Published: 22 June 2023
By Suzanne Evans, Director, Political Insight
Inflation in the UK stuck at 8.7% in May, data released yesterday by the Office for National Statistics (ONS) show, defying predictions for a fall. Core inflation – excluding volatile food, energy, alcohol and tobacco prices, rose unexpectedly to 7.1% from 6.8%, its highest since March 1992. Services price inflation (influenced heavily by fast-rising wages, which are increasing on average by 6% ) also reached its highest since 1992 at 7.4%. There were also unusually large increases in the cost of air fares, second-hand cars, live music events and video games. The headline figure means British inflation is once again the fastest of any major advanced economy. Prime Minister Rishi Sunak has pledged to halve inflation this year before a probable 2024 election, and has said he is still “completely confident” his goal will be achieved.
Today, the Bank of England (BoE), which watches core inflation figures closely, is expected to raise interest rates for the 13th time in a row in a further attempt to tame price rises. There was much chatter among economists yesterday that the BoE might now have to effectively "create a recession" to tame an emerging wage-price spiral.
The ONS also revealed yesterday that public sector net debt surpassed 100% of GDP in May for the first time since 1961.
In response to yesterday’s inflation data, the opposition Labour Party leader Keir Starmer accused Sunak's Conservative Party of triggering a "mortgage catastrophe". Later in the day, Shadow Chancellor Rachel Reeves set out Labour’s solution to ending said catastrophe: requiring lenders to allow borrowers to lengthen their mortgage period and switch to interest-only mortgage payments for a temporary period, with guidance that such moves should not impact borrowers' credit scores. Chancellor Jeremy Hunt is meeting major banks tomorrow to discuss how they can help homeowners, but he says the Government will not offer borrowers significant financial help.
The performance of Network Rail has “not been good enough,” rail minister Huw Merriman said yesterday while giving evidence to the House of Commons’ Transport Select Committee. “We really do have to hold Network Rail to account to ensure that they do deliver,” on improving the country’s rail infrastructure, Merriman said, which is “worn in many parts”. A spokesperson for Network Rail told City A.M. they “totally agree” with Merriman’s assessment. “While train performance is still ahead of where it was pre-pandemic, passengers have experienced a tough year of disruption, not least because of the on-going industrial dispute. But Network Rail, working with train operators, is determined to improve services and punctuality for all that rely on our railway,” they said. Merriman also argued during the hearing that the government should consider increasing financial incentives for rail providers to improve performance. Currently train operators are entitled to a bonus “performance fee” for going above and beyond minimum service standards. “I firmly believe that if train operators have got the right incentives in place, then they will increase service provision,” he said.
Meanwhile in the House of Lords yesterday, the Communications and Digital select committee was told by several small tech companies that tech giant Google is stifling competition and “killing off industries” due to its monopoly of the online advertising market. The hearing, convened to discuss the Digital Markets, Consumer and Competition Bill, heard from Richard Stables, CEO at Kelkoo Group, an e-commerce marketing platform; News Association boss Owen Meredith; and Tom Fish, head of public policy at software company Gener8, all of whom were critical of Google’s dominance and called on parliament to take steps to increase competition.
Brexit has been an "economic disaster" for trade and investment ties between the United Kingdom and Germany, Volker Treier, head of foreign trade at the German Chamber of Industry and Commerce (DIHK), told Reuters this morning. Brexit has led to a fall in German direct investment while the UK has declined in importance as a trading partner, he said, claiming that: "Brexit is an economic disaster for both sides of the channel". Last year, Germany exported goods worth €73.8bn (£63.46bn) to the UK, 14.1% less than in 2016, the year of the EU referendum. Then, the UK was Germany's third most important export market, but by 2022 the country had slipped to 8th place, Treier said. As a trading partner - measuring combined exports and imports - the UK has lost even more importance since then, he said, dropping from fifth to eleventh place. The volume of German direct investment in the UK has also declined. In 2021, it was around €140bn (£120.39bn), a decline of 16.1% compared with 2016. According to the DIHK, some 2,163 German companies are now active in the UK, 5.2% fewer than in 2016.
Shares in online supermarket delivery firm Ocado are surging over 20% this morning amid speculation it could be a takeover target for Amazon. According to The Times, there has been talk the London-listed firm is being eyed up by the tech giant which is prepared to pay 800p-a-share takeover bid. Ocado closed yesterday at 430p.
Revolution Beauty has hit back at attempts by major shareholder Boohoo to instigate a boardroom coup, calling it “hostile,” “opportunistic,” and “self-serving”. “The proposed boohoo director candidates do not appear to have any relevant experience in running a business in the beauty sector, nor in supplying a store estate and product range which is focussed on the high street,” it said, adding: “On the other hand, the current Revolution Beauty management team have a strong working relationship with the group’s key retailers and other stakeholders globally.” Boohoo holds a 26.6% stake in Revolution, and says it will vote against CEO Bob Holt, chairman Derek Zissman and CFO Elizabeth Lake at its upcoming AGM, which was due to be held on 27th June, but has now been put back to late July or early August, as the brand reviews “ongoing issues”. Yesterday, Boohoo also said it would “potentially” take legal action against Revolution Beauty’s founder and former CEO Adam Minto, accusing him of a breach of fiduciary and statutory duties that delayed the publication of its full year results in 2022, initiating a suspension of the company’s shares from trading on the London Stock exchange’s AIM market.
Activist investor Elliott Advisors has emerged as one potential suitor for fashion brand Reiss, Sky News reported yesterday. Reiss is currently owned by Next and Warburg Pincus, the US private equity firm, and recently put the brand up for sale. Sky said that "at least" three parties were thought to be involved in the auction, which could see Reiss valued at around £500m.
London’s Southend Airport has been put up for sale by owner Esken.
India's top IT services provider Tata Consultancy Services (TCS) says it has signed a new contract worth £840m with British pension scheme Nest for an initial tenure of 10 years. The contract, to help Nest transform its administration services, if extended to the entirety of its 18-year tenure, would be worth 1.5 billion pounds, TCS said in a statement.
UBS is reportedly set to pay out hundreds of millions of dollars in fines over Credit Suisse’s failings linked to the collapsed hedge fund Archegos Capital, now that regulators in the UK, US and Switzerland have completed their investigation into Credit Suisse’s relationship with the hedge fund, which collapsed in 2021. The Financial Times suggests that the UK banking regulator, the Prudential Regulation Authority, could impose a £100m fine, while the US Federal Reserve might impose a penalty of up to $300m. Finma, the Swiss financial markets regulator, has no power to fine the banks it supervises. Credit Suisse was one of the banks hardest hit by the collapse of Archegos, with the bank facing losses of around $5.5bn. In contrast, UBS faced a $861m loss. UBS has already said it has set aside $4bn (£3.14bn) for potential lawsuits relating to its takeover of Credit Suisse.
Former Nissan chairman Carlos Ghosn has a brought a $1bn lawsuit the against the Japanese carmaker and says he will fight "to the end" to “get my rights back, to repair my reputation”. Ghosn was arrested in Japan in late 2018 and charged with under-reporting earnings, breach of trust and misappropriation of company funds, charges he denied, saying they were a conspiracy against him by Nissan. He fled Japan December 2019 as he awaited trial and, after arriving in his childhood home of Lebanon said he was escaping a "rigged" justice system and would clear his name. Ghosn's lawsuit, a copy of which has been seen by Reuters, includes allegations of defamation, slander, libel and the fabrication of material evidence by Nissan as well as 12 individuals and two other firms. He has not left Lebanon because of an Interpol Red Notice issued by Japan. A judicial source in Lebanon said the prosecutor has scheduled a court session on 18th September to begin proceedings.
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