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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Deliveroo cutting 9% of staff; Bank of England governor pledges to get inflation down – as it happened

United States Housing Market Interest Rates England Inflation Treasury Committee United Kingdom RICS Huw Pill Bank of England

Closing post

Time for a recap…

Bank of England Governor Andrew Bailey warned that big increases in public sector pay would fuel inflation unless they were offset by tax increases.

Testifying to MPs today, Bailey acknowledged that a “wedge” has opened up between public and private sector pay. But he hinted that the BoE would have to tighten monetary policy more if pay settlements were financed by higher government borrowing.

Bailey told the Treasury Committee:

“The economics of it depends on whether you raise taxes or whether you borrow.”

Paying for higher wages in the public sector through increased borrowing would be a stimulant, Bailey added.

The governor also defended the Bank’s record on inflation, which soared to five-times over its 2% target, and pledged to get inflation back down to target.

But one policymaker, Silvana Tenreyro, warned MPs that the Bank had already raised interest rates too high. She could vote for a cut at future meetings.

Households could face more inflationary pressures this year, with Unilever, the company behind brands including Marmite and Dove soap, warning it will continue increasing prices for consumers this year.

Unilever denied it was making “windfall profits” during the cost of living crisis, though, despite hiking prices by over 11%, which knocked sale volumes down.

The UK telecoms regulator has launched an investigation into the industry-wide practice of hitting broadband and mobile customers with inflation-busting price rises of up to 17% and could bring in tougher protections against hefty mid-contract increases.

Deliveroo has become the latest tech company to announce staff cuts. The delivery group plans to cut 9% of its workforce, with CEO and founder Will Shu blaming “serious and unforeseen economic headwinds”.

Shu told staff:

In recent years we grew our headcount very quickly. This was a response to unprecedented growth rates supported by Covid-related tailwinds. By contrast, we now face serious and unforeseen economic headwinds

We have also recently exited markets, meaning we do not require the same size workforce to support our operations. Quite bluntly, our fixed cost base is too big for our business.

The publisher of the Beano and Scottish newspapers including the Press and Journal and the Courier is to cut almost a fifth of its workforce and shut almost 40 magazines as the economic downturn forces a digitally-focused “reset” of the business.

The UK’s blue-chip share index, the FTSE 100, has climbed to another alltime high this morning.

Standard Chartered led the index higher, after jumping over 10% on reports that First Abu Dhabi Bank could renew a potential takeover offer for Standard Chartered, once lock-up rules from its previous aborted bid expire.

Credit Suisse has scrapped its annual bonus for top executives after the scandal-hit Swiss bank reported its worst full-year loss since the 2008 banking crisis.

Shares in Google’s parent company, Alphabet, have tumbled after its artificial intelligence-powered chatbot gave a wrong answer in a promotional video.

Property sales and house prices continued to decline across the UK in January, while new buyer demand and fresh listings were also down, surveyors have reported.

Greenpeace is threatening to take legal action against the government as it emerged a target to lift millions of struggling households out of fuel poverty is likely to be missed.

And Rishi Sunak has been urged to funnel billions of pounds into free childcare to help get more parents into work, by the CBI.

Sunak and wife Akshata Murty have met parents, babies and toddlers during a visit to the St Austell Family Hub in Cornwall

Star Wars fan Sunak must have appreciated this outfit:

The publisher of the Beano and Scottish newspapers including the Press and Journal and the Courier is to cut almost a fifth of its workforce and shut almost 40 magazines as the economic downturn forces a digitally-focused “reset” of the business.

Dundee-based DC Thomson, which also owns businesses including the fashion title Stylist, is to cut 300 of its 1,600 workforce in a bid to shave £10m of costs.

The privately held company said that about half of the job losses will come from the complete closure of its operation in Colchester, home to subsidiary Aceville Publications, which produces about 20 to 30 magazines in sectors including gardening, health and food.

More here:

The latest inflation figures from Germany, this morning, added to hopes that price pressures are easing.

On an EU-harmonised basis, the German consumer prices index dropped to 9.2% per year in January, from 9.6% in December. That’s the lowest level in five months, with government efforts to protect households from soaring energy costs pushing inflation lower.

The US stock market has opened higher, with the Dow Jones industrial average gaining 257 points or 0.75% to 34,206 points.

The tech-focused Nasdaq Composite has gained almost 1%.

Google’s parent company, Alphabet, though has dropped by over 3%. That adds to Wednesday’s losses, when investors were alarmed that its artificial intelligence-powered chatbot gave a wrong answer in a promotional video.

Each of Deliveroo’s market will go through a different process to handle the job cuts, Will Shu says.

In the UK, the food delivery firm will be going through a collective consultation process on its redundancy proposals first.

Deliveroo founder Will Shu says the company needs to “demonstrate and accelerate a clear path to profits”, which means it must cut its costs.

In his message to UK staff announcing 9% of jobs are being cut, Shu says:

In recent years we grew our headcount very quickly. This was a response to unprecedented growth rates supported by Covid-related tailwinds.

By contrast, we now face serious and unforeseen economic headwinds. We have also recently exited markets, meaning we do not require the same size workforce to support our operations. Quite bluntly, our fixed cost base is too big for our business.

Shu adds that he takes responsibility for expanding too quickly, saying ‘macro headwinds’ had caught Deliveroo out.

He says:

This is my responsibility. I should have had a more balanced approach to headcount growth, but I thought stronger top-line growth would continue for longer than it has. I did not anticipate so many macro headwinds arriving all at once.

This is on me, and I will not be making the same mistakes going forward.

Updated

Deliveroo to cut 9% of workforce

Takeaway delivery firm Deliveroo is to cut around 350 roles, or 9% of its workforce, its founder has told staff.

The meal and food delivery firm said roles “at all levels of the company” will be impacted.

Will Shu, Deliveroo’s co-founder and chief executive, said the firm needed to “accelerate a clear path to profits.”

In a message to staff, he also admitted the company had grown too fast and had failed to anticipate the scale of a recent downturn.

Shu says:

Today I, unfortunately, have to make an extremely difficult announcement. We are starting a redundancy process across the company which could see around 9% of the company’s workforce (approximately 350 roles) leave, although we expect this to be closer to 300 with redeployments. Roles at all levels of the company will be impacted.

I’m sorry that we have to do this. Some of our close friends and talented colleagues will leave Deliveroo as part of this and it pains me that we have to do it. I have been through one of these processes once before. I said then that it was the hardest thing I’d ever done, and this is just as bad. But however much it pains me, I know it’s nothing compared to how those impacted will be feeling. We will do everything to support you.

Updated

The pound has jumped by over a cent against the US dollar today, despite suggestions that UK interest rates are close to peaking.

Sterling has risen to $1.219, up almost 1% today.

Mizuho senior economist Colin Asher said the pound was benefitting from increased risk appetite, as stocks rose to record levels in London.

He adds:

The new high for the FTSE has likely attracted some interest from overseas buyers.

Over in the US, new claims for unemployment benefits have risen slightly but are still low by historic standards.

There were 196,000 new ‘initial claims’ for jobless support last week. That’s an increase of 13,000 from the week before.

It suggests the US labor market is still pretty strong, despite recent increases in interest rates. In January, America’s economy added over 500,000 new jobs, much more than forecast.

Updated

The number of mortgage-holders getting into arrears increased in the final three months of 2022, according to a body representing lenders.

Across the UK, 75,170 homeowner mortgages were in arrears of 2.5% or more of the outstanding balance in the fourth quarter of 2022, which was 1% higher than in the previous quarter, UK Finance said.

There were also 6,060 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the fourth quarter of 2022, which was 5% higher than in the previous quarter.

It is far from certain that interest rates will go up on the 23rd of March, Professor Costas Milas of the University of Liverpool’s management school tells us.

Before deciding on the next interest rate move, MPC members will study carefully the forthcoming Bank of England Inflation Attitudes Survey which will be published on the 17th of March.

As things stand, and based on last November’s Survey, the public expects UK inflation to remain at 3.4% two years into the future. This is creating additional demand for higher wages and therefore higher inflation. The question is whether the public will believe the Bank’s latest assessment that UK inflation will be end up below 1% two years down the road.

If the public buys into that, the 17th of March Inflation Attitudes Survey will record a significant drop in public expectations of inflation which give MPC members a good excuse NOT to push with another interest rate hike!

Budget airline easyJet has seen a shareholder revolt today over its executive pay policies.

Almost 20% of votes cast at its Annual General Meeting today opposed easyJet’s remuneration report. That wasn’t enough to stop the report being approved, though.

The boss of easyJet, Johan Lundgren, was paid almost £3m in 2022, in the year when the airline made a £208m loss and cancelled thousands of flights because of staffing and other problems.

Lundgren received a £1.2m annual bonus and £925,000 in shares on top of his £833,000 fixed salary and benefits. The total package represented a pay rise of about 273% from 2021, when no bonus was paid during the Covid pandemic, as our transport correspondent Gwyn Topham reported here:

The boss behind the Lucky Strike and Dunhill cigarette brands has said that thousands of jobs at the company’s traditional business will be lost in the coming years as the firm focuses on vapes and other new products.

British American Tobacco chief executive Jack Bowles told PA Media that thousands of people will lose their jobs at the company within the next few years, but he is also recruiting others for the new categories business.

Bowles said:

“We have to adapt our structure as we go along, and we have to make sure that we hire a lot of new capabilities and a lot of new people.

“In the course of the next two years a few thousand people will have to go because we continue to reorganise and optimise.”

Bowles also said that sanctions are making it more difficult to sell the Russian part of the business, having pledged to pull out of the country in March 2022 after the Ukraine war began.

Updated

Volvo: no plans to cut EV car prices

Volvo chief executive Jim Rowan has said the company has no plans to cut prices of electric cars, after moves by Tesla and Ford led some analysts to predict the first battery vehicle “price war” was brewing.

The Swedish carmaker reported today that 11% of its total sales were electric in 2022, up from 4% the year before, as it aims to sell only electric vehicles by 2030.

Volvo’s revenues rose 17% year-on-year to 330bn Swedish krona (£26bn), although its pre-tax profits dipped by 16% amid “supply constraints, lockdowns in China and elevated material and logistics costs”, it said.

Rowan said “we don’t have any intention at this point in time” when asked about the possibility of price cuts. He said companies making “entry-level” cars might need to drive demand amid slowing economies, but said the more expensive, premium market targeted by Volvo was not as affected.

He said:

“Our demand is backlogged, so we have more demand than in a very long time.”

The car industry is braced for its first taste of falling demand for electric vehicles as the economies of major markets slow. While that could harm carmakers’ earnings, it could also benefit consumers if it leads to lower prices for electric cars, which are still more expensive to make than their petrol or diesel equivalents.

However, Volvo’s chief financial officer, Johan Ekdahl, acknowledged that lithium price increases prompted by Russia’s invasion of Ukraine may have delayed the point when it costs the same to make a battery car as it does to make an electric vehicle. Lithium is a key material for batteries.

“It’s making it harder to reach cost parity,” Ekdahl said on a call, adding:

“We firmly believe over time the cost of lithium will come down.”

Rowan, who joined Volvo from vacuum cleaner maker Dyson, said traditional carmakers still had “a lot of engineering opportunities to take out costs” when transitioning to designs and factories dedicated to electric vehicles.

AstraZeneca CEO say UK business climate deterring investment

Away from parliament, the boss of AstraZeneca has warned that the UK’s business climate and tax rates is deterring pharma companies from investing in the country.

Pascal Soriot said that Britain’s uncompetitive fiscal policies led the pharmaceuticals giant to shift plans for a $400m new manufacturing facility from the UK to Ireland.

Reuters has the details:

CEO Pascal Soriot gave list of reasons why the UK government’s ambition to be a global life sciences hub has hit snags, telling a news conference: “We want to invest in the UK… but we need to see supporting policies for the whole industry.”

While Britain has world-class research capabilities, he said it lacked other requirements to make it a life sciences centre - such as regulatory experts, manufacturing incentives, and access to green energy.

Without those elements, he said, companies like his will develop drugs in other markets “where you know you’re going to get access and you’re going to get a price that can justify the investment”.

Soriot said access to clinical trials was also an obstacle, saying trials were delayed because the NHS is overwhelmed.

He explained:

“It’s also a question of can we execute our clinical trials, do we want to invest and are we going to get the appropriate returns?”

Updated

Conservative MP Danny Kruger has asked the Bank of England what it’s doing to make Brexit a success.

Andrew Bailey says that as a public official, he is neutral on the issue, and the question was decided by the people in the 2016 referendum.

The governor says it’s been hard to tell the impact of Brexit on trade – but the negative impact does seem to have come through “rather more quickly” than expected.

Over time, the economy will adjust, he says.

MPS member Silvana Tenreyro says the Bank’s job is to get inflation down to the 2% target, that’s how it helps the economy. It can’t affect the productive side of the economy, the supply side – that’s for government to do.

Tenreyro: I would consider voting to cut rates

Bank of England rate-setter Silvana Tenreyro says she would consider backing a cut in interest rates.

She repeats her earlier point that interest rates are too high, as most of the tightening of policy has yet to feed though.

Tenreyro, who voted to leave interest rates at 3.5% last week, tells the Treasury committee she won’t commit to the timing of such a vote:

“Where things stand right now, I would see myself considering a cut.

I don’t want to talk about the particular meeting, because meeting to meeting doesn’t make much of a difference.

The Bank’s next interest-rate meeting is in late March. The money markets suggest a quarter-point rate rise, to 4.25%, is a 55% chance, while ‘no change’ is a 45% possibility.

Bailey won't say he's 'vindicated' over pay rise warning

Andrew Bailey is then asked whether he feels ‘vindicated’ after calling for workers not to seek big pay rises a year ago.

That was in the context of “excessive pay rises” that were ahead of inflation, the BoE governor replies firmly.

He explains that the energy price shock has made the UK poorer.

Unfortunately the nature of the UK’s terms of trade shocks are that the country is worse off, as a whole.

No I won’t say I’m vindicated. It is a very difficult situation for people in this country, particularly for those on low incomes.

Updated

Q: What is your message to the public, given you’ve raised interest rates again this month despite predicting that inflation has peaked?

Andrew Bailey replies that he does think inflation has ‘turned the corner’, as it is lower than expected back in November.

Plus, ‘very strong negative base effects’ (the surge in energy prices a year ago) will bring inflation down this year.

But, he reiterates, there is ‘substantial uncertainty’ over where the labour market, and price-setting, are going.

His view is that the risks are to inflation being higher than forecast – thus another rate rise was justified.

Huw Pill also says it’s possible that public sector pay rises at, or above, the rising cost of living would add to inflation.

The bank’s chief economist says:

There is certainly the potential for that to happen.

If that happens, our job is to ensure it does not lead to inflation, by responding to it with tighter monetary policy.

Updated

It’s not unreasonable to look for perfection from the Bank of England, says chief economist Huw Pill.

Pill, who joined the Bank in September 2021, tells the committee:

Of course we strive for perfection, but we will fall short.

Pill argues that the Bank has got “the big questions right” – by starting to raise interest rates at the end of 2021, and then accelerating that tightening in response to the energy shock.

Pill then warns of the risk of doing too much on interest rates, and ‘oversteering’ the economy.

Updated

Q: What would be the impact on inflation if the government agreed inflation-matching public sector wage claims, paid for through borrowing?

Andrew Bailey says this would cause a stimulation, due to fiscal effects. And the Bank would have to take that into account in its decisions.

Bailey says:

So yes, it would have an effect if we do that.

Q: Would that effect include higher interest rates?

Bailey says he only wants to “lay out the channels", as this is a “very sensitive subject”. He’s not advocating government policy.

Bailey: inflationary impact of public sector pay rises depend on how it's funded

Q: What are the inflationary risks from public sector pay rises? Would that fuel wider inflation?

Andrew Bailey says that there is “quite a big wedge” between public and private sector pay increases (with the public sector lagging far behind).

The impact of public sector pay rises, the governor explains, depend whether it is funded by borrowing or taxation.

Bailey says:

In terms of demand effects, it does depend how it’s funded.

Bailey says the Bank doesn’t want to wade into this territory, and he ‘isn’t advocating anything’, but…

The economics of it, depend whether you raise taxes or whether you borrow, frankly.

Updated

Andrew Bailey then defends last week’s interest rate increase, saying there is “substantial remaining uncertainty” over domestic inflation.

He cites the rise in inactivity in the labour market, as some workers (often the over-50s) have left the jobs market. That will lead to upward pressure on wages, as firms try to find workers.

Bailey says he does believe the UK has ‘turned the corner’ on inflation, but needs to see more evidence that this is happening.

Tenreyro: interest rates are too high.

Silvana Tenreyro is then asked why she voted to leave interest rates at 3.5% at last month, opposing the rate rise to 4%.

Tenreyro explains that monetary policy works with a lag – only a fifth of the previous monetary policy tightening have actually reached the real economy, she says.

“In my view, yes, rates are too high right now.

That’s why I didn’t support the vote.

Q: How confident is the Bank that inflation will fall this year, Conservative MP Anthony Browne asks.

Jonathan Haskel says the Bank’s forecasts, released last week, show inflation dropping from 10% at the start of 2022 to around 4% by the end.

We can be ‘reasonably confident’ that energy prices will fall, due to the way Ofgem’s price cap works, Haskel says.

But if there were another significant shock (as Andrew Bailey warned earlier), inflation could pan out differently.

Silvana Tenreyro agrees that the fall in GDP is pretty much guaranteed, due to the factors she explained earlier – unless there is an external shock.

Tenreyro says:

“Unless there is another big development that we don’t know about - and we have a massive energy shock or something that is not on the cards - then I think they fall in inflation is pretty much guaranteed.”

Updated

MPC member Jonathan Haskel points out that the Bank of England was worried about the Omicron variant of Covid-19 last winter.

Haskel reminds the committee that Omicron was a “major threat” at that time.

We now know that the vaccine was robust against Omicron, but we didn’t know that then.

Haskel explains that the Bank took advice from England’s chief medical officer, Chris Whitty, “the best advice in the land”.

Haskel says he asked Whitty what would happen if Omicron had escaped the vaccine, as had been feared when it emerged in South Africa.

Whitty explained that if that happened, the vaccine would need to be reengineered, which would take three to six months, and the vaccination programme would need to begin again. Fortunately that didn’t happen.

Tenrehro: Three reasons why inflation will come down

Q: The Bank’s monetary policy report shows services inflation at a new high. Haven’t second-order effects become much more deeply embedded in the economy, and won’t they be much harder to remove?

MPC member Silvana Tenrehro explains that to hit the Bank’s 2% inflation target, services inflation must come down, from 6.8% at present to 5%. That is possible, she says, for three reasons.

She explains that inflation in areas of services which are not energy-intensive has been below 5%. Naturally, as energy prices fall, there will be a direct slowdown in services inflation, she explains.

Second, there’s already signs of a slowdown in wage growth.

Thirdly – monetary policy will cool demand.

Professor Tenrehro explains:

We have tightened policy significnatly over the last year, and that’s going to have a large impact on demand and on the labour market.

That’s why the Bank is forecasting inflation will be below its 2% target in its latest forecast, she explains.

MPC policymaker Silvana Tenreyro tells the committee that the energy shock, not the tight labour market, was the main factor driving up inflation last year.

When inflation hit at 11% last year, eight percentage points came from energy. The remaining three percentage points came from services, she tells the committee.

So, to have inflation at the 2% target last year, service sector inflation would have been deeply negative – at around -15%, she has calculated.

Tenreyro explains to MPs that this would have required a major slump:

As you can imagine, deflation of 15% in services would require a massive recession, much bigger than after the great financial crisis.

Chief economist Huw Pill is now quizzed about his written testimony to the committee today, which points out that the Bank’s agents were flagging labour market tightness in autumn 2021 (leading to higher wage settlements), when the Bank was resisting raising rates.

Pill insists his testimony is consistent with Andrew Bailey’s explanation a few minutes ago for why the Bank didn’t start to raise interest rates until December 2021.

Pill says there were concerns that ending the furlough scheme would push up unemployment, with an estimated three-quarters of a million people on the programme.

Looking back…we faced a very specific and very uncertain environment in the labour market, associated with the end of the furlough scheme.

Pill says he favoured waiting for official unemployment data to come in, at the end of 2021, which showed that ending furlough had not pushed up joblessness.

Baldwin’s point is that there was contemporaneous evidence, from the Bank’s own agents around the UK, that the labour market was strong.

Updated

Bailey: We will get inflation down

Harriet Baldwin MP continues to challenge the Bank over its record in controlling inflation.

Q: Inflation was running at 6% in this country on the day Russia invaded Ukraine, and interest rates were at 0.5%. Do you think now that the risk to inflation was always more to the upside than downside, given monetary policy at the time?

Andrew Bailey says the Bank of England was still ‘wrestling’ with the question about how transitory the shocks hitting the UK economy would be.

We changed our view on that as we went through the summer, the BoE governor adds.

Q: How can people be confident that the Bank has made the right judgements, at the right time? Public polling shows there’s quite a high degree of public dissatisfaction over the Bank’s track record.

Governor Bailey says he can “quite understand” the public polling.

Our job is to get inflation back down to target.

The public will, of course, expect us to do that. And we will do it.

I’d expect that to be reflected in public polling, he adds:

I would, of course, expect the public to say ‘it’s your job to get inflation down to target’ and my response is ‘yes it is, and we will do it’.

Baldwin won’t let the governor get away with that!

“Actually, it’s your job not to let inflation get to this level of second-round effect”, she points out. [’second round effect’ mean the increase in wages as workers chase inflation-matching pay rises].

Bailey challenges this, insisting that there are plenty of first-round effects driving inflation at the moment.

The Bank expects annual inflation rate to fall this year, as ‘base effects’ unwind (as we catch up with price surges a year earlier).

Bailey predict inflation will be below 5% by the end of this year.

Please forgive the committee for being “slightly sceptical”, Baldwin shoots back, given how often the Bank’s projections have been incorrect in the past.

Updated

Governor Bailey: Judgements have been 'very difficult' amid several shocks

Treasury committee chair Harriet Baldwin begins, by reminding the Bank of England’s top brass that inflation is five-times over their 2% target, with food inflation over 16%.

Q: Do you accept that the Bank has made mistakes in this tightening cycle, and raised rates too late and too slowly, so it will be harder to bring inflation back to target?

Governor Andrew Bailey says the Bank doesn’t have the benefit of setting policy with hindsight, and embarks on a long defence of the Bank’s strategy.

There have been several ‘very big shocks’ hitting the economy in the last three years, he points out. He cites the “supply chain shock” when the recovery from Covid began.

That shock peaked at the end of 2021, he says.

But, two other big shocks also hit the economy – including the Russia-Ukraine war, which has been the ‘dominating’ shock this year. He doesn’t think anyone could have predicted this conflict, until close to it actually happening.

Inflation is still expected to fall rapidly this year, Bailey says.

The third shock, Bailey says, is the UK’s labour market, where there has been a decline in labour market participation.

Bailey tells MPs:

We’ve got a very tight labour market, We’ve had a fall in participation and it hasn’t recovered.

Baldwin challenges this argument, pointing out that Bailey told the committee in May 2021 that there were “hotspots” in the economy. And yet the Bank left interest rates at the record low of 0.1% until the end of 2021, and kept its quantitative easing stimulus programme.

Bailey says these hotspots were due to the global supply chain shock, and the reopening of the UK economy. The Bank felt they were tempory, transient, effects, rather than permanent.

But, Baldwin points out, inflation had hit 5.1% by November – then the governor said he was ‘very uneasy’ about the situation, but the Bank left rates at 0.1% until December.

Bailey says the Bank was watching for the impact of ending the pandemic furlough scheme, and the effect of the Omicron, at the end of 2021.

He says the Bank has faced some ‘very difficult’ judgements, telling the committee:

We were seeking to balance these various conflicting and countervailing presures at that time, and to assess what was happening in the labour market as the million jobs on furlough unwound.

Those were very difficult judgements.

Bailey adds that the Bank of England was the first major central bank to start tightening monetary policy (when it raised rates to 0.25% in December 2021). Other central banks were facing these multiple shocks too.

This was a challenge that others were having too.

Bank of England session begins

Over in parliament, the Treasury Committee is starging to quiz some of the Bank of England’s top officials.

MPs will be questioning the BoE over last week’s monetary policy report, and its decision to raise UK interest rates to 4%, the highest since 2008.

At the witness table, we have governor Andrew Bailey, chief economist Huw Pill, and two external policymakers (ie experts recruited from outside the Bank) - professor Silvana Tenreyro and professor Jonathan Haskel.

As flagged in the introduction, MPs plan to discuss the Bank’s record on combatting the outbreak of double-digit inflation, and whether we have reached its peak.

The committee adds:

MPs are likely to explore the outlook, risks and expectations for inflation, and the likelihood of future interest rate rises, as well as exploring dissenting views on interest rate policy within the MPC and the risks of over-tightening.

Other likely topics for discussion include how energy and commodity prices are impacting inflation, the Bank’s forecast of a UK recession and slow recovery, and the MPC’s approach to the sale of the £875bn it held in Government bonds, known as quantitative tightening.

Next stop 8,000 points on the Footsie?

At the current rate, we could see the FTSE 100 break through the 8,000 level by early next week,says Russ Mould, investment director at AJ Bell.

This would represent “a long-overdue victory for the UK stock market,” Mould says.

He explains that “renewed takeover chatter in the banking sector, a well-received set of results from AstraZeneca and another leg up from the energy sector” lifted the blue-chip index to a fresh record (now 7945 points) today.

Mould says:

“Reports suggest First Abu Dhabi Bank is still interested in buying Standard Chartered, despite guidance to the contrary last month.

“If successful, it would represent yet another UK stock acquired by a foreign player. It would also play to the theory that industry players are more likely to buy UK-listed companies than private equity in the current environment.

“Whereas the sharp rise in the cost of debt has made life harder for private equity to do leveraged deals, a lot of businesses have come out of the pandemic in a robust financial shape and have plenty of cash on their books to buy rivals in their respective sectors.”

Updated

Strikes are again disrupting travel for UK holidaymakers – but this time, the industrial action is across the Channel.

Ferries on the Dover-Calais route have been halted for at least nine hours today, due to ‘national action’ in France as workers protest against plans to lift the pension age to 64.on age by two years to 64.

The Port of Dover says:

Due to national action in France on the 09/02/23, there will be no ship movements in the port of Calais and all sailings will be suspended between 08:00 and 17:00.

Sailings to Dunkirk have not been affected, though, the Port of Dover adds.

The closure comes the day before many schools in the UK break up for half term, points out travel journalist Simon Calder.

He adds:

Families heading for French, Swiss and Italian ski resorts typically take ferries to Calais on Friday evening to arrive in the Alps by Saturday.

FTSE 100 hits record high as takeover talk lifts Standard Chartered

The FTSE 100 share index has just hit a new record high as takeover speculation swirls in the City.

The blue-chip share index has jumped by 0.65% this morning to 7937.33 points, above yesterday’s intraday high of 7934.30.

Asia-Pacific focused bank Standard Chartered is the top riser, jumping over 7% this morning.

This follows a Bloomberg report that First Abu Dhabi Bank (FAB) is pressing ahead with a potential offer for Standard Chartered, as it tries to become a global financial powerhouse.

According to Bloomberg, FAB — which is worth about twice as much as Standard Chartered — is exploring an all-cash bid of in the range of $30bn to $35bn, according to sources.

Bloomberg say:

Under the code name Silver-Foxtrot, officials at the Abu Dhabi bank are working under the radar on a possible bid once a cooling off period required by UK takeover rules elapses, according to people familiar with the matter.

FAB, as the bank is known, recently completed due diligence on the London-based lender, the people said, asking not to be identified because the matter is private. Any deal would be dependent on market conditions and the performance of Standard Chartered’s share price, they said.

More here: StanChart Is Still in Play as Abu Dhabi’s FAB Explores $35 Billion Offer

Gambling firm Entain is weighing on the FTSE 100, though. Entain shares are down 10%, after MGM Resorts confirmed that it has “moved on” regarding its interest in Entain, according to reports.

Updated

Consumer goods giant Unilever expects price growth throughout 2023

Consumer goods maker Unilever has warned that cost inflation will continue this year, which will concern the Bank of England as it tries to tackle the cost of living.

Unilever, which makes Marmite, Hellmann’s mayonnaise and Magnum ice creams, has already hit consumers with higher costs in the shops.

Unilever’s final results for 2022, released this morning, shows that prices jumped by 11.3% over the last year. Sales volumes fell by 2.1%, as customers sought out cheaper alternatives, but that still gave the company underlying sales growth of 9%.

Outgoing CEO Alan Jope says:

“Unilever delivered a year of strong topline growth in challenging macroeconomic conditions. Underlying sales growth was 9.0%, driven by disciplined pricing action in response to high input cost inflation

Unilever expects its costs to rise by around €1.5bn in the first half of 2023. Cost inflation is expected to slow in the second half, but Unilever does not expect cost deflation.

Unilever shares have risen slightly this morning, up 0.4%.

Jope will be succeeded by Hein Schumacher, head of a Dutch dairy co-operative.

Richard Hunter, head of markets at interactive investor, says Unilever has, again, provide steady growth without “shooting the lights out”.

The incoming CEO may have set his sights on revitalising business performance, but in the meantime Unilever continues to play to its strengths in a reliable manner.

The sheer pricing power of the group’s portfolio of household brands enables a good proportion of costs to be passed onto consumers, without overly affecting volumes.

UK's Bellway cuts back on homebuilding plans amid tough market conditions

A second housebuilder, Bellway, has also reported that demand slowed at the second half of last year.

Bellway has told the City this morning that its reservation rate fell by almost a third in the August-January period, to 138 per week, down from 202 a year earlier, due to “weaker private demand”.

Bellway says:

Elevated mortgage rates and the end of Help-to-Buy have contributed to a 43.8% decrease in the private reservation rate to 91 per week.

This was partly balanced by Bellway “accelerating the construction of social homes.”

Bellway now plans to build fewer houses this financial year. Around 11,000 homes are expected to be constructed in the year to 31 July, down from 11,198 a year earlier.

And due to the uncertain near-term economic outlook remains uncertain, Bellway has imposed a freeze on new recruitment and is limiting land approvals.

Jason Honeyman, Bellway chief executive, explains:

Following our Preliminary Results in October 2022, we experienced a period of weaker trading through to the end of December, with affordability constrained by higher mortgage rates and economic uncertainty affecting consumer confidence.

Since the start of the new calendar year, mortgage rates have fallen from their recent peak, and we have been encouraged by a seasonal increase in visitor levels and an improvement in reservations.

Housebuilder Redrow withdraws its guidance for 2024

UK housebuilder Redrow has withdrawn its financial guidance for 2024 due to changing market conditions, and warned that this year will be ‘challenging’.

Redrow has told the City that “economic and political uncertainty” led to a fall in sales in the second half of 2022.

Its sales rate fell to 0.38 private reservations per outlet per week in July-December 2022, down from 0.64 a year earlier. Mortgage rates rose sharply last autumn, hitting demand, as the disastrous mini-budget spooked the City.

Revenues in the second half of last year dropped by £21m to £1.031bn, while pretax profits shrank by £5m to £198m, Redrow reports.

Redrow says demand has picked up so far this year, to 0.51 private reservations per outlet per week, which it calls an “encouraging start” to the second half of its financial year.

But, the housebuilder has trimmed its forecast for revenues in the full financial year (to the end of June) to £2.05bn from £2.1bn previously.

It adds:

Due to the recent change in market conditions the Company has withdrawn its guidance for 2024.

Matthew Pratt, chief executive of Redrow, says:

We have experienced a positive start to second half trading. Whilst 2023 will be a challenging year as the market resets, early indications are better than anticipated and the market appears to be finding a new, natural level.

Updated

UK housing market cools: what the experts say

UK house prices are falling as the market adjusts to falling demand and rising mortgage rates, economists say.

Simon Rubinsohn, chief economist at RICS, says today’s poll of surveyors shows that the market remained muted in January:

“Although some respondents to the January RICS survey have noted a little more interest in the housing market as the new year got underway, the overall tone of the feedback still remains subdued which is not altogether surprising given the jump in mortgage rates since the autumn.

“Prices, meanwhile, are now beginning to reflect the shift in balance between demand and supply.

“However, it is questionable how much downside to pricing there is likely to be given that recent macro forecasts from the Bank of England and others are now envisaging a less harsh economic environment this year.

Victoria Scholar, head of investment at interactive investor, predicts borrowing could pick up later this year:

“The Royal Institution of Chartered Surveyors (RICS) house price balance fell to -47 from -42 in December. The data fell to the lowest level since April 2009 as potential buyers hold off amid expectations that property prices will cool further this year and borrowing rates will ease.

While house prices look set to fall this year, a chronic shortage of supply and an improving view on the outlook for the UK economy look set to prevent a more painful slide. With the Bank of England approaching the peak for interest rates and mortgage lenders having to price competitively amid the drop in demand, there could be a pick up in borrowing later this year, particularly if inflationary pressures on the cost-of-living continue to ease.”

Jeremy Leaf, north London estate agent, confirms that demand has weakened:

’There’s no doubt that demand is not what it was just a few months ago following sharp rises in interest rates and lives costs particularly.

‘However, on the ground, we’ve noticed more need to, rather than want to, move buyers as mortgage repayment and job prospects become less daunting than previously envisaged.

’There is some serious haggling underway but we’ve seen a softening in prices rather than a correction while supply is slowly improving. Reduced competition means transaction numbers are down, taking longer and are more fragile.’

But, Tom Bill, head of UK residential research at estate agents Knight Frank, says the market has calmed this year:

“The first few weeks of 2023 bear little resemblance to the chaotic final three months of last year in the UK housing market.

Mortgage rates have stabilised, pre-existing buyers are cautiously reactivating plans and new buyers are coming to terms with the ‘new normal’ in the lending market. Some of the house price growth that took place during the pandemic will unwind but as the shock of the mini-Budget fades, demand is proving more resilient than expected.”

Updated

UK property demand declines as house prices in England fall, says RICS

Property sales and house prices continued to decline across the UK in January, surveyors have reported.

Demand from new buyers and fresh listings were also down last month, the latest monthly snapshot from the Royal Institution of Chartered Surveyors (Rics) shows.

This is the ninth monthly fall in new buyer inquiries in a row, while price falls were the most widespread since 2009.

Rics said all the indicators point to a further slowdown in the housing market in the coming months, as borrowing costs have risen sharply.

Its monthly poll found that:

  • Buyer enquiries, agreed sales and new instructions remain on a downward trend

  • Tenant demand sees an increase at the same time as landlord instructions fall

  • House prices decline further in all regions with the sharpest decline found in the East Midlands and South East

My colleague Julia Kollewe explains:

The Rics survey measures the difference between the number of estate agents and property surveyors reporting increases and those experiencing decreases in different areas of the property market.

The volume of fresh listings coming on to the market was also down, according to the survey, with a net balance of -14% respondents reporting a decline in new instructions during January.

Meanwhile, the latest feedback on national house prices points to another monthly decline, as the net balance weakened further to -47% compared with a reading of -42% in December.

All regions of England are seeing house prices retreat at present, with the sharpest drops reported across the east Midlands and the south-east.

Introduction: Bank of England faces grilling at parliament

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

MPs are to quiz the Bank of England this morning, after the UK central bank raised interest rates for the 10th time in a row last week.

The Treasury Committee are concerned that the Bank may be “behind the curve on inflation”, after it climbed to double-digit levels last autumn.

MPs are likely to explore the outlook for inflation, and the chances of future interest rate rises. They may also touch on the dissent at the Bank – as only 7 of the 9 members of the Monetary Policy Committee supported last Thursday’s rate rise to 4%.

Other likely topics for discussion include how energy and commodity prices are impacting inflation, the Bank’s forecast of a UK recession and slow recovery, and how the MPC will handle the sale of the £875bn of government bonds on its books (the process known as quantitative tightening).

BoE governor Andrew Bailey will be in the hot seat, alongside chief economist Huw Pill, and policymakers Silvana Tenreyro (who voted to hold interest rates at 3.5%) and Jonathan Haskel. The session begins at 9.45am.

Since last week’s rate rise, Pill has warned against raising borrowing costs too high, while MPC member Catherine Mann has predicted the Bank could keep raising interest rates to prevent high levels of inflation from becoming entrenched in the economy.

Yesterday, the NIESR thinktank predicted the UK could avoid recession this year (the Bank, though, forecasts a contraction), but it may still feel like a recession to millions of households.

The average middle-income household faces a hit to their personal disposable income of 13%, NIESR says, reaching up to £4,000 in the next financial year.

The agenda

  • 7am GMT: German inflation report for January

  • 8.30am GMT: Sweden’s Riksbank interest rate decision

  • 9.30am GMT: Latest UK economic and business activity data

  • 9.45am GMT: Treasury Committee question the Governor of the Bank of England and members of the Monetary Policy Committee

  • 1.30pm GMT: US weekly jobless data

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