Published: 12 May 2023
By Suzanne Evans, Director, Political Insight
As expected, the Bank of England (BoE) hiked interest rates for the twelfth time in a row yesterday, and to their highest level since October 2008, as the monetary policy committee (MPC) voted 7-2 in favour of raising borrowing costs 25 basis points to 4.5%. The BoE also warned inflation will stay higher for longer than it previously thought – leading Chancellor Jeremy Hunt to row back on promises that inflation would halve this year. In a statement issued after the raise, BoE Governor Andrew Bailey said that if inflationary pressures stick around, “further tightening in monetary policy would be required”. Speaking at a press conference later, he added that he hoped the BoE was now near the end of its tightening cycle, but it was too soon to be sure. "We are approaching the point when we should be able to ... rest in terms of the level of rates," he told Bloomberg TV. The pound weakened about 0.2% against the US dollar on the news, while the FTSE 100 shed 0.14% by close.
The hospitality sector expressed dismay at the BoE’s decision to raise interest rates again, with Kate Nicholls, the CEO of UKHospitality saying the move to “significantly impact business viability,” as “hospitality was the business sector most affected by the pandemic, with a large number of businesses forced to take out loans to survive,” which are now set to rise. Emma McClarkin, CEO of the British Beer and Pub Association said: “Pubs and brewers don’t want to put up prices for customers, because with interest rates continually rising customers are watching the pennies – but they are left with little choice…They need to cover their own costs and inflation is hitting them throughout their supply chains, it’s an unsustainable situation that is completely wiping out profits”. She added: “Not only will pubs be suffering from reduced spend but increased rates make investments in their businesses and the opportunity to grow much harder. Add to this a drop off in the (Government) support on sky-high energy bills and you’ve got a toxic mix that is making it incredibly difficult for pubs to survive.” JD Wetherspoon boss Tim Martin also blasted MPs over a “lack of understanding” with regards to inflation, which he said presents a “real threat to the future prosperity of the country.” “In order to bear down on inflation, political parties should encourage free enterprise, rather than a reliance on additional regulations,” he said.
The BoE has also ridden back on its prediction of fifteen straight months of contraction, as it outlined in November. Now, any threat of a recession in Britain this year and over the medium term has been firmly dismissed, with the central bank saying the UK economy will now broadly flatline this year before it starts growing in the final six months. There will be no quarter of negative growth over the next three years, the bank now believes.
The Office for National Statistics (ONS) reports the latest estimated GDP figures this morning, saying it fell 0.3% in March 2023. Services fell 0.5%; production grew 0.7%; and construction grew 0.2%, the official data collector said, however it noted GDP still registered growth of 0.1% across Quarter 1 (Jan to Mar) 2023 as a whole. Industrial action in the health, education, and public administration sectors dragged GDP down, the ONS said, while IT and construction contributed to growth.
The ONS has also released the latest trade figures showing the value of goods imports decreased by £1.4 billion (2.8%) in March 2023; while goods exports also decreased, by £0.7 billion (2.3%). The monthly fall in both imports and exports of goods were primarily because of decreases in trade with non-EU countries, while trade with the EU remained stable, the ONS said. The quarterly trade in goods deficit narrowed by £8.9bn to £55bn in Quarter 1, while the trade in services surplus widened by £1.3bn to £39.8bn. These changes to the quarterly trade balances were primarily because of falls of £3.8bn in machinery and transport equipment imports, £3.3bn fuel imports and £2bn in imports of other business services. The total trade in goods and services deficit narrowed by £10.2bn to £15.1bn in Quarter 1 2023.
The Times’ front page reports that a video call took place yesterday between John Glen, the Chief Secretary to the Treasury and leading supermarkets, in which the latter said food prices had “peaked” and would now start falling. Food price inflation hit 19.2% in March. The supermarkets also asked for help to reduce prices, by calling for a reduction in the cost burden of packaging and environmental regulations, the newspaper says.
Meanwhile, the House of Commons’ Environment, Food and Rural Affairs (EFRA) Committee has launched an investigation into the fairness of the food supply chain, saying it will examine how profits and risks are shared from "farm to fork;" whether the current level of regulation is appropriate; the role and market power of supermarkets; and the impact of external factors such as imported food and global commodity prices on the supply chain. "When many people are struggling to give their families good food at a reasonable price, it's our job as a committee to get to the bottom of what’s going on," Robert Goodwill MP, chair of the EFRA Committee said. EFRA will take evidence from farmers, manufacturers, retailers, Ministers and consumers, and issue a report with recommendations.
Despite previously promising to abolish what he defined as the “feudal” system of leasehold property ownership, Levelling Up Secretary Michael Gove has now dropped the plans. Rico Wojtulewicz, head of housing and planning policy at the National Federation of Builders, said its members have been supportive of introducing commonhold and had welcomed the government’s previous plans to scrap leasehold, so it was “disappointing that another ambition to fix the housing crisis has been watered down, especially as there is cross-party consensus on the issue”. The Home Builders Federation, the trade association representing private sector homebuilders, also previously supported the government’s plans on commonhold reform. Gove has already made some reforms: The Leasehold Reform Act introduced last year stopped people buying new leases having to pay ground rent, and the Minister is expected to introduce new measures next month to increase transparency in how freeholders select property management companies and how much leaseholders have to pay for them.
Rail passengers have been warned to expect significant disruption as the latest train strikes begin today. Members of the Aslef train drivers' union are walking out at 16 companies, with some running no services at all, among them TransPennine Express, Northern, Avanti, East Midlands Railway, Thameslink and Southern. Today’s strike, which Aslef insists was not scheduled to target Eurovision events, is the first of four separate days of walkouts by two unions. Aslef is striking on Friday 12th May, Wednesday 31st May, and Saturday 3rd June - the day of the FA Cup final. Separately, the RMT union is striking on Saturday 13th May - the day of the Eurovision final in Liverpool. Both unions have been accused by Transport Secretary Mark Harper of targeting the contest.
Britain's leading asset managers are in advanced talks to create a multi-billion pound investment fund to back UK start-ups and stem the flow of technology firms snubbing London for New York, a key official working on the proposal has told Reuters. Nicholas Lyons, a veteran banker and the current Lord Mayor of London, said the planned Future Growth Fund would aim to draw up to £50bn from British pension pots to invest in fast-growing technology and biotech firms. Lyons said he was in advanced discussions with several FTSE 100 asset managers and insurers on the blueprint for the fund and to get "buy-in" for proposals he hoped could be finalised by the end of this year. Lyons cited the Canada Pension Plan Investment Board and AustraliaSuper funds - both of which have a sizeable presence in London - as examples of funds to emulate, arguing they were "eating our lunch".
The CEO of fintech Tide, Oliver Prill, has begun pushing for an anti-fraud tax to fund the battle against fraud, saying the recent creation of a National Fraud Squad alone will not end “Britain’s fraud epidemic.” “The target to cut fraud by only 10% by the end of 2024 with another 400 police officers is nowhere near enough to combat the sheer scale of the problem and the damage done,” Prill said. According to UK Finance data, over £1.2bn was stolen by fraudsters in 2022, making the UK the “fraud capital of the world” according to one analyst. Tide, which provides mobile banking services for SME businesses, is suggesting the anti-fraud tax could be levied on social media and telecom companies, and on every faster payment transaction in the UK, where the majority of fraud starts. Prill also wants the police to be forced to investigate and prosecute scammers; and argues that plans to force financial institutions to reimburse victims of fraud should be reconsidered.
Heathrow Airport and three major airlines were yesterday granted permission to appeal the Civil Aviation Authority (CAA)’s decision on the Heathrow price cap. Virgin Atlantic, British Airways and Delta Air Lines, have been locked in a dispute with Heathrow over the amount the airport can charge per passenger, and both sides launched rival appeals in April against the CAA’s decision to lower the cap. The appeal process was then passed to the Competition and Markets Authority (CMA) which ruled in March the levy would be raised to £31.57 per passenger in 2023, up from £30.19, before falling £25.43 per passenger in 2024, where it would remain there until 2026. The airlines alleged that Heathrow has played down its recovery from Covid, and used “knowingly undercooked and self-serving passenger forecasts,” to attempt to keep the cap, which is set based on passenger numbers. Heathrow however, argued that the rate should be greater, to boost investment in the airport. A CMA spokesperson said: “The CMA will now begin the formal stage of carefully considering the appeals from Heathrow Airport Limited, British Airways, Virgin Atlantic and Delta Air Lines.” Heathrow warned yesterday that passengers numbers may be levelling off, as the rebound from Covid travel restrictions stalls.
FTSE 100 consumer goods giant Unilever will be the new official sponsor for the Fifa Women’s World Cup, it has been announced, replacing a previous deal between the competition and Visit Saudi, the Saudi Arabian tourism body which was ditched in March after a backlash from players and hosts Australia and New Zealand about Saudi’s human rights abuses.
The finance chief of London-based fintech firm Revolut quit the firm for “personal reasons” yesterday. City A.M. understands Mikko Salovaara been placed on gardening leave for several months after two years with the firm, but has resigned from his position rather than been fired. Revolut has faced a difficult few months because of a media storm over its accounts and delays to its efforts to win a banking licence. The firm was due to file its accounts in September 2022, but missed an extended deadline of the end of the year , before finally filing the accounts in early March. However, auditor BDO warned it had been unable to independently verify around 75% of its revenues due to quirks in its IT system. Revolut insisted that value of its revenues were not in question. Once Britain’s most valuable private company, Revolut applied to the Prudential Regulation Authority for a full banking licence in 2021 but one has not yet transpired.
Asset manager Man Group said yesterday that CEO Luke Ellis would retire in September, to be succeeded by Robyn Grew. Ellis joined Man Group in 2010. The decision to appoint Grew means the FTSE 250 firm will be led by two women for the first time in its history, as chairman John Cryan is stepping aside for Anne Wade towards the end of the year.
Elon Musk said on Twitter that he has found a new CEO for the social media company he bought last year for $44bn. He did not name them, but said it was a woman. The Wall Street Journal has reported that Comcast NBCUniversal executive Linda Yaccarino was in talks for the job.
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