Closing summary
Time for a recap.
The pound has dropped to its lowest level in three months, after Bank of England governor Andrew Bailey told MPs that UK interest rates may not need to rise much higher.
Testifying to the Treasury committee, Bailey indicated that borrowing costs may be near their peak, after 14 consecutive increases in base rate.
He said:
“I think we are much nearer now to the top of the cycle. And I’m not therefore saying we’re at the top of the cycle because we’ve got a meeting to come but I think we are much nearer to it on interest rates on the basis of current evidence.”
Governor Bailey also forecast that inflation, last recorded at 6.8% in July, will continue to fall this year, saying:
When I look at it today, many of the indicators are now moving as we would expect them to move and are signalling that the fall in inflation will continue and as I’ve said a number of times I think will be quite marked by the end of this year.”
“I should say possibly that we will get a tick up in the next release because fuel prices went down in August last year and went up a bit in August this year ... but I don’t that as a central change in the path.”
Sterling has dropped by over half a cent today to as low as $1.2483, the lowest since early June.
The pound extended losses to a three-month low as Bank of England Governor Andrew Bailey said the drop in UK inflation will be "quite marked"
— Bloomberg UK (@BloombergUK) September 6, 2023
Markets Today has more: https://t.co/B8sZlYciDA pic.twitter.com/z1xJI1PvWv
Bailey also told MPs that increasing diversity in the City will lead to better decisions.
In other news…
The British Chambers of Commerce has predicted that Britain will narrowly avoid a recession this year – but people and businesses will still feel the pain akin to the 2008 financial crash.
UK housebuilding has slumped, as high interest rates hit demand for homes.
NatWest bank has appointed a new chair, to succeed Sr Howard Davies, as it continues to deal with the fallout from the scandal surrounding the threatened closure of Nigel Farage’s bank accounts.
Rick Haythornthwaite – who previously chaired Network Rail and Mastercard as well as the British Gas owner and now leads the boardrooms of Ocado and the AA – will take over next year.
Here’s the rest of today’s business news:
Q: The UK statistics office has just revised up its estimate of UK growth since the pandemic began quite considerably – does that make the Bank’s job even harder?
Governor Bailey says there is always more uncertainty over GDP data because it is often revised.
The ONS’s revision help the Bank with its argument that the economy has been stronger than expected, Bailey adds.
Q: Are today’s mortgage rates still affected by the ‘turmoil period’ almost a year ago (when the mini-budget rocked markets)?
Andrew Bailey says most of that impact has come out of the market.
Today, the story is much more about the resilience of the economy.
Q: Your mandate is to get inflation down to 2%, so is it worth risking a recession as growth isn’t part of your mandate, asks Conservative MP Andrea Leadsom.
Andrew Bailey explains that the Bank has flexibility over how quickly it brings inflation down to target, so it does balance the impact of its decisions on the economy.
Currently, the Bank thinks inflation will fall to target at the end of next year – it isn’t tightening policy harder to bring that date forwards…
MPC member Swati Dhingra points out that a recession poses “real risks” to the inflation target, so the Bank would want to avoid one.
Deputy governor Sir Jon Cunliffe agrees – he tells MPs that the Bank’s remit is to bring inflation “sustainably” back to the 2% target. So creating a recession immediately, through fast increases in interest rates, would push inflation below target.
Bailey adds that the Bank can’t always promise that a recession can be avoided – after all, it did predict a recession last year, before the drop in energy prices.
Updated
Andrew Bailey went on to tell MPs he is aware that higher interest rates have a disproportionate impact on poorer people, such as those who rent their homes.
But, he insists that if the Bank doesn’t get inflation down “the consequences will be worse”.
BoE's Bailey: Diversity will lead to better decisions
Treasury committee member Sir James Duddridge MP turns to the recent turmoil at NatWest bank.
Given concerns about sexism in the City, Duddridge says it was “very upsetting” to see Alison Rose lose her job, as she had been a ‘pathfinder’.
Andrew Bailey says it is “absolutely unacceptable” to close bank accounts on the basis of people’s politics.
On diversity, he says the FCA and the PRA regulators will release work soon on diversity and inclusion.
Greater diversity will lead to better decisions being taken, he insists.
Bailey says he has “no time” for getting into the woke debate, “whatever woke means”.
He explains:
It’s really not about that. It’s about having good decision making, made by institutions that are broadly representative of the country we serve.
Bank of England deputy governor Sir Jon Cunliffe has told MPs that there are now “mixed signals” about the path of inflation.
Cunliffe explains:
We’re still getting strong pay growth and service price inflation, but we’re also starting to see some cooling in the labour market and that will be the kind of discussion going forward.”
Last month’s labour market report showed the biggest jump in basic pay since at least 2001, with regular wages up 7.8% in the last year.
Updated
Q: Is Britain on the edge of a recession, as some commentators fear?
Governor Andrew Bailey says the Bank’s most recent forecasts, from August, do not include a recession, but do show “a very weak growth path”.
Growth is just above zero throughout.
MPC committee member Swati Dhingra, who opposed August’s interest rate rise, says demand and activity are weak.
Bailey: We're nearer to the top of interest rate rise cycle
Turning to interest rates, governor Andrew Bailey says the Bank of England is close to ending its run of interest rate increases.
Bailey tells MPs:
“I think we are much nearer now to the top of the cycle.
And I’m not therefore saying we’re at the top of the cycle because we’ve got a meeting to come but I think we are much nearer to it on interest rates on the basis of current evidence.”
The Bank is next due to set interest rates on 21st September; the City expects another increase in base rate, from 5.25% to 5.5%.
Updated
Treasury committee member Danny Kruger tries to drag the Bank of England into the grubby world of politics, with a “personnel question”.
Conservative MP Kruger claims that his constituents who are very concerned about the cost of living were “pretty unimpressed” to see a Bank employee dressed as a zombie at a protest against government policy.
Q: Is that acceptable behaviour?
Andrew Bailey says he has already written to Kruger about this, setting out the Bank’s policy. This policy is now being reviewed, he says, as he and Kruger both agree should happen.
The relevent question, Bailey says, is “whose time did that occur on”.
The employee – Alistair Strathern – took part in a demonstration against the Public Order Bill outside the Home Office last November.
The reason this is being discussed now, is that Strathern is the Labour Party candidate in the Mid Bedfordshire by-election this autumn.
Bailey adds that the Bank does not intend to get involved in party politics.
Andrew Bailey’s prediction of a ‘quite marked’ fall in inflation will cheer the government, as it has pledged to halve the rise in the cost of living by the end of the year.
Last weekend, chancellor Jeremy Hunt warned there could be an upward ‘blip’ in inflation this month.
And today, Bailey suggests that is possible – but wouldn’t indicate a change in the wider path of inflation.
He says:
“I should say possibly that we will get a tick up in the next release because fuel prices went down in August last year and went up a bit in August this year.
But, I don’t that as a central change in the path.”
Bailey denies groupthink problems at Bank of England
Harriett Baldwin MP then challenges the Bank of England over concerns of ‘group think’ at Threadneedle Street.
She cites concerns that the Bank doesn’t have many monetarists (economists who think controlling the money supply is the key to inflation) on its Monetary Policy Committee.
She also says America’s Ben Bernanke used a wide range of indicators when he worked at the US Federal Reserve, including the ‘tall buildings index’ and the ‘mens underwear index’ [a measure of discretionary spending, apparently].
That qualitative information aided Fed decision making, she says.
Governor Andrew Bailey denies that the Bank’s analysis is pants, and denies there is any groupthink on the MPC – pointing out that the committee is often split in its votes.
“If you look at the voting pattern of the MPC (Monetary Policy Committee), I don’t think you would really conclude that there was group think in the MPC.”
The Bank’s agents around the country also feed important information in.
Bailey adds that the Bank did look at the money supply in its last monetary policy report. But, the flow of money supply will give you a different indicator than the stock of money.
Updated
BoE governor: Inflation to fall quite markedly by end of year
The public have given up on hoping that the Bank of England will get inflation down to its 2% target, and are now demanding pay rises which are creating “second-order” effects on inflation, says Harriett Baldwin, chair of the Treasury committee.
Governor Andrew Bailey suggests this isn’t quite true.
He says there has been a very big terms of trade shock in the UK, which has hit national real income. That creates a distributional question – which the Bank shouldn’t determing the outcome of. But that is why workers are seeing higher wages.
Bailey says that many economic indicators are signalling that the fall in inflation will continue (the CPI dropped to 6.8% in July, down from 7.9% in June).
He tells the Treasury committee:
As I’ve said a number of times, I think it [the fall] will be quite marked by the end of this year.
However, Bailey says the strength of wage bargaining has surprised the Bank, so it is now looking to see whether pay rise demands ease off.
The governor explains:
The question now is, as headline inflation comes down and people become more confident that it will come down… will we see inflation expectations continue to come down too, and be reflected in wage bargaining?
Bailey says firms’ expectations of wage increases have fallen, to 5%.
That’s two and a half-times your inflation target, points out Baldwin – surely a sign that inflation expectations are deanchored?
Bailey, though, suggests pay rise expectations could keep falling as inflation drops. And that will determine the Bank’s policy decisions (on interest rates, for example).
Updated
The Treasury Committee start by asking the Bank of England about the review of its forecasting being led by former top US central banker Ben Bernanke.
Q: Inflation is still far too high for anyone to feel comfortable. When will the terms of reference of Ben Bernanke’s review be released?
Governor Andrew Bailey says Bernanke has already started work. The Bank of England’s court is expected to finalise those terms of reference when it meets on 22 September, and publish them shortly afterwards.
Q: You have said your forecasting had a ‘recency bias’, covering data since you became independent – so not covering the energy crisis of the 1970s. What work have you done to incorporate data from the 70s and 80s?
Bailey says the Bank has a ‘suite of models’, as it would be a mistake to rely on just one. But it tends not to use date from the 1970s as the macroeconomic policy regime was different in those days (ie government, not the Bank, set interest rates).
But staff can still look back to the 70s…
Q: So has the Monetary Policy Committee looked into previous energy shocks, since the invasion of Ukraine?
Bailey says the Bank has looked at previous energy shocks, yes, and also examined the distributional effects of such shocks (the ‘labour share and the profit share’). What happened in the 70s is quite different to the situation today, but it’s “interesting and informative” to compare the two, he says.
Over in parliament, the Treasury committee are preparing to question senior figures from the Bank of England.
They’ll hear from:
Dr Andrew Bailey, Governor, Bank of England
Sir Jon Cunliffe, Deputy Governor for Financial Stability, Bank of England
Dr Swati Dhingra, External member, Monetary Policy Committee
Elisabeth Stheeman, External member, Financial Policy Committee
MPs will examine the future path of inflation and the UK’s economic outlook, based on the Bank’s latest Monetary Policy Report published on 3 August (when it raised interest rates to 5.25%), and also its Financial Stability Report, published on 12 July.
🗣 On Wednesday, we’re talking to the Governor of the @bankofengland, Deputy Governor for Financial Stability, and external MPC & FPC members about their recent reports on inflation and rising interest rates.
— Treasury Committee (@CommonsTreasury) September 4, 2023
🔎 Learn more about the session here 👇https://t.co/k9TTRaSsvP pic.twitter.com/somRb6sJ35
The number of excess winter deaths in Great Britain caused by living in a cold, damp home climbed by about a third last winter after more than 1 million vulnerable households missed out on government energy bill support, MPs have heard.
Fuel poverty campaigners told a parliamentary committee on Wednesday that despite relatively mild weather, the number of excess winter deaths had climbed to 4,706, up from 3,186 a year earlier, as a result of the energy cost crisis.
Simon Francis, a coordinator at the End Fuel Poverty Coalition, added that the number of excess winter deaths was likely to rise again this winter because of higher levels of energy debt while vulnerable households were forced to “hope for mild weather”.
Nigel Farage has argued that Howard Davies should have been sacked from NatWest, rather than staying on until next April to be replaced by Richard Haythornwaite.
The idea that Sir Howard Davies is being allowed to see out his term as chairman of @NatWestGroup is a classic case of the establishment closing ranks. Both Alison Rose and Howard Davies should have been sacked. https://t.co/edesXORuh0
— Nigel Farage (@Nigel_Farage) September 6, 2023
NatWest appoints Richard Haythornthwaite as chair
Newsflash: NatWest has announced that (as rumoured this morning) City veteran Richard Haythornthwaite will succeed Sir Howard Davies as its chair.
Haythornthwaite, currently the chair of Ocado, will join the bank’s board next January, and replace Davies in April 2024, once regulators give the green light.
He’ll be paid £775,000 per year, matching Davies’s current salary.
The change comes six weeks after NatWest CEO Dame Alison Rose resigned, over the closure of Nigel Farage’s bank accounts with NatWest’s private bank Coutts.
Mark Seligman, NatWest’s Senior Independent Director, points out that Davies had said back in April that he would leave within the year.
“At our AGM in April 2023 we announced that we would be commencing the search for Howard’s successor. Today’s announcement follows a rigorous process which I have led along with the senior independent directors from our ring-fenced bank. After careful consideration of a number of high-quality candidates, the Board has unanimously chosen Rick as our new Chair.
Rick is a highly experienced Chair who combines a successful commercial career with a deep knowledge of financial services markets and technology, as well as a strong track record of delivery at significant customer-facing organisations.”
Updated
The closure of 52 Wilko stores has been described as “another nail in the coffin for the high street” by a customer at a branch in Acton, west London, which is among those due to shut next week.
Michael Penning, 74, a business consultant from Acton, who was shopping for paint brushes, told PA Media:
“I think it’s a shame, a big, big shame.
“It kind of filled a gap Woolworths left, it doesn’t have everything, but it filled a gap, I’m not sure what’s going to fill the void. It’s just such a good place to shop for so many different things.
“They’re competitive in price and the quality is pretty good. It’s going to be another empty unit on the high street.
“They’ve got their own reasons why their business model is not working, but it must be like for everyone in retail – the pressures from rents, rates and energy.
“Big companies are pushing people towards self-scanning, it’s a gentle process to put people towards self-checkout, that’s how it’s all going to go because they want to save on staff.”
The slump in UK housebuilding last month is mirrored across the channel.
Housing construction in the eurozone has declined at the fastest pace since April 2020, early in the pandemic, data firm S&P Global reported.
As in the UK, rising interest rates and high inflation hit building activity.
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:
“This is not a good time to be in construction in the eurozone.
Especially those companies focused on the housing sector find themselves in a tough spot. Activity has gone from bad to worse with the corresponding PMI output index - excluding the pandemic-affected months in early 2020 - at the lowest level since the Great Financial Crisis of 2008/2009.
In Manchester, a judge has heard that former Co-op Bank boss Paul Flowers suffered a stroke the day before he was due in court accused of fraud by abusing his position.
PA Media has the details:
Flowers was not present for the brief hearing at Manchester Magistrates’ Court on Wednesday where he was due to appear accused of defrauding a woman of carpets and by using cheques while acting as power of attorney.
District Judge Tom Mitchell adjourned the hearing for a month after being told Flowers had a stoke on August 29, the day before he was first due to first appear in court last week.
Elizabeth Ridgway, defending Flowers, a former Methodist minister, Labour councillor in both Rochdale and Bradford, and chairman of Co-op Bank between 2010 and 2013, asked for Wednesday’s hearing to be adjourned.
Ms Ridgway said her client had sent an email on August 30 to say he had had a stroke the previous day and had been in hospital.
A letter had also been received from the community psychiatric services which said the stroke had impacted Flowers’ mobility and he was struggling to leave his home in Swinton, Salford.
Ms Ridgway said the letter asked for Flowers to be given time to recover his physical and mental health.
District Judge Mitchell adjourned the hearing to October 4 and asked Flower’s lawyer to update the court on the “prognosis and diagnosis” of the defendant.
More details here.
Back in 2014, Flowers was fined £525 after pleading guilty to possession of cocaine, crystal meth and ketamine.
He was later dismissed as a minister by the Methodist church.
Interest rates in the eurozone need to keep rising for as long as needed to squeeze inflation out of the single currency bloc, the OECD has warned.
Publishing the findings of an economic survey of the EU and euro area, the Paris-based club of rich nations said inflation was expected to remain above the European Central Bank’s target of 2% next year.
Forecasting a drop in the average rate of inflation from 8.3% in 2022 to 5.8% this year, and 3.2% in 2024, it warned that “driving down inflation will require a continuation of restrictive monetary policy.”
The ECB has raised interest rates nine times in succession to a record high, lifting its key deposit rate to 3.75%. Although speculation is mounting the central bank could hit pause on further rate hikes amid concerns over the strength of the economy as households and businesses feel the strain from higher borrowing costs, the OECD suggested continued efforts were required to tackle persistently high inflation.
Warning that the outlook for Europe’s near-term economic recovery remained clouded by uncertainty, it said the EU also needed to take greater steps to ensure that tax and spending policies across the bloc were “better targeted and more sustainable”.
It says:
“Priorities should include renewed efforts to ensure a level playing field, through a consistent and evenly applied state aid framework, as well as a re-direction of EU resources towards support for green R&D, innovation and early-stage support.”
FSB warns of risks posed by ‘hidden leverage’ of hedge funds
Back in the world of finance, policymakers have singled out a group of hedge funds as a potential source of market instability.
The Financial Stability Board, comprised of the world’s top finance ministers, central bankers and regulators, warned on Wednesday that some hedge funds had “very high levels of synthetic leverage”.
In an escalation of existing concerns about the impact of their bets on bonds, the FSB explains that large hedge funds usually spread their borrowing across several prime brokers, which helps diversify their funding sources but can also create hidden leverage in the financial system.
Funds use leverage to increase their exposure to a position, leading to higher profits (or losses!). The FSB fears that the build-up of leverage creates a vulnerability that can amplify stress and lead to systemic disruption.
They explains:
This has been demonstrated by a series of financial incidents, stretching back to the 1998 collapse of Long-Term Capital Management, the 2008 global financial crisis, the March 2020 market turmoil, the 2021 Archegos failure, and the September 2022 dislocation in the UK gilt market.
The FT have more details here.
Andy Prendergast, GMB National Secretary, pointed out yesterday that the Wilko staff losing their jobs next week face worrying financial uncertainty:
“Every single redundancy is a person who will wake up facing an uncertain future. This needs to be on the forefront of everyone’s minds.
“The reality is years of mismanagement have led us here.
“We are still doing everything we can secure a deal that would protect the majority of jobs and stores. But this will be of little comfort for those not knowing how they’ll pay their bills.”
Full list of Wilko store closures released
PwC have released the list of Wilko stores which are to close, following yesterday’s announcement that more than 50 outlets are to shut.
The administrators say the following stores will close on Tuesday 12 September:
Acton,
Aldershot,
Barking,
Bishop Auckland,
Bletchley FF,
Brownhills,
Camberley,
Cardiff Bay Retail Park,
Falmouth,
Harpurhey,
Irvine,
Liverpool Edge Lane,
Llandudno,
Lowestoft,
Morley,
Nelson,
Port Talbot,
Putney,
Stafford,
Tunbridge Wells,
Wakefield,
Weston-super-Mare,
Westwood Cross,
Winsford.
The following stores will close on Thursday 14 September:
Ashford,
Avonmeads,
Banbury,
Barrow in Furness,
Basildon,
Belle Vale,
Burnley (Relocation),
Clydebank,
Cortonwood,
Dagenham,
Dewsbury,
Eccles,
Folkestone,
Great Yarmouth,
Hammersmith,
Huddersfield,
Morriston,
New Malden,
North Shields,
Queen Street Cardiff,
Rhyl,
Southampton-West Quay,
St Austell,
Stockport,
Truro,
Uttoxeter,
Walsall,
Woking
Updated
Wilko administrators warn of risk of further store closures
The administrators running stricken retail chain Wilko have warned that further stores could close, a day after announcing that more than 1,300 jobs are being cut.
PwC says “it is possible that further store closures may regrettably be necessary”, as discussions with parties interested in buying parts of the business continue.
Last hight, PwC confirmed that 52 Wilko stores will be closed with the loss of over one thousand jobs, plus 299 redundancies at the two distribution centres in Worksop and Newport.
Edward Williams, joint administrator, explains:
“In the absence of viable offers for the whole business, very sadly store closures and redundancies of team members from those stores are now necessary.
“The loss of these stores will be felt not only by the team members who served them with such dedication, including through the uncertainty of recent weeks, but also the communities which they have been a part of.”
PwC confirmed yesterday that 52 Wilko stores will be closed with the loss of 1,016 jobs, nearly a month after administrators were called in after efforts to agree a rescue deal failed.
Affected staff were due to be told by 10am today if their stores were affected, and expected to keep working for two days after their store closes.
Updated
Sky News’s Mark Kleinman reports that City veteran Rick Haythornthwaite is being lined up as the new chairman of NatWest Group, following the row over Nigel Farage’s bank account.
Haythornthwaite would succeed Sir Howard Davies, who was already planning to step down by the middle of 2024, before the debanking row erupted.
EXCLUSIVE: Rick Haythornthwaite, the former MasterCard chairman, is being lined up as the new chairman of NatWest Group, the taxpayer-backed bank. He will replace Sir Howard Davies, who will leave next year after the controversy over the Nigel Farage debanking scandal. More soon.
— Mark Kleinman (@MarkKleinmanSky) September 6, 2023
Haythornthwaite is currently the chair of Ocado, and previously chaired Mastercard from 2006 until the end of 2020.
He also formerly chaired Network Rail, where he was criticised for allegedly presiding over a “gravy train” of executive pay excess at the infrastructure company, and energy company Centrica.
He also donated £5,000 to Matt Hancock’s failed run to be Conservative leader in 2019, according to Electoral Commission records, which prompted a cronyism row when Haythornthwaite was put in charge of reviewing Armed Forces’ pay and conditions in 2022.
Updated
Confidence among construction firms has slipped to its lowest since January, today’s survey of purchasing managers shows.
Many bosses cited concerns about the impact of rising borrowing costs and subdued housing market conditions.
UK housebuilding slumps as builders suffer sharp fall in orders
Newsflash: British construction firms suffered a sharp drop in orders in August, adding to concerns about a slowing economy as rising interest rates hit demand.
A survey of construction companies conducted by data firm S&P Global shows that new orders fell last month, at the fastest pace since May 2020 when the Covid-19 lockdown hit the economy.
House building remained the weakest-performing part of the construction sector, with activity hit by cutbacks to new build projects following the increase in interest rates.
That fits with Barratt’s warning this morning of difficult market conditions (see 8.15am).
Growth in the commercial and civil engineering segments helped to offset “a slump in house building”, the report says.
Tim Moore, economics director at S&P Global Market Intelligence, explains:
“UK construction companies experienced another slump in house building activity during August as rising interest rates and subdued market conditions resulted in cutbacks to client demand and new build projects in particular.
Aside from the pandemic, the recent downturn in residential work has been the steepest since spring 2009.
This pulled the S&P Global/ CIPS UK construction PMI down to 50.8 in August, down from 51.7 in July, and close to the 50-point mark showing stagnation.
German manufacturing orders tumbled 11.7% in July
Economic woes continue to pile up in Germany.
Manufacturing orders in Europe’s largest economy fell by 11.7% month-on-month in July, official data this morning shows, a bigger fall than expected, following a 7.6% jump in June.
Statistics body Destatis says much of the sharp decline in new orders in July 2023 is due to a very large order reported in the manufacture of air and spacecraft in June 2023.
On an annual basis, factory orders were 10.5% lower than in July 2022.
Paul Donovan, chief economist at UBS Global Wealth Management, says:
German factory orders in July were a lot weaker than expected (of course the previous month’s data was revised, positively). This follows a drop in US factory orders. The pattern continues to support the idea of shifting consumer spending patterns.
German factory orders plummeted in July, a sign that the woes of Europe’s biggest economy continued into the third quarter https://t.co/u5krpGRzEg via @economics
— KeySignals (@KeySignals) September 6, 2023
Markets fall as high oil prices push up inflation fears
Anxiety over the economic outlook is weighing on European stock markets again this morning.
In London, the FTSE 100 index has dropped by 66 points or 0.9% to 7371 points, on track for its third daily fall in a row.
France’s CAC has lost 0.7%, with Germany’s DAX index down 0.25%.
European equities open lower to start the day: * Eurostoxx -0.4%
— Forex Trading News Center (@center_forex) September 6, 2023
* Germany DAX -0.4%
* France CAC 40 -0.6%
* UK FTSE -0.5%
* Spain IBEX -0.3%
* Italy FTSE MIB -0.3%
This comes… | https://t.co/ppo1w2xacv | https://t.co/1PJO4L7EKd #forex #trading https://t.co/qKIp4rjY9z
Yesterday’s jump in the oil price has raised concerns that interest rates could be kept higher for longer to fight inflation, hurting growth.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, explains:
‘’The downbeat mood on the markets is continuing, with little to lift sentiment in sight, as oil prices stay elevated and inflationary fears are pushed back up.
Brent Crude is still hovering around $90 a barrel, after jumping sharply on news that Saudia Arabia and Russia appear intent on extending voluntary cuts through to the end of the year. Riyadh’s decided to take 1 million barrels a day out of the market until the end of December, and Moscow following suit with a similar, but smaller, reduction has led to concerns about supply on world markets.
Builder Barratt reduced workforce after mini-budget turmoil
Barratt has also revealed that it has cut 6% of staff since the turmoil last autumn following the government’s mini-budget.
David Thomas, Barratt’s CEO, told shareholders:
As the slowdown in the market became apparent in late September 2022, we began a headcount freeze which has reduced our number of employees by 6% since the end of the first quarter.
We have continued to invest in priority areas including sustainability, building safety and in our IT infrastructure but are only hiring where additional skills are required by the business. We have also scaled back discretionary spend in other areas.
Then-chancellor Kwasi Kwarteng delivered the mini-budget on 22 September 2022. His plans for unfunded tax cuts sent the pound plunging to a record low and drove up UK borrowing costs, making mortgages much more expensive.
Barratt announced a hiring freeze in January, as demand for new homes weakened.
UK housebuilder Barratt warns of difficult market
UK housebuilder Barratt has warned this morning that the backdrop “will continue to be difficult over the coming months”, as it confirms plans to build fewer homes this year.
In its full year results, Barratt says it completed 17,206 homes in the year to 30th June, a 3.9% drop on the 17,908 it built in the previous 12 months. Pre-tax profits rose almost 10% to £705m (but fell 16% on an adjusted basis).
In the current financial year, Barratt plans to build between 13,250 and 14,250 new homes, a sharp drop on last year.
It tells shareholders that high borrowing costs are hitting demand, saying:
Whilst there remains a clear need for increased housebuilding in the UK, short-term demand has been impacted by mortgage affordability challenges.
Shares in Barratt have dropped 1.7% in early trading.
The developement group @BarrattHomes posted today a £705.1mn pre-tax profit for the year to June 30, down nearly 10% on the previous financial year and a 3.8% drop in operating margin. Completions were also down 3.9% year on year as inflation fuelled rates dampen buyers plans pic.twitter.com/nVAGAoE5aE
— Emma Fildes (@emmafildes) September 6, 2023
Updated
Chevron and unions in talks to avert Australia LNG strike
In the energy sector, last ditch talks are taking place in Australia between Chevron and unions representing workers at two major liquefied natural gas (LNG) facilities, in an attempt to avoid planned industrial action.
Workers are set to start a series of work stoppages from Thursday in the dispute over pay and conditions.
If their terms are not met, they plan to escalate to a total strike.
Chevron Australia hoped to “narrow points of difference” through the mediated bargaining sessions, a spokesperson has said.
Employees last week almost unanimously rejected a pay and conditions deal put to them directly by Chevron, bypassing unions.
Concerns about the stoppages recently pushed up prices in natural gas markets, including in Europe, amid fears of supply disruption.
UK gas prices have dropped in early trading, with the day-ahead wholesale gas price down 3.6% to 80p per therm.
UK facing worst fall in living standards since 1950s
In another economic blow, this parliamentary term is on track to be by far the worst for living standards since the 1950s.
The Resolution Foundation is warning this morning that typical working age household incomes are on course to be 4% lower in 2024-25 than they were in 2019-20, as people are hit by higher mortgage rates, steep tax rises and a stagnant economy.
Never in living memory have families got so much poorer over a parliament, they say.
This parliamentary term is on track to be by far the worst for living standards since the 1950s. Typical working age household incomes are on course to be 4% lower in 2024-25 than they were in 2019-20.
— Resolution Foundation (@resfoundation) September 6, 2023
Never in living memory have families got so much poorer over a parliament. pic.twitter.com/909M5LM0KZ
Adam Corlett, Resolution Foundation’s principal economist, said stable incomes next year will be a relief for many households, but warned:
“The bad news is that the living standards outlook is still dire, with overall stagnation and further income falls on the way for less well-off households”.
The worst of the cost of living crisis may be behind us, but except for those with significant savings, it is stagnant living standards rather than boomtime Britain that the immediate future has in store. @adamcorlett on the outlook for living standards.https://t.co/c1BQTo0qmM pic.twitter.com/mlxbLISYjt
— Resolution Foundation (@resfoundation) September 6, 2023
Here’s the story:
Government slow to take action to recover £1.1bn losses from Covid support
The UK government has been unacceptably slow to recover more than £1bn lost to fraudsters who took advantage of the coronavirus business support program, a parliamentary report says.
A report published today by the Public Accounts Committee finds that by May this year, the government had only recovered £20.9m of an estimated £1.1bn in fraud and error losses on its business support schemes in the pandemic.
That’s just 2% of the amount lost.
UK recoups just a fraction of £1.1 billion of Covid fraud losses https://t.co/ud3sQKAUHG via @Joe_Mayes pic.twitter.com/B9bXk1oiW0
— Zoe Schneeweiss (@ZSchneeweiss) September 6, 2023
The PAC says that Department for Business and Trade (DBT) officials have argued that checking payments is very expensive, there are legal questions about the ability to recover some payments, and it will be “incredibly hard” to recover much of the losses.
The PAC is urging the Government to set out the specific steps it will take to tackle this fraud and error, to recover funds and restore public trust.
The government provided £22.6bn of support to businesses after Covid-19 hit the economy, but the PAC says we still don’t know what impact that support had, or how much of it was not needed.
Public Accounts Committee Chair, Dame Meg Hillier MP, says fraudsters took advantage of the schemes, so ministers must be “rigorously prepared” to avoid a repeat.
Hillier says:
The lack of planning from Government also meant that a door was left wide open in these schemes to fraudsters who took shameful financial advantage of schemes that were designed with national solidarity in mind. It is simply not good enough to give up on recovering this money simply because it is difficult to do so.
Public trust is harmed if the Government shrugs its shoulders at criminals lining their pockets with state support.”
Official data released in July showed that more than half of all company directors struck off in Britain in the past 15 months were involved in alleged fraud or abuse of Covid-19 financial support schemes.
Fraudulent claims included a roofer who applied for a £13,000 loan and spent it on gambling in three weeks, while another director applied for a loan and used it to buy class A drugs, the Observer reported:
Updated
Brexit, high inflation and shortages of skilled workers are all weighing on the UK economy.
David Bharier, head of research at the British Chambers of Commerce, explains:
“Our latest forecast reflects how many SMEs firms are struggling to rebuild confidence following three years of economic shocks. Prolonged inflation, skills shortages, and new trade barriers with the EU have fed into a climate of little or no growth.
“A rapidly increasing proportion of SMEs are also now worried about interest rates, which have dramatically raised borrowing costs in many cases.
“With further trade barriers looming, leading to higher import costs, and tightness in the labour market persisting, it is difficult to see how large-scale investment will be unlocked. Government needs to work with business to develop a clear path for the economy to promote investment and growth.”
Introduction: Fragile UK economy 'teeters on edge of recession'
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
The UK economy is set to flatline for the next six months, but it will ‘feel a lot’ like a full-blown recession for millions.
That’s the warning from the British Chambers of Commerce this morning, which fears economic activity in the UK’s ‘fragile economy’ will remain very weak throughout 2024 and 2025.
The BCC expects the next two quarters to flatline, leading to overall growth of 0.4% for the year.
This means the UK economy remains on course to avoid a technical recession, but growth is likely to remain so feeble that it will be hard to spot the difference, the BCC warns.
It has also slashed its forecast for the next two years, as the economy is hit by rising inflation and high interest rates which squeeze disposable income and household spending.
The UK economy expected to grow by just 0.3% in 2024 (down from a previous forecast of 0.6%), rising to 0.7% in 2025 (down from 1%).
The BCC warns:
Consistently low economic growth of this nature is comparable to previous periods of economic shocks and recessions such as the oil crises of the 1970s and financial crash of 2008.
🗣️@realVickyPryce: "The BCC forecast shows the UK economy is teetering on the edge of a recession. But the fact is, that with growth predicted to hover so close to zero for three years, it will still feel a lot like one for most people and businesses."
— BCC (@britishchambers) September 6, 2023
👇https://t.co/Equ88oE3hZ
Vicky Pryce, senior member of the BCC Economic Advisory Council, says:
“The BCC’s latest forecast shows the UK economy is continuing to teeter on the edge of a recession. But the fact is, that with growth predicted to hover so close to zero for three years, it will still feel a lot like one for most people and businesses.
“The impact this will have on consumer spending, coupled with a poor trade performance, will only generate more uncertainty for firms.
There is currently little on the table to provide companies with any crumbs of comfort, Pryce fears, adding:
As we head towards an election next year, politicians will have to show how they will work with the business community to find solutions.”
The BCC predicts that inflation will have dropped to 5% in the final quarter of the year – enough to hit the government’s target of halving inflation in 2023. But, it fears CPI won’t reach the Bank of England’s (BoE’s) 2% target until the last three months of 2025.
Wages are expected to rise a little faster than inflation in 2024 and 2025.
Also coming up today
Top brass from the Bank face a grilling at parliament today. BoE governor Andrew Bailey will be questioned over inflation and rising interest rates, which hit a 15-year high last month.
Fighting inflation became a little harder yesterday, when the oil price hit $90 per barrel for the first time this year after Saudi Arabia and Russia said they would cut output until the end of the year.
The agenda
8.30am BST: Eurozone construction PMI report for August
9.30am BST: UK construction PMI report for August
10am BST: OECD Economic Survey of the EU and euro area
10am BST: Eurozone retail sales for July
2.15pm BST: Bank of England governor to be questioned on inflation and rising interest rates by the Treasury Committee
