Closing post
Time to wrap up for the weekend (!). Here’s a quick summary:
The head of the Unite union has warned that Oil workers and tanker drivers could take strike action in an effort to force UK and Scottish ministers to protect jobs threatened by the green transition.
Speaking outside Scottish Labour’s annual conference in Glasgow, Sharon Graham said Unite would now allow oil and gas workers to be the coal miners of our generation, adding:
“We will push back hard to save UK jobs. If the pumps run dry in Britain, if the pumps run dry, the public will know who to blame. It will be the Scottish government and the UK government for allowing the sale of our jobs. If politicians do not act, we will.”
The latest polls of purchasing managers around the world have painted a worrying picture.
In the UK, companies are cutting their workforce levels at the fastest rate in over four years.
In the US, private sector growth has slowed sharply as firms fear new tariffs.
The latest UK public finances brought more bad news for chancellor Rachel Reeves – although January saw a record surplus, less money came into the government’s coffers than expected.
Four banks have been fined more than £100m after their traders shared sensitive information with each other about UK government debt they were buying and selling.
And…legal filings linked to the motor finance scandal have revealed that UK lenders paid “advance commissions” to car dealers that may have encouraged them to push costlier loans on to consumers.
“Trump business honeymoon” is over as PMI falls
The surprise drop in the US PMI this month (see last post) suggests that the flurry of tariffs announced, or threatened, by the new president has hit business confidence.
Kyle Chapman, FX markets analyst at Ballinger Group, says the “Trump business honeymoon” is over.
Chapman explains:
“The US composite PMI fell to its lowest level since September 2023 (50.4) amid a shock contraction in the services sector that severely underperformed expectations at 49.7. This offset an uptick in the manufacturing index to 51.6, which was boosted by tariff front-running.
The Trump business honeymoon is over, it seems. The buoyed mood that followed the election has vanished, and instead they have now been spooked by the torrent of policy changes and the uncertainty around tariffs, government spending, and inflation. It is difficult to understate the impact: year-ahead optimism has slumped to the lowest since December 2022, around the peak of concern that rapid Fed rate hikes would trigger a recession.
US private sector growth slows as economic picture darkens
The latest economic data from the US shows that business activity in the States nearly stalled in February amid mounting fears over tariffs on imports and deep cuts in federal government spending.
The Flash US PMI composite output index, which tracks activity across the private sector, has fallen to a 17-month low of 50.4. That’s down from 52.7 in January, and not much higher than stagnation.
The report found that output growth is faltering, as company payrolls fall, with firms reporting weaker optimism and rising costs.
Chris Williamson, chief business economist at S&P Global Market Intelligence, explains:
“The upbeat mood seen among US businesses at the start of the year has evaporated, replaced with a darkening picture of heightened uncertainty, stalling business activity and rising prices.
“Optimism about the year ahead has slumped from the near-three-year highs seen at the turn of the year to one of the gloomiest since the pandemic. Companies report widespread concerns about the impact of federal government policies, ranging from spending cuts to tariffs and geopolitical developments.
Sales are reportedly being hit by the uncertainty caused by the changing political landscape, and prices are rising amid tariff-related price hikes from suppliers.
FT: Thames Water receives £7bn bid from Hong Kong’s CK Infrastructure
The future of Thames Water has taken another twist, with the Financial Times reporting that Hong Kong’s CK Infrastructure has made a preliminary £7bn bid to take a majority stake in the troubled company.
CKI wants bondholders in Thames Water’s near-£20bn debt pile to take significant writedowns in return for a £7bn injection of equity, the FT reprots.
The offer, which was made earlier this month, emerges just days after a London court approved £3bn in emergency debt that will allow Thames to keep operating and avoid collapse.
CKI are one of several potential new owners rumoured to have bid for Thames, including hedge fund Covalis Capital, the Scottish supplier Castle Water, and private equity firm KKR – who have made a £4bn buyout bid.
Thames, which is the UK’s largest water utility, is looking to raise billions of pounds in equity while negotiating a debt restructuring with its lenders in a bid to avoid insolvency, having run up debts of around £16bn.
Oil workers 'could strike' to protect jobs in green transition
Oil workers and tanker drivers could take strike action in an effort to force UK and Scottish ministers to protect jobs threatened by the green transition, Sharon Graham, the Unite general secretary has predicted.
Graham told trade union activists based at PetroIneos’s Grangemouth oil refinery near Edinburgh, which is set to close over the next 18 months with the loss of 400 jobs, that direct action was being considered.
Speaking outside Scottish Labour’s annual conference in Glasgow, she suggested Unite members could target petrol and diesel production, throttling fuel supplies to forecourts, our Scotland editor Severin Carrell writes.
Graham told the rally:
“Puts these politicians on notice, we are not going to allow oil and gas workers to be the coal miners of our generation. I have already been meeting with refinery reps up and down the countries in Britain, and we will escalate this action if necessary.
“We will push back hard to save UK jobs. If the pumps run dry in Britain, if the pumps run dry, the public will know who to blame. It will be the Scottish government and the UK government for allowing the sale of our jobs. If politicians do not act, we will.”
She told the Guardian industrial action “was on the table.” Unite is pressuring UK and Scottish ministers to invest in low carbon aviation fuel, known as sustainable aviation fuel or SAF, production at Grangemouth.
She said Sweden had spent the equivalent of £700m on converting an oil refinery there to produce green aviation fuel. Similar projects were underway in China and the US.
Unite had told the UK government the UK would need 3,500 times more sustainable aviation fuel that was available now by 2030, to meet its emissions reductions targets.
“We’ve had experts in, they now accepted - the governments - that green aviation could be produced in Grangemouth after months,” she said. “And we’re saying, pause that. And let’s make this green aviation. If we’re not getting it from Britain, where’s it coming from?”
Updated
In the currency markets, the euro is a little weaker today as traders brace for this weekend’s elections in Germany.
The single currency is down a third of a cent at $1.046, having touched one-week highs yesterday.
Fawad Razaqzada, market analyst at City Index, says a surprise election result could move the euro next week:
Sunday’s German election is likely to result in a conservative-led coalition government. Reviving the stagnant economy is what investors want to see to help the EUR/USD outlook, but there is a risk to block reform should populist parties do well.
Germany could face months of uncertainty, if more than one partner is needed for the poll-leading conservative CDU/CSU party, led by Friedrich Merz. The key questions are how quickly a government could be formed and whether there will be a two-thirds majority of parties entering parliament that support fiscal reform.
The UK’s motor finance scandal has taken another twist today, with the Guardian reporting that UK lenders paid “advance commissions” to car dealers that may have encouraged them to push costlier loans on to consumers.
Those advance commissions are outlined in legal filings linked to the scandal, which centres on the payments paid to auto dealers for arranging loans for customers to buy cars with.
My colleague Kalyeena Makortoff explains:
Court documents seen by the Guardian show that lenders, including Lloyds Banking Group, have paid commission to individual dealerships in lump sums upfront, which campaigners say total millions of pounds.
The filings claim that the practice encouraged sales staff to funnel contracts to those specific loan providers, regardless of whether it resulted in more expensive payments for the buyer.
These advance commission arrangements were not explicitly disclosed to borrowers and “created stark conflicts of interest” that stood to harm customers, the filings claim.
Here’s the full story:
Elon Musk has rebuffed the idea that Tesla could put money into the struggling carmaker Nissan, after a report that said a Japanese group was seeking its investment sent shares soaring.
Nissan’s stock market value jumped by 9.5% on Friday after claims that the former prime minister Yoshihide Suga was among those who want the US electric carmaker to become a strategic investor, possibly in exchange for Nissan’s American factories.
Musk immediately appeared to reject the idea but Nissan’s Tokyo-listed share price still closed at 458.80, its highest since early January during short-lived merger talks with the larger Japanese rival Honda.
Rogue Trader Nick Leeson warns of dangers of deregulation
Next week is the 30th anniversary of the collapse of Barings Bank, the City institution brought down by ‘rogue trader’ Nick Leeson.
Leeson broke Barings by hiding growing losses in a secret account; they eventually totalled £827m as he tried riskier trades to recover his losses, a strategy that blew up after an major earthquake in early 1995 drove markets down.
Three decades later, Leeson is concerned that the push towards deregulation could create risks to financial stability.
In an interview with Bloomberg Radio, he warns:
“You’ve got to be very, very careful when people talk about deregulation.
It’s going to open certain doors to allow things to go wrong again.”
An official inquiry into the collapse of Barings found that “a serious failure of controls” had contributed to its failure to spot Leeson’s unauthorised and concealed trading.
Today, he says, City firms are in a much better position:
“When I think back to my time at Barings, we had one compliance officer, and I think she was also the risk manager for 2,500 people.
“You walk into most offices now in Canary Wharf or around this area, and there’s 3,000 people working in compliance. The quality of people are better, they’re better educated, they’re getting better training.”
Here’s how we covered the 20th anniversary:
It’s notable that recent UK PMI reports paint a more downbeat message on hiring than a separate survey of employers by the Recruitment and Employment Confederation (REC), which found that companies increased hiring in January.
Today’s UK PMI report shows “a tale of two sectors”, says Thomas Pugh, economist at RSM UK:
“The tick down in the flash S&P Global UK Composite PMI for February to 50.5 suggests the economy continued to essentially flat line in Q1. However, beneath the headline it is painting a starkly different picture between the domestic economy and the external sector.
“The services PMI, which is more reflective of conditions in the domestic economy, rose to 51.1 in February. However, the beleaguered manufacturing sector continued to come under pressure with the PMI falling to 46.4, its lowest level since December 2023. No doubt weak economic growth in the UK’s major trading partners such as France, Germany and China is depressing demand, but the threat of significant US tariffs and a global trade war is probably more to blame for a sharp drop in sentiment.
Pugh also points out that the official (but less timely) unemployment data has been more positive than the PMI reports:
“Turning back to the composite PMI, the employment index dropped to just 43.5, its lowest level since the pandemic. Admittedly, the official employment data has held up much more strongly that the PMI would suggest. But clearly hiring intentions are continuing to weaken in the aftermath of the budget.
UK firms slash jobs as stagflation fears grow
Just in: UK companies are cutting jobs at the fastest rate since the first year of the Covid-19 pandemic, as the economy continues to stall, a new survey show.
The latest poll of purchasing managers at British firms has found that staffing numbers are falling again this month, which it blames on “higher payroll costs and weak demand”.
Data provider S&P Global reports that the fall in staffing this month is the sharpest since November 2020, with some companies blaming policies announced in last autumn’s budget (such as the increase in employers’ national insurance contributions from April).
Companies say that new business fell so far this month, at the fastest rate in one and-a-half years.
Anecdotal evidence often cited a lack of new work to replace completed projects and cautious spending among clients in response to general concerns about UK economic prospects, S&P Global says.
Firms also reported that costs rose at the fastest pace in 21 months, blamed on strong wage pressures.
Overall, S&P’s flash UK PMI composite output index, which tracks activity in the economy, dipped to 50.5 from 50.6 in January. That shows marginal growth (50 points = stagnation).
The services sector expanded, while manufacturing output continued to drop.
Chris Williamson, chief business economist at S&P Global Market Intelligence, warns that the UK risks falling into a “stagflationary environment”:
“Early PMI survey data for February indicate that business activity remained largely stalled for a fourth successive month, with job losses mounting amid falling sales and rising costs.
The lack of growth alongside rising price pressures points to a stagflationary environment which will present a growing dilemma for the Bank of England.
While marginal output growth was eked out in February, order books deteriorated at a rate not seen since August 2023 to hint at likely cuts to business activity in the coming months unless demand revives.
Firms’ costs are meanwhile rising at a rate not witnessed since May 2023, the rate of inflation having now accelerated for four straight months, putting further upward pressure on selling prices for both goods and services. The survey data point to a further rise in inflation beyond the latest uptick to 3%.
“A key factor behind the upturn in inflationary pressures is the growing number of firms reporting the need to raise prices in order to help offset the impending rise in staff costs associated with the National insurance hike and uplift to the minimum wage announced in the autumn Budget.
“However, companies also reported that the Budget changes also played a major role in driving intensifying job cuts. Employment fell sharply again in February, dropping at a rate not seen since the global financial crisis if pandemic months are excluded. One in three companies reporting lower staffing levels directly linked the reduction to policies announced in last October’s Budget.”
[PMI surveys track movements in output, new orders, stocks, work backlogs, input and output costs, and delivery times, to show whether activity rose or fell.
S&P Global says they are “the most closelywatched business surveys in the world”, as they give an early sign of what’s occuring. But some economists do suggest they can present too gloomy a picture.]
Updated
Over in the eurozone, the private sector is barely growing this month.
The latest poll of purchasing managers at companies across the euro area shows a marginal rise in output so far this month.
Data provider S&P Global’s Flash Eurozone Composite PMI Output Index has come in at 50.2, matching January’s reading, and just above the 50-point mark that shows stagnation.
The services sector expanded, but manufacturing continued to contract.
The report shows that new orders continued to fall this month, while companies again lowered their staffing levels amid muted demand. Confidence also dipped and was at a three-month low.
Standard Chartered is looking to offer a new pay package for CEO Bill Winters that would allow the long-standing boss to earn as much as £13.1m in a single year.
Shareholders will be asked to give the green light to a new pay policy at this year’s AGM that will cut Winter’s salary but increase his potential bonus.
The move has been triggered by the UK’s decision to scrap the EU bonus cap which was introduced to limit risk-taking in the wake of the 2008 financial crisis. The cap previously limited payouts to two times a banker’s salary.
Standard Chartered said:
“The new policy represents the most significant change for many years and, as such, we engaged extensively and transparently with our major shareholders throughout the review.”
The offer came as StanChart announced that Winters had been handed a £10.7m pay package for 2024, a 46% jump from a year earlier, thanks to a long-term incentive scheme bonus worth £6.1bn.
Commenting on his new prospective package - and cut salary - Winters told journalists:
“I’ll have to explain to my mother why my salary has been cut by half… but if we perform well, I’ll earn more money. If we perform poorly, I’ll earn quite a bit less than I would have otherwise. That’s exactly as it should be.”
Mel Stride MP, Shadow Chancellor of the Exchequer, has opined on the public finances:
“The latest borrowing figures expose the true cost of Labour’s reckless economic policies.
“Instead of reining in spending, the Labour Chancellor has piled billions onto the national debt by maxing out the national credit card. Under Labour, Britain is stuck in a vicious cycle of higher debt, rising inflation, and increasing taxes. “Millions are paying the price of this economic mismanagement.“
[Reminder: the UK recorded its biggest surplus on record in January, but over the financial year so far, £118.2bn has been borrowed – £11.6bn more than a year earlier]
Banks fined £100m after traders shared sensitive information about UK bonds
Four banks have been fined more than £100m after traders shared sensitive information with each other about UK government debt they were buying and selling.
Citi, HSBC, Morgan Stanley and Royal Bank of Canada will pay fines totalling over £100m, while Deutsche Bank – which blew the whistle on the practice- has immunity.
The information sharing took place between 2009 and 2013, and involved traders sharing details about the buying and selling of UK bonds, known as gilts, and gilt asset swaps.
Announcing the settlement, the Competition and Markets Authority (CMA) says the banks have implemented extensive compliance measures to ensure this behaviour does not happen again.
Juliette Enser, executive director of Competition Enforcement at the CMA, said:
The financial services sector is an integral part of the UK economy, contributing billions every year, and it’s essential that it functions effectively. Only through healthy and competitive markets can we ensure businesses and investors have confidence to invest and grow – for the benefit of all in the UK.
The fines imposed today reflect the CMA’s commitment to dealing with competition law breaches and deterring anti-competitive conduct. The fines would have been substantially higher had the banks not already taken unusually extensive steps to make sure that this doesn’t happen again.
Here are the fines:
Citi: £17,160,000 – this includes a 35% leniency discount and a 20% reduction for settling in advance of the CMA issuing its Statement of Objections
HSBC: £23,400,000 – this includes a 10% reduction for settling after the CMA issued its Statement of Objections
Morgan Stanley: £29,700,000 – this includes a 10% reduction for settling after the CMA issued its Statement of Objections
Royal Bank of Canada: £34,200,000 – this includes a 10% reduction for settling after the CMA issued its Statement of Objections
In the energy sector, a government-appointed commission has warned that Britain’s electricity distribution network requires more proactive investments to help deliver the country’s net zero emissions target.
In its latest report, the National Infrastructure Commission (NIC) explained that the current regulatory process was too complex and focused on short-term costs, rather than the wider goals of economic growth and decarbonisation,
It says:
“Price controls will need to be reformed to enable proactive investment.”
NIC estimates that investment of £37bn-£50bn could be needed by 2050 to bolster the distribution network, as power demand is set to couble by 2050 as heating, transport and industry increasingly turn to electricity to decarbonise.
Updated
Britain’s income from inheritance tax is on track to hit a record this financial year, having risen around 10%.
Inheritance Tax receipts for April 2024 to January 2025 are now £7.0bn, new data from HMRC shows, which is £700m higher than the same period last year.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says:
“The inheritance tax creep crawls ever higher, hitting £7bn so far this tax year. This puts it well on track to surpass the £7.5bn record that it hit a year earlier.
With government plans to include pensions in the net for inheritance tax from 2027 and thresholds remaining frozen, the tax take is only going to get higher.
Updated
Following the smaller than expected budget surplus in January, it will “probably be touch and go as to whether the Government’s fiscal rules will be met” when the OBR updates its projections at the end of March.
So says Matt Swannell, chief economic advisor to the EY ITEM Club, who explains:
“The public sector was in surplus by £15.4bn in January. However, a surplus in January is commonplace as tax receipts get an annual boost from self-assessed tax payments. And while on the surface this looks a positive reading, it is a smaller January surplus than the £20.5bn the OBR had expected in its October forecast. Combined with previous forecast misses over the last few months, borrowing across the current fiscal year is now running £12.8bn ahead of the OBR’s Autumn Budget projections.
“Even without the borrowing overshoot, the Government only had about £10bn in fiscal headroom. Although market interest rates have fallen since their mid-January highs, the OBR’s updated forecasts at the end of March will likely show that the Government is expected to make higher debt interest payments. This will reduce the Chancellor’s margin for error, but potential changes to the OBR’s growth and inflation projections will probably determine whether the fiscal rules are met.
Retail sales across Great Britain bounce back in January
In other economic news, retail sales rebounded surprisingly strongly last month.
The Office for National Statistics reports that retail sales volumes across Great Britain rose by 1.7% in January.
This follows a fall of 0.6% in December – which has been revised down from the first estimate of a 0.3% fall.
Perhaps unexpectedly, the ONS reports that food stores sales volumes rose by 5.6% compared with December (when, surely, people were stocking up for Christmas?!).
It says:
This is the largest rise since March 2020, putting index levels at their highest since June 2023. This follows four consecutive falls on the month, ending in December 2024 when index levels were their lowest since April 2013.
Supermarkets, specialist food stores like butchers and bakers, and alcohol and tobacco stores all rose over the month. Retailers suggested that the increase was because of more people eating at home in January.
[Part of the challenge with this data is that it’s seasonally adjusted…]
Updated
Nabil Taleb, economist at PwC UK, agrees that “there’s no respite” for Rachel Reeves.
Taleb explains:
Borrowing costs remain under pressure as inflation proves stickier than expected, potentially slowing the Bank of England’s rate cuts and keeping debt servicing costs elevated.
At the same time, Labour’s commitment to increased defence spending adds further fiscal strain. So far, Reeves has held the line on Labour’s pledges, but with limited fiscal headroom, holding that line will become increasingly challenging.”
Bad news continues for Chancellor, says Capital Economics
City consultancy Capital Economics have a blunt verdict on January’s record budget surplus – the “bad news continues for the chancellor”.
That’s because January’s budget surplus, of over £15bn, is more than £5bn less than the Office for Budget Responsibility had forecast – which means Rachel Reeves’s headroom to keep within her fiscal rules has narrowed.
Alex Kerr, UK economist at Capital Economics, explains:
While January’s disappointing public finances figures may not be as bad as they first appear, they continue the run of bad news for the Chancellor in 2025 and underline the difficult choices she faces.
While there is increasing pressure on the government to commit to higher defence spending, the OBR is likely to conclude that the Chancellor’s headroom against her fiscal rules has been wiped out and she will probably need to tighten fiscal policy as a result.
Kerr explains that the undershoot was largely driven by disappointing tax receipts, which were £4.6bn below the OBR’s forecast (see earlier post), “reflecting the recent weakness of the economy”.
It’s possible, though, that the timing of tax returns is responsible too – meaning receipts in February are stronger than expected.
But, Kerr concludes, the current budget deficit is on track to overshoot the OBR’s 2024/25 fiscal year forecast of £55.5bn (2.0% of GDP) by £10.0bn.
He fears that Reeves’s options ahead of next month’s spring statement are “bleak”, given the additional pressures to increase defence spending, and warns:
Higher market interest rate expectations and gilt yields than at the time of October’s Budget alone suggest the Chancellor’s headroom against her fiscal mandate has been whittled down from £9.9bn to £2.8bn.
Combined with the recent weakness of productivity and GDP growth, it may have been wiped out completely. So in order to meet her fiscal rules, the Chancellor will need to raise taxes and/or cut spending in the fiscal update on 26th March.
Interest payable on central government debt hit £6.5bn
The cost of servicing Britain’s government debt rose year-on-year last month, taking a bite out of the budget surplus.
The interest payable on central government debt was £6.5bn in January 2025, a £2bn jump compared with January 2024.
That’s the second highest January figure since monthly records began in 1997, after the record bill in January 2023.
It’s lower than in December, though, when the interest bill hit £9bn.
These figures are driven by changes in the interest rates on index-linked debt, which rises or falls in line with the RPI inflation rate.
Darren Jones, chief secretary to the Treasury, has responded to January’s public finances data, saying:
“This Government is committed to delivering economic stability and meeting our non-negotiable fiscal rules.
“We will never play fast and loose with the public finances, that’s why we’re going through every pound spent, line by line, for the first time in 17 years, ensuring every penny delivers on the country’s priorities in our plan for change.”
The Office for National Statistics’ deputy director for public sector finances Jessica Barnaby says:
“While the public finances are often in surplus in January, this year saw the biggest monthly surplus on record, with high January self-assessment receipts bolstering income.
“However, over the financial year to date as a whole, borrowing was still up on last year and was the fourth-highest on record for the year to date.”
UK tax receipts weaker than expected
Although it’s a record level, the UK’s budget surplus was lower than forecast last month – because self-assessment taxes rose by less than expected.
The Office for National Statistics reports that :
Self-assessment income tax receipts rose by £4.2bn year-on-year in January to £25.9bn – a strong figure, but £3bn less than the £28.9bn forecast by the Office for Budget Responsibility.
Self-assessment Capital Gains Tax receipts fell by £300m year-on-year to £10.3bn, and £1.1bn less than the £11.4bn forecast by the OBR.
Updated
Introduction: UK posts record January budget surplus
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
A flurry of data this morning will show how the UK economy is faring in early 2025, including the latest borrowing data, retail spending statistics, and a healthcheck on businesses across the country.
And the breaking news is that Britain recorded its highest January budget surplus on record last month – but the windfall is not as large as expected.
The Office for National Statistics has estimated that the public sector was in surplus by £15.4bn in January 2025, as tax receipts exceeded government spending.
That’s the highest January surplus since monthly records began in 1993.
This is much better than in December, when borrowing jumped by more than expected.
January is usually a bumper month for tax receipts, as the deadline to file self-assessment tax returns falls at the end of the month.
But unfortunately, January’s surplus is £5.1bn smaller than the £20.5bn surplus which the Office for Budget Responsibility had pencilled in for the month.
The ONS also reports that combined self-assessed income and Capital Gains Tax receipts were provisionally estimated at £36.2bn for January – the highest January receipts since monthly records began in 1999, and £3.8bn more than a year earlier,
So far this financial year, government borrowing has now reached £118.2bn – £11.6bn more than at the same point in the last financial year and the fourth-highest financial year-to-January borrowing since monthly records began in 1993.
In a small fillip for the chancellor, research group GfK has reported this morning that consumer confidence rose a little last month – but it still weaker than a year ago.
The agenda
7am GMT: UK public finances for January
7am GMT: Great British retail sales for January
9am GMT: Eurozone flash PMI report for February
9.30am GMT: UK flash PMI report for February
2.45pm GMT: US flash PMI report for February
