Bank of England Governor Andrew Bailey yesterday warned the Government not to force pension funds to invest in British companies, saying he would not “for a moment” support the idea. Speaking at the Institute of International Finance in Washington DC, he said he thought there was an urgent need to reform Britain’s “quite fragmented” pensions system, which he said wasn’t “investing in the UK real economy,” but added: “I don’t for a moment support a compulsory allocation of pension money to UK assets.” His comments follow remarks by the International Monetary Fund, reported here yesterday, that plans made by former Chancellor Jeremy Hunt to make pension funds invest in high growth British companies as an example of riskier initiatives that posed a threat to the UK’s financial systems.

Bailey also told yesterday’s gathering that inflation in the UK has fallen faster than expected but that there were still “genuine question marks” about whether the UK economy had undergone the “structural changes” necessary to keep inflation down. In particular, he highlighted the fact that services inflation still “remains higher than is consistent with the [2%] target”. “We’ve got to see services prices inflation come further down,” he warned. Overall, he said, central banks worldwide were seeing a “good story” on inflation, which was they had “been able to start cutting rates sooner than we were expected to a year ago”. “Disinflation — and the UK is part of this — has actually taken place faster than we expected it to,” he said. Inflation fell below 2% for the first time since April 2021 in September, having peaked at over 11% in 2022. Services inflation in the UK stands currently at 4.9%.

Meanwhile, the fact Chancellor Rachel Reeves appears intent on raising Government spending means the Bank of England will be forced to slow the pace of interest rate cuts over the coming year, economists have warned. Reeves is hoping to raise £40bn in next week’s Budget to help fund higher spending on public services, largely through higher taxes, but she is also thought to be keen on changing fiscal rules to allow the Government to borrow more to fund public investment programmes. Economists at Pantheon Macroeconomics told City AM that the “growth-depressing impact” of higher taxes would likely be “roughly cancelled out” by the increase in day-to-day spending. “Government investment has a much bigger impact on GDP growth than tax hikes do,” Rob Wood, chief UK economist at Pantheon Macroeconomics, said, adding that he expected he additional spending to give a 0.5% boost tot GDP over the next three years. That, he said, means the Bank Rate would have to be 50 basis points higher in 2025/26 compared to what it would have been under the previous government’s fiscal plans. “The [Bank of England Monetary Policy Committee] can keep cutting interest rates, but Ms. Reeves’ Budget should keep rate-setters easing policy only gradually,” he told the newspaper. Matt Swannell, chief economic adviser to the EY Item Club, agreed that any increase in borrowing in the Budget would only “reinforce the gradual pace” of interest rate cuts, as did Paul Dales, chief UK economist at Capital Economics. “The direct boost to GDP from a rise in public investment over the next few years would raise demand relative to supply. That could mean inflation is a bit higher than otherwise and interest rates are cut more slowly,” he said.

Consumer confidence has fallen to its lowest level this year, and pensioners are feeling especially gloomy, according to PwC, which tracks how households feel about the economy and their spending power. The index dropped particularly sharply for over-65s, who are now the most downbeat age group in the country for the first time since 2016. PwC attributed the drop to fears about coming tax hikes and benefit reductions, the cost of living, and broader political and geopolitical uncertainties. The dip also comes, of course, since the winter fuel allowance was stripped from pensioners not in receipt of pension credit.

Property landlords are bracing themselves for record Stamp Duty bills next year because the Chancellor is set to unwind Stamp Duty tax breaks introduced by the Conservatives in September 2022, The Telegraph reports. Then, former Chancellor Kwasi Kwarteng raised the “nil-rate” threshold at which stamp duty starts being charged from £125,000 to £250,000 for homebuyers and buy-to-let landlords, and from £300,000 to £425,000 for first-time buyers. This brought the stamp duty bands roughly in line with house price inflation, given that the nil-rate threshold was last adjusted in 2006. The change was kept in place when Jeremy Hunt took over as chancellor in October 2022, but Hunt said the cuts would be temporary and expire in April 2025. Reeves is expected to confirm Hunt’s policy in her Budget on 30^th October, meaning that from April 2025 stamp duty will be charged at 2% on the value of a property between £125,000 and £250,000, an extra £2,500 bill for buyers. Reverting the thresholds is expected to raise £1.8bn a year in extra tax by 2029-30. Because buy-to-let landlords are required to pay an additional 3% in Stamp Duty on the whole of the property sale price, they will therefore have to pay up to £14,766 in Stamp Duty on an average home sale, the largest bill on record, according to analysis by Hamptons estate agents.

The Telegraph is speculating that the Chancellor could scrap the so-called ‘spousal exemption’ scheme which allows married couples to transfer unlimited assets between them without paying inheritance tax. Spouses used the exemption to transfer £15.5bn worth of assets on the death of one of them in 2021-22, making it by far the most valuable tax break in estate planning, and one experts say it is highly likely the Treasury has looked at.  The Institute for Fiscal Studies has suggested a cap on spousal exemption, as has The Centre for the Analysis of Taxation, with the latter proposing that cap is set at £10m to improve the fairness of the inheritance tax system. It also said the Government could consider capping agricultural relief and business relief at £500,000. However, David Denton, tax expert at investment firm Quilter Cheviot, told The Telegraph: “Placing a cap on the inheritance tax spousal exemption would bring in a very minimal amount of revenue for the Exchequer, but would have the potential to further dissuade high net worth individuals from living in the UK which could have a detrimental impact on the economy”.

Abrdn is the latest fund manager to report an exodus of cash: investors pulled more than £3bn from its funds in the last quarter, although inflows into its Interactive Investor do-it-yourself (DIY) investing platform helped offset some losses. Overall, the company’s assets under management and administration rose by 2% to £507bn for the year to 30^th September 2024, but most of that growth came from the DIY platform, on which assets rose from £66bn at the end of 2023 to £74.5bn at the end of last month. “I’m pleased with the continued growth in Interactive Investor; meanwhile, there are challenges to overcome in adviser, where we aim to return to being the platform of choice for clients,” Abrdn CEO Jason Windsor said.

Sky News reports that Octopus Energy, the UK’s second-biggest household energy supplier, will say tomorrow that it has paid over £3bn to the Government in connection with the 2022 rescue of rival Bulb, generating a profit for taxpayers of more than £1.5bn.

Sky News also says The Foschini Group, the South African-based retailer which owns prominent British clothing brands such as Whistles and Phase Eight, is in advanced talks to buy White Stuff, the fashion chain founded in 1985 by George Treves and Sean Thomas.

Unilever leads charge on FTSE 100 as it abandons plan to ‘save the world’, a Telegraph headline reads this morning, reporting that the firm is showing the first signs of benefitting from its turnaround plan. Sales have beaten expectations as CEO Hein Schumacher has “shifted its focus away from corporate ESG pursuits,” the newspaper says, after a backlash from investors over “virtue-signalling” that included giving Hellmann’s mayonnaise a ‘social purpose’. Unilever has also watered down green targets and scrapped some diversity pledges after investors told it to focus more on profits and less on social and environmental issues. The consumer goods giant’s shares are up 3.2% at the time of writing.  

Applied Nutrition, meanwhile, has floated on the London Stock Exchange with a valuation of £350m on a share price of 140p, near the lower end of expectations. The sports health business is backed by retailer JD Sports and has attracted investment from billionaire retail mogul Mohsin Issa.

Home REIT, the scandal-hit social housing investor, has almost paid off its remaining £72m debt to Scottish Widows, having sold off the bulk of its property portfolio at reduced prices.  In a market update, the former FTSE 250 firm said it had sold 11% of its remaining housing stock for £26.8m over the past two days, clearing the way for the company’s closure. Once these deals have completed, Home REIT said it would have sufficient cash to pay off the debt. Since August 2023, Home REIT has completed on the sale of 1,229 properties and exchanged on a further 415, it said this morning, raising around £243.3m in total, an amount approximately 60% less than it once claimed its portfolio was worth. Two years’ ago, a report by US short seller Viceroy revealed that the value of its property portfolio was grossly inflated, and that several of Home REIT’s housing association tenants were in rent arrears, either because they were themselves going bust or because they were refusing to pay rent because of the poor state of Home REIT’s properties. The report triggered Home REIT’s downfall.  Several investors are suing the company over claims they were misled by its management, and The Serious Fraud Office and the Financial Conduct Authority are both investigating the firm.

Frasers Group says it has abandoned its pursuit of luxury handbag maker Mulberry after major shareholder Challice said it had no intention of selling its 54% stake to Mike Ashley's firm. Meanwhile, however, it has been revealed that Frasers is looking to appoint its founder as CEO of struggling online fashion firm Boohoo. The Telegraph reports that Frasers - Boohoo’s largest shareholder with a 27% stake - is calling for a meeting of investors to back its plans to appoint Ashley, claiming it is “in the best interests of Boohoo, its shareholders and its stakeholders”. Current Boohoo CEO John Lyttle is leaving the firm. Boohoo said it was reviewing the request and would make an announcement in due course, but urged shareholders to take no action.

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