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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK retail sales rebound after Christmas slump; company insolvencies rise – as it happened

NatWest United Kingdom United States Office for National Statistics Paul Thwaite
A man carrying bags in the Broadmead shopping area of Bristol.
A man carrying bags in the Broadmead shopping area of Bristol. Photograph: Ben Birchall/PA

Closing post

Time to wrap up after a busy week, in which UK wage growth slowed, inflation remained steady, and the economy fell into recession.

Here’s today main stories so far:

US consumer confidence has inched a little higher this month.

The University of Michigan’s consumer morale index of consumer sentiment has risen to 79.6, up from 79.0, lifted by a rise in consumer expectations.

Surveys of Consumers director Joanne Hsu explains:

Consumer sentiment was essentially unchanged from January, rising 0.6 index points this month and solidifying the large gains from the past two months.

The fact that sentiment lost no ground this month suggests that consumers continue to feel more assured about the economy, confirming the considerable improvements in December and January across various aspects of the economy. Consumers continued to express confidence that the slowdown in inflation and strength in labor markets would continue.

Five-year expectations for business conditions rose 5% to its highest reading since December 2020. Sentiment is currently about 30% above November 2023 and about 6% below its historical average since monthly data collection began in 1978.

Goldman Sachs has cut its forecast for European gas prices this year, citing persistently mild weather.

In a new research note, Goldman warn that Europe has not yet solved its energy crisis – it will take one more winter until the risk of extreme gas prices re-emerging has ebbed.

But while increased LNG supply has not yet fully making up for lost Russian imports, that will change from 2025, Goldman says, tilting the markest into oversupply.

The jump in US wholesale inflation last month shows that cooling the pace of prices rises all the way down to target is tricky for central bankers.

Ken Tjonasam, portfolio strategist at fund management firm Global X ,says:

This PPI print further highlights that getting inflation back to the Fed’s 2% target isn’t just a walk in the park; it’s the last mile that’s the toughest.

For Chair Powell and the Fed, this means recalibrating their lens on the economic landscape. The narrative of easing into a rate cut has just hit a snag.”

The drop in the pound following the hotter-than-expected US PPI data is helping to support stocks in London.

The FTSE 100 index is having a fine day, up 110 points or 1.45% at 7707 points. Mining stocks, and Asis-focused financial services group Prudential, are among the top risers, reflecting hopes that China might take fresh measure to support its economy.

US producer price inflation hotter than forecast

Just in: US producers raised their prices at a faster rate than forecast last month, dampening hopes that inflationary pressures were ebbing.

Producer prices rose by 0.3% in January, following a 0.1% drop in the PPI index in December.

This was driven by a 0.6% rise in prices for services, while goods prices fell 0.2%.

On an annual basis, prices were 0.9% higher than a year ago, higher than the 0.6% expected but a little lower than December’s 1%.

Worryingly, core PPI inflation (stripping out foods, energy, and trade services) increased by 2.6% year-on-year.

This has lifted the dollar, with the pound down half a cent at $1.255.

Bond yields are also rising, as investors dial back hopes of early interest rate cuts.

Updated

Ex-Goldman analyst jailed for 22 months for insider trading

A former Goldman Sachs analyst has been jailed for 22 months after being convicted of insider trading and fraud.

Mohammed Zina, 35, was found guilty by a London jury yesterday. He had used information obtained at Goldman Sachs to trade in stocks including semiconductor designer Arm, ahead of its takeover by SoftBank, and pub company Punch Taverns.

Zina had been employed by Goldman Sachs International in its conflicts resolution group in London.

At Southwark Crown Court, Judge Tony Baumgartner told Zina he had thrown away a promising banking career, saying:

“You betrayed the trust of your employer, as well as cheated honest investors in the shares you traded using inside information you saw at work.

“What you did strikes at the very heart of our financial markets and the trust and confidence the public places in them.”

A Goldman Sachs spokesperson said:

“Mohammed Zina betrayed the trust we placed in him and his misuse of client information was in direct contradiction of our values. We have zero tolerance for this conduct.”

Zina had made a profit of about £140,000 from the insider trading, financed with loans obtained from Tesco Bank that were meant for home improvements.

Updated

As has become traditional, the latest UK retail sales figures show the impact of inflation.

While sales volumes rose by 3.4% in January, shoppers actually spent 3.9% more than in December – meaning they spent more for less.

A chart showing UK retail sales values and volumes
A chart showing UK retail sales values and volumes Photograph: ONS

In the City, shares in NatWest have jumped by over 6% this morning after the bank reported a 20% jump in profits for last year.

They have hit 229.7p, the highest since last October.

Fran Boait, co-executive director at campaign group Positive Money, argues that the popularity of NatWest’s shares today shows the government shouldn’t be looking to sell the taxpayer’s stake.

Boait says:

“NatWest represents an enormous missed opportunity by this government.

“Continuing to sell off the public’s shares for a huge loss when the bank is finally posting stronger results perfectly illustrates the short-termism that has come to define our government.

“The government could also have used its majority stake to ensure NatWest passes higher interest rates onto depositors, which would’ve pressured other banks to do the same.”

The government acquired its NatWest shares at a price of 500p each, when it bailed out then-Royal Bank of Scotland after the financial crisis.

NatWest’s shares have not traded over 500p since 2010, so the chances of the public making a profit anytime soon seems very thin….

…Especially as the bank has forecast a drop in earnings this year (see 7.38am), with falling interest rates expected to hit profitability.

NatWest's share price

Updated

Energy price cap predicted to fall 15% in April

The cap on UK energy bills is set to fall by 15% when it is next set, analysts at Cornwall Insight say.

Cornwall estimates that the price cap will drop to £1,635 per annum, for a typical household, in April.

This is a fall of 15% (£293) from the current price cap which was set at £1,928 per year from January, and should bring some relief to households struggling to pay their bills.

The cap is set four times a year by the regulator, Ofgem, and sets the maximum price per unit of energy that suppliers can charge (there is no cap on the maximum bill).

Cornwall also expect the cap will fall again in July, followed by a small rise in October.

Dr Craig Lowrey, principal consultant at Cornwall Insight, says:

“Forecasts show energy bills returning to their lowest levels in over two years, providing a much-needed respite for a nation struggling with a cost of living crisis.

“Fairly healthy gas supply across the Atlantic, coupled with high storage levels in Europe, are helping to keep bills down. But we mustn’t get too complacent. Our energy system is still walking a tightrope, and we cannot be sure another political or economic crisis won’t send bills straight back up.

“Even with the drop, prices will remain a struggle for many. We need to remember, bills remain hundreds of pounds above pre-pandemic levels, and if we don’t speed up the switch to sustainable energy and cut down on volatile imports, they are likely to stay that way.”

Russian central bank holds rates at 16%

Newsflash: Russia’s central bank has held interest rates at 16%, after five hikes in a row since last summer.

The Bank of Russia says:

Current inflationary pressures have eased compared with the autumn months but remain high. Domestic demand is still outstripping the capabilities to expand the production of goods and services.

A judgement on the sustainable nature of emerging disinflationary trends would be premature. The Bank of Russia’s monetary policy is set to solidify disinflation processes unfolding in the national economy.

Russia’s interest rates have been volatile since the full-scale invasion of Ukraine.

The Bank of Russia doubled rates to 20% in March 2022 to support the rouble, but then lowered them through 2022 to 7.5%, before starting to hike in summer 2023:

Russian interest rates

Noble Francis, economics director at the Construction Products Association, flags that insolvencies among building firms climbed last year:

The next few weeks could prove to be challenging for businesses, says Zelf Hussain, Restructuring Partner at PwC UK.

Hussain explains:

“With the latest GDP figures showing that the UK was in a technical recession at the end of last year,the retail, hospitality and construction sectors continue to bear the brunt of insolvencies.

These industries, traditionally sensitive to shifts in consumer behaviour and economic conditions, remain under significant pressure due to ongoing challenges, including changing consumer priorities and supply chain disruptions - issues which may not be resolved in the first half of this year.”

Insolvencies up 5% year-on-year

Just in: The number of registered company insolvencies in England and Wales jumped 5% on an annual basis last month, although it was lower than in the peak last autumn.

There were 1,769 company failures in January, the Insolvency Service reports, up from 1,685 in January 2023, as companies struggled in the tough economic climate.

The Insolvency Service reports:

The company insolvencies consisted of 339 compulsory liquidations, 1,294 creditors’ voluntary liquidations (CVLs), 120 administrations and 16 company voluntary arrangements (CVAs). CVL numbers were lower than in January 2023, while compulsory liquidation and administration numbers were higher.

It’s lower than the 2,470 insolvencies reported in November, though which was the highest since last May.

A chart showing UK insolvencies

David Hudson, restructuring advisory partner at FRP, says high interest rates and rising costs are hitting firms:

“A real concern is that current financial distress spreads further. Last year’s insolvency data shows a large proportion of Creditor’s Voluntary and compulsory liquidations – a sign that many of the closures were among SMEs. Should more mid-market firms start to fail, the impact is likely to have even greater ramifications up and down supply chains. A larger stone ultimately ripples much wider.

“Significant trading risks abound for the months ahead. Early interest rate cuts still look unlikely, meaning capital and debt costs will remain high for some time yet. And companies, particularly retailers and hospitality firms, will be bracing themselves for the rise in the National Living Wage in April, which could add further strain to already stretched bottom lines.

“There’s good reason to be optimistic that economic conditions will improve this year, but for now businesses are still driving down a bumpy road.”

Updated

Moody’s Analytics: Expect first UK rate cut in August

Britain’s fall into recession yesterday sparked talk that the Bank of England could lower interest rates sooner than expected, to prod the economy into growth.

But Moody’s Analytics reckons that borrowers may need to wait six months for a cut.

In a report released last night, their economist Barbara Teixeira Araujo says:

“While the GDP figures for the fourth quarter were extremely bad, we haven’t changed our outlook for the U.K. economy and for monetary policy. We expect that the economy to hold its ground in 2024 and that the momentum will gradually improve throughout the year. We are pencilling in a 0.3% rise in GDP in 2024, up from 0.1% in 2023.

Regarding the BoE, we think the central bank would rather risk waiting a bit too long than cut a bit too early. We still expect a first rate cut in August.”

The money markets are expecting the first rate cut by June, from 5.25% to 5%, with rates seen at 4.5% by the end of 2024.

Although retail sales volumes jumped last month, online spending fell by 4.1%.

The proportion of sales made online fell from 26.8% in December 2023 to 24.8% in January 2024.

Kris Hamer, director of insight at the British Retail Consortium, has welcomed the jump in retail sales last month:

“There was promising news as sales volumes rose for the second time in three months, following 19 prior months of decline.

This reflected rising levels of consumer confidence, as well as a boost from the January sales. Categories, such as computing, and cosmetic & toiletries performed well. Food sales continued to outstrip non-food sales – mainly due to higher levels of inflation on these products.

Nonetheless, shoppers remained cautious as they entered the third year of the high cost of living.

French state-owned power giant EDF is taking a €7.9bn impairment charge on its UK operations, due to delays at the troubled Hinkley Point reactor.

Hinkley Point reactor, Britain’s first new nuclear plant in more than two decades, has been beset by difficulties – last month, EDF announced it could be delayed by a further four years, and cost £2.3bn more than planned.

NatWest’s results show a rise in the number of customer struggling to repay loans – something that is expected to get worse this year.

The Bank’s loan impairment rate rose to 15 basis points in 2023, up from 9 basis points in 2022.

For 2024, NatWest expects its loan impairment rate to be below 20 basis points.

Matt Britzman, equity analyst at Hargreaves Lansdown, says:

Impairment charges were better than expected as customers continued to show remarkable resilience in the face of higher inflation and interest rates.

Absent any major shock to unemployment, low default rates are expected to continue over 2024.

In the water industry, Sir Adrian Montague, the chairman of Thames Water, has resigned as chairman and director of its parent company, Kemble Water Holdings Limited.

Thames Water Utilities Limited (TWUL) say:

This is a personal decision as Sir Adrian believes the time is right solely to focus on fully supporting the Board and Executive Team of TWUL on delivering the refocused turnaround plan in order to better meet our customers’ needs.

Sir Adrian Montague remains a director and Chairman of Thames Water.

Earlier this month, regulator Ofwat ordered Thames Water to update its service commitment plan to improve its performance on issues such as sewage dumping.

And on Monday, Thames admitted it expects to leak more water than previously thought over the next two years. Clearly Sir Adrian has lots to sort out…

Retail sales jump: What the experts say

The 3.4% rise in UK retail sales volumes last month shows the Bank of England must tread carefully, says Neil Birrell, chief investment officer at Premier Miton Investors:

“UK retail sales for January provided the third data point in three days on the UK economy and painted a somewhat ambiguous picture, coming in much stronger than expected.

The consumer sector bounced back strongly after a weak Christmas period and these numbers suggest that ongoing higher interest rates are not having the dampening effect that was anticipated. The Bank of England will tread a careful path in its decision making as these numbers do not provide them with much clarity.”

Today’s data should cheer retailers, reports Stuart Chalmers, retail industry lead at Accenture UK & Ireland:

“Retailers will be pleased to see this boost at the start of the year, in a week that brought the unwelcome news that the UK has entered a technical recession. Sales rose in most subsectors, with food stores and supermarkets contributing most, but clothing retailers will be disappointed to see a drop in numbers.

January’s retail performance will offer hope to a beleaguered sector after a challenging ‘golden quarter’. With inflation continuing to hold steady, retailers should be using data to better understand what customers want, and when they want it. This approach can help to inform their broader strategy, including in their supply chains, through to in-store experiences.”

But Lisa Hooker, leader of industry for consumer markets at PwC, cautions that a sustained economic recovery is months away:

At first glance, January’s retail sales figures appear to contrast with the declining footfall and challenging trading conditions reported by some retailers. However, compared to the rest of the year, it is a much less important month of trading, so these numbers are more reflective of a return to the weak trend of growth we saw in the second half of 2023, rather than the start of a prolonged recovery.

While many of the macroeconomic indicators are positive - falling inflation, improving consumer sentiment, the prospect of lower interest rates - consumers remain cautious about spending, particularly in discretionary and big ticket categories, and we do not predict a sustained recovery until the second half of 2024.”

NatWest warns economic outlook remains uncertain

NatWest has also warned that “the economic outlook remains uncertain”, telling shareholders:

We will monitor and react to market conditions and refine our internal forecasts as the economic position evolves.

The bank is also predicting that income will fall this year.

For 2023, it made total “income excluding notable items” of £14.3bn, a 9.8% rise.

But for 2024, NatWest says it expects income excluding notable items to drop to be between £13bn and £13.5bn.

NatWest profits rise, as Thwaite named as CEO

NatWest, the bank partly owned by the UK government, has reported a jump in profits this morning – and named its permanent CEO.

The taxpayer-backed lender grew its operating profits by 20% year-on-year in 2023, its latest financial results show.

This is NatWest’s highest annual profit since the financial crisis (when the bank, then called Royal Bank of Scotland, was bailed out by the taxpayer), and more than the £5.95bn expected by analysts.

This could cheer the government as it gears up to sell its remaining stake in the lender to the public this year.

NatWest has also appointed Paul Thwaite as its chief executive. Thwaite has been doing the job on an intermi basis since the resignation of Alison Rose last summer over the closure of Nigel Farage’s bank accounts with Coutts, NatWest’s private bank.

Updated

Introduction: UK retail sales rebound

Good morning, and welcome to our rolling coverage of business, the financial markets and the economy.

With Britain now in a technical recession, economic data will be closely scrutinised for signs that the downturn could be ending.

And the latest retail sales figures, just released, show that retail sales across Great Britain grew at the fastest rate since April 2021 last month, as consumers returned to the shops after a pre-Christmas slump.

Retail sales volume rebounded by 3.4% in January, the Office for National Statistics reports. That follows a record 3.3% tumble in retail spending in December, which flashed warning signs over the economy a month ago.

It could be a sign that the UK economy is picking up – as Bank of England governor Andrew Bailey has suggested – after shrinking in the second half of last year.

The ONS reports that sales volumes in all subsectors, except clothing stores, increased in January.

Food stores such as supermarkets contributing most to the increase, with food stores sales volumes rising by 3.4% over the month.

The ONS says some of the fall in December was because of consumers purchasing Christmas gifts earlier, during the November Black Friday discounts.

But separate ONS polling did find that almost half of adults had expected to spend less on Christmas shopping because of the rising cost of living.

Heather Bovill, deputy director for surveys and economic indicators at the ONS, says:

“After a very weak December, retail sales rebounded in January with the largest monthly rise since April 2021. This means that overall sales have now recovered to pre-December levels, although if we look at the broader picture, they are still below where they were pre-pandemic.

“Sales increased across nearly all retail sectors, and it was a particularly strong month for supermarkets. Household goods stores, sports shops and department store retailers were amongst those reporting robust trading due to January sales promotions. A fall in prices at the pump also meant a solid month for fuel sales.

“Clothing shops were the only area not to see growth this month.”

The agenda

  • 7am GMT: UK retail sales for January

  • 10.30am GMT: Bank of Russia’s interest rate decision

  • 1.30pm GMT: US PPI index of producer price inflation for January

  • 1.30pm GMT: US building permits and housing starts data for January

Updated

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