Closing post
Time for a recap.
The International Monetary Fund has upgraded its forecasts for UK growth, saying the country will no longer fall into recession this year, but warned the government not to cut taxes as that would fuel inflation and result in high interest rates for longer.
In a message to the chancellor, Jeremy Hunt, that he should maintain his planned squeeze on public spending, the Washington-based body said tax policy should stay “aligned with monetary policy in the fight against inflation”.
Any financial surpluses should be used to pay down government debt to “rebuild fiscal buffers”, it said in its annual Article IV review of the UK’s economic outlook released on Tuesday.
During a press conference in London, IMF managing director Kristalina Georgieva hailed UK authorities for taking “decisive and responsible steps in recent months”.
The UK economy is now expected to grow by 0.4% this year, not shrink by 0.3%, meaning it should do better than Germany.
Georgieva also said it was “neither affordable nor desirable” to cut UK taxes now – the priority should be to lower inflation.
The Bank of England has admitted it made errors in its forecasting of UK inflation, and said it has some “very big” lessons to learn over how it decides monetary policy.
Policymakers faced criticism during a Treasury Committee meeting over the failure to predict a prolonged rise in inflation, driven by higher-than-expected food prices.
Bailey told MPs:
“I think there are some very big lessons in how we operate monetary policy in the face of very big shocks. Because the shocks that we have faced have been unprecedented.
“I think there are big lessons about how we operate policy in that world – in a world of very big uncertainty.”
Bailey also pointed to recent bad weather for pushing up food prices, catching the Bank’s forecasters out.
Bailey’s comments came as new data showed supermarket inflation remains over 17% this month.
Bailey told MPs he believes inflation has ‘turned the corner’; we’ll find out at 7am tomorrow if CPI did indeed fall in April, as hoped.
The housebuilder Barratt Developments has said its chair will stand down to prevent the impact of the allegations against him “from becoming disruptive to the company”.
The news came after it was announced on Friday that John Allan would step down as chair of Tesco at the supermarket’s annual meeting on 16 June.
The owner of Facebook has taken a more than $260m (£210m) loss on Giphy – selling off the gif search engine to the stock image service Shutterstock for $53m after the deal was blocked by regulators.
Private renters are almost twice as likely to be struggling with problem levels of debt than the general population, with a sharp rise in the numbers in serious financial difficulty since January, research shows.
Dozens of climate activists have disrupted Europe’s largest private jet trade fair by chaining themselves to aircraft to protest against the sector’s carbon emissions….
….while Shell’s annual shareholder meeting in London descended into chaos with more than an hour of climate protests today.
The French billionaire Patrick Drahi has increased his stake in BT to more than 24%, but reiterated that he does not intend to make a bid to take over the £15bn British telecoms group.
South West Water is being investigated by the industry regulator over whether it accurately reported leaks and figures showing how much water is used by its customers.
And National Lottery operator Camelot has signed off with its last ever set of full-year results – showing the second highest in the history of the draw, and record high returns to good causes from ticket sales…
Updated
Shell’s AGM (see earlier post) wasn’t the only event disrupted by climate protesters.
Dozens of climate activists have disrupted Europe’s largest private jet trade fair by chaining themselves to aircraft to protest against the sector’s carbon emissions, my colleague Rupert Neate reports.
The demonstrators on behalf of Greenpeace, Stay Grounded, Extinction Rebellion and Scientist Rebellion also attached themselves to the entrance gates of the event at Geneva airport in the hope of preventing prospective buyers from entering the annual show.
The activists, who were calling for a global ban on the use of private jets because of their carbon footprint, stuck tobacco-style health warning labels on some of the jets at the European Business Aviation Convention and Exhibition (EBACE) saying private jets “burn our future”, “kill our planet”, and “fuel inequality”.
US business activity rises to 13-month high in May
More economic data: US business activity has hit a 13-month high this month, but the divergence between manufacturing and services has widened.
The latest survey of purchasing managers at US companies found that firms reported a solid upturn in business activity during May.
This suggests the US economy regained momentum early in the second quarter despite rising risks of a recession.
The expansion was led by service providers, however, with manufacturers recording only a slight rise in production.
Recession risk appears to be fading as US economic activity continues to rebound in May via the PMI Composite Output Index, a GDP proxy. By this measure, growth picked up to a 13-month high, driven by services sector: https://t.co/F8kimS4zn3 pic.twitter.com/gPvzoeG5vE
— James Picerno (@jpicerno) May 23, 2023
The Flash US PMI composite output index, which tracks growth, rose to 54.5, up from April’s 53.4 (any reading over 50 shows activity increased)
Service sector growth also hit a 13-month high, but manufacturing output dropped to a two-month low of 51.0.
MPs on the Treasury committee also grilled the Bank of England about greedflation today.
Andrew Bailey suggested that producers could be setting higher prices to “rebuild” profit margins, after the surge in energy and raw materials hit their earnings.
Asked if the UK is seeing "greedflation," Andrew Bailey says companies are facing big costs to pass on.
— Richard Partington (@RJPartington) May 23, 2023
But, firms are also "rebuilding [profit] margins that were squeezed"
That isn't necessarily profiteering. But Bailey says the Bank will "watch carefully" margin rebuilding
Updated
Restaurant Group, the Frankie & Benny’s to Wagamama chain run by former HBOS chief Andy Hornby, has been hit by a shareholder revolt today.
Around 45% of investors voted against Restaurant Group’s director’s remuneration report, which is a significant rebuke – although not quite large enough to vote the resolution down.
Restaurant Group AGM. All resolutions passed but huge protest vote against Directors Remuneration 2022 (46%) and Directors' Remuneration Policy (35%). Quite likely Co will say 'it will consult' etc.
— Mark Brumby (@brumbymark) May 23, 2023
Restaurant Group has faced criticism from investors, with several pushing for the company to be broken up and pledging to vote against Andy Hornby’s pay packet.
Activist investor, Irenic Capital Management, argued that TRG brands such as Frankie & Benny’s and Chiquito should be disposed of.
Proactive Investors explains:
Irenic also made it clear it was unsupportive of the group’s management team, in particular the remuneration policy that saw Hornby take home £792,000 plus around £700,000 in shares last year.
Shares in Restaurant Group have gained over 40% this year, but are down around 80% over the last five years.
Over 15% of shares were cast against re-electing Andy Hornby as a Director, while 23% opposed re-appointing chairman Ken Hanna.
Updated
The pound hasn’t taken much cheer from the IMF’s upgraded growth forecasts for the UK economy.
Sterling hit its lowest level in a month this morning, troughing to $1.2371, the lowest lowest since 21st April.
The euro is also weaker against the US dollar, which has been lifted by recent hawkish noises from US central bank policymakers, hinting that US interest rates will remain higher for longer.
In the tech sector, the owner of Facebook has taken a more than $260m (£210m) loss on Giphy – selling off the gif search engine to the stock image service Shutterstock for $53m after the deal was blocked by regulators.
Meta said on Tuesday it is selling Giphy, the business it acquired in November 2021 for about $315m but was blocked from completing the purchase in 2022 by the UK’s competition regulator, the Competition and Markets Authority (CMA).
Shutterstock is paying cash for the acquisition, which comes with an agreement to ensure continued access to Meta’s platforms, as well as Giphy’s existing user base, which comes direct to the site and via integrations with other apps that offer animated gif search engines.
The Shutterstock chief executive, Paul Hennessy, said the acquisition was “an exciting next step in Shutterstock’s journey as an end-to-end creative platform”.
More here.
Innes McFee, managing director at Oxford Economics, says the IMF had been too pessimistic about the UK until today (something Kristalina Georgieva was pressed on at today’s briefing).
McFee explains:
“This forecast revision brings the IMF into line with our view on the UK and corrects an issue that we had highlighted at the time – that despite being overly optimistic on the global economy, they were too pessimistic on the UK. Today’s revision helps to correct that imbalance.”
IMF lifts UK growth forecast: What the analysts say
Here’s some reaction to the International Monetary Fund’s u-turn on the UK’s economic prspects this year.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, says Britain has defied gloomy predictions for a long recession with the International Monetary Fund now joining the chorus of revisions.
Streeter
The surprising resilience of companies and consumers have helped buck the forecasts made amid the stormy financial weather prompted by the Truss/Kwarteng mini-Budget.
In the Autumn interest rates were forecast to shoot up to above 6% and an energy crisis in Europe was still widely feared. But as gas prices have retreated, the UK government has repaired its financial credibility, and consumers have shown hardiness amid rising prices, prospects for the UK are now brighter.
ING developed market economist James Smith warns that the UK won’t see strong growth this year:
“The UK economy is beginning to reap the benefits of the dramatic fall in natural gas prices since last summer, which are back to levels last seen before the war in Ukraine began last year. The squeeze on disposable incomes is set to become less acute over coming months with energy bills set to fall from July, and food price inflation likely at or close to a peak. That suggests the worst is behind us for consumer spending, and indeed confidence has risen noticeably over recent months. The jobs market is also proving remarkably resilient despite the various headwinds of the past year, and firms are still battling worker shortages – albeit less severe than they were a year ago.
“We agree with the IMF that all of this means the economy should continue to dodge a recession over the next few months, though we shouldn’t expect strong economic growth either. A growing number of UK households will refinance their mortgages over coming quarters, while higher interest rates are a constraint on investment.
The UK also isn’t totally immune from the recent banking stresses in the US, which we think is likely to tip the American economy into recession later this year and will inevitably have some spill over to the global economic outlook.”
Ben Laidler, global markets strategist at social investment network eToro, points out that this morning’s PMI report suggested growth weakening this month (see earlier post):
“The IMF has eaten humble pie, today reversing its overly bearish recession forecasts for the UK economy.
This follows the lead from the Bank of England which recently raised its forecasts and the improved outlook has already seen the FTSE 100 rally 5% this year and made Sterling the best performing major currency against the dollar. Markets are now more focused on the weakening of this less-bad economic outlook, with today’s forward looking flash PMI falling back to 53.9 and masking a recessionary manufacturing sector.
All eyes are on tomorrow’s UK inflation report, with hopes that we see a fall below the 10% inflation rate that is the worst of any major economy.
Camelot: Returns to good causes from UK lottery sales hits all-time high, in final year
Camelot has operated the National Lottery since its inception in 1994, when 22m people watched the first ever draw.
Today, the company - owned by a Canadian pension fund - presented its last ever set of full-year results, my colleague Rob Davies reports.
Its licence to operate the National Lottery was finally wrested away by Czech billionaire-owned Allwyn UK after a hard-fought battle that ended up in the courts. Camelot will essentially cease to exist once the licence transfers over in February 2024.
With this valedictory set of results, the company has done its best to show the Gambling Commission, which held the decision over the award of the next ten-year licence, that it could live to regret its choices.
Total National Lottery sales for the year to the end of March 2023 increased by £99.6m to £8.2bn, the second highest in the history of the draw. Returns to good causes from ticket sales hit an all-time high of £1.8bn.
Over to you, Allwyn….
Jeremy Hunt then wrapped up the IMF press conference by welcoming the Fund’s assessment of the UK economy.
Hunt thanks the Fund’s staff (and no wonder, given the gushing support for his policies from today’s Article IV report and from Kristalina Georgieva):
What we’ve heard is a decisive vote of confidence in UK economic management.
But we’ve also hear the warnings about global instability and risk.
We will stick to our plan to get inflation down, and lift growth, Hunt pledged.
Georgieva: GDP is not a perfect measure
And the final question for IMF managing director Kristalina Georgieva:
Q: Do you expect to still talk about GDP in five year’s time, given the criticism of it as a measure?
Georgieva says that GDP is a good indicator, but not perfect “by a long mile”.
She gives the example of hiring a gardener. Paying the gardener lifts GDP.
But should romance break out, those payments might cease.
Georgieva explains:
If I decide to marry the gardener, that would reduce GDP.
Investing in activities that increase pollution and degrade the environment also expands GDP, Georgieva points out.
She says:
We have to work hard on helping policymakers to have a better set of indicators to make decisions on.
Better indicators of vulnerability to climate shocks, for example, would help.
But GDP is helpful, so Georgieva doesn’t want it thrown out like a baby with the bathwater. “Better food” would help it grow.
IMF: Tax cuts neither affordable nor desirable today
Q: What’s your message to those who want tax cuts? Are they a route to growth, my colleague Phillip Inman asks.
Kristalina Georgieva repeats her concerns that inflation is a tax, which falls heaviest on the poor.
So the government is right to prioritise the fight against inflation, she says.
Georgieva then adds that once that fight has been won, the UK will need investment to grow faster and in a more sustainable way. That puts pressure to increase spending, which needs to be funded.
The IMF has come up with a list of measures to increase revenues, which she encourages Hunt to scrutinise [Georgieva flagged carbon taxes as one option earlier].
Georgieva adds that, of course, it is attractive to look into ways to lighten the tax burden to inject more investment opportunity into the UK.
But only when it is affordable.
She says firmly that cutting taxes now would not help fight inflation, saying:
At this point of time, it is neither affordable nor desirable because if you want to contrain demand and increase supply, you have to think what are the right policy measures.
UK likely to outperform Germany this year
Q: With your new forecast for 0.4% growth this year, how does the UK compare with G7 and G20 countries?
It compares favourably, IMF MD Kristalina Georgieva smiles.
We are likely to see the UK performing better than Germany, for example.
Georgieva adds that a single year isn’t the best way to judge a country.
Over the last three years, the UK’s performance has been quite good compared to the rest of the G7, perhaps taking third place in the G7 growth league table.
Q: What impact would pre-election tax cuts have on the Bank of England?
Kristalina Georgieva tries to swerve this one, saying there are no plans for such tax cuts at present.
But she says the alignment between fiscal and monetary policy, to bring down inflation, must remain in place for some time [which would indicate little opportunity for a responsible pre-election splurge].
Q: What’s the IMF’s recommendation for fiscal policy in the run-up to the next election?
Jeremy Hunt offers to leave the room (!).
The backdrop to the question, of course, is whether the government should engage in some pre-election tax cuts as backbench MPs have been demanding.
IMF chief Kristalina Georgieva , though, thinks the current position is sensible.
The government has been very prudent in prioritising not what has been politically easy, but what is right for the British people.
Georgieva adds that the IMF is very encouraged by the current fiscal priorities – fighting inflation, improving growth grospects, and taking decisions that are “benefitting people across the United Kingdom”.
And in quite the endorsement, she says the UK has shown a determination that has been “above the political fray.”
STARTING NOW: Press briefing on the IMF’s United Kingdom 2023 Article IV consultation with IMF Managing Director @KGeorgieva and UK Chancellor @Jeremy_Hunt at @hmtreasuryhttps://t.co/jCe2OmcA6U
— IMFLive (@IMFLive) May 23, 2023
Q: Are you worried that inflation looks sticky in the UK and around the world – will it mean interest rates must keep rising?
IMF MD Kristalina Georgieva says that headline inflation seems to have peaked, and is now receding, due to “strong, coordinated” action by central banks.
But core inflation [stripping out energy costs] is stickier.
Georgieva says food inflation is proving hard to bring down, in the UK and elsewhere.
This may mean interest rates must remain high for longer, so that financial conditions are kept tight.
She repeats that the IMF expects UK inflation will hit the 2% target in mid-2025.
Updated
Q: What are the consequences if the US doesn’t agree to lift the debt ceiling in time? A US recession, or a global one?
We have seen historically that discussions about the US debt ceiling have been quite tense, but always resulted in a solution being found, Kristalina Georgieva replies.
That’s because it is clear that failing to lift the debt ceiling would be detrimental to the US, and global economy.
Georgieva says:
I look forward to a solution being found this time around
She adds that if a solution isn’t found, there would be non-desirable implications for the world economy.
[reminder: the US could default in June if Congress doesn’t agree to lift the current limit on America’s debt, with Republicans demanding spending cuts in return].
Georgieva hopes we won’t have to wait until the 11th hour for a deal.
Q: How important are your forecasts if the IMF keeps getting it wrong? Why should we pay attention to your forecasts this time?
Kristalina Georgieva says the IMF is slightly less pessimistic than other forecasters, and also than the Bank of England.
We have gone through a very turbulent time over recent years, Georgieva insists (a point which the BoE has made to MPs this morning).
We have experienced shock upon shock upon shock. That has created exceptional uncertainty.
Georgieva says the Fund’s staff deserve credit for being agile, and for adjusting their forecasts swiftly as conditions change --- at a time which is “the foggiest” it has been in many decades.
Q: When will UK living standards rise again in the UK?
Kristalina Georgieva doesn’t commit to a date.
Instead, she says the moderate growth now expected in the UK will help support living standards, and repeats the IMF is “very encouraged” by the government’s focus on structural reforms to boost growth.
In 2025, 2026, 2027 “we see these improvements paying back to the British people”, Georgieva adds.
Updated
Q: Should tax cuts be a priority for the UK?
Kristalina Georgieva suggests it should not. She says the government is right to prioritise the fight against inflation, calling it a tax on the British people.
The best thing the government can do for incomes is to bring inflation down, she says.
In the medium-term, the IMF recommends closing down some UK tax loopholes, and making the evaluation of real estate more accurate.
It also wants to see more aggressive action on carbon tax, to encourage investment towards the green transition.
IMF denies being too gloomy about UK
Onto questions for the IMF, after their assessment of the UK economy.
Q: The IMF has been consistently accused of being too gloomy about the UK’s prospects and resilience, especially after Brexit. Do today’s upgraded forecasts vindicate that, and have you asked the question why the IMF gets it so wrong?
International Monetary Fund Kristalina Georgieva says there are three reasons for the upgrade to the UK’s GDP forecasts.
1) The previous forecasts were made in the midst of financial stress in the US, and Switzerland (where Credit Suisse has been taken over by UBS). So the Fund hadn’t seen the benefits of the decisive action taken in the UK.
2) The UK now has more predictable relations with the EU following the Windsor Agreement, which is boosting confidence.
3) Energy prices have receded.
Georgieva insists that the increase in the projections are basically due to confidence measures taken by the authorities, and some improvement in global conditions.
To sum it up, Kristalina Georgieva gestures to the window (where a rarely-spotted shiny object has appeared in the sky).
The IMF managing director explains:
Like the weather outside, the outlook for the UK economy has improved, but in a context of a highly uncertain global environment, structural challenges and still very high inflation.
UK authorities have demonstrated their ability to overcome hurdles in difficult times, and we look forward to continuing our constructive collaboration for strong and inclusive growth in the United Kingdom.
Updated
Georgieva ended her statement in London with a brisk endorsement of the UK’s economic policies.
It shows how relations have improved since last autumn, when Kwasi Kwarteng had to race back from the IMF’s meeting in October, to be sacked after his mini-budget spooked the markets.
Georgieva says the IMF has a positive view of the government’s emphasis on structural reforms to sustainably boost the UK’s growth potential.
IMF managing director Georgieva says:
We strongly endorse the measures already taken. The increase in childcare support, and the introduction of capital investment allowance in the spring budget.
Georgieva also hails Jeremy Hunt’s “four e” strategy of enterprise, education, employment, and everywhere.
We see that as a concept that practially would make a difference for the competitiveness and the growth potential of the UK.
Targeting key growth areas such as advanced manufacturing, life sciences and clean energy, this is all “on the right track”, Georgieva says.
Looking ahead, the IMF wants to see more evidence-based reforms.
Monetary policy should remain tight, IMF chief Kristalina Georgieva warns, as she outlines the Fund’s four priorities for the UK.
Bringing inflation to target means interest rates may stay higher for longer, she suggests, insisting the UK must ease the cost of living pressures on households.
The IMF also says:
fiscal policy must stay aligned with monetary policy, to fight inflation and rebuild fiscal buffers.
In the financial sector, the UK must maintain strong oversight of large and small banks. Georgieva also points to the shadow banking sector, saying the UK must not “lose sight of the non-banking financial sector”, where vulnerabilities could be exposed if financial conditions tightened.
Fourthly, it’s important that the UK’s regulatory reforms protects financial stability. This is important for the world as a whole, Georgieva insists.
Georgieva: UK deserves credit for re-establishing financial stability
The IMF are keen to contrast the UK economic situation today with the chaos of last autumn, when then-chancellor Kwasi Kwarteng’s mini-budget rocked the markets.
The mini budget triggered a surge in UK borrowing costs, and almost caused the collapse of some pension funds before the Bank of England stepped in with a pledge ot buy UK debt.
IMF managing director Kristalina Georgieva says:
We would like to stress that a lot of credit is due to the re-establishing of financial stability in the UK after the pension funds stress episode last fall.
Georgieva says the UK authorities also acted decisively at the first sign of financial distress in the US, where several regional banks have failed.
In March, the UK arm of Silicon Valley Bank was sold to HSBC for £1 after a frantic weekend of negotiations.
Georgieva also confirms that the IMF welcomes the Windsor Agreement negotiated by Rishi Sunak earlier this year, as it resolves disputes around the Northern Ireland protocol.
The IMF believes inflation will fall to the Bank of England’s 2% target by mid-2025.
But there are significant risks to the outlook, managing director Kristalina Georgieva tells reporters in London.
She explains:
The global economy remains highly uncertain, and a sudden tightening of global financial conditions could estrain credit and export demand, and depress GDP.
High inflation could feed into price and wage-setting expectations, keeping inflation elevated for longer, and requiring tighter monetary policy to bring it down.
Georgieva says the Bank of England has shown “very responsible actions” by tightening monetary policy (that may please Andrew Bailey, as he is pummelled by unimpressed MPs on the Treasury committee this morning).
Georgieva also nods to Jeremy Hunt, saying his budgets are “aligning fiscal policy with the objective of monetary policy to fight inflation and stabilise debt over time”.
IMF's Georgieva: UK authorities have taken decisive and responsible steps
IMF managing director Kristalina Georgieva then says it is great to be in London on a sunny day, and kicks off by congratulating the UK on this month’s coronation.
Georgieva hopes that King Charles and Queen Camilla’s reign will be “a time of prosperity for this great country”.
Georgieva then outlines the conclusions of today’s healthcheck on the UK (called an ‘Article IV’ in IMF jargon).
She says:
The UK authorities have taken decisive and responsible steps in recent months. This has promoted macroeconomic and financial stability during a time of heightened market volatility.
Their efforts, and the recent decline in energy prices, are beginning to have a favourable impact on the economy.
Georgieva then confirms that the IMF now anticipate positive GDP growth in the UK this year of 0.4%, up from the 0.3% fall expected last month.
Despite the positive news (no recession), Jeremy Hunt adds that high inflation and energy prices remain key challenges for the UK.
The chancellor says he’s also pleased that the IMF believes business investment will benefit from the Windsor Framework (the new deal on Northern Ireland’s trading arrangements).
Jeremmy Hunt then says the government was pleased to see that the IMF agrees the UK needs “ambitious, evidence-based structural reforms” to suppport growth.
He cites the expansion of free childcare for one- and two-year-olds announced in the spring budget, and the ‘full expensing’ tax break to let firms write off costs of IT equipment and machinery against tax on profits
Hunt says:
Today, the IMF says these supply side measures should have a positive effect on medium-term growth, and we will continue this work.
Hunt: IMF’s assessment shows we are on the right track.
Chancellor Jeremy Hunt and IMF managing director Kristalina Georgieva are holding a press conference now to discuss the state of the UK econony.
Hunt says the IMF has provided a “timely independent assessment of the UK economy”, and has visited when the economic backdrop is one of “challenge and opportunity.”
Since the IMF’s last assessment in February 2022, our world and the economy had been “challenged fundamentally” by Vladimir Putin’s illegal war in Ukraine, Hunt says.
Hunt says his central mission as chancellor has been to “restore macro-economic stablity”, and to deliver the government’s priorities of halving inflation, growing the economy and getting debt falling.
Hunt declares, after the IMF dropped its forecast of a recession this year, that:
Today the IMF’s assessment shows we are on the right track.
Hunt says the IMF’s new prediction of 0.4% UK growth this year (up from a 0.3% contraction predicted earlier) is higher than the Bank of England’s latest forecasts (for 0.2% growth in 2023).
The IMF also say we have acted decisively to fight inflation, Hunt adds, which will substantially “reduce to around 5% by the end of the year”.
Plus, the Fund agrees that the government’s fiscal policy will help to reduce the deficit.
Hunt says:
Togther these forecasts demonstrate we are on the right path, but the job is not done yet.
IMF no longer expects UK recession this year
It’s official: The International Monetary Fund no longer expects Britain’s economy will fall into a recession this year.
After its annual healthcheck on the UK, the IMF has upgraded its forecasts. It now expects UK GDP will rise by 0.4% this year, rather than shrink by 0.3% as it had expected back in April.
Today the IMF cites the UK’s unexpectedly resilience of demand, helped by faster than usual pay growth, the drop in energy costs, and the Windsor Framework (the revised version of the Northern Ireland protocol).
The recovery in global supply chains, helped by China’s reopening from pandemic restrictions, has also helped.
But, the IMF also warns that UK inflation remains subbornly high, due to the Ukraine war, and that monetary policy (set by the Bank of England) should remain tight to keep inflation expectations well-anchored.
Updated
Silvana Tenreyro, an independent member of the Bank of England’s Monetary Policy Committee, then explains to MPs that the BoE would have had to raise interest rates months before the Ukraine war, to protect the economy from the inflation shock.
She outlines a scenario in which the Bank could have raised interest rates to 8% in July 2021 (when they were a record low of 0.1%), even though inflation was then on target at 2%.
Had this happened, UK unemployment would have been three percentage points higher she explains, but it would have only had a relatively small impact on inflation.
The models show that inflation would have peaked at 9%, not 11%, and also led to a “massive undershoot” in inflation in future, professor Tenreyro explains.
John Baron MP doesn’t accept that the UK’s inflation surge can simply be blamed on ‘black swan events’ such as the Ukraine war.
In February, the month of Russia’s invasion, inflation hit 6.2% and Bank Rate was only 0.5%, Baron points out, as evidence that the BoE was moving too slowly.
Andrew Bailey says that the inflation from global supply chain shocks did prove to be transient, as central bankers had expected. The problem was that the Ukraine war drove up food and energy costs.
Bailey also reminds MPs on the Treasury Committee that the BoE expected the labour market to weaken at the end of 2021 when the furlough scheme, pushing up unemployment and easing inflationary pressure.
Bailey says:
We hold our hand up and say that’s a judgement we had to make, and it didn’t turn out right.
But almost every other forecaster took the same view, he insists.
The Bank of England’s failure to keep inflation close to its 2% target is a “woeful neglect of duty”, says Conservative MP John Baron, causing pain to households and businesse.
Q: Why should the public have confidence in your ability to get it right going forward, and what will you do differently?
Governor Andrew Bailey says there are lessons to learn, and that the Bank has “a lot to learn” to learn about how to operate monetary policy in the face of very big, unprecedented shocks.
I think there are big lessons about how we operate policy in that world, and in a world of very substantial uncertainty.
Bailey points out that the Bank makes policy in realtime, and doesn’t have the benefit of hindsight.
We have to get inflation back down to target, he reiterates. That’s why the Bank raised interest rates again this month, even though its models suggest inflation will fall sharply this year.
Scuffles at Shell AGM
A scuffle has broken out at the Shell annual meeting amid continued protests (see earlier post).
It was the 45-minute mark before its chair Andrew Mackenzie, formally opened the meeting, but still there were protests. Security staff rushed to the front of the meeting to shield the board as a scuffle broke out.
“We want the debate”, said Shell chair Andrew Mackenzie, as security removed dozens of people.
Mackenzie said:
“Clearly this is a coordinated attempt to disrupt this meeting.”
Shell’s “intelligence” had warned of “these kind of threats to our shareholder meeting and others”, he said.
That escalated - a few dozen shareholders just tried to storm the stage @Shell agm pic.twitter.com/g8zyXimWyu
— Hannah Thomas-Peter (@hannahtpsky) May 23, 2023
Pill: We recognise our models failed to predict inflation surge
Bank of England chief economist Huw Pill explains to the Treasury Committee that the Bank is trying to understand why its models failed to predict the rise in UK inflation.
Pill says the Bank’s model’s use data from the last 30 years, so it is now trying to incorporate recent changes in consumer behaviour.
Pill tells MPs:
We see these models have led to some of the errors you are describing.
We recognise that our forecast for inflation have been too low, and we’re trying to understand why we have made those errors, interpret those errors in terms of behaviour, and make an assessment if that behaviour will continue or not.
Treasury committee chair Harriett Baldwin asks why the Bank doesn’t think data from the 1970s, when the UK last experienced an inflation shock, would be useful…..
Pill replies that we can learn lessons from the past. But the UK didn’t have an inflation target in the 1970s, or an independent central bank, so the monetary policy regime is different.
Baldwin says this “slightly makes me dispair”, reminding her of bankers and traders who claimed things were different ahead of the 2007-08 financial crisis.
Q: Have you made the same errors of bankers and traders running into the financial crash?
Pill defends the Bank’s models, saying it has introduced a “skew” to the risks around its baseline forecasts which recognises the possibility that inflation could be higher, or more persistent, than data from the last 30 years would justify.
Bank of England governor insists inflation has 'turned the corner'
Over in parliament, the Treasury committee are quizzing the Bank of England about interest rates, and inflation.
They’re hearing from:
Andrew Bailey, Governor, Bank of England
Huw Pill, Chief Economist, Bank of England
Dr Catherine Mann, External Member, Monetary Policy Committee
Professor Silvana Tenreyro, External Member, Monetary Policy Committee
Committee chair Harriett Baldwin MP starts by asking if inflation today is higher than expected in February.
Andrew Bailey says that yes, inflation is higher than the Bank had expected. The BoE had expected a gradual decline in inflation.
Although inflation has dropped below its peak of 11%, it was about 0.8 percentage points higher than expected.
A large annual base effect will come out tomorrow (when we get April’s inflation data).
Q: 0.8 percentage points is quite a miss, given your target is to keep inflation at 2%
Bailey says he stands by the view that inflation has “turned the corner” [it dropped to 10.1% in March, having hit 11.1% last October].
He says we have seen some benefits of falling energy prices. but food prices and some goods (such as footwear) have been higher than expected.
Q: So what’s gone wrong, with your models or the network of agents? Something has gone really wrong.
Bailey says the Bank’s agents were told by companies in February that food inflation had peaked, but clearly it hasn’t.
He says weather events have pushed up some food prices, such as cold weather in Morocco (which also let to salad shortages) and rising sugar costs.
Secondly, Bailey says the rise in energy prices has not fallen evenly on firms, as it depends when they renewed their energy contracts.
Also, food producers have bought forward their buying of key commodities, due to shortages fears. One farmer told him last week that they had bought more fertiliser than normal, locking in a higher price.
That could have been identifiable, Bailey admits, although the weather events weren’t predictable, he argues.
Chief economist Huw Pill says it is very difficult to forecast, at very high frequency, some of the shocks that have hit the UK economy.
Inflation today is unacceptably high, Pill says, due to the shock which the economy has faced.
Harriett Baldwin MP isn’t convinced that the impact on inflation wasn’t predictable – a year ago, she says, the governor was warning of ‘apocalyptic’ food price rises from the Ukraine war.
Updated
Climate protesters disrupt Shell's AGM
Shell’s annual meeting has descended into chaos within the first seconds of opening, with a crowd of protestors accusing it of “earning billions from climate collapse”.
Climate protests have become a regular feature of annual meetings, with campaigns focused particularly on banks such as HSBC and Barclays that lend to fossil fuel projects as well as oil companies.
Shell’s executives, sitting at London’s ExCel conference centre, were clearly braced for disruption. As soon as the meeting opened one protestor stood up shouting his protests.
He said: Do you like David Attenborough, the most popular man in this country? He said it is crazy that banks and pension funds are investing in fossil fuels.
Andrew Mackenzie, Shell’s chair and the former chief executive of mining company BHP, asked the protestor to sit down.
The protestor responded:
“I can go on all day, and will.”
Mackenzie repeatedly asked him to sit down, and then - perhaps somewhat ill-advisedly - said the company wanted to hear from others.
That appeared to be a cue for the chorus. First the crowd started singing: “Go to hell, Shell”, to the tune of Hit the Road Jack by Ray Charles.
Here’s a clip of the singing:
Climate protestors interrupt #Shell #AGM pic.twitter.com/peI4BjUz4r
— Follow This (@followthis2015) May 23, 2023
That was followed by a chant of “shut down Shell”, and “we hate Jackdaw” - a reference to its North Sea oil field. “We have heard you loud and clear,” Mackenzie said. 20 minutes in, there are still protestors being escorted from the room.
The Shell AGM has gotten off to a lively start in London this morning. Statements, songs, chants and lots of people being dragged out by security.
— Laura Hillis (@laurahillis) May 23, 2023
Updated
The IMF’s managing director, Kristalina Georgieva, says she had an ‘excellent meeting’ with Jeremy Hunt today, during the Fund’s visit to assess the UK economy.
Georgieva says the UK authorities have taken “decisive actions to promote macroeconomic and financial stability and are focused on the fight against inflation and on reforms to boost productivity, labor supply, and investment”.
Excellent meeting with UK Chancellor @Jeremy_Hunt in London today. The UK authorities have taken decisive actions to promote macroeconomic and financial stability and are focused on the fight against inflation and on reforms to boost productivity, labor supply, and investment. https://t.co/TuipC6Nl0K
— Kristalina Georgieva (@KGeorgieva) May 23, 2023
Hunt: IMF report shows a big upgrade to the UK's growth forecast
Jeremy Hunt has announced that the International Monetary Fund had made a ‘big upgrade’ to the UK’s growth forecasts, following its annual healthcheck.
Hunt says:
“Today’s IMF report shows a big upgrade to the UK’s growth forecast and credits our action to restore stability and tame inflation.
“It praises our childcare reforms, the Windsor Framework and business investment incentives. If we stick to the plan, the IMF confirm our long-term growth prospects are stronger than in Germany, France and Italy – but the job is not done yet.”
Welcome back to the UK, @KGeorgieva
— Jeremy Hunt (@Jeremy_Hunt) May 23, 2023
Today’s IMF report shows a big upgrade to the UK's growth forecast and credits our action to restore stability and tame inflation. pic.twitter.com/nZwavsJUMi
The Fund is due to release its assessment of the UK economy at 11.15am, when we’ll her from Hunt and IMF chief Kristalina Georgieva.
But the news is already out – with multiple reports that the IMF is no longer expecting the UK to fall into recession this year.
Instead of shrinking by 0.3%, as the IMF forecast in April, the UK economy is now forecast to grow by 0.4% during 2023.
The Fund said the improved outlook reflected the unexpected resilience of demand, helped in part by faster than usual pay growth, the fall in soaring energy costs, improved business confidence and the normalisation of global supply chains.
“Declining energy prices and widening economic slack are expected to substantially reduce inflation to around 5 percent y/y by end-2023, and below the 2 percent target by mid-2025,” the IMF said.
The IMF forecast economic growth of 1% in 2024 and 2% in 2025 and 2026 before settling back to a long-run rate of around 1.5%.
Updated
UK private sector growth slowing in May
Growth across UK companies is slowing this month, while firms are continuing to hike prices, according to the latest survey of purchasing managers.
UK economic growth remained centred on the service sector in May, data provider S&P Global reports, with travel, leisure and hospitality businesses benefiting from resilient consumer demand.
But production levels at manufacturing firms fell at the fastest pace in four months.
This pulled the S&P Global / CIPS flash UK composite output index down to 53.9 in May, from a 12-month high of 54.9 in April. Any reading over 50 shows growth.
Firms reported a fractional easing in input price inflation, thanks to a drop in energy bills and raw material costs for factories. But strong wage inflation pushed up costs for services firms.
The prices charged by private sector companies increased at an historically steep pace in May, although the rate of inflation was the second-lowest since August 2021.
This could spur the Bank of England into continuing to raise interest rates to squash inflation.
May data signalled another solid improvement in the #UK private sector (#PMI at 53.9; Apr: 54.9), but the rate of expansion eased from April and the divergence between the #manufacturing and #service economies widened. Read more: https://t.co/a9osXOW0Eg pic.twitter.com/qP2yOxKRWq
— S&P Global PMI™ (@SPGlobalPMI) May 23, 2023
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the UK is seeing a tale of two economies, as manufacturing and services diverge:
“The UK economy enjoyed another month of strong growth in May, with the expansion continuing to be driven by surging post-pandemic demand in the service sector, notably from consumers and for financial services, with hospitality activities buoyed further by the Coronation. The surveys are consistent with GDP rising 0.4% in the second quarter after a 0.1% rise in the first quarter.
“However, this growth spurt is driving renewed inflationary pressures, as service providers struggle to meet demand and hence not only offer higher wages to attract staff but also find themselves able to charge more for their services.
It’s a different story in manufacturing, where spending is being diverted away from goods to services, and many companies are also winding down their inventories, exacerbating the downturn in demand and driving both output and prices lower.
Updated
Inheritance tax take rises to £600m in April
The government pulled in more money from inheritance tax last month.
New data from HMRC show that inheritance tax receipts rose to £600m in April, which is £100m higher than a year ago.
Alex Davies, CEO and Founder of Wealth Club said:
“The 2023/24 tax year is looking likely to be yet another record-breaking year for inheritance tax. It really is a cash cow for HMRC.
Currently, people can pass on up to £325,000 of their estate without them having to pay any IHT. Anything above £325,000 could be subject to up to 40% inheritance tax. The nil-rate band has stayed at the same level since April 2009, although asset prices (such as houses) have risen since.
Dean Moore, Managing Director and Head of Wealth Planning at RBC Wealth Management, says the freeze on inheritance tax thresholds is pushing up IHT receipts.
The burden of IHT on families is reaching unprecedented levels, with a projected record payment of £6.7 billion in the financial year 2022/23. This amount is more than double the £2.9 billion paid in 2011/12, and it is expected to further increase to £7.8 billion within the next five years.
“The significant rise in IHT is primarily driven by sustained increases in property prices and the long-term freeze of the IHT threshold which is unchanged at £325,000 since 2009. Meanwhile, average house prices in London have increased from £245,000 to £532,000 over the same period. (Source: Land registry).
“The current state of IHT places a substantial financial strain on the loved ones left behind after a person’s passing. In response, individuals are increasingly resorting to measures such as gifting, investing, donating, and insuring their money to minimise or avoid this tax.
“Failing to promptly and effectively address the issue of IHT can lead to families facing overwhelming administrative and financial burdens during a time of already profound emotional stress. By adopting a proactive and incremental approach to IHT, the process can be made significantly easier, alleviating the strain on those who are grieving the loss of a loved one.”
Updated
Here’s a handy chart from today’s April public finances, showing UK public sector borrowing as a proportion of GDP.
As you can see, the Covid-19 pandemic pushed up borrowing in the 2020-21 financial year to 15%, the highest for 75 years.
Shares in Pennon Group, which owns South West Water, have dropped over 2.5% this morning after regulators launched an enforcement probe into water leakage.
Pennon told shareholders that Ofwat have announced an investigation into South West Water’s 2021/22 operational performance data relating to leakage and per capita consumption.
Pennon says:
This operational performance data was reported in South West Water’s Annual Performance Report 2021/22. This report is subject to rigorous assurance processes which include independent checks and balances carried out by external technical auditor.
We will work openly and constructively with Ofwat to comply with the formal notice issued to South West Water as part of this investigation.
#Ofwat launches investigation into accuracy of reported data provided by #SouthWestWater for its performance on #leakage & #PerCapitaConsumption Potential enforcement options open to Ofwat include imposing #financialpenalty of up to 10% of firm's #turnover https://t.co/U2ToEH1yLD pic.twitter.com/QsxMtPDwWm
— Elaine Coles (@Waterbriefing) May 23, 2023
Pennon shares are down 2.75% at 799.5p, trading at their lowest since the start of March, among the biggest fallers on the FTSE 250 index of medium-sized companies.
My colleague Nils Pratley has written about how the water industry is trying to avoid being held fully to account for the failures to invest properly over recent decades.
Here’s a flavour:
We want to be held to account …” said Ruth Kelly, the new public face of the English water companies, last week, briefly raising hopes of a moment of reckoning for the industry’s past (and current) sewage spills. Then the chair of Water UK clarified what her version of accountability covers. The companies wish to be held to account “… for putting it right”.
The past 30 years, we were invited to think, should be considered an unfortunate chapter in which the industry, terribly unfortunately, didn’t give sewage spills enough attention while other investments were prioritised. That was the gist of her apology. “By and large, the water companies were carrying out their legal responsibilities but … what’s legal is not necessarily the right answer or what people expect,” she argued on BBC Radio 4’s Today programme.
One trusts this “by and large” claim provoked spluttering among officials at the Environment Agency and Ofwat. As Kelly must know, both regulatory bodies have been engaged for the past 18 months in an inquiry to determine whether the industry was, in essence, not treating as much sewage as it should have been at 2,000-plus treatment plants. Whether legal duties were met is very much a live question….
Capital Economics: UK makes shaky start to the new fiscal year
April’s public finances figures have got the new fiscal year off to “a shaky start”, say Capital Economics.
After one month of the 2023/24 fiscal year, the Chancellor is already on track to overshoot the OBR’s full-year borrowing forecast of £132bn (5.1% of GDP) by about £3.2bn, says Ruth Gregory, their deputy chief UK economist.
Gregory explains:
Revisions to past data meant that public sector net borrowing in the 2022/23 financial year was revised down from £139.2bn (5.5% of GDP) to £137.1bn (5.4% of GDP). But the government borrowed more than expected in April.
Borrowing was £25.6bn in April, bigger than the OBR forecast and consensus forecast of £22.4bn and £11.9bn above last April’s outturn. Given the recent resilience in the economy, weaker-than-expected receipts was a little surprising. At £69.7bn, total receipts were well below the £72.2bn the OBR forecast.
A fair chunk of the overshoot also reflected higher total expenditure of £89.2bn (OBR forecast £83.5bn) as recent rises in RPI inflation (to which index-linked gilts are pegged) caused debt interest payments of £9.8bn, the highest April figure since records began in 1997 (the cost of energy support schemes was in line the OBR forecast).
But, Capital Economics doubts this will prevent the Chancellor from embarking on a fiscal splurge ahead of the next election.
Updated
Today’s public finances data shows that the UK national debt was almost as large as the country’s annual economic output.
Public sector net debt at the end of April 2023 was £2,536.9bn or around 99.2% of gross domestic product (GDP).
The current debt-to-GDP ratio is at levels last seen in the early 1960s.
Public sector debt excluding public sector banks was £2,536.9 billion at the end of April 2023.
— Office for National Statistics (ONS) (@ONS) May 23, 2023
Around 99.2% of gross domestic product, with the debt-to-GDP ratio at levels last seen in the early 1960s.
➡️ https://t.co/Ak2EQ31AtV pic.twitter.com/hAh5WvgaGI
Drahi increases stake in BT to 24.5%, but says will not make an offer
French billionaire Patrick Drahi has increased his stake in BT to more than 24%, but re-iterated that he does not intend to make a bid for the £15bn British telecoms giant.
Drahi, who controls an 18% stake through subsidiary Altice UK, raised his position to 24.5% on Tuesday, my colleague Mark Sweney writes.
The move comes days after BT announced a major restructuring to become a “leaner businesss” that will see workforce cut by as much as 55,000 by 2030.
The cuts will come from a combination of natural attrition, cutting contractors at the end of the build phase rolling out fibre broadband and 5G mobile networks nationwide, and a move into AI which could replace about 10,000 jobs.
The company said:
“Altice UK has restated its position to the board of BT that it does not intend to make an offer for BT.”
Drahi’s investment vehicle first bought a 12 per cent stake in BT in June 2021, increasing it to 18 per cent later that year.
The UK government moved to examine Drahi’s stake under new tougher new powers to potential block the takeover of key national assets under the National Security & Investments Act.
Victoria Scholar, head of investment at interactive investor, tells us:
Last week BT’s earnings sent shares sharply lower. Clearly Altice UK judged that now is an opportune moment to acquire further shares at an attractive price with the stock down several percent since last week. In June 2021, billionaire Drahi paid around £2.2 billion for a 12.1% stake in BT. In December that year, his company Altice UK raised the holding to 18% at a price tag of roughly another £1 billion. Last year the UK government gave the green light to Drahi’s stake building, ruling that it didn’t pose a national security threat.
BT’s results last week highlighted the pressures facing the business with falling free cash flow and plans to slash 55,000 jobs. It has been dealing with costs pressures from inflation and energy bills as well as capital expenditure on its national fibre network rollout. Altice UK’s stake building provides a vote of confidence in BT but there are questions about what changes Drahi may want to implement to the business. Perhaps he could push for more aggressive cost cuts at BT.
Grocery price inflation inches down, but households still suffering high prices
Grocery price inflation has fallen for the second month in a row – but is still adding an extra £833 to the average consumer’s annual bill, according to latest figures.
Prices over the four weeks to May 14 were 17.2% higher than a year ago, down from April’s 17.3%, data firm Kantar reports this morning.
Kantar points out that price rises are still incredibly high – 17.2% is the third fastest rate of grocery inflation reported since 2008.
Fraser McKevitt, head of retail and consumer insight at Kantar’s Worldpanel Division, explains:
This could add an extra £833 to the average household’s annual grocery bill if consumers don’t shop in different ways
Kantar also reports that the average cost of four pints of milk has come down by 8p since last month, but is still 30p higher than this time last year at £1.60. Several supermarket chains have trumpeted price cuts for milk recently.
Kantar also reports that more consumers are turning to supermarket own-brand products in a bid to keep their bills under control. Sales of the cheapest own-label products soared by 15.2% over the past month, almost double the 8.3% increase seen for branded products.
Although borrowing jumped in April, the UK actually borrowed less than previously thought in the previous financial year.
The ONS revised down its estimate for the budget deficit in the 2022/23 financial year that ended in March to £137.1bn, down from £139.2bn previously.
Hunt: we were right to borrow to protect families and businesses
On this morning’s jump in UK borrowing, Chancellor of the Exchequer Jeremy Hunt says:
“It is right we borrowed billions to protect families and businesses against the impacts of the pandemic and Putin’s energy crisis.
“But debt and borrowing remain too high now – which is why it’s one of our priorities to get debt falling.
“We’ve taken difficult but necessary decisions to balance the nation’s books, and if we stick to our plan and get our economy growing, then debt is set to fall.”
John Allan says he regrets having to step down early at Barratt.
In a statement reported by PA Media, Allan said:
“It is with regret that at the request of the board I am stepping down as chairman of Barratt Developments Plc as of June 30 2023, ahead of finishing my tenure in early September as planned.
“My early departure from Barratt is a result of the anonymous and unsubstantiated allegations made against me, as reported in the Guardian which I vehemently deny.”
John Allan to step down early as Barratt chair at request of board
Outgoing Tesco chairman John Allan is stepping down from his role chairing housebuilder Barratt Developments earlier than planned, at the request of the board.
Barratt told the City this morning that Allan will step down as Chair of the Board and as a Director of the Company from 30 June 2023.
Allan had been expected to step down in September, to be replaced by non-executive director Caroline Silver, but this plan – announced in January – has been brought forward.
Barratt told shareholders that they had decided to speed up the transition to prevent allegations made against Allan from becoming disruptive to the company, saying:
At the request of the Board, John Allan will step down as Chair of the Board and as a Director of the Company on 30 June 2023.
The Board believes it is in the best interests of Barratt to accelerate the planned transition to the new Chair of the Board to prevent the ongoing impact of the allegations against John from becoming disruptive to the Company.
Barratt added that it has not received any complaints about John Allan during his tenure at the company, which he joined in 2014.
Last Friday, Tesco announced that Allan would step down in June, after the Guardian reported that Allan allegedly touched the bottom of a senior member of Tesco staff in June 2022, at the company’s last AGM.
Four allegations about Allan emerged during the Guardian’s investigation into the Confederation of British Industry (CBI) – the UK’s foremost business lobbying group.
Allan was president of the organisation between 2018 and 2020 and then vice-president until October 2021.
He has denied three of the four claims made against him. He has admitted making a comment about a CBI staffer’s appearance that she found to be offensive in 2019, and apologised for the remark.
Barratt senior independent director, Jock Lennox, says:
“The Board is grateful to John for his nine years of service to Barratt. He leaves the Company in a strong financial and operational position, continuing to perform well in challenging market conditions.”
Updated
Introduction: UK records £25.6bn budget deficit in April
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain borrowed more than £25bn to balance the books last month, the second-highest borrowing for an April ever, and more than expected.
Soaring inflation and the cost of capping energy bills drove up borrowing again, the latest figures from the Office for National Statistics show.
Borrowing hit £25.6bn last month, which is £11.9bn higher than in April 2022, and the second highest since monthly records began in 1993 (behind April 2020, when the pandemic hit the economy).
Economists polled by Reuters had predicted that public sector net borrowing, excluding the impact of state-owned bank, would have hit £19.75bn in April.
Public sector net borrowing (excluding public sector banks) was £25.6 billion in April 2023.
— Office for National Statistics (ONS) (@ONS) May 23, 2023
The second highest April borrowing since records began, largely due to:
▪️ the cost of energy support schemes
▪️ increased benefit payments
▪️ debt interest
➡️ https://t.co/Ak2EQ31AtV pic.twitter.com/QWovgCse9G
Although public sector receipts rose by £900m in April compared with March, that was dwarfed by a £12.8bn rise in public sector spending.
High inflation continued to drive up the cost of the national debt, as many government bonds are pegged to the rising cost of living.
The interest payable on central government debt jumped to £9.8bn in April, a jump of £3.1bn compared with April 2022. Thas was due to the increase in the RPI measure of inflation.
The ONS explains:
Rises in the Retail Prices Index have increased the interest payable on index-linked gilts. This represents the third-highest interest payable in any month on record, behind the £20.0bn in June 2022 and the £18.0bn in December 2022.
The UK’s energy support packages meant central government spent £3.9bn on subsidies, £1.8bn more than in the April 2022.
Most of that increase was due to the cost of the Energy Price Guarantee for households and the Energy Bills Discount Scheme.
Also coming up today
The UK economy, and its policymakers, are in the spotlight today.
A team from the International Monetary Fund are in London to give their annual healthcheck on Britain’s economy.
The IMF will give its verdict after meetings with the Bank of England, the Treasury, independent watchdogs at the Office for Budget Responsibility and the Financial Conduct Authority.
Last month the IMF forecast that UK GDP would shrink by 0.3% this year, the weakest of all major industrialised countries.
But chancellor Jeremy Hunt has vowed to beat these forecasts, and earlier this month the Bank of England upgraded its own estimates due to a brightening economic outlook.
Hunt, and IMF managing director Kristalina Georgieva, will hold a press conference to discuss the report this morning, from 11.15am.
MPs on the Treasury Committee will quiz top officials from the Bank of England this morning too.
The Governor of the Bank of England, Andrew Bailey, chief economist Huw Pill, and Monetary Policy Committee members Catherine Mann and Silvana Tenreyro will be questioned about this month’s interest rate rise to 4.5%, the highest since 2008.
Huw Pill’s recent comment that British households and businesses “need to accept” they are poorer may come up too….
The agenda
8am BST: Kantar grocery survey
9am BST: Eurozone flash PMI surveys for May
9.30am BST: UK flash PMI surveys for May
10.15am BST: Treasury Committee hearing with the Bank of England over monetary policy.
11.15am BST: IMF 2023 Article IV end-of-mission press conference in London.
Updated
