Closing post
After a rather busy day of news, it’s time to wrap up.
Here are today’s main stories so far:
Updated
Wilko is back online!
Wilko’s new owner The Range has relaunched the brand’s website after buying it, plus Wilko’s brand and intellectual property, out of administration last month.
The site offers products across Garden &Outdoor, Decorating & DIY, Home & Furniture, Storage Solutions, Kitchen & Dining, Technology, Cleaning & Household, Pets & Wildlife, Stationery & Office, Kids & Toys and Health & Beauty.
Chief executive Alex Simpkin said it was important that the Wilko brand “had a future”.
“For 93 years, wilko has been a fixture of many British households, synonymous for its breadth of products offering great quality value.
“Using our online and digital expertise, our intention is to continue to offer the best of Wilko brands and products alongside a breadth of household brands to its loyal customers who we hope will be happy to see this trusted brand live on.”
More details here on Retail Gazette.
G7-led coalition renews efforts to enforce Russian oil price cap
The coalition of nations behind the price cap on Russian seaborne oil is renewing efforts to ensure the scheme is enforced.
The Price Cap Coalition, which consists of Australia, Canada, the European Union, France, Germany, Italy, Japan, the United Kingdom, and the United States, have issued a Maritime Safety Advisory today.
This advisory will promote responsible practices in the maritime oil industry and enhance compliance with the price caps on crude oil and petroleum products, they say.
They are also warning of the risks of violating price cap rules.
They say:
Where we have evidence that companies or persons have engaged in illicit or deceptive practices related to shipments of Russian-origin crude oil and petroleum products, we will respond in accordance with the respective restrictive measures established by the Coalition Members.
Treasury and G7 stepping up enforcement of price cap on Russian oil https://t.co/6hBLKBlXE5
— David Wessel (@davidmwessel) October 12, 2023
The US dollar has strengthened since today’s CPI report showed US inflation was unchanged at 3.7% in September.
This has pulled sterling down by three-quarters of a cent today to $1.224.
That threatens to end a six-day winning run for the pound, a seventh day of gains would have been the best run since 2020 (when it posted a 10-day recovery streak in July 2020).
Market reactions to CPI data. US dollar up, stocks down pic.twitter.com/UmXIXaoVzg
— Benzinga (@Benzinga) October 12, 2023
Ralph Ratterman, asset manager at DHF Capital, says:
The dollar rebounded today after six consecutive days of losses after US inflation data emerged higher than expected, indicating that it might not be slowing down.
A more resilient inflation could support the Federal Reserve’s aggressive monetary policy and could see interest rates remain at elevated levels for longer, supporting wider rate differentials with other major currencies.
While it recovered to a certain extent this month, the euro could come under renewed pressure from a stronger dollar. At the same time, the softer tone of the ECB could help maintain its downtrend against the USD while economic risks in the euro area could continue to fuel traders’ concerns.
Similarly, the British pound could continue to weaken against the dollar due to the muted economic growth and the potentially softer direction in monetary policy. While GDP growth figures in the UK met expectations, industrial production figures were weaker than expected and could pull the currency down.
The Dyson technology group has paid a £1.2bn dividend to the Singapore-based family holding company of its founder, the entrepreneur Sir James Dyson.
Britain’s fifth-richest man moved Dyson’s corporate headquarters to Singapore in 2019. And new corporate filings published in the city state’s corporate registry show that Dyson Holdings paid £1.2bn to Weybourne Holdings in 2022.
Bloomberg, which reported the payment earlier today, adds:
Dyson founded his technology business in the early 1990s and has expanded its products to fans, hair dryers and noise-canceling headphones.
The firm said in 2019 it would shift its base from the UK to Singapore and opened a new global headquarters in the city-state last year with plans to invest more than $1 billion to expand research and engineering capabilities. The company also plans to bolster its presence in the Philippines, where it already has a factory producing electrical motors.
UK billionaire James Dyson’s technology firm shifted another 10-figure dividend to his family holding company last year. https://t.co/o7GdRLsdGm
— Bloomberg (@business) October 12, 2023
Boots owner to cut costs by $1bn
Walgreens Boots Alliance, the US owner of the UK’s Boots chemist chain, has said it will cut costs by $1bn and lower spending on new projects by $600m after diving to a $6.9bn annual loss, my colleague Sarah Butler reports.
The group said it had slid into the red in the year to the end of August, from a $1.4bn
profit a year before, after a $6.8bn charge related to claims and legal action related to Walgreens’ role in the US’s opioid crisis.
Interim chief executive officer Ginger Graham said:
“Our performance this year has not reflected WBA’s strong assets, brand legacy, or our commitment to our customers and patients.”
It is understood that the cost cutting plan is focused on the group’s US business and will not affect plans in the UK where Boots sales rose 12.5% for the year helped by high inflation, a 4% increase in visitors to stores and strong growth online.
Underlying profits for Walgreens’ international business, of which Boots is an
important part, rose nearly 29%. Boots is on track to close 300 of its 2,000-plus stores this year while investing in updating its beauty departments and extending its online doctor service.
As flagged earlier, Boots reported an 11.7% rise in sales in the last quarter.
Updated
Ikea pledges to cut furniture prices as inflation pressure eases
Ikea, the flat-pack furniture giant, has announced it has started cutting prices – a sign that inflationary pressures and supply chain disruption are easing.
Ikea has pledged it has a “clear intention” to reduce prices this financial year, which started in August.
UK and Ireland chief executive Peter Jelkeby has said:
“Knowing that our customers continue to navigate a cost-of-living crisis, we absorbed significant cost increases to mitigate price rises as much as possible, investing in promotions, special offers, and, for the first time, an Easter sale.
“As we see supply chain costs start to ease, we have a clear commitment to lowering prices accordingly.
Jon Abrahamsson Ring, the CEO of Inter Ikea Group (which owns the brand and concept) has told Bloomberg:
“I think 2023 was the year where we turned the corner on prices and started lowering them again.”
The company is cutting prices across a range of products, including a 20% cut on the popular book shelf Billy, he added.
Overall US CPI moved up to 3.70% in September from 3.67% in August, the 3rd straight month with an increasing YoY inflation rate.
— Charlie Bilello (@charliebilello) October 12, 2023
US Core CPI (ex-Food/Energy) moved down to 4.1% YoY, the lowest core inflation reading since September 2021. pic.twitter.com/zdsADe4AMG
Marcus Brookes, chief investment officer at Quilter Investors, argues that the Federal Reserve should allow its interest rate increases to work their influence on the US economy and bring inflation lower.
Following today’s inflation report, Brookes explains:
“US inflation held at 3.7% in August, following a slight uptick over the summer, while core inflation increased by 0.3%. Despite its refusal to budge more recently, the US remains in a much better place in the battle against inflation compared to other developed economies, and it is from this position of strength that its economy has been able to resist any recessionary prediction to date.
“However, just as markets were concerned when inflation spiked last year, they will be equally as concerned about the future path of inflation and what happens next. As inflation has come down, it has become incredibly stubborn once again and is not likely to reach target for some time. This leaves the Federal Reserve in a tricky place once again. It wants inflation to come back to target, but as it is likely to persist above that level for some time, what can it do? One option it has been mooting is to act now and carry out another interest rate rise this year, but risk overcorrecting. Or it can wait and continue with this higher for longer message that has spooked markets in recent weeks, but risk moving too slowly.
“The current level of interest rates and the speed in which they have been raised should be enough to bring inflation back down, and given the lag effects of monetary policy it needs to be given a chance to work. Clearly geopolitical issues of recent weeks could have an inflationary impact and thus will need to be watched closely, but for now the contagion effect is low.”
Updated
At 3.7% in both August and September, the US enjoys lower inflation rate than many other advanced economies.
In the eurozone, inflation dropped to 4.5% in September, down from 5.3% in August.
The UK’s September inflation report is due next week; UK CPI was 6.7% in August.
On US inflation, Richard Flynn, managing director at Charles Schwab UK, says:
“Today’s figures show that the rate of inflation remains stable compared to last month. While the lack of a fall in the rate may be disappointing to the Fed, it is likely not surprising following last week’s jobs report which showed that the labour market remains hot – a factor that can put upward pressure on prices.
As for how this will impact interest rates, at this point, “higher-for-longer” may be more important than “how high?”. Whether or not the Fed opts for hikes, it’s unlikely we’ll see rates drop below where they are for as long as the inflation dragon proves difficult to slay.”
US CPI 3.7% YoY EXPECTED 3.6% pic.twitter.com/e0SlNfuKEj
— Sandeep Nirvan 📈 📈 🧬😃 (@Sandeepnirvan_) October 12, 2023
US inflation sticks at 3.7%
US inflation was higher than expected last month, which may dampen hopes that interest rates have peaked on that side of the Atlantic.
The US consumer prices index rose by 3.7% per year in September, the same reading as in August.
That dashes hopes of a small drop in US inflation, with economists having predicted it would fall to 3.6%.
The energy index decreased 0.5% for the 12 months ending September, and the food index increased 3.7% over the last year.
Core inflation, striping out food and energy, rose 4.1% over the year.
During September alone, prices rose by 0.4%, slowing from the 0.6% increase in August.
Shelter (ie housing costs) accounting for over half of the increase, while high motor fuel prices also added to inflation.
CPI
— Shay Boloor (@StockSavvyShay) October 12, 2023
• YoY: 3.7% vs 3.6% est; 3.7% prior
Core CPI
• YoY: 4.1% vs 4.1% est; 4.3% prior pic.twitter.com/Vy0htcGdlz
Getting back to this morning’s UK GDP report… the arts, entertainment and recreation sector had a tough August.
Activity in this part of the economy fell by 7.4% in August, the Office for National Statistics reports.
That made it the worst-performing part of the service sector.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, says bad summer weather hit the sector:
As the rain continued though August, combined with a squeeze on budgets August proved to be a very dismal month for the arts, entertainment, and recreation industry. Overall activity in this sector of the economy fell by 7.4%.
Downpours disrupted festivals and outdoor arts events and sporting fixtures, with wellies and mud a difficult substitute for hoped for sandals and sunshine.
UK high street chain Boots has just reported its tenth consecutive quarter of market share growth.
Boots, which is part of Walgreens Boots Alliance, says its retail sales grew by 11.7% year-on-year in the three months to 31 August.
Skincare sales were up nearly 25%, Boots says, adding:
The UK’s number one skincare brand, No7, was up over 20% driven by sales of the new Future Renew range, while premium beauty continued to grow rapidly with sales up 20% for the quarter.
The cost of living squeeze also encouraged take-up of Boots’ Advantage card, where active users hit a three-year high. Sales of Boots Everyday essentials products are up 25%.
Seb James, managing director, Boots UK and ROI, said:
“I am really encouraged to see continued strong performance as the work that we have done to expand our ranges, drive value and innovate in beauty seems to be resonating extremely well with customers.
We have great plans for the year ahead including our new Beauty store in Battersea, a further extension of our beauty category, expansion of our online doctor service and much more. I would like to thank the 52,000 people that make up the Boots business for the hard work and resilience that has made this possible.”
IMF chief says Israel-Hamas war is dimming global outlook
Shocks are becoming the new normal for an already weakened global economy, the head of the International Monetary Fund has warned, pointing to the war between Israel and Hamas as the latest cloud on a darkening horizon.
Kristalina Georgieva said the IMF had already been carrying out “thinking the unthinkable” scenario-planning even before this week’s violence in the Middle East became the latest setback to hopes of recovery.
The IMF managing director said it was too early to assess what the impact of the war would be on the global economy, but added:
“Very clearly this is a new cloud on not the sunniest of horizons. A new cloud darkening the horizon is not good.”
More here.
Several economists are predicting that the Bank of England will not raise interest rates higher, following today’s GDP report.
Daniel Mahoney, UK economist at Handelsbanken, says August’s growth report reinforces the view that the UK economy is currently flatlining.
Mahoney explains:
Stagnant to slow growth is likely to be a feature of the UK economy in the short term.
We remain of the view that interest rates have peaked at 5.25% in this cycle, unless we see any surprising results from the labour market and inflation figures next week.
Julian Jessop, economics fellow at right-wing think tank the Institute of Economic Affairs, agrees that another rate rise is unlikely:
“The latest GDP data show that the UK economy is flipping between growth and contraction on an almost monthly basis.
“The economy will now probably have to grow by 0.2 per cent or more in September to avoid the first of two successive quarters of falling output that would mark a technical ‘recession’.
“At the very least, growth is currently weaker than the Bank of England had been expecting, making another interest rate hike even less likely.”
Back at Southwark Crown Court, Bernie Ecclestone has received a suspended sentence of 17 months for fraud.
Ecclestone was sentenced by Judge Simon Bryan, after the former Formula One boss pleaded guilty this morning to misleading Britain’s tax authority about overseas assets worth more than £400m (see earlier post).
Judge Bryan gave Ecclestone a 17-month prison sentence suspended for two years, meaning he will only go to jail if he commits another criminal offence during that time.
#BernieEcclestone #FormulaOne Former Formula One boss Bernie Ecclestone gets 17 months jail suspended for two years after pleading guilty to fraud.
— Martin Brunt (@skymartinbrunt) October 12, 2023
In a statement provided by his lawyers, Jes Staley has said he is “very disappointed” by the FCA’s decision, and that he will continue to challenge it [by referring it to the Upper Tribunal].
Staley says:
“If I had known who JE [Jeffrey Epstein] really was, there is absolutely no doubt that I wouldn’t be in the position I am in today. Prior to undertaking my former role, it was known that I had had a relationship with JE.
“I have worked tirelessly over the last 43 years and have genuinely supported many people/ social causes, where others might not have done so. I am very disappointed by the FCA’s decision and I will continue to challenge it. I will not comment any further until these proceedings are concluded.”
Updated
Barclays: Staley to lose £17.8m in bonuses
Barclays says its Remuneration Committee has concluded that Jes Staley should be ineligible for or forfeit a number of awards, following the FCA’s ruling today.
That includes his bonus for 2021, Barclays told the City in an announcement.
It also includes a series of unvested bonuses through Barclays Long-Term Incentive Plan, and other deferred bonuses and deferred compensation awards, with a total value of £17.8m.
That includes long-term share payouts that had not yet vested worth £15.7m, as well as £2.1m in deferred bonus awards from earlier years that have been clawed back.
In February 2022, Barclays said it had frozen about £22m worth of bonuses for Staley, while it waited for developments in the regulatory investigation into its former CEO, who had resigned in November 2021.
Barclays also says today that it cooperated fully with the regulatory investigation, and there are no findings against it or any of its directors or employees in the Decision Notice.
Updated
Bank of England backs FCA over Staley
The Bank of England says it supports the FCA’s action against Jes Staley.
A Prudential Regulation Authority spokesperson says:
“We support the FCA’s decision announced today against Jes Staley. It is imperative that senior managers act with integrity and are open and cooperative with the regulators”
FCA fines and bans Jes Staley over Epstein statements
Newsflash: The UK’s financial regulator has decided to fine the former CEO of Barclays, Jes Staley, £1.8m and ban him from holding a senior management or significant influence function in the financial services industry.
The FCA has found that Mr Staley recklessly approved a letter sent by Barclays to the FCA, which contained two misleading statements about the nature of his relationship with Jeffrey Epstein and the point of their last contact.
Therese Chambers, joint Executive Director of Enforcement and Market Oversight at the FCA, says:
“A CEO needs to exercise sound judgement and set an example to staff at their firm. Mr Staley failed to do this. We consider that he misled both the FCA and the Barclays Board about the nature of his relationship with Mr Epstein.
“Mr Staley is an experienced industry professional and held a prominent position within financial services. It is right to prevent him from holding a senior position in the financial services industry if we cannot rely on him to act with integrity by disclosing uncomfortable truths about his close personal relationship with Mr Epstein.”
Staley has referred the case to the UK’s Upper Tribunal for reconsideration, where he will present his case, so today’s findings are provisional.
The letter, sent by Barclays to the FCA, claimed that Staley did not have a close relationship with Epstein.
However, in emails between the two, “Mr Staley described Mr Epstein as one of his “deepest” and “most cherished” friends”, the FCA says.
The letter from Barclays to the FCA also claimed Staley ceased contact with Epstein well before he joined Barclays. However, Staley was in fact in contact with Epstein in the days leading up to his appointment as CEO being announced on 28 October 2015. Staley joined Barclays in December 2015, the FCA points out.
Updated
BoE Pill: Further interest rate rises a 'finely balanced' decision
Newsflash: The Bank of England’s chief economist has said that the decision of whether to raise UK interest rates higher is “finely balanced”.
Speaking in Marrakech, where the IMF and the World Bank are holding their annual meeting, Huw Pill pointed out that much of the Bank’s earlier rate hikes have yet to “come though” and affect the real economy.
Pill, a member of the Bank’s Monetary Policy Committee, said:
“We have done a lot over the last two years. A lot of that policy is still to come through.
“Whether we’ve done enough - or whether we have more to do – I think is becoming a more finely balanced issue.
But we will do what we need to do in order to have inflation at 2% on a lasting basis.”
The BoE has raised interest rate 14 times since December 2021, to a 15-year high of 5.25%.
As reported at 6.49am, Pill’s fellow MPC member Swati Dhingra believes that only a quarter of the impact of those rate rises has actually been felt.
Dhingra told the BBC:
“The economy’s already flatlined. And we think only about 20% or 25% of the impact of the interest rate hikes have been fed through to the economy.
FTSE 100 hits three-week high
City traders are shrugging off concerns that the UK economy could fall into recession later this year.
The FTSE 100 index has jumped by 65 points this morning, or 0.85%, to 7685 points.
Gold producer Endeavour Mining (+2.6%, oil giant BP (+2.6%) and mining giant Rio Tinto (+2.1%) are the top risers.
Markets are continuing to hope that central bankers are close to ending their cycle of interest rate increases.
The latest US inflation report, due at 1.30pm UK time, will influence whether the Federal Reserve keeps hiking, or stops.
Victoria Scholar, head of investment at interactive investor, says,
“European markets continue their upward climb this morning driven by basic resources as well as oil and gas. Oil prices are also trading higher but remain sharply below recent highs. This has lifted BP and Shell towards the top of the FTSE 100…
After US annual PPI rose by 2.2% in September, above expectations for 1.6%, all eyes are on US CPI figures today for clues into the outlook for inflation and the Fed’s next move. Minutes from the central bank’s latest meetings [released last night] suggested that interest rates look set to remain high for ‘some time.’”
Ex-Formula One boss Bernie Ecclestone has pleaded guilty to fraud
Newsflash: Ex-Formula One boss Bernie Ecclestone has pleaded guilty in a London court on Thursday to one count of fraud for making dishonest representation to Britain’s tax authority.
The 92-year-old appeared at Southwark Crown Court and pleaded to one count of fraud by false representation, just over a month before he was due to stand trial.
Reuters reports:
Prosecutors said Ecclestone made untrue or misleading representations to HM Revenue and Customers at a July 2015 meeting, when he said he “established only a single trust” in favour of his daughters.
Ecclestone, accompanied by his wife Fabiana, spoke only to confirm his name and to enter his plea.
#Breaking Ex-Formula One boss Bernie Ecclestone has pleaded guilty to fraud at Southwark Crown Court after failing to declare more than £400 million of overseas assets to the Government pic.twitter.com/uCLwehgajp
— PA Media (@PA) October 12, 2023
Back in July 2022, Ecclestone was accused of fraud after an investigation by UK tax authorities allegedly found undeclared assets worth more than £400m overseas.
In August 2022 he pled not guilty.
Updated
UK lenders expect rise in loan defaults
More UK households defaulted on their secured loans, such as mortgages, in the April-June quarter, and the situation is expected to worsen in the July-September quarter.
The Bank of England’s latest credit conditions report, just released, shows that losses and default rates on secured loans to households increased in Q2, and were expected to increase in Q3.
That suggests that the increase in UK interest rates, which began in December 2021, have left some households unable to meet their mortgage payments or car financing packages.
Lenders also reported that they restricted the availability of secured credit to households in Q2, and expect to cut back further in Q3.
The 2023 Credit Conditions Survey - Q3 shows demand for lending continue to wane & is expected to remain lacklustre over winter, as mortgage buyers tread carefully, watching for further movement on rates & prices before purchasing. @bankofengland pic.twitter.com/b8EJ7F2PH6
— Emma Fildes (@emmafildes) October 12, 2023
Hina Bhudia, partner at Knight Frank Finance, said:
“Demand for mortgages is set to decline over the coming three months. Transaction activity in the property market is slowing and many borrowers are still rolling off sub-2% deals and are eager to put off refinancing where they are able to do so.
“Borrowers that do act are generally opting for trackers. For many people, the risk that monthly payments increase in the event of another interest rate hike is worth taking if it gives them the opportunity to see cuts in their monthly outgoings next year. Typical two year trackers at 75% LTV are still above 5.50%, while retail bank tracker products sit a little over 1% above the base rate.
Lenders also reported that overall demand for unsecured lending increased in April-June, and was expected to increase slightly in Q3.
That may show that consumers are relying on credit cards to pay bills. The Bank of England explains:
Within the overall figure, demand for credit card lending and other unsecured lending both increased in Q2. Credit card lending was expected to increase further in Q3 and other unsecured lending was expected to remain unchanged.
Updated
Melanie Baker, senior economist at Royal London Asset Management, fears the UK will not avoid a recession.
Baker says:
“Despite past ONS revisions improving the Covid-era backstory for GDP, since early 2022 it still looks like the UK economy has barely grown.
“The past three months have again been bumpy for UK GDP, and the economy looks on track for a fall in GDP in the third quarter. The extra bank holiday hit output in May, June bounced back stronger than expected, then July saw a bigger than expected fall. Taking all these months together, GDP hasn’t grown since April. If, say, the economy grew another 0.2% month-on-month in September, that would leave Q3 tracking a 0.1% quarter-on-quarter fall in GDP.
“For now, the picture of the economy coming from the data is lacklustre. Given how much monetary policy tightening we’ve had it is still somewhat surprising that the UK economy has managed to avoid recession so far. I am not convinced it will continue to do so. PMI business surveys are looking consistent with falls in private sector output and the labour market has been showing more signs of weakness.
Analysts at Investec predict the UK economy will stagnate or shrink slightly over the third quarter of this year.
Following the news that the economy returned to growth in August, after July’s contraction, Investec’s Sandra Horsfield says:
UK monthly GDP figures published this morning reported that output rebounded in August, by 0.2% on the month, in line with both our and the consensus forecast.
Coming after a 0.6% fall in output in July (initially reported as -0.5%) this leaves the possibility of a contraction in GDP in Q3 as a whole on the table. Indeed, in the absence of revisions to back data next month, it would take a monthly rise of 0.4% in output to prevent a quarter-on-quarter drop over Q3. More likely is a zero or small negative quarterly print.
This is likely to be welcomed by the Bank of England as an indication that the tough medicine of very rapid rate rises is starting to take effect – without, so far, hinting at a deep recession.
In the foreign exchange markets, the Russian rouble has jumped in value after Moscow introduced capital controls to support the currency.
Last night, Russia said Vladimir Putin had signed a decree reintroducing capital controls for some exporting firms.
These companies will be required to sell their earnings from foreign sales on the domestic market for roubles.
First Deputy Prime Minister Andrei Belousov said in a statement that:
“The main purpose of these measures it to create long-term conditions for increasing the transparency and predictability of the FX market, reducing the opportunity for currency speculation.”
The rouble has gained almost 3% against the US dollar this morning, to around 96.8 to the $1.
Last week it fell through the 100/$ mark for the first time since mid-August, which prompted Russia’s central bank to hike interest rates from 8.5% to 12%, and Putin to consider reintroducing capital controls.
Russia is having to pull out all the stops this week to prevent the weak rouble from falling through the 100 roubles = 1 dollar psychological barrier.
— Timothy Phillips (@TSJPhillips) October 11, 2023
For comparison, in 2013 it took:
30 roubles to buy a dollar (98 today)
€0.75 to buy a dollar (0.94 today)
£0.65 to buy a dollar… pic.twitter.com/apT5G29rAg
More surveyors report falling UK house prices than at any time since 2009
UK house prices are falling at the fastest extent since 2009, after the financial crisis, a new poll of the country’s surveyors has found.
A greater proportion of surveyors are reporting falling UK residential property prices than at any time since after the financial crisis, the Royal Institution of Chartered Surveyors (RICS) reported this morning.
The RICS house price balance, which measures the difference between the percentage of surveyors seeing rises and falls in home prices, fell to -69 for September, slightly worse than the -68 recorded in August.
RICS reports that “house prices remain on a downward trajectory at the national level”, adding:
While almost all parts of the UK are witnessing house prices retreat, downward pressure appears most significant across the West Midlands and the South East of England.
For renters the rental outlook remains grim with @RICSnews surveyors forecasting further growth over the next year, averaging 5% nationally, as a result of the persistent demand & supply imbalance pic.twitter.com/ANGxc9Yq1d
— Emma Fildes (@emmafildes) October 12, 2023
KPMG fined record £21m over Carillion audit failures
Britain’s accounting regulator has fined KPMG a record £21m for audits of Carillion, the builder that imploded in 2018 and prompted a root and branch review of auditing standards.
“The number, range, and seriousness of the deficiencies in the audits of Carillion during the period leading up to its failure was exceptional and undermined that credibility and the public trust in audit,” said Elizabeth Barrett, executive counsel for the Financial Reporting Council (FRC).
“This is reflected in the financial sanction imposed on KPMG LLP, the highest ever imposed by the FRC.”
UK GDP: Political reaction
The health of the economy will be a key factor in the next general election campaign, with the IMF warning this week that the UK will be the slowest-growing nation in 2024.
This morning, chancellor of the exchequer Jeremy Hunt has welcomed the pick-up in GDP in August, saying:
“The UK has grown faster than France and Germany since the pandemic and today’s data shows the economy is more resilient than expected. While this is a good sign, we still need to tackle inflation so we can unlock sustainable growth.”
But Labour shadow chancellor Rachel Reeves says:
“Under the Conservatives, Britain’s economy remains trapped in a low growth, high tax cycle that is leaving working people worse off.
“Labour will get our country building again so we can boost growth, make working people better off and get Britain’s future back.”
Updated
Apollo to buy Wagamama owner in £506m deal
In the City, the owner of eatery chain Wagamama is being taken over by a US private equity firm in a £500m+ deal.
The Restaurant Group (TRG) has agreed to be bought by a vehicle owned and managed by Apollo Global, at a price of 65p per share – a 34% premium to its closing price last night.
That values TRG at approximately £506m.
Apollo says it has closely followed TRG over many years and believes it is:
…a high quality and leading company in the casual dining market with an attractive portfolio of concepts and brands and an experienced management team with a clear vision and strategy for the future direction of TRG.
TRG has been hit by soaring energy and raw material prices over the last 18 month or so.
Last month, it agreed a deal to sell its Frankie & Benny’s and Chiquito chains to Cafe Rouge owner Big Table Group.
TRG’s chair, Ken Hanna, also recently agreed to step down after growing pressure from activist investors.
Updated
Here’s NIESR, the independent research institute, on this morning’s UK GDP report:
Today’s ONS figures suggest that monthly #GDP grew by 0.2 per cent in August, following a fall of 0.6 per cent in July, driven by increased output in the services sector - particularly in the professional, scientific and technical activities, and education subsectors - which
— National Institute of Economic and Social Research (@NIESRorg) October 12, 2023
1/3
was partially offset by declines in production and construction sector output. #GDP increased by 0.3 per cent in the three months to August relative to the previous three month period; however, with higher-frequency indicators for September pointing to declining output in
— National Institute of Economic and Social Research (@NIESRorg) October 12, 2023
2/3
the major sectors as well as muted spending, it is unclear whether we can expect overall #growth in the third quarter of this year.
— National Institute of Economic and Social Research (@NIESRorg) October 12, 2023
3/3
📈Stay tuned as our full analysis will be out shortly⬇️https://t.co/k40Ii3Afea
Hussain Mehdi, macro & investment strategist at HSBC Asset Management, warns that the UK faces an “elevated recession risk”, despite GDP rising 0.2% in August.
Mehdi explains:
“A sequential pickup in growth in August was widely expected following the prior month’s weather and strike-related disruption. However, more contemporaneous economic indicators could paint a picture of an economy flirting with recession amid tight monetary policy and persistently high inflation.
We believe there is a good chance the Bank of England is done with its hiking cycle and that rates are more likely to remain higher-for-longer in the UK given sticky wage growth.
After a poor July, the UK economy bounced back in August, says Neil Birrell, chief investment officer at Premier Miton Investors.
But, Birrell also warns there is a real risk of recession, saying:
Like a number of other economies, the UK economy continues to confound not just the worst, but most expectations in remaining relatively robust.
The Fed has indicated it will proceed carefully on policy and the Bank of England must do the same as it balances the inflation versus growth equation. Recessionary risk remains real, but the damage that could be done by ongoing high inflation is a threat.”
Capital Economics: UK still heading into recession
August’s pick-up in GDP will not prevent the UK economy contracting over the third quarter of 2023, fears City consultancy Capital Economics.
Ruth Gregory, their deputy chief UK economist, predicts the UK economy will shrink in the July-September quarter, and again in October-December.
That would mean two consecutive quarters of contraction – the technical definition of a recession.
Gregory explains:
The 0.2% m/m rise in real GDP in August, following July’s 0.6% m/m contraction will raise hopes that the economy has escaped a recession.
But some of the strength of GDP in August was due to temporary factors and the timelier survey measures of activity point to a drop in real GDP in September.
So we are sticking to our below-consensus forecast that the economy will shrink by 0.2% q/q in both Q3 and Q4.
Updated
The British Chambers of Commerce fears the UK economy is still in a precarious state.
David Bharier, head of research at the BCC, says:
“With GDP growing by 0.3% in the three months to August, and by 0.2% on a monthly basis, the UK economy is holding up but remains in a precarious state. The production sector in particular has seen worrying data revisions showing stark monthly falls in growth.
“Our research is clear about the issues UK firms are facing - three years of economic shocks, high inflation and interest rates, skills shortages, and trade barriers with the European Union. Consequently, most SMEs report no increase in their investment plans.
“Businesses need to see a strategic vision for the long-term framework for investment in the UK. Recent policy announcements around projects, such as HS2, will have generated more uncertainty for businesses searching for stability.”
ICAEW: UK uncomfortably close to recession
Although the UK has returned to growth, the economy is still weak, warns Suren Thiru, economics director at ICAEW.
Thiru says high interest rates are hurting growth, meaning the UK economy will remain “uncomfortably close to recession” into 2024.
“This disappointingly weak return to growth points to an economy fraying at the edges as inflation and higher interest rates hinder businesses and consumers.
“August’s GDP increase largely reflected the reversal of the squeeze on July’s activity in services from poor weather and strike action.
“With inflation, higher taxes and the lagged impact of previous interest rate rises weighing heavily on consumer demand and business activity, the UK is likely to remain uncomfortably close to recession well into next year.
“These underwhelming GDP figures provide further evidence that higher borrowing costs are hurting the economy, making an interest rate rise in November less likely.”
Now here’s a funny thing.
The education part of the UK economy grew by 1.6% in August, after a fall of 1.7% in July where there were two days of industrial action by teachers in England.
You might remember, though, that schools were actually closed across England, Wales and Northern Ireland through August, while Scotland’s pupils returned to their desks halfway through the month.
The GDP report, though, doesn’t account for holidays.
The ONS says:
Please note that education attendance is considered to be constant over the school year so summer holidays do not reduce the estimate of education output in August 2023.
Looking at the three months to August 2023, compared with the three months to May 2023, education output showed no growth.
Updated
The jump in service sector growth was partly driven by the “Professional, scientific and technical activities” part of the economy, which expanded by 1.2% in August.
The ONS says:
The architectural and engineering activities; technical testing and analysis industry was the largest contributing industry, growing by 4.7% in August, followed by legal activities, which grew by 2.3%.
The “Information and communication” part of the economy grew by 0.9% in August, driven by “computer programming, consultancy and related activities” (which grew by 2.4% in August after a fall of 3.1% in July).
ONS: Strong growth in services in August
The economy grew “a little” in August, reports ONS Director of Economic Statistics Darren Morgan.
Morgan says:
“Our initial estimate suggests GDP grew a little in August, led by strong growth in services which was partially offset by falls in manufacturing and construction.
“Within services, education returned to normal levels, while computer programmers and engineers both had strong months.
“Across the last three months as a whole the economy has grown modestly, led by car manufacturing and sales, and construction.”
UK GDP: The key chart
Newsflash: UK economy returns to growth in August
The UK economy returned to growth in August, as activity picked up after a worst-than-expected slump in July.
GDP rose by 0.2% in August, the Office for National Statistics reports, which matches City expectations.
The services sector grew by 0.4% in August, the Office for National Statistics reports, but there was a contraction in the production sector and in construction.
However, July’s GDP report has been revised down to show a fall of 0.6%, worse than the 0.5% first estimated.
GDP grew 0.2% in August.
— Office for National Statistics (ONS) (@ONS) October 12, 2023
▪️ services grew 0.4%
▪️ production fell 0.7%
▪️ construction fell 0.5%
➡️ https://t.co/xRGyis2jY8 pic.twitter.com/TEooaUIyyi
Commenting on today’s GDP figures Darren Morgan, Director of Economic Statistics, ONS said: (1/3) 💬 pic.twitter.com/0VvqGbA5i4
— Office for National Statistics (ONS) (@ONS) October 12, 2023
.@DarrenM44 continued: (2/3) 💬 pic.twitter.com/bcJkrl0YzH
— Office for National Statistics (ONS) (@ONS) October 12, 2023
.@DarrenM44 went on to say: (3/3) 💬
— Office for National Statistics (ONS) (@ONS) October 12, 2023
➡️ https://t.co/xRGyis2jY8 pic.twitter.com/d3JiAkmx33
Updated
BoE's Dhingra says economy has 'already flatlined'
A Bank of England policymaker has warned that the UK economy has already flatlined.
Swati Dhingra, a member of the Monetary Policy Committee, has told the BBC that only around a quarter of the impact of the Bank’s 14 interest rates rises have fed through to the economy.
Dhingra, the most dovish member of the MPC, warned:
“The economy’s already flatlined. And we think only about 20% or 25% of the impact of the interest rate hikes have been fed through to the economy.
“So I think that there’s also this worry that that might mean that we’re going to have to pay a higher cost than we should be paying.”
Dhingra, who has consistently opposed interest rate rises, also fears that higher interest rates will hurt younger workers and those on lower incomes the hardest.
“The kinds of price increases that we’re seeing, which is energy and food, those will typically impact those people more.
And then the interest rates will also typically impact younger, less educated people more. So….eventually when we come out of all of this, we’re going to see that possibly inequality is going to rise.”
Andy Vermaut shares:Higher rates punish low paid, says Bank's Swati Dhingra: Member of the Monetary Policy Committee thinks higher rates hurt the low paid and young https://t.co/9WoVkkOedo Thank you pic.twitter.com/H6KuAuFZSX
— Andy Vermaut (@AndyVermaut) October 12, 2023
Introduction: UK August GDP report coming up
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
We’re about to learn if the UK returned to growth in August, after a worrying slump in activity in July.
The Office for National Statistics releases its latest estimate of UK gross domestic product at 7am.
City economists predict that GDP rose by 0.2% in August, having shrunk by 0.5% in July when the economy was held back by wet weather and industrial action.
The weather wasn’t much to write home about in August either, and there were more strikes in the NHS and also on the railways
Adam Cole of RBC Capital Markets warns that the “impact of industrial action will again loom large” in today’s data.
Cole adds:
Recovery from July’s strikes will be captured in the August GDP release, but indicators of private sector activity for the month were mixed.
Danni Hewson, head of financial analysis at AJ Bell, warns that the UK is at risk of recession.
“The economy has been remarkably resilient, but cracks are beginning to show, not least in the jobs market as higher borrowing costs and those pervasive high prices continue to weigh on businesses and households.
“But even if the UK did manage to trudge in the right direction in August the lack of pace is of concern, and it doesn’t take much for a shuffle to stumble to a halt and from there it’s one small step towards recession.
Also coming up today
Investors will be watching for the latest US inflation report. It is expected to show a small slowdown, to 3.6% from 3.7% in July.
This will influence the Federal Reserve’s next decision on whether to raise interest rates higher, or not.
DAY AHEAD
— TrackRecord Trading (@TradewithTR) October 12, 2023
The UK GDP is expected to show a YoY growth of +0.5% in August (vs 0% in July).
The ECB monetary policy meeting accounts for the September meeting will be released.
The US Consumer Price Index for September is expected to show that prices rose +3.6% Year-on-Year,…
The agenda
7am BST: UK GDP report for August
9am BST: IEA monthly oil market report
12.30pm BST: ECB publishes its latest monetary policy meeting accounts
1.30pm BST: US CPI inflation report for August
