Marketing Newscast

(Edited 10 January 2025)

Fund manager Abrdn is the latest outfit to predict Chancellor Rachel Reeves will be forced to break promises and hold a spring Budget this year after the cost of government borrowing hit 4.81%, its highest level since 2008. [1]The FTSE 250-listed firm said it expects Reeves to announce a fresh fiscal statement when the Office for Budget Responsibility (OBR) publishes its new growth forecasts in March. Previously, Reeves committed to only one major fiscal event a year “to give families and businesses stability and certainty on upcoming tax and spending changes”. [2] Matthew Amis, an investment manager at Abrdn, said “investors need confidence” to buy government debt otherwise “gilt yields will continue to move higher and the currency will continue to weaken”. “The spending review is not due to be delivered until June, that’s a long time for the market to speculate with confidence continuing to erode,” he added. “We ultimately expect to see a Spring budget alongside the OBR forecasts, where she signals greater cuts to government spending.” The rising cost of Government debt is believed to have wiped out all but £1bn of the Government’s £9.9bn fiscal headroom, according to Capital Economics, meaning the Reeves could break her own self-imposed fiscal rules, potentially also leading to further tax hikes.

Meanwhile, Culture Secretary Lisa Nandy says Reeves is “absolutely” right to visit China with Bank of England Governor Andrew Bailey despite the significant turbulence in the financial markets, and a fresh slump in the pound, which has fallen to its lowest level this year. Sterling dropped a further 0.3% overnight to 1.2275 against the US Dollar, having hit its lowest level since November 2023 yesterday. Reeves is “relentless in her pursuit of growth”, Nandy told Sky News, adding: “I don’t think we should be worried” by the 30-year-high cost of Government debt. “We are still on track to be the fastest growing economy, according to the OECD in Europe,” she said. Reeves will meet China's Vice Premier He Lifeng in Beijing before flying to Shanghai for discussion with UK firms operating in China as part of moves to revive an annual economic dialogue with China.

The Bank of England’s (BoE) latest decision maker panel, which surveys CFOs around the country, showed that 54% of firms expect to raise prices this year in response Rachel Reeves’ hike in employer national insurance and the minimum wage, the same percentage as Grant Thornton’s business outlook tracker, reported here yesterday. The BoE panel’s price growth expectation for the year ahead increased to 4% in December 2024, up from 3.8% the month before. The survey also showed that realised price growth in the year to December increased to 4%, up from 3.7% in November.

Richard Clothier, managing director of Wyke Farms in Somerset, the UK’s largest independent cheese producer, is among those businesses warning prices will rise because of the choices made by Rachel Reeves in her Budget. He said: “We already had pent-up wage inflation. The manufacturing economy was trying to invest and trying to navigate through changes in working practice and increase efficiency. Then the Chancellor drops a half a million-pound bill on the floor, and it’s the cup of water that’s broken the dam,” he told The Telegraph. The only place we can go is, unfortunately, to put our prices up. It will impact inflation across the board, and it will impact growth as well.” Greggs has also told Yahoo Finance UK that it raised prices on some of its products by between 5p and 10p at the end of December.

Britain came “within a whisker of blackouts” on Wednesday, it was suggested yesterday, becasue surplus electricity capacity on the national grid fell to just 580 megawatts (MW), a level so low that even an outage at a “relatively small” power station could have caused the lights to go out. However, the National Energy System Operator (Neso) denied the claim, made by data platform Amira, saying that “at no point” were power supplies close to failing and that around 1.4 gigawatts in emergency reserves went unused on Wednesday. Independent energy consultant Kathryn Porter backed Amira’s claims, saying on X: “Yesterday should be a wake-up call for policy-makers - we got away with it but it was much too close for comfort,” and suggesting “this should be a real wake-up call about the dangers of relying on weather-based generation.” It is known that that freezing temperatures and the failure of wind farms to generate enough energy meant Neso’s grid operators had to pay two gas-fired power stations alone, Rye House and Connah’s Quay, owned by Vitol and Uniper respectively, a combined £12m to supply just three hours of electricity during the evening. Wind now produces 31.4% of UK power generation, more than gas (27.55%), nuclear (14.6%), or any other kind of energy source, according to Neso.

Meanwhile, Bank of England Deputy Governor Sarah Breeden has said the Government’s Net zero policies are increasing energy costs and pushing up inflation. Both households and businesses are paying more because of the so-called carbon permit scheme, which require power plants to pay for each tonne of carbon dioxide they emit, she has explained in a speech to the University of Edinburgh Business School. The cost of permits accounted for nearly half the cost of fuel bought by gas-fired power plants last year, Breeden said, a cost that was passed on to consumers. “There is now evidence that policies aimed at the climate transition were probably more important contributors to the recent rise and fall in inflation than we previously thought,” she said in her address, adding that carbon prices doubled to around £100 per tonne of CO2 between 2021 and the peak in 2022 because the Government cut back the supply of permits and applied the scheme to more industries. Although the cost of permits has fallen back since to around £40 per tonne, they still cost roughly twice what they did in 2019.

Lloyds, Halifax, and Bank of Scotland have agreed to allow their customers to use services in any of their branches, following branch closures announced in recent times. When all closures are completed, the combined group will have 892 branches, of which 447 will be Lloyds, 341 Halifax, and 104 Bank of Scotland, the BBC says.

De La Rue, the Bank of England’s currency printer, is considering a 125p per share takeover approach from Edi Truell, the pensions and private equity entrepreneur, Sky News reports. The proposal, a roughly-25% premium to the company's share price on Thursday morning, is said to be dependent upon the completion of a pre-existing £300m deal to sell De La Rue's authentication division to Crane NXT.

Bim Afolami, who served as economic secretary to the Treasury until parliament was dissolved last May, is to become a non-executive director of HSBC UK, Sky News has learnt. Afolami lost his Hitchin seat at the General Election after seven years. He worked at the FTSE-100 bank before he embarked on a career in politics.

Mick Lynch, General Secretary of the National Union of Rail, Maritime and Transport Workers (NUT) has announced his retirement. The 63-year-old took up his post at Britain’s largest railway union in 2021, leading at times crippling strikes over pay in 2022 and 2023. Announcing his retirement, he said it had "been a privilege to serve this union for over 30 years in all capacities", but that it was now "time for change".