Published: 20 September 2023
By Suzanne Evans, Director, Political Insight
Inflation has fallen to its lowest rate in 18 months. The Office for National Statistics (ONS) announced this morning that the Consumer Prices Index (CPI) rose by 6.7% in the 12 months to August 2023, dipping from 6.8% in July to mark the sixth consecutive monthly fall in prices. ONS chief economist Grant Fitzner said the slight easing was driven by falls in the "often-erratic" cost of overnight accommodation and air fares, as well as food prices rising by less than the same period last year. He added: “This was partially offset by an increase in the price of petrol and diesel compared with a steep decline at this time last year, following record prices seen in July 2022." The rate of core inflation, which excludes energy, food, alcohol and tobacco, also fell, rising by 6.2% in the 12 months to August 2023, down from 6.9% in July. Chancellor Jeremy Hunt said: “Today’s news shows the plan to deal with inflation is working - plain and simple. But it is still too high which is why it is all the more important to stick to our plan to halve it so we can ease the pressure on families and businesses. It is also the only path to sustainably higher growth.” Hunt pledged in January to halve inflation from 10.7% by the end of the year.
The fall in the rate of inflation has sparked calls for the Bank of England (BoE) to pause interest rate rises – its Monetary Policy Committee is due to meet tomorrow to decide whether to increase the base rate for the 15th consecutive time. Martin McTague, national chairman of the Federation of Small Businesses (FSB) said: “With signs that interest rate rises are starting to bite, tomorrow’s base rate decision by the BoE has to be the peak for rates, one way or another. “Leaving rates high for longer than needed will devastate the chances of an economic recovery.” Paul Nowak, general secretary of the Trades Union Congress (TUC), also said a halt to interest rate rises is "long overdue". He warned: "Pushing interest rates so high that the economy is driven into recession will only make the current crisis worse, costing people their jobs and their homes.”
Among other organisations hoping interest rates will not go much higher is The British Chambers of Commerce (BCC) which has conducted a survey of small businesses and concluded the cost of borrowing is hurting almost half of them. 46% of firms surveyed said the increase in rates so far was having a negative impact, with retailers and hospitality firms among the hardest hit. Shevaun Haviland, BCC director general, said business investment was being held back because of the burden of higher debt bills. "The Bank of England has indicated rates are nearing their peak," she said, but "businesses need clarity and certainty this week, that an end to the cost-of-borrowing pressures are really on the horizon."
Despite today’s announcement, Britain remains on course to have the highest inflation of leading rich economies in 2023, according to the latest Organisation for Economic Co-operation and Development (OECD) forecasts which were published yesterday. Britain's headline inflation rate is set to average 7.2% over 2023, the OECD now says, lower only than Turkey and Argentina in the G20, before dropping closer to the middle of the pack with a rate of 2.9% expected in 2024. However, it is Germany that the OECD expects to experience the heaviest blow from a slowdown in the world economy driven by higher interest rates and weaker global trade, although the Paris-based forum of 37 countries did not anticipate recessions across any of the big economies, provided inflation does not remain stubbornly high or if activity in China deteriorates further. Chancellor Jeremy Hunt said in response to the prediction: “Today the OECD have set out a challenging global picture, but it is good news that they expect UK inflation to drop below 3% next year. It is only by halving inflation that we can deliver higher growth and living standards. We were among the fastest in the G7 to recover from the pandemic, and the IMF (International Monetary Fund) have said we will grow faster than Germany, France and Italy in the long term.” The BoE has raised borrowing costs 14 times in a row since December 2021 in attempts to tame inflation, and is expected to do so again tomorrow, raising the Bank Rate to 5.5% from 5.25%, despite signs the economy is at least slowing, if not stagnating.
Meanwhile, the latest Eurozone consumer inflation data released yesterday by the European Union’s statistics office Eurostat showed prices rises to be slightly lower than initially estimated in August. Eurostat said inflation in the bloc was 0.5% month-on-month 5.2% year-on-year, lower than the annual flash estimate of 5.3% reported on 31st August, however that is still more than twice the European Central Bank’s (ECB) 2% target. Core inflation, which excludes volatile energy and unprocessed food prices, was 0.3% month-on-month in August and 6.2% year-on-year, in line with initial estimates. Last week, the ECB increased interest rates to 4%, the highest level since the creation of the euro in 1999.
Rishi Sunak is believed to be planning to delay some of his Net Zero goals, despite Britain being the first major economy to create legally binding targets to end greenhouse gas emissions by 2050. In particular, there is speculation there will be a delay on the proposed ban of new petrol and diesel cars, pushing that current target date back from 2030 to 2035, which would bring the UK in line with the European Union’s target date. "I am proud that Britain is leading the world on climate change. We are committed to Net Zero by 2050 and the agreements we have made internationally - but doing so in a better, more proportionate way," Sunak said in a statement. “I’ll be giving a speech this week to set out an important long-term decision we need to make so our country becomes the place I know we all want it to be for our children." Home Secretary Suella Braverman applauded the move, saying in parliament that Britain needed to take a pragmatic approach to reaching net zero because it could not "save the planet by bankrupting the British people". However, the news was received with dismay by some automotive organisations. Ian Plummer, commercial director at Auto Trader, said: “Pushing back the 2030 ban on new petrol and diesel sales by five years is a hugely retrograde step which puts politics ahead of net zero goals. This U-turn will cause a huge headache for manufacturers, who are crying out for clarity and consistency, and it is hardly going to encourage the vast majority of drivers who are yet to buy an electric car to make the switch. Rather than grasp the challenge and use the tax system to ease concerns over affordability, the Prime Minister has taken the easy option with one eye on polling day.” Mike Hawes, CEO of the Society of Motor Manufacturers and Traders (SMMT) told BBC Radio 4’s Today programme: "You want to build close to where you sell, so you need a strong market here in the UK to help secure future investment. The concern now is, does this cause consumers to delay their purchase? We’re trying to understand what is going to happen next between this sort of statement and that policy, and the message it sends consumers which must be incredibly confusing”.
The Online Safety Bill passed its final parliamentary hurdles yesterday and will now become law. The Bill sets much tougher standards for social media platforms, and Technology Secretary Michelle Donelan says it is a "game-changing" piece of legislation. "Today, this government is taking an enormous step forward in our mission to make the UK the safest place in the world to be online," she said. The bill has been heavily altered since it was first proposed more than four years ago. There has been a shift away from tackling "legal but harmful" content to an emphasis on child protection and the removal of illegal content; social media platforms will be expected to remove illegal content quickly or prevent it from appearing in the first place. They will also be expected to prevent children from accessing harmful and age-inappropriate content like pornography by enforcing age limits and age-checking measures. If companies do not comply, media regulator Ofcom will be able to issue fines of up to £18m or 10% of the firms’ annual global turnover.
Labour Leader Sir Keir Starmer met with the French President Emmanuel Macron yesterday, and said he would seek a “stronger” relationship with France if Labour wins a majority at the next general election. “It was my first opportunity to say how much I value the relationship between our two countries, particularly when it comes to prosperity and security and how, if we are privileged enough to be elected into power, intend to build on that relationship and make it even stronger than it is today,” he said after the meeting. Earlier in the week, Starmer said he would seek closer ties with the EU if he becomes PM.
Following a swift investigation into ‘de-banking’ at the behest of HM Treasury, City watchdog the Financial Conduct Authority (FCA), has found “no proof” that the bank accounts of Nigel Farage and others are being closed primarily because of their political views, a finding the former UKIP and Brexit Party leader called “absolutely farcical” and "total nonsense". "It's very difficult to believe the FCA can say this, and I can only conclude that they're part of the problem, rather than part of the solution," he said. According to the Financial Times, the FCA's investigation looked at data from 34 banks and payment companies covering the period from June 2022 to June 2023. Out of the information it examined, there were no cases where political views were the main reason for personal accounts being shut. However, it is understood the watchdog faced inconsistencies in the data available and plans to carry out further inquiries.
The Confederation of British Industry (CBI)’s annual meeting was meant to take place today, but it has been postponed. Yesterday, it was reported here that the scandal-hit business lobby group was just days away from going bust unless it could raise £3m from existing members, and that appeared to be confirmed by a statement the CBI put out announcing the cancellation. It said: “As has been reported, the CBI has experienced some short term cashflow challenges. To reassure members, we are in positive dialogue over finalising financing options and are confident that we will be able to resolve this short-term issue and secure the footing of an organisation that remains in a strong medium to long term position. But given the significant interest in the CBI right now, we are opening-up and refocusing our previously planned AGM.”
James Basden, co-founder of leading clean energy firm Zenobe Energy, has told City A.M. that the Government’s shift away from fossil fuels to low carbon solutions such as wind, solar and hydrogen, mean the UK risks becoming more and more reliant upon China, because Britain is at least a decade away from meeting its renewables ambitions. In particular, Basden said, China had a stranglehold on battery storage products – over 80% of the world’s battery cells are produced in China, with the country also being a world leader in mineral acquisition and processing – meaning China is “going to be a part of” the UK’s push to net zero, “whatever happens.” “I think people don’t quite understand just how far in front China is, particularly in the world of battery storage, he said. “They control the supply chain all the way from the minerals through to assembly and distribution. That means both our power sector and automotive sector are very dependent on Chinese products.” Basden confirmed that “over time,” his company will actively look to diversify its own supply chains to reduce its reliance on China.
Good Energy CEO Nigel Pocklington has told City AM that he thinks the energy price cap has been a “terrible public policy failure” which has driven up bills for customers. “Nobody wants to grasp the nettle on retail market reform and whether the price cap works,” he said, slamming inaction in Downing Street. “Nobody wants to grasp the nettle on wholesale market reform at the cost of renewables, and how you make energy cheaper. Nobody wants to go anywhere near a social tariff type concept where you’re using the welfare system rather than energy companies to deal with vulnerability and energy poverty.” Ofgem has recently unveiled consultations on the prospect of a social tariff, and the quango’s CEO Jonathan Brearley has openly questioning the role of the price cap in the market. Other energy bosses, including Utilita CEO Bill Bullen have also called for the price cap to be scrapped, while Octopus Energy boss Greg Jackson considers it vital for protecting customers from ultra-high energy bills.
Farmers are being forced to leave food “rotting in the field” because they can’t get a fair deal from supermarkets, celebrity chefs including Rick Stein and Hugh Fearnley-Whittingstall have warned. In an open letter addressed to the bosses of Tesco, Sainsbury’s, Asda, Morrisons, Aldi and Lidl, 100 farmers, food producers and celebrities accuse Britain’s biggest supermarkets of “imbalanced, short term and wasteful” practices that have left British farmers scrambling to stay afloat. “The Big Six’s buying practices are all too often imbalanced, short term and wasteful,” the letter reads. “Farmers are denied commitment or security – with whole crops rejected at the last minute in favour of cheaper options elsewhere, or just because supermarkets change their mind. Good food ends up rotting in the field. Farmers are left without payment for their crops. And without a stable, reliable income, they are struggling to survive.” According to the National Farmers Union, 5% of dairy farmers left the industry in 2022 citing financial pressures.
Avanti has been awarded a long-term contract to keep running intercity services on the West Coast main line for the next nine years, despite being one of Britain’s least reliable train operators. Transport Secretary Mark Harper insisted Avanti was “back on track” after announcing the contract yesterday, even though fewer than half of services ran on time from April to June, making it the least punctual operator. The Department for Transport (DfT) pointed to “dramatically reduced cancellations;” the fact 90% of trains now run less than 15 minutes late; and how Avanti has trained more than 100 additional drivers to address staff shortages. The Dft also said the number of services has increased from 180 trains a day to 264 on weekdays, while cancellations fell to 1.1% in July. Meanwhile, Arriva’s CrossCountry, the second least punctual after Avanti from April-June this year, and the operator with the worst cancellation score of any DfT contracted operator in England, according to the Office for Road and Rail (ORR), has been given an eight-year contract. The RMT union described the Avanti contract award as “a travesty” and Avanti as “an unmitigated disaster”. “CrossCountry are little better, often failing to employ enough staff to run services properly and being more concerned with profit margins than delivering for passengers,” RMT general secretary, Mick Lynch said. “By granting companies like Avanti and CrossCountry with lucrative taxpayer-funded contracts, the government is rewarding abject failure and exposing how corrupt the current system is".
The Competition and Markets Authority (CMA) has set out guidelines to steer the development of artificial intelligence (AI), proposing seven principles which include making developers and businesses accountable for outcomes generated by AI systems, and encouraging a competitive ecosystem in AI development which stresses the importance of open access to chips, processors, and training data. Gareth Mills, partner at law firm Charles Russell Speechlys, told City AM the principles are “necessarily broad,” to create a low entry barrier for the sector, meaning smaller companies can compete with bigger players. “The UK is expressly taking a “pro-innovation” approach to regulating AI and is proceeding cautiously before imposing regulatory burden on AI companies,” said Xuyang Zhu, senior counsel in the technology, intellectual property and information group at law firm Taylor Wessing. Zhu said this approach contrasted with that of the EU’s, which could be “technically challenging and resource-intensive to meet”. In November the UK is set to host an AI safety summit at Bletchley Park in Milton Keynes, where world leaders will gather to discuss how to mitigate the risks of new technologies. CMA chief executive Sarah Cardell said AI technology has “real potential” in terms of productivity benefits but “we can’t take a positive future for granted.” “There remains a real risk that the use of AI develops in a way that undermines consumer trust or is dominated by a few players who exert market power that prevents the full benefits being felt across the economy,” she said.
FTSE 250 merchant bank Close Brothers is buying Bluestone Motor Finance, a provider of motor finance in Ireland, for an undisclosed cash sum.
FTSE 100 education provider Pearson is hiring Microsoft executive Omar Abbosh to replace CEO Andy Bird, who is retiring early next year after three years in the role. Bird joined as Pearson's boss in October 2020 from Walt Disney, and the stock has jumped by nearly two thirds under his leadership. Abbosh is currently president of Microsoft's Industry Solutions business, and was previously a senior leader at Accenture. He will be paid an annual base salary of £1m, plus an annual cash allowance of 16% of base salary in lieu of pension. He also has the opportunity to earn 300% of base salary through the company's annual incentive plan. Pearson is also paying him £245,050 to make the move from Microsoft, as well as awarding him "restricted shares of equivalent value to a maximum of 50,813 Microsoft shares" which will vest over the next three years. At current share prices and currency, this is equivalent to £13m. Bird earned £6.8m in 2022 and was set to take home £8.8m in future years under new remuneration plans. 13% voted against his pay at an AGM in April, and some 46.37% against the company's proposed remuneration policy.
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