Closing summary
Grocery price inflation in the UK slowed to an annual rate of 6.7% in December, while retailers enjoyed their busiest Christmas since 2019, according to the data firm Kantar.
Inflation is now at its lowest level since April 2022, but many consumers are still feeling the pinch. Prices for sweets, eggs and frozen potato products rose fastest but prices fell for dairy items, including butter, milk and cream.
The FTSE 100 index is celebrating its 40th birthday today.
HSBC has become the latest big UK lender to announce across-the-board mortgage interest rate cuts, with leading names announcing reductions of up to one percentage point.
The bank’s new deals announced today include a headline-grabbing five-year fixed remortgage deal of 3.94% for those borrowing up to 60% of the property value.
Post Office workers wrongly accused of stealing have highlighted that many of them are still waiting for compensation four years after winning a landmark court case proving their innocence.
Between 1999 and 2015 the Post Office relentlessly pursued branch owner-operators across the UK for alleged theft, fraud and false accounting, despite knowing that there were faults in Horizon IT software they were using, resulting in more than 700 prosecutions.
The scandal, frequently described as the most widespread miscarriage of justice in UK history, has now been dramatised in a series currently airing on ITV.
Ryanair has said that it has seen a drop in the number of tickets it has been able to sell after a number of major online booking websites stripped the budget carrier’s flights from their listings.
Europe’s largest airline said that in early December “most” of the larger online travel agent sites – including Booking.com, Kiwi and Kayak – “suddenly removed Ryanair’s flights from sale on their websites”.
Two exclusives:
Several of the world’s biggest carmakers lobbied the UK government to try to weaken or delay rules to accelerate electric car sales and cut Britain’s carbon emissions.
Toyota, Jaguar Land Rover (JLR) and Nissan were among the companies to ask for delays in enforcement of the zero-emission vehicle (ZEV) mandate that obliges them to sell increasing proportions of electric cars or face heavy fines, according to documents seen by the Guardian.
However, Volkswagen, Ford and Tesla argued that the ZEV mandate should be tougher.
The government has been accused of breaking its promise to English farmers, with hundreds of millions of pounds missing from the farming budget.
Ministers had promised that by the end of this parliament, they would spend £2.4bn a year on agriculture. This money was to replace the EU’s common agricultural policy, which paid farmers for each hectare of land they managed. Instead, the government promised that farmers could improve the natural environment and be paid handsomely for delivering public goods, thus helping nature and keeping farms in business.
Thank you for reading. We’ll be back tomorrow. Take care, JK
US ISM manufacturing shows further decline
Economic activity at US factories contracted in December for the 14th consecutive month, following a 28-month period of growth, say the nation’s supply executives in the latest manufacturing survey from the Institute for Supply Management.
The index improved to 47.4 from 46.7 but still indicated contraction. It was a tad better than economists had forecast. Any reading above 50 points to growth, any reading below to contraction.
US ISM MANUFACTURING PMI ACTUAL 47.4 (FORECAST 47.1, PREVIOUS 46.7)
— Breaking Market News (@financialjuice) January 3, 2024
US ISM MFG. PRICES PAID ACTUAL 45.2 (FORECAST 49.5, PREVIOUS 49.9)
US ISM MFG. NEW ORDERS INDEX ACTUAL 47.1 (FORECAST 49.1, PREVIOUS 48.3)
US ISM MFG. EMPLOYMENT INDEX ACTUAL 48.1 (FORECAST 46.5, PREVIOUS…
Capital Economics has brought forward its forecast for the first interest rate cut from the Bank of England to June from November.
Paul Dales, chief UK economist, said:
We still think that interest rates will be reduced from 5.25% now to 3.00% in 2025. That’s a little lower than the trough of 3.25% currently priced into the financial markets.
Wall Street has opened lower as investors took some profits, and ahead of the Federal Reserve’s minutes of its last meeting.
The Dow Jones lost 85 points, or 0.2%, to 37,629 while the S&P 500 opened nearly 18 points lower at 4,725, a 0.37% drop, and the Nasdaq fell 125 points, or 0.8%, to 14,641.
AstraZeneca payment sends C4XD's shares soaring
A biotech company led by a former chair of the UK government’s Covid vaccines taskforce has received a drug development milestone payment from AstraZeneca, sending its shares soaring.
C4X Discovery, a drug discovery company listed on London’s junior AIM market, received a milestone payment of $11m. Its shares jumped more than 50% on the news, and is now trading about 45% higher at 12.63p.
AstraZeneca, the UK’s biggest drugmaker, is using C4XD’s programme to deliver an oral therapy for the treatment of inflammatory and respiratory diseases, with a focus on chronic respiratory disease. Under their partnership, C4XD could receive up to $400m from AstraZeneca over time.
C4XD was founded in Manchester in 2007 by two scientists and created its own virtual reality platform for drug discovery. Its interim executive chairman and chief executive is Clive Dix, who was interim chair of the vaccines taskforce during the pandemic and has also chaired the BioIndustry Association.
A life sciences veteran, he began his career in industry at Switzerland’s Ciba-Geigy (now part of Novartis) and GlaxoWellcome, and was co-founder of two companies that were later snapped up by Biogen and Pfizer.
Dix said:
This significant preclinical milestone payment marks the progress AstraZeneca has made in driving the NRF2 Activator programme forward. NRF2 is a challenging target and this achievement provides further validation of our ability to generate differentiated, quality molecules in immuno-inflammation. We believe that our unique approach can deliver transformative oral therapies for patients suffering from immuno-inflammatory diseases. This is a great start to our year and we are confident of seeing further progress across our entire portfolio in 2024.
The biotech company’s largest shareholder is Richard Griffiths, a serial private investor, with a 22% holding.
Other top shareholders are financial institutions Polar Capital and Bombard Odier Asset management with over 17% each, followed by Baillie Gifford and Canaccord.
Updated
FTSE 100 boardrooms show more stability than football club dressing rooms
Sixty league clubs changed their manager in 2023 compared to 19 changes in chief executive (and 31 in chief financial officer) at FTSE 100 firms, according to research by the stockbroker AJ Bell.
The average tenure of a FTSE 100 chief executive is 5.4 years (and that of CFOs is 4.1 years) compared to just 1.5 years for all football league managers (and 2.3 years for the Premier League alone).
Two football managers – Wayne Rooney at Birmingham City and Matt Etherington at Colchester United – have already lost their jobs this year, while seven FTSE 100 firms have announced a change of CEO and 13 a change in CFO for 2024.
AJ Bell investment director Russ Mould said:
In 2023 it looks like shareholders and boardrooms showed more patience than football club executives and supporters, even if headline stock market indices struggled to perform and boardroom turnover was unusually high.
Nineteen FTSE 100 firms saw a change in chief executive, well above the post-2000 average of 13, while a new manager pitched up at no fewer than 60 of the 92 Premiership and Football League clubs in 2023, with seven of those 60 getting in a new man (and they were all men) on two occasions and two making three changes.
Again, the FTSE 100 showed more stability here, as three interim bosses stepped aside – Mark FitzPatrick at Prudential, David Egan at RS Group and Nicandro Durante at Reckitt Benckiser – and only one more was appointed, when Murray Auchinloss had to fill the gap caused by Bernard Looney’s fall from grace at BP. Three months on and BP is yet to decide whether Mr Auchinloss will get the top job on a permanent basis or whether another candidate will prevail.
The total of 19 changes in CEO among FTSE 100 firms was, however, unusually high. The average since 2000 is 13 and only 2020’s total of 22 is higher since the turn of the century, Mould noted.
This comes after two relatively quiet years in 2021 and 2022, although they followed a year of huge boardroom turnover in 2020, which saw 22 changes in CEO, the highest figure this century.
Another seven changes have already been announced for 2024 and one (DS Smith) for 2025. Of those, only DS Smith has yet to select its new leader, as the search for Miles Roberts’ successor continues and the packaging giant has time on its side.
The succession within the FTSE 100 planning feels more orderly than it is at Championship team Birmingham City and League Two’s Colchester United, who have sacked Wayne Rooney and Matt Etherington as their managers in the first few days of the New Year.
Nonetheless, Mould said
2023 was perhaps a more challenging year than 2022. Even if the long-awaited recession failed to materialise, the UK economy could not gather much positive momentum and the FTSE 100 hardly set the world alight either, as it lagged the majority of its major stock market index peers, with the notable exception of China’s Shanghai Composite index and Hong Kong’s Hang Seng. Sticky inflation, rising interest rates, Quantitative Tightening and geopolitical uncertainty all mean that building any real head of steam post Covid-19 and lockdowns was perhaps not as easy as many had hoped.
HSBC joins mortgage rate-cutting war with deals below 4%
HSBC has become the latest big UK lender to announce across-the-board mortgage interest rate cuts, with leading names announcing reductions of up to one percentage point.
The bank’s new deals announced on Wednesday include a headline-grabbing five-year fixed remortgage deal of 3.94% for those borrowing up to 60% of the property value.
From tomorrow, HSBC’s two-year fixed rate for remortgages will dip below 4.50% for the first time since early June last year, with the headline rate hitting 4.49%, again for those with at least 40% equity in their home.
For those looking to fix longer term, HSBC is now offering a 10-year fixed rate deal starting from at 3.99%, suggesting that the bank is convinced rates are only going lower.
German unemployment edges higher
Unemployment has risen slightly in Germany but much less than expected, and last year’s jobless rate was one of the lowest since German reunification.
The Federal Employment Agency said the number of people out of work increased by 5,000 to 2.7 million between October and November. Analysts had expected a 20,000 increase. The unemployment rate rose slightly to 5.9%.
Andrea Nahles, the agency’s chair, said:
If we look back at 2023, we can see that the weak economy has left its mark on the labor market — however, considering the extent of the stress and uncertainty, the labor market is still holding up well.
Germany’s unemployment rate has risen from 5% in March 2022, shortly after Russia invaded Ukraine. The agency has previously said that the arrival of more than 1 million Ukrainian refugees added 0.4 percentage points to its jobless rate. At the same time, many German companies and sectors still report labour shortages.
Stocks fall on second trading day of 2024
Last year was a blast for many stock markets, but today, on the second trading day of 2024, UK and European shares are drifting lower again, following in the footsteps of Asian markets and Wall Street yesterday.
The FTSE 100 rose in early trading but is now down 56 points, or 0.7%, at 7,665 – on the index’s 40th birthday.
Germany’s Dax has lost 0.6% while France’s CAC and Italy’s FTSE MIB are around 1% lower.
Stock futures are pointing to fresh losses on Wall Street when it opens later, while yields (or interest rates) on US government bonds extended gains ahead of the the release of the minutes of the Federal Reserve Open Market Committee’s last meeting. They should give us some pointers as to the Fed’s thinking on the economy and rate cuts.
Joshua Mahony, chief market analyst at Scope Markets, said:
European markets are following the bearish precedent set by US equities yesterday, with Apple having led a wider big tech sell-off. While we have seen the S&P 500 enjoy a 14% gain in the last two months of 2023 alone, that extended move points towards a strong possibility that we could see some profit taking come into play before long. Questions remain over the likeliness of the 150-basis points worth of rate cuts expected by the markets currently, and thus there is a risk that the Federal Reserve members will seek to reign in those expectations somewhat.
Today’s FOMC minutes will provide one such opportunity for the disparity between market rate expectations and the Fed outlook to narrow, with traders keeping a close eye on the language behind a meeting that was widely considered to be highly dovish. With many Fed members emerging to reign in expectations following that meeting, there is a good chance that we see a somewhat less expansive view than that expressed by Jay Powell. After all, the dot plot expectations signal a likely three rate cuts this year, bringing risk for equities given the current market pricing for six.
Turning to the Kantar data, he said:
Today has seen good news on the inflation front in the UK, with the annual rate of grocery price inflation falling sharply from 9.1% to 6.7%. With the Russia-Ukraine conflict having sparked a sharp surge in European food prices, we are finally seeing those pressures abate. This further helps the Bank of England’s cause, with the latest CPI figure of 3.9% bringing increased hope that we will soon see inflation return back to target this year.
Updated
Sales of John Lewis’s Venus flytrap plush toy, based on the department store’s Christmas ad, have flopped because the toy terrifies kids, the Sun reports.
In case you missed it in the twixmas fug...
— Ashley Armstrong (@AArmstrong_says) January 3, 2024
John Lewis Venus flytrap toys have been a sales flop as staff complain they scare children. John Lewis now slashing 50% of its Snapper plush to clear stock while Buster the Dog or Edgar the Dragon sold out. https://t.co/Ac9A5ujZlV
Gas prices rise on forecast colder weather, weaker wind output
British and Dutch wholesale gas prices are rising this morning, amid expectations of colder weather and less wind generation, following a spell of mild winter weather and strong winds in recent days.
Analysts at Engie EnergyScan said:
Forecasts for lower temperatures and lower renewable generation and technical buying are lending some support this morning.
But, given comfortable stock levels and strong supply, the price upside potential appears limited.
The British day-ahead contract rose 5.5p, or 7.7%, to 77p per therm while the February contract was up 2.73p, or 3.6%, at 79p per therm.
The benchmark month-ahead Dutch contract rose 5.1% to €31.70 per megawatt hour, while the March contract hit €31.45, up 3.9%.
Meanwhile, crude oil prices have slipped slightly, with Brent crude down 0.3% at $75.68 a barrel, while US light crude is trading 0.4% lower at $70.02 a barrel.
Simon French, chief economist at Panmure Gordon, believes the main factors behind UK inflation will push prices down, even though the Red Sea attacks could lead to higher prices for durable goods.
https://t.co/W3lJZJUG4Q whilst this is likely for UK durable goods, the wider drivers of prices continue to be disinflationary. 2024 Gas prices 🔽40% from mid-October, Oil 🔽20%, Sterling 🔼2%. Add to recent CPI data undershoot & BoE poised to lower inflation forecast in Feb pic.twitter.com/I743TQ4D64
— Simon French (@shjfrench) January 3, 2024
Ryanair ticket sales hit after travel agent websites delist airline
Ryanair has said that it has seen a drop in the number of tickets it has been able to sell after a number of major online booking websites stripped the budget carrier’s flights from their listings.
Europe’s largest airline said that in early December “most” of the larger online travel agent sites – including Booking.com, Kiwi and Kayak – “suddenly removed Ryanair’s flights from sale on their websites”.
The airline said that while these travel sites only accounted for a “small fraction” of Ryanair’s bookings, the sudden removal had affected its load factor by “1% to 2%” in December and January, and would “soften short-term yields”.
Load factor is the percentage of available seats that an airline is able to sell on each flight. Ryanair said that it had responded by releasing more lower-priced fares to consumers directly through its own website.
Victoria Scholar, head of investment at interactive investor, has looked at the slowdown in UK grocery inflation. According to Kantar, it slowed to an annual rate of 6.7% in December, the lowest since April 2022, from 9.1% in November, in the fastest month-on-month decline on record.
While inflation is coming down, prices are still rising on average albeit at a slower pace, meaning that customers are still having to spend more to obtain a similar number of items. The cost-of-living crisis has prompted shoppers to trade down to cheaper, unbranded products, a shift which has boosted sales of supermarkets’ own-label lines such as Sainsburys’ Taste the Difference.
Price sensitivity among consumers has improved the fortunes of the German discounters Aldi and Lidl which enjoyed stellar Christmas sales, allowing them to increase their combined market share to 17%. The two supermarkets have intensified price competition in the UK, prompting other supermarkets to offer discounts and promotions and think of innovative ways to drive customer demand such as a renewed focus on their loyalty schemes.
While Marks & Spencer is not included in the Kantar figures, it was a standout stock market winner for 2023, with shares hitting a five-year high, valuing the company at over £70m.
Updated
Back in the UK, there is more good news for consumers, as Superdrug has announced that it is reducing its prices on more than 150 everyday items, from baby and healthcare products to cosmetics, as of today.
Prices have been cut by as much as 50% on own-brand items. The retailer said is had previously frozen the prices of more than 5,000 items across its stores and online for limited periods in recent years.
Jamie Archer, own-brand director at Superdrug, said:
We know that recent years have seen prices rocket due to the rising cost of living, so are happy to be able to reduce prices to help shoppers.
Turkey's inflation rate rises to nearly 65%
In Turkey, it’s a different picture.
Annual inflation climbed to 64.77% in December, from 62% in November, according to official figures. The upward trend is expected to continue in coming months after a big rise in the minimum wage.
Inflation ended the second year in a row at almost 65% for the first time since the late 1990s. The reading is in line with forecasts from the central bank and the government.
The government’s decision to raise the official minimum wage by nearly 50% is likely to push inflation even higher in the coming months. It could go beyond 70% by May. This will mean more interest rate hikes, following seven rises since June.
The central bank expects inflation to slow in the second half of this year, to 36% by the end of the year — still more than seven times the official target. Governor Hafize Gaye Erkan will present fresh forecasts in February.
Policymakers have warned that domestic demand, along with “stickiness in services inflation,” are among the main factors pushing up prices. In December, restaurant and hotel prices jumped 93% year-on-year, while overall services inflation nearly hit 91%.
Updated
UK grocery price inflation slows to 6.7%, data shows
Grocery price inflation in the UK slowed to an annual rate of 6.7% in December, while retailers enjoyed their busiest Christmas since 2019, according to the data firm Kantar.
Inflation is now at its lowest level since April 2022, but many consumers are still feeling the pinch. Prices for sweets, eggs and frozen potato products rose fastest but prices fell for dairy items, including butter, milk and cream.
Fraser McKevitt, head of retail and consumer insight at Kantar, said:
The rate of inflation is coming down at the fastest pace we have ever recorded, but consumers are still facing pretty hefty pressures on their budgets. Retailers were clearly working hard during the festive period to offer best value and win over shoppers, and promotions were central to their strategy. Nearly one third of all spend in the four weeks to Christmas Eve was made on items with some kind of offer, the highest level since December 2020 and £823 million more than last year.”
Britons made 488m trips to the supermarkets over the four weeks to 24 December, 12m more than a year earlier, and the largest number at Christmas since pre-pandemic times. A record £13.7bn passed through the tills last month, with the average household spending an all-time high of £477.
The discount chains Aldi and Lidl hit their highest ever market shares for the festive period while Britain’s two biggest supermarkets, Tesco and Sainsbury’s, were also among Christmas winners.
Lidl’s sales grew 13.8% year-on-year in the 12 weeks to 24 December and Aldis were up 9.9% taking their combined market share to 17%. Sainsbury’s sales rose 9.3% while Tesco’s sales were up 7.5%.
Shoppers spent £13.7bn on groceries in the run-up to Christmas – 7% more than a year before – as they sought out bargains and switched to discounters to try to offset price inflation.
Fraser McKevitt explained:
As we expected, this Christmas was a whopper. Friday 22 December turned out to be the most popular shopping day, when just over 25m trips were made and consumers spent £803m in physical stores – that’s 85% more than the average Friday in 2023. Online’s share of the market held steady at 11.6%, as nearly one in five households got a delivery in for the big day.
Updated
Introduction: Red Sea attacks could lead to price rises, say UK retail bosses; FTSE 100 index turns 40
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
UK retail bosses have warned that the Houthi rebel attacks on commercial vessels in the Red Sea are delaying shipments, which will affect product availability and could push up prices in the UK. Maersk and other large shipping firms have diverted vessels away; they are now taking a much longer rote around Africa’s Cape of Good Hope and up the west side of Africa.
The British Retail Consortium warned this could have knock-on effects on product availability and prices. Chief executive Helen Dickinson said this was “as a result of higher transportation and shipping insurance costs”. She added:
Over the coming months, some goods will take longer to be shipped.
Leeds-based Boxer Gifts designs games and seasonal presents, which are made in China and then shipped to Europe via the Red Sea, one of the world’s busiest shipping lanes. Thomas O’Brien, boss of the family-run business, told the BBC that some of its costs had gone up by 250% over the last fortnight.
We just about got used to shipments arriving on time after Covid, but at the moment with the Red Sea, that’s adding another 10 to 14 days to shipments.
You end up with a two or three week delay. We’ve got Valentine’s Day products that are likely to be delayed and miss Valentine’s Day.
The same effect is going to be felt on Mother’s Day meaning a huge chunk of our selling time for these games is missed.
Oil prices are steady this morning, with Brent crude trading at $75.88 a barrel while US light crude is at $70.3 a barrel.
Marine Stewardship Council (MSC) and Maersk have halted sailings through the Red Sea until further notice, while France’s CMA-CGM is increasing shipments between Europe and the Mediterranean.
On a more positive note, the FTSE 100 turns 40 today. It started the year with a 0.15% drop yesterday. Our financial editor Nils Pratley has looked at its ups and downs over the last four decades.
On the first trading day of the new year, many stock markets fell back yesterday after notching up gains in recent weeks. Traders have reassessed the outlook for interest rate cuts: markets had been pricing in as much as 160 basis points of cuts in the US for 2024, twice as much as the Federal Reserve projects, but are now pricing in less than 150bps.
Expectations of a Fed rate cut by March have fallen back to an 85% probability and similarly at the European Central Bank the chance of a cut by March is now seen at 59%, down from 71% last Thursday, as analysts at Deutsche Bank noted. The minutes of the Fed’s last meeting, out later today, should shed more light on the central bank’s thinking.
On Wall Street, the S&P 500 closed down 0.6% yesterday, while the Nasdaq saw a larger, 1.6% decline. Stocks in Asia declined overnight, with Japan’s Nikkei slipping 0.2% while Hong Kong’s Hang Seng fell 0.9%, the Australian market dropped 1.4% and the South Korean market shed 2.3%.
In 2023, global financial markets confounded gloomy expectations when stocks rallied and bonds reversed heavy losses made early in the year. Many major share indices posted double-digit gains as falling inflation raised hopes of interest rate cuts next year, while recession fears faded at least for the US. Britain’s FTSE 100 lagged though, and gained less than 4% last year.
The Agenda
8.55am GMT: Germany unemployment for December (forecast: 5.9%)
3pm GMT: US ISM Manufacturing PMI for December (forecast: 47.1)
7pm GMT: US Federal Reserve Open Market Committee minutes of last meeting
Updated
