Published: 23 June 2023
By Suzanne Evans, Director, Political Insight
The Bank of England (BoE) raised interest rates by half a percentage point yesterday in response to what it said was the "significant" news that inflation in May had not budged and was stuck at 8.7%. The BoE's Monetary Policy Committee (MPC) voted 7-2 to raise its main interest rate to 5% from 4.5%, its highest since 2008 and its largest rate increase since February, following both the stubborn inflation news and significant wage growth since its policymakers met in May. "Second-round effects in domestic price and wage developments generated by external cost shocks are likely to take longer to unwind than they did to emerge," the MPC said in a statement following the vote. MPC members Silvana Tenreyro and Swati Dhingra opposed the rate rise - as they have all others this year - saying that much of the impact of past tightening had yet to be felt, and forward-looking indicators pointed to steep falls in inflation and wage growth ahead.
The raise sent the FTSE tumbling. The FTSE 100 ended the day down 0.76% at 7,502.03, and the more domestically-focused FTSE 250 down 1.31% to close at 18,327.97. Both indexes have fallen further this morning, by 0.39% and 0.29% respectively, at the time of writing.
“I understand the difficulty and the pain (the raise) causes for many people," the Bank of England governor Andrew Bailey said, but argued that if interest rates were not raised now, "it could be worse later". "Many people with mortgages or loans will be understandably worried about what this means for them... but inflation is still too high and we've got to deal with it," he added. He also warned that to get inflation lower, wage rises "cannot continue," however he denied the Bank was trying to cause a recession by putting up rates so sharply. Chancellor Jeremy Hunt echoed Bailey’s words saying: "High inflation is a destabilising force eating into pay cheques and slowing growth. Core inflation is higher in 14 EU countries and interest rates are rising around the world, but the lesson from other countries is that if you stick to your guns, you bring inflation down”. He added: "Our resolve to do this is watertight because it is the only long-term way to relieve pressure on families with mortgages. If we don't act now, it will be worse later". Hunt is due to meet with banks and building societies today. Prime Minister Rishi Sunak said: “I am totally 100% on it, it is going to be okay and we are going to get through this,” however he also admitted it had just "got harder" to meet his target of halving inflation by the end of the year.
Despite stubborn inflation, interest rate hikes and steep price increases, British consumer sentiment has risen to its highest level since January 2022, according to market research firm GfK. After surveying 2,000 people between 1-14th June, GfK’s headline confidence index rose for the fifth month in a row to -24 in June, up from -27 in May, moving further away from the -49 record low last September.
Retail sales grew 0.3% in May 2023 following a rise of 0.5% in April, the Office for National Statistics said this morning. Online sales of outdoor goods and summer clothing did especially well as the weather improved, with DIY stores and garden centres improving for the same reason. May also saw a return to growth for fuel sales after a dip in April. Sales of jewellery and art fell, however.
City A.M. said yesterday that one of the UK’s top investment platforms says the Government is “penalising” UK investors by levying “baffling” taxes on holding British stocks. Interactive Investor, the UK’s second largest platform for retail investors, slammed them for maintaining stamp duty on stocks and argued the charge should be scrapped.
The Government’s decision to grant development consent for the Sizewell C nuclear plant was lawful, Mr Justice Holgate ruled at the High Court yesterday, quashing a protracted legal challenge from localist campaigners on environmental grounds. Their claim, he said was, in parts, “totally without merit,” and ordered them to pay £10,000 towards Government costs.
20,000 rail workers at 14 train companies will strike again on 20th, 22nd, and 29th July, the RMT Union said yesterday.
Skiworld, the UK’s largest independent ski tour operator, has pulled out of much of its operation in Austria as a result of post-Brexit red tape, City A.M. reports. Diane Palumbo, sales and marketing director at Skiworld told the newspaper: “Austria is a nightmare. Thirty years of building up a programme of accommodation in Austria has pretty much been completely wiped…We’ve still got chalets in St Anton but we have to staff those with EU staff because Austria has a quota on the number of non-EU visas it issues.” Last week, travel trade association ABTA said the number of UK staff employed overseas between 2017 and 2023 has plummeted, and the travel sector is calling for an extension of youth mobility agreements, which allow young workers to work abroad for short periods in EU countries. The UK currently has agreements with countries including New Zealand, Australia and Japan but none with any EU member state, making it harder for British holiday staff to work overseas. Skiworld said that before the UK’s departure from the EU, it had 22 chalets in Austria, but this has now reduced to just six.
The Church of England is pulling its investment from fossil fuel companies because they are failing to align with the Paris Agreement, the Archbishop of Canterbury has said. By the end of the year, the Church said it will have removed its £10.3 billion endowment fund from all oil and gas companies unless they are in genuine alignment with limiting global temperatures to 1.5C above pre-industrial levels. The move means BP, Ecopetrol, Eni, Equinor, ExxonMobil, Occidental Petroleum, Pemex, Repsol, Sasol, Shell, and Total will be excluded from the Church’s investments, joining 20 others that were excluded in 2021. “If any of these energy companies come into alignment with our criteria in the future, we would reconsider our position,” a spokesperson told the Press Association.
The FTSE 250 real estate investment trust Urban Logistics Reit said yesterday it swung to a full-year loss because inflation and rising interest rates led to a repricing of assets across the sector. Net rental income in the year to 31st March rose 45% to £53m, but the like-for-like portfolio valuation fell 9.8%. Pre-tax losses came in at £82.7m, from pre-tax profits of £171.8m a year previously.
Model train set maker Hornby has also swung to a full-year loss. The London-listed firm highlighted disappointing sales in the key pre-Christmas period when reporting a pre-tax loss of £5.9m in the year to the end of March 2023 - down from a profit of £600,000 a year earlier - despite revenue growing 2.5% to £55.1m.
Profits at Speedy Hire tumbled more than 90% after incurring a significant charge from lost stock, it said yesterday, a loss that otherwise overshadowed a robust performance by the firm. The rental equipment firm reported a £1.8m pre-tax profit for the 12 months ending March after revealed a £20.4m shortfall in stock levels after a stock-take. Speedy Hire said the problem was 'not the result of underlying systemic fraud” and that aside, sales increased by 13.9% to £440.6million.
Saudi Arabia's sovereign wealth fund is selling its stake in McLaren, the supercar maker and Formula One team-owner, to Mumtalakat, Bahrain's state investment fund, Sky News said yesterday. Mumtalakat is already the company's biggest shareholder.
Despite being fired at the end of 2022 because of poor performance leading to significant job losses, Vodafone’s former boss Nick Read has pocketed more than £4m in salary and bonuses for the year to March. He also received £270,375 in salary for the first three months of 2023, when he remained an adviser to the board, and will be paid £732,629 in lieu of salary, plus benefits, for the remainder of his 12 months’ notice period until March next year. Vodafone is also paying up to £7,000 towards legal fees in connection with his departure and “outplacement support” worth up to £50,000. The mobile phone giant’s annual report shows that Read also picked up £3.9m for 2022-23.
Jeffrey Epstein's victims have formally asked a US judge to preliminarily approve JPMorgan Chase's $290m settlement offer to resolve claims it turned a blind eye to the late financier's sexual abuses, Reuters reports. Lawyers for the victims said the proposed all-cash settlement America’s largest bank was "fair, adequate, reasonable," given the risks of further litigation and JPMorgan's denying involvement in Epstein's sex trafficking. The settlement covers women who were sexually abused or trafficked by Epstein from 1st January 1998, until his death on 10th August 2019 in a Manhattan jail cell. Epstein was a client of the bank between 1998 and 2013 when his accounts were terminated. Victims led by a former ballet dancer known as Jane Doe 1 said the bank missed red flags of Epstein's abuses, and stayed in touch with him long after his official departure. JPMorgan said in a statement earlier this month that their association with Epstein "was a mistake and we regret it".
Facebook and Instagram owner Meta is ending the facility for Canadian users to post news content on its platforms because the country’s Online News Act cleared the senate yesterday. The Act forces big tech platforms to negotiate commercial deals with and pay news organisations for their content. Meta says the law is "fundamentally flawed legislation that ignores the realities of how our platforms work". "A legislative framework that compels us to pay for links or content that we do not post, and which are not the reason the vast majority of people use our platforms, is neither sustainable nor workable," a Meta spokesperson told Reuters. Google called the bill "unworkable" in its current form and said it was seeking to work with the government to find a "path forward". Both Meta and Google have already been testing limiting access to news to some Canadians ahead of yesterday’s vote. The federal government says the online news bill, which is expected to become law in six months’ time, is necessary "to enhance fairness in the Canadian digital news market" and to allow struggling news organisations to "secure fair compensation" for news and links shared on the platforms. Media industry groups welcomed the bill's passage as a step towards market fairness. In 2021. In 2021, Australian users were blocked from sharing or viewing news on Facebook in response to a similar law, however Facebook restored news content there after talks with the government led to amendments to the legislation.
Have a lovely weekend!
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