A quick PS…..
Neil Shah, Director at Edison Group, suggests some investor may question the wisdom of the Bank of England’s approach to interest rate policy:
“Today’s remarks from Huw Pill seem to confirm what we already know: that the Bank of England does not want to be the first major economy to take the plunge on interest rates, and intends to march more or less in lockstep with The Fed – which is expected to adjust rates no earlier than June.
Observers may question the ultimate wisdom of this approach. UK inflation has recently dropped to its lowest levels in two and a half years, and we learn just today that grocery inflation has fallen to a 30-month low. Switzerland cut its rates back in March, hoping to stimulate growth. The desire for monetary discipline is certainly understandable, but with the World Bank’s recent warning that the UK’s economy is stagnating, there are now signs that Threadneedle Street’s policy is going into diminishing returns.”
Closing post
After the second closing highs in a row on the London stock market, and a new intraday high this morning, it’s time to wrap up.
Here’s today’s main stories, first on the FTSE 100’s big day:
And here’s the rest of today’s news:
Explainer: Why the FTSE 100 hit a record high today
Nils Pratley: FTSE 100 is an international laggard despite its record high
Every dog will have its day and here comes the FTSE 100 index, not so much soaring as limping to a record high of 8,076 today.
If that sounds too grumpy, consider that the previous record, 8,047, was set in February last year. In the 14 months it has taken the UK’s premier index to regain its old record level, the S&P 500 index in the US has marched upwards by 22% – and done so in a straight line, more or less, until a slip in the past fortnight.
Also note that the Footsie’s latest push above 8,000 carries a heavy flavour of currency effects at work. The US dollar has been strengthening against most major currencies, including sterling, as markets look at the persistence of inflation in the US and judge that the Federal Reserve may not cut interest rates this year (and could even raise them).
Since 75% of the aggregate earnings of Footsie companies are made in foreign currencies, primarily the US dollar, there is a simple beneficial conversion effect when those profits are expressed in pounds and pence. Rises in the sterling-denominated share prices of Shell and BP, two big dollar earners, account for half of the Footsie’s gains this year.
FTSE 100 ends at new closing high
Newsflash: The UK’s blue-chip stock index has ended the day at a new closing high, for the second day running.
The FTSE 100 has closed at 8044 points tonight, up 21 points or 0.26% on last night’s closing high.
That’s still some way short of the new intraday record high of 8076 points which the Footsie scaled in early trading this morning, as hopes of rate cuts pushed shares higher.
Stocks have slipped back after Bank of England chief economist Huw Pill indicated that he thinks the first cut in UK interest rates is still a way off.
Retailers were the top risers today, with Primark owner Associated British Foods surging almost 9% today, followed by Ocado (+5.4%) and JD Sports (+3.75%).
Kathleen Brooks, research director at XTB, says the FTSE has fought back after being the wall flower of global stock markets during the Q1 market rally.
Brooks explains:
This is a momentous occasion for the UK index, but the outperformance has been building for the past month. As market volatility has risen, the FTSE 100’s defensive qualities have boosted its attractiveness. It is higher by 1.6% in the past month, even though the S&P 500 has been down by 4.27% in the last four weeks. However, when you adjust for currency effects, the FTSE 100 is lower by 0.66% in the past month.
Thus, the performance of the FTSE 100 depends on what currency you are looking at. In sterling terms it is at a record high, in US dollar-adjusted terms its performance is weaker because of the underperformance of sterling vs, the USD in the long term, as you can see in the chart below. Thus, the FTSE 100 may be lagging its peers because US investors are not so interested in the UK index when returns are lower in USD.
Updated
Today’s speech by Bank of England chief economist Huw Pill shows his view about the path of UK interest rate rises hasn’t changed, says Shweta Singh, chief economist at Cardano.
This likely reflects that the majority of MPC members are still in the ‘on hold’ camp, compared to the dovish shift from deputy governor Sir Dave Ramsden last week, says Singh, adding:
Having said that, Pill has left some room for interpretation: it seems he has an end point in mind for the start of the rate cut cycle, and since his last speech in early March we are now closer to that timeline.
UK banks urged to improve management of private equity risks
UK banks need to improve their risk management frameworks so they can access the risks from private equity, the Bank of England has warned.
The BoE has written to chief risk officers at UK banks, giving them until the end of August to benchmark their risk management frameworks, and devise a plan to fix any gaps.
This follows a review by the Bank’s Prudential Regulatory Authority, which found that “very few” banks carry out “routine, bespoke and comprehensive stress testing” of their exposure to private equity firms.
That is a concern for the Bank, as the private equity market – which is highly leveraged – has grown considerably over the past decade. Banks’ exposures to the sector have also grown considerably, by offering them a range of financial products.
Rebecca Jackson, executive director for Authorisations, Regulatory Technology & International Supervision at the Bank, says firms need to improve their risk management swiftly.
In a speech to UK Finance this afternon, Jackson explains:
The strong growth and attractive return profile of private equity over the last 10 years has emerged during a period of relatively benign market, economic and liquidity conditions for the sector. Though the economy has seen some major bumps in the road, particularly during covid, we have avoided extended market and economic downturns. While of course this is a very good thing, it does mean that the sector remains untested. Yet the trends that this review has identified; of creeping leverage, large exposures, complicated structures, and poor risk aggregation, all suggest that banks may not be prepared for such a test, if or when it emerges.
And there is the broader and longer-term question of whether developments in the industry constitute a ‘displacement’ – a change in the macro environment or ‘technology’ of Banking, that would be a necessary albeit not sufficient condition for more systemic issues to emerge.
In any event, the need for significant improvements in risk management is clear, and it’s clear that these need to happen now; it’s better, as Shakespeare said, to be 3 hours too soon than a minute too late.
Today’s weak US PMI data is giving the pound a lift.
Sterling is now up a whole cent, or 0.8%, today at $1.245, as the dollar weakens on the back of warnings that the US recovery is losing momentum.
Despite going off the boil after its early surge, the FTSE 100 could notch up its second closing high in a row tonight.
With an hour’s trading to go, the blue-chip share index is up 0.15% today at 8036 points, which is 12 points higher than last night’s closing high.
Just in: Sales of new homes in the US bounced back last month.
Despite the pressure from higher mortgage rates, sales of new single-family home sales increased by 8.8% to an annual rate of 693,000 in March.
Sales of new single-family houses in the United States soared 8.8% month-over-month to a seasonally adjusted annualized rate of 693K in March 2024, the highest level in six months, and rebounded from an upwardly revised 5.1% drop in February. pic.twitter.com/0lLivwAUPH
— Ayesha Tariq, CFA (@AyeshaTariq) April 23, 2024
US recovery losing momentum as PMI falls
Newsflash: growth across the US private sector has slowed this month, amid signs that demand is weakening as firms cut staff.
That’s according to the latest survey of purchasing managers at American companies, from S&P Global.
The flash US PMI composite output index, which tracks activity across US companies, has dropped to a four-month low of 50.9 this month, down from 52.1 in March. That takes it close to the 50-point mark showing stagnation.
The PMI report shows that firms suffered a drop in new orders for the first time in six months in April. Firms scaled back employment for the first time in almost four years, with business confidence falling to its lowest since last November.
Chris Williamson, chief business economist at S&P Global Market Intelligence, says:
“The US economic upturn lost momentum at the start of the second quarter, with the flash PMI survey respondents reporting below-trend business activity growth in April. Further pace may be lost in the coming months, as April saw inflows of new business fall for the first time in six months and firms’ future output expectations slipped to a five-month low amid heightened concern about the outlook.
The more challenging business environment prompted companies to cut payroll numbers at a rate not seen since the global financial crisis if the early pandemic lockdown months are excluded.
That might dampen speculation that the US Federal Reserve could raise interest rates even higher….
Updated
NatWest bosses were blessed with a snappy sub-one hour AGM this morning (likely helped by Nigel Farage only throwing criticism via social media [see earlier post], rather than in Edinburgh).
But its new chairman, Rick Haythornthwaite, was pushed to weigh in on the planned sell-off of the government’s remaining 28.9% stake. It comes ahead of a much-trailed plan to sell NatWest shares to the public later this summer, with a ‘Tell Sid’-style campaign.
The chairman told shareholders on Tuesday, that once NatWest was fully privatised, it would end a “sorry tale” for taxpayers and the banking group (which was bailed out with £46bn of taxpayer cash in 2008, when it was still known as Royal Bank of Scotland).
Haythornthwaite explained:
“I think there’s a perception there is more intervention from His Majesty’s Treasury than there actually is. I think removing that overhang is of value. It also brings to an end what is a sorry tale for the UK and a sorry tale for the bank.”
Meanwhile, Haythornthwaite also revealed that NatWest had launched an AI review, that identified where they could automate work across the banking group.
“With the use of artificial intelligence, there are material opportunities to pursue further customer benefits and increase efficiency. A bank wide exercise in 2023 identified over 100 priority use cases for AI to address manual operations processes and wider controls.
Ultimately, we want to build a NatWest Group that is simpler and more productive to better serve our customers.”
And despite some slight controversy over the CEO’s salary (for being set at the same level as his predecessor Alison Rose), all of the company’s resolutions, including those regarding pay, passed with flying colours.
Spotify shares jump after record quarterly profit
Swedish streaming service Spotify is having a good day, after reporting record income in the last quarter.
Shares in Spotify have jumped by 14% at the start of trading on Wall Street, after it reported record high operating income of €168m in the last quarter.
Spotify, which announced 1,500 job cuts at the end of last year, reported today that monthly active users grew 19% year-on-year to 615 million, in the first quarter of this year
Subscribers increasing by 14% year-on-year to 239 million, while total revenue rose 20% compared with a year before.
Daniel Ek, Spotify founder & CEO, says:
“We’ve talked about 2024 as the year of monetization and we’re delivering on that ambition. Now as we’ve shifted to focus on strong revenue growth and margin expansion, we see a clear opportunity to ensure we are also continuing to grow the top of our funnel.
I feel good about the changes we are implementing and remain very confident in our ability to reach the ambitious plans we’ve outlined.”
Updated
Over in the US, automaker General Motors and soft drinks and snacks firm PepsiCo have both beaten expectations.
GM has cheered Wall Street by raising its forecast for adjusted pre-tax profits this year, to $12.5bn-$14.5bn, up from a previous target of $12bn-$14bn.
GM chief financial officer Paul Jacobson said:
“Our consumer has been remarkably resilient in this period of higher interest rates.”
PepsiCo, though, reported a slowdown in the US, where it recently recalled some granola products following concern over potentially deadly salmonella contamination.
But it still beat revenue and profit expectations, as demand for its sodas and snacks like Cheetos and Doritos in international markets drove growth.
Adam Vettese, analyst at investment platform eToro, says:
“Pepsico has delivered a solid set of results today given the backdrop of high inflation and the recall of its Quaker cereal products around the turn of the year tied to potential salmonella contamination.
That issue saw volumes plunge 22% at its Quaker Foods division. While Pepsi has already confirmed the closure of the factory at the centre of that problem, some question marks may remain for investors over the size of further fallout before operations normalise. Shares in the company were little changed in pre-market trading.”
Why has Huw Pill’s comments today moved the markets, when the BoE’s chief economist was at pains to point out that little has changed since his previous speech at the start of March?
Well, the probem is that while Pill claims there has been “little relevant news” to change his views, other policymakers may not agree.
Last Friday, deputy governor Sir Dave Ramsden declared that “the balance of domestic risks to the outlook for UK inflation” had “tilted to the downside” since the Bank last drew up its forecasts in February.
Ramsden’s suggestion that inflation could stay close to 2% target over the next three years was taken as a sign that the Bank was moving closer to its first rate cut in the current cycle.
Pill did concede that the first rate cut was closer than in March, but that’s due to time’s winged chariot rattling along, rather than changes in the outlook for monetary policy.
FTSE 100 falls back from record high after Pill caution on rate cuts
Huw Pill appears to have driven the FTSE 100 away from its new alltime high!
The blue-chip share index has now shed all its earlier gains, and is now flat at 8023 points, where it closed last night.
That wipes out all the earlier rally that pushed the Footsie to a new intraday high of 8076 points early this morning.
The FTSE 100 is sliding as the pound strengthens by half a cent, back to $1.24.
That is hitting the share price of mining giants listed in London, as they make their earnings in dollars.
The BoE chief economist seems to have done the damage, by arguing this lunchtime that conditions haven’t changed in the last few weeks. That is dampening hopes of early interest rate cuts, as is Huw Pill’s warning that it would be riskier to cut too early than too late.
Little new from Huw Pill today, but worth a read to understand why most #MPC members are not yet ready to cut rates 👇
— Julian Jessop 🏴 (@julianHjessop) April 23, 2024
TL;DR - still worried about cost pressures from the labour market, and thinks risks of easing too soon > risks of leaving it too latehttps://t.co/hAI2OjV7JY
Updated
Investors are responding to Huw Pill’s speech by trimming their expectations for interest rate cuts.
Although two cuts this year are still priced in, the odds of an August cut are slipping slightly.
The first cut is now only fully priced in for September.
Huw Pill went on to cite today’s PMI survey to support his view that the UK economy has returned to growth, saying:
“Economic growth in the UK has resumed, albeit at a modest rate, over the past few months following the technical recession we experienced in the second half of last year.
And today’s survey data … certainly supports that view.
Huw Pill: Cutting rates too early is riskier than too late
Bank of England chief economist Huw Pill predicts that inflation is likely to fall to the Bank’s 2% target, or even lower, in the coming months.
But, he also tells his audience in London that the rate of inflation could bounce back up again.
So we shouldn’t get too excited if CPI falls to 2% or lower, he argues.
He also warns that it could be riskier to cut interest rates too soon, rather than leaving borrowing costs high for too long.
As Pill puts it:
In my view there are greater risks associated with easing too early should inflation persist rather than easing too late should inflation abate.
Updated
BoE's Pill: first rate cut is 'somewhat closer' than last month
Newsflash: The Bank of England’s chief economist, Huw Pill, is speaking in London now.
And he says that the first cut in UK interest rates is “somewhat closer” than at his last speech, at the start of March… but mainly due to the passage of time since!
Pill begins by telling his audience at the London campus of the University of Chicago Booth School of Business that he doesn’t believe much has changed since his last speech, on 1st March, when he said the BoE was “some way off” cutting interest rates.
Today, Pill argues that the picture has changed little in the seven weeks since.
He says:
In my view, against the background of a welcome decline in headline inflation, the outlook for UK monetary policy in the coming quarters has not changed substantially since the beginning of March.
Pill outlines how events in the Middle East are a reminder of potential external risks (although they haven’t yet had a major impact on energy prices), while the UK’s inflation rate dipped in March, as expected.
Pill explains that the Bank’s monetary policy committee needs to keep policy sufficiently restrictive to ensure inflation falls to 2% and stays there. But, he add, a cut in Bank Rate from current levels would not entirely undo the restrictive stance of policy.
And in conclusion, Pill hammers home his message that a “lack of news” means little has changed between St. David’s Day (1st March) and St. George’s Day (today).
Against a welcome backdrop of declining headline inflation anticipated by the MPC, the flow of conjunctural data since I last spoke on the monetary policy stance in Cardiff in early March has offered modest relevant news. This suggests little need to amend the assessment of the economic, inflation and policy outlook that I offered then.
In Cardiff, I concluded that, while we are making satisfactory progress in returning inflation to target, in my baseline scenario the time for cutting Bank Rate remained some way off.
That justified my vote to keep Bank Rate unchanged at the MPC’s February meeting and underpinned my subsequent decision to vote similarly in March.
The combination of little news and the passage of time have brought a Bank Rate cut somewhat closer. But the same lack of news gives me no reason to depart from the baseline that I already established on St. David’s Day.
🎉 Just in: European stocks are on the rise this Tuesday morning! Here's what's happening right now:
— Antonio Santiago (@awsan) April 23, 2024
1️⃣ Stoxx 600 index is up by 0.5% as of 8:40 AM London time. 📈
2️⃣ The UK’s FTSE 100 climbs 0.5% to reach an all-time intraday high! 🇬🇧🔝
3️⃣ France's CAC 40 sees a modest rise… pic.twitter.com/uAjRhyp4sa
Although the FTSE 100 is at a new peak, it’s rising slightly slower than other major markets today.
Currently the FTSE 100 is up 0.5% today, or 43 points higher at 8067 (slightly below this morning’s new intraday high of 8076 points).
In contrast, Germany’s DAX has gained 1%, while the pan-European Stoxx 600 is up 0.9%. Both indices have hit their own record highs earlier this year.
The FTSE 100 remains one of the slowest-rising European indices this year (up around 4% this year), having also been one of the laggards in 2023.
Petrol hits 150p a litre, reports AA
Motorists have been hit by a jump in fuel costs, the AA has warned, with petrol across the UK now averages above 150p a litre for the first time since November.
Data collated by website Fuel Prices Online shows typical pump prices reached 150.1p per litre yesterday.
The average price of a litre of diesel is also at the highest level since November 2023, at 158.3p.
Luke Bosdet, the AA’s spokesman on pump prices, says:
“Inflation has been heading downwards at quite some speed but petrol’s rebound to 150p a litre leaves a big boulder in the road. Government data shows that for the fourth week petrol prices have been higher than at the same time a year ago. This last happened in February 2023.
Five days of falling wholesale costs, with the value of oil coming off the boil, offers hope that pump prices may not get much worse in the short-term. However, road fuel priced above 150p a litre grabs the attention of drivers and will lead some to re-tighten their belts on other spending.”
The news is a little less gloomy for UK equities at the moment as London’s blue-chip index hits new records, reports Jason Hollands, managing director of online investment platform Bestinvest, this morning:
And it’s high time, as UK equities have endured a long negative narrative around investor outflows, companies switching their listings overseas, and underperformance compared to the more exciting US market.
“Some of the move in recent days has been down to an improved monetary outlook for the UK. Global investors now anticipate two rate cuts from the Bank of England this year, as the inflationary environment now looks more benign than it does in the US, where a possible reverse-ferret rate hike is back on the cards at the Fed. Renewed strengthening of the US dollar recently will also have played a helping hand for the FTSE 100, as many of the biggest constituents earn the vast majority of their revenues overseas, and often in dollars, a strong US currency can provide a boost to earnings when they are reported in sterling.
Hollands also points out how international investors have fallen out of love with the Footsie over the last two decades:
“Twenty years ago, UK equities made up 10.9% of the MCI All Country World Index: now they comprise just 3.3%, having been muscled out largely by burgeoning US equities which have grown their representation from 52% to 64%.
While the waning relative fortunes of UK equities in recent years have been down to a myriad of factors, including diminishing allocations by domestic pension funds, one of the main drags on the UK market since 2008 has been its large exposure to financials, which represent over a fifth of the FTSE 100 Index today. Banking shares in particular have remained unloved since the global financial crisis. This, combined with negligible exposure to technology companies, are characteristics that have driven divergent returns between the UK and US-dominated global equity indices.
The Bank of England will note that today’s PMI report shows there was “a steep increase” in the costs being incurred by UK companies this month.
Average cost burdens across the private sector rose at the fastest rate since May 2023, the PMI report shows, suggesting inflationary pressures are still strong.
This increase in input price inflation was overwhelmingly linked to higher staff wages, particularly in the hospitality and leisure sector, after the UK’s minimum wage rose by almost 10% this month.
Some companies reported this had an indirect impact on pay awards to other employees, S&P Global says.
Chris Williamson, their Chief Business Economist, explains:
The upturn encouraged firms to take on workers in increased numbers which, alongside April’s rise in the National Living Wage, drove cost pressures sharply higher.
Although selling price inflation cooled slightly, the upturn in costs alongside solid demand suggests firms may seek to raise prices in the coming months. “While the improving economic recovery picture is welcome news, the upward pressure on inflation will add to concerns that a sustainable path to below target inflation has not yet been achieved.
Updated
Bank of England policymaker Jonathan Haskel does not sound like a man itching to cut interest rates.
Speaking at a seminar at City University’s Bayes Business School in London today, Haskel says its important to see more slack in Britain’s labour market to be confident that inflation will stay at 2%.
Asked if he now thought it possible inflation would hold at 2% rather than rise later this year, Haskel explained:
“The labour market is central to the inflation aspect,”
[Reminder, last week BoE deputy governor Dave Ramsden argued that UK inflation could hold around the Bank of England’s 2% target for the next three years, rather than rise back towards 3% as previously expected].
Haskel added that labour market tightness - as measured by the ratio between job vacancies and unemployment - was reducing [data last week showed a drop in job openings, and a rise in the jobless rate].
However, it may not be falling fast enough to keep inflation on target.
In a hint towards the different views around the monetary policy committee (MPC) table, Haskel added:
“Reasonable people might reasonably disagree about the risks.”
Bank of England's Haskel warns of potential upside risks to inflation remaining at 2%, emphasizing the need for careful consideration. #BOE #inflation
— Markets News (@MarketsDotNews) April 23, 2024
Last month Haskel dropped his vote for further interest rate hikes, having been one of the hawks pushing for higher borrowing costs since last autumn.
The MPC is next due to set interest rates on 9th May; the money markets indicated there’s an 82% likelihood of no change, and just 18% chance of a cut.
Updated
UK PMI rises: What the experts say
The monthly purchasing managers index (PMI) is an closely watched barometer of economic prospects; here’s what economists are saying about today’s UK PMI report, showing a pick-up in growth:
Rhys Herbert, senior economist at Lloyds Bank, says:
“Today’s figures suggest that the UK’s economic conditions are continuing to improve.
It’s encouraging to see Service providers recording the fastest growth for nearly a year, and businesses will be hoping that another slight drop in inflation will have a further positive impact on spending power for both households and businesses.
Improving economic activity is telling a relatively optimistic story. While geopolitical tensions may cause some challenges in the months ahead, markets remain optimistic that interest rates have peaked and could begin to fall later this year.”
But…Charles Hepworth, investment director at GAM Investments, points out that factories struggled:
“UK Services PMI data rose more than expected in April to a reading of 54.9, a short term high not seen in almost a year. This reflects the continuing recovery from the slowdown seen in the second half of last year.
However, the strong showing in services was in stark contrast to the contraction still seen in the manufacturing sector which continues to struggle with a contractionary reading of 48.7. Companies surveyed reported that prices they charged went up at the slowest pace in a number of years, less due to declining demand but more through competition.
This may not be seen as good news for the Bank of England who still isn’t comfortable enough that the inflation dynamics are genuinely shifting, and that consumers are reducing demand.”
Overall, the PMIs paint a picture of a recovering economy, says Thomas Pugh, economist at leading audit, tax and consulting firm RSM UK. He adds:
“The robust increase in the flash S&P/CIPS composite PMI in April to 54.0, the highest since May 2023, suggests that the economy continued to pick up steam after last year’s mini-recession.
An acceleration in growth in Q2 would, in theory at least, ease the pressure on the Bank of England (BoE) to cut interest rates. But in reality, with inflation still likely to fall to 2% this month, the labour market rapidly weakening and growth still low, the time for interest rate cuts has come.
A delay in rate cuts beyond the summer would risk harming the economic recovery for no material impact on inflation.
FTSE 100 reverses away from record high....
The FTSE 100 has slipped back from its early morning record high, as the news that Britain’s economy is recovering from recession weighs on shares.
While a recovering economy is obviously good for companies, this month’s stronger-than-expected PMI report could make the Bank of England cautious about cutting interest rates quite as quickly as hoped.
Joshua Mahony, chief market analyst at Scope Markets, explains:
The FTSE 100 has started to reverse back from record highs, after a fresh PMI survey that saw the services sector reading jump into the highest level since May 2023.
Crucially, traders are showing signs of concern that this rebound in UK growth could come at a cost, with economy-wide input price inflation rising at the highest level in 11-months. Between strong services sector wage growth, and rising material and transportation costs in the manufacturing sector, we are seeing fears grow over the potential for a more cautious approach from the Bank of England.
With markets essentially viewing the June rate decision as a coin-toss, today’s data raises fears that the BoE will instead hold off until August.
Farage: Boycott NatWest share sale until debanking report released
Nigel Farage is urging the public to boycott the government’s planned sale of NatWest shares until the group released a full report regarding the decision to close his account with its private bank, Coutts, last year.
The message came just hours before NatWest is due to hold its AGM at its Gogarburn headquarters in Edinburgh, from 11am today.
In a video release on social media platform X on Thursday, Farage said:
“No member of the British public should put their money and invest in shares in Natwest while they continue to hide the facts, hide the information, to hide the truth about me.
This debanking row is far from over and I still reserve the right to take legal action”
Today is @NatWestGroup AGM.
— Nigel Farage (@Nigel_Farage) April 23, 2024
They still refuse to give a full report into what was said in their “independent investigation”.
Worse still, the SAR I submitted to @TraversSmith doesn’t include all of the information said about me.
What are they hiding? I will find out the truth. pic.twitter.com/zsTcWX56yw
Farage said he had put in a fresh subject access request to NatWest, asking for all the information that related to him, from the independent investigation surrounding last summer’s debanking row. They came back with “over 100 pages of documents” that he says were simply copies of a variety of press articles and not the information he was hoping for.
The debanking controversy started when Coutts – the NatWest-owned private bank for the ultra-wealthy – planned to shut Farage’s bank accounts, and snowballed after Farage obtained internal documents that showed the bank had concerns over his political views. The scandal escalated when it emerged that CEO Alison Rose had discussed Farage’s case with a BBC journalist.
Rose resigned, and was forced to forgo £7.6m in pay from NatWest, although independent lawyers hired by the bank concluded she had made an “an honest mistake” in speaking with the BBC and that concerns over Farage’s political views were not the driving factor in the decision to shut his accounts.
The government’s stake in NatWest dates back to the bailout of Royal Bank of Scotland after the 2008 financial crisis. Jeremy Hunt confirmed in March’s budget that the government plans to sell a chunk of shares in NatWest in the summer.
FTSE record high will help "repair the reputation of the UK stock market'
The sight of the UK’s FTSE 100 index climbing to a new record high this morning could help to buff up the reputation of the UK stock market.
The London stock exchange has taken a battering recently as some major companies have chosen to float on Wall Street instead, such as chip maker ARM.
Others, such as building materials group CRH, have chosen to move their listing from London to New York.
The FTSE 100 has been tarred as a “Jurassic Park” of an index, due to its lack of fast-growing technology companies.
But even if the Footsie is something of a lumbering Brontosaurus, it has still scaled new heights today.
Russ Mould, investment director at AJ Bell, says that Brexit, and political ructions, have also weighed on UK share prices.
Today’s positive showing is “exactly what’s needed to help repair the reputation of the UK stock market”.
He adds:
It’s going to be a slow process but every little helps
“The UK has lived in the shadows of the US stock market for the past decade or more, delivering inferior returns on a relative basis as it has lacked the go-go growth stocks highly desired by investors. The FTSE’s low exposure to the technology sector has diminished the index’s appeal and seen investors look elsewhere for ways to turbocharge their portfolio.
“Brexit and political uncertainty have also weighed on the index, even though approximately three quarters of its constituents earn money overseas. That’s led to cheap valuations and a mountain of unloved stocks. Investors are finally getting the message that a good chunk of these businesses still have a lot to offer, delivering slow but steady profit growth, and they’re available for a fraction of the price of some of their overseas peers.
“The conveyor belt of takeovers continues to trundle along and that has put the spotlight on the market. At the same time, many UK-listed companies are simply getting on with the job at hand, delivering earnings and dividend growth. Investors who take a long-term view are still able to find plenty of opportunities.
UK's recovery from recession continues as PMI rises
Newsflash: the UK economy continues to pull away from last year’s recession.
The UK’s private sector is expanding at its fastest rate since May 2023, according to a new survey of purchasing managers at UK businesses.
Data firm S&P Global’s Flash UK PMI has risen to 54.0 this month, up from March’s 52.8. That’s the highest level since last May, showing a pick-up in growth.
The services sector, which makes up about three-quarters of the economy, is driving the growth, while the manufacturing sector is shrinking slightly this month.
📢 Even more evidence of return to growth... 👍
— Julian Jessop 🏴 (@julianHjessop) April 23, 2024
Flash #UK #PMI Composite Output Index rose to 54.0 in April (March 52.8), an 11-month high.
Still led by services - #manufacturing output index actually dipped to 49.1 (March 50.9) - but also still outperforming the #euro area. pic.twitter.com/Yssr9cQUNI
Services companies reported that output is growing this month, helped by a rise in new orders, leading to a small increase in hiring.
The PMI report suggests the economic picture is improving, reports Chris Williamson, chief business economist at S&P Global Market Intelligence. He explains:
“Early PMI survey data for April indicate that the UK economy’s recovery from recession last year continued to gain momentum.
Improved growth in the service sector offset a renewed downturn in manufacturing to propel overall business growth to the fastest for nearly a year, indicating that GDP is rising at a quarterly rate of 0.4% after a 0.3% gain in the first quarter.
We will find out next month whether the UK has officially escaped recession, when the GDP figures for January-March are released. The economy shrank slightly in the third and fourth quarters of 2023, which triggered a shallow technical recession.
Updated
There are encouraging economic signals from the eurozone this morning, where business activity in the euro area is growing at the fastest rate for nearly a year.
The latest survey of eurozone purchasing managers from S&P Global shows that Europe is pulling out of its recent downturn.
Germany returned to growth in April and France came close to stabilising, while growth was especially solid outside of the eurozone’s two largest members.
This pulled the HCOB Flash Eurozone Composite PMI Output Index up to an 11-month high of 51.4, up from March’s 50.3, a level that shows faster growth.
IFS: whoever is Chancellor after the election faces 'difficult inheritance'
Today’s UK public finance figures (see opening post) shows the “difficult inheritance” that will face the Chancellor after the election, explains the Institute for Fiscal Studies:
New figures show the first estimate of government borrowing for the past financial year was £121 billion, £7 billion more than the official forecast.
— Institute for Fiscal Studies (@TheIFS) April 23, 2024
But the forecast fall in borrowing over the next five years is predicated on tight spending plans and large tax rises.
[1/3] pic.twitter.com/ma5fbBUN9H
Initial borrowing estimates are subsequently revised as better data becomes available.
— Institute for Fiscal Studies (@TheIFS) April 23, 2024
Last year’s initial estimate was revised by £11bn and over the last eight years, the median revision to the borrowing outturn within a year was nearly one-tenth of the total amount.
[2/3] pic.twitter.com/OzswTmW1EB
Even if borrowing falls substantially over the coming years as under official forecasts, this will barely be enough to stabilise debt as a share of national income, leaving a difficult inheritance for whoever is Chancellor after the election.
— Institute for Fiscal Studies (@TheIFS) April 23, 2024
[3/3] pic.twitter.com/RfoU4qvkZb
The London stock market is benefitting from expectations that interest rates will be cut sooner in the UK than in the US.
The Financial Times reports this morning that some traders are building up bets that the US Federal Reserve will raise interest rates higher, as inflationary pressures in America look stubbornly high.
Lindsay James, investment strategist at Quilter Investors, explains:
With economic growth still lagging many of its G7 peers, the UK has turned this to its strength in the fight against inflation, which last month fell below that of the US and saw Governor Andrew Bailey announce that this data shows the UK is “pretty much on track” with the central bank’s forecasts.
“This has led investors to anticipate that rate cuts could arrive in the UK well before the US, weakening sterling by just over 3% against the dollar so far this year, and continuing a long running trend that has seen the pound decline more than 25% against the dollar in the past decade, a period over which the FTSE 100 has delivered only around a quarter of the returns generated by the S&P 500.
With the bulk of FTSE 100 company earnings generated internationally, this currency weakening conversely benefits UK-based investors as those earnings have risen in sterling terms, offering some relief in the story of long-term underperformance of the home market relative to Europe and the US.
Updated
Which FTSE stocks have driven the market this year?
Engineering firm Rolls-Royce have been the top riser on the FTSE 100 so far this year. Its shares are up 37%, as profits have surged as it recovered from the pandemic.
Chilean miner Antofagasta has gained 29%, lifted by a rise in the copper price this year.
Banks have had a good 2024, with NatWest up 28% since the start of January amd Barclays 25% higher.
Defense stocks have also benefitted from war in Ukraine, and the Middle East, with BAE Systems up 20% this year (on top of a 30% jump in 2023).
The FTSE 100 soared to its record high today amid a rise in investor confidence, reports financial services company Hargreaves Lansdown.
Emma Wall, head of investment analysis and research at Hargreaves Lansdown, says investor confidence has ticked up once again in April in all sectors, but particularly in the UK stock market.
Wall points out that UK stocks still look cheap when compared to international markets:
The UK market is currently on a considerable discount to developed market peers of around 40%, but features high quality companies with global revenues, good cash reserves, and in many cases well-covered, attractive dividends.
The economic picture is not as rosy as in the US, but there is a potential benefit to this if you’re a shareholder, it means that the Bank of England is likely to cut interest rates sooner than the Fed across the Pond.
This should prove a tailwind to corporates and consumers alike, increasing disposable income for those with mortgage debt, and lessening the load for bond issuers too.
It took the FTSE 100 just over 40 years to rise to today’s record high of (currently) 8076 points, from its opening value of 1,000.
The index was created by the London Stock Exchange in January 1984, and was designed for the new age of electronic trading and derivative products that was being carved out in the City in the 1980s.
My colleague Nils Pratley calculated in January that with dividends reinvested, a £1,000 investment in the Footsie in 1984 was worth £22,550 40 yearss later (it’ll be a bit more today).
Here’s Nils’ feature, from January, about the FTSE over the decades:
Updated
Retail stocks rallying
Primark’s owner Associated British Foods is the top riser on the FTSE 100 this morning, up over 7%, helping to push the index to new heights.
ABF predicted “significant growth” in profitability this year, and posted a 37% rise in pre-tax profits for the 24 weeks to 2 March, to £881m.
It added:
We expect Primark to continue to perform well in the second half driven by our store expansion programme and the modest levels of like-for-like growth, as we focus on driving volumes.
Other retail stocks are also in the top FTSE 100 risers, including Ocado (+4.1%), JD Sports (+2.2%) and Marks & Spencer (+2%).
The FTSE 100 is still climbing… hitting a new alltime high of 8071 points.
FTSE 100 hits record high
Boom! The UK’s blue-chip share index has hit a new alltime high.
The FTSE 100 has jumped at the start of trading to hit 8068 points, up 43 points or 0.55% this morning.
That comfortably clears the previous all-time peak of 8,047 points set in February 2023.
This extends yesterday’s rally, when shares were lifted by rising hopes that the Bank of England will cut interest rates twice this year.
Markets are also more buoyant as fears about an escalating conflict in the Middle East eased.
Jim Reid of Deutsche Bank explains:
Sentiment was bolstered by the lack of any further escalation in the Middle East.
Indeed, yesterday saw Iran’s foreign ministry spokesman say that Israel had received the “necessary response at this stage”. The apparent easing in tensions helped oil prices fall back.
Updated
The UK also borrowed more than expected in the 11 months leading up to March.
ONS has revised its forecast for borrowing in the 11 months to February up by £1.9bn, after raising its estimate for the cost of subsidising low-carbon electricity generators.
💷Slightly awkward UK public finances data this morning. 2023/24 budget deficit ends up somewhat higher than forecast.
— Andy Bruce (@BruceReuters) April 23, 2024
• March borrowing at £11.9 billion (Reuters poll: £10.2 billion)
• Feb, Jan revised higher
• FY 2023/24 borrowing at £120.7 bln (OBR: £114.1 bln)
Michal Stelmach, senior economist at KPMG UK, points out that UK exchequer benefitted from a surge in revenues from taxing corporations and workers last year.
“Preliminary estimates for the 2023-24 financial year showed government borrowing at £120.7 billion. While this was higher than the OBR’s March forecast of £114 billion, it still marked a 5.9% reduction from a year earlier, representing the lowest deficit in four years.
“Corporation tax receipts totalled a whopping £102.8 billion, up by 19% relative to previous fiscal year. This reflected an increase in the main rate from 19% to 25%, continued strength in company profits, as well as a boost to banks’ net interest margins resulting from higher interest rates. Elevated pay growth has also supported income tax receipts, which brought in £25 billion more in 2023-24 despite the National Insurance cut which came into force in January.
Stelmach also warns that the “goldilocks fiscal outlook” faces a number of risks.
The recent repricing in market expectations of fewer interest rate cuts could already add around £6 billion to spending this year. Furthermore, the OBR’s projected cost of the National Insurance cuts – which relies on the assumption of a hefty 200,000 increase in labour supply – could prove an underestimate if participation continues to stall.”
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Introduction: UK borrowing leaves limited scope for tax cuts
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Jeremy Hunt’s hopes of being given more scope for large tax cuts later this year have been dealt a blow by the latest borrowing figures, just released.
Britain borrowed more than £120bn last year to balance the books; over £6bn more than the independent Office for Budget Responsibility had forecast, but £7.6bn less than the previous year.
And that looks to be a blow to Hunt’s ambitions to cut taxes in an autumn fiscal event, as well as pushing up the national debt to the highest since the 1960s.
Ruth Gregory, deputy chief UK economist at Capital Economics, says the chancellor appears to have limited ‘headroom’ to cut taxes and still meet his fiscal mandate (to have debt falling as a share of GDP in five year’s time).
She explains why Hunt may have limited scope for tax cuts:
March’s figures show that public borrowing in 2023/24 came in £6.6bn higher than the OBR predicted only a month ago, casting further doubt on the ability of the government to unveil big tax cuts at another pre-election fiscal event later this year.
Gregory adds:
Just based on the larger-than-expected 2023/24 budget deficit and the recent shift up in market interest rates, he may have even less fiscal ‘headroom’ (perhaps about £5bn) for tax cuts than the £8.9bn left over in March.
It also underlines why the International Monetary Fund was warning against pre-election giveaways last week:
Public sector net borrowing excluding public sector banks was £120.7 billion in the 2023 to 2024 financial year, £7.6 billion less than in the previous year and around a third of that in 2020 to 2021 during #COVID19.
— Office for National Statistics (ONS) (@ONS) April 23, 2024
➡️ https://t.co/woXT9PFAJP pic.twitter.com/G0Jpc4OmL8
The Office for National Statistics has also reported tha in March alone, the UK borrowed £11.9bn to cover the gap between government income and spending – higher than the £10.2bn which economists had expected.
ONS deputy director for public sector finances Jessica Barnaby says:
“Spending was up about £58 billion, with increased spending on public services and benefits outstripping large reductions in interest payable and energy support scheme costs. But with public sector income up £66 billion, overall, the deficit still fell.
“At the end of the financial year, debt remained close to the annual value of the output of the economy, at levels last seen in the early 1960s.”
Public sector net debt excluding public sector banks was £2,694.2 billion at the end of March 2024, provisionally estimated to be around 98.3% of the UK’s annual gross domestic product.
— Office for National Statistics (ONS) (@ONS) April 23, 2024
➡️ https://t.co/woXT9PFAJP pic.twitter.com/YGsWi1Dtlj
Total tax receipts to HM Revenue and Customs rose by £39.1bn in the last year, to £827.7bn, including a £23.7bn increase in takings from Income Tax, Capital Gains Tax and National Insurance Contributions (NICs), while business taxes brought in £10.3bn more and VAT raised an extra £9.5bn.
Inheritance tax brought in £400m more than the previous year, while stamp taxes raised £4.3bn less.
Also coming up today
The UK’s stock market could hit a record peak today, after the FTSE 100 finished yesterday’s session at an alltime closing high of 8,023 points.
That has left the Footsie tantalisingly close to its intraday peak of 8,047 points, which it reached in February 2023.
And in the futures market, the FTSE 100 is currently on track to jump to 8070 points – taking it to a new peak! We’ll find out at 8am….
The agenda
7am BST: UK public finances for March and 2023-24
8am BST: Kantar’s index of grocery inflation for March
9am BST: Eurozone flash services and manufacturing PMI report
9.30am BST: UK flash services and manufacturing PMI report
12.15pm: Bank of England chief economist Huw Pill gives a speech at the University of Chicago’s Booth School of Business, London
2.45pm BST: US flash services and manufacturing PMI report
3pm BST: US new home sales for March
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