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Bank of England interest rate decision said to be 'on a knife edge'.

01/08/2024

The Bank of England (BoE) Monetary Policy Committee (MPC) is meeting this morning, and will decide whether or not to cut interest rates, which have been held at 5.25% - a 16-year high - since August last year. The decision is said to be ‘on a knife edge’ with the consensus just in favour of a 0.25% cut. Certainly three mortgage companies seem to think a cut is in the offing: Halifax, NatWest and Santander have cut their fixed rate mortgages from today: Halifax has cut rates on its five-year deal from 5.26% to 4.93%; NatWest has cut rates by 0.15%; and Santander by up to 0.20% . Last week, Nationwide became the first high-street lender since April to offer a deal under 4%.

Chancellor Rachel Reeves’ comments she “will have to increase taxes in the Budget” after claiming to have uncovered a £22bn “blackhole” in the country’s finances have set alarm bells ringing among City bosses, City AM reports. The concern is that she will raise Capital Gains Tax (CGT) from the current 20% to bring it in line with Income Tax, so as high as 45%, which has triggered fears the flow of capital into British companies could be choked off. Treasury officials are predicting a hike could bring in £16.7bn in additional tax revenue, but Alasdair Haynes, Aquis exchange CEO, is among those questioning this logic. “If you push capital gains tax up, entrepreneurs will just say ‘well, why would I come to the country? Because I can go somewhere else where the tax is cheaper’,” he told the newspaper. “Entrepreneurs are losing and the government loses out on potential tax take. It’s not rocket science, so I can’t believe that she’d be stupid enough to actually raise it.” Tina McKenzie, policy chair at the Federation of Small Businesses, meanwhile, said: “No government at all serious about growth would hike CGT on entrepreneurs selling a small business. The commitment to work in partnership with business is something entrepreneurs have been glad to take on trust, and we fully hope and expect that is the path Labour will take in Government – anything else would be a betrayal of the promises made at the election”. Miles Celic, boss of lobby group TheCityUK, warned that changes to rates of CGT “may not necessarily translate quickly into an improved tax take” and any changes must “ensure that the UK remains an attractive place to do business and invest.” The FTSE 250 wealth manager Quilter has similarly warned the move could have “unintended consequences” on the investment landscape, particularly affecting “high-risk, high-reward sectors like private equity and venture capital”. The Treasury told City A.M that the Chancellor “has been clear that difficult decisions lie ahead on spending, welfare and tax to fix the foundations of our economy”.

HM Revenue and Customs has revealed almost £50bn in tax relief was gained by pension savers who paid into their pots last year. Income tax and National Insurance relief totalled a record £48.7bn in 2022-23, up from a net £47.6bn in the previous year. This, according to former pensions minister Steve Webb makes the scheme an attractive target for Chancellor Rachel Reeves’ suspected tax raid, not least as 60% of the relief benefits those in the higher or additional tax bands. The next step, Webb warned, could be to place restrictions on the pension tax reliefs available to higher earners, potentially in an effort to replace the lifetime allowance – a cap on reliefs for those with large pension pots. The full story is at https://www.telegraph.co.uk/business/2024/07/31/pension-tax-relief-costs-treasury-record-49bn/?WT.mc_id=e_DM372727&WT.tsrc=email&etype=Edi_Cit_New_v2&utmsource=email&utm_medium=Edi_Cit_New_v220240801&utm_campaign=DM372727

Britain’s reliance on foreign energy supplies has hit a record high, The Telegraph reports. Almost 41% of our energy was imported last year, the official Department of Energy Security and Net Zero data shows, compared to 37% in 2022. Meanwhile, total UK energy production, including oil, gas and electricity, fell by 8.3% to a record low.

Workplace sickness is costing £103bn a year, according to analysis by the Institute for Public Policy Research (IPPR) which is highlighting "staggering" levels of ‘presenteeism’ – which is when workers show up despite being too ill to focus on their work productively. The IPPR claims the cost of staff sickness had grown by £30bn by last year; the annual bill was £73bn in 2018, its study found.

Homeowners are spending 37% of their take-home pay on their mortgage, on average, according to the Nationwide, higher than the long-term average of 30%. The building society also said this morning that its data shows house prices grew 2.1% last month, the fastest pace since December 2022.

Manufacturers appear more optimistic since the General Election, according to the closely-watched monthly S&P Global UK Manufacturing Purchasing Managers' Index. The index rose to 52.1 from 50.9, its highest reading since July 2022 and up from a preliminary flash reading of 51.8. Output and new orders increased at the fastest rate since February 2022, while manufacturers added staff for the first time in 22 months, the S&P survey showed. A score over 50 signifies growth.

Inflation in the Eurozone rose to 2.6% in July, up from 2.5% in June, the official statistics agency Eurostat says. Core inflation, which strips out volatile food and energy prices, held at 2.9% for the third straight month, while services inflation fell to 4%, down from 4.1% in June. Analysts were expecting the European Central Bank to cut interest rates for a second time at its next meeting in September, but this unexpected inflation rise could prevent that.

Asda owner Mohsin Issa is pumping £30m into the supermarket to boost staffing hours and improve customer service levels. Asda is the only major supermarket losing market share: the latest figures from data company NIQ show sales fell 5.9% in the 12 weeks to July, compared with a year earlier. A spokesman told the Telegraph: “We recognise that there are some areas where we can and need to improve, and have set out our plan for colleagues to improve the availability of products in stores, the overall customer experience and ensuring we have the right trade plan throughout the remainder of the year.”

Carpetright collapsed owing an estimated £213m to customers, suppliers and landlords, who are to be left almost entirely out of pocket, The Times said yesterday. Hundreds of unsecured creditors - including Royal Mail and Microsoft - are expected to recover less than 1p in the pound of their debts, according to administrators' proposals seen by the newspaper. The Times. Carpet suppliers Betap and Condor were owed £1.9m and £1.1m respectively, it says, while Microsoft was owed £3.1m; waste management firm Biffa £852,000; Royal Mail, £372,000; and logistics company DHL £540,000.

Ship builder Harland and Wolff has secured an additional £19.5m from its US lender, Riverstone Credit Partners, after ‘last ditch’ talks to stave off going into administration, The Financial Times reports. The newspaper also suggests that a condition of the agreement was the departure of CEO John Wood, who did indeed leave on 19^th July after the new Labour government overturned a previous Conservative Government decision and refused to provide a £200m export loan guarantee to keep the firm afloat. “We are grateful to our lenders in continuing their funding commitment to support Harland & Wolff Group’s ongoing stabilisation and long-term strategy objectives. We also look forward to working with the very experienced team from Rothschild & Co to help us achieve that objective,” Harland & Wolff Chairman Malcolm Groat said. However, the firm said it has scrapped a planned Scilly Isle ferries service, to run between the islands and Penzance, which was supposed to open on 22^nd July, but was delayed because of Harland’s financial problems. Now, Groad said, the firm is “winding down business lines that are deemed to be non-core for the company” to cut costs. “This decision aligns with and brings us back to our fundamental five markets and six services strategy. Our ferry service team will be working closely with passengers and other counterparties to ensure a smooth transition out of this business,” he added. The ship builder employs 1,500 workers in Belfast, Devon and Methil and Arnish in Scotland.

Rio Tinto has rejected calls from investors to quit the London Stock Exchange and focus on its Sydney listing. The FTSE 100 miner - the world’s second largest – has faced calls from activist investor Palliser Capital to unify its corporate structure in Australia, but Rio Tinto CEO Jakob Stausholm has ruled that out. “It’s very clear, though, that it does not make economic sense to unify Rio Tinto,” he told The Wall Street Journal. “Our conclusion is that it would destroy value,” he added.

CrowdStrike is being sued by its shareholders after the faulty software update by the cybersecurity firm which crashed more than 8m computers and caused chaos worldwide two weeks’ ago. The class action lawsuit accuses the company of making "false and misleading" statements about its software testing. The company's share price dropped 32% in the 12 days after the incident, causing a loss in market value of $25bn (£14.5bn). CrowdStrike denies the allegations and says it will defend itself against the suit. CrowdStrike also says computers affected by the global IT outage are now back to normal.

Octopus Energy’s technology arm, Kraken technologies, is about to announce it has appointed Amir Orad as its first standalone CEO, Sky News reports. Orad previously ran NICE Actimize, a Nasdaq-listed provider of enterprise software to global banks and Fortune 500 companies. He has also been executive chairman of Sisense, a data analytics provider. Kraken is one of Britain's most valuable private companies and provides an operating system for global businesses in the energy, water and telecoms industries. In the UK, its platform is also used by EON and EDF Energy, as well as the water company Severn Trent and broadband provider Cuckoo. Overseas, Kraken serves Origin Energy in Australia, Japan's Tokyo Gas and Plentitude in countries including France and Greece. Sky says it is now contracted to serve more than 54m customer accounts globally. Octopus Energy is now the UK's second-largest domestic energy supplier behind Centrica's British Gas. Gavin Patterson, the former BT Group CEO, was appointed as chairman of Kraken earlier this year. Octopus Energy declined to comment on Sky’s story.

Boeing has named former Rockwell Collins chief Kelly Ortberg as the replacement for departing CEO Dave Calhoun. He takes up his position next week. Ortberg, who was also the former Chair of the Aerospace Industries Association (AIA), joins at time when the plane maker is in crisis: two fatal 737 Max crashes in 2018 and 2019 killed 346 people, and tragedy was narrowly averted earlier this year when a faulty door panel blew out on an Alaska Airlines jet mid-flight. The incidents have put the firm under significantly increased regulatory scrutiny. Board Chair Steven Mollenkopf said of his appointment: “Kelly is an experienced leader who is deeply respected in the aerospace industry, with a well-earned reputation for building strong teams and running complex engineering and manufacturing companies. We look forward to working with him as he leads Boeing through this consequential period in its long history.” Meanwhile, the families of some of those killed in the two fatal crashes have asked a US judge to reject Boeing’s proposal to plead guilty to a criminal fraud conspiracy charge and pay between $243.6m and $487m after breaching a 2021 deferred prosecution agreement to reform practices after the crashes. They think the government should seek a much higher fine.