The UK economy grew at double the pace predicted by economists in May, as Gross Domestic product (GDP) rose by 0.4%, according to the Office for National Statistics (ONS). The new stats mean that in the three months to May the economy expanded 0.9%, marking the fastest growth in more than two years, largely due to strength in the services sector. “The economy grew strongly in May with all the main sectors seeing increases. Many retailers and wholesalers had a good month, with both bouncing back from a weak April,” ONS Director of Economic Statistics Liz McKeown said, adding: “Construction grew at its fastest rate in almost a year after recent weakness, with house building and infrastructure projects boosting the industry. Meanwhile, manufacturing also grew a little, led by food and drink firms”.

The Bank of England’s chief economist Huw Pill has expressed concerns that inflation could remain high for longer than expected. Speaking at an event at Asia House in London, Pill said: “The current restrictive monetary policy stance continues to bear down on the persistent component of UK inflation. "The [interest rate-setting Monetary Policy Committee (MPC)] needs to ensure that the degree of cumulative restriction in the monetary policy stance is sufficient to ensure that the persistent dynamic in recent inflation indicators is squeezed out of the system in a way that is consistent with a timely and sustained return of [Consumer Price Inflation] to the 2% target. "At annual rates still not far from 6%, annual services price inflation and wage growth continue to point to an uncomfortable strength in those underlying inflation dynamics. But the latest data also remains consistent with the view that these inflationary pressures have now been contained, and may be starting to revert towards levels that are more consistent with the achievement of the inflation target." Last month, official data from the Office for National Statistics showed that annual CPI inflation fell to 2% in May for the first time since July 2021. Pill added that in the absence of any big new shocks, the "when-rather-than-if" characterisation of prospective Bank Rate cuts "still seems appropriate". Meanwhile, MPC member Catherine Mann has joined her colleague Jonathan Haskel in saying she is unlikely to vote for an interest rate cut in August, telling journalists the drop in inflation to 2% was only "touch and go" and that inflation would likely rise again for the rest of the year.

Water Company News:

Water regulator Ofwat has ruled on the five year business plan proposals each of the 16 water firms in England and Wales put forward for approval. On average, Ofwat has given them provisional permission to increase bills by £94 a year from 2029, far less than the average £144 increase the utilities requested. Wessex Water and SES Water will be forced to cut their prices. The BBC has a good breakdown of all the water companies’ proposed bills for 2029-30 here: https://www.bbc.co.uk/news/articles/cyx0jxrq7y4o. Ofwat CEO David Black said: “Customers want to see radical change in the way water companies care for the environment. Our draft decisions on company plans approve a tripling of investment to make sustained improvement to customer service and the environment at a fair price for customers. These proposals aim to deliver a 44% reduction in spills from storm overflows compared to levels in 2021. We expect all companies to embrace innovation and go further and faster to reduce spills wherever possible”. He also said there were plans in place to build nine new reservoirs.

Ofwat has also placed Thames Water has been placed into special measures, the first time the regulator has made such a move since it was formed almost 40 years’ ago. Now, Britain’s largest water company, which serves 16m households in London and the South East, will face deeper scrutiny, especially of its finances. Ofwat said it is considering appointing an independent monitor to report back to the regulator about the group’s financial status, and that Thames will only be able to escape special measures when its performance improves. On Monday, Thames warned it had only £1.8bn in liquidity at the end of June, which it said was “only sufficient to fund our operations for the next 11 months”.

South East Water is also warning this morning it could run out of money without fresh investment. The utility company supplies 2.3m customers in Kent and the surrounding counties and is already on Ofwat's watch-list for financially-at-risk companies.

Meanwhile, the bosses of all 16 water companies in England and Wales have all been called in for talks with Steve Reed, Labour’s new Environment Secretary. A source close to Reed told City AM: “The last Conservative government weakened regulation allowing the sewage system to crumble and illegal sewage dumping to hit record levels. The election of this Labour government is a reset moment for the water industry. In the coming weeks and months, this government will outline its first steps to reform the water sector to attract the investment we need to upgrade our infrastructure and restore our rivers, lakes and seas to good health.”

Millionaires in Britain will be 17% fewer in number in the next few year, according to the 2024 Global Wealth Report from UBS. Last year, the UK had over 3m adults who owned $1m (£779,145) or more – the third highest number of dollar millionaires globally - but the Swiss investment bank expects that number to fall to roughly 2.54m by 2028, a loss greater than any other advanced economy.  Paul Donovan, chief economist at UBS Global Wealth Management, said the country currently has "far more [millionaires] than it deserves to have as an economy," and cited reasons for the coming decline as being an exodus of Russian millionaires because of sanctions, as well as less favourable tax policies towards so-called non-doms, meaning the "non-indigenous millionaire population" will move to low tax countries such as Dubai and Singapore. The report also highlighted there are 26m less wealthy Brits who have a net worth of between $100k and $1m, usually by having investments or a property. Around 12.6m have between $10k and 100k and at the bottom of the wealth pyramid are 10.1m with less than $10k in assets. The average wealth of a UK resident stood at $350,264 last year, with the median wealth coming in at $163,515. In terms of growth in millionaire citizens elsewhere, UBS said tech powerhouse Taiwan is set to see number rise by 47% on the back of the booming microchip industry and a rise in immigration by wealthy foreigners. Next to benefit will be Turkey (43%), Kazakhstan (37%), Indonesia (32%) and Japan (28%). In the USA and mainland China, where the most global millionaires are based, figures are set to rise 16% and 8% respectively.

The Financial Conduct Authority (FCA) has unveiled a programme of sweeping changes to the UK’s stock market listing rules that is intended to reverse the decline in listing numbers and prevent a further exodus of publicly traded firms. Just 23 firms floated on the London Stock Exchange last year, down 40% on an already subdued 2022, City AM notes. The financial watchdog said the changes set out a “simplified” regulatory regime that merged the London Stock Exchange’s premium and standard segments and scrapped a requirement for companies to get approval from shareholders for certain mergers. The changes will also place more responsibility into the hands of investors for their own investment decisions, rather than holding boardrooms responsible. “The FCA has been clear that the new rules involve allowing greater risk, but believes the changes set out will better reflect the risk appetite the economy needs to achieve growth,” the regulator said, as it hailed the new rules as the biggest set of reforms in over 30 years. The new regime, set to begin on 29^th July, has been welcomed by Chancellor Rachel Reeves who said: “These new rules represent a significant first step towards reinvigorating our capital markets, bringing the UK in line with international counterparts and ensuring we attract the most innovative companies to list here”. However, the moves have not been welcomes by some of the country’s top pension funds, who last month wrote to the FCA asking them to reverse the plans on the grounds they would water down protection for investors. “We think [the changes] will make the UK less appealing as a destination for capital,” the funds, including Railpen and the Church of England Pensions board, warned.

London Mayor Sadiq Khan has announced an £8 daily charge to use two tunnels under the Thames, meaning drivers going into central London face charges of up to £177 a week, or £36 a day. Khan’s £4 each way fee for cars using the Blackwall Tunnel and the new Silvertown Tunnel will apply at peak times - northbound from 6am to 10am and southbound from 4pm to 7pm. – and come on top of the £15 congestion charge and £12.50 Ulez fee for non-compliant vehicles, Transport for London has announced. Those failing to pay the latest motoring charge face fines of £180, halved to £90 if they pay up within two weeks. There will be an eight-week consultation on the charges.

The UK Civil Aviation Authority (CAA) has proposed forcing London Heathrow Airport to again reduce the landing fees it can charge airlines over the next two years, meaning the price per passenger will be capped at an estimated £23.73 in 2025 and £23.71 in 2026, an approximate 6% cut.  The decision by the regulator follows an appeal made by Heathrow to The Competition and Markets Authority (CMA) to prevent the caps going ahead; Heathrow claimed they would hurt investment, particularly in the aftermath of the Covid-19 pandemic, City AM explains. However, airlines including British Airways, Virgin Atlantic and Delta Air Lines also appealed, asking for a further cut, saying Heathrow was trying to ‘price gouge’ customers. Separately, Heathrow reported back-to-back record-breaking days for passenger numbers in June as demand for holiday travel rebounds.

The Supreme Court, meanwhile, has backed British Airways’ (BA) customers over the national airline in a legal row over whether a flight being cancelled because a pilot became ill before work was an "extraordinary circumstance" meaning passengers were not entitled to compensation. Kenneth and Linda Lipton, from Kent, were due to fly from Milan Linate Airport in Italy to London City Airport using BA Cityflyer in January 2018 but had to be rebooked onto another flight, which got them to London just over 2.5 hours later than scheduled. They claimed the equivalent of about £220 in compensation for the delay under EU regulations, but this was rejected by the airline, which argued that the pilot falling ill was an extraordinary circumstance. The case progressed through the courts but ended yesterday when BA lost at the Supreme Court. Judges agreed that it "does not matter" when the pilot fell ill, as the crew member remained an "inherent part of the airline's operation" even when not on duty. The fact someone failed to come to work because something had "[gone] awry" during rest periods did not count as an extraordinary circumstance, they said. Mr and Mrs Lipton described their win as "a victory for people who are prepared to fight for common sense and justice against corporate behemoths who have access to every resource". The Supreme Court said it recognised that the decision "has the potential to affect tens of thousands of claims which are made annually" under the relevant law. A spokesperson for BA said: "We are disappointed with this decision and respect the judgment of the court."

JD Wetherspoon’s boss Tim Martin has praised Chancellor Rachel Reeves’ economic “pedigree” and

blamed the previous government for failing to relieve the tax burden on the struggling hospitality sector. “The last government failed to implement tax equality between pubs and supermarkets, leading to pub closures and underinvestment,” Martin said, referring to the fact that VAT on food is charged in pubs at 20%, while it is zero rated in the shops. “Wetherspoon hopes that the current chancellor, with a Bank of England pedigree, will understand how many beans make five, and rectify this inequality.” Martin has long argued that tax policy unfairly allows thriving shops to subsidise artificially low beer prices, at the expense of the struggling hospitality sector. The Telegraph, in reporting Martin’s comments, notes that more than 500 pubs closed in 2023, according to figures from the British Beer and Pub Association.

Royal Mail is to stop using its own trains to transport post after almost 200 years, The Guardian reports. The company has confirmed it will decommission its remaining freight trains by 10^th October and increase the amount of post it moves by road. Royal Mail began running trains to transport post in 1830, with the service reaching its peak in the lead up to the second world war when more than 130 trains were used on the network. It now runs just six, which are almost 30 years old and considered at the end of their operational lives, the newspaper says. A Royal Mail spokesperson said it was becoming difficult to secure parts for maintenance and, after reviewing plans to acquire new trains, it was decided that using other commercial rail services and increasing road deliveries was a better option “to improve reliability, increase cost effectiveness and remain consistent with our environmental goals”.

Crest Nicholson said yesterday it was "minded" to recommend a revised £270m takeover proposal from rival housebuilder Bellway, its third offer this month. The latest values Crest at 273p per share. Crest Nicholson acknowledged that the revised proposal remained subject to a number of pre-conditions, including due diligence, but added: "The board has confirmed to Bellway that the revised proposal is at a value that it would be minded recommend unanimously to...shareholders, should a firm intention to make an offer be announced." The deadline for Bellway to make a ‘put up or shut up’ offer has been extended to 8^th August.

Frasers Group has again upped its stake in German fashion brand Hugo Boss. Billionaire Mike Ashley’s firm Frasers now owns 99% of Hugo Boss's total share capital, as well as 13.81%, via the sale of put options. Based on the Wednesday's closing share price, Frasers said its maximum aggregate exposure in Hugo Boss was around £490m. Frasers began acquiring shares and derivatives in Fraankfurt-listed Hugo Boss sin June 2020. The group’s portfolio includes House of Fraser, Flannels, Evans Cycles, Sofa.com and Jack Wills.

British entrepreneur Mike Jatania is understood to be part of a consortium that has entered exclusive talks with administrators overseeing the sale of The Body Shop, having beaten rival bidders in the auction process for the stricken high street chain. Jatania’s investment firm Aurea Holdings is working on the acquisition alongside Charles Denton, the former Molton Brown CEO according to sources who have spoken to Bloomberg. The Body Shop went into administration in February.

Elon Musk has had a case against him brought by former Twitter staff dismissed by a US Judge. The staff had accused the billionaire of unlawfully denying then a total of some $500m in severance payments owed after they were fired en masse when he took over Twitter, now called X. Judge Trina Thompson said the employees had not proven that their claims were protected by federal law. Other cases, including one brought by former leaders of the company, are still working their way through the courts.

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