Closing post
Time to recap
America’s top central banker has warned that the Federal Reserve is prepared to switch back to bigger interest rate rises to fight inflation, if necessary.
Fed chair Jerome Powell told the Senate Banking Committee that the central bank has “more work to do”, even though the full effects of its tightening have not been felt yet.
Powell told senators that interest rates are likely to peak higher than previously thought, given the strength of the US economy.
Powell says:
The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.
If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.
The markets now estimate there is over a 50% chance that the Fed lifts interest rates by half a percentage point later month, having slowed to quarter-point rises in its last two meetings.
And the probability of 50bp at the next meeting is now above 50 percent. That is about where it should be now--and we'll see what's in the jobs report, CPI, and other data. pic.twitter.com/sWAIRHvVLU
— Jason Furman (@jasonfurman) March 7, 2023
These comments hit US bond prices, driving up the yield on two-year Treasury bills to almost 5%, the highest level since 2007.
The pound is sliding against the US dollar, hitting a two-month low around $1.186 tonight, down over a cent and a half.
Shares on Wall Street have fallen, pulling the Dow Jones Industrial Average down by around 1%.
In other news…..
A senior Bank of England policymaker has expressed concern that UK companies could be exploiting the cost of living crisis to push through inflation-busting price increases.
An elderly woman was cut off from her money for three months and lost her phone line and energy supply when a banking error by Barclays marked her as deceased.
UK consumers sharply cut back their spending in February as soaring living costs damaged household finances, retailers have warned.
But.. house prices rose unexpectedly last month, Halifax reports, as the fall in mortgage rates boosted demand.
Business leaders have warned that frayed relations with the EU are costing the British economy, as suppliers in the bloc grow more cautious about doing business with post-Brexit Britain.
Bakery chain Greggs has said higher wage and energy bills are weighing on profits, but it’s still pushing ahead with 150 new store openings this year.
Women in Britain are being priced out of work and suffering from a growing gender pay gap as the result of a lack of affordable child care, a new report from PwC has found.
National Grid has asked power plants in Great Britain to generate extra electricity on Tuesday night before the coldest night of the year.
A publicly owned electricity generation firm could save Britons nearly £21bn a year, according to new analysis.
And…the owner of the Daily Mirror and the Express has published its first articles written using artificial intelligence – but its boss says journalists should not fear it means being replaced by machines. Phew.
Updated
Shares have fallen in New York too, as traders respond to Jerome Powell’s hawkish comments about the need to keep raising interest rates to tackle inflation.
The Dow Jones industrial average has shed 292 points, or 0.9%, to 33,138 points. Almost all the 30 companies on the index are in the red, led by Walgreens Boots Alliance (-2.1%) and JPMorgan Chase (-2%).
The broader S&P 500 index has lost 1%, while the tech-focused Nasdaq is down 0.75%.
Bond markets rocked by hawkish Powell
US government bond prices have dropped after Federal Reserve chair Jerome Powell hinted strongly that US interest rates will be hiked higher.
This has driven up the yield, or interest rate, on two-year Treasury bills to 4.95%, the highest since 2007 – just before the credit crunch.
That’s a clear sign that investors are anticipating a large increase in US interest rates this month, of perhaps half a percentage point, given Powell’s concerns about inflation and his warning that there is “more work to do”.
Yield on 2-year US government #bonds is at levels not seen since 2007 and #markets now favor a 50 bps hike this month
— Mohamed A. El-Erian (@elerianm) March 7, 2023
Such a reversal in rate policy, while warranted by a “data dependent” #Fed, would aggravate its damaged credibility after the earlier two mistakes in this cycle. pic.twitter.com/TOZ7AU6YbZ
The gap between yields on two- and 10-year Treasury notes, which is seen as an indicator of economic expectations, was at a negative 98.7 basis points, Reuters points out.
Such an inversion is seen as a reliable recession indicator.
Updated
Jerome Powell's testimony: what the analysts say
In his testimony today, Fed chair Powell has confirmed that rates will peak higher than expected, says Andrew Hunter, deputy chief US economist at Capital Economics.
Hunter says:
Fed Chair Jerome Powell appears to have confirmed today that interest rates are set to rise a higher than we previously anticipated.
But with most evidence still pointing to economic weakness and lower inflation this year, we still suspect the Fed will begin cutting rates again sooner than the markets are now expecting.
Richard Carter, head of fixed interest research at Quilter Cheviot, cautions that the markets got carried away by predictingthat the Fed would ‘pivot’ away from higher rates soon.
“As the economic data continues to paint a US economy in rude health, it has become clear that markets got somewhat ahead of themselves on talks of interest rate pauses and potential pivots to rate cuts. Jerome Powell has poured cold water on the idea that Fed is ready to change tack and reiterated the need for bigger interest rate rises if they are required.
“Indeed, data has shown that while inflation peaked at the end of last year, its downward trajectory has not been quite as swift as market participants would have liked. This sticky inflation means interest rate rises will remain on the table for as long as employment remains robust.
The market is hearing the ‘higher for longer’ message loud and clear and doesn’t see the Fed being dissuaded, says Neil Wilson of Markets.com
So, Fed will go higher and for longer – but also might get to what it thinks the peak might be at a swifter pace.
Think we see 50bps very much back on the table for the next couple of meetings – the potential to increase the pace of tightening again is noteworthy and probably the chief cause of the market reaction - bonds had kinda already accepted higher and longer.
Samuel Fuller, Director of Financial Markets Online, agrees that chair Powell has given a clear signal that US interest rates will rise higher:
“Central bankers often have a habit of talking in code. Not today. Jerome Powell couldn’t have been clearer - the Federal Reserve isn’t just willing to pump up US interest rates further, it’s planning to do so.
“With US inflation falling but only slowly, the Fed’s Chair warned Congress of the dangers of easing monetary tightening too soon, and pledged to ‘stay the course until the job is done’.
Powell admits that the Fed’s tools are powerful but blunt, as he outlines the challenge of bringing down core inflation in the services sector.
He says we have not seen the full effects of the Fed’s recent rate hikes – which raised borrowing costs by 4.5 percentage points over the past year, so policymakers are watching carefully for ‘lags in monetary policy’.
We are very focused on core inflation, the Fed chair explains.
Pound hits two-month low
The dollar continues to rally as traders reprice their expectations for how fast, and how high, US interest rates could be hiked.
This has pushed sterling down by a cent and a half today, to $1.187, the lowest since January 6th.
Updated
Powell also had advice for Congress – it must raise the debt ceiling, or risk longstanding harm.
FED'S POWELL: CONGRESS NEEDS TO RAISE THE DEBT CEILING
— Nicholas Brown (@News_By_Nick) March 7, 2023
FED'S POWELL: FAILING TO DO SO, THE CONSEQUENCES COULD BE EXTRAORDINARILY ADVERSE AND DO LONGSTANDING HARM
Last month the Congressional Budget Office (CBO) warned the US Treasury department will exhaust its ability to pay all its bills sometime between July and September, unless the current $31.4tn cap on borrowing is raised or suspended.
Jerome Powell insists to Congress that the Fed can, and will, bring inflation down to the 2% target.
Asked about whether the Fed has the tools to get inflation lower, Powell said "over time, we can achieve 2 per cent inflation and we will"
— Colby Smith (@colbyLsmith) March 7, 2023
Powell says the Fed is watching the crypto space closely, due to the turmoil in the sector recently.
Jerome Powell is now explaining to the Senate banking committee that there is still a mismatch between supply and demand.
This is visible in the goods sector, and also in the jobs market (where there were 11m vacancies at the end of last year).
Can the Fed even fight today's inflation?
— Jeanna Smialek (@jeannasmialek) March 7, 2023
"There is a mismatch between supply and demand -- you can see that in the goods sector still," Chair Powell says, also referencing housing and the job market.
"There is a job here for us to do in better aligning demand with supply."
Updated
The financial markets now believe there is a greater than 50% chance that the Fed increases the size of its interest rate rises this month, and votes for a half-point hike:
Traders now see better-than-50% chance of half-point rate hike on March 22 after release of Powell’s written testimony https://t.co/Aa3l8X1MoZ
— MarketWatch (@MarketWatch) March 7, 2023
Powell: Prematurely loosening policy would be a mistake
Jerome Powell rounds off his prepared testimony to Congress by warning of the risks of relaxing monetary policy too quickly.
He says that bringing down inflation is essential to achieving the Fed’s two goals, of price stability and maximum employment:
Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.
The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.
Fed chair Jerome Powell says bigger rate hikes could be brought back
America’s top central banker is warning Congress that more needs to be done to tame US inflation, sending the dollar rallying against the pound.
Jerome Powell, chair of the Federal Reserve, is testifying to the Senate Committee on Banking, Housing, and Urban Affairs.
And he begins by warning that the Fed has “more work to do” – a hint that interest rates will continue to rise.
Powell says:
We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do. Our policy actions are guided by our dual mandate to promote maximum employment and stable prices.
Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of labor market conditions that benefit all.
Powell explains to the committee that inflation has moderated somewhat since the middle of last year but [at 6.4% in January] remains well above the Fed’s longer-run objective of 2%.
On the economic picture, he says the US economy slowed significantly last year, and points to signs that consumer spending and production are subdued.
But with inflation still three times the Fed’s target, Powell warns that the Fed continues to anticipate that ongoing interest rate increases will be appropriate, to return inflation to 2 percent over time.
For the last two meetings, the Fed has slowed the pace of its interest rate increases to 25 basis points, or a quarter of one percent.
Today, though, Powell wans that larger hikes could be introduced if necessary.
He points out that recent latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.
Powell says:
If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.
This has sent the dollar rising, knocking the pound down by over one cent today to $1.189.
The U.S.Dollar $DXY rallies on J Powell. There you go.
— Pat Mullaly, CMT (@PMullaly_TDA) March 7, 2023
(not a recommendation) pic.twitter.com/KCIx5kjfTA
Updated
The UK’s National Grid has decided against triggering its Demand Flexibility Service tomorrow, which would have paid some households with smart meters to use less energy at peak times to avoid blackouts due to the cold weather.
Updated
Protests in France as unions oppose pension changes
Demonstrators have marched across France today in a new round of protests and strikes against the government’s plan to raise the retirement age to 64.
Unions have been hoping to make their biggest show of force against the proposed pensions reform, disrupting fuel deliveries and public transport and bringing the country to a standstill.
The proposed changes would raise the minimum retirement age to 64 from 62 and increase the number of years people have to make contributions for a full pension.
Garbage collectors, utility workers, train drivers and others have walked off the job on Tuesday across France to show their anger at the reform.
More than 250 protests were expected in Paris and around the country against President Emmanuel Macron’s showcase legislation. The bill is under debate in the French Senate this week.
Tens of thousands of demonstrators took to the streets in Paris, Marseille, Nice and other cities, including Nantes and Lyon where some minor clashes with police broke out.
Laurent Berger, the secretary-general of the CFDT union, said that based on initial figures, the numbers of demonstrators nationwide are expected to be the biggest since the beginning of the movement in January.
IMF board poised to approve $2.9bn Sri Lanka bailout
The board of the International Monetary Funs is close to approving a $2.9bn bailout for Sri Lanka.
The rescue package could be agreed on 20 March, 10 months after Sri Lanka defaulted on its debts for the first time.
Reuters has the details:
The International Monetary Fund on Tuesday said Sri Lanka has secured financing assurances from all major bilateral creditors, paving the way for the IMF board to consider approval of a long-awaited $2.9 billion four-year bailout agreed last year.
The IMF said its board will meet on March 20 to review a preliminary staff-level agreement first signed in September, offering a lifeline to the South Asian country which faces its worst financial crisis since independence from Britain in 1948.
Approval is expected since the board generally will not add items to its agenda unless its members are ready to act.
Sri Lanka has now received financing assurances from all major bilateral creditors,” Krishna Srinivasan, director of the IMF’s Asia and Pacific Department (APD) said in a statement.
“This paves the way for consideration by the IMF’s Board on March 20 the approval of the Staff Level Agreement reached on September 1, 2022 for financing under an Extended Fund Facility,” Srinivasan added.
#IMF said its board is poised to approve $2.9 billion Sri Lanka bailout on March 20
— Jorgelina do Rosario (@jdorosario) March 7, 2023
"Sri Lanka has now received financing assurances from all major bilateral creditors," said Krishna Srinivasan, director of the the Asia and Pacific Department.
via @reuters by @andrea_shalal
Speaking of the energy industry… new analysis has found that a publicly owned electricity generation firm could save Britons nearly £21bn a year.
The work. by Thinktank Common Wealth, bolsters Labour’s case to launch a national energy company if the party gains power.
My colleague Alex Lawson explains:
The Common Wealth report, which analysed scenarios for reforming the electricity market, said that a huge saving on electricity costs could be made by buying out assets such as wind, solar and biomass generators on older contracts and running them on a non-profit basis. Funding the measure could require a government bond issuance, or some form of compulsory purchase process.
Last year the government attempted to get companies operating low carbon generators, including nuclear power plants, on older contracts to switch to contracts for difference (CfD), allowing any outsized profits to flow back to taxpayers. However, the government later decided to tax eligible firms through the electricity generator levy instead.
The Common Wealth study concluded that a publicly owned low carbon energy generator would best deliver on Britain’s climate and economic goals, would eliminate windfall profits made by generators and would cut household bills.
Here are more details:
💡NEW REPORT💡
— Common Wealth (@Cmmonwealth) March 7, 2023
The wholesale energy market is not fit for purpose. We examine options for reform to cut bills, eliminate windfall profits, and deliver clean energy.
Our finding is clear: the most direct, cost-effective approach is public ownership.https://t.co/cp65e3cETU pic.twitter.com/8AzoolAxR8
Under the current system, the price per unit of electricity is set by the ‘marginal’ generator – whatever source generates the last unit needed to meet demand.
— Common Wealth (@Cmmonwealth) March 7, 2023
Because this is almost always gas, it largely drives our energy prices – even when lots of renewables are online. pic.twitter.com/BXysQr6ibf
Electricity prices in Britain quintupled between February 2022-23, driving by surging global gas prices.
— Common Wealth (@Cmmonwealth) March 7, 2023
In response, there have been a suite of proposals for reforming or totally overhauling the market so we can deliver a future of secure, affordable and decarbonised energy. pic.twitter.com/jwBc7OIOJO
In our new report, we examine these proposals - building on the work of @IRENA @UKERCHQ @CitizensAdvice and others - on everything from cost savings to the capacity for building democracy into our energy system.https://t.co/cp65e3cETU
— Common Wealth (@Cmmonwealth) March 7, 2023
While every proposal has strengths, we find a Publicly Owned Generator comes out on top, including when it comes to potential savings on bills – up to £252 per household.
— Common Wealth (@Cmmonwealth) March 7, 2023
It could also be a vehicle for accelerating the build-out of clean energy & democratising our energy system. pic.twitter.com/E8Kn4mNVNS
UN Human Rights chief demands action over fossil fuel greenwashing
The UN High Commissioner for Human Rights has demanded action against fossil fuel companies who engage in greenwashing to improve their reputation.
Volker Türk told the 52nd session of the Human Rights Council that “Fake climate solutions” must be called out. He say the next UN climate change conference, which begins at the end of November, must tackle the issue.
Türk says:
I deplore the attempts by the fossil fuel industry at global climate talks and elsewhere to greenwash their reputation and derail our goal of decarbonization.
This must be averted at the upcoming COP28 in Dubai, and we need inclusive, safe and meaningful participation of civil society.
A study last month found that accusations of greenwashing against major oil companies that claim to be in transition to clean energy are well-founded.
While mentions of “climate”, “low-carbon” and “transition” have risen sharply in annual reports in recent years, there has been fewer concrete actions towards moving away from fossil fuels, it found.
Türk also called for protection of those who raise concerns over environmental crimes, or policies that result in harm, saying:
Bashing climate protests; designing laws that unfairly restrict activities that call the public’s attention to climate harms; and allowing attacks on activists to go unpunished: these are tactics that harm all States and all human beings. And they need to be addressed, urgently.
Inward M&A to UK fell in last quarter of 2022
The political and financial turmoil last autumn may have deterred some foreign companies from acquiring UK companies.
The total value of inward M&A dropped to £5.3bn in the final quarter of 2023, new data from the Office from National Statistics shows. That is almost £16bn lower than in July-September when inward M&A was worth £21.2bn.
A year ago, inward M&A into the UK totalled £16.3bn.
The number of inward M&A transactions was broadly unchanged between October (68) and November (64), before dropping to 38 transactions during December 2022.
The total value of inward M&A in Quarter 4 (Oct to Dec) 2022 was £5.3 billion, £15.9 billion lower than in Quarter 3 (July to Sept).
— Office for National Statistics (ONS) (@ONS) March 7, 2023
Although the value of inward M&A fell in Quarter 4 2022, the number of transactions was broadly unchanged. pic.twitter.com/PYfcpBLuFv
The turmoil of the mini-budget at the end of September, followed by the change of prime minister and chancellor, won’t have made Britain look a particularly attractive investment opportunity:
Andrew Gillen, Head of Corporate M&A and Capital Markets at corporate law firm Travers Smith, says:
“The sharp drop off in value and volume of inbound M&A during Q4, alongside an increase in outbound M&A indicates that political turmoil and economic uncertainty in the UK during autumn 2022 had a profound impact on the attractiveness of the UK as an investment destination at that time.
However it is always dangerous to read too much into a single quarter’s statistics: we feel the improving economic indicators that have been seen in early ‘23, and relative political stability, boosted by closer co-operation with the EU following the Windsor Agreement, will start to reverse this impact and allow the UK market to benefit from any increase in M&A activity.”
Domestic M&A activity, in which UK companies acquire other UK companies, almost doubled to £3.6bn in the last quarter of 2022.
The value of domestic M&A was £3.6 billion in Quarter 4 (Oct to Dec) 2022, £1.7 billion higher than the previous quarter but £0.6 billion lower than in Quarter 4 2021.
— Office for National Statistics (ONS) (@ONS) March 7, 2023
➡️ https://t.co/dtH6HXHWlS pic.twitter.com/9haV9qX1CU
South Africa economy hit harder than expected after power cuts
Elsewhere in the global economy, South Africa is on the brink of recession after the country’s power cut crisis hit growth in the last quarter of 2022.
South Africa’s economy contracted by 1.3% in the final three months of last year, more than expected, as the escalation in rolling power cuts caused most sectors to shrink, including mining and agriculture.
#GDP South Africa’s economic growth has contracted by 1.3% in the fourth quarter of 2022.
— CapricornFM News (@CapricornFMNews) March 7, 2023
This is according to the latest growth domestic product released by statistics South Africa.
Today’s figures have resulted in the overall 2022 economic growth being 2.0% IMS pic.twitter.com/ijBvo8phMd
South Africa saw GDP decline by 1.3% in Q422. Weak performance particularly finance, trade, mining, agriculture, manufacturing & general govt services. Looking ahead, power sector challenges will persist, fiscal & financial conditions will remain tight & net exports will drag. pic.twitter.com/SlWOjUIvIC
— Chiedza Madzima (@ChiedzaMadzima) March 7, 2023
South Africa’s energy crisis has led to daily power cuts of between eight and 11 hours across the country.
Offices, hospitals, factories and tens of thousands of small businesses were forced to close, with outages also causing increased crime, traffic disruption and massive wastage as food supply chains collapse.
Mann: Early retirees may face pensions crunch
Catherine Mann also predicted that some of the older workers who took early retirement in the last couple of years may try to return to the jobs market, because they struggle to live as they’d like on their pensions.
She told Bloomberg TV that it is “a challenge” to retire at 55, and make sure your retirement savings match your longevity.
BoE policymaker Mann predicts that some of these early retirees will end up looking for work, saying:
I worry that a couple years down the line, we’re going to see people trying to come back into the labour force, and that’s going to be much more difficult.
There has been some indication that people are looking for part time positions, Mann says, adding:
It’s early on that and as I say, I worry that people are going to find that their pensions are not sufficient for their preferred lifestyle and are going to want to come back.
Chancellor Jeremy Hunt has urged early retirees to return to work, and attracted criticism for suggesting that over-50s should get off the golf course to help tackle the UK’s labour shortages.
Mann also expressed concern about the supply side of the UK economy, saying:
It really is striking how slow growth is in the UK — much slower than what we observed for the US or for the euro area. Brexit is a factor on the supply side and on pricing power.”
Updated
Phillip Inman: Bank must wake up to risks of greedflation
Catherine Mann says companies are in a strong position to raise prices and this might force the Bank of England to maintain high rates or even increase them further, my colleague Phillip Inman writes:
Mann appears to have been blindsided by how corporate monopolies hand consumer goods companies the power to exploit a crisis by uniformly jacking up prices. In the US this trend has been dubbed greedflation.
The ECB has discussed it. But seemingly not the Bank of England.
On the services side of things, Brexit has limited skilled labour. You might ask how can services firms increase prices if there is intense competition. Well, the savings or inheritances of better-off people allows them to pay higher prices for everything from new kitchens and plumber callouts to higher solicitors or accounting fees.
Other, less well off consumers are forced to follow suit.
Bunzl’s recent results illustrate the point. It has become one of the most successful FTSE 100 companies by smuggling huge cost increases into its delivery and logistics business, pushing up the prices of all kinds of goods and services that consumers pay. Incredibly, last year it preserved profits and increased margins.
This situation is most likely going to be a one-off, given inflation’s likely precipitous fall this year.
But it has preserved corporate margins for the last two years and left 90% of people worse off. And BoE rate hikes have helped impoverish people further by raising the cost of borrowing.
Mann has shown in speeches that she is very concerned about the labour shortages and their impact on rising wages and, in turn, prices.
But it is only now dawning on policymakers that big corporates have capitalised on the crisis to increase prices even more than they needed to, boosting profits and dividends for shareholders.
Mann’s answer is to raise interest rates further, even though this only punishes mortgage holders, most of them young and middle aged families, and not the rich, who now get higher rates for their savings.
Updated
Catherine Mann doesn’t name and shame any companies who have been exhibiting ‘strong pricing power’, but there are plenty of examples of firms who haven’t been shy to whack up their prices.
Unilever, which owns Marmite, Ben & Jerry’s ice cream, Dove soap and Domestos bleach, lifted its prices by 11.2% last summer, and predicted further rises last month.
Coca-Cola’s average selling price rose 11% during 2022, and it plans to raise prices further this year.
Nestlé lifted its prices by 8.2% last year, which it says did not fully offset its rising costs, and is also planning further price increases this year.
Supermarkets have been lifting their prices too, pushing grocery inflation to a record high of 17.1% last month – leaving one in four families struggling.
Many broadband and mobile companies are preparing to hit customers with inflation-busting price rises of up to 17% this spring.
Updated
Recent falls in UK house prices need to be put in context, Catherine Mann argued today.
She pointed out to Bloomberg TV that prices have “appreciated dramatically” over the last couple of years.
That has created a wealth effect which has only been slightly eroded by falls in prices since last summer.
Mann says:
A lot of prices have appreciated dramatically in the last couple of years.
So there is some price depreciation, but it’s really not that much compared to how much prices on average appreciated over the last couple of years.
So we have to take into account what the starting point was, as well as the dynamics of the current pricing.
Q: So do prices have further to fall?
Mann suggests that the market could be in a “revival” rather than continuing to fall.
She points to the reduction in mortgage rates from the high point last autumn, and the increased competion with various lenders launching new mortgage products.
As we covered this morning, Halifax reported today that prices rose by 1.1% in February, but average prices were still down around 2.9% or £8,500 on the August 2022 peak.
Updated
Bank of England rate-setter Catherine Mann also warned that sterling could face downward pressure if investors have not yet fully priced in hawkish messages from the U.S. Federal Reserve and the European Central Bank.
She told Bloomberg TV:
“The important question for me with regard to the pound is how much of that existing hawkish tone is already priced into the pound.
If it’s already priced in, then what we see is what we get. But if it’s not completely priced in, then there could be depreciation pressure.”
This has nudged the pound a little lower today, it’s down 0.1% at $1.2010.
Updated
BoE's Catherine Mann warns about firms raising prices
Bank of England policymaker Catherine Mann has warned that UK firms are continuing to raise prices, driving up UK inflation.
Speaking to Bloomberg TV, Mann says she is concerned by the strong pricing power exhibited by firms, which many consumers have been willing to pay.
She explains that the price of gas and goods imported from abroad are “on the downturn”, and not rising as fast as they did last year.
But on the other hand, Mann is concerned by the extent to which firms have strong pricing powers, and the acceptance of those higher prices by many consumers.
Mann says:
Of course, not all but even in the face of the cost of living crisis there are still a lot of people out there who are willing to pay higher prices, and firms are willing to set their prices high.
This is a growing concern among central bankers. Last week, the European Central Bank signalled it was closely monitoring potential price gouging of consumers.
[The Bank of England’s mandate is to keep inflation at 2% in the medium term, but inflation has soared over that target since the summer of 2021. In January this year, consumer prices rose at an annual rate of 10.1%.]
Mann, a hawkish member of the Bank’s monetary policy committee, says she feels vindicated after calling for interest rates to be raised faster in 2022, arguing that a ‘front-loaded’ policy would have been more effective in dampening inflation expectations.
She argues that more monetary policy tightening needs to be done, so that inflation expectations fall.
The weak pound, she says, is a “very important ingredient” pushing up inflation, as it raises the cost of imports of goods, and energy. The UK, Mann points out, is a “small open economy” which imports a lot of products.
Updated
The publisher of the Daily Mirror and Express newspapers has revealed that annual profits tumbled by more than a quarter as it saw costs surge by 40% and a drop in advertising demand.
Reach, which also owns the Daily Star and a raft of regional titles across the UK, posted underlying pre-tax profits down by 28% to £103.3m, PA Media reports.
Underlying operating profits dropped 27% to £106.1m.
It said soaring inflation – largely due to rising newsprint costs as energy bills rocketed – pushed up its operating costs by around £40m over the year and hit demand from advertisers.
Reach saw ad revenues plunge 15.9% in the year to December 25, while circulation fell 1.7% with falls limited by cover price increases in the second half of 2022.
Digital advertising, which has been a strong growth area for media firms, fell 2.7% in the second half of the year as the economic outlook worsened.
Mr Kipling maker Premier Foods lifts profit outlook
Premier Foods has lifted its forecast for profits this year, after its grocery business saw strong demand.
The maker of Mr Kipling cakes and OXO cubes said it now expected adjusted profit before tax to be around £135m for the year to April 1, 10% higher than the prior-year figure.
Premier Foods also saw improving demand for its sweet treats segment improves in the fourth quarter.
Shares have jumped 10% this morning.
In January, the company said it would raise prices and cut spending as a way to offset high input cost inflation.
UK house prices appear to be “somewhat stabilising” despite the ongoing pressure of the cost-of-living crisis on the housing market, says Charlotte Nixon, mortgage expert at Quilter:
The fall in mortgage rates compared to the peak seen towards the end of last year has probably boosted buyer confidence, but this could be short-lived, Nixon warns.
She predicts that interest rates will continue to rise this year, weighing on prices:
Although we have hopefully passed the peak of inflation, it’s still likely that interest rates will still rise further, and the current unpredictability of the market will be concerning for homeowners who may be looking to sell their properties.
“While this morning’s figures are slightly more positive than some may have expected, the high cost of energy and increased mortgage rates could see a return to falling prices over the next few months.
Many homeowners are struggling to keep up with the increasing energy bills, which is causing them to cut back on their spending elsewhere. This, in turn, has decreased demand from buyers as people are hesitant to make such a significant investment in a time of financial uncertainty.
In the City, shares in UK energy services company John Wood have jumped 15% after it received a fouth takeover approach from private equity firm Apollo.
Wood, which had rejected three unsolicited proposals from Apollo already, received a fourth proposal for a cash offer of 237 pence per share – around 20% above last night’s close.
However, the board of Wood say they believe this latest proposal still undervalues the compay, so they are “minded to reject” it.
They add:
The Board will continue to engage with its shareholders and intends to engage further, on a limited basis, with Apollo.
There can be no certainty either that an offer will be made nor as to the terms on which any offer might be made. Further announcements will be made as appropriate.
Shares have jumped to around 222p this morning, still below Apollo’s offer – but up around two-thirds so far this year.
Greggs boosted by evening opening
Greggs has reported that its move to open some bakeries later into the evening is paying off.
Greggs extended the opening hours of 500 shops until 8pm or beyond last year, as it competed for “food-on-the-go” sales in the evening.
Products such as chicken goujons and pizza slices have proved popular in the evenings, Greggs reports, including sharing boxes via its delivery service.
The bakery is also excited to have gone viral on TikTok, telling shareholders:
We also introduced warm versions of some of our core products, with Hot Yum Yums and salted caramel dipping sauce going viral on TikTok!
Greggs also expanded its range of vegan products, saying:
Whether our customers follow a vegan diet or not, we know many more people are choosing to eat less meat for ethical, environmental or health reasons, and we are meeting that need.
Halifax report points to "a resilient housing market" – EY ITEM Club
This morning’s Halifax house price report suggets the housing market is resilient, the EY ITEM Club of economic forecasters say.
The “strong gain” of 1.1% in prices last month could be a reflection of mortgage rates falling back from their post-mini-Budget peaks and a healthy labour market, argues Martin Beck, chief economic advisor to the EY ITEM Club.
It could also be another sign that the economy is demonstrating unexpected resilience, despite the headwinds it is facing, Beck adds.
But… February’s rise left annual growth in prices at a modest 2.1%, and Beck says it is hard to see “momentum in prices being maintained”.
He adds:
Mortgage rates have come down in the last few months but are still much higher than a year ago. Meanwhile, households’ ability to take on and service debt is being squeezed by falling real incomes, and widespread predictions of a decline in property values will likely encourage some potential buyers to delay purchasing, weighing on demand.
On the other hand, changes in the structure of the housing and mortgage markets, and a resilient labour market, will likely reduce the risk of forced selling. An improving economic outlook as this year progresses may also limit how far house prices fall.
UK power plans told to generate more electricity as cold snap looms
National Grid has asked power plants in Great Britain to generate extra electricity tonight ahead of the coldest night of the year, my colleague Alex Lawson reports.
The Grid’s electricity system operator (ESO) has issued an “electricity margin notice”, telling the owners of power plants to bring on extra power supplies between 4.30pm and 8.30pm on Tuesday. National Grid stressed this did not mean supplies were “at risk”.
The Met Office has issued weather warnings for rain and snow across the UK with temperatures of -4C expected in London and -6C in Birmingham.
The freezing temperatures across the country are expected to trigger a surge in demand for power and heating.
On Monday, National Grid asked EDF to warm up its West Burton A coal unit for potential use today. The unit is covered by one of the “winter contingency” contracts negotiated by government to keep coal fired power plants on standby for emergency use.
Strikes at EDF’s nuclear power plants in France, which supplies Britain with electricity via subsea cables, have also raised concerns in recent days.
The Grid has been on heightened alert over risks of potential power cuts this winter, due to concerns Russia would cut gas supplies into Europe, with a knock on effect on Britain. However, a relatively mild winter and high levels of gas storage in Europe have eased these fears, and caused gas prices to fall sharply.
Late on Monday night, a spokesperson for the ESO said:
“An electricity margin notice (EMN) has been issued to the market. This is a routine tool that we use most winters, and means we are asking generators to make available any additional generation capacity they may have.
The EMN does not mean electricity supply is at risk.”
In December, National Grid paid record amounts to encourage gas-fired power plants to crank up supply at short notice.
The coal-fired plants, which also include units at Drax in Yorkshire and Uniper’s Ratcliffe-on-Soar in Nottinghamshire, have been warmed for potential use several times this winter but stood down each time.
Foxtons predicts property sales recovery this year as mortgage rates fall
Estate agents Foxtons has predicted that the property market will turn around later this year, as the recent fall in mortgage rates lifts the market.
Foxtons told the City this morning that:
Mortgage rates have started to reduce in recent weeks and buyer activity is picking up, which may result in a more favourable sales market in the latter part of the year.
The average rate on fixed-rate mortgages surged over 6.5% last October, following the turmoil in the government bond market after the mini-budget. But rates have fallen since, with HSBC launching a fiveve-year fixed-rate mortgage priced at below 4% last month.
Foxtons reported an 11% rise in revenues last year, while pre-tax profits more than doubled to £11.9m.
Guy Gittins, who was appointed Foxtons chief executive last year, says “core operational failings have throttled historical performance” at the company.
Those failings includes:
Poor data accessibility and utilisation impeded business decision making and the ability to unlock revenue growth opportunities.
Outdated estate agency processes and diluted culture restricted organic growth.
Insufficient headcount capacity and experience constrained productivity.
No clear customer proposition and brand invisible in core markets limited ability to successfully compete.
Updated
Estate agents: Housing market stronger than expected as demand picks up
Estate agents are reporting that activity has picked up this year.
Tom Bill, head of UK residential research at Knight Frank, says it appears the market is stronger than expected:
“The UK housing market appears near the end of a long hangover from the mini-Budget rather than on the verge of a price plunge.
Activity stopped well before Christmas due to the mortgage market turmoil but has picked up this year as people come to terms with where rates are settling.
That said, asking prices are likely to come under more pressure as we enter the traditionally busier spring market due to tighter affordability. We expect around half of the 20% increase seen during the pandemic to unwind but most evidence that is not backwards-looking points to a stronger market than expected.”
@HalifaxBank HPI shows Annual house price growth to be stagnating at +2.1% for the 3rd mth making the AVG house price now £285,476 in Feb 23. The degree of growth decline across all nations & regions varies but house growth remains either stable or positive whilst flats slump pic.twitter.com/C3vLnsjwmR
— Emma Fildes (@emmafildes) March 7, 2023
Matthew Thompson, head of sales at London-based agency Chestertons, reports a rise in properties coming onto the market.
“As the UK economy has shown signs of recovery, we are beginning to see more sellers wanting to capitalise on the positive market sentiment.
In February, our branches registered a 2% increase in the number of properties being put up for sale compared to the same month last year.”
“Still, the capital continues to experience a chronic undersupply of suitable housing; particularly as demand has remained strong since the start of 2023 with more buyers booking in viewings.
Simultaneously, the number of offers being withdrawn has decreased by 11% which indicates that there are fewer window shoppers and more serious buyers entering the market.”
North London estate agent Jeremy Leaf says Halifax’s data confirms the picture at the ‘sharp end’ of the market:
‘The reduction in housing market activity has been quite modest considering recent rises in mortgage rates and the cost-of-living shock, while a fresh crop of properties has buoyed viewings considerably and is outstripping sales agreed.
‘As a result buyers are waiting to see if prices may soften further and mortgage repayments stabilise before committing.’
But Jonathan Hopper, CEO of Garrington Property Finders, reports that uncertainty is slowing the market:
“For both rattled sellers and anxious buyers, this is a tentative step in the right direction.
“Prices are now settling rather than sliding, and the market remains firmly in a period of transition. The trouble is no-one yet knows what it’s transitioning to.
“The Halifax’s data shows the average price of a home has now risen on a monthy basis for two months in a row, but it’s far too soon to call the end of the price correction that’s underway nearly everywhere.
“The fact remains that while many buyers have both the financial ability and the opportunity to buy, they lack the confidence to do so – and as a consequence the market is still slowing.
The UK property market is not ‘out of the woods’ yet, despite its pick-up in February, says Victoria Scholar, head of investment at interactive investor:
Scholar explains that improvements in the underlying economic climate are lifting house prices:
While annual house price growth remained steady, the monthly reading has been picking up in recent months, reflecting some improvements in the underlying drivers.
Although mortgage rates are historically at high levels, they have been coming down, helping to support demand for properties. Plus the latest GfK consumer confidence reading hit the highest since April 2022, with sentiment recovering from the lows last September.
The housing market however is not yet out of the woods with pressures from a weak economy, double-digit inflation, the cost-of-living crisis and the potential for further rate hikes this year from the Bank of England.
This morning’s Halifax reading is markedly different to the recent report from Nationwide which saw year-on-year house prices drop by 1.1% in February, the first annual drop since the height of the pandemic in June 2020. Nationwide and Halifax use different data sources and methos when constructing the index, based on their own mortgage approvals, which could explain the discrepancy.”
Bakers Greggs warns of ongoing inflation challenge
UK bakery chain Greggs has warned this morning that it is being pressured by rising costs.
Greggs told the City that “cost inflation will continue to be a challenge in the year ahead”, driven particularly by pay awards and energy costs.
Greggs has also reported a “strong performance” for 2022.
Like-for-like sales at its shops jumped by 17.8% last year, while pre-tax profit rose by 1.9% to £148.3m. Earnings were held back by the rising costs of ingredients, energy, and labour.
Greggs opener 186 new stores last year – a record – and closed 39, leading to net openings of 147 shops.
That grew Greggs’ estate to 2,328 shops on 31 December 2022.
The company is aiming for 150 net openings in 2023, and says there is a “clear opportunity for significantly more than 3,000 UK shops in time”.
Halifax has also broken down the housing market by property type – which shows that prices of new houses rose over the last year, while flat prices fell.
They say:
By property type, prices of flats are now into negative territory over the past 12 months (-0.3% annual growth), while prices for terraced properties have broadly stagnated (+0.3%).
For detached properties, these have increased by just +1.5% on the year, the lowest rise since the end of 2019.
Annual price inflation remains stronger for new houses (+6.6%, a four-month high) than for existing properties (+1.1%, unchanged at the lowest in nearly a decade).
Annual house price growth dropped “most significantly” in the North East, at 1.1% in February vs a rise of 3.6% in January, with homes in the region now costing an average £163,953, Halifax reports.
Average house prices in London dropped by 0.9% to £526,842, from January’s £530,416.
Halifax explains:
London may be affected by its large proportion of flats – prices for which have broadly stagnated.
Despite this slowdown, homes in London still cost over £240,000 more than the UK national average.
During February, house prices rose by 2.2% over the last year in Scotland, lifting the average price to £198,779. In Wales, annual growth slowed to 1.2%, meaning average homes cost £210,917.
Those purchasing a home in Northern Ireland will now pay £185,009, on average, an annual growth rate of 5.7% (vs 7.0% in January.)
Introduction: UK house prices rose 1.1% in February, Halifax reports
Good morning.
UK house prices picked up last month, data just released shows, as calm returned to the property market after the turmoil of last autumn.
Halifax has reported that the average house price rose by 1.1% in February, following a 0.2% increase in January and a 1.3% drop in December.
This left the annual rate of house price growth unchanged, at +2.1% for third month running.
But on a quarter-on-quarter basis, prices were down 2.5%.
Kim Kinnaird, director at Halifax Mortgages, points out that the average house price has been stable over the last three months.
The fall in mortgage costs, following the surge after the disastrous mini-budget last September, has also helped prices to stabilise, Kinnaird says:
Recent reductions in mortgage rates, improving consumer confidence, and a continuing resilience in the labour market are arguably helping to stabilise prices following the falls seen in November and December.
Still, with the cost of a home down on a quarterly basis, the underlying activity continues to indicate a general downward trend.
In cash terms, house prices are down around £8,500 (or 2.9%) on the August 2022 peak but remain almost £9,000 above the average prices seen at the start of 2022.
As the average prices are still above pre Covid-19 levels, most sellers will retain at least some of the price gains made during the pandemic.
Kinnaird points out that house price affordability remains a problem for new buyers:
With average house prices remaining high housing affordability will continue to feel challenging for many buyers.
UK February Halifax house prices +1.1% vs -0.3% m/m expectedhttps://t.co/tRs9kxPNpM
— ForexLive (@ForexLive) March 7, 2023
Halifax’s data shows a stronger market than rival lender Nationwide. They reported last week that annual house price growth in the UK turned negative in February for the first time in almost three years.
Also coming up today
The cost of living squeeze hit consumer spending last month, as shoppers cut back.
Total retail sales rose by 5.2% in February compared with a year earlier, up slightly from January’s annual growth rate of 4.2%. But that masks a sharp fall in volumes, as high inflation means goods prices had risen by more.
But there was strong sales of jewellery and fragrances for Valentine’s Day, according to the British Retail Consortium.
The leader of Britain’s manufacturing bosses is expected to criticise the UK government “mismanagement” of the economy, and the post-Brexit relationship with the European Union, at the annual conference of Make UK today.
Stephen Phipson, the chief executive of Make UK, will criticise the government’s failure to embrace a coherent industrial strategy, The Times reports.
Phipson is expected to call for an end to “the rancour and political chaos of the last few years”, and express hopes that the new Windsor framework will lead to a new era of pragmatism and collaboration with the EU “rather than thumping the table or issuing threats”.
Make UK manufacturers’ group attacks ‘political chaos’https://t.co/G3SF1lZKjo
— William Devine (@william_devine) March 7, 2023
Shadow Chancellor Rachel Reeves will also address the conference, and announce a review on the UK’s business tax regime.
Reeves is expected to say that a lack of business investment, fuelled by uncertainty and political instability under the Conservatives, has weighed on economic growth.
European stock markets are expected to open a little higher, as investors wait to hear from America’s top central banker, Federal Reserve chairman Jerome Powell, who is set to appear before Congress.
Powell will be quizzed about the Fed’s interest rate rises over the last year, and the apparent strength of the US economy.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
The fact that the US jobs market, or economic activity don’t react to higher Fed rates is a problem for Fed, because it makes the Fed’s arms less efficient for fighting against inflation.
Many would argue that changes in rates take time to filter into the economy but the Fed’s tightening campaign began in November 2021 - 17 months ago, the rate hikes began roughly a year ago. It’s about time we start seeing the impact of higher rates through data.
European Opening Calls:#FTSE 7944 +0.18%#DAX 15675 +0.14%#CAC 7385 +0.16%#AEX 759 -0.06%#MIB 27952 +0.01%#IBEX 9520 +0.10%#OMX 2263 +0.04%#SMI 11161 +0.13%#STOXX 4317 +0.07%#IGOpeningCall
— IGSquawk (@IGSquawk) March 7, 2023
The agenda
7am GMT: Halifax index of UK house prices
All day: Make UK’s National Manufacturing Conference 2023
9.30am GMT: Data on mergers and acquisitions involving UK companies: October to December 2022
10am GMT: Treasury committee hearing on the work of the Prudential Regulation Authority.
3pm GMT: Federal Reserve chair Jerome Powell testifies to the Senate Banking Committee
Updated
