Marketing Newscast

Inflation has shot up to 3%, having risen sharply in January, in the main as a consequence of VAT being put on private school fees. These fees grew by some 13%, having not increased at all last year, the Office for National Statistics (ONS) says, after the Government removed their previous VAT exemption on 1st January. Grant Fitzner, chief economist at the ONS also noted that there was less discounting than usual for the time of year on air fares and other goods. He told the BBC Radio 4 Today programme such a steep rise was unexpected as “we normally see quite a large fall in January in prices, there is a lot of price discounting". He added that while the VAT charge on private schools was a "one-off" factor driving inflation, food prices were also up "across the board," and that, on average, the cost of buying groceries is now 3.1% more expensive than it was a year ago. Overall, inflation is now at its highest annual rate since March last year. Core inflation, which strips out volatile components like food and energy, increased to 3.7%, up from 3.2% previously but in line with expectations. Treasury Minister James Murray said the data showed the road to meet the Bank of England (BoE) 2% inflation target will be “bumpy”. The BoE has been "clear that they expected inflation to be slightly higher in the first half of this year, while still being on target to go down towards its 2% target rate," he said, adding that the Government is "confident in our plan for change to make sure that we're kick-starting economic growth". The BoE expects inflation to reach 3.7% later this year before falling back to its 2% target.

Chancellor Rachel Reeves responded to the rise in inflation saying her "number one mission" is getting "more pounds in pockets". "Since the election we've seen year-on-year wages after inflation growing at their fastest rate - worth an extra £1,000 a year on average - but I know that millions of families are still struggling to make ends meet," she said, adding that the Government is "going further and faster to deliver economic growth". Labour will be "taking on the blockers to get Britain building again, investing to rebuild our roads, rail and energy infrastructure and ripping up unnecessary regulation,” she said, adding that she will “kickstart growth, secure well-paid jobs and get more pounds in pocket”. Shadow Chancellor Mel Stride, however, said the latest inflation data shows Rachel Reeves is "out of her depth, and we're all paying the price". There will be “further pain for family finances" because of her "record tax hikes and inflation-busting pay rises," he added. Liberal Democrat Leader Sir Ed Davey warned that today's figures put the UK at risk of "a new era of stagflation". Rachel Reeves's "misguided policies" means the "economy still isn't growing" and the Government “urgently needs to change course," he said, “starting by cancelling their disastrous jobs tax and securing a much better trade deal with Europe.”

BoE Governor Andrew Bailey said the central bank is still likely to cut interest rates again this year, despite surging pay growth of 6% reported here yesterday. Those latest labour market figures, which showed a big increase in wage growth, would not be likely to change the calculation for policymakers, he said, because analysts expect wage growth to come down. He was speaking at an event in Brussels ahead of today’s inflation data, during which he said expected the impact of the Government's choices in the Budget to raise minimum wages and employer National Insurance contributions to impact inflation. He also added that an increase in inflation would be taking place against “a background…which is weaker in growth terms than we thought it would be” which would help limit its persistence. “Ultimately today’s reading vindicates the Bank of England’s slow and steady approach to rate cutting,” said Michael Field, chief equity strategist at Morningstar told City AM.

Meanwhile, leading investment bankers and asset managers are the latest to be called in to advise Rachel Reeves as she struggles to kickstart growth in the economy. Sky News has learnt that the Chancellor has called in executives from companies including Abrdn, BlackRock, Citi, Goldman Sachs, JP Morgan, Morgan Stanley and Schroders to see her this morning. Sources told Sky the meeting was intended to feed ideas into the Government’s forthcoming Financial Services Growth and Competitiveness Strategy.

Company insolvencies have hit a 16-year high, with more businesses going bust last month than in any January since the 2008 financial crisis. The number of corporate insolvencies jumped by 10.7% year-on-year to hit 1,971, a total that means nearly 500 companies went bankrupt every week. Tim Cooper, president of R3, the UK’s insolvency and restructuring trade body, blamed Rachel Reeves’ Budget, as the rise was driven by bosses opting for voluntary liquidations, meaning they are delilberately winding up a solvent company. He said: “Directors may be choosing to close down their firms after years of challenging trading conditions and ahead of the increase in the national minimum wage and employers’ National Insurance contributions.” Before January’s jump, insolvencies had been on the decline since last June before the General Election, The Telegraph notes.

Business secretary Jonathan Reynolds held fresh talks yesterday with Li Huiming, the head of British Steel's Chinese owner Jingye, to discuss its future, Sky News reports. Jingye, which bought British Steel in 2020, wants hundreds of millions of pounds from the Government to electrify steelmaking at its Scunthorpe plant, with the jobs of thousands of people on the line if Ministers do not cough up the cash. Last year, The Treasury handed £500m to Indian-owned Tata Steel, which owns the Port Talbot steelworks in South Wales. Over the weekend, Reynolds signed off on a consultation on plans to support the steel industry, including state financial support worth up to £2.5bn.

£43.5m in taxpayer cash is being ploughed into a company that makes wooden drinking bottles, The Telegraph reports. Britain’s National Wealth Fund, fully owned by the Treasury, has today announced the investment into Cambridgeshire-based start-up Pulpex, saying it will help finance Pulpex’s plan to build its first ever manufacturing plant, near Glasgow, to produce 50m wooden bottles each year and create 35 jobs in Scotland. The wood-based bottles have a lower carbon footprint than plastic or glass. Scottish Secretary Ian Murray said the investment would “aid the decarbonisation of our packaging industry and help accelerate our net zero goals as we drive delivery of clean power by 2030”.

BP is considering sale of lubricants business, according to Bloomberg, which cites people familiar with the matter as saying that the oil major's unit - which operates under the Castrol brand - could be worth about $10bn (£7.93bn) in a deal. Bloomberg’s sources said the potential divestment could be announced on BP’s capital markets day on 26^th February but that deliberations on the potential disposal are ongoing and no final decisions have been made.

Unite the Union, Labour’s biggest trade union backer, has warned that thousands of jobs are at risk unless the Government waters down “blunt tool” electric car (EV) targets. Unite General Secretary Sharon Graham took aim at what she called the “punitive” zero-emission vehicle (ZEV) mandate rules that demand carmakers sell increasing number of EVs, saying the policy will also place “downward pressure on pay and conditions”. Graham also said the Government should encourage demand by reducing VAT on UK-made EV sales for private drivers, and increase investment in charging infrastructure. The ZEV mandate currently requires at least 28% of cars sold by manufacturers to be electric, rising gradually to demand 80% of all car sales are of EVs by 2030.