Marketing Newscast

(Edited 07 February 2025)

The Bank of England (BoE) has halved forecasts for UK economic growth this year from 1.5% to just 0.75%, and appears to hold a massive and unproductive public sector at least partly to blame. A report released after the Central Bank’s Monetary Policy Committee (MPC) voted to cut interest rates by 0.25% yesterday said that despite an increase of half a million workers in the public sector since Covid lockdowns ended, public service productivity is currently 8.5% below pre-Covid levels. Although an “increasing share of employment [is] accounted for by areas where the public sector is the predominant employer such as education, health and public administration”, “we haven’t seen a commensurate increase in measured public sector output”. “Employment in these areas has risen significantly since 2019, particularly in health-related activities, but these sectors have also seen significant declines in their measured productivity per hour,” the BoE added, saying this meant “the shift in the composition of total employment towards these areas will have weighed on total productivity.” BoE Governor Andrew Bailey also told journalists after the MPC meeting that record net migration in recent years has also contributed to overall productivity growth being even weaker than thought previously. “We have got more population, we have got more labour force, we have got the same output, so you can only conclude then that you have got lower productivity,” he said. The BoE also warned that the Labour Government’s public spending splurge risked keeping interest rates higher for longer: “Higher public sector spending can reduce the amount of capital available for private investment,” it said, which in turn would put “upward pressure” on the borrowing costs needed to ensure inflation remains stable. The Office for Budget Responsibility (OBR) believes public sector employment will continue to grow to 6.3m by the end of the decade, up from 5.8m in 2023-24. Bailey said the MPC would take a “gradual and careful approach to reducing rates further”, dependent on the impact of higher taxes and US President Donald Trump’s trade war.

In yet what can only be interpreted as more criticism of Chancellor Rachel Reeves’ economic policies, the BoE also varied its unemployment forecasts, saying it expected the rate of joblessness to rise to 4.8% this year, 0.5% higher than its previous forecast, as Reeves’ decision to increase Employer National Insurance Contributions (NICs) would hurt jobs and raise prices more than expected. The Bank also predicts inflation will rise to 3.7% in the third quarter of this year because of higher energy prices. Previously, it said inflation would peak at 2.5%.

The Bank of England’s intervention “will be regarded as an embarrassment for Rachel Reeves, the Chancellor,” The Telegraph’s Economics Editor Szu Ping Chan and Deputy Economics Editor Tim Wallace write this morning, not least because “the Government is expected to preside over a big expansion of the state in the coming years, with more workers on higher salaries funded by a record £40bn tax raid announced last October”. Bailey’s comments are also a “stinging rebuke to Reeves’s entire economic philosophy,” Wallace adds in a separate article. He and Ping Chan quote Conservative peer Lord Bridges as saying: “Taxpayers are paying more and getting less. If we don’t improve productivity, we risk going deeper and deeper into debt. Reeves promised us stability but it is turning into the stability of the graveyard. We are facing a triple whammy of higher prices, higher unemployment and lower growth. We risk seeing a downturn made in Downing Street.” The Financial Times and City AM call the BoE’s economic downgrade a “blow” to the Chancellor, one that will “stoke fear of stagflation.” The Times says it is a “challenge” for Reeves, who “came into Government insisting economic growth is her ‘number one priority.’” The Daily Mail says the downgrade is because of her “ruinous” and “disastrous” Budget, while The Daily Express says the Bank’s assessment should be a "wake up call" for the Government. Shadow Chancellor Mel Stride is quoted widely in the newspapers this morning as saying Britain is now facing “Starmflation,” a combination of rising inflation and sluggish growth because of the Labour Government’s policies.

Energy Secretary Ed Miliband’s decision to spend £22bn on “unproven” carbon capture technology is a high-risk “gamble” that will have a “significant” impact on bills, MPs have warned, in a damning report from the Commons Public Accounts Committee (PAC). Miliband is keen to embrace the expensive tech to build carbon capture and storage (CCS) facilities, in which CO2 emitted from power stations and factories is captured and buried underground. Despite the fact there is no guarantee it will work, the cost will add £800 per household to energy bills, the PAC said. “There are no examples of CCS technology operating at a commercial scale in the UK, meaning the performance of early projects is uncertain,” its report said. “Evidence submitted raises concerns that CCS may not capture as much carbon as expected and experience from Norway suggests that performance on the scale expected by the Department for Energy Security and Net Zero is far from guaranteed.” Miliband claims the facilities will “create 4,000 new jobs, sustain important British industry, and help remove over 8.5m tonnes of carbon emissions each year – the equivalent of taking around 4m cars off the road”.

Ed Miliband was interviewed by the BBC Radio 4 Today programme this morning, and refused to give his personal backing for the expansion of Heathrow Airport or the granting of a drilling licence for the Rosebank oilfield in the North Sea. He has "different responsibilities" now as a government minister than he did in opposition, when he described the latter development as "a colossal waste of taxpayer money" and "economic vandalism," he said, but refused to state his personal position on the issue. On Heathrow, Miliband said: "I am part of the Government and I abide by collective responsibility," the concept that the Cabinet acts as one on Government decisions, but that a final decision on Heathrow expansion is "some years off" and the proposal will need to meet carbon budgets and local environmental standards to be approved. "I do support what the government is doing, which is that we've asked Heathrow to come forward with their plans," he also told Sky News.

House prices have reached a record high, according to the Halifax house price index. The typical property rose in value by 0.7% in January to an average of £299,138. Amanda Bryden, head of mortgages at Halifax, said there was "strong demand for new mortgages and growth in lending", which she suggested could be being driven by first-time buyers trying to complete their home purchases before a Stamp Duty tax hike in April.

Private health insurance is now held by nearly one in eight Britons, according to the latest figures from healthcare analysts LaingBuisson. A record high of 4.68m individuals held the insurance at the end of 2023, the company found, although some 8m can access private healthcare using insurance on policies covering partners. In total, 11.85 of the UK population is now covered by medical insurance, the highest proportion since 12.3% in 2008, when take-up slumped in the wake of the finical crisis that year, and many companies stopped providing medical insurance for employees.

Legal & General is to sell its US protection business to Japan’s Meiji Yasuda in a $2.3bn (£1.8bn) deal that will see the latter take a 5% stake in the British insurance specialist.

A report seen by the FT shows that Spain’s Navantia paid £93m for stricken shipbuilder Harland and Wolffe after it secured a Royal Navy contract.

Serco has been awarded a recruitment contract by the Ministry of Defence (MoD) to service the Royal Navy, the British Army, the Royal Air Force and Strategic Command. The contract is valued at around £1bn over the initial seven-year term and up to £1.5bn should the MoD exercise all three one-year extension options beyond the initial term.

HSBC Holdings is finalising plans to hand new CEO Georges Elhedery a maximum annual pay package worth just over £15m as part of an overhaul of directors' remuneration triggered by the UK's decision to scrap the EU bonus cap, Sky News reports.