Closing post
After hitting record highs this week, the FTSE 100 index is ending on a slightly weak note.
The blue-chip share index is down 10 points in late trading at 8002 points, down 0.1%.
NatWest continues to be the biggest faller, down 6%, with Lloyds Banking Group down 3.8%.
Michael Hewson of CMC Markets says:
NatWest Group has seen an underwhelming reaction to a strong set of full year results, an increase in the dividend and a share buyback.
Given the share price reaction today, it seems there’s just no pleasing some people even accounting for the disappointment over its guidance, which appears to be being blamed for today’s weakness.
Here are today’s main stories:
The US ecconomy continued to weaken last month, according to the Leading Economic Index produced by the Conference Board.
The LEI for the US fell by 0.3% in January, and has now dropped by 3.6% over the last six months.
“The US LEI remained on a downward trajectory, but its rate of decline moderated slightly in January,” said Ataman Ozyildirim, senior director for economics at The Conference Board.
“Among the leading indicators, deteriorating manufacturing new orders, consumers’ expectations of business conditions, and credit conditions more than offset strengths in labor markets and stock prices to drive the index lower in the month. The contribution of the yield spread component of the LEI also turned negative in the last two months, which is often a signal of recession to come.
While the LEI continues to signal recession in the near term, indicators related to the labor market—including employment and personal income—remain robust so far. Nonetheless, The Conference Board still expects high inflation, rising interest rates, and contracting consumer spending to tip the US economy into recession in 2023.”
On the Carillion settlement, a spokesperson for the Official Receiver said (via Financial News):
“Carillion and KPMG have agreed a settlement of Carillion’s claims against KPMG in respect of the audits of Carillion for the period 2014 to 2016.
The parties have agreed that the terms of that settlement will remain confidential.”
KPMG says it has reached a settlement with liquidator of Carillion
It’s official: KPMG has reached a settlement with the liquidator of Carillion, as flagged a few minutes ago.
But the settlement is confidential, so we don’t know how much KPMG is paying over its auditing of the construction firm before it collapsed in 2018.
KPMG’s UK chief executive Jon Holt said in a statement.
“I am pleased that we have been able to resolve this claim.
Carillion was an extreme and serious corporate failure, and it is important that we all learn the lessons from its collapse.”
Updated
Sky: KPMG reaches settlement with Carillion's liquidator
Audit firm KPMG has reached a settlement with the liquidator of Carillion, the UK construction company which collapsed five years ago, Sky News’s Mark Kleinman reports.
Revealed: The big four accountancy firm KPMG will issue a statement today disclosing that it has reached a settlement with the liquidator of Carillion, the construction firm it audited and which collapsed in 2018 with the loss of thousands of jobs and with shareholders wiped out.
— Mark Kleinman (@MarkKleinmanSky) February 17, 2023
Carillion collapsed in January 2018 with £7bn in debts, resulting in 3,000 job losses and chaos across government and private-sector construction projects ranging from hospitals, schools, roads and even work on Liverpool football club’s stadium, Anfield.
Last May, KPMG was fined £14m – one of the largest penalties in UK audit history – after former staff forged documents and misled the regulator over audits for companies including Carillion.
In February last year, we reported that KPMG was being sued for £1.3bn by government officials liquidating Carillion, in an unprecedented legal action against one of the big four auditors.
Updated
Segro, the London-listed property group which specialises in warehouses, has pleased investors with an 8% increase in annual pretax profit, which came in at £386m for 2022, my colleague Joanna Partridge writes.
The company, which is developing a 700-acre logistics park called East Midlands Gateway near Derby and next to East Midlands airport, said it had seen a near 20% increase in net rental income to £522m.
It also reported a record number of new rent signings over the year thanks to strong demand from companies seeking warehousing and logistics space, which came in at £98m.
The news has gone down well with investors, pushing Segro shares about 4.4% higher and making them the top riser on the FTSE 100 today.
However, rising interest rates and the turmoil in the property markets sparked by Liz Truss and Kwasi Kwarteng’s disastrous mini budget last autumn saw the value of the company’s portfolio written down by 11%.
Chief executive David Sleath told the Guardian there were reasons for optimism for the coming year:
“There is a growing degree of confidence that we are at or near the peak of the rates cycles, so if that’s it, people can start to plan and make their own assumptions around growth and returns, and that’s attracting more capital into that marketplace.”
Segro said it continued to see strong demand from companies in a range of sector, particularly those looking for space to house data centres, as well as from logistics companies, retailers and manufacturers.
More energy news: The bailed-out Germany energy giant Uniper has taken a €4.4bn hit
after losing control of its Russian subsidiary last year, our energy correspondent Alex Lawson reports.
The company, which was rescued by the German government last year, posted a record €19.1bn net loss for 2022 as it became one of the biggest corporate casualties in the fallout from the war in Ukraine.
Uniper agreed a bailout package with the government after it was left stranded by the drop in gas deliveries from Russia. It was once the largest importer of Russian gas in Germany.
Uniper said that it has been given no access to information from its Russian subsidiary, the power generation company Unipro, since last year.
On Friday, the company said it will overcome the problems generated by Russian gas cuts by 2024 at the latest.
Uniper owns the Ratcliffe-on-Soar coal-fired power station, which has formed part of this winter’s emergency contingency plans, as well as a string of gas plants in the UK.
UK supermarket chain Asda to raise staff pay by 10%
Asda is investing £141m in raising shop workers’ hourly pay by 10% by July, my colleague Sarah Butler reports.
Workers will receive an hourly minimum of £11 from 2 April and then £11.11 from 2 July - up from £10.10 at present.
The rise lifts pay for hourly paid staff at Asda from the back of the pack, and onto a par with Aldi and Sainsbury’s, currently the highest payers among UK supermarkets.
Mohsin Issa, Asda’s co-owner, said:
“We appreciate the great job that our store colleagues do representing Asda while serving customers day in and day out.
We know that rising living costs are affecting customers and colleagues alike and recognise we have a responsibility to support them during these challenging times.”
The pay rise comes after Asda said it wanted to cut more than 300 jobs while 4,300 staff would receive a pay cut after the supermarket announced a swathe of changes to night shifts, Post Office outlets and pharmacies to cut costs.
The UK’s third largest supermarket chain, said 211 night shift manager roles were going and a further 4,137 staff would lose out on premiums of at least £2.52 an hour for working nights as it switched the restocking of packaged groceries and frozen food to daytimes and evenings.
In addition, Asda planned to close seven of its 254 in-store pharmacies, putting 62 jobs at risk, including 14 pharmacists.
Updated
Back on NatWest, the BBC points out how the bank has been quicker to pass on higher interest rates to borrowers than to savers, saying:
[CEO Alison] Rose said the bank has passed on interest rate increases to savers and claimed that the bank was “helping people build regular saving habits”.
But analysis for the BBC by financial information service Moneyfacts showed that the increase on standard mortgage charges far outstripped that on standard savings accounts - by a factor of six times.
Interest on the bank’s variable rate easy access savings account was increased by just 0.55 percentage points from 0.1% to 0.65% over 2022.
Meanwhile, over the same time its standard variable mortgage rate climbed more than three percentage points from 3.59% to 6.74%.
NatWest boss Alison Rose said the bank has passed on interest rate increases to savers and claimed that the bank was "helping people build regular saving habits". Rates analysis by @MoneyfactsPress suggests otherwise pic.twitter.com/eZdIgWgzJ1
— simon read (@simonnread) February 17, 2023
Technically, mortgage rates are priced relative to swap rates, which are influenced by movements in gilt yields (the interest rates on UK government bonds). Those yields, though, are set by market expectations of inflation and central bank interest rates.
Schiphol: We've never let so many passengers and airlines down before
Photograph: Evert Elzinga/EPA
Dutch airport management firm Schiphol Group has admitted that it let down passengers and airlines last year.
In its latest financial results, Schiphol Group resists the temptation to sugarcoat its performance. Insead, it announces that today it “publishes poor financial results for 2022”.
The group, which owns and operates Amsterdam Airport Schiphol, Rotterdam The Hague Airport and Lelystad Airport, made an underyling loss of €28m for 2022 after being hit by staffing problems.
It says “upscaling issues” overshadowed the operational performance of Schiphol, causing it to incur €120m of extra costs.
Ruud Sondag, CEO of Royal Schiphol Group, is engagingly blunt about the poor performance.
“Never before in Schiphol’s history have we disappointed so many travellers and airlines as in 2022.
Our efforts and hard work did not lead to the necessary improvements in the system and, as a result, we were not able to provide the service we wanted. 2022 will therefore go down as a bad chapter in our own history books. But it is also a chapter we will not forget, so that all new chapters we write will be better.
We are working hard on this, and in 2022 we started to implement structural improvements. Because we have to do better. And I am convinced that we can.”
There were severe delays at Schipol last year, as demand jumped as Covid-19 restrictions were relaxed. Staff shortages at security led to long queues, and flight cancellations. A wildcat strike by KLM ground crew also caused disruption last April.
NatWest’s financial results suggest its customers are more resilient than economists had feared,
Steve Clayton, head of equity funds at Hargreaves Lansdown, explains:
NatWest acknowledge that there is a gloomy case that can be made about the outlook as rising interest rates and high utility bills bite, but their customers are so far resilient.
Bad debt losses were just 0.09% of the loan book and much of that was assumptions about what’s coming next, rather than loans that have already soured.
In the currency markets, the pound is trading at its lowest level against the US dollar in six weeks.
Sterling dropped to $1.1913 this morning, the lowest since 6th January, despite hopes of a breakthrough in the Northern Ireland protocol.
The issue is that the dollar is strengthening after data this week showed that producer price inflation is higher than thought.
This has led to a ‘significant’ shift in market expectation for US interest rates this year, says Neil Wilson of Markets.com:
A fortnight ago markets priced in one more hike and 2 cuts this year – now pricing the chance of 4 hikes this year. The 2yr US Treasury yield has risen from 4.1% to 4.7% in barely two weeks.
The 10yr is now above 3.9%, its highest since November, from below 3.4% at the start of February. December 2023 Fed Funds implied rate has risen to 5.10% from 4.35%.
What’s this telling us as investors? Fundamentally, the market and perhaps the Fed were declaring victory on inflation too soon. It’s the old pivot narrative from last year but remember the Fed was never going to pivot and now can’t because it’s become data dependent; and the data won’t allow it.
European natural gas prices fall to 18-month low as energy crisis eases
In the energy markets, the price of European natural gas has fallen to its lowest level in almost 18 months.
The European benchmark contract for gas delivery next month dropped 5% this morning to a low of €48.90 per megawatt hour, the lowest since the end of August 2021.
In late August 2022 the price surged over €300/MWh, when Russia intensified the squeeze on Europe by turning off the Nord Stream 1 gas pipeline for maintenance.
Gas prices have fallen after European countries scrambled to fill storage tanks to see them through the winter, and also cut demand, helped by a mild winter.
Salomon Fiedler, economist at Berenberg bank, says
Since Putin’s decision to invade Ukraine, natural gas has been the single most important driver of Europe’s economic fortunes.
Without the sharp reduction in Russian gas deliveries, Europe would now likely be enjoying above-average growth rates due to the post-COVID-19 rebound, instead of suffering near stagnation.
But at least Europeans have been able to avoid the worst outcome: outright gas shortages necessitating forced cut-offs, which would wreak havoc on the economy.
EU gas storage remains at reasonably comfortable levels, Fiedler adds:
On 14 February stores were 65% full – close to the maximum for that time of the year and 19ppt higher than the average for the 2015-20 reference period.
Updated
NatWest’s CEO, Dame Alison Rose, has denied that its jump in profits last year was just due to higher interest rates (which swelled its net interest margins).
Asked about the £5.1bn profits achieved last year, Rose told Sky News it was a “strong performance by the bank”.
She sad it’s due to the “continuing delivery of our strategy, and the strong support of our customers”.
Rose points out that NatWest stayed in the mortgage market during the disruption last year, caused by the mini-budget, and is continuing to “lend responsibly” to businesses.
Rose warns, though, that customers still face “challenging macroeconomic conditions”.
Chief Executive of Natwest Dame Alison Rose tells @IanKingSky 'it's not just high interest rates' leading to record profits of £5.1bn in 2022 - the banks best results since the 2008 financial crisis
— Sky News (@SkyNews) February 17, 2023
Latest: https://t.co/Cg2CfcwOHK
📺 Sky 501, Freeview 233 and YouTube pic.twitter.com/1FwsNS7PL7
NatWest’s shares are still dragging the FTSE 100 index down this morning.
They’re down 6.25%, despite the bank swelling its profits last year.
Traders are calculating that the bank may not make such large profits from higher interest rates this year, as Russ Mould, investment director at AJ Bell, explains:
NatWest may have delivered its biggest profit since the financial crisis but investors are far more concerned about what’s coming next and that’s less positive.
“Income for 2023 is now guided to be lower than expected, with the key net interest margin metric also falling short. Costs are also set to be higher than forecast.
“While impairments are anticipated to be a bit lower than estimates the market may be cautious of taking NatWest at its word given the difficult backdrop for consumers and businesses which could lead to a big increase in bad debts.
“With the rate cycle nearing its peak the recent momentum in banking shares could be difficult to maintain. Whether this will act as a catalyst for the government to sell down more of its remaining stake remains to be seen.
“NatWest’s rescue by the state during the financial crisis means criticism of its tardiness in passing on higher interest rates to savers arguably carries more weight and that could have some impact on profitability.”
The chief executive of NatWest, Alison Rose, received a £5.2m pay packet in 2022, becoming the bank’s second-highest-paid boss after the controversial ex-banker Fred Goodwin, after the lender reported its largest profit since before the 2008 financial crisis.
The bailed out bank – which is still 44% owned by the taxpayer – revealed on Friday that Rose’s pay had soared by 46% from £3.6m a year earlier, partly because of the higher value of shares doled out as part of her long-term incentive plan.
NatWest increased the total bonus pool for its bankers to £367m from 298m a year earlier, after making bumper profits of £5.1bn in 2022, up 33% and the highest since 2007, when profits hit £10bn.
The rise in profits last year was partly as a result of a rise in loan and mortgage costs, exacerbating the wider cost of living crisis for borrowers.
NatWest criticised after hiking bonuses
NatWest is facing criticism after hiking its bonus pool to £367m, from 298m a year earlier.
Fran Boait, executive director at campaign group Positive Money, points out that the taxpayer bailed out Royal Bank of Scotland, as NatWest was then known, after the financial crisis.
“NatWest is using bumper profits to deepen its bonus pool, not to support the public, who bailed it out just 15 years ago, and who are now footing the bill of the higher interest rates boosting those very same profits.
“It is completely unjust that bankers who create only more wealth for the already-rich get pay boosts whilst those who educate, transport and care for the public are forced onto picket lines for fair wages.
“Clearly the government was reckless in its decision to remove the cap on bankers’ bonuses, which needs to be reinstated, and should tax these unmerited profits in order to provide struggling communities with financial support.”
Banks such as NatWest have benefitted from higher net interest margins due to rising interest rates – lifted to tackle the inflation surge from the energy crisis.
Unite general secretary Sharon Graham is calling for a windfall tax on the banks:
“It’s offensive that government ministers are insisting NHS workers take another savage pay cut while their big City banker friends are given carte blanche to make billions.
“Rishi Sunak needs to put a real powerful windfall tax on the excess profits of the big banks. Like the energy companies, the greed of the big banks is fuelling the cost-of-living crisis.
An epidemic of profiteering has brought this country to its knees - workers are not responsible for it and should not have to pay for it. It is time the government held the big business interests that profit, while everyone else pays the price, to account.”
It’s offensive that @GOVUK ministers are insisting #NHS workers take another savage pay cut while their big City banker friends are given carte blanche to make billions. @RishiSunak needs to put a real powerful #WindfallTax on the excess profits of the big banks. 1/3 🧵 pic.twitter.com/vKFmbbqzxr
— Sharon Graham (@UniteSharon) February 17, 2023
Updated
Online estate agent Purplebricks is looking for a buyer, after issuing a profit warning this morning.
Purplebricks now expects to make a loss of between £15m and £20m on an adjusted EBITDA basis, worse than the £8.8m expected in December.
The company told shareholders this morning that its turnaround strategy, focusing on profitable areas, had caused more disruption to sales than expected, meaning new instructions from home sellers were lower than expected.
Shares in Purplebricks have dropped 15% this morning to 8.3p, a record low. They floated at 100p in late 2025, and five years ago they were worth £4 each.
In recent years the company has faced legal action from 100 estate agents who argue that they were in effect employed by the company so should be entitled to holiday pay and pension contributions. It also set aside up to £9m after its lettings business failed to follow law protecting tenants’ deposits.
Today, CEO Helena Marston says Purplebricks’ market value does not reflect its ‘upside potential’:
“We have undertaken a huge amount of work in the last 9 months to improve our sales business, raise standards, establish Purplebricks Financial Services, and stabilise lettings, all of which means the Company has never been in better shape for the future.
Yes, the actions we have taken have caused more short-term disruption to our Q3 performance than anticipated, but we remain confident in returning to positive cash generation in early FY24. We recognise that our upside potential is not currently reflected in our market valuation, which is why the entire Board has therefore concluded that a strategic review is now in the best interests of all shareholders.”
The writing is “purple” on the wall. Purple bricks shares slide 12% “The Group now expects to deliver revenue for FY23 of between £60 million and £65 million, and an adjusted EBITDA loss of between £15 million and £20 million.”
— Emma Fildes (@emmafildes) February 17, 2023
https://t.co/vuunQDKOoa…
Updated
Getting back to the latest retail sales figures, Philip Shaw of Investec says it is “notable” how high street spending has taken the strain of the cost of living crisis.
He says:
UK retail sales volumes picked up by 0.5% in January after a revised 1.2% decline in December (as covered in our introduction).
Consensus and Investec estimates had been for a 0.3% fall. Sales ex-fuel climbed by 0.4%. Food store sales slipped by 0.5% on the month, while non-food outlets saw a 0.6% increase. Within the latter category though, sales in textiles and clothing stores dropped sharply, by 2.9%. Meanwhile volumes in non-store retailing (mainly online retailers) were buoyant, recording a gain of 2.0%.The retail sales series is notoriously volatile and especially so around the Christmas and New Year period. Accordingly we would hesitate to read too much from this specific data point. Indeed the background remains unequivocally weak. Sales volumes are now 5.1% lower than a year ago and we would note that there was only one monthly increase during the entirety of 2022.
UK fuel imports jumped 119% last year
The UK spent more than twice as much importing fuel last year than in 2021, due to the energy price shock.
New figures just released by the ONS show that the value of fuel imports increased by 119% in 2022, an increase of £63.6bn.
This was driven by the price of gas reaching record levels last year, says the ONS, adding:
High fuel prices have had a knock-on effect on the pricing of other commodities, with increased transport and production costs contributing to rising prices across most commodities.
The Russian invasion of Ukraine disrupted trade in multiple commodity types, resulting in changes to trade partners for the UK and increased import prices.
More expensive fuel helped to push up the cost of all UK imports by 32.3%, or by £155.5bn last year.
The ONS says:
Goods imports increased steadily throughout 2022, with imports from both EU and non-EU countries substantially higher.
Soros: Adani crisis will spur ‘democratic revival in India’
George Soros also suggested last night that the crisis at beleaguered conglomerate Adani Group could lead to a “democratic revival in India” – remarks that have prompted anger in New Delhi.
Speaking in Munich ahead of the Security Conference which started today, Soros cited the report from Hindenburg Research which accuses Adani Group of “brazen stock manipulation”, “accounting fraud” and “money laundering.”
Adani has denied the allegations, but has seen the value of companies in the conglomerate tumble.
Soros suggests the charges could harm India’s prime minister Narendra Modi, as business tycoon Gautam Adani is a close ally.
Soros sais:
Adani Enterprises tried to raise funds in the stock market, but he failed. Adani is accused of stock manipulation and his stock collapsed like a house of cards. Modi is silent on the subject, but he will have to answer questions from foreign investors and in parliament.
This will significantly weaken Modi’s stranglehold on India’s federal government and open the door to push for much needed institutional reforms.
I may be naïve, but I expect a democratic revival in India.
This has caused a backlash in India this morning, where cabinet minister Smriti Irani has accused Soros of interfering in the country’s electoral process.
She called on the Indian population to respond in unity to “foreign powers who try to intervene in India’s democratic processes”.
Attack on Indian democracy, says Smriti Irani on George Soros's remarks on Adani and India https://t.co/xoClAIadai #BJP #Soros
— THE WEEK (@TheWeekLive) February 17, 2023
"Attack On India": BJP Blasts Billionaire George Soros Over PM Remarks https://t.co/yKnsXNp9db pic.twitter.com/gQPRheaVKJ
— NDTV (@ndtv) February 17, 2023
Hannah Ellis-Petersen, our South Asia correspondent, has looked at the links between Adani and Modi here:
George Soros calls for weather control to fight climate change
George Soros, the veteran philanthropist and former financier, has called for scientists to use experimental geosolar technologies to create white clouds over the Arctic, to protect it from melting.
In a speech last night, before the 2023 Munich Security Forum began, Soros warned that the melting of the Greenland ice sheet “poses a threat to the survival of our civilization”.
Soros said “human ingenuity” must be deployed to repair “a previously stable system”, before climate change reaches a tipping point.
Soros explained that he had sought advice from climate scientist Sir David King, after extremely warm weather was recorded in Greenland in July and September 2022.
“The melting of the Greenland ice sheet would increase the level of the oceans by seven meters”, Soros warned, but King – who has advised the UK government on climate – has a theory, and a plan to combat the problem.
Soros explains:
He [King] has developed a theory which is widely shared by climate scientists. It holds that the global climate system used to be stable but human intervention disrupted it. The Arctic Circle used to be sealed off from the rest of the world by winds that blew in a predictable, circular, counter-clockwise direction, but man-made climate change broke this isolation.
The circular wind used to keep cold air inside the Arctic Circle and warm air out. Now cold air leaks out from the Arctic and is replaced by warm air that’s sucked up from the south.
This explains, among other things, the Arctic blast that hit the United States last Christmas and the cold wave that hit Texas recently.
The Arctic Ocean used to be covered by pristine snow and ice that reflected the sun in what is called the “albedo effect”. But rising temperatures have caused the ice to melt and the Greenland ice sheet is no longer so pristine; it is covered by soot from last year’s forest fires on the West Coast of America, Arctic shipping and other causes.
Sir David King has a plan to repair the climate system. He wants to recreate the albedo effect by creating white clouds high above the earth. With proper scientific safeguards and in consultation with local indigenous communities, this project could help restabilize the Arctic climate system which governs the entire global climate system.
Energy giant EDF slumps to record £16bn loss
French power giant EDF has posted a record net loss of €17.9bn (£16bn) for last year, after problems at its nuclear reactors hit its output.
Nuclear output at EDF’s fleet dropped to a 34-year low in 2022, with many plants taken offline after stress corrosion cracks were found in pipes in their cooling systems.
That prevented EDF from profiting from the surge in power prices last year.
EDF, which is being nationalised by Paris, was also hit by caps on French electricity price increases as Emmanual Macron’s government protected households from rising inflation.
In the UK, EDF made an operating loss of almost £1bn for 2022 – up from a £1.7bn loss in 2021.
But on an EBITDA basis (ignoring interest, taxes, and the depreciation and writing off of asset values), EDF actually made a profit of £1.1bn, up from a £21m loss in 2021.
EDF says the UK’s cap on energy bills hit its earnings.
EDF’s energy supply business made a loss of over £200million. In short, the cost of buying the energy for our residential customers was higher than the prices we charged under the SVT cap.
Updated
FTSE falls back from record highs
Bank shares are dragging the FTSE 100 down at the start of trading.
The blue-chip share index, which hit a record high over 8,000 points yesterday, is down 46 points or 0.6% at 7966 points.
NatWest are leading the fallers, down 8.5% as traders digest this morning’s results. Lloyds Banking Group are down 4.4% too.
NatWest’s CEO, Dame Alison Rose, struck a cautious tone this morning after reporting profits almost tripled in the last quarter, saying:
Despite not yet seeing significant signs of financial distress among our customers, we are acutely aware that many people and businesses are struggling right now and that many more are worried about what the future holds.
Traders are worried that the future includes even higher interest rates, after yesterday’s hotter-than-expected US PPI inflation data (showing producers hiked their prices by 6% over the last year).
Retail sales volumes increased by 0.5% in January 2023, following a fall of 1.2% in December 2022.
— Office for National Statistics (ONS) (@ONS) February 17, 2023
Retail remains 1.4% below its pre #COVID19 level.
➡️ https://t.co/ZivXnBVYef pic.twitter.com/qU9EuXvVBC
NatWest makes largest profit since financial crisis on higher rates
Bankers at NatWest will be able to splash out in the shops, after their employer ramped up its bonus pool after profits surged last year.
NatWest has increased banker bonuses after reporting its largest profit since before the 2008 financial crisis, as the lender benefited from a surge in loan and mortgage charges for its borrowers, my colleague Kalyeena Makortoff reports.
The lender – which is still 46% owned by the UK government – said profits rose 33% to £5.1bn in 2022, marking its highest pre-tax earnings since the bank almost collapsed and was forced to take a £45bn taxpayer bailout at the height of the global financial crisis.
The last time it reported a higher profit was in 2007, when profits hit £10bn.
NatWest, formerly known as Royal Bank of Scotland, increased its bonus pool for a second consecutive year as a result of the strong performance to £367.5m. That is the biggest pot shared out by its bankers since 2015 and is up from £298m last year.
Alison Rose says:
“NatWest Group delivered a strong performance in 2022.”
Here’s the full story:
January’s jump in retail spending may encourage the Bank of England to keep raising interest rates.
Neil Birrell, chief investment officer at Premier Miton Investors, explains:
“Retail sales in the UK rose last month and were much stronger than expected, contrary to the inflation data earlier in the week. There is clearly still life in the consumer, despite ongoing pressures from impending increases in council tax, amongst other things.
Those thinking that the Bank of England might start moderating policy in the short term will be disappointed by this number. Although, overall, the economic data is ambiguous, making the short and medium-term outlook really very uncertain.”
The money markets currently suggest there is a 72% chance that the BoE raises interest rates from 4% to 4.25% in March.
Updated
Despite rising 0.5% in January, UK retail sales were still 1.4% below their pre-Covid-19 levels of February 2020 levels.
But, rising inflation means people spent 14% more last month, than in February 2020, but still got less.
Aled Patchett, head of retail and consumer goods at Lloyds Bank, warns that inflation will hit the sector this year.
“Retailers will be hoping a rise in sales, though still some way below pre-covid-19 levels, signals the beginning of a recovery in consumer spending.
Yet they’re also mindful that spending habits won’t recover fully until cost-of-living pressures have subsided. In the short term, inflation could push prices up further and reduce discounts offered by retailers.
The 0.5% month-on-month rise in retail sales volumes in January suggests that the festive and New Year period “wasn’t a complete write-off for UK retailers”, says Paul Dales, chief UK economist at Capital Economics.
But he warns that the next 6-12 months will probably still be a struggle for retailers, even if 2023 is unlikely to be as bad as 2022.
Dales says there are two reasons not to get too carried away by today’s data:
First, retail sales were very weak last year but overall consumer spending held up due to stronger non-retail spending (particularly in restaurants). When households’ finances are under pressure, it possible that any improvement in retail sales will be just be met by a softening in non-retail spending.
Second, although the biggest falls in real incomes are now behind us, the full drag on activity from higher interest rates has yet to be felt. As such, it is too soon to conclude that the retail sector is coming out of its funk and that the economy won’t yet fall into a recession.
Charts: How food sales are falling as prices spiral
These charts, from today’s retail sales report, show how people across Great Britain bought less food in January:
As you can see, the jump in prices means people have had to spend more, to get less.
ONS: the general trend remains one of decline
The general trend in retail spending is downwards, warns ONS director of economic statistics Darren Morgan, despite the 0.5% rise in volumes last month.
Morgan says:
“After December’s steep fall, retail sales picked up slightly in January, although the general trend remains one of decline.
“In the latest month, as prices continue to fall at the pumps, fuel sales have risen.
“Meanwhile, discounting helped boost sales for online retailers as well as jewellers, cosmetic stores and carpet and furnishing shops.
“However, after four months of consecutive growth, clothing store sales fell back sharply.”
Updated
Introduction: Retail sales rose in January
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Retail sales across Great Britain were stronger than expected in January, as consumers kept spending despite the cost of living crisis.
But, people kept cutting back on buying food, due to the surge in costs.
The Office for National Statistics has reported this morning that retail sales volumes rose by 0.5% in January 2023, as shopping picked up after a 1.2% drop the previous month.
But on an annual basis, retail sales volumes were down by 5.7% in the three months to January 2023, as the cost of living crisis meant people could afford to buy less.
Economists had expected a 0.3% drop in retail sales volumes in January, as shoppers were hit by higher prices and surging bills, as well as concerns over the economy.
The ONS, though, reports that sales volumes at non-store retailers such as online shops jumped by 2% in January 2023, with “some feedback that January sales promotions supported the rise”.
Sales of petrol and diesel also rose in January, by 1.7%, as the recent drop on the forecourts encouraged motorists to drive more.
The ONS says:
Automotive fuel sales volumes rose by 1.7% in January 2023, following a rise of 0.3% in December 2022 as fuel prices continued to fall.
UK Retail Sales for January come in strong: pic.twitter.com/ExavY4E9kk
— BionicBanker (@BrokenBanker) February 17, 2023
But, people bought less food last month – as food inflation hit record levels.
Food store sales volumes fell by 0.5% in January 2023 following a fall of 0.7% in December 2022.
The ONS says:
We continue to receive feedback that customers were buying less because of increased cost of living and food prices.
People also bought less clothes in January; clothing stores sales volumes fell by 2.9% in January 2023, following four months of positive growth.
Today’s data follows an unexpected drop in retail sales across Great Britain in December, when cost-conscious consumers cut back on spending in the run-up to Christmas.
Data provider GfK reported last month that UK consumer confidence dropped in January, with people more worried about the economic situation and less keen to make major purchases.
Also coming up today
The mood in the financial markets is downbeat this morning, after data yesterday showed that US producers were lifting prices faster than thought. The US producer price index, which measures wholesale goods and services prices, rose by 6% in the year to January, higher than the 5.4% expected.
Where are US interest rates heading after Jan's 'hot' jobs, retail sales, CPI & PPI reports?
— PMH Capital (@CapitalPmh) February 17, 2023
Well Cleveland #fed President #Mester (non-voter) reckons rates should rise by another 0.50%.
Meaning will 5.5% now be the peak in the #Fed's next dot plot?
Not great for #equities. pic.twitter.com/NVUy8WpDkt
This suggests inflationary pressures are more stubborn than hoped, which could force the US Federal Reserve to keep interest rates high to curb price rises.
With the dollar strengthening, the pound is down half a cent at $1.194, the lowest since 6th January.
Investors will be watching events in Belfast too, where Rishi Sunak arrived last night in a sign that a deal on the Northern Ireland protocol is close.
The agenda
7am GMT: UK retail sales report for January
7am GMT: European Union new car registration figures for January
9.30am GMT: ONS releases data on “Profitability of UK Companies” and “UK trade in goods, year in review: 2022”
3pm GMT: Conference Board releases its “Leading index” on the US economy
