Closing summary
So that’s it for another day … thanks for following along on my first business live blog outing. Here are the main stories we covered today:
Updated
Workers' union slams scrapping of bankers' bonuses cap as an 'obscene decision'
The head of the Trades Union Congress (TUC) has said the move by City regulators to remove the current cap from the end of the month is an “obscene decision”, an “insult” to millions of people struggle with the cost of living crisis.
Paul Nowak, the general secretary of the TUC, added that it was time for a “national conversation about taxing wealth properly … [so] those at the top pay their fair share”.
This is an obscene decision. City financiers are already enjoying bumper bonuses. They don’t need another helping hand from the Conservatives. At a time when millions up and down the country are struggling to make ends meet – this is an insult to working people. [Prime minister] Rishi Sunak has shown once again that he is more interested in feather-nesting the super-wealthy than helping struggling families. Rampant inequality will do nothing to boost growth or competitiveness – it will just hold our economy back
In Tuesday, the Financial Conduct Authority (FCA) and Bank of England’s Prudential Regulatory Authority (PRA) confirmed the ending of the cap, which limits bonuses to twice base pay for employees of banks, building societies and investment firms.
The FCA said that the move will give businesses the “freedom to restructure their pay over time” to “better align remuneration with prudent risk-taking”.
The cap emerged as part of changes introduced after the 2007-08 banking crash, and aimed to stamp out a bonus culture blamed for encouraging short-term profits over longer-term stability.
The UK, which has long planned to scrap the cap, was forced to implement the legislation by the EU in 2014.
Former chancellor George Osborne even attempted to overturn it at the European court of justice.
Last October, chancellor Jeremy Hunt said he would press on with plans to scrap the legislation, after he replaced Kwasi Kwarteng, who had announced the intention to get rid of it in the run-up to his disastrous mini-budget.
Hunt defended his decision, saying that the policy had merely increased fixed salaries to make up for lower bonuses.
Updated
City regulators confirm scrapping of bankers' bonuses cap from 31 October
City regulators have confirmed that the current cap on bankers’ bonuses will be scrapped at the end of the month.
The Financial Conduct Authority (FCA) and Bank of England’s Prudential Regulatory Authority (PRA) confirmed the ending of the cap, which limits bonuses to twice base pay for employees of banks, building societies and investment firms.
The FCA said that the move will give businesses the “freedom to restructure their pay over time” to “better align remuneration with prudent risk-taking”.
The bonus cap does not limit total remuneration but limits the variable remuneration a firm can pay relative to an individual’s fixed pay. This has the effect of limiting the proportion of remuneration that can be adjusted by risk and performance measures. The removal of the bonus cap gives firms the freedom to restructure their pay over time, within the framework of the regulators’ rules on variable remuneration which aim to better align remuneration with prudent risk-taking
The cap emerged as part of changes introduced after the 2007-08 banking crash, and aimed to stamp out a bonus culture blamed for encouraging short-term profits over longer-term stability.
The UK, which has long planned to scrap the cap, was forced to implement the legislation by the EU in 2014.
Former chancellor George Osborne even attempted to overturn it at the European court of justice.
Last October, chancellor Jeremy Hunt said he would press on with plans to scrap the legislation, after he replaced Kwasi Kwarteng, who had announced the intention to get rid of it in the run-up to his disastrous mini-budget.
Hunt defended his decision, saying that the policy had merely increased fixed salaries to make up for lower bonuses.
Updated
Beyoncé and Neil Young song fund says unable to find better offer for proposed $440m catalogue sale
Hipgnosis has said it failed to find a buyer willing to top an existing $440m offer for catalogues including works by the Kaiser Chiefs and Shakira, a deal that has angered many investors who intend to vote against it at a meeting later this week.
The embattled London-listed company, which offers investors the chance to make money from the royalties of tracks by famous artists including Beyoncé and Neil Young, said that it has been in contact with 17 parties regarding potential alternative offers for the 29 catalogues but failed to secure a binding, superior rival bid.
Earlier this month, investors criticised a proposal to sell, at a considerable discount, almost a fifth of its portfolio for $440m to a Blackstone fund, which is run by Merck Mercuriadis, Hipgnosis’s investment manager who set up the business in 2018.
“Following substantive engagement with a number of parties, [Hipgnosis] did not receive a superior offer as part of the “Go-Shop” process in connection with the first disposal,” the company said on Tuesday. “The board received feedback through the process that a number of the parties assessed that they could not justify paying a higher price than the offer from the buyer for the first disposal.”
The board said it continues to recommend that shareholders vote in favour of the deal, as well as a crucial resolution regarding Hipgnosis’s “continuation” as a company scheduled for Thursday.
Some shareholders are agitating for a vote against continuation as they believe it will give more power to investors to restructure the business.
However, some analysts have said that such a vote could result in the fund being liquidated entirely.
The company has spent about £1.5bn acquiring the rights to music – from artists including Barry Manilow, Blondie, the Red Hot Chili Peppers and Neil Young – which it estimates to be valued at $2.8bn.
Updated
China’s economic growth could drop below 3% in 2024 if the real estate slowdown deepens in the world’s second largest economy, according to S&P Global Ratings.
China’s property market, which makes up about 13% of the country’s total gross domestic product (GDP), is in trouble, with several of its biggest developers in crisis.
In a downside scenario, property sales in 2024 would decline up to 25% from 2022, to about 10tn yuan ($1.4tn), according to S&P.
The ratings group estimates that this would shrink China’s real GDP to 2.9% that year.
S&P sees a 20% probability of it happening, with Beijing providing no significant government stimulus to the sector, nor discretionary fiscal or monetary support.
“Property pain is dragging on China’s economic rebound, which further hits property sales in a negative feedback loop,” said analyst Eunice Tan, head of credit research for Asia-Pacific at S&P Global Ratings.
Last month, the chair of Evergrande Group, the world’s most indebted property developer, with more than 1.97tn yuan ($305bn) in liabilities, was reportedly put under police surveillance.
Evergrande faces a court hearing in Hong Kong on a winding-up petition that could force it into liquidation. The hearing, which was scheduled for July, is due to take place on 30 October.
Country Garden, previously China’s biggest developer by sales, is also in crisis.
Earlier this month, the International Monetary Fund lowered its forecast for China’s growth in 2024 to 4.2% due to the serious issues being faced in the real estate sector.
Updated
JP Morgan boss Jamie Dimon has accused central banks of getting their forecasts “100% dead wrong” about 18 months ago, adding that this should prompt some humility about the outlook for next year.
Dimon, speaking on a panel at the Future Investment Initiative in Saudi Arabia, expressed doubts that central banks and governments around the world can manage the economic impact of rising inflation and allowing global growth.
“Fiscal spending is more than it’s ever been in peacetime and there’s this omnipotent feeling that central banks and governments can manage through all this stuff. I am cautious about what will happen next year.”
Dimon compared the current situation to the high-spending global economy of the 1970s, when there was a lot of wastage, and brushed off the impact of further rate hikes.
“I don’t think it makes a piece of difference whether rates go up 25 basis points or more,” he said. “Whether the whole curve goes up 100 basis points, be prepared for it. I don’t know if it’s going to happen.”
Updated
Government set to officially scrap caps on bankers' bonuses
The government is poised to confirm that it is to scrap caps on bankers’ bonuses, almost a decade after the UK was forced to implement the legislation by the EU.
The government has long said it plans to scrap the legislation – and former chancellor George Osborne even attempted to overturn it at the European court of justice – which limits bonuses to twice base pay for employees of banks, building societies and investment firms.
The imminent announcement, first reported by the Financial Times, follows a consultation earlier this year with the government claiming that lifting the ban will assist its aim to increase the attractiveness and competitiveness of the City of London in a post-Brexit market.
Last October, chancellor Jeremy Hunt said he would press on with plans to scrap the legislation, after he replaced Kwasi Kwarteng, who had announced the intention to get rid of it in the run-up to his disastrous mini-budget.
Hunt defended his decision, saying that the policy had merely increased fixed salaries to make up for lower bonuses.
The cap emerged as part of changes introduced after the 2007-08 banking crash, and aimed to stamp out a bonus culture blamed for encouraging short-term profits over longer-term stability.
The hope was that, with less of an individual’s pay riding on performance, there would be a lower incentive for risky behaviour.
Updated
Spotify bounced back to profit after beating estimates on new subscriber gains and reaping the rewards of a cost-cutting drive, including paring back its podcasting ambitions, including ending an exclusive deal with Prince Harry and Meghan Markle.
Spotify, which enjoyed a share price bump of 5% as investors welcomed its better-than-expected third quarter results, reported an operating profit of €32m.
It is the first quarterly operating profit the company has managed since 2021.
The company, which reported a €228m loss for the same period last year, added 4m paying subscribers across the quarter - two million ahead of its guidance.
In total, Spotify now has 226m paid premium subscribers globally, and has forecast ending the year with 235m.
Total monthly active users grew by 26% year-on-year to 574m, with the company expecting to break 601m by the end of the fourth quarter.
Total revenues grew by 11% year-on-year to €3.4bn, again exceeding guidance.
In July, Spotify announced a range of price rises in its premium plan in a number of companies including the US.
Operating expenses fell 13% year-on–year as the company reaped the benefits of a cost cutting drive, as it pared back its podcasting operation, including ending its exclusive deal with Prince Harry and Meghan Markle.
The streaming company laid off 200 employees in June, having previously cut 600 staff in January.
The CBI has said that UK manufacturers cut employee numbers for the first time in nearly three years as output contracted in the quarter to October, according to the business trade body’s latest industrial trends survey.
The embattled Confederation of British Industry (CBI), which was dealt another blow after business secretary Kemi Badenoch turned down an invitation to speak at its annual conference, said that its latest survey for the quarter to October showed that the “red lights are flashing” in the UK manufacturing industry.
Anna Leach, deputy chief economist at the lobby group, said that the chancellor needs to use November’s autumn budget statement to reinvigorate the sector by encouraging investment and skills development.
“The warning lights are flashing red in our latest manufacturing survey, with business sentiment deteriorating, output volumes falling and manufacturers becoming more cautious over their employment and investment plans.
The survey, which is based on the responses of 253 manufacturing firms, found that the numbers employed fell marginally in the three months to October, the first time since January 2021.
It also found that output volumes declined in 11 of the 17 manufacturing sub-sectors, driven by lower volumes in the chemicals, metal products, building materials and furniture & upholstery sub-sectors.
However, manufacturers expect output volumes to return to growth over the next three months.
UK private sector output declines for third month running in October, as the economy continues to "skirt" recession
The UK’s latest purchasing managers’ index (PMI), conducted by S&P and the Chartered Institute of Procurement and Supply, registered declines in both manufacturing and services sectors.
The UK recorded a combined PMI of 48.6 last month – anything under 50 indicates contraction – a slight improvement on the 48.5 recorded in September.
Chris Williamson, chief business economist at S&P global market intelligence, said that the UK economy continues to “skirt with recession”.
The UK economy continued to skirt with recession in October, as the increased cost of living, higher interest rates and falling exports were widely blamed on a third month of falling output. Gloom about the outlook has intensified in the uncertain economic climate, boding ill for output in the coming months. A recession, albeit only mild at present, cannot be ruled out.
The figures show that the manufacturing sector is showing the steepest rate of decline, at 45.2, with a reduction in output for the eighth consecutive month – the longest streak since 2008/9.
Service providers showed only a marginal fall in business activity in October.
“This supports our view that a mild recession is underway and that the Bank of England has finished hiking interest rates,” said Ruth Gregory, deputy chief UK economist at Capital Economics.
Earlier this morning, S&P published PMI figures showing that the eurozone suffered its worst private sector performance in almost three years.
The #eurozone suffered its worst private-sector performance in nearly 3 years in October, flash @HCOB_economics #PMI data signalled, as the PMI fell to 46.5 (Sep: 47.2) amid an ever-weakening demand environment. Read more: https://t.co/ZFS7avR4vy pic.twitter.com/uBSTUegaF4
— S&P Global PMI™ (@SPGlobalPMI) October 24, 2023
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Worst is yet to come on household energy debts, warns British Gas boss
Another tough winter of high energy bills and the continuing impact of the cost-of-living crisis s stretching household budgets to the limit, according to the head of Centrica, the parent of British Gas.
“My worry is that the worst is still to come,” said Chris O’Shea, chief executive, in an interview with Bloomberg. “We are seeing direct debits being cancelled. We are seeing people struggling.”
O’Shea said that higher rents, mortgage costs and everyday living expenses such as supermarket shopping were adding to the strain on household budgets.
On 1 October, the price cap set by energy regulator Ofgem was reduced to £1,834 a year, the first time it dropped below the £2,000 mark since April 2022.
However, it is forecast to climb again to £1,976 in the first three months of next year, according to analysts at Investec - almost double the level before Russia invaded Ukraine.
Earlier this month, Ofgem said it is considering a one-off increase to the price cap to reduce the risk of suppliers going bust, as customer energy debt hits a record £2.6bn.
Updated
Barclays in cost cutting drive after profits fall
Our banking correspondent Kalyeena Makortoff writes:
Barclays is drawing up fresh cost-cutting plans after a slowdown across its investment bank and concerns over a rise in customer defaults led to a slight drop in third-quarter profits.
The lender also saw growth in net interest income from its UK retail business stall, suggesting it was no longer benefiting from a gap between what it charges for mortgages and what it pays out to savers.
Barclays said its pre-tax profits fell 4% between July and September compared with a year earlier, to £1.9bn, roughly in line with analyst expectations.
Introduction: UK jobless rate rises to 4.2% according to new experimental official data
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The rate of UK unemployment rose 0.2% to 4.2% in the three months to the end of August, according to new data from the Office for National Statistics (ONS).
Over the same period the number of people in work fell by 0.3 percentage points to 75.7%, the Office for National Statistics said – the equivalent of 82,000 jobs. That follows a 113,000 drop in the previous quarter.
Vacancies fell below 1m to 988,000, a drop of 43,000 and the 15th consecutive quarterly fall, the ONS said.The ONS delayed the reporting of the figures by a week due to low response rates to its survey and the implementation of the new methodology.
Marcus Brookes, chief investment officer at Quilter Investors, said that the use of new data has led to a “slightly clouded” picture of the state of the labour market.
“Looking at the ‘experimental’ data, we can see that unemployment in the UK is remaining stable, for now. However, the fast rise in interest rates is beginning to bite and we are seeing companies scale back hiring and in some cases shed jobs, with the employment rate falling and unemployment rising gradually in the last three months. We know that economic growth in the UK is slowing and could potentially turn negative for the fourth quarter, so today’s data provides further evidence that things may be beginning to roll over.
However, Brookes added that the figures may provide “just enough” evidence for the Bank of England to continue to hold the UK base interest rate at 5.25% when its monetary policy committee next meets.
This health check on the UK jobs market comes as Barclays draws up fresh cost-cutting plans after reporting a 4% fall in profits in the third quarter.
Barclays, which saw profits fall from £1.9bn in the same quarter a year ago, said the dip was due to profits at its corporate investment bank tumbling 11%, despite the bank taking part in the $65bn (£53bn) stock market debut of Cambridge-based chip maker Arm in the US.
Also coming up today
Google parent Alphabet and Microsoft are set to report results in the US this evening.
The Agenda
9.30am BST: Manufacturing ‘flash’ PMI
11am BST: CBI Industrial Trends quarterly survey
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