The Federal Reserve has paused its most aggressive round of interest rate rises since the 1980s.
The US central bank has said that the target rate will remain unchanged at 5pc to 5.25pc, but signalled that more hikes could follow.
“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” the Fed said in a statement.
The world’s largest central bank’s decision to pause widens the gulf with the UK and its struggles to get inflation under control.
It follows a string of economic data released over the past two weeks pointing to higher borrowing costs starting to tame price pressures.
Producer inflation, which measures prices charged by wholesalers, fell by more than expected from 2.3pc to 1.1pc in the year to May, figures released today showed.
Consumer price inflation also dropped sharply in May to 4pc from 4.9pc, cementing expectations that the Fed’s job is close to being done.
US rate-setters now believe two more interest rate rises could follow in 2023 as the economy has proved surprisingly resilient.
The Fed’s decision comes as the European Central Bank and Bank of England are both expected to lift rates by 0.25 percentage points tomorrow and next Thursday, respectively.
The Fed only began raising interest rates months after Threadneedle Street, announcing its first hike in March 2022. But it has opted for more forceful increases over a shorter span of time.
Read the latest updates below.
08:12 PM
Economists react to the Fed’s decision
George Lagarias, chief economist at Mazars, said:
“Investors should be careful not to misinterpret a skip for a pause. Fed officials have been explicit that the inflation number is far from target. Even if we have seen the last of rate hikes for this cycle, money is the most expensive it’s been for a long time and will likely become even more so in the next year.”
John Leiper, chief investment officer at Titan Asset Management, said:
It’s Alice in Wonderland, or maybe Powell in Fedland today. Following the unanimous vote to hold rates steady, forward-looking guidance for an additional 50bp of hikes takes the median year-end forecast from 5.1pc to 5.6pc with Fed swaps pricing out rate cuts later this year.
Having rallied aggressively over the last week into the announcement, the surprisingly hawkish guidance is sending equity prices lower. The key question will be if this is a temporary pull back and the extent to which the market buys into this narrative.
We’ve said for some time that investors have been hyper fixated on reaching a terminal rate and that the narrative can shift once we get there. Well, today we’ve had a pause, but additional hikes are now suddenly back on the table. Employment remains strong, growth resilient and inflation, whilst moderating, remains elevated.
That’s reflected in the Fed’s unemployment rate projection, which falls from 4.5pc to 4.1pc and projected increase in GDP from 0.4pc to 1pc. It could also be that the Fed is no longer convinced that the recent banking sector turmoil will be as damaging as anticipated.
If so, it makes sense to transition the de facto credit-crunch rate hike back onto the Fed. Bottom line, if the economy continues to run hot then they won’t get the job done on inflation meaning rate hikes are back on the table and good news is bad news once again.
David Henry, investment manager at Quilter Cheviot said:
For the first time in well over a year, the Federal Reserve has held interest rates at their current level. While not usually a significant event, this one feels especially so. After all the hikes in the last 15 months and the various supply chain shocks, the tide is finally turning in the battle against inflation.
But victory is not being declared yet. The Fed has made it clear all along that it is responding to the data and core inflation remains well above target. This pause is very much the Fed in wait and see mode – it will still be looking for its action to date to take effect in the economy, and thus won’t want to slam the brakes on too hard. On the flipside, however, we can’t expect a pivot to rate cuts anytime soon either, and instead rate rises are still on the table for the next meeting.
Markets will continue to second guess what the Fed will do, and this will only add to the volatility we have seen for the past 18 months. While the end of this hiking cycle is in sight, it doesn’t necessarily mean the difficult conditions for investors will wash away with it. Diversification and focusing on quality businesses continues to be the key as earnings get challenged and consumer spending potentially sours.
07:47 PM
Fed Chair Jerome Powell: inflation has a ‘long way to go’
He said: “Inflation has moderated somewhat since the middle of last year. Nonetheless inflation pressures continue to run high, and the process of getting inflation back down to 2pc has a long way to go.”
07:15 PM
Federal Reserve ‘prepared’ for further rate rises if necessary
The Federal Open Market Committee (FOMC) said that the decision to hold interest rates was unanimous.
Pausing monetary tightening will allow the FOMC to assess “additional information and its implications for monetary policy”.
In deciding whether to further increase borrowing costs, the FOMC said it wll consider “the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments”.
The rate-setting committee also said it would be “prepared to adjust the stance of monetary policy” if risks emerge that prevent reaching its goal of reducing inflation to 2pc.
07:08 PM
Federal Open Market Committee statement in full
The Federal Reserve has released the full statement of the Federal Open Market Committee, the 12-member panel which sets the US benchmark interest rate target:
Recent indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2pc over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5.25pc percent. Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.
In determining the extent of additional policy firming that may be appropriate to return inflation to 2pc over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2pc objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
07:01 PM
Federal Reserve holds benchmark interest rate
The Federal Reserve has paused its most aggressive round of interest rate rises since the 1980s.
The US central bank has said that the target rate will remain unchanged at 5pc to 5.25pc, signalling that it has inflation sufficiently under control.
06:51 PM
MoD to use Google’s AI despite warnings technology could threaten human race
The Ministry of Defence has signed a deal with Google to use artificial intelligence (AI) despite recent warnings that the technology could threaten the human race.
Industry editor Howard Mustoe has more:
The Defence Science and Technology Laboratory (Dstl), the ministry’s research arm, will use Google’s Cloud platform to learn about AI’s potential uses, which include cybersecurity work, disaster response and speeding up research.
Just last week, Rishi Sunak’s adviser on the technology warned that the world has two years to stop AI from becoming a threat to the human race.
Matt Clifford, the Prime Minister’s AI task force adviser, said there are “all sorts of risks now and in the future” from the “pretty scary” technology which should be “very high on the policy makers’ agendas”.
But the tech giant and the MoD have promised to use the technology responsibly. Google has also pledged not to allow its AI software to be used for weaponry.
Read the full story here…
06:21 PM
Continuing train driver strikes ‘deeply regrettable’, says rail minister
The rail minister has said it is “deeply regrettable” that train drivers’ union Aslef have voted for another six months of strikes in their long-running pay dispute.
Speaking in a parliamentary debate, Huw Merriman said:
It is deeply regrettable that today Aslef has balloted members to continue strike action.
They’ve balloted to ask for a continuation of strikes, but they haven’t asked those same members if they would like to take up the fair and reasonable pay offer that’s been put forward by industry.
It’s on the table, it isn’t being put to members, that would take the average pay from £60,000 to £65,000 for a 35-hour week.
We remain committed to that offer, we also ask the unions to do their part and ask their members to give a view on that offer.
Mr Merriman also called on shadow rail minister Tanmanjeet Singh Dhesi for support, which he said “could bring an end to strikes rather than seeing the unions continue to put this country and rail passengers through absolute misery”.
05:57 PM
Traders braced for the Federal Reserve decision
Traders are braced for the Federal Reserve to pause its most aggressive round of interest rate rises since the 1980s.
The US central bank is expected to announce at 7pm that inflation is sufficiently under control that the target rate will remain unchanged at 5pc to 5.25pc.
The decision will follow a string of economic data released over the past two weeks pointing to higher borrowing costs starting to tame price pressures.
05:37 PM
UK interest rates will remain high for years, says former Bank of England governor
UK consumers should expect to pay higher interest rates for years to come, according to former Bank of England governor Mark Carney.
In an interview to be broadcasted on ITV this evening, the former central bank chief said the UK is “going to be paying higher rates of interest for their debt for the foreseeable future”.
Mr Carney said consumers should not measure borrowing cost increases in 12 or 24 month cycles, Bloomberg reported.
It comes as stubborn inflation and surprisingly strong wage data increases pressure on the Bank of England to continue raising interest rates.
05:29 PM
Charles Schwab issues revenue warning as trading activity slumps
Charles Schwab expects its revenue to slide as much as 11pc in the second quarter compared to a year earlier, the company’s chief financial officer has said.
The forecast comes as the Texas-based brokerage suffers a squeeze on its net interest margin, as it borrows from the Federal Home Loan Bank network and endures a period of lower trading activity.
The Federal Reserve’s rapid interest rate hikes put pressure on Schwab, encouraging customers to pull cash out of its low-yielding sweep accounts, searching for more interest from products like money-market funds.
The company’s shares have lost more than a third of their value this year.
Schwab’s average pace of cash outflows slowed to $350m (£276m) per business day in May from $1bn in April, according to finance chief Peter Crawford.
Executives maintain that the firm’s higher-cost borrowing is temporary. Mr Crawford said the “vast majority” of its more expensive balances should be repaid before the end of 2024.
05:24 PM
Sainsbury’s cuts the price of toilet paper by 11pc as pulp costs fall for first time in 2 years
Sainsbury’s has cut the price of its own-brand toilet paper by as much as 11pc after the price of pulp fell for the first time in two years.
Senior business reporter Daniel Woolfson reports:
A two-pack of its Super Soft double rolls has fallen from £1.90 to £1.69, while a four-pack of the same rolls has dropped from £3.25 to £2.92.
The supermarket claimed it had been able to make the reductions because the price of pulp used to make toilet rolls had fallen after two years of inflation.
Rhian Bartlett, food commercial director at Sainsbury’s, said: “We are now seeing a decline which is enabling us to pass savings directly on to our customers and reduce the price of our own brand toilet roll.”
It comes amid a mounting price war between supermarkets as high food inflation drags on. Aldi and Lidl have encroached on the market share of traditional supermarkets, prompting retailers to cut prices on key items to attract customers.
Sainsbury’s, Tesco and Morrisons have all cut the price of goods including bread, cheese, milk and butter in recent months.
It came after more than one million shoppers switched to Aldi in the first quarter of the year, according to recent Kantar figures.
Consumers have been price conscious as food price inflation remains stubbornly high. Food prices rose by a fifth in the year to March – their biggest jump in 45 years.
The Telegraph reported in May that Prime Minister Rishi Sunak had initiated talks with retailers over a potential price cap on essential goods to help squeezed households cope with the price rises.
05:17 PM
Toyota survives shareholder challenge on climate lobbying
Toyota has overcome challenges from shareholders over the independence of its board and its climate reporting.
Industry editor Howard Mustoe has more:
An investor proposal from a Danish pension fund accused Japan’s biggest car maker of lobbying governments to weaken climate goals.
Another group of shareholders wanted the company to elect a more independent board, as Toyota’s current directors have ties to the firm. Chairman Akio Toyoda being a former executive and grandson of its founder Kiichiro Toyoda.
Shareholders backed all 10 board members and threw out a resolution urging Toyota to release more information on its lobbying activities on climate change, however.
They marked the first investor proposals to come before the car maker’s annual general meeting in almost two decades.
Earlier this week, Toyota announced a raft of investments in the next generation of battery technology for a new fleet of cars.
05:12 PM
M&C Saatchi shares plummet as advertisers cut back spending
Shares in M&C Saatchi dropped sharply after the advertising firm said its clients were cutting back spending due to the tough economic backdrop.
Senior business reporter James Warrington has the details:
M&C Saatchi, which was founded by Margaret Thatcher’s favourite admen, warned of a small decline in revenue for the full year amid a “more challenging trading environment”.
The company has previously sounded the alarm over a slowdown in advertising, particularly among its tech clients, as companies tighten their belts.
Analysts at Peel Hunt said the drop in spending was particularly acute in Australia and Asia.
Shares in M&C Saatchi dropped by almost a fifth in morning trading before recovering to a decline of 9pc, giving the ad firm a market valuation of around £194m.
The downturn highlights the challenge facing incoming chairman Zillah Byng-Thorne, former chief executive of magazine publisher Future, who takes up her new role this week after replacing Gareth Davis.
Despite the slowdown, M&C Saatchi said it was confident it would deliver headline growth in pre-tax profit and improvement in its operating margin.
It said this would be achieved partly through cost-cutting, with profits weighted to the second half of the year.
While advertising remains the largest part of M&C’s business, representing almost 50pc of revenues, the company said it benefited from its diverse range of other services, including consulting and public relations.
Peel Hunt added: “Whilst it is not ideal that trading has been challenging for advertising and media, which led to today’s downgrade, the issue is not isolated to M&C.”
The advertising marks the latest setback for M&C Saatchi, which was founded in 1995 by brothers Maurice and Charles Saatchi and is best known for Margaret Thatcher’s “Labour Isn’t Working” advert that helped propel the Conservatives to power in 1979.
Last year, the company was locked in a bitter dispute with software entrepreneur Vin Murria, its largest shareholder and former deputy chairman, after she launched a hostile takeover bid.
Another bidder, Next 15, tabled a rival offer, but shareholders ultimately blocked the approach.
The 10-month takeover battle proved a lengthy distraction for then boss Moray MacLennan. In February, he set out a new investment plan for the company – dubbed “Moving Forward” – which set out plans to slim down the group’s operating model and boost profits.
05:02 PM
FTSE 100 closes higher ahead of Fed rate decision
The FTSE 100 has closed 0.10pc lower at 7,602.74, as the pound surged to its highest level in over a year ahead of the Federal Reserve’s latest interest rate decision.
The mid-cap FTSE 250 index dipped by 0.07pc to 19,175.50.
Mining companies lifted by higher metals prices led the FTSE 100, including Anglo American (share price up 4.33pc), Antofagasta (up 3.66pc) and Rio Tinto (up 2.9pc).
Mining stocks climbed 2.75pc across the FTSE 350.
04:36 PM
My last meal would be a club sandwich and a Mexican coke, says Rishi Sunak
Rishi Sunak has said his last meal would be a club sandwich, fries and a bottle of his beloved Mexican Coke.
Senior technology reporter Matthew Field has the story:
The Prime Minister disclosed his death row dinner of choice on a technology podcast, while also discussing his preferred methods of whipping up scrambled eggs.
Mr Sunak was asked by Harry Stebbings, of the 20VC podcast, what his final meal would be during a 22-minute interview published on Wednesday.
He replied: “Easy: club sandwich, fries, and a Mexican coke.”
Mexican Coke is sweetened with cane sugar rather than high-fructose corn syrup as is typically used in US-made Coca Cola.
Mr Sunak, who studied at Stanford in California, has previously professed his love for the beverage, calling himself a “total coke addict”. He stocked up on bottles during an official visit to the US in March for the Aukus defence summit.
During the same podcast interview, the Prime Minister said he ate scrambled eggs using a recipe shared with him by Gordon Ramsey.
Mr Sunak said: “I interviewed him when I was Chancellor as I was doing research for the interview and came across – he has this video that has been watched a gazillion times, about how to cook scrambled eggs, which is it is slightly counterintuitive to how most of us do it, because it doesn’t have milk.”
Gordon Ramsay’s suggested method involves breaking the eggs directly into a pan, without whisking, putting butter into the pan before adding crème fraîche and seasoning before the eggs are overcooked. He then adds a generous amount of chopped chives.
Mr Sunak appeared on the 20VC podcast as part of London Tech Week and discussed Britain’s ambitions to become a world leader in artificial intelligence (AI).
The Prime Minister said he believed the UK would “get that balance right” on regulating AI, while championing the use of the technology for education and schools.
Mr Sunak has announced a £100m artificial intelligence task force to focus on developing the technology safely.
03:55 PM
Ladbroke owner falls to bottom of FTSE 100 after announcing Polish sports betting deal
Good afternoon everyone, it’s Adam Mawardi here. I’ll be sharing the latest updates as the Fed prepares to announce its latest interest rate decision. Until then…
Shares in Ladbroke and Coral owner Entain have dived after announcing plans to buy a Poland-based sports betting company.
Entain has fallen to the bottom of the FTSE 100 as its share price dropped as much as 11.5pc.
It comes after the gambling giant revealed on Tuesday a £750m takeover offer for STS Holding, which has around 400 physical betting shops in Poland.
The deal has been accepted by STS chief executive Mateusz Juroszek and his father Zbigniew Juroszek who own around 70pc of the company’s shares.
The pair will invest their returns from the sale to become 10pc shareholders in Entain’s central and eastern Europe division.
Entain said the deal continues its European expansion and presents further growth opportunities should Poland fully liberalise online casinos.
03:32 PM
We Soda pulls plan to float in London
We Soda has pulled its planned float on the London Stock Exchange in a major blow to the City.
The proposed IPO for the world’s largest producer of natural soda ash fizzled out as bosses warned of “extreme investor caution”.
Chief executive Alasdair Warren said it meant the company was “unable to arrive at a valuation that we believe reflects our unique financial and operating characteristics”.
03:16 PM
EBay says ‘most functionality’ restored after outage
EBay has confirmed the company has been dealing with an outage on its website today.
Thousands of customers across Britain have reported technical issues on the ecommerce platform via the tracking website Downdetector.
An eBay spokesman said:
We are aware of an issue today that impacted some users ability to complete the checkout process and apologise for the inconvenience.
Most functionality has now been restored and our team remains actively engaged on this issue.
02:56 PM
Pound highest against dollar since February last year
The pound has risen to its highest level in more than a year as the Bank of England is forecast to send rates surging higher than the US.
Sterling has risen 1.5pc against the dollar over the last two days to head toward $1.27, having last reached its current value in February last year.
It has risen much less against the euro, rising 0.1pc, as the European Central Bank is expected to raise its own interest rates from 3.25pc to 3.5pc, which would be its highest level since 2001.
It comes as markets expect the Bank of England to raise interest rates to 5.75pc by the end of the year, potentially peaking at 6pc by next February.
Meanwhile, later this evening, the US Federal Reserve is widely expected to hold interest rates where they are at the 5pc to 5.25pc range, ending a cycle of 10 consecutive rises over the last 15 months.
It comes as wholesale prices in the US dropped 0.3pc from April to May in another sign that inflationary pressures continue to ease.
It follows data on Tuesday showing the US consumer price index (CPI) measure of inflation slowed to an annual rate of 4pc last month, its lowest level in almost two years.
Meanwhile, figures today showed Britain’s economy expanded by 0.2pc in April after a contraction of 0.3pc in March, indicating that more interest rate rises may be needed as wages rise at a record pace.
02:36 PM
US markets open tentatively ahead of rates decision
Wall Street’s main indexes were subdued at the open as investors geared up for the Federal Reserve’s interest rate decision this evening, while shares of UnitedHealth fell after the insurer warned of higher medical costs.
The Dow Jones Industrial Average fell 0.5pc at the open to 34,044.70.
The S&P 500 opened lower by 0.1pc at 4,366.29, while the Nasdaq Composite was flat at 13,570.56 at the opening bell.
02:26 PM
Bond yields steady as Fed expected to hold interest rates
Government borrowing costs have eased today after another set of US inflation figures reinforced market expectations that the Federal Reserve will keep its interest rates steady for the first time in 15 months.
Bonds have reversed course, with yields dropping in the UK and the US.
Traders now expect the benchmark rate to peak in September, instead of July.
It comes as US producer prices (PPI) — which measures inflation before it reaches consumers — declined in May, after a 13.8pc drop in the cost of gasoline.
The 10-year yield on US Treasuries has dropped three basis points to 3.78pc, while equivalent UK gilts have fallen one basis point to 4.4pc.
02:08 PM
Wholesale inflation falls ahead of Fed rates decision
Wholesale prices in the US dropped 0.3pc from April to May, another sign that inflationary pressures continue to ease in the face of repeated interest rate increases by the Federal Reserve.
The Labor Department’s producer price index — which measures inflation before it reaches consumers — rose 1.1pc last month from May 2022, the smallest year-over-year gain since December 2020.
On a month-to-month basis, overall producer prices have now dropped three of the last four months. In May, wholesale inflation was pulled down by a 13.8pc drop in gasoline prices.
Excluding volatile food and energy prices, so-called core wholesale inflation was up 0.2pc last from April and 2.8pc from a year earlier, the mildest gain since February 2021.
Unleashed by an unexpectedly strong economic recovery from 2020’s Covid recession, inflation began to rise in 2021 and last year reached levels not seen since the early 1980s.
In response, the Fed has raised its benchmark interest rate 10 times in the past 15 months, which policymakers are expected to end when they announce their latest decision this evening.
01:58 PM
Brussels seeks to break up Google over ‘illegal’ online ad practices
The European Union is seeking to break up Google’s giant advertising business in an escalation of Brussels’ war with the internet giant.
Technology editor James Titcomb has the details:
Margrethe Vestager, the EU’s competition chief, announced a “statement of objections” against Google today, saying it had used illegal tactics to dominate the online ad market and charged advertisers inflated prices.
The EU said it expected to order Google to sell parts of its advertising business, claiming that this was the only way to ensure the company would change its ways.
Ms Vestager has repeatedly fined the company in recent years, with three separate penalties amounting to more than €8bn (£6.8bn).
Read why this case is the first time that Ms Vestager has said that the EU expects to break up Google.
01:48 PM
Ryanair chief pilot sacked over string of grooming allegations
Ryanair has sacked its chief pilot following an investigation by the airline into “pattern of repeated inappropriate and unacceptable behaviour” towards junior female pilots.
Chief business correspondent Oliver Gill has the story:
Aidan Murray, 58, was dismissed on Tuesday evening after a two-week investigation of alleged breaches of the airline’s anti-harassment policies.
It followed an anonymous tip-off two-a-half weeks ago claiming that Mr Murray had groomed four junior female pilots.
There are no allegations of sexual contact, sources close to the airline said.
Ryanair’s investigation led to eight female members of staff aged between 21 and 32 providing statements and giving evidence alleging misconduct by Mr Murray.
Read what he is alleged to have done.
01:37 PM
EBay down as customers report outages
EBay customers are experiencing problems accessing the online auctioning website across the UK, according to a closely-watched outage tracker.
More than 2,900 customers of the ecommerce website have reported being unable to access its services on the Downdetector website.
EBay has been contacted for comment.
01:09 PM
Block Vodafone and Three merger, urges union
Trade union Unite has asked the Government to step in to block the “reckless merger” of telecoms giants Vodafone and Three, arguing it will lead to job losses and push up people’s mobile phone bills.
Gail Cartmail, executive head of operations for Unite, said:
This deal will give a company with deep ties to the Chinese state an even more prominent place at the heart of the UK’s telecommunications infrastructure.
On top of that, it will hike people’s bills and mean job losses for Vodafone and Three workers.
The Government must step in and stop this reckless merger and Unite is building a cross-party coalition to demand they do so.
12:31 PM
Wall Street poised to open higher
The S&P 500 and Nasdaq are on course to edge upward at the opening bell as investors overwhelmingly expect the Federal Reserve to refrain from raising interest rates as it concludes its meet later today.
The Fed is expected to leave interest rates unchanged at the 5pc to 5.25pc range, for the first time since it kicked off a historically aggressive round of monetary policy tightening in March 2022. The decision is due at 7pm UK time.
Investors will also watch out for Fed Chair Jerome Powell’s news conference after the meeting to assess the central bank’s monetary policy path.
Richard Flynn, UK Managing Director at Charles Schwab, said: “Assuming the Fed does pause, it’s possible the Fed’s statement could include wording designed to stamp out expectations that a pause may lead to a cut.”
Traders see a 95pc chance the US central bank will hold rates at current levels and 63pc odds of a 25-basis-point hike in July, according to the CME Fedwatch tool.
In premarket trading, the Dow Jones Industrial Average was up 0.1pc, the S&P 500 was up 0.2pc and the Nasdaq 100 was 0.2pc higher.
12:16 PM
Drivers must ‘reform long out of date working practices,’ say rail bosses
After Aslef members voted for another six months of possible strike action, a spokesperson for the Rail Delivery Group, which represents train operators, said:
It is not fair nor sustainable to continue relying on record tax-payer subsidies to keep the industry afloat when it is still down 30pc of its pre-Covid revenue, as confirmed in the latest passenger usage report.
Aslef must recognise that the reform of long out of date working practices is the only way forward to improve reliability and fund a pay rise.
Instead of causing further disruption to passengers and businesses, we urge them to put our pay offer, which would have taken average driver salaries to £65,000 for a four-day week before overtime, to its membership so that we can improve services for passengers and secure the long-term future of Britain’s railways.
Here is the latest.
12:11 PM
Aslef ‘simply asking for a fair deal on pay’
Aslef said a re-ballot of its members showed they are “in it for the long haul”.
General secretary Mick Whelan said:
Once again our members have decided that we are in this for the long haul.
Train drivers are sick to the back teeth of their employers and the Government failing to negotiate in good faith, and blaming drivers for their inability to manage services and the rail industry effectively.
Aslef members, the key workers who kept our country moving through the pandemic, are simply asking for a fair deal on pay so that they can afford to keep up with their outgoings in this Government-made cost-of-living crisis.
We have always said we are prepared to come to the table but the Government and the train companies need to understand that this dispute won’t be resolved by trying to bully our members into accepting worse terms and conditions.
11:44 AM
Train drivers vote to continue strike action
Train drivers have voted overwhelmingly to continue taking strike action for the next six months in their long-running pay dispute, their union Aslef announced.
11:40 AM
Bank of England has our ‘unstinting’ support on rate rises, says Hunt
Jeremy Hunt has said the UK has “no alternative” but to increase interest rates in a bid to tackle rising prices.
The Chancellor said inflation is the “number one challenge we face”, adding the Government would be “unstinting in our support” for the Bank of England “to do what it takes” to slow price rises.
Asked if he was following former chancellor John Major’s dictum in 1989 that “if it isn’t hurting, it isn’t working”, he told the BBC:
In the end there is no alternative to bringing down inflation, if we want to see consumers spending, if we want to see businesses investing, if we want to see long-term growth and prosperity.
We have to do everything we can as a government, as a country, to support the Bank of England in their mission to squeeze inflation out of the system.
11:26 AM
Vodafone and Three deal will ‘deliver a best-in-class 5G network’
Canning Fok, group co-managing director of Three’s Hong-Kong based owner CK Hutchison, said:
Today’s announcement is a major milestone for CK Hutchison and for the UK.
Three UK and Vodafone UK currently lack the necessary scale on their own to earn their cost of capital.
This has long been a challenge for Three UK’s ability to invest and compete.
Together, we will have the scale needed to deliver a best-in-class 5G network for the UK, transforming mobile services for our customers and opening up new opportunities for businesses across the length and breadth of the UK.
11:21 AM
Vodafone and Three merger is a ‘game changer’
Vodafone will own 51pc and CK Hutchison 49pc of the combined group, which will be known as MergeCo.
Under the deal, Vodafone UK and Three UK will be wholly owned subsidiaries of the group, which will have about 27m customers, overtaking BT’s EE and Vrigin Media O2, jointly owned by Telefonica and Liberty Global.
Seeking to win the support of politicians and the competition regulator, the two groups said they would invest £11bn in Britain over 10 years to create what they described as “one of Europe’s most advanced standalone 5G networks”.
Vodafone chief executive Margherita Della Valle said:
For Vodafone, this transaction is a game changer in our home market.
This is a vote of confidence in the UK and its ambitions to be a center for future technology.
11:14 AM
Vodafone completes giant mobile merger with Three UK
Vodafone and Three UK owner CK Hutchison will merge their British operations, the two groups have confirmed, creating the UK’s largest mobile operator.
The details came in a long-awaited announcement after the two companies publicly revealed they were in talks in October.
Vodafone’s shares have risen 3pc following the announcement, which outlined plans to invest £11bn in the UK over the next decade.
Vodafone boss Ahmed Essam will become the chief executive of the merged companies.
11:09 AM
Gas prices slump as Goldman Sachs predicts weakened demand
European natural gas prices have slumped again after Tuesday’s gains as Goldman Sachs said weakened demand will limit any impact from supply outages in Norway.
Benchmark prices slipped as much as 7.6pc despite several Norwegian production facilities prolonging maintenance works until the middle of July.
The outages caused some concern for traders and drove prices 16pc higher on Tuesday.
Similar short-term supply issues have brought back volatility, helping push prices up about 30pc this month after dropping to the lowest in two years in early June.
The extended Norwegian outages have tightened supply gas balances by about 1.4bn cubic meters, Goldman said.
However, weaker-than-expected demand and strong availability of liquefied natural gas have loosened it by 3bn cubic meters in May and so far in June combined, the bank added.
Dutch front-month gas, the benchmark for Europe, were last down 6pc to less than €34 per megawatt-hour.
10:39 AM
HSBC pulls mortgage deals as Hunt warns ‘no alternative’ to raising rates
HSBC has announced it is withdrawing swathes of its mortgage deals from the market for the second time in less than a week amid uncertainty about the future of interest rates.
The lender will pull all new business residential mortgages via their broker services at 5pm today “in order to maintain our service levels,” before raising rates again on Thursday.
It comes as Chancellor Jeremy Hunt told the BBC that the UK has “no alternative” but to increase interest rates in a bid to tackle rising prices.
Last week, HSBC temporarily withdrew all residential and buy-to-let new business mortgage deals via brokers in order to stay “within our operational capacity”.
That was the first time HSBC had withdrawn from the mortgage market since the aftermath of September’s mini-Budget, amid turmoil in the government debt market.
Mortgage lenders have been temporarily restricting the availability of mortgage deals and increasing rates as financial markets believe interest rates will rise to 5.75pc by the end of the year.
It comes as Government borrowing costs have surged past levels seen during Liz Truss’s premiership amid concerns that Rishi Sunak will not hit his target to halve inflation this year.
An HSBC spokesman said:
We remain open to new mortgage business and committed to supporting or loyal customers.
All products and current rates for existing customers and buy-to-let applications through brokers will be available until midnight.
To ensure they and new customers get the best possible support and certainty about their mortgage we occasionally need to limit the amount of new business we can take each day through brokers.
Current rates for new applications through brokers will be available until 5pm Wednesday to ensure a smooth transition to the new rates while maintaining operational effectiveness and protecting customer service levels.
These will become available again at the new rates from Thursday morning.
10:20 AM
Oil demand will fade over next few years, says IEA
Global growth in oil demand will taper off over the next few years as high prices and Russia’s invasion of Ukraine speed up the transition away from fossil fuels, the International Energy Agency (IEA) has said.
Consumption in 2024 will grow at half the rate seen in the prior two years, and demand will ultimately be limited this decade as electric vehicles send the use of gasoline by cars into decline, the Paris-based organisation predicted in a medium-term outlook.
With production capacity still growing, markets will remain “adequately supplied” through to 2028, it said.
The IEA, which advises major economies, said:
Growth in the world’s demand for oil is set to slow almost to a halt in the coming years.
The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade.
It comes as Shell announced today that it is abandoning its plans to cut oil production in the coming years, as the fossil fuel giant ups its dividend by 15pc this year.
Brent crude remains higher today, rising 1pc to more than $75 a barrel.
10:13 AM
Interest rates will rise until recession is inevitable, warns ex-Treasury chief
Persistent inflation will force the Bank of England to raise interest rates to the point where recession becomes inevitable next year, according to a former permanent secretary to the Treasury.
Lord Macpherson said policymakers at the Bank were “behind the curve on interest rates” and will have to “act decisively otherwise sterling will fall creating more inflation”.
He also pointed to the recent turmoil in the gilts market, warning that “the market in government debt, much more than the Bank of England, determines the interest rate homeowners and businesses pay”.
Mortgage lenders have been temporarily restricting the availability of mortgage deals and increasing rates as financial markets believe interest rates will rise to 5.75pc by the end of the year.
At the same time, Government borrowing costs have surged past levels seen during Liz Truss’s premiership amid concerns that Rishi Sunak will not hit his target to halve inflation this year.
Lord Macpherson, who was appointed by Gordon Brown in 2005 and was Whitehall’s longest serving permanent secretary when he stood down in 2016 under George Osborne, said: “An election is on the horizon. But I can’t remember an election when 18 months out interest rates were still rising steeply.
“It’s still possible the Government may get lucky: underlying inflation may come down quicker than expected. But I wouldn’t bet on that.
“Much more likely that the Bank of England will raise rates to a level where a recession next year becomes inevitable.
“As a Chancellor said 34 years ago (albeit a year further out from an election) ‘if it isn’t hurting, it isn’t working’.”
Here is that thread by Lord Macpherson:
10:05 AM
West End landlord boosted by strong demand
London’s West End landlords have been boosted by the return of international tourists.
Economics reporter Melissa Lawford explains:
Trading activity across retail, hospitality and leisure venues has jumped by 13pc compared to 2019 levels, according to a trading update from Shaftesbury Capital.
The company has a portfolio of 2.9 million sq ft of lettings across Soho, Chinatown, Covent Garden and Carnaby Street.
Shaftesbury Capital completed 173 leasing transactions in the first five months of this year. Of these, 74 were commercial lettings and renewals, with rents up 7pc compared to estimated rental values in December. Rents on new office leases were up by 8pc.
“Footfall trends across the West End are positive, buoyed by increasing international tourist numbers, particularly evident through May following the Coronation celebrations and this is anticipated to continue through the summer,” the update said.
09:53 AM
Government announces £77m for creative industries
The Government’s announced a plan to grow the creative industries by £50bn and support a million more jobs by 2030, with £77m of new funding for the sector announced.
The Prime Minister has been enthusing about the plan this morning:
09:34 AM
Robert Walters issues profit warning amid weakening jobs market
Recruitment firm Robert Walters has warned over full-year profits after seeing fee income tumble amid a weakening jobs market.
The group saw shares plunge as much as 20pc at one stage, before settling about 15pc down this morning after it said 2023 profit was set to come in “significantly lower” than market expectations.
It saw net fee income fall 10pc on a constant currency basis in the first two months of the second quarter, after fee income flatlined in the first three months of the year.
Robert Walters cautioned it was not seeing the expected sustained improvement in the recruitment sector after flagging lower candidate confidence and longer hire times at the end of last year.
The profit alert comes after it downgraded guidance in January for last year’s result, blaming a “difficult” jobs market due to economic worries.
In its latest update, the group said “recruitment market fundamentals such as job flow, candidate shortages and wage inflation remain solid, suggesting that when market confidence recovers there will likely be a return to meaningful growth”.
09:06 AM
Oil rises as China stimulates economy
Oil has held onto a sharp overnight gain that was driven by signs China is shifting into stimulus mode and a US plan to replenish reserves.
Brent crude, the international benchmark, has gained 1pc today to more than $75 a barrel after rising 2.6pc on Tuesday, while US-produced West Texas Intermediate has risen 0.9pc above $70 a barrel after rising 3.4pc on Tuesday, the most in more than five weeks.
Beijing is considering a broad range of stimulus measures to revive China’s flagging recovery after already having taken steps to loosen monetary policy.
The country also issued a fresh crude import quota for non state-owned refiners and traders for 2023.
The US is planning to buy about 12 million barrels of oil this year to refill its depleted emergency reserves, according to Bloomberg.
Slowing inflation is also adding to expectations the Federal Reserve will pause interest-rate hikes for the first time in 15 months.
Crude is still down about 17pc since mid-April as a worsening demand outlook and resilient exports from Russia — despite pledged output cuts — weighed on prices.
08:44 AM
Markets inch upward ahead of Federal Reserve rate decision
The UK’s main stock indexes were subdued at the open ahead of a crucial interest rate decision by the US Federal Reserve and the growing likelihood of persistent rate hikes by the Bank of England.
The resource-heavy FTSE 100 has climbed back into positive territory after a shaky start, rising 0.1pc, while the domestically focused FTSE 250 midcap index has also gained 0.1pc.
British wage growth soared while employment jumped in the three months to April, data showed on Tuesday, raising expectations of more rate increases from the Bank of England.
The Office for National Statistics today revealed that the British economy expanded slightly, as expected, in April.
Inflation data on Tuesday offered optimism, with US consumer prices rising modestly in May, boosting bets that the Fed will pause its rate-hiking cycle this evening.
While miners were the worst hit, down 1.3pc, a 2.7pc rise in Aston Martin boosted motoring stocks after Jefferies upgraded its rating to “hold” from “underperform”.
Gaming company Entain dropped 10.2pc on plans to buy Poland’s STS Holdings for £750m.
08:23 AM
Recession on its way later this year, warn economists
Ruth Gregory, deputy chief UK economist at Capital Economics, warned against raising hopes that the UK will escape recession after economy expanded by 0.2pc in April, saying “the rise in GDP is not as good as it seems”. She said:
With the full drag from high interest rates yet to be felt, it is too soon to sound the all clear.
The overall sense is that the economy is still proving fairly resilient to the drag from high interest rates.
This resilience will further increase hopes that a recession is no longer likely. We are not convinced.
We estimate that by the end of Q2 2023 less than 40pc of the drag will have been felt and that more than 60pc lies ahead.
And we think interest rates need to rise further to quash inflation, from 4.5pc now to a peak of 5.25pc.
That’s why we still think a recession is on its way in the second half of this year.
08:15 AM
Pound flat despite UK economy’s growth
The pound is unchanged following the rise in UK GDP in April.
Sterling is flat against the dollar at £1.26 and is also static against the euro, which is worth 85p.
08:10 AM
UK growth will be ‘anaemic at best,’ says NIESR
Paula Bejarano Carbo, associate economist at NIESR, said the 0.2pc growth in Britain’s economy from March to April was driven by household spending. She said:
The largest positive contributors to GDP were growth in wholesale and retail trade, and information and communication, while the largest negative contributor was manufacturing; these contributions are consistent with the longer-term trend of household spending driving growth.
With the Bank Rate set to rise further over the coming months, curbing demand, it is likely that UK growth will continue to be anaemic at best.
08:04 AM
Markets mixed as economy grows
It has been a mixed start for the markets after figures showed Britain’s economy expanded in April.
The FTSE 100 has fallen 0.2pc after the open to 7,580.40 while the midcap FTSE 250 rose 0.1pc to 19,201.89.
07:55 AM
Next year’s growth rates forecast ‘could be downgraded,’ warns PwC
The economy is now bigger than what it was before the pandemic, by 0.3pc, with April’s expansion helped by growth in the services sector as consumers got back out following bad weather in March.
Barret Kupelian, senior economist at PwC, said:
Monthly GDP figures are affected by highly seasonal factors and sometimes do not provide enough information about the broader trends for economic activity.
For example, we expect next month’s GDP reading to show that the economy contracted in part due to the additional bank holiday in May.
On a three-month basis the economy grew by 0.1pc which reinforces our overall view that this year will be one of subdued growth.
Yesterday’s news that the labour market continues to run abnormally hot means that the pressure for the Bank of England to continue to raise and keep interest rates longer to a level higher than anticipated has grown.
Aside from the obvious effect on asset prices, such as house prices, this could mean that next year’s growth rates forecast could be downgraded.
We will get an indication of the direction of travel next Wednesday where all eyes will be on core inflation – which takes out the impact of erratic items from the headline inflation rate – and is a better measure of domestic inflationary pressures.
07:50 AM
E.On Next ordered to pay £5m for poor customer service
Power supplier E.On Next has been ordered to pay £5m in compensation for poor customer services, the energy watchdog has announced.
Ofgem said a review of customer service standards and complaints-handling across the sector uncovered “severe weaknesses” at E.On Next, with customers facing long call waiting times and a high level of unanswered calls.
More than 500,000 customers were potentially affected, according to Ofgem.
The regulator said E.On Next will pay £4m to those customers most directly affected, working out at £8 each.
It will also pay a further £1m to Ofgem’s voluntary redress fund, which supports vulnerable energy consumers and other innovation and carbon emission reducing investments.
07:43 AM
Interest rates ‘can only be going higher’
Neil Birrell, chief investment officer at Premier Miton Investors, said:
After figures showing that wages and employment remain strong in the UK, the GDP data did not provide any solace for the Bank of England, coming in as expected and showing that the economy continued to grow in April.
With such robust data across large parts of the economy and inflation staying stubbornly high, interest rates can only be going higher.
The question is how much higher and 6pc is a possibility.
07:40 AM
Economy’s growth is ‘so so’
It is fair to say Britain’s return to growth in April, with the economy expanding 0.2pc, has received a lukewarm reaction:
07:36 AM
Households ‘responded to improving weather in April,’ says IoD
Commenting on the latest data on the British economy, Institute of Directors chief economist Kitty Ussher said:
April’s GDP data shows a recovery in consumer-facing services compared to March, with growth recorded in retail and wholesale trade, accommodation, food and beverage services, and transport.
This suggests that households responded to the improving weather in April by raising their levels of discretionary spending – even in the face of rising costs.
Businesses in the consumer-facing sectors will be encouraged by today’s data.
However, the Bank of England may interpret it as proof that their interest rate hikes have not yet dampened demand enough to reduce inflationary pressure, particularly when combined with yesterday’s strong labour market performance.
07:33 AM
UK in ‘economic danger zone’
After the latest data showed the economy grew by 0.2pc in April, Saxo UK chief executive Charles White Thomson said:
The status quo in the UK is increasingly painful and uninspiring – this should not be about celebrating falling inflation, measly GDP growth or the avoidance of a technical recession.
The UK continues to underperform its key counterparties and have underserved the majority and their aspirations.
We are now in an economic danger zone, pincered between public enemy number one/ inflation, a 19pc increase in food and non-alcoholic beverages which reaffirms the cost of living crisis, and a consumer saddled with outsized debt that was once cheap.
The risk for further policy failure is real and the stakes are getting increasingly high.
The conundrum facing the UK is more than just beating public enemy number one, or inflation, it is about defeating the high tax and low growth loop and the lovers of the status quo or managed decline.
The UK PLC is effectively in a financial straitjacket with constraints including: £2.4trn public debt and all the servicing costs this entails, tax to GDP levels approaching record highs or 37.5pc and corporation tax moving to 25pc from 19pc for financial year 2023/24.
07:28 AM
Shell scraps plan to reduce oil production
Fossil fuel giant Shell said it plans to keep its oil production steady until the end of the decade, scrapping a plan to reduce output by between 1pc and 2pc a year.
The business said it planned to “extend its advantaged position in upstream (operations) to achieve cash flow longevity by stabilising liquids production to 2030”. It also said that it would grow its gas business.
It comes as new chief executive Wael Sawan tried to please investors by announcing the business would up its dividend by 15pc this year and on top of that return at least $5bn (£4bn) to shareholders by buying back their shares.
Shell said that it would reduce capital spending by between $22bn to $25bn (£17bn to £20bn) in 2024 and 2025.
It will also slash its annual operating cost by between $2bn to $3bn by the end of 2025.
07:18 AM
‘We must stick relentlessly to our plan,’ insists Hunt
After the latest data showed the economy grew in April, Chancellor Jeremy Hunt said:
We are growing the economy, with the IMF saying that from 2025 we will grow faster than Germany, France and Italy.
But high growth needs low inflation, so we must stick relentlessly to our plan to halve the rate this year to protect family budgets.
07:17 AM
Economy’s growth ‘driven largely by construction industries’
Darren Morgan, director of economic statistics at the Office for National Statistics, said:
GDP bounced back after a weak March.
Bars and pubs had a comparatively strong April, while car sales rebounded and education partially recovered from the effect of the previous month’s strikes.
These were partially offset by falls in health, which was affected by the junior doctors’ strikes, along with falls in computer manufacturing and the often erratic pharmaceuticals industry.
House builders and estate agents also had a poor month.
Over the last three months as a whole the economy grew a little, driven largely by the construction industries.
The services sector dragged growth downwards, partly due to the impact of public sector strikes.
07:10 AM
UK economy returns to growth
The UK economy bounced back in April, recovering most of the output lost the previous month when heavy rain and strikes curtailed consumer spending.
Gross domestic product rose 0.2pc after a 0.3pc decline in March, according to the Office for National Statistics.
The figures left the economy 0.3pc bigger than pre-pandemic levels.
However, hopes that Britain can avoid a recession widely predicted last year are receding as markets bet the Bank of England has more to do in its battle to tame inflation that’s running at more than four times the 2pc target.
It comes after the OECD said it expects the UK to avoid recession this year, though the economy is expected to grow by just 0.3pc, up from its previous prediction of a 0.4pc contraction.
However, the OECD added that Britain’s inflation would be among the highest in the 38 member club of industrialised economies in 2023 as food prices and underlying inflation remain stubbornly high.
The Bank of England is expected to raise interest rates to 5.75pc by the end of the year in an attempt to tame runaway inflation.
It has already upped interest rates at the MPC’s last 12 meetings, bringing the base rate from 0.1pc to 4.5pc.
07:05 AM
Good morning
The UK economy grew by 0.2pc in April, according to data from the Office for National Statistics.
It follows a contraction of 0.3pc in March, with gross domestic product (GDP) growing by 0.1pc in the three months to April.
5 things to start your day
1) Sunak orders banks to protect borrowers from surging mortgage rates | Strong employment figures and stubborn inflation pile pressure on Threadneedle Street
2) Disability benefits bill to jump by £11bn as long-term sickness hits new record | Number of people suffering from depression and severe back pain surges since pandemic
3) EY global chief to leave firm after failed split | Carmine Di Sibio’s departure follows months of internal disagreement at Big Four firm
4) Russian hackers steal data of thousands of Ulez drivers | TfL reveals databases were accessed by cybercrime gang
5) Capita handed £50m to run new fraud hotline despite pensioner data breach | City of London Police awards five year contract to IT outsourcer
What happened overnight
Asian stock markets were mixed after a cooler reading on US inflation buoyed hopes the Federal Reserve will postpone a possible interest rate increase.
The Shanghai Composite Index rose 0.2pc to 3,241.57 and the Nikkei 225 in Tokyo advanced 1.5pc to 33,495.29. The Hang Seng in Hong Kong lost less than 0.1pc to 19,511.86.
The Kospi in South Korea was off 0.7pc at 2,619.68 and Sydney’s S&P-ASX 200 gained 0.3pc to 7,159.90.
India’s Sensex opened down 0.1pc at 63,071.69. New Zealand declined while Singapore and Bangkok advanced.
Wall Street stocks rallied Tuesday after the US consumer price index (CPI) rose 0.1pc last month following a 0.4pc jump in April with core inflation unchanged at 0.4pc, according to the labour department’s latest report.
The Dow Jones Industrial Average finished up 0.4pc at 34,212.12. The broad-based S&P 500 advanced 0.7pc to 4,369.01, while the tech-rich Nasdaq Composite Index jumped 0.8pc to 13,573.32.
Bond yields initially dropped after the inflation report, but later recovered. The yield on the 10-year Treasury rose to 3.83pc from 3.74pc late Monday. The two-year yield, which moves more on expectations for the Fed, rose to 4.69pc from 4.58pc.
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