinkers from an outdoor G&T or ginger ale.
The company has now cut its sales forecast – it now expects revenue growth of about 4% to 5% this year, down from previous expectations of growth of about 10%.
Tim Warrillow, CEO of Fever-Tree, says the company has seen a much more positive trading performance in July and August, and are optimistic that growth will accelerate in the second half of 2024.
Warrillow says:
“The Fever-Tree brand performed well against a tough market backdrop. We continued to deliver double digit revenue growth in the US at constant currency, as well as a strong performance in our ROW region.
The first half performance in the UK and Europe was impacted by unseasonable weather at the start of summer alongside distributor order phasing in Europe, but we have seen a strong improvement in these regions as the summer belatedly arrived.
Shares in Fever-Tree have dropped almost 8% in early trading, to an eight-year low.
'Unseasonal weather' hits fashion sales at John Lewis
Sales of beauty products at John Lewis’s department stores rose in the last six months, today’s results show.
But fashion sales were hit by “unseasonal weather”, the company says, as well as the cost of living squeeze.
Other clothing retailers, such as Primark, have already reported that the wet and chilly summer hit sales.
Sales of homewear products were hit by lower demand for ‘big ticket’ items.
John Lewis adds that it “performed well in Technology”, particularly with sales of smart wearables and mobile phones.
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Retail analyst Nick Bubb has dug into John Lewis’s results, and reports:
We are delighted that JLP has at last gone back to its previous policy of allocating central and property costs against the two Divisions, so that the operating profit splits are now much more realistic.
We are, however, very surprised that Waitrose was much less profitable than we thought on this basis last year and that John Lewis was therefore much more profitable than we’d thought: the adjusted operating margin at John Lewis of 1.7% last year (on ex-VAT sales) was actually higher than the 1.5% achieved by Waitrose (despite its H2 recovery.
John Lewis: Profits should be "significantly" over £42m this year
John Lewis points out that it has historically delivered the majority of its profits in the second half of the year.
The company says:
As a result, we are confident that full year pre-exceptional profits should be significantly above the £42m we reported in 2023/24.
The stronger second-half performance is thanks to the Christmas sales boom (memorably driven by Monty the Penguin a decade ago), and the new year sales.
Today’s John Lewis results are the final set before chair Sharon White hands over the reins to her successor, Jason Tarry, the former UK boss of Tesco.
On White’s watch, John Lewis has been investing in refurbishing its stores – it will soon complete this work at its sites at Oxford Street, High Wycombe and Cheadle; and nine Waitrose stores.
It is also opening of a new convenience store in Hampton Hill in London soon.
OpenAI's valuation set to "hit $150bn" in new funding round
The value of artificial intelligence pioneer OpenAI appears to have almost doubled, according to reports, as the company seeks fresh resources in a new funding round.
Bloomberg reports that OpenAI – the organisation behind the ChatGPT chatbot and and the SearchGPT prototype – is in talks to raise $6.5bn from investors at a valuation of $150bn (£115bn).
The new valuation is significantly higher than the $86bn valuation achieved in a tender offer earlier this year, confirming OpenAI as one of the most valuable startups in the world.
It’s the latest sign that OpenAI has put last year’s boardroom disruption, which saw CEO Sam Altman fired and then rehired a few days later, behind it.
The increased valuation has been achieved despite concerns that the artificial intelligence bubble may have burst – given recent declines in tech share prices.
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Introduction: John Lewis Partnership narrows losses
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The John Lewis Partnership has declared it is on track to deliver “significantly higher profit” this financial year, as it tries to put a troubled period behind it.
In its latest financial results, John Lewis has reported that its losses halved in the first half of its financial year.
The company, which owns Waitrose as well as the John Lewis department stores, has made a pre-tax loss of £30m in the six months to 27 July, down from £59m a year earlier.
Strip out ‘exceptional items’, such as the cost of strategic restructuring and redundancy programmes, and losses are down by 91% to just £5m.
Nish Kankiwala, CEO of the John Lewis Partnership, says the company has achieved a “marked improvement” compared with two years ago.
These results confirm that our transformation plan is working and we expect profits to grow significantly for the full year, a marked improvement from where we were two years ago.
We continue to invest heavily in quality, service and value, and customers are responding well - with more people shopping with us and customer satisfaction increasing. While we have much more to do, we’re well set up for a positive peak trading period and on target to significantly improve our performance for the full year.”
Looking across the company, Waitrose grew its sales by 5% in the first half of the year, but sales at its John Lewis department stores fell 3% – blamed on “a slower external environment for general merchandise”.
John Lewis returned to profit in the last financial year (to late January) after three years of losses.
Kankiwala says:
While we have much more to do, we’re well set up for a positive peak trading period and on target to significantly improve our performance for the full year.
The company is hoping that bringing back its “never knowingly undersold” price promise will help it win sales in the crucial Christmas period approaching soon…
The agenda
This morning: Chancellor Rachel Reeves to meet with UK bank bosses
9.30am BST: UK’s Office for Budget Responsibility to release its OBR Fiscal Risks and Sustainability Report
1.15pm BST: European Central Bank interest rate decision
1.30pm BST: US weekly jobless claims
1.45pm BST: European Central Bank press conference
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