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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Asda and Morrisons rationing some fruit and vegetables; UK private sector returns to growth – as it happened

United States United Kingdom Jeremy Hunt Citizens Advice Inflation 38 Degrees Office for National Statistics
Scales to weigh loose fresh produce in the UK supermarket Asda in Leeds
Scales to weigh loose fresh produce in the UK supermarket Asda in Leeds Photograph: Molly Darlington/Reuters

Several factors are behind the shortage of foods in UK supermarkets, explains Abhi Ghadge, Associate Professor of Supply Chain Management at Cranfield School of Management

“Frequent shortages of food items in the UK’s supermarkets have raised questions regarding the long-term availability of food in the UK.

“However, this broader issue links several aspects, from changing climatic conditions to Brexit to soaring energy and labour costs. For example, British and European farmers have scaled back on producing certain foods, such as tomatoes, due to the rising cost of heating greenhouses and labour.

“The shortages of food items in the UK are expected to continue with fresh salad (including cucumbers), cabbages and cauliflowers in the next few days. However, some of these food items are grown outside the EU; thus, purely blaming Brexit for the shortages is inappropriate.

Supermarkets need to think of innovative solutions rather than just blaming suppliers, Ghadge adds:

Local sourcing and alternate suppliers are some of the commonly used supply chain strategies to manage such issues. The UK government needs to build resilience around these recurring issues associated with food shortages. Investing in in-house greenhouse projects and looking for availability beyond Europe may provide some solutions.”

Closing summary

Time for a recap…

Asda and Morrisons are bringing in rationing of salad items including tomatoes, peppers and cucumbers amid shortages caused by poor weather in southern Europe and north Africa.

Asda is limiting shoppers to three items each on eight fresh produce lines – including broccoli, cauliflower, raspberries and lettuces – to ensure all customers can get what they need.

Morrisons is putting limits of two per item on tomatoes, cucumbers, lettuce and peppers from Wednesday. A spokesperson said:

“Like other supermarkets, we are experiencing sourcing challenges on some products that are grown in southern Spain and north Africa.

The British Retail Consortium, which represents all the big grocers, expects the supply disruption to last a few weeks.

Here’s the full story:

The National Farmers Union has warned that “Volatility, uncertainty and instability” are endangering UK farm businesses, and called for more help on energy bills.

On the economic front, the UK recorded a surprise budget surplus of over £5bn in January, helped by a surge in tax takings. This has spurred calls for chancellor Jeremy Hunt to address public sector pay disputes.

But Downing Street has played down suggestions that there could be tax cuts in next month’s budget.

The prime minister’s spokesman warned:

Borrowing remains at record highs and there is significant uncertainty and volatility which poses clear risks to the fiscal position.”

The UK’s private sector has returned to growth, boosting hopes that Britain may avoid a recession in the near term. The news pushed the pound to its highest in around a week.

In the cost of living crisis, campaigners have called for private housing landlords to be held to new standards set out after the death of Awaab Ishak.

Research from Citizens Advice found that 1.6 million children live in privately rented homes with damp, mould or excessive cold.

The energy crisis stemming from the war in Ukraine had cost the equivalent of £1,000 for every UK adult, research shows.

Royal Mail has restarted international parcel and letter deliveries through Post Office branches almost six weeks after it revealed it had been affected by a ransomware cyber-attack that hit its international services.

Ofgem has told energy suppliers to uninstall prepayment meters that have been wrongly force-fitted and pay compensation now, rather than wait for the outcome of a review.

HSBC has increased bonus payouts for its chief executive after fourth-quarter profits more than doubled on the back of a jump in mortgage and loan costs for its borrowers.

Updated

NFU president: salad production expected to be lowest since 1985

The head of the National Farmers Union has warned that soaring costs and energy bills are hitting the sector, hurting domestic food production.

NFU president Minette Batters told the union’s conference today that agricultural inputs having risen almost 50% since 2019, with a knock-on impact on production.

Batters warned that salad production could hit the lowest in decades:

UK egg production has fallen to its lowest level in nine years. Which means there were nearly a billion less eggs produced in 2022 compared to 2019.

Production of salad ingredients like tomatoes and cucumbers are expected to fall to the lowest levels since records began in 1985

She also called on the government for dedicated support for the energy intensive sectors of agriculture and horticulture, saying:

The situation seems ridiculous. The Royal Botanical Gardens , as important as they are, qualify for the scheme. But the protected crop sector – those growing tomatoes, cucumbers, aubergines and peppers to feed British families – don’t.

Morrisons is also introducing restrictios – limits of two items per customer across tomatoes, cucumbers, lettuce, peppers from Wednesday.

Asda: temporary limit means customers can get products they want

Asda says its three bag limit for purchases of tomatoes, peppers, cucumbers, lettuce, salad bags, broccoli, cauliflower and raspberries will mean customers can buy the products they want.

An Asda spokesperson says:

“We have introduced a temporary limit of three of each product on a very small number of fruit and vegetable lines, so customers can pick up the products they are looking for,”

Waitrose executive director, James Bailey, has blamed an “extraordinary weather event” in Spain and North Africa on the shortages at fruit and vegetable racks, rather than Brexit.

Bailey told LBC that high energy costs are a contributory factor -- many growers in the UK and Holland have either not turned their heated greenhouses on, or have run them for less time than usual.

Here’s the clip:

My colleague Sarah Butler reported last night that unseasonable weather, storms in the Mediterranean and a cut in crops planted in heated glasshouse was leading to shortages in supermarkets.

She wrote:

Two big importers said they were managing to fulfil contracts to their main supermarket clients but had been forced to lower quality specifications, find alternative sources of supply or offer a limited range of options since the chilly weather started in January.

Industry insiders said availability of produce is down by between 30% and 40% on some crops. Wholesale prices have also shot up, adding to inflation in stores as well as empty shelves.

The harvest of peppers was down 70% in Spain and cucumbers by up to 50% in the country’s Almería region, according to the catering supplier Reynolds’ latest crop report.

The high cost of energy has also hit fruit and vegetable production in Europe, making it more expensive to heat greenhouses.

Nigel Jenney, chief executive of the Fresh Produce Consortium, has told the BBC “There’s been a myriad of individual factors”, such as:

“Weather, fuel costs, packaging and distribution costs, energy costs.”

Andrew Opie, director of food and sustainability at the British Retail Consortium, which represents UK supermarkets, says:

“Difficult weather conditions in the south of Europe and northern Africa have disrupted harvest for some fruit and vegetables including tomatoes.

“However, supermarkets are adept at managing supply chain issues and are working with farmers to ensure that customers are able to access a wide range of fresh produce.”

Tomato shortage hits UK after bad weather

Bad weather in Europe and Africa is leading to shortages of tomatoes and some other popular vegetables.

Sky News points out:

The UK relies on countries such as Morocco and Spain for tomatoes during the winter.

But in Morocco, growers have struggled with cold weather, heavy rain and floods.

Suppliers have been hit by ferry cancellations, which have affected lorry transport.

Spanish crops have also been affected by bad weather in the past three or four weeks.

More here: Rationing risk as tomato shortage hits UK supermarkets

Updated

Asda rationing some fruit and vegetable sales after widespread shortages

Grocery chain Asda is rationing sales of some fruit and vegetables after a bad harvest in southern Spain and north Africa led to gaps on supermarket shelves.

Asda, the UK’s third-largest grocer, has begun limiting purchases to three of each product across tomatoes, peppers, cucumbers, lettuce, salad bags, broccoli, cauliflower and raspberries.

Bloomberg has more details:

Other retailers may follow suit after cold weather in key agricultural locations disrupted harvests, with the impact expected to last for weeks.

Shoppers in the UK have been posting pictures on social media of empty shelves in vegetable aisles across multiple supermarkets.

Grocers become more reliant on imports around this time of year, particularly from sunnier places such as Spain. British horticultural production normally only starts in late March or April and domestic supplies have already been hit by labor shortages and the higher cost of energy and fertilizer.

There have been several reports of empty shelves at other UK supermarkets in recent days, for example:

The National Farmers’ Union has warned that farmers have been hit by rising costs, labour shortages, bird flu and post-Brexit changes to support payments, creating “volatility, uncertainty and instability” across the industry.

NFU President Minette Batters warned today that:

“The fact remains, volatility, uncertainty and instability are the greatest risks to farm businesses in England and Wales today.

Critically, those consequences will be felt far beyond farming; they will be felt across the natural environment, and in struggling households across the country,”

Updated

Downing Street has played down the prospect of tax cuts in the Budget following the surprise monthly surplus recorded in January, warning that there was still “significant uncertainty and volatility”.

The Prime Minister’s official spokesman said that the government’s “overall focus on reducing the debt remains”, telling reporters:

“It’s important to understand the context. You would expect to see a surplus in January because of the timing of self-assessment receipts.

“The only January deficit since 2015 was in 2021 during the height of the pandemic.

“So we shouldn’t place too much emphasis on a single month’s data.

“Borrowing remains at record highs and there is significant uncertainty and volatility which poses clear risks to the fiscal position.”

Walmart, the world’s largest retailer, is concerned that cautious spending by consumers could pressure profit margins – especially as interest rates keep rising.

Following its financial results today, chief financial officer John David Rainey told Reuters:

“There’s still a lot of trepidation and uncertainty with the economic outlook. Balance sheets are continuing to get thinner, savings rate is roughly half of what it was at a pre-pandemic level and we’ve not been in a situation like this where the Fed is raising at the rate that it does,”

“So, that makes us cautious on the economic outlook because we simply don’t know what we don’t know.”

Over on Wall Street, hypermarket chain Walmart has disappointed investors with its latest financial results.

Walmart has predicted a drop in earnings this year, with adjusted earnings expected to be betweem $5.90 to $6.05 a share. Walmart also reported adjusted earnings of $6.29 per share for 2022 today.

The company made total revenues of $611.3bn last year, up 6.7%, with 7.3% growth in the final quarter of 2022.

Chief Financial Officer John David Rainey says Walmart are “being cautious with the macroeconomic outlook,” explaining (via Bloomberg) that:

“There’s a lot of unpredictability around what’s happening, what will be the effect of Fed tightening on the consumer balance sheet, what is the effect of the declining savings rate.”

Shares in Walmart have dropped 4% in pre-market trading, despite president and CEO Doug McMillon insisting the retailer is “well-positioned to start this fiscal year.”

McMillon says:

“We’re excited about our momentum. The team delivered a strong quarter to finish the year, and as our results in the last two quarters show, they acted quickly and aggressively to address the inventory and cost challenges we faced last year. We built momentum in the third quarter and that continues.

TUC: government running out of excuses on public sector pay

Jeremy Hunt is facing calls for a higher pay increases for public sector workers, after the UK racked up a surprise surplus of over £5bn in January,

The TUC General Secretary Paul Nowak warns that the public sector will continue to lose workers unless staff are given a fair pay deal.

“The government is running out of excuses.

“Jeremy Hunt must come out of hiding and help break the deadlock on public sector pay.

“After 13 years of pay cuts and pay freezes, nurses, teachers and millions of other public servants are at breaking point.

“If ministers don’t provide a fair pay settlement, the staffing shortages crippling our schools, hospitals and other frontline services will just get worse.”

More here:

UK factories report falling output and orders in February

The CBI has dampened the optimism over the UK economy this morning, by reporting that manufacturing output and orders have dropped.

The CBI’s latest healthcheck on UK factories has found that a net balance of 16% of manufacturers reported a drop in output volumes in the three months to February. This shows the fastest fall in manufacturing output since September 2020.

That’s down from -1% in the three months to January, and “a significant disappointment to last month’s expectations of +19%,” the CBI says.

Today’s Industrial Trends survey also shows that:

  • Output fell in 11 out of 17 sectors in the three months to February. The decrease in output reported this quarter was largely driven by the motor vehicles & transport equipment, chemicals and paper, printing & media sectors.

  • Total order books were reported as below “normal” in February, to a similar extent as in January (-16% from -17%). This was broadly in line with the long-run average (-13%). Export order books were also seen as below normal and to a greater extent than last month (-27% from -22%). This was below the long-run average (-18%).

  • Expectations for average selling price inflation in the three months ahead were the lowest since May 2021 (+40%, from +41% in January), having declined steadily from the multi-decade highs seen in early 2022 (+80% in March 2022). But they remained well above the long-run average (+6%).

  • Stocks of finished goods were seen as adequate in February, with the balance broadly similar to January (+9% from +12%).

Updated

Minister: need to make work more attractive

MPs on the BEIS committee are now questioning business minister Kevin Hollinrake about the government’s strategy to get over-50s back into work.

Jane Hunt MP says there are two cohorts to target; firstly, highly skilled older workers who, if they were highly paid, could afford to retire early, and secondly over-50s with ill health.

Hollinrake says that there is an international crisis of a shortage of workers, rather than a shortage of jobs.

The jobs crisis is “twice as bad in the US”, he suggest, with ten million vacancies and only five million people looking for work.

UK has fantastic record of low unemployment which is ‘exacerbating’ the issue, Hollinrake continues, with a jobless rate of 3.7% compared to 6.2% in the EU.

He agrees there has been a significant rise in economically inactivity since Covid, with an additional 500,000 people out of the labour force, and suggests that one solution is to make the workforce a more attractive place to be.

One way is through more flexible working – Hollinrake says the government is supporting a private members bill [brought by Labour MP Yasmin Qureshi] which will allow workers to request flexible working from day 1 in a job.

Second, the government is increasing the national minimum wage, which will have a “knock-on effect” through the wages system.

Weakest January for house sales recorded since 2015

House sales have got off to the weakest start to the year since 2015, HM Revenue and Customs (HMRC) figures today show.

The number of house sales taking place in January 2023 was 11% lower than the same month a year earlier, PA Media report.

Across the UK, an estimated 96,650 transactions took place, which was 3% lower than in December 2022.

It was the lowest number of house sales recorded for the month of January since 2015, when 94,150 transactions were recorded.

Jeremy Leaf, a north London estate agent, said:

“The fall in this key bellwether for the market seemed almost inevitable as it reflects the decline in not just the number but pace of sales which we saw in our offices immediately following the mini-budget and the resultant sharp rise in mortgage costs.

“Confidence takes a long time to build and can disappear very quickly, but it is slowly growing in response to reductions in those mortgage rates and inflation, as well as continuing employment stability.”

Lucian Cook, head of residential research at estate agent Savills, said:

“Given what has happened to mortgage approvals, the numbers still point to a market where equity rich and cash buyers have the upper hand, while first-time buyers and mortgaged buy-to-let investors bear the brunt of higher mortgage costs.”

Some 1,029,580 house sales have taken place in the financial year to date, between April 2022 and January this year, according to HMRC.

This is lower than the 1,154,360 house sales which took place over the same period a year earlier but higher than the 872,200 sales taking place between April 2020 and January 2021, in the early months of the coronavirus pandemic.

Updated

Royal Mail international services reinstated after cyberattack

Royal Mail international services have been reinstated at Post Offices, after the postal operator was hit by a cyber attack last month.

The Post Office has announced that customers can now send both letters and parcels again from today from its sites.

Neill O’Sullivan, Post Office managing director for Parcels and Mails, says the disruption has hurt postmasters:

“Postmasters have been the innocent victims of this faceless crime, unable to support businesses and consumers wishing to use their expertise to get parcels sent abroad.

For many small businesses, Post Offices are an integral part of their business set-up and this has been a challenging time for them too. We have worked day and night in partnership with Royal Mail to reinstate all international services via our branch network.”

Postmasters will now receive a new fixed payment for each international item they handle.

Back in 11 January, Royal Mail announced that a cyber incident was preventing it handling international mail or parcels.

On the 19th January, Post Offices were able to accept and sell postage for Letter and Large Letter sized items internationally through Royal Mail, but this excluded the sending of goods internationally.

Last month it emerged that Royal Mail had rejected an “absurd” ransom demand for $80m (£67m) from hackers linked to Russia.

UK's over-50s worker shortage isn't down to golf courses, MPs hear

Jeremy Hunt is wrong to suggest that over-50s need to get off the golf course and return to work to help tackle the UK’s worker shortage, MPs have been told this morning.

The Business, Energy and Industrial Strategy Committee has begun its session on the UK labour market this morning, and cited Hunt’s comments last month that older workers should continue to make a contribution to the economy, rather than just going to the golf course [in this interview with The Times].

Lucy Standing, co-founder of Brave Starts – which supports mid and late career professionals – tells the committee she agreed that older people should work.

“Every marker of succesful ageing is associated with people who think they have a sense of purpose,” Standing says.

But, she suggests the chancellor should be helping by reforming the jobs market, to make it easier for older people to return to work.

Standing explains:

Do I feel they are busy on a golf choice out of choice? I would say absolutely not.

I would say to Jeremy Hunt, if you want people to get off the golf course, or out of the yoga room, or drinking coffee, or whatever it is he thinks we’re doing, I would suggest why doesn’t he start leading the way>

There are several barriers holding older people back from the labour market, Standing explains – such as a lack for flexible jobs, outdated recruitment practices, and very few programmes to help people with career changes.

Tony Wilson, director of the Institute for Employment Studies, tells the committee that the number of 50-65s who say they’ve taken early retirement is now slightly lower than before the pandemic, having grown sharply early in the pandemic.

Many who retired early in the pandemic did so in relative financial comfort, compared to previous decades, with private pensions and savings to live off. Those people probably won’t come back to the labour market, Wilson predicts.

But there are many millions more older workers who would like to return to work, but have long-term health problems, or caring responsibilities – or simply don’t know what the right job is, or can’t find it, he says.

So, it’s not “massively helpful” to talk about the issue in terms of golf courses and coffee shops, Wilson explains.

Instead, he says “we should be talking to people about how we help them achieve what they want, that’s often to be back in decent work that is flexible, local and supportive”.

Plus, thinking about designing policy to support employers, and reshaping public policy.

Wilson concludes:

I don’t think the issue is golf course membership, or time spent on golf courses.

This morning, Resolution Foundation warned that Britain risks ending the decade with the lowest rates of workforce participation in almost 30 years unless the government takes urgent action to reform childcare and help people with health conditions.

Updated

Pound jumps as UK companies return to growth

Sterling is rallying in the foreign exchange markets, as traders react to news that UK companies are growing this month for the first time since last summer.

The pound has jumped by over half a cent to hit $1.211, the highest since last Wednesday.

The City will be calculating that stronger economic growth increases the chances of further Bank of England interest rate rises to cool inflation.

Updated

This morning’s UK PMI readings “dramatically exceed expectations”, says Daniel Mahoney, UK Economist at Handelsbanken:

The UK Composite Output Index registered at 53, far higher than market predictions of 49 and a 4.5pp increase from January’s print. This is the first time the index has come in above 50 (which indicates private sector expansion) since July 2022.

The UK services PMI is also comfortably in expansionary territory at 53.3, up from 48.7 in January, although the flash manufacturing PMI came in at 49.2, indicating marginal contraction.

Such figures may indicate that forecasters are too downbeat about the UK economy, Mahoney adds:

We will, of course, have to await further data releases to make firm conclusions, but there is no doubt that these much better than anticipated PMI readings could signal that forecasters are currently being too downbeat on short-term growth prospects for the UK economy.

And while it is welcome that the UK economy may be proving more resilient than expected, there is evidence in this release that inflation from the services sector could be especially stubborn, which may indicate that the Bank of England has to tighten monetary policy further.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, cautions about concluding that the UK will avoid a recession:

“The sun broke through in February after six months of gloom”, says Dr John Glen, CIPS chief economist, as private sector firms enjoyed “a swift and significant jump in output”.

Glen points out that companies didn’t pass on the easing in their costs pressures (as flagged a moment ago):

Supplier delivery times improved at the fastest rate since June 2009 for manufacturers as the marketplace showed signs of some recovery. A rise in new orders and the slowest rate of inflation since April 2021 was reported for businesses overall.

“New work rose at the quickest pace since May 2022 for services businesses which saw more confidence amongst customers than manufacturing and also stronger levels of staff hiring to build operational capacity. Manufacturers saw the wheels of industry grind a little slowly and continued to report job shedding and cautious purchasing activity due to stocks built up last year.

“The easing of input prices didn’t translate into improved costs for customers as these continued to rise and play catch-up. Those providing services cited rising salary costs as the reason for higher prices charged as skills shortages remained widespread. Manufacturers had more leeway to offer their customers better prices for produced orders as raw material costs softened again in February.”

This chart

A chart showing the UK PMI

Companies keep raising prices at rapid rate

Today’s survey of UK purchasing managers also shows that companies continued to raise their prices sharply, despite an easing in their own costs.

Input cost inflation eased for the third month running in February, with manufacturers recording a particularly marked slowdown in price pressures, S&P Global says, adding:

The most commonly cited sources of cost inflation were higher wages, greater energy bills, and exchange rate depreciation against the US dollar. Meanwhile, lower purchase prices mostly reflected reduced fuel costs and falling shipping rates

But, February has brought another “steep increase” in average prices charged by private sector companies, with this rate of inflation only slightly lower than at the start of the year.

The PMI report says:

Lower prices charged inflation was led by the manufacturing sector. The latest rise in factory gate prices was the weakest since January 2021 and much softer than seen in the service economy.

Many service providers suggested that rising staff salaries had led to a sustained increase in their prices charged.

That may concern the Bank of England, which has warned that it could keep raising interest rates if price and wages increases remain high.

Encouragingly, UK firms saw an increase in new business this month, for the first time since last summer.

Total volumes of new work received by UK private sector businesses rose at the strongest pace since May 2022, S&P Global’s nw PMI report shows.

But while there was a “solid upturn” in new orders across the service economy, it fell slightly in manufacturing.

Service providers benefitted from a third consecutive monthly rise in new export sales, while goods producers recorded another decline, the survey of purchasing managers shows.

UK private sector returns to growth in February

Newsflash: The UK private sector returned to growth in February, ending a six month slump, thanks to an increase in demand and falling inflation.

Data firm S&P Global reports that activity at UK firms is rising this month – indicating that the chances of a near-term recession “have fallen considerably”.

It’s a further welcome piece of good economic news, after Britain posted a surprise surplus this morning.

S&P Global’s flash UK PMI Composite Output Index, which tracks activity in the private sector, has jumped to 53.0 this month up from January’s 48.5. This puts it back into growth territory (over 5o points) for the first time since last July.

Activity at service sector companies hit an eight-month high (with a PMI of 53.3, up from 48.7), while manufacturing output hit a nine-month high (the index rose to 51.6 from January’s 47.0).

Companies surveyed reported rising customer demand and improving business confidence in February, due to lower economic uncertainty, fewer supply shortages and falling inflation.

The PMI indicates the economy showed “encouraging resilience” in the face of rising interest rates, the ongoing cost of living crisis, labour shortages and strikes, says Chris Williamson, chief business economist at S&P Global Market Intelligence.

Williamson adds:

“While many companies continue to report tough operating conditions, especially in the manufacturing sector, the broader business mood has been buoyed by signs of inflation peaking, supply chains improving and recession risks easing.

The stress created by last autumn’s mini budget is also continuing to work its way out of the financial system.

“However, while the data suggest that near-term recession odds have fallen considerably, elevated inflation pressures clearly remain a concern, especially in the service sector.

As such, the resilience of the economy and the stickiness of the survey’s inflation gauges add to the likelihood of the Bank of England tightening policy further, and potentially more aggressively, which may dampen future growth expectations and suggests that the possibility of recession later in the year should not be ruled out.”

The UK narrowly avoided falling into recession at the end of last year, when growth stalled in the final quarter of 2022.

Updated

Full story: UK posts surprise budget surplus for January after bumper income tax haul

The UK government ran a surprise £5.4bn surplus in January, after bumper self-assessment income tax receipts, leaving some rooms for giveaways in the chancellor’s budget next month according to some economists.

The surplus was £5bn higher than the government’s fiscal watchdog, the Office for Budget Responsibility, had expected, although it was £7.1bn smaller than in January 2022, according to figures from the Office for National Statistics. Analysts polled by Reuters were taken by surprise, having instead predicted that the government would have to borrow £7.8bn in January.

Government coffers were boosted by £21.9bn of self-assessed income tax receipts, the highest January figure since monthly records began in April 1999.

They were partly offset by substantial spending on energy support schemes for households and businesses to cushion the blow of spiralling energy prices, and large one-off payments relating to historic customs duties owed to the EU, the ONS said.

Investec: Public finances could allow some pre-election tax cuts

The UK’s surprise surplus of £5.4bn last month may suggest a slightly “rosier picture” than expected for the public finances, says Philip Shaw of Investec.

Shaw says the “buoyancy” of tax receipts last month was striking, with total tax revenues up 13.2%

Corporation tax was 27.9% higher, self-assessed income tax 33.3% up and PAYE income tax 10.6% above January 2022 levels, helped by high inflation and a strong labour market.

Shaw suggests that Jeremy Hunt is unlikely to cut taxes next month, but there could be flexibility for some pre-election giveaways at a later date, before we head to the polls in (probably) 2024.

These figures were the last data on the public finances ahead of the Budget on 15 March. Chancellor Hunt has made it clear that there will be no room for significant tax reductions. We would tend to take him at his word.

Today’s figures though show that over the first 10 months of 2022/23, cumulative borrowing has reached £108.7bn, £29.9bn less than the OBR had pencilled in for the same period. Furthermore official numbers so far on the cost of the energy schemes are early estimates. It seems feasible that a relatively warm winter has resulted in households and businesses using less energy, implying lower government payments to energy suppliers. Moreover the fall in wholesale gas prices has implications for the second half of the year.

Our Utilities team recently pointed out that at current levels, movements in wholesale markets over the past few weeks imply an energy price cap of £2165 in July and £2190 in October, well below the government’s energy price guarantee level of £3000, which would remove the need for any government funding of the EPG between this July and April next year.

It is still relatively early days but it is possible to envisage events playing out where borrowing falls significantly below expectations, facilitating at least some tax cuts ahead of a 2024 election.

Updated

Eurozone business growth hits nine-month high in February

A pick-up in service sector growth has driven eurozone business activity growth to a nine-month high, data just released shows, bolstering hopes that Europe can avoid a recession this year.

The S&P Global ‘flash’ Eurozone PMI has risen for the fourth month running, rising to 52.3 in February from January’s 50.3 (any reading over 50 shows growth).

S&P Global, the data firm, reports that eurozone service sector firms achieved an improved performance, while manufacturing output returned to growth.

Rising demand, healing supply chains, order book backlog reduction and improved confidence underpinned the upturn. The data suggests that the economy expanding in the first quarter so far, with employment also continuing to rise.

Selling price inflation slowed to a 16-month low, although remained “stubbornly high”, especially in the service sector, in part linked to the impact of higher wage costs.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence says February’s PMI is broadly consistent with GDP rising at a quarterly rate of just under 0.3%.

“Growth has been buoyed by rising confidence as recession fears fade and inflation shows signs of peaking, though manufacturing has also benefitted from a major improvement in supplier performance.

The pandemic-related delivery delays that dogged factories over the past two years have given way to faster delivery times, in turn meaning pricing power is shifting from suppliers to factory purchasing managers, bringing industrial price inflation down. “However, although inflationary pressures have continued to moderate in February, the survey hints at persistent elevated price trends in the service sector, linked in part to higher wage growth, which will concern ECB policymakers.

The combination of accelerating growth and stubbornly elevated price pressures will naturally encourage a bias towards further policy tightening in the months ahead.”

Stamp duty has pulled in an extra £1.7bn into the government’s coffers so far this year, new figures from HM Revenue and Customs show.

Since April, overall stamp duty receipts have hit £16.8bn, up from £15.1bn a year earlier.

But, growth has slowed, as the housing market was hit by soaring mortgage costs.

UK stamp duty receipts

In total, HMRC receipts for April 2022 to January 2023 jumped by £65.1bn to £660bn, also lifted by income tax, capital gains tax & national insurance contributions (NICs), and business taxes.

HMRC says:

in percentage terms, receipts were higher from business taxes (25%), Inheritance Tax (17%), environmental taxes (15%), Income Tax, Capital Gains Tax & NICs (14%) and stamp taxes (11%)

‘Fiscal drag’ – the freezing of income tax receipts levels – also boosted the tax take.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, explains:

“After flying high for so long there are clear signs the property market is starting to slow, and this can be seen in stamp duty receipts.

They are still up on the same period last year, but the direction is turning as mini-Budget mayhem and the cost of living turned people off the idea of moving home. House price growth is stuttering to a halt and homes are taking longer to sell so we will likely see stamp duty receipts come off further in the coming months though mortgage rates have started to come down which could tempt some people into taking the plunge in the coming months.

Ongoing tax threshold freezes continued to play their part with income tax and inheritance tax receipts continuing to rise as more and more people get pulled into paying them.

Resolution Foundation: Jeremy Hunt benefits from healthier borrowing levels

With UK government borrowing £30bn lower than expected so far this year, Jeremy Hunt has been handed “a fresh tonic” as he prepares to deliver his Spring Budget in three weeks’ time.

That’s the verdict from the Resolution Foundation on this morning’s public finances.

They point to the record self-assessment tax receipts in January (up by a third to £21.9bn), which was partly offset by spending on energy support measures and high debt interest.

Falling wholesale gas prices should deliver a further fiscal boost next year, with the cost of the Energy Price Guarantee set to fall from £11.8bn to just £1.5bn, Resolution Foundation expect, when the price cap is raised in April.

Cara Pacitti, senior economist at the Resolution Foundation, says:

“The Chancellor is approaching his upcoming Budget with significantly healthier borrowing levels than was forecast last Autumn.

“However, with borrowing still much higher than last year, and with interest rates likely to remain elevated for some time to come, Jeremy Hunt can’t afford to be relaxed about the state of the public finances.

“The extra fiscal headroom should allow him take on some key issues however – namely corporate reform, boosting workforce participation and preventing a spike in energy bills this spring.”

Martin Beck, chief economic advisor to the EY ITEM Club, cautions that chancellor Jeremy Hunt may not be handed more headroom on tax and spending decisions by the Office for Budget Responsibility next month:

The final set of public finances data before the Spring Budget saw the Government achieve a smaller surplus than in January 2022, but one that was much higher than the OBR’s forecast. The better-than-expected performance was mainly due to stronger tax revenues.

The extent to which the OBR deems the improvement in tax revenues to be structural is uncertain, and there’s a question mark over how it will adjust its estimates of the economy’s potential output growth in next month’s Budget. Therefore, better borrowing figures may not translate into more fiscal headroom for the Government.

While inflation is driving up the UK’s debt servicing costs, it is also helping the public finances by lifting tax payments.

Victoria Scholar, head of investment at interactive investor, explains:

Inflation is having a push and pull impact on the public purse. On the one hand, it is positively impacting tax receipts as prices rise. On the other hand, inflation is increasing its interest payable on index-linked government bonds and it is adding to government expenditure, particularly on energy support.

The Chancellor gets set to deliver his Budget on 15th March. No doubt the government will point to today’s PSNB figures to highlight the Treasury’s focus on fiscal prudence, a contrast to the fiscal fiasco around the mini budget last year.

The pound is trading modestly lower against the US dollar and the euro while European markets have opened lower after the FTSE 100 finished Monday’s session above the psychological 8,000 mark.”

January’s surprise £5.4bn budget surplus is much higher than the £400m surplus predicted by the Office for Budget Responsibility last November, point out the Institute of Fiscal Studies thinktank.

The IFS says there are two reasons the public finances were in better shape than expected:

  • The initial outturn for self-assessment tax receipts were £3.6bn above forecast (and £5.5bn higher than in January 2022) – although this initial outturn will be revised as more data become available.

  • Interest rates on government borrowing, while much higher than a year ago, are lower than forecast in November. Debt interest spending in January was £6.7bn. While this is the highest January figure since records began (and up from the £6.3bn spent in January 2022) it is lower than the £9.0bn forecast in November.

In addition, a milder-than-feared winter and lower wholesale energy prices means the government’s energy support schemes are actually likely to cost less than forecast in November, the IFS adds.

Isabel Stockton, senior research economist at the Institute for Fiscal Studies, cautions that the Office for Budget Responsibility’s next forecasts will determine how much flexibility Jeremy Hunt will have for spending pledges in March’s budget.

“Despite today’s figures suggesting a smaller January surplus than last year, borrowing was actually less than forecast in November.

Good news for the Chancellor is that we can expect lower-than-expected spending on debt interest to persist, and the cost of the expensive energy support schemes also to end up lower than forecast. The latter will only represent a short-term saving for the Exchequer. As the OBR prepares a new set of forecasts for the upcoming March Budget, the judgement they make on the outlook for growth will be much more important than these changes.

With public services under strain, pressures to cut taxes, and next to no wriggle room against the commitment to having debt falling as a share of national income in five years time the Chancellor’s first Budget will not be an easy one to navigate.”

KPMG: Hunt set for £30bn fiscal boost - could boost public sector pay

Chancellor Jeremy Hunt is “set for a £30bn fiscal boost ahead of next month’s Budget” says Michal Stelmach, senior economist at KPMG UK, who has analysed today’s public finances.

And that could give the chancellor firepower for a pay rise for public sector workers.

Stelmach explains that UK borrowing is undershooting the forecasts inked out by the Office for Budget Responsibility. The OBR expected the UK to borrow £177bn this financial year (from last April to this March).

So far this year, though, the UK has borrowed £117bn, with just two months to go.

UK public finances
UK public finances Photograph: ONS

That means Hunt will have more firepower in his warchest for public spending – at a time when more workers are striking in search of a pay rise that protects them against soaring inflation.

Stelmach says:

“Public sector net borrowing was in surplus by £5.4bn in January, a big fall from the £12.5bn surplus last year as the energy support package continues to exert pressure on the public finances. However, Government spending on subsidies – which include the energy support – so far came in £6.8bn below the £44bn expected by the OBR this fiscal year, suggesting that milder weather and lower demand for gas have helped keep the cost down.

“Year-to-date borrowing has so far undershot the OBR’s forecast by £30.6bn, which could tempt the Chancellor to offer a pay increase to public sector workers as part of his Budget next month, hoping to prevent another wave of strikes.

“Looking ahead, we estimate that the Energy Price Guarantee is now likely to cost only around a half of the OBR’s £12.8bn forecast in 2023-24, thanks to lower wholesale energy prices. However, this will be largely offset by the new Energy Bills Discount Scheme for businesses with an estimated cost of £5.5bn, providing little near-term relief against a backdrop of wider spending pressures.”

Hunt: Need 'tough choices' to get debt down from 60-year highs

Overall, the UK’s national debt was almost £2.5bn in January, an increase of £143bn compared with a year earlier.

As a share of the economy, that’s 98.9% of GDP – levels last seen in the early 1960s.

UK public finances over the last 100 years
UK public finances over the last 100 years Photograph: ONS

Chancellor of the Exchequer, Jeremy Hunt, says this morning that ‘touch choices’ are needed to bring the debt levels down – and to lower inflation.

Hunt says:

“We are rightly spending billions now to support households and businesses with the impacts of rising prices – but with debt at the highest level since the 1960s, it is vital we stick to our plan to reduce debt over the medium-term.

“Getting debt down will require some tough choices, but it is crucial to reduce the amount spent on debt interest so we can protect our public services.”

There are two ways of bringing the debt as a share of the economy down – you either shrink the numerator (how much the UK has borrowed), or grow the demoninator (the size of the economy).

Austerity can be counter-productive to this calculation, if lower spending hits growth by lowering aggregate demand.

Hunt is aiming to halve inflation this year, including by not agreeing inflation-beating pay rises for public sector workers – a lower RPI inflation rate would push down the interest rate on gilts.

Updated

UK public finances: the key charts

This chart shows how the UK posted its first monthly budget surplus in a year in January:

UK public finances to January 2023
UK public finances to January 2023 Photograph: ONS

While this chart shows how the UK paid £6.7bn in interest on its debt pile last month – with £3.3bn due to the impact of inflation on inflation-linked government bonds.

UK public finances to January 2023
UK public finances to January 2023 Photograph: ONS

UK government runs surprise budget surplus in January

The UK government ran a surprise surplus of over £5bn last month, as tax receipts boosted the public finances.

Figures just released by the Office for National Statistics show that the UK’s public finances were in surplus by £5.4bn in January.

That’s £7.1bn smaller than in January 2022, but is £5bn larger than forecast by the Office for Budget Responsibility (OBR), the ONS says.

That suggests the public finances are in better shape than expected, which could help chancellor Jeremy Hunt as he draws up next month’s budget. It might give Hunt more wriggle room to help struggling households.

Self-assessed income tax receipts hit a record – at £21.9bn, which is the highest January figure since monthly records began in April 1999. That’s 5.5bn more than in January 2022.

January is usually a good month for the public finances, as workers and companies settle their tax bills before the deadline at the end of the month.

But this time, economists had expected the Treasury to borrow around £8bn to balance the books, which would have been the largest budget deficit for any January in at least 25 years.

But, the ONS points out that government spending was pushed up by “substantial spending on energy support schemes and large one-off payments relating to historic customs duties owed to the EU”.

Inflation continued to drive up debt repayment costs too.

Central government debt interest payable was a record for any January, at £6.7bn – less than the previous month – lifted by higher repayment costs on index-linked gilts (government bonds whose interest rate is fixed to the RPI measure of inflation).

Updated

Energy crisis stemming from Ukraine war ‘cost £1k for every UK adult’

The UK’s over-reliance on gas has been blamed for pushing up bills as it emerged that the energy crisis stemming from the war in Ukraine had cost the equivalent of £1,000 for every adult.

A study by the Energy and Climate Intelligence Unit (ECIU) estimated that high wholesale gas prices since Russia’s invasion of Ukraine nearly a year ago had cost UK energy suppliers an additional £50bn to 60bn, on top of the £10bn to £20bn spent in a normal year.

The invasion spurred wholesale gas prices, which were already above historical averages, to record highs.

Household energy costs are far higher than the £1,000 extra highlighted by ECIU – which does not account for normal wholesale costs, suppliers’ margins and other charges wrapped into bills.

More than half of private renters living in cold, damp or mouldy homes

Around 1.6 million UK children are living in excessively cold, damp or mouldy rented homes, a survey by Citizens Advice warns this morning.

Citizens Advice has found that more than half of private renters in England, totalling 2.7m households, are struggling with damp and draughty rented homes - and it’s affecting their health.

The problem is especially bad in the least energy efficient homes.

The charity reports that private tenants are 73% more likely to be living with damp if they live in a property with a Energy Performance Certificate (EPC) rating of D-G rather than A-C, and 89% more likely to experience excessive cold in a D-G rated property.

Forty percent of renters felt stressed as a result of damp, mould and excessive cold, with 36% saying it made them feel anxious, Citizens Advice says.

The charity is calling for private housing landlords to be held to new standards set out after the death of Awaab Ishak, the two-year-old who was killed by mould in a social housing flat in Rochdale in 2020.

“Awaab’s law”, announced this month, will set strict, legally binding timelines on social landlords in England and Wales to tackle reported hazards.

Gillian Cooper, Head of Energy Policy at Citizens Advice, says:

“Every week we hear stories of people living in cold, damp and mouldy properties they can’t afford to heat properly.

“It’s shameful that more than 20 years since legislation came into force to reduce fuel poverty and improve the energy performance of homes, people are still suffering.

“Improving energy efficiency in privately rented homes has never been more urgent. It’s the step needed to keep people’s essential bills low, while also helping to protect their mental and physical health.”

Introduction: Quarter of UK households regularly run out of money for essentials

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

Britain’s cost of living crisis means almost one one-quarter of households regularly run out of money for essentials, a group of charities are warning today.

Nationally, 37% of people end the month with no money left over, while nearly one-quarter (24%) run out of money for essentials either most months or most days, a survey for the Together Through This Crisis initiative has found.

Together Through This Crisis was set up by the charities Save the Children, Turn2us, Little Village, Shelter and 38 Degrees found.

Its survey found that nearly 40% of people end the month with no money left, while 24% run out of money for essentials either most months or most days, a survey found.

The research by the frontline charities signals the widening political risk of the cost of living crisis, our social affairs correspondent Robert Booth explains:

Macmillan Cancer Support separately warned that cancer patients were resorting to selling possessions and using loan sharks to make ends meet. In findings it described as “heartbreaking”, the charity said a third of patients had been buying or eating less food, and 22% had been spending more time in bed to stay warm, while there had been a jump in the number of calls to its helpline about financial issues.

Even among the 10 most affluent constituencies in the UK, 19% of people said they found themselves unable to pay for food or bills by the end of most months, according to the survey by Together Through This Crisis.

Matthew McGregor, the chief executive of 38 Degrees, a charity that organises campaigning petitions, said: “This polling paints a bleak picture of the crisis unfolding across the country: families running out of money to put food on the table and keep kids warm is rapidly becoming our new normal.

Together Through This Crisis has written an open letter to Prime Minister Rishi Sunak and Chancellor Jeremy Hunt asking them to “take action to ensure the crisis illustrated by these figures does not become the UK’s new normal”.

Also coming up today

A flurry of surveys of purchasing managers across the globe will show how companies are faring this month.

We also get a healthcheck on German economic morale, and UK factories, while MPs on the Business, Energy and Industrial Strategy Committee will question business minister Kevin Holinrake on the push to get older workers back into jobs.

The agenda

  • 7am GMT: UK public finances report for January

  • 9am GMT: Eurozone ‘flash’ services and manufacturing PMI report for February

  • 9.30am GMT: UK ‘flash’ services and manufacturing PMI report for February

  • 10am GMT: ZEW index of German economic sentiment

  • 10.15am GMT: BEIS committee hearing on the UK’s aging workforce

  • 11am GMT: CBI industrial trends survey of UK manufacturing

  • 2.45pm GMT: US ‘flash’ services and manufacturing PMI report for February

  • 3pm GMT: US existing home sales report for January

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