Published: 12 October 2023
By Suzanne Evans, Director, Political Insight
The UK economy returned to growth in August, according to official figures. The Office for National Statistics (ONS), GDP grew 0.2% in the month, with the services sector – posting 0.4% growth - balancing out dips in manufacturing and construction. The rise means Britain is further away from a possible recession, however the ONS said the economy would need to grow by 0.2% in September to ensure a contraction in the third quarter is avoided. Commenting on the figures for August, ONS Director of Economic Statistics Darren Morgan said that while over the longer-term, the economy had been boosted by car manufacturing and sales as well as construction, but that in August, the services sector was the main contributor to growth, as well as stronger performances by the education sector (improving since July’s teacher strikes), computer programmers and engineers. Professional, scientific and technical activities were the strongest sub-sector, growing by 1.2% in August. However, arts, entertainment and recreation did poorly, he said, falling 7.4%; while sports and amusement activities dropped more than 10% in August. Morgan attributed this to consumers reining in the spending under the impact of higher interest rates. The ONS also revised down the UK’s performance in July, to estimate a 0.6% fall, rather than 0.5% fall reported earlier. Across the three months to August, GDP grew by 0.3% compared to the three months to May. The economy is now 2.1% larger than it was in February 2020, before Covid lockdowns. Chancellor Jeremy Hunt said: “The UK has grown faster than France and Germany since the pandemic and today’s data shows the economy is more resilient than expected. While this is a good sign, we still need to tackle inflation so we can unlock sustainable growth.” “The UK economy is holding up but remains in a precarious state,” said David Bharier, head of research at the British Chambers of Commerce.
Shadow Chancellor Rachel Reeves is under pressure from trade unions and other Labour politicians to drop the party’s blanket opposition to higher taxes on wealth, the Guardian reports. Paul Nowak, general secretary of the Trades Union Congress, said: “I’ve got a huge amount of respect for Rachel and want her to be the next Chancellor. But on this issue, I think it’s fair to say I disagree. I think we do need to raise the question around wealth taxes”. Andy Burnham, the Labour mayor of Greater Manchester, appeared to agree when he told a Labour Party Conference fringe meeting that more needed to be done to tackle wealth inequality. “I think we overtax work and undertax capital and assets,” he said, and suggested that a levy on land values or reforms to council taxes could be considered. Meanwhile, The Fire Brigades Union’s general secretary, Matt Wrac, said a Labour government “must introduce a tax on the assets, land and wealth of the super-rich” to help fund public services. “This would be a hugely popular measure with voters,” he added. Sharon Graham, general secretary of the Unite trade union, proposed an entirely new tax of 1.5% on wealth over £10m. “as a starter”. She claimed that would bring in about £17bn a year and was a choice “most people could get behind”. And Beth Winter, a Labour MP from the leftwing Socialist Campaign group, said ensuring wealthy households paid a “fair level of tax” was vital for the proper funding of public services. “It’s outrageous that the huge wealth, assets and land of the richest is taxed at a lower rate than on incomes from work,” she claimed. Reeves confirmed in August she would not bring in a mansion tax on expensive properties or hike the rates charged on capital gains from shareholdings and property., but has pledged to raise more revenue from wealthy individuals and businesses by scrapping non-dom status, charging VAT on private school fees, and a more extensive windfall tax on energy company profits.
Ofgem is considering a one-off rise to energy bills of £17 a year, in April next year, to help prevent suppliers going bust, after figures released in the summer showed energy debts had reached £2.6bn. "We know that households across the country are struggling with wider cost of living challenges, including energy, so any decision to add costs to the price cap is not one we take lightly," said Tim Jarvis, director general for markets at Ofgem. "However, the scale of unrecoverable debt and the potential risk of suppliers leaving the market or going bust, which passes on even greater costs to households, means we must look at all the regulatory options available to us."
The Financial Reporting Council this morning confirmed a Sky News exclusive last month that claimed it would fine ‘Big Four’ accountancy firm KPMG a record £30m over multiple failings in its audit of Carillion, the construction group which collapses in January 2018. The total fine was reduced to £21m, due to admissions by KPMG and its co-operation with Britain's accounting regulator. "The number, range, and seriousness of the deficiencies in the audits of Carillion during the period leading up to its failure was exceptional and undermined that credibility and the public trust in audit," Elizabeth Barrett, executive counsel for the Financial Reporting Council said. Jon Holt, KPMG's UK CEO, responded to the fine by saying he "cannot defend" KPMG’s work at the time. "I am very sorry that these failings happened in our firm," he said, adding: "It is clear to me that our audit work on Carillion was very bad, over an extended period... Since this audit work was undertaken, we have done an enormous amount to improve controls and oversight across our firm, to ensure that these failings could not take place today".
The FCA has also censured bond scheme London Capital and Finance (LCF), which collapsed in 2020, for “unfair and misleading” promotions, but has not issued it with any fine, saying doing so would only divert money from investors. LCF collapsed when it could not meet the high returns it promised bondholders, leaving around 11,600 people unable to get their money back. Some got payments from the Financial Services Compensation Scheme, but most were not eligible, hence the Government bailed out savers. The FCA said in its judgement that LCF’s promotions had made its bonds “appear a far more attractive investment than they were” and failed to mention hidden charges and the high risks involved. The Serious Fraud Office is considering whether to bring fraud charges against those who ran LCF.
The Competition and Markets Authority (CMA) has opened an investigation into Vodafone's planned merger with Three UK, inviting feedback from third parties over the impact it could have on the competitive landscape. Vodafone UK is a subsidiary of the London-listed Vodafone Group, while Three UK operates under Hong Kong conglomerate CK Hutchison Holdings. "Millions of consumers and businesses in the UK rely on Vodafone's and Three's mobile networks to stay connected," said the CMA CEO Sarah Cardell. "We will be carefully considering how this deal may affect competition in the UK, which could affect the options and prices available to customers. "We will also assess how it may affect incentives to invest in the quality of UK mobile networks. "This is an opportunity for those with an interest in this merger to let us know their views before we launch a full investigation." The CMA noted that its jurisdiction did not extend to evaluating the potential effects on issues such as employment or access to personal data, nor concerns about national security, but that the Government could intervene under the National Security and Investment Act if warranted. There are currently four mobile network operators in the UK, being Vodafone, Three, EE and O2.
The CMA is also launching an in-depth investigation into the proposed merger of white goods manufacturers Whirlpool, the US firm which owns Hotpoint and Indesit, and Turkey’s Arcelik, part of Turkish conglomerate Koc Holding, which owns Beko and Grundig. The two companies want to set up a new business consisting of their European units to “drive value creation" for both shareholders and consumers. However, the CMA is concerned the deal could reduce choice, especially in the low-mid price ranges, as the new company would become the largest individual supplier of washing machines, tumble dryers, dishwashers and cooking appliances in the UK, a market that is worth more than £3.8bn. As both parties have declined to give undertakings to provide a solution addressing its concerns, the CMA will now launch a phase 2 investigation into the proposed deal. The European Union's antitrust regulator is also reviewing the deal, with a decision due by 23rd October.
The antitrust watchdog has also opened an investigation into potential breaches of competition law involved in the production and broadcasting of television content. The CMA says it is investigating the BBC, ITV, Hartswood Films, Hat Trick Productions, Red Plannet Pictures, Sister Pictures and Tiger Aspect Productions in regard to their purchase of freelance services and the employment of staff who produce TV content. The CMA says it “reasonable grounds” to think there is at least one competition law infringement. ITV has confirmed it has received a case initiation notice from the CMA, saying in a statement: "ITV is committed to complying with competition law and to cooperating with the CMA's inquiries. Back in April the CMA said it was looking into suspected anti-competitive behaviour in how sports content is being made, after email leaked to the Financial Times suggested media groups were allegedly colluding on the price offered to freelance camera operators filming sports games. This investigation involved the BBC, BT Group, ITV, and Sky UK and appears to have triggered this new and separate investigation into all TV content.
Heathrow Airport said yesterday that passenger numbers exceeded 2019 levels in September for the first time since February 2020. Passenger numbers were up 22% on the same period a year earlier to just over 7m. The airport also said CEO John Holland-Kaye will be stepping down after nearly a decade in the role, on 18th October, when he hands over to Thomas Woldbye.
Metro Bank said yesterday that it has the support of the required number of bondholders to approve its debt refinancing plans, which include raising £325m in capital and £600m in debt refinancing.
Big Yellow raised around £110m in a share placing and retail offer yesterday to "build out the group's existing pipeline of stores". The FTSE 250 storage company said it will now press on with the construction of an initial six sites, including Farnham Road, Slough, Wapping, Wembley, Queensbury, Staines and Slough Bath Road, all of which have planning consent at an incremental cost of £90m.
Next is said to be close to snapping up FatFace in a deal worth more than £100m. According to Sky News, the FTSE 100 clothing and homeware retailer could announce the deal later this week. FatFace, which was taken over by its lenders three years ago, trades from around 180 UK stores. Next confirmed recently it was increasing its stake in Reiss and, since Covid, it has bought online furniture retailer Made.com, Cath Kidston, and maternity wear retailer JoJo Maman Bebe. Partnerships have also been struck with Victoria's Secret and Gap.
Wagamama and Frankie and Benny owner The Restaurant Group has agreed to be taken over by private equity firm Apollo in a £701m deal. Under the terms of the deal, TRG shareholders will receive 65p in cash per share, a premium of around 34% to yesterday’s closing share price.
easyJet has posted record fourth quarter profit this morning and said it plans to resume dividend payments to shareholders in early 2024 of 10% per cent of its 2023 full year profit after tax, rising to 20% in 2024 based on performance. The budget airline expects pre-tax profit for the fourth quarter of between £650m and £670m, with passenger growth of 8% year-on-year. easyJet also said it has placed a firm order with Airbus for 157 aircraft for delivery between 2029 and 2034to expand its fleet.
More than 450 workers at Cambridge University will walk out for four days in a dispute over pay, the Unite union said yesterday. The strikes will affect a number of departments at the 800-year-old, world-renowned British university, including engineering, the library, the Fitzwilliam Museum, estate management and IT.
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