Bank of England rate-setter: ‘I would rather hold rates’
The Bank of England should hold interest rates steady rather than cutting to ensure inflationary pressures have subsided, according to a member of the monetary policy committee (MPC).
Jonathan Haskel, professor of economics at Imperial College and an external member of the rate-setting MPC, said that despite “encouraging signs” on falling inflation, “I would rather hold rates”.
In a speech at King’s College London, he said:
There are considerable encouraging signs, most notably from normalising inflation expectations and a (spoiler: temporary) return of headline inflation to target in May 2024. However, the wage-price system in the UK has been subject to a sequence of enormous shocks over recent years. The playing out of those shocks through the economy, and the continued tight and impaired labour market, means that inflation will remain above target for quite some time. I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.
Key events
Metro Bank is reportedly trying to sell a chunk of mortgages as it tries to turn its fortunes around after a rescue deal.
The high street lender is working with investment bank Morgan Stanley on a process to raise capital from the sale of the mortgages, and could make between £3bn and £4bn, Sky News reported, citing sources.
Metro was co-founded by the US billionaire Vernon Hill and became the UK’s first new high street lender in 150 years when it launched in 2010.
It reached a £925m rescue package in October led by the Colombian billionaire Jaime Gilinski Bacal, who took a 53% stake in Metro as a result of the deal.
Since then it has cut 1,000 workers and stopped opening seven days a week as it tries to clamp down on costs.
Haskel says that inflation can become sticky at higher rates if the labour market is “impaired” – meaning it is harder to match unemployed people to vacancies.
He worries that the economy is still impaired, meaning the Bank of England will have to respond with relatively tighter monetary policy in order to get inflation sustainably down to its 2% target.
UK inflation hit 2% in May for the first time since July 2021.
The labour market continues to be tight, and I worry it is still impaired. I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.
Jonathan Haskel has come out strongly against the “greedflation” narrative, that businesses were pushing up inflation by increasing profits.
That runs counter to analysis by some economists, including at the European Central Bank, the International Monetary Fund and thinktanks such as the IPPR and the Common Wealth.
Haskel said:
While there may be variation across firms, products and industries, there is no evidence for this in aggregate in the UK, at least that I can discern in official data. The level of corporate profits has increased, but so too has the level of wages and the level of prices. As a share of total national income, profits have remained largely the same.
Jonathan Haskel has served on the Bank of England’s monetary policy committee for six years. As he comes to the end of his second and final term, he appears to be less concerned about showing his hand.
He argues in his speech that the Bank was right to raise interest rates in 2021 to stop inflationary pressures from building up further during the global supply chain chaos caused by coronavirus pandemic lockdowns. He said:
High inflation, no matter what the cause, risks becoming embedded if it persists for too long.
And he thinks that some of those pressures remain in the UK, even as some of the massive price increases caused by the energy crisis after Russia’s invasion of Ukraine have faded.
Underlying inflation is persistent and declining more slowly, with headline inflation pushed around by volatile energy and base effects.
Bank of England rate-setter: ‘I would rather hold rates’
The Bank of England should hold interest rates steady rather than cutting to ensure inflationary pressures have subsided, according to a member of the monetary policy committee (MPC).
Jonathan Haskel, professor of economics at Imperial College and an external member of the rate-setting MPC, said that despite “encouraging signs” on falling inflation, “I would rather hold rates”.
In a speech at King’s College London, he said:
There are considerable encouraging signs, most notably from normalising inflation expectations and a (spoiler: temporary) return of headline inflation to target in May 2024. However, the wage-price system in the UK has been subject to a sequence of enormous shocks over recent years. The playing out of those shocks through the economy, and the continued tight and impaired labour market, means that inflation will remain above target for quite some time. I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.
Shares in London-listed insurer Hiscox have jumped 14% after reports that two rivals were considering takeover bids.
Japan’s Sompo and Italy’s Generali are interested in a possible buyout, according to industry publication Insurance Insider.
Hiscox was valued at £3.8bn at the end of last week – meaning Monday’s share price move has added half a billion pounds to its market value.
If it retains that valuation – or indeed if a takeover bid comes through – then it could be enough to push the company back into the FTSE 100 index. Hiscox is one of the biggest members of the FTSE 250 index, having previously entered the FTSE 100.
Boeing to plead guilty to criminal fraud charge
Boeing will plead guilty to a criminal fraud charge stemming from two deadly crashes of 737 Max jetliners, after the government determined the company violated an agreement that had protected it from prosecution for more than three years, the US the government said in court filing late on Sunday.
Federal prosecutors gave Boeing the choice this week of entering a guilty plea and paying a fine as part of its sentence, or facing a trial on the felony criminal charge of conspiracy to defraud the US.
The plea deal, which still must receive the approval of a federal judge to take effect, calls for Boeing to pay an additional $243.6m fine, according to a justice department (DOJ) document filed in federal court in Texas.
Boeing has also agreed to invest at least $455m over the next three years to strengthen its safety and compliance programs, the DOJ said. The department will appoint a third-party monitor to oversee the firm’s compliance. The monitor will have to publicly file with the court annual reports on the company’s progress.
A guilty plea potentially threatens the company’s ability to secure lucrative government contracts with the likes of the US defence department and Nasa, although it could seek waivers. Boeing became exposed to criminal prosecution after the justice department in May found the company violated a 2021 settlement involving the fatal crashes.
You can read the full story here:
Rachel Reeves has said that the government has no intention of changing the way that the Bank of England treats reserve remuneration.
That idea has been floated by various economists and commentators – and even made its way into the Reform UK manifesto. It would mean the Bank of England paying a lower rate of interest to commercial banks. However, Reeves has now ruled it out pretty firmly.
You can follow more from Reeves’s speech on our politics live blog here:
Rachel Reeves has said the government will introduce mandatory housing targets
Rachel Reeves has pledged to “get Britain building again” after saying the government will introduce mandatory housing targets in her first major speech as UK chancellor.
Local authorities will retain the power to decide on planning applications “in the first instance”, but can be overruled nationally if they fail to meet their targets. “The answer cannot always be ‘no’,” said Reeves, who is the first woman to be chancellor in the UK.
Reeves said it was not a “green light” for any type of home, but that Angela Rayner, the deputy prime minister as well as housing secretary, will push for more building. Rayner has already called in decisions blocking two data centres. Reeves said:
The deputy prime minister will take an interventionist approach to make sure we’ve got the housing that we need.
Housebuilders will also be an important part of the government’s plans. Reeves said: “We need the private sector to build homes.”
Reeves claimed the new Labour government has done “more in 72 hours than last government did in 14 years” to fix the planning system.
There is no time to waste. We will end the prevarication, and make the necessary choices to fix the foundations.
Reeves also said that the government will look at encouraging pension funds to invest in UK companies.
The French elections have given investors pause across Europe, according to a newly published poll.
The Sentix investor poll slipped to -7.3 points, its lowest point since March. That ended a run of eight consecutive improvements in investors’ perceptions of the eurozone economy.
Patrick Hussy, Sentix’s managing director, said:
The recent recovery of the European economy has come to an abrupt end. The moderate economic momentum in Germany is also faltering again. The positive mood due to the European Football Championship 2024 is not spilling over into the economy. The already gloomy assessment of the situation deteriorated to -32.3 points, while expectations fell to -4.8 points below the April value. The French elections are contributing to the growing concern, as is the increasing slowdown in the US economy.
Paramount and Skydance to merge in $28bn deal
Jack Simpson
The family behind Paramount, one of Hollywood’s most iconic companies, has agreed to sell the business to the independent company Skydance.
Paramount chair Shari Redstone, whose father, Sumner, bought the company in 1994, has now given the greenlight to the sale of the family’s controlling stake in company which produced classic films such as The Godfather, Titanic and Chinatown.
Paramount also owns the television network CBS and channels such as MTV and Nickelodeon.
The deal, which values the company at $28bn (£22bn), brings an end to more than six months of negotiations. It will see Skydance and Paramount merge, with Skydance agreeing to invest $8bn into the new company.
Skydance will then pay a further $2.4bn to buy National Amusements, the Redstone-owned theatre movie operator which holds nearly 80% of voting shares in Paramount.
The agreement comes just four years after the death of Sumner Redstone, whose company Viacom bought Paramount Pictures three decades ago in a deal worth $10bn.
Shari took over after his passing but has seen it struggle in recent years with the value of its shares falling by more than 75% in the last five years.
What are the prospects for a government in France? Don’t hold your breath for big changes to spending plans any time soon.
That is the verdict of Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, a consultancy.
French bonds and the euro initially sold off after the result came, but they are now flat. That is “the right call”, said Vistesen, given the small probability of movement for a while as complex negotiations start. Vistesen wrote:
Grand coalitions, like for example in Germany, are not the norm in France, but that could be the only solution this time around, given the fragmented parliament. The conditions for a minority government to rule, meanwhile, is that it does not face a blocking majority. As an initial base case, we have to assume that the left will attempt to capitalise on its victory to pull any government as far left as possible on economic policy. This, in turn, would increase the risk of a standoff with the EU over fiscal policy. This is why the Euro and French bonds initially sold off in response to the result. They’re now both virtually unchanged on the day, however, which is the right call. A lot of negotiation lies ahead before we see the new government, let alone what it can and can’t do.
The French election has meant that Marine Le Pen’s far-right National Rally (RN) will not be in power, but it has not settled what France’s new government will look like.
The New Popular Front (NFP), the hastily arranged coalition of left-wing parties, won the most seats, but it is far short of a parliamentary majority. The result will mean a lot of negotiation to agree on who will be the new prime minister – let alone on achieving anything meaningful in governing the country.
It means there are some complicated scenarios to weigh up, although for financial markets it also means the likelihood of a major political shift – and with it major spending decisions is put off. That may explain the muted market reaction.
Philippe Ledent, a senior economist at ING, an investment bank, said the result “plunges France further into the unknown”.
The French parliament is more divided than ever, made up mainly of three blocs (Left – 182 seats, Centre – 168 seats, Extreme Right – 143 seats) and a number of smaller ones. As we predicted before the elections, no bloc can claim an absolute majority.
Ledent sketches out two options:
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Minority government
French political parties “are not used to making concessions in order to create a programme around a coalition with other parties”, and the NFP’s most prominent figure, Jean-Luc Mélenchon demanded its entire programme be implemented. “If political parties maintain such positions, a long period of instability will ensue,” said Ledent.
“Without an absolute majority, and given the radical nature of its socioeconomic programme, the left-wing bloc won’t be able to pass a single law, unless it uses the tool (article 49.3 to force legislation) that it decried so much itself during the previous legislature. A motion of censure would probably be tabled very quickly, bringing down the government.” It is a similar situation if Macron tries to install a prime minister from his own bloc, or even from the right.
Instability would last until at least June 2025, since the president cannot call for new elections before then.
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Learning to cooperate
“Excluding the 80 MPs from the far left and the 145 from the far right, there are over 350 MPs left to form a broad coalition ready to reform France, taking into account the diversity of opinions. In other European countries, including Germany, such a configuration would be quite natural and would result in a government with a clear majority.
“Certainly, some doors are beginning to open for such a coalition. Of course, the President’s camp is in favour.”
“The French political parties are stuck in a strategic game where the only solution is for the parties to work together. It would help restore calm and political stability. But, not knowing what attitude the other parties will adopt and because any concession on its programme would be seen as a betrayal of its electorate, no party seems willing to enter into discussions in the very short term.”
France’s Cac 40 index swings into positive territory for the day
After an initial drop, France’s benchmark Cac 40 index has also swivelled into positive territory.
Shares in Paris are up by 0.36%.
Investors often favour political stalemates, as they can reduce the scope for policies that will markedly change a country’s fiscal position.
The FTSE 100 has now edged into the black for today: it is up by 0.02%.
B&M European Value Retail, the owner of B&M Bargains, is the biggest riser, up 2.1%.
Marston’s abandons brewing after 149 years in £206m Carlsberg deal
Shares in pub company Marston’s have surged by 20% after it agreed for Carlsberg to buy out its part of a brewing joint venture for £206m.
The deal means that Marston’s will abandon its roots as a brewer – previously known as Wolverhampton & Dudley Breweries – stretching back to 1875. Carlsberg will take complete control of ales including Hobgoblin, Brakspear, Pedigree and Wainwright.
Marston’s first gave up 60% of the brewing business to Carlsberg in 2020, part of a broader consolidation in the brewing industry that saw the biggest brewers take over smaller companies.
The latest deal, a buyout of the remaining 40% of the joint venture, means Marston’s will be left running its estate of about 1,370 pubs. The pubs are mainly located in suburbs around the UK.
Marston’s said the deal would cut its annual interest bill by £18m.
Justin Platt, Marston’s chief executive, said:
Our core capability and key opportunity to unlock value for shareholders is in driving a focused and successful pub business.
This deal further strengthens our balance sheet, significantly reducing our debt by over £200m. In addition, CMBC remain valued strategic partners and we continue to benefit from our ongoing long-term brand distribution agreement with them. Crucially, it allows us to become a pure play hospitality business and focus on what we do best – namely, giving our guests amazing pub experiences.
The FTSE 100 in London has also dipped in the opening trades. It was down by 0.3%.
That appeared to have been driven partly by a drop in gold and silver prices, which weighed on mining company stocks. The top five fallers were the mining contingent: Anglo American, Endeavour Mining, Rio Tinto, Antofagasta and Glencore. They were all down by between 0.9% and 1.5%.
Elsewhere Germany’s Dax index was down 0.1%, Spain’s Ibex was down 0.2%, and the Euro Stoxx index dropped 0.2%.
Cac 40 stock index drops after France election surprise; Britvic to be bought by Carlsberg
Good morning, and welcome to our live, rolling coverage of business, economics and financial markets.
France’s left-wing coalition came first in the second round of its parliamentary election in a shock result that keeps the far-right out of power. Investors are bracing for uncertainty as they wait to see whether the left can work with President Emmanuel Macron’s centrist Together alliance.
France’s benchmark stock index, the Cac 40, dropped by 0.5% in the opening trades on Monday morning.
The euro dipped as currency markets opened on Sunday evening, dropping as low as $1.08 against the US dollar. However, it recovered most of its losses on Monday morning as investors weighted up the prospect of a period of political gridlock as the left-wing New Popular Front tries to work with Together.
France’s Cac 40 stock market index was due to drop by 0.6% when stock markets open on Monday morning.
Holger Schmieding, an economist at Berenberg, an investment bank, said the election would spell the end for Macron’s investor-friendly reforms. He said:
The political forces that joined forces to prevent an RN government have little else in common. Their views on migration, social and cultural issues, fiscal policy and the need for pro-growth reforms are often diametrically opposed. Forming a government will not be easy. Times are tough, emotions are running high – and France has no tradition of forging coalitions between parties of very different political persuasions.
Britvic agrees to sweetened Carlsberg offer
On UK stock markets, FTSE 250 drinks maker Britvic has agreed to a takeover by Danish brewer Carlsberg after a sweetened deal valued the Fruit Shoot maker at £3.3bn.
Britvic shareholders will be entitled to receive £13.15 per share, versus a close of £12.10 on Friday and 36% above the £9.70 price on 19 June, when news of the takeover got out.
The company, which also makes the J2O juice drink and Robinson’s squash, had initially rejected a £3.1bn offer on 21 June.
Britvic’s directors will unanimously vote in favour of the acquisition, the company said on Monday morning in a statement to the stock market. It will be only the latest in a series of foreign takeovers of prominent British companies.
Carlsberg’s executives and bankers have been busy: they have also bought out the share of UK company Marston’s in a brewery joint venture. More details of that deal to come.
