£65bn invention last week saved Britain from being on the brink of a financial crisis

By Suzanne Evans, Director, Political Insight

The Bank of England (BoE) has said that its £65bn invention last week saved Britain from being on the brink of a financial crisis. A letter from Sir Jon Cunliffe, deputy governor of the BoE, highlighted that there was fear of “severe disruption of core funding markets and consequent widespread financial instability” in the aftermath of the mini-budget, which could have seen pension funds forced to dump £50bn worth of government bonds into a chaotic market. “The Bank received market intelligence of increasing severity from a range of market participants, and in particular from LDI [liability-driven investment] [pension] fund managers, reporting that conditions in core markets, should they continue to worsen, would force them to sell large quantities of long-term gilts in an increasingly illiquid market.,” he wrote. “Taken at face value, this market intelligence would have implied additional long-term gilt sales of at least £50 billion in a short space of time, as compared to recent average market trading volumes of just £12bn per day in these maturity sectors.”

Sky News claims that the UK's biggest mortgage lenders are urging Chancellor Kwasi Kwarteng to extend the Mortgage Guarantee Scheme, a government home loans initiative which helps first-time buyers get onto the property ladder, which is scheduled to expire at the end of the year. Launched in the spring of 2021, the scheme gives lenders an option to underwrite through the government the losses incurred on mortgages above 80% of the purchase price of a property. After Kwarteng’s meeting with lenders yesterday, the Treasury issued a statement saying: "While it is the responsibility of the sector to provide the best value for mortgage rates, the Chancellor confirmed that the Treasury would continue to work closely with the sector in the weeks and months ahead". A source familiar with the discussions also told Reuters that the Treasury had indicated it would look into extending the Mortgage Guarantee Scheme. Hundreds of mortgage deals have been pulled or frozen by banks in the last fortnight as a result of volatility in how banks price such loans.

Lender Halifax says house prices fell for the second time in three months in September, as month-on-month terms and rising borrowing costs exert "more significant downward pressure". A drop of 0.1% from August still leaves house prices 9.9% higher than a year ago, with homebuyers still needing an average of £293,835 to buy a home.

Prime Minister Liz Truss and French President Emmanuel Macron yesterday issued a joint statement in support of the proposed new Sizewell C nuclear power plant and general cooperation on energy. Sizewell C is due to be developed by French energy company EDF, and the two leaders said they expected the "relevant bodies to finalise arrangements in the coming month". The statement also reiterated how "energy transition and decoupling from Russian hydro-carbons are common challenges" and reaffirmed their belief that “both renewable and nuclear energies are part of consistent strategies to achieve energy transition and strategic autonomy." Before leaving office, former prime minister Boris Johnson pledged £700m for Sizewell C, which is to be build next to the decommissioned Sizewell A and the still operating Sizewell B on the Suffolk coast, although the project is expected to cost £20bn overall. It is unlikely to begin generating energy until the 2030s, at which point it is expected to generate about 7% of the UK's electricity needs for 60 years. EDF has said the plant could generate 3.2 gigawatts of electricity, enough for about six million homes.

The government today opens its first new licensing round for companies to explore for oil and gas in the North Sea since 2019. Nearly 900 locations are being offered for exploration, with as many as 100 licences set to be awarded, depending on the quality of applications. Business Secretary Jacob Rees-Mogg says the new exploration will boost energy security and support skilled jobs. "Ensuring our energy independence means exploiting the full potential of our North Sea assets," he says. While hosting the COP26climate summit last year, Britain chose not to commit to not launching any new oil and gas projects. The government insists new exploration is compatible with its commitment to reach net zero greenhouse gas emissions by 2050, and that North Sea fossil fuel will replace imported fuel, reducing dependence on Russian fuels and having a lower carbon footprint in production and transportation.

The National Grid has warned that millions of homes and businesses in the UK could experience a planned series of three-hour power cuts in the “unlikely” worst case scenario “extreme” of gas shortages and reduced electricity imports from the rest of Europe. If this emergency plan is set into motion, consumers in different parts of the country would be notified a day in advance of three-hour blocks of time during which their power would be cut off, in an effort to reduce total consumption by 5%. To avoid this, households are being encouraged to help avoid blackouts, “save money and back Britain” by using more energy during off-peak times.

The government has extended Avanti West Coast’s contract to run trains between London, the West Midlands, North West England, North Wales and Scotland, but has been warned it needs to "drastically improve services".Transport Secretary Anne-Marie Trevelyan said services on Avanti have been "unacceptable" and that during the six-month extension, the company will be assessed on “whether it is capable of running this crucial route to a standard passengers deserve and expect."

The Department for Transport said it would "consider Avanti's performance" once the extension comes to an end on 1 April 2023. FirstGroup, which owns Avanti West Coast in a joint venture with Italy's Trenitalia, said it was "committed" to providing services that meet the needs of customers and communities. "Today's agreement allows our team at Avanti West Coast to sustain their focus on delivering their robust plan to restore services to the levels that passengers rightly expect," said Graham Sutherland, FirstGroup's CEO.

Just 20% of Britain's trains are set to run this Saturday due to strike action, the BBC reports. RMT union members in 15 train firms and Network Rail will strike in the eighth day of action over pay and conditions. People are being warned to only travel if absolutely necessary, as trains will start late and finish early. The disruption is expected to continue into Sunday morning.

The Office for National Statistics (ONS) published its latest economic activity and social change data yesterday. Spending on debit and credit cards increased to 101% of its February 2020 average in the week to 29th September 2022, according to Bank of England CHAPS data. Meanwhile, data from the Revolut app shows spending in all sectors rose in the week to 2nd October 2022, apart from “pub, restaurant and fast food,” where spending fell by 2% but was still 18% higher than at the same time last year. Both road traffic and the average number of UK flights were broadly unchanged from the previous week, with the latter over 50% higher than the equivalent week of 2021 but 16% lower when compared with 2019. Total online job adverts were unchanged in the latest week but 17% lower than the equivalent week of 2021, and for the fifth successive month, jobs in small businesses have been down on the equivalent month of the previous year. The average price of gas also fell 17% in the week to 2nd October 2022 according to the National Grid, making it 22% higher than the same time last year, but 60% lower than at its peak on 31st August 2022.

BDO's High Street Sales Tracker (HSST) shows September had the slowest retail sales growth since shops reopened post-Covid restrictions. The dip was due to a combination of inflation, economic crisis and an unexpected bank holiday, the accountancy and business advisory firm says. In-store and online sales increased by just 2.8% in September on last year, following a similarly poor set of results in August. Sales at the start of the month were up 3.9% and peaked in the second week at 4.9%, but them fell 2.8% and 1.3% in the third and fourth weeks respectively – the latter impacted by the additional bank holiday to mark the Queen's funeral. Fashion sales were up just 6.7% on last September, while lifestyle sales were up only 1.2%,. Sales in the homewares sector fell by 6.3%. BDO attributed this to consumers postponing bigger purchases having spent money on their homes during lockdowns.

The Competition and Markets Authority (CMA) says the proposed $7.3bn (£6.43bn) tie-up between satellite operators Viasat and Inmarsat could substantially lessen competition. The satellite communications firms, two of world's largest, announced plans to join forces in November 2021. In particular, the UK regulator said, New York-listed Viasat and the UK's Inmarsat competed closely in the aviation sector, particularly in the supply of onboard Wi-Fi for passenger use, and that while rivals were looking to target the sector, it was "one of the most difficult industries for satellite operators to enter". "The CMA's initial investigation has found that there is significant uncertainty about when, if not all, these suppliers would be in position to compete effectively with Viasat and Inmarsat," it said, adding that it was concerned that reduced competition in the sector would leave airlines facing higher prices and lower quality connectivity solutions. It also noted that it can be "very difficult" for airlines to switch providers once they have installed a connectivity solution. The two firms now have five working days to submit proposals to address its concerns. The CMA will then consider whether to accept them or refer the deal for a more in-depth, phase 2 investigation.

FTSE 100 companies are expected to pay out £81.5bn in dividends this year, yielding an average 4.1% return, according to AJ Bell’s Q3 Dividend Dashboard. This will slightly undershoot the record payment of £85.1bn in 2018, Yahoo Finance UK says, but this forecast is for ordinary dividends only: there are another £1.56bn in special dividends and a record £50.3bn in share buybacks that have already been announced.

The CEO of Rolls Royce, Warren East, has said he regrets signing up to the government-backed Race to Zero pledge ahead of the COP26 environmental conference, because “the burden of bureaucracy” it involves is a “pain.” “The very insistent measuring, reporting, and spurious accuracy being demanded by the regulatory environment, it causes friction, and it slows everything down,” he told The Economist’s Sustainability Week conference in London. However, he stood by his decision, saying it was “the right thing to do.” The FTSE 100 boss has sought to position Rolls Royce as a ‘green’ leader in the field by converting engines to use sustainable fuels and encouraging government to back his plans to build small nuclear power stations.

FTSE 100 advertising giant WPP has bought Passport Brand Design, a brand design agency based in Southern California, for an undisclosed sum. Founded in 2004 by Natalie Taormina and Jeremy Creighton, the business "brings extensive brand identity, design expertise and insight into WPP and works across a broad range of consumer categories and global markets, spanning Australia and Asia to North America", WPP said.

FSE 250 gambling company 888 has launched operations in Kenya, Tanzania, Mozambique and Zambia with local licences through a joint venture known as 888AFRICA. "Expanding into markets like Kenya, Tanzania, Mozambique and Zambia, which have attractive, long-term growth potential, is a key part of 888's corporate strategy,” the company said yesterday. “With the African gambling market forecast to reach $5.6bn (£5.02bn) by 2030, 888bet is well placed to capitalise on growing demand and maximise growth opportunities," it added.

British manufacturer AMTE Power has signed a contract to manufacture its Ultra High Power (UHP) cells at the £130m UK Battery Industrialisation Centre (UKBIC) in Coventry. The deal means AMTE can request UKBIC to manufacture up to 60,000 of its battery cells each year, over an initial term of 24 months. Earlier this summer, the firm announced plans to build a new £19Om ‘megafactory' in Dundee. Kevin Brundish, CEO of AMTE Power, said: “Having already secured significant early interest in our Ultra High Power cell from major automotive partners, this contract will enable us to bring our products to market sooner while we progress our own MegaFactory”.

Porsche became Europe's most valuable carmaker yesterday - overtaking former parent Volkswagen - as its shares rose higher on the German stock market. Porsche had fallen below its listing price on Monday to €81, but yesterday morning rose to €93, giving the sportscar brand a market valuation of 85 billion euros, above Volkswagen's €77.7 billion. Mercedes-Benz currently has the third highest market cap of European carmakers with a €57.2 billion euro valuation, followed by BMW with €47.5 billion, and Stellantis with €39.7 billion.

The Norwegian government expects record income next year from its oil and gas industry, yesterday predicting a rise of 18% from this year's level and a fivefold increase over 2021 as production rises and prices soar. Reuters reports that European gas prices have roughly tripled in 2022 following Russia's cut in supplies both before and after its invasion of neighbouring Ukraine, and the price is up tenfold compared to levels seen prior to last year. Norway is Europe's primary gas supplier and a major global crude oil producer. It expects to pump 4.3 million barrels of oil equivalent per day next year, up from an expected 4.1 million barrels in 2022. In its draft 2023 budget, the Norwegian finance ministry said oil and gas revenue next year was set to rise to a record 1.38 trillion crowns (£120bn) from 1.17 trillion crowns (£100bn) in 2022 and 288 billion crowns (£24.1bn) in 2021. As a result of higher prices, the government plans to raise taxes on the country's oil and gas industry by 2 billion crowns in 2023, partly by reversing an incentive package introduced during the coronavirus pandemic. While the nation of 5.4 million people has said soaring gas prices are not in its long-term best interest, it has rejected calls for a price cap, arguing that this would not help Europe secure more energy.

Peloton Interactive is planning to cut about 12% of its workforce in its fourth round of layoffs so far this year, the Wall Street Journal reported yesterday. A company statement announced 500 job cuts, leaving Peloton with roughly 3,800 employees globally. CEO Barry McCarthy, who took over in February, will give the unprofitable company another six months or so to significantly turn itself around and, if that fails, Peloton likely is not viable as a standalone company, the report said.

Credit Suisse is looking to sell its Savoy Hotel in the centre of Zurich's financial district. Finance blog Inside Paradeplatz first reported the news, saying that the building could be worth CHF400m (£362.21m). Credit Suisse announced in 2020 that the hotel would be undergoing extensive renovations and closing its doors from early 2022 to mid-2024.

Apollo Global Management and Sixth Street Partners, which had been looking to provide financing for Elon Musk's proposed $44bn (£39.42bn) takeover of Twitter, are reportedly no longer in talks with the Tesla owner. Previously, it was understood that Apollo, Sixth Street and other investors were looking to commit more than $1bn (£900m) in financing for the deal. Reuters said Musk is now expected to provide much of the $44bn through funds he raised by selling down his stake in Tesla and by leaning on equity financing from large investors. In addition, major banks have committed to provide $12.5bn (£11.2bn) of debt financing.

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