Published: 24 May 2023
By Suzanne Evans, Director, Political Insight
Annual Consumer Prices Index inflation dropped from 10.1% in March to 8.7% in the year to April, the Office for National Statistics (ONS) says this morning, with the dip primarily due to falling energy prices. The ONS said: "The easing in the annual inflation rate in April 2023 mainly reflected price changes in the housing and household services division, particularly for gas and electricity. This was offset partially by upward effects coming from recreation and culture, alcoholic beverages and tobacco, communication, and transport”. The ONS also noted however that food and non-alcoholic beverage prices continued to rise sharply in April, dipping only slightly by 0.1% to 19.1% in April, and so the additional cost remains at a record high. Core inflation has also risen again, to 6.8% from 6.2%, the highest level since 1992, a statistic which has spooked the London stock markets this morning and will no doubt keep up pressure on the Bank of England’s interest rates decision-making process.
The two top officials at the Bank of England (BoE) were forced yesterday to admit they have undershot the strength of inflation. Governor Andrew Bailey said the central bank has some “very big” lessons to learn over how it sets interest rates, after MPs on influential Treasury Select Committee quizzed the pair and criticised the Bank’s monetary policy committee (MPC) members for failing to accurately foresee steeply rising inflation. The Committee noted the BoE has repeatedly made inaccurate forecasts – earlier this month it lifted its end of year inflation projection to 5.2%, up from the 3.9% predicted in February, and lifted most of its inflation projection across its just over three year forecast period – hence querying how the BoE is able to set optimum interest rates if it does not understand where inflation is headed. BoE chief economist Huw Pill admitted the MPC’s inflation projections have persistently “been too low”. “We are trying to understand why we have made those errors, interpret those errors in terms of the behaviour, and make an assessment in terms of how it will continue,” he said. Bailey commented: “I think there are some very big lessons in how we operate monetary policy in the face of very big shocks. Because the shocks that we have faced have been unprecedented”.
The International Monetary Fund (IMF) said yesterday it no longer expects Britain's economy to fall into a recession this year and has upgraded its forecasts, predicting our economy will grow by 0.4% in 2023, rather than shrink by 0.3%, it forecast in April. However, IMF managing director Kristalina Georgieva said at a press conference yesterday that there were still significant risks to the UK's economic outlook, citing the greatest danger as "greater-than-anticipated persistence and price and wage-setting", which she said would keep inflation higher for longer. She also warned the UK must address the record numbers of people not working, many of whom have long-term illnesses. Chancellor Jeremy Hunt said: “Today’s IMF report shows a big upgrade to the UK’s growth forecast and credits our action to restore stability and tame inflation. It praises our childcare reforms, the Windsor Framework and business investment incentives. If we stick to the plan, the IMF confirm our long-term growth prospects are stronger than in Germany, France and Italy...but the job is not done yet.”
Speaking in New York yesterday, Shadow Chancellor Rachael Reeves said a future Labour Government would encourage pension funds to invest in British start-ups and growth firms as part of plans to boost the City and prevent homegrown firms from listing overseas. A report by City A.M. says she unveiled proposals to accelerate the consolidation of pension funds and to allow capital to flow into smaller private companies via a £50bn future growth fund proposed by City of London Lord Mayor Nicholas Lyons. She did not rule out mandating pension funds to invest in this, saying “nothing is off the table” in a response to a question posed by a Financial Times journalist. Because smaller private companies have typically been shut out of pension fund portfolios in the UK due to the relatively small size of funds, major pooled pension funds in Canada and Australia “are eating our dinner” on investment, while the US is “having our dessert”, she said, adding that her offer included a framework to de-risk investment for pension funds by allowing funds and insurers to plough in cash alongside the British Business Bank. Labour’s backing for his idea was welcomed Lyons, who said: “The UK is home to the most innovative and high-growth firms in the world, yet too many companies have no option but to access capital from overseas. Urgent action is needed to support businesses to start, stay and scale-up in the UK”.
The Competition and Markets Authority (CMA) has provisionally found that 5 major banks – Citi, Deutsche Bank, HSBC, Morgan Stanley and Royal Bank of Canada – unlawfully shared sensitive information on Government bond trading activities in one-to-one conversations in Bloomberg chatrooms between 2009 and 2013. “By unlawfully exchanging competitively sensitive information rather than fully competing, the banks involved in these arrangements could have denied the full benefits of competition to those they traded with – including, among others, pension funds, the UK Debt Management Office (which sells gilts by auction), and ultimately HM Treasury and UK taxpayers,” the CMA said. The probe is ongoing and if the CMA reaches a final conclusion that any 2 or more of the banks engaged in anti-competitive activity, it will publish an infringement decision and may issue fines, the watchdog said, adding that at this stage, no assumption should be made that any of the banks have broken the law. However, Deutsche Bank has already admitted their involvement in the unlawful information sharing to the CMA, and Citi has applied for leniency as part of the investigation, effectively admitting to wrongdoing. This means that, potentially, Deutsche will not be fined, and Citi’s fine will be mitigated. HSBC, Morgan Stanley and Royal Bank of Canada have not admitted any wrongdoing.
London mayor Sadiq Khan is being urged to help get workers back into the office by the Centre for Cities (CfC), which says if they continue to stay at home to work, the city risks falling into a productivity slump. The think-tank wants to see cost-barriers for commuters using public transport removed, alongside a “temporary scrapping of peak fares on a Friday,” and for the Mayor to actively work with businesses” to increase the minimum number of days workers are expected in the office. The CfC says the average worker in London currently spent less than two and a half days in the office each week in April 2023, around half of all working hours spent in the workplace prior to covid lockdowns. CEO Andrew Carter said: “Policy makers should be wary that we don’t passively let a public health emergency turn into a longer-term negative impact on the economy.” Carter also highlighted the younger workers also faced getting less on-the-job learning from their older colleagues when working from home.
Deliveroo riders are planning to demonstrate before the company’s AGM this morning to expose what they call the “grim reality” of working within London’s gig economy and call on CEO Will Shu to improve pay and conditions. Alex Marshall, President of trade union The Independent Workers Union of Great Britain and a former courier said: “Deliveroo riders are dying chasing pennies whilst the CEO Will Shu’s prime concern is the safety of his £600,000 salary. He’ll be hoping to gloss over his workers’ poverty pay and pitiful lack of safety protections at this AGM, but we’re there to ensure that doesn’t happen, and remind investors that Deliveroo is the most protested platform in the world”. A Deliveroo spokesperson said: “Deliveroo offers riders flexible work, attractive earning opportunities and security while they work. We see thousands of applications from people wanting to be riders each week, high satisfaction rates and very strong retention rates of those who sign up. We work closely with riders to make sure the work we offer reflects what they tell us they value.”
Altice has picked up a further 650m shares in BT Group, taking its stake in the British telecommunications firm to 24.5%, while insisting it does not plan to make a takeover offer. Altice is owned by French billionaire Patrick Drahi, who was already BT's biggest shareholder before the purchase, with an 18% stake. Last week, BT announced plans to axe up to 55,000 jobs by 2030, sending shares tumbling.
ITV has invested £3m in pet health and wellness company Pitpatpet, making the investment via its ‘media for equity’ investment fund ITV Adventures Invest. ITV also has the option to subscribe for a further £1m in shares, in return for advertising inventory across ITV's channels and ITVX.
Rolls-Royce is abandoning its work on creating a direct air capture (DAC) product last month. Sky News says the engineering firm has redeployed the handful of people working on the project to other roles. However, insiders told the broadcaster that Rolls-Royce would continue to work on a government-funded research project focused on DAC. DAC involves extracting carbon from the air through a chemical process, in order to combine it with hydrogen to create a synthetic fuel.
Last week, John Allan said he was stepping down as chair of Tesco as allegations of impropriety towards women when he was President of the CBI were becoming a distraction to the company, and now Barratt Developments has asked him to stand down earlier than planned as chairman and a director of the FTSE 100 house builder to prevent disruption. So, he is leaving at the end of June, instead of September, as originally planned. He will be replaced by non-executive director Caroline Silver. Barratt says it has not received any complaints about Allan during his tenure at the company, which he joined in 2014. Allan is facing four allegations which emerged during an investigation into the business lobby group by The Guardian. He has admitted and apologised for one event, when he made a comment about a CBI staffer's appearance that she found to be offensive in 2019, but denies the other three claims.
In an interview in London with City A.M., billionaire twins Cameron and Tyler Winklevoss, the founders of New York-headquartered crypto exchange Gemini, have warned the British Government not to “politicise” the UK’s crypto regime as the US government has done. They said they were “encouraged” by the state of UK crypto rules and had met with the Financial Conduct Authority, the Bank of England and the Lord Mayor of London, Nicholas Lyons, this week. Gemini CEO Tyler Winklevoss told the newspaper: “We know obviously the UK has a huge tradition of being a thoughtful regulator and a forward thinking regulator. And that’s why we chose to be here – there’s a lot of credibility. We made that decision to invest here years ago, and we’re here to express that we want to continue to do that and make the UK a home for crypto.” Across the Atlantic, the twins said, US regulators and lawmakers are on the “warpath” in the wake of the collapse of FTX last year, which they said was a “not a crypto problem [but] a fraud problem”. However, the two did criticise recent comments made in a House of Commons Treasury Select Committee report which suggested crypto should be regulated in the same was a gambling, “which we found kind of curious,” Cameron Winklevoss said, adding: “I guess gambling is anything that can go to zero, which means that oil or gold, or other commodities could also fall into that bucket, as well as venture investments. It feels like there might be a double standard on some level there.” The Winklevoss’s charm offensive in London follows a similar move by competitor Coinbase last month, in which chief Brian Armstrong said the US regulatory clampdown could lead it to explore a London headquarters in future, City A.M. said.
The European Union has approved the world's first comprehensive crypto regulatory regime measures, called the Markets in Crypto Assets (MiCA), that are set to become law by July this year. “Under the new rules, crypto asset service providers are obliged to collect and make accessible certain information about the sender and beneficiary of the transfers of crypto assets they operate, regardless of the amount of crypto assets being transacted, to ensure the traceability of crypto-asset transfers in order to be able to better identify possible suspicious transactions and block them", the new rules state. Crypto firms that intend to issue, trade, and safeguard cryptoassets in the 27-member bloc will also need to secure a license from January 2024.
Boeing CEO David Calhoun has warned that Sustainable Aviation Fuels (SAF) will “never achieve the price of jet fuel,” which is kerosene-based. According to reports in the Financial Times today, Calhoun said he believes SAFs have the potential to become more economical, but said: “I don’t think we will ever achieve the price of Jet A. I don’t think that will ever happen. It is more positive, and it will have an impact, but it’s going to be what it’s going to be”.
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