Time to wrap up, after an exciting week dominated by action (or inaction) by the world’s most powerful central banks.

Here’s today’s main stories so far:

• Microsoft has signed a major deal with nuclear plant owner Constellation Energy to restart its closed Three Mile Island plant by 2028 to power its data centres.

• Mercedes-Benz has warned that slowing sales in China would hit profits, knocking its shares today

• Personal insolvencies in England and Wales have jumped 16% year-on-year…

• …but people are still spending in the shops, lifting retail sales volumes by 1% last month

EY have announced that, as expected, they have been appointed as the administrators for construction firm ISG’s UK operations (as flagged earlier).

EY say:

On 20 September 2024 Timothy Graham Vance, Alan Michael Hudson and Dan Edkins of EY-Parthenon’s Turnaround & Restructuring Strategy team were appointed as Joint Administrators to the following eight UK trading entities of ISG: ISG Central Services Limited, ISG Interior Services Group UK Limited, ISG Fit Out Limited, ISG Engineering Services Limited, ISG UK Retail Limited, ISG Retail Limited, ISG Construction Limited and ISG Jackson Limited (all in Administration) (together “the Companies”).

ISG’s UK operations, which provided construction and related services across the UK, have ceased to trade with immediate effect.

ISG’s UK business has experienced liquidity constraints in recent months. The Directors explored a number of options to secure the future of the business, including a sale of all or part of the Group and refinancing options.

Despite significant efforts to secure a sale of the group over many months, a deal could not be completed. Whilst there has been misleading speculation surrounding the potential sale in the last few days, we wish to be clear to employees, suppliers, and customers that it was not possible to conclude a sale as the potential purchaser could not, despite repeated requests of them to do so, adequately demonstrate that they had the funding needed to recapitalise the business and keep it solvent.

Due to current market conditions, an alternative sale or additional funding could not be secured. As a result, the Directors made an application to Court to place certain UK trading entities of ISG in administration.

Back in the UK, thousands of jobs could be at risk and dozens of government construction projects paused as ISG, one of the UK’s largest contractors, filed for administration.

In the biggest collapse of a UK construction company since Carillion, the ISG chief executive, Zoe Price, confirmed in an email on Thursday that the company had filed for administration and shut down all of its sites.

ISG is involved in 69 live central government schemes, including several projects as part of the Ministry of Justice’s plan to increase the capacity in Britain’s prisons by an extra 20,000 spaces.

It is also working on schemes for the Department for Work and Pensions and several school building projects.

The Cabinet Office said it had implemented “detailed contingency plans” and departments were working to ensure sites were safe and secure.

ISG is the sixth biggest construction contractor in the UK by turnover, with revenues of £2.2bn and about 3,000 staff.

An astonishing story is breaking in the US today – the shuttered Three Mile Island nuclear plant in Pennsylvania is to be reopened in a deal with Microsoft.

Constellation Energy Corp, which owns the Unit 1 reactor at Three Mile Island, has signed a 20-year power purchase agreement with Microsoft, to power its data centers with carbon-free energy.

Unde the plan Three Mile Island Unit 1, which was shut down exactly five years ago for economic reasons, will be restarted by 2028.

Joe Dominguez, president and CEO of Constellation, says:

“Powering industries critical to our nation’s global economic and technological competitiveness, including data centers, requires an abundance of energy that is carbon-free and reliable every hour of every day, and nuclear plants are the only energy sources that can consistently deliver on that promise.”

Constellation point out that Unit 1 is not the part of Three Mile Island which suffered a partial meltdown in 1979 – that was Unit 2, which is still being decommissioned.

The boom in demand for artificial intelligence systems has been driving up energy consumption by tech firms. Earlier this year, Microsoft admitted that AI would make it harder to hit its ”moonshot” target of being carbon negative by 2030.

Bobby Hollis, VP of Energy at Microsoft, says:

“This agreement is a major milestone in Microsoft’s efforts to help decarbonize the grid in support of our commitment to become carbon negative. Microsoft continues to collaborate with energy providers to develop carbon-free energy sources to help meet the grids’ capacity and reliability needs.”

For those of a certain age, Three Mile Island will always be associated with the dangers of nuclear power – rather like Windscale, the nuclear site in Cumbria which was renamed Sellafield after the UK’s worst nuclear accident (this hasn’t ended problems at the site, though).

Perhaps in that spirit, Constellation are renaming Three Mile Island Unit 1 as the “Crane Clean Energy Center.” in tribute to their former CEO, Chris Crane, who died in April.

Dominguez says:

“We are especially honored to name this new plant after our former CEO Chris Crane, who was a fierce advocate for our business, devoting his entire career to the safe, reliable operation of our nation’s nuclear fleet, and we will continue that legacy at the Crane Clean Energy Center.”

The gold price has jumped to a fresh record high, as investors flock to bullion.

The spot price of gold is up 1% today at $2,612 per ounce.

Gold was pushed up by the weaker dollar, which has been falling after the US Federal Reserve cut US interest rates sharply on Wednesday.

The prospect of further interest rate cuts is also positive for gold, which doesn’t pay interest.

Ryan McIntyre, senior portfolio manager at Sprott Asset Management, explains:

“We remain very positive on gold, as it is significantly under owned in the Western world and is one of the few assets that can counter the many fiscal threats that currently exist.

“Beyond rate cuts, gold will also benefit from the ongoing debasement of the U.S. dollar, the precarious fiscal situations of many Western nations, and the global desire for a store of value independent of other assets and institutions.”

Mercedes-Benz shares have dropped by 7% after the German carmaker warned that slowing sales in China would hit profits.

Chinese sales - including for the most expensive cars - have been hit by weaker consumption and the slump in the property market of the world’s second largest economy, Mercedes-Benz said in a stock market announcement on Friday.

The company also warned of “the dynamic pricing environment”, suggesting that it is under pressure to drop prices to attract buyers.

The global car industry is going through a tough period. Sales have weakened after a post-pandemic boom, while carmakers are also trying to pay for the shift to electric cars.

For European camarkers - used to fat profits from their petrol and diesel products - the shift to electric is proving particularly difficult because they are also competing with Chinese manufacturers who can undercut them. Chinese companies were never contenders for internal combustion engines, but the combination of simpler technology and heavy state subsidies has opened the door for them.

Mercedes-Benz warned that profits before interest and tax and cash flow are “expected to be significantly below the prior year level”. It had previously said profits and cash flow would be only “slightly below” last year. Return on sales - a measure of profitability - will also fall, Mercedes-Benz said.

The number of people entering insolvency across England and Wales jumped last month, year-on-year, as the cost of living squeeze hit households.

The Insolvency Service reports this morning that 10,000 individuals entered insolvency in England and Wales in August, on a seasonally adjusted basis.

That’s 16% higher than in August 2023, but a 5% drop compared with July.

The total included 594 bankruptcies, 4,166 debt relief orders (DROs) and 5,240 individual voluntary arrangements (IVAs).

The Insolvency Services says there has been a large increase in DROs – which freezes debt for a year then writes it off completely if their finances haven’t changed – since a £90 administration fee was removed in April.

Newspaper publisher Reach has appointed Tom Hunt, online editorial director at The Express, as the new editor-in-chief of the title, following the departure of Gary Jones.

Jones, who has edited the title since 2018 following Reach’s £200m deal to buy the Express and Star from Richard Desmond, has worked at the Mirror publisher since 1996.

He has held roles including editor of The Sunday Mirror and The People.

“It’s been a privilege to have served the readers for so many years,” said Jones. “Long may they continue to value and cherish the journalism we publish.”

The departure of Jones, the lifelong Labour-supporting, remain-voting ex-Sunday Mirror editor, follows that of senior editorial executives including the Daily Mirror editor Alison Phillips and the group editor-in-chief Lloyd Embley.

Hunt, who has worked at The Express for eight years, has previously held roles including video news editor and head of news of the Express website.

David Higgerson, chief digital publisher at Reach, says:

“With his strong understanding of the digital landscape and passion for the brand, we know he’s the right person to take the Express into the next phase of its evolution.”

Bank of England policymaker Catherine Mann has said she is keen to avoid conducting a “boogie-dance” with policy rates, as she explains why she voted to leave UK interest rates on hold yesterday.

Mann is one of the hawkish members of the Bank’s monetary policy committee, worried about the persistence of inflation.

In August, she opposed the Bank’s rate cut – and was one of four policymakers who wanted to leave rates at 5.25%.

This week, though, she was in the majority voting to keep rates at 5%.

Speaking in Lithuania this morning, Mann explains why she didn’t push for rates to move back to 5.25% this month:

Why was it not good policy for me to vote to hike at this September meeting, to get back to the August stance, if I thought that was the appropriate level for Bank Rate?

In fact, in August, I did contemplate a cut at that meeting, as the bite from housing costs was becoming deeper and more widespread but was dissuaded by the balance of factors already mentioned, as well as a generalized easing in global conditions that affected UK rates too.

If I had voted to hike in the meeting just past only to cut sometime soon hence, this would be the ‘boogie-dance’ with policy rates that I eschewed in my Lamfalussy speech in February 2023.

Mann also warns that middle-income households are being squeezed by rising housing costs (mortgages and rents), saying:

There is a further accumulation of evidence of consumer weakness across products and particularly middleincome deciles, as housing costs are a larger fraction of their consumption basket.

That argument is rather backed up by the drop in consumer confidence this month….

And on inflation, Mann says she agrees with financial market participants who believe that inflation could stay above target for an extended period of time.

She warns:

“To summarise, I am concerned that structural factors underpin an unsustainable path for the UK economy with embedded and sticky services inflation to render inflation above-target for longer and, yet at the same time, stagnant real activity.”

Thames Water has started discussions with lenders for permission to access more than £1bn of cash reserves to enable it to stay afloat until May next year.

The troubled water company, which is struggling under £15bn of debts, has admitted that it only has enough cash left to run its operations for eight months.
The talks with lenders, revealed by The Guardian on Thursday, were confirmed in a statement from Thames on Friday morning.

“As contingency planning, we have entered into discussions with our financial stakeholders to release cash reserves under our financing,” the company said on Friday. “This would require majority creditor consent.”

The company said:

“We previously announced… that we would be engaging with potential investors and creditors to seek new equity and to extend our liquidity runway.

On Friday, Thames Water said access to these funds would give it enough funds to continue to operate until May next year.

The company said that as at 31 August it had £1.6bn of liquidity. However, £800m of that requires lender approval to access. A further £550m of undrawn liquidity facilities also requires lender approval.

“The combination of these resources provides a liquidity runway to May 2025,” the company said, adding:

“We, together with our financial stakeholders, are considering options for the extension of our liquidity runway to enable time to complete a recapitalisation transaction. In parallel, we continue to undertake contingency planning as a matter of good corporate practice.”

Thames Water said that if it does not gain consent its current available funding will run out at the end of December, “whereupon we would enter standstill under our financing and the £550m of undrawn reserve liquidity facilities and £380m of cash reserves would become available”.

The struggling water company, which has 16 million customers across London, has booked dates at the high court in November to potentially gain court approval to change repayment terms, as part of its wider effort to stave off falling into a form of temporary renationalisation.

Its fate is one of the biggest challenges facing the government as Thames battles to raise billions of pounds in fresh funding to avoid falling into government control under a special administration regime.

The pound has shrugged off this morning’s slump in consumer confidence, and hit a two and a half-year high against the US dollar.

Sterling rallied to $1.334 this morning, its highest level against the dollar since March 2022.

It strengthened after this morning’s retail sales showed consumer spending in the shops was stronger than expected in August.

The pound also benefitted from the Bank of England’s decision not to cut UK interest rates yesterday – unlike the US Federal Reserve, which slashed its key rate by half a percentage point on Wednesday.

The City do expect the Bank to cut rates in November, though; yesterday, governor Andrew Bailey said he was “optimistic” that borrowing costs would come down.

This morning, a November rate cut is seen as a 75% chance by the money markets.

The £13.7bn jump in government borrowing last month means that the UK’s national debt has now hit 100% of GDP – an unwelcome milestone.

The ONS reports that public sector net debt (excluding public sector banks) was provisionally estimated at £2.768 trillion at the end of August 2024, or 100.0% of gross domestic product (GDP).

That’s an increase of 4.3 percentage points over the last year, and takes the national debt to its highest level since the early 1960s.

The national debt is lower, though, if you exclude the impact of the Bank of England’s quantitative easing stimulus programme.

Strip out the Bank of England, and net debt is £2.546 trillion, or around 92.0% of GDP.

Rachel Reeves could potentially changing the way debt is measured, to exclude the Bank of England. That would give the chancellor more fiscal wriggle room in October’s budget.

Back in 2010, an influential research paper by economists Kenneth Rogoff and Carmen Reinhart found that public debt of more than 90% of GDP slows down a country’s growth.

However, the report – used to justify the UK’s austerity programme – was later discredited after a mistake in the spreadsheet underpinning the work was discovered.

Newsflash: The UK government has borrowed over £6bn more than forecast so far this financial year, after a jump in borrowing last month.

The Office for National Statistics has reported that the UK borrowed £13.7bn in August, which is £3.3bn more than in August 2023.

It’s the third highest borrowing for any August since 1993, and more than £1bn higher than the £12.4bn City economists had expected.

And it takes borrowing so far this financial year (since April) to £64.1bn.

Significantly, it is £6.2bn more than the £57.8bn forecast by the Office for Budget Responsibility for this period.

That difference is why Rachel Reeves and Keir Starmer are talking about tough choices and a painful budget this autumn.

The latest public finances report shows that government tax receipts rose by £3.7bn last month, with income tax, VAT and corporation tax all bringing in more money. Former chancellor Jeremy Hunt’s decision to cut national insurance rates reduced the tax take from compulsory social contributions by £600m though.

And the increase in taxes was more than wiped out by rising government spending. It rose by £6.1bn year-on-year, including a £2.7bn increase in benefits payments due to inflation-linked benefits uprating, and a £2.5bn increase in departmental spending.

This month’s plunge in consumer confidence is the steepest since April 2022, when energy costs were spiraling in the wake of Russia’s invasion of Ukraine, points out Bloomberg.

They say:

UK consumer confidence crashed in September by the most in two-and-a-half years amid dire warnings from the new Labour government about “tough decisions” that need to be taken to fix the public finances.

Newsflash: retail sales across Great Britain jumped last month, despite the slump in consumer confidence.

The Office for National Statistics has reported that the volume of goods bought in August rose by 1%, following a 0.7% rise in July.

Some supermarkets and clothing retailers reported a boost because of warmer weather and end-of-season sales, the ONS says.

Sales rose fastest at textile, clothing and footware stores, followed by food outlets, in August.

ONS chief economist Grant Fitzner says:

“Retail sales rose in August as warmer weather and end of season promotions helped to boost sales, most notably for clothing and food shops. Supermarkets, in particular, contributed to the largest annual rise for food sales since the summer of 2021.

“Looking at the broader picture, retail sales have also increased across the three month and annual period, following strong growth from online retailers. However, sales overall remain slightly below their pre-pandemic level.”

Veteran retailer Justin King agrees that budget fears are responsible for the plunge in consumer confidence this month.

King, the former CEO of Sainsbury’s, told Radio 4’s Today programme:

“I think it probably is, actually.

The trend line [in consumer confidence’ has been positive for a while.

That’s because the reality for most people has been positive for a while.

King points out that wage settlements have been running ahead of inflation this year (meaning real wages are rising), and that household budgets have largely absorbed the shock of the cost of living crisis.

It felt like things were getting a little better, but obviously we’ve had this backdrop of bad news.

King adds, though, that there needs to be a “reset” after the general election.

I think they’d argue it’s a step backwards before the step forward they intend to take.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Fears of a ‘painful budget’ next month have knocked morale among UK consumers – a bad sign for the economy.

The latest poll of UK consumer confidence has fallen sharply this month, with optimism over people’s personal finances, their purchase intentions, and the state of the economy all sharply lower than in August.

The index, published by data provider GfK, has dropped to -20 this month, down from -13 in August.

That is the lowest reading since March, when the index was -21,

Consumer confidence had been improving as the economy grew robustly in the first half of this year and inflation dropped.

But September’s large drop has almost wiped out the recovery in confidence seen since this spring.

The drop follows repeated warnings that next month’s budget will include tax rises to fix the public finances, following the unpopular decision to means-test the winter fuel payments for pensioners.

Neil Bellamy, consumer insights director at GfK, says the forward-looking indicators which feed into the index have dropped notably:

Bellamy explains:

All five measures are down but there are major corrections in the outlook for our personal financial situation for the next 12 months (down nine points), our views on the general economy for the coming year (down 12 points), and the major purchase index (down ten points).

These three measures are key forward-looking indicators so, despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new government.

Strong consumer confidence matters because it underpins economic growth and is a significant driver of shoppers’ willingness to spend, Bellamy adds.

Earlier this week, DIY company Kingfisher reported weak demand for kitchens and bathrooms, as people resisted buying ‘big ticket’ items.

Bellamy adds that consumers are “nervously” awaiting Rachel Reeves’s budget statement on 30 October, saying:

Following the withdrawal of the winter fuel payments, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the Budget decisions on 30th October.”

GfK polled just over 2,000 people, between 30 August and 13 September.

A few days before the survey began, Keir Starmer warned in a setpiece speech that the budget is “going to be painful”, and that “things are worse than we ever imagined”, after the government discovered what it calls a £22bn “black hole” in the public finances.

On the final day of its survey, Starmer hammered the point home, warned that painful decisions such as cutting winter fuel payment were necessary to fix the UK.

That message appears to have got through to consumers, even though Labour have also pledged not to raise the taxes on working people.

The agenda

• 7am BST: UK retail sales for August

• 7am BST: UK public finances for August

• 9am BST: Bank of England policymaker Catherine Mann speaks about the issue of macroeconomic adjustments after large global shocks

• 3.50pm BST: European Central Bank chief Christine Lagarde to deliver 2024 Michel Camdessus Annual Central Banking Lecture