Closing summary
The UK’s Serious Fraud Office (SFO) has brought fraud charges against four people, including a former director, over the collapse of bakery chain Patisserie Valerie.
The company, which ran almost 200 high street bakeries, collapsed in early 2019, a few months after it was found to have a multi-million pound black hole in its finances, which was blamed on “potentially fraudulent” accounting irregularities.
The UK economy shrank in July by 0.5% amid industrial action and extremely wet weather, official figures indicate, heightening fears of a recession in the second half of the year.
Analysts expected gross domestic product (GDP) to fall back by 0.2% but the Office for National Statistics said that strikes by junior doctors reduced health service activity, while retailers who had benefited from a warm June suffered in July, which was the sixth wettest on record.
BP shares fell on Wednesday after the previous night’s shock announcement that its chief executive had resigned having admitted to failing to fully detail relationships with colleagues.
Bernard Looney, who spent his entire career with the oil and gas multinational, departed the £88bn company with immediate effect, less than four years into his tenure.
Rishi Sunak refused three times to commit to maintaining the pensions triple lock beyond the next election, as Keir Starmer mocked him as “inaction man” over national security.
In his final Commons grilling before MPs break up for party conference recess, the prime minister was evasive about the future of a policy that has become a hallmark of recent Conservative governments.
Our other main stories:
Thank you for reading. We’ll be back tomorrow. Take care – JK
Germany's Buch to head up ECB's supervisory arm
Germany’s Claudia Buch has been picked to head up the European Central Bank’s supervisory arm, overseeing the eurozone’s €26 trillion banking sector.
Buch is a German economist who currently serves as vice president of the Bundesbank and previously worked as a professor at the University of Tübingen and also sat on the German Council of Economic Experts.
In a close contest, she beat Spain’s Margarita Delgado to become chair of the ECB’s supervisory board, a non-renewable five-year role.
She will run the Single Supervisory Mechanism, covering more than a hundreds of the eurozone’s top lenders at a time of rising interest rates, slowing economic growth and climate threats.
Here is our full story:
Core inflation in the US, which measures the price of goods and services excluding the volatile energy and food industries, actually decreased in August to 4.3%, from 4.7% in July, reflecting the impact higher energy prices are having on the overall inflation rate.
Nick Chatters, investment manager at Aegon Asset Management, said:
Inflation in the US has fallen again, well the core figure which excludes volatile food and energy prices, which is what the Fed cares about for its monetary policy meeting next week.
The rise in the headline number is due to energy, so ignore that, focus instead on the fact that shelter inflation has fallen still further, and part of the bump is due to an increase in motor vehicle insurance. Without this, the inflation picture looks much less of an issue for a Fed that wants to pause rate hikes at the meeting this month.
Updated
US stock futures are extending their losses, pointing to a lower open on Wall Street later. But some think the market reaction is slightly overdone.
Andrew Hunter, deputy chief US economist at Capital Economics, said:
The Fed will look through the 0.6% m/m jump in headline CPI in August as it was driven by the recent rally in energy prices. Although core prices also rose by a slightly stronger 0.3% m/m, there is little in the report to convince Fed officials that they need to raise interest rates further.
Headline inflation rebounded to 3.7% last month, from 3.2%, as the 10.6% m/m surge in gasoline prices resulted in a 5.6% gain in CPI energy. We suspect that rally will be partly reversed over the rest of the year, however, and in any case it is unlikely to concern the Fed.
Admittedly, there was some evidence that higher energy prices have fed through to the core index, which rose by 0.3% m/m (although base effects helped push core inflation down to 4.3%, from 4.7%). Higher fuel costs resulted in a 4.9% rebound in airfares and they may have a little further to rise. That should only reverse the sharp declines seen in recent months, however, and the downward pressure on core inflation elsewhere still looks intact.
Core goods prices fell again, by 0.1% m/m, helped by another drop in used vehicle prices. The auction data still point to further declines to come. Meanwhile, although the annual rates of rent and owners’ equivalent rent inflation remained elevated at 7.8% and 7.3% respectively, the plunge in inflation for newly-signed contracts suggest they could both fall below 4% by the middle of next year. Excluding shelter, core inflation was just 2.2% in August.
He concluded:
Overall, there is nothing here to change the Fed’s plans to hold interest rates unchanged at next week’s FOMC meeting, and we still expect weaker economic growth and a continued normalisation in the labour market to help drive a sharper fall in core inflation over the next 12 months than most others expect.
US inflation rises to 3.7%, higher than expected
US inflation came in at 3.7% in August, which was higher than expected.
It picked up again from July’s 3.2% annual rate, mainly because of higher gasoline prices. Consumer prices rose 0.6 last month from the previous month, the biggest monthly gain since June 2022, the Labor Department said.
Heather Long, economic columnist at the Washington Post, tweeted:
JUST IN: US inflation was 3.7% (y/y) in August, a larger than expected increase from 3.2% in July. This underscores the challenges w/getting inflation down more.
— Heather Long (@byHeatherLong) September 13, 2023
Gas was the biggest factor accounting for over half the increase. Shelter (especially rent) also a big factor. pic.twitter.com/UdOujyLGfz
Updated
Four charged with fraud over Patisserie Valerie collapse
The UK’s Serious Fraud Office (SFO) has brought fraud charges against four people, including a former director, over the collapse of bakery chain Patisserie Valerie.
The company, which ran almost 200 high street bakeries, collapsed in early 2019, a few months after it was found to have a multi-million pound black hole in its finances, which was blamed on “potentially fraudulent” accounting irregularities.
The SFO has charged the company’s former director and chief financial officer for 12 years, Christopher Marsh, as well his wife, accountant Louise Marsh. Financial controller Pritesh Mistry and financial consultant Nileshkumar Lad have also been charged. All four suspects were served with the charges at their homes.
The SFO opened a full investigation into the conduct, codenamed “Operation Venom”, in October 2018, two days after the company abruptly suspended trading and shut 70 stores with the loss of over 900 jobs across the country when its debts were revealed.
All four suspects have been charged with conspiring to inflate the cash in Patisserie Holdings’ balance sheets and annual reports from 2015 to 2018, including by providing false documentation to the company’s auditors.
The defendants are summoned to appear at Westminster Magistrates’ Court on 10 October to hear the charges against them.
Lisa Osofsky, director of the SFO, said:
Patisserie Valerie’s abrupt collapse rocked our high streets – leaving boarded-up shops, devastating job losses and significant investor losses in its wake. Today is a step forward in getting to the bottom of this scandal.
One of the investors in the chain was Luke Johnson, the entrepreneur who has also owned Pizza Express. There is no allegation of wrongdoing in Johnson’s case.
Updated
Mick Lynch: ticket office closures mean people won't 'want to travel once the sun's gone down'
The closure of ticket offices in England will lead to a railway where people will “not want to travel once the sun’s gone down”, the union leader Mick Lynch has told MPs, describing the recent consultation as a “sham,” our transport correspondent Gwyn Topham reports.
Speaking to the Commons transport select committee, the general secretary of the National Union of Rail, Maritime and Transport Workers, said the government was trying to force through job cuts and it was “nonsense” to suggest ticket office staff would be redeployed.
Disability campaigners told the committee the consultation itself had been inaccessible for many disabled and vulnerable travellers, while the proposed staffing levels would threaten their right to travel.
The consultation on shutting most of England’s 1,000 offices, which closed on 1 September after being extended after protests, received more than 680,000 responses.
Updated
The large fall in UK GDP in July could herald a quarterly decline, according to the National Institute of Economic and Social Research, a respected think tank.
hat today's news of 0.5% fall may herald a quarterly decline and we now forecast #GDP to contract by 0.1 per cent in the third quarter of 2023 📉
— National Institute of Economic and Social Research (@NIESRorg) September 13, 2023
⬇️Read here the analysis in full 📊#EconTwitter https://t.co/z6arlusi1F pic.twitter.com/nCDSjJfbrl
Sunak: UK committed to triple-lock pension policy
On the UK’s ‘triple lock’ pension policy, Rishi Sunak said today that the government remains committed to it. He told parliament:
This is the government that introduced and remains committed to the triple lock.
It is a government commitment to raise publicly funded pensions by whichever is the highest – earnings, inflation or 2.5%.
Here’s a quick round-up of today’s other news.
The mileage of local roads in England being resurfaced or treated to avoid potholes has fallen to its lowest level in five years, research has shown.
There has been a decline of almost one-third in the total amount of life-extending road maintenance by local councils, according to analysis of government data by the RAC motoring organisation.
Treasury officials are discussing a one-off break from the pensions triple lock that could save £1bn by preventing a bumper 8.5% increase in the state pension next year.
The government is considering stripping out public sector bonuses that were awarded to workers to prevent strikes over the summer from the calculation that determines the annual rise in pensions.
When James got back from travelling in 2008, he saw a job ad for Wilko. He applied and got it. Fifteen years of loyalty later – after he had worked on “practically everything you could possibly do” at the budget retailer – James* is likely to be made redundant within weeks.
More than a fifth of UK shoppers’ favourite grocery items are at risk from climate breakdown, a new report has found.
Consumers could also face shortages of bananas, grapes, avocados, cashews, cocoa, peas, canned tuna and tea in the coming years, as the countries they come from are hit by changing weather patterns because of CO2 emissions, the charity Christian Aid has said.
Apple has announced that the iPhone 15 makes its long awaited switch to USB-C, while gaining much extended camera zoom for its most expensive Pro model.
The new line of smartphones for 2023 was unveiled on Tuesday by the chief executive, Tim Cook, alongside several new Apple Watches and AirPods Pro 2 earbuds with USB-C charging, all of which the firm hopes will tempt customers to switch or upgrade and buck its recent share price slide.
Opec+ cuts to lead to smaller oil supply in fourth quarter, says IEA
The extension of oil output cuts by Saudi Arabia and Russia to the end of the year will mean a “substantial market deficit” through the fourth quarter, according to the International Energy Agency, a Paris-based intergovernmental organisation.
In its September report, the IEA said so far this year, output from Opec+ countries (the oil cartel Opec led by Saudi Arabia plus Russia) has fallen by 2 million barrels per day although this has been tempered by sharply higher flows from Iran.
Opec and its allies began limiting supplies last year to shore up the market. This month, the global benchmark Brent crude went through $90 a barrel for the first time this year. It’s currently at $92.61 a barrel, up 0.6% on the day.
Russian oil export revenues surged by $1.8bn to $17.1bn in August, as higher prices more than offset lower shipments.
The cuts have been partly offset by the US, Iran and Brazil pumping more oil. Non-Opec+ supply rose by 1.9m barrels per day to a record 50.5m in August, the IEA said, predicting that world supply this year will rise by 1.5 million barrels per day.
The IEA said:
But from September onwards, the loss of OPEC+ production, led by Saudi Arabia, will drive a significant supply shortfall through the fourth quarter.
Unwinding cuts at the start of 2024 would shift the balance to a surplus. However, oil stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility that would be in the interest of neither producers nor consumers, given the fragile economic environment.
Updated
Here’s our full story on BP:
Forced prepayment meter ban extended – Ofgem
Energy suppliers in the UK have been banned from forcibly installing prepayment meters for people over 75 years old with no support in their house, and in homes with children under the age of two, Ofgem has announced.
The regulator has confirmed that the code of practice for the involuntary installation of prepayment meters will be made mandatory, while also extending protection against forced installations for the most vulnerable households.
A voluntary code of practice governing the installation of prepayment meters, which all energy companies signed up to in April, was put in place after evidence emerged of bad behaviour by suppliers towards struggling customers.
Currently, no suppliers are carrying out forcible installations and face severe penalties if they do unless they meet strict criteria set by Ofgem.
Under the new rules, which come into effect on 8 November, suppliers must ensure they are acting in a fair and responsible way, with involuntary installations used only as a last resort.
Neil Kenward, director for strategy at Ofgem, said the watchdog will be monitoring energy companies closely to ensure they are complying with the “spirit and letter” of these rules, and “will not hesitate to take action” if necessary.
Protecting the most vulnerable consumers is at the heart of what we do, and this decision not only cements the protections Ofgem put in place for people deemed most at risk, it goes further to protect the most vulnerable households.
Prepayment meters are an important payment method that help millions of households to manage their energy bills, but they are not suitable for everyone.
Following a public consultation over the summer, the code will become part of suppliers’ licence conditions, and breaking the rules could result in enforcement action and “substantial” fines, Ofgem said.
Initially, the no-install rule applied to customers aged 85 and over with no other support in their home, or households with residents with severe health issues including terminal illnesses or those with a medical dependency on a warm home.
Ofgem said dropping the upper age limit to 75 and adding homes with very young children will ensure more people are protected this winter.
Updated
Ofgem boss: energy bills higher for some due to lack of support
Jonathan Brearley, chief executive of Britain’s energy watchdog Ofgem has warned that energy bills are likely to be higher for some people this winter than last, despite energy costs dropping.
He told MPs on the energy security and net zero committee:
When I look across the market this winter and I think about how does that play out for us this winter, I should start by saying we have a full focus on making sure customers are protected this winter.
There is some positive news. The market is more stable, it is less volatile and prices are lower than this time last year.
This time last year, we were anticipating and seeing prices at around £4,200 a year without government support. And last year, government did step in to give tens of billions of pounds of support to customers.
But there is a reality for customers this year: That support is not available. So, for many people, their bills will be very similar this year, and possibly worse for some, than they were last year.
Updated
Ørsted enters first solar project in UK
The Danish energy company Ørsted has entered its first solar power project in the UK, which it says will become one of the largest solar farms, once it is operational.
It is working with UK firm PS Renewables to build the 740 megawatt solar energy farm with battery storage in Nottinghamshire, and hopes to have it up and running before 2030.
Our first solar project in the UK 🇬🇧
— Ørsted (@Orsted) September 13, 2023
We’ve just entered the One Earth solar project, a proposed 740 MW solar farm with associated battery storage which will be co-developed with PS Renewables.
Once operational, it will become one of the largest solar farms in the country.
Updated
Redrow warns of sharp drop in sales and profits
Redrow has warned of a sharp drop in sales and profits this year, pointing to the cost of living and mortgage crisis, and said it was using sales incentives to lure house buyers.
The company scaled back its land buying, adding 1,900 plots with panning permission compared with 6,000 in 2022. It closed two if its smaller divisional offices, Thames Valley and Southern, and cut some jobs “to reflect market conditions”.
Matthew Pratt, the chief executive, explained:
Cost of living and mortgage affordability continue to have a negative impact on the market. Where appropriate, we’ve used targeted sales incentives to convert buyer interest into reservations. Following several consecutive Bank of England base rate increases, we remain hopeful that, as inflation eases, we will see some stability in mortgage rates.
As expected, the sales market over the summer has been challenging. This has resulted in sales per outlet per week for the first 10 weeks of the new financial year of 0.34 (2023: 0.61).
Redrow made an underlying profit before tax of £395m in the year to 2 July against £410m in the previous year, and revenue of £2.1bn as it completed 5,436 homes, down 5%.
For the current year, it is forecasting revenue of around £1.7bn and profit before tax of £180m to £200m.
Redrow said it was now installing air source heat pumps and ground floor underfloor heating as standard in detached homes on new developments.
All of Europe’s main stock markets are in the red but losses are muted.
UK’s FTSE 100 index down 0.05% at 7,524
Germany’s Dax down 0.3% at 15,671
France’s CAC down 0.4% at 7,224
Italy’s FTSE MiB down 0.4% at 28,458
Here in London, BP shares fell 1.7% in early trading and are now down 0.6% as investors digest the news of chief executive Bernard Looney’s surprise departure over his office relationships.
The FTSE 100’s losses end a four-day rally, and come after a bigger-than-expected contraction of 0.5% in the UK economy in July. Goldman Sachs and JPMorgan cut their forecasts for 2023 growth.
Updated
JPMorgan economist Allan Monks said:
It may be tempting to downplay the weakness in July as a combination of strike action, poor weather and general payback from the 0.5% GDP rise reported in the prior month. But the source of weakness appears to have rotated more towards private sector services.
When taken in conjunction with the recent slide in the PMI, recent outturns look more concerning - especially with that survey sliding further into August. We have been arguing against the idea that the UK is entering into a proper recession dynamic on the grounds that household real incomes look set for a strong gain in 2H23, while business confidence is generally running above average. That remains the case, but the near term path for growth looks worse and we have revised down our third-quarter GDP forecast from 0.3%q/q to 0.0%.
Back to the GDP data.
Here’s our full story:
Arm to fetch at least $54.5bn valuation in IPO – report
The UK chip designer Arm could fetch a valuation of at least $54.5bn in its flotation in New York, according to reports.
The Cambridge-based semiconductor firm, which is owned by Japan’s SoftBank, received enough backing from investors to secure at least the top end of the price range in its initial public offering, which would give it a $54.5bn valuation, Reuters reported last night.
Arm decided it will only accept the top end of its indicated $47-to-$51-per-share range, or a price that is even higher, Reuters said, citing an unnamed source. This would raise about $5bn for its owner SoftBank. The company is due to price its shares today and the stock is expected to start trading tomorrow.
Bloomberg reported yesterday that the IPO was already oversubscribed by 10 times and bankers planned to stop taking orders.
Arm’s decision to float in New York, rather than London, was “a kick in the teeth” for Rishi Sunak’s government as it attempted to revitalise the City after Brexit, according to Victoria Scholar, the head of investment at stockbroker Interactive Investor.
Updated
The pound fell after the 0.5% contraction in the UK economy in July, which was worse than expected.
Sterling lost 0.3% against the dollar to $1.2459, putting it on track for its biggest daily drop in a week, and slipped 0.2% against the euro to €1.1592.
The Liberal Democrats said the figures show Rishi Sunak has lost his grip on the economy.
Lib Dem Treasury spokesperson Sarah Olney said:
The Conservative government’s mismanagement of the economy is a burden on any chance of growth.
Rishi Sunak has utterly failed to get a grip on the cost of living crisis as mortgage costs continue to spiral and the price of a weekly shop goes through the roof.
Mortgage arrears are now at their highest since 2016 and families are wondering if they will once again be forced to choose between heating and eating this winter. This out of touch Conservative government has completely failed on the economy.
UK recession may have begun – Capital Economics
The 0.5% fall in GDP in July could mean that the mild recession we have been expecting has begun, said Paul Dales, chief UK economist at Capital Economics.
Even so, with wage growth still uncomfortably strong, we suspect the Bank of England will still raise interest rates one final time next week, from 5.25% to 5.5%.
It is worth noting that these ONS data do not include any of the upward revisions that the ONS announced the other week. They won’t be fully incorporate into the data until the end of this month. Dales said:
As such, these figures suggest that in July the economy was only 0.3% above the pre-pandemic February 2020 peak. But our estimates suggest that after taking account of the upward revisions, it’s around 1.3% bigger.
Either way, the decline in GDP in July suggests that underlying growth has lost momentum since earlier in the year. Some of the weakness was due to there being almost twice as many working days lost to strikes in July (281,000) than in June (160,000). That contributed to the 2.1% m/m and 1.1% m/m respective falls in health and education output.
The unusually wet weather also played a part in the 0.5% m/m decline in construction output. But with output declining in 11 of the other 16 sectors, there is an air of underlying weakness. That would make sense given that the dampening effect of higher interest rates should be starting to be felt a bit harder now and when other indicators, such as the activity PMIs which exclude the drag on public sector activity from strikes, are also pointing to recession.
These data suggest GDP growth in Q3 as a whole is likely to fall well short of the Bank of England’s +0.4% q/q forecast. Even so, the strength of wage growth and the stickiness of core inflation (next update on this due next Wednesday) suggests to us the Bank will pull the interest rate trigger once more at the policy meeting next Thursday.
Simon French, chief economist at Panmure Gordon, tweeted:
UK monthly GDP -0.5% in July. Good luck calling the trend.... pic.twitter.com/HWE5SbstjY
— Simon French (@shjfrench) September 13, 2023
Updated
The ONS explained the impact of strikes on the economy:
The main contributor to the fall in monthly services output was the human health and social work activities sub-sector, which fell by 2.1% in July 2023. This was attributed entirely to a 3.4% fall in the human health activities industry.
Industrial action was held in July by NHS senior doctors (two days) and radiographers (two days) for the first time while industrial action by junior doctors increased (five days in July, compared with three in June).
Updated
The chancellor of the exchequer, Jeremy Hunt, said:
Only by halving inflation can we deliver the sustainable growth and pay rises that the country needs.
But there are many reasons to be confident about the future. We were among the fastest in the G7 to recover from the pandemic and the IMF have said we will grow faster than Germany, France, and Italy in the long term.
Rachel Reeves, shadow chancellor for the opposition Labour party, said:
Today is another dismal day for growth, and the British economy remains hostage to the Conservatives’ low growth trap that is leaving working people worse off.
After thirteen years of instability, the Conservatives have left the British economy weaker and families having to cope with higher taxes, higher mortgages and higher food and energy bills.
Labour’s plan for the economy is about boosting growth so we can improve wages, bring down bills and make working people in all parts of the country better off.
Introduction: UK economy contracts 0.5% in July; BP boss Looney quits
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK economy shrank by 0.5% in July, with all the main sectors declining, partly due to strikes and poor weather.
This came after 0.5% growth in June, the Office for National Statistics said, and was worse than expected. Economists polled by Reuters had forecast a smaller contraction of 0.2%.
The services and construction sectors both declined by 0.5% while production fell 0.7%.
Darren Morgan, director of economic statistics at the ONS, explained:
In July, industrial action by healthcare workers and teachers negatively impacted services and it was a weaker month for construction and retail due to the poor weather. Manufacturing also fell back following its rebound from the effect of May’s extra Bank Holiday.
A busy schedule of sporting events and increased theme park visits provided a slight boost.
In the three months to July, the economy eked out growth of 0.2%, with all three main sectors expanding.
Our initial estimates show GDP fell 0.5% in July 2023:
— Office for National Statistics (ONS) (@ONS) September 13, 2023
▪️ services fell 0.5%
▪️ production fell 0.7%
▪️ construction fell 0.5%
➡️ https://t.co/qgYfmT6ulm pic.twitter.com/bb1cmreGL1
In a surprise move, the chief executive of BP quit last night, less than four years into his tenure, after admitting that he failed to fully detail relationships with colleagues.
Bernard Looney, who spent his entire career with BP, departed the £88bn company immediately. The company informed investors that Looney “did not provide details of all relationships and accepts he was obliged to make more complete disclosure”.
The company said that Looney disclosed “a small number of historical relationships with colleagues prior to becoming CEO” during a review last year, triggered by information from an anonymous source.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said:
BP is one of the biggest players in British business, missteps of this magnitude aren’t what investors expect from one of the country’s most influential C-suites. Strong governance and conduct controls are rightly non-negotiables, and the emergence of a second round of allegations relating to Looney’s improper disclosure of relationships has proved a bridge too far.
BP is now in a position where a permanent replacement needs to be found. A clear path forward needs to be forged sooner rather than later to limit negative sentiment. This of course all lands at a time when oil majors are already grappling to boost their ESG credentials, which adds weight to the problem. Looney has spearheaded an aggressive and green-thinking strategy during his tenure, and replacing him with someone that can convince the market they’re up for carrying the mantle and sprinting with it, isn’t going to be an overnight task.
The recent oil price spike only provides a limited cushion under BP’s valuation, with longer-term forecasters far more concerned about strategy and how well-prepared BP is for the energy transition. In comparison to peers, BP’s net zero targets have cast shadows on other oil players, and the group needs to reconfirm its commitment and ability to get this done if it wants to remain in a preferable position.
Well that’s quite the shocker: one of the biggest names in business quits, BP admitting Bernard Looney “did not provide details of all relationships”. pic.twitter.com/3xGgieExB6
— Alex Lawson (@MrAlexLawson) September 12, 2023
The Agenda
9am BST: International Energy Agency oil market report
10am BST: Eurozone industrial production for July
1.30pm BST: US inflation for August (forecast: 3.6%)
Updated
