Business news 24 January 2024
Bank of England looks toward interest rate cuts
Bank of England looks toward interest rate cuts. Government borrowing falls, SME banking disputes & more business news that we thought would interest our members.
James Salmon, Operations Director.
Bank of England looks toward interest rate cuts
Economists expect the Bank of England to take its first step towards cutting interest rates after data on inflation, wages and economic growth all came in weaker than the central bank had expected. While a Reuters poll of economists suggests there is no chance of a rate cut on February 1, a small majority expect one before mid-2024. Investors, meanwhile, are betting that the Bank will start cutting Bank Rate as early as May, with three more cuts over 2024 taking it to 4.25% from the current rate of 5.25%.
HSBC believe that it is likely that none of the Bank’s Monetary Policy Committee (MPC) will vote for a rate hike next week, and one of the nine members might back a cut. Deutsche Bank economist Sanjay Raja said: “Big picture, we think lots will need to go right to give the MPC enough confidence to adjust Bank Rate lower from Q2 2024 onwards,” adding: “But given downside misses to GDP growth, private-sector pay momentum and services CPI in recent months, we continue to think that rate cuts remain firmly in play from May.”
Government borrowing falls, boosting Hunt’s tax cut options
Office for National Statistics (ONS) data shows that Government borrowing – the difference between spending and tax income – fell to £7.8bn in December. This was £8.4bn less than a year earlier. The report also shows that interest payments on Government debt fell to £4bn, with this down by £14.1bn from December 2022. This was driven by a fall in inflation, with the Government’s interest payments linked to the Retail Prices Index. The ONS data shows that borrowing for the nine months to December 2023 was £119.1bn. While this was £11.1bn more than in the same period the year before, it was lower than the amount forecast by the Office for Budget Responsibility. Total debt – the overall amount of money owed by the Government that has built up over years – was £2.67trn at the end of December. That is equivalent to 97.7% of the size of the UK’s economy as measured by GDP.
Ruth Gregory, deputy chief UK economist at Capital Economics, said December’s borrowing figures would give the Chancellor “a bit more wiggle room for a big pre-election splash in the spring Budget,” suggesting that Jeremy Hunt would have more scope to cut taxes while still meeting the Government’s self-imposed spending rules. Martin Beck, chief economic adviser to the EY Item Club, said: “Some high-profile tax cuts in the spring Budget appear likely.” Cara Pacitti, senior economist at the Resolution Foundation said Mr Hunt had been handed a “timely boost” ahead of the March 6 Budget. Reflecting on the ONS report, Laura Trott, chief secretary to the Treasury, said the economy was “now beginning to turn a corner” thanks to the Government’s “decisive action.”
Future of banking dispute resolution is ‘uncertain’ for SMEs
MPs on the Treasury Committee have warned that SMEs face “gaps” in banking dispute resolution when an independent compensation scheme closes, questioning whether the Financial Ombudsman Service’s (FOS) jurisdiction is appropriate to handle cases from the Business Banking Resolution Service (BBRS). MP John Baron said there was “uncertainty around the future of dispute resolution services for SMEs,” adding that firms had “deep frustration at the way the dispute resolution landscape is operating” amid concern that the system is biased towards big banks.
Abby Thomas, chief executive and chief ombudsman at the FOS, noted that the end of the BBRS would leave some businesses ineligible for FOS support. She added: “I think there are other options available to those businesses. So the courts are an option, arbitration is a further option.” The BBRS has been criticised for resolving just 137 of more than 1,000 cases over three years of operation. When quizzed on this by the committee, Mark Grimshaw, chief executive of the BBRS, pointed to tight eligibility criteria which governs which cases it can take on, saying it is the “eligibility constraints that makes life difficult for us.”
London dominates service sector exports
London accounts for almost half of the UK’s service sector exports, with its share rising from 38% to 46% between 2016 and 2021, according to a report by the Resolution Foundation. Glasgow was the only other city to see an increase in its share of service exports, albeit at a much lower level. The report highlights the need for Government action to ensure other major cities keep pace with London’s dominance. The think-tank suggests that major cities outside London have the potential to sell more services overseas, but require significant public investment in transport, housing, and city centre expansion. The concentration of service exports in London contrasts with France, where cities like Bordeaux and Lille have experienced faster growth than Paris.
£1.3 Billion extra to Build Sizewell C
The government is investing a further £1.3 billion to build the Sizewell C nuclear plant and to try and encourage private investors to invest along side them in the project. This investment follows £700 million pledged in November 2022 and £511 million just last summer.
Hinkley Point setbacks
Separately, EDF have reported that the nuclear project at Hinkley Point may cost £10 billion more than previously budgeted and take several more years to complete after a series of setbacks.
Markets
US market futures were higher, , led by gains in the Technology sector, after Netflix reported its subscriber count reached a new record in the fourth quarter.Overnight the S&P 500 was up 0.29% and the NASDAQ was up 0.43%. At the time of writing the UK FTSE 100 is up 0.28% at 7506 and the Eurostoxx 50 is up 1.44%. The pound has advanced against most currencies and is currently at $1.275 and €1.170. The Brent oil price is up 0.4% t $79.8.
ASML
Europes most valuable tech company – the builder of the equipment to make chips – shot up this morning after announcing orders had tripled from the semiconductor industry.
Netflix
Netflix reported strong growth in its quarterly revenue, an operating margin ahead of forecast and a record jump in subscriber numbers. Despite recent price hikes, Netflix said global paid streaming memberships rose around 13% to 260.28 million from 230.75 million the year before, with 13.12 million net adds in the quarter – its largest fourth quarter ever.
Royal Mail
Ofcom has said the Royal Mail could reduce letter delivery days in the service from six to five or even three, in proposals aimed at modernising the postal service. The regulator said the universal postal service risks becoming unsustainable as people send fewer letters and receive more parcels, meaning reform is necessary to secure its long-term future.
Chancellor meets with bank bosses
Chancellor Jeremy Hunt and Bim Afolami, the economic secretary to the Treasury, have met the bosses of the UK’s biggest banks as part of Government efforts to boost interest in the City. The Treasury said the meeting, held in Downing Street, saw the leaders of Barclays, HSBC, Lloyds, NatWest, Santander UK and the London Stock Exchange Group discuss the outlook for the country’s economic and banking sector. Government reforms which aim to make changes to rules in the City were also discussed. A spokesperson said Mr Hunt and Mr Afolami “set out that the Government would continue to engage with the industry to find new and better ways to unlock growth across the whole of the UK.”
FCA chief warns of ‘techlash’
Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), has warned that the UK’s financial services may need to prepare for a “techlash,” saying “new forms of fraud and harms” created by technologies like quantum computing and AI could damage financial inclusion and the security of data and services. Mr Rathi said that while big tech’s foray into financial services could benefit many in the short term, “in the longer term, there was a risk that the competition benefits could be eroded if the firms exploited their entrenched market power.” He added that the lines between gaming, gambling, entertainment, trading and investing could “become so blurred as to endanger people’s long term financial wellbeing.”
China
The Chinese Government is planning a massive 2 trillion yuan (£219 billion) series of measures to support its collapsing stock market.
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The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.