Graeme Wearden 

UK company growth slows in blow to Sunak; NatWest share sale threatened by general election – as it happened

Growth across British services firms has cooled noticeably this month in an early blow for PM Rishi Sunak’s election campaign.
  
  

A view of the City of London skyline.
A view of the City of London skyline. Photograph: Hollie Adams/Reuters

Output growth at American companies has hit a two-year high this month, the latest poll of US purchasing managers, just released, shows.

S&P Global’s flash PMI survey shows an acceleration of business growth this month, which signals an improved economic performance.

The service sector led the upturn, reporting the largest output rise for a year, but manufacturing also showed stronger growth, the PMI report found.

Bank of England cancels all public statements until after general election

The Bank of England has cancelled all speeches and public statements by policymakers during the UK election campaign.

A spokesperson for the central bank says it will cancel public engagements for its policymakers up until the July 4 national election.

This is an attempt to prevent comments from the Bank influencing (or being seen to influence) the election, even though the BoE is not bound by official government rules about the conduct of civil servants during election campaigns.

The decision will not stop the BoE setting interest rates at its next scheduled meeting on 20 June, though.

The money markets now expect ‘no change’ next month, with a 93% chance that bank rate is maintained at 5.25% in June.

Royal Mail parent company's results delayed; blames auditors

Royal Mail’s parent company has blamed its auditors for a delay to its latest financial results.

We were expecting International Distribution Services to release its full year financial results at 7am this morning, but they surprisingly didn’t appear.

Now, IDS – which is being pursued by Czech billionaire Daniel Křetínský – has announced a delay to the publication of its financial results for the 53 weeks ended 31 March 202

IDS blames its auditors, saying:

The Group’s auditor, KPMG, has requested additional time to complete the usual standard procedures after their internal reviews were late in the audit timetable, thereby delaying their final audit process.

IDS adds that it expects its adjusted operating profit, excluding voluntary redundancy costs, for the last year to be broadly in line with previously published guidance.

Just in: The number of Americans filing new claims for unemployment benefits fell last week.

The number of fresh ‘initial claims’ for jobless support fell by 8,000 to 215,000 in the week to 18 May.

That suggests the US jobs market remains strong, encouraging firms to hold onto workers.

The UK equity market has done better since 1962, on average, when the Conservatives have triumphed at the ballot box, AJ Bell investment director Russ Mould reports.

Mould has crunched the numbers, and found that the the capital return from FTSE All-Share has averaged 4.1% in the first year after a Labour win, but 5.7% after a Conservative triumph.

But this time, investors aren’t likely to be spooked by Labour’s large poll lead, he explains:

“The prospect of a government spearheaded by Sir Keir and Rachel Reeves is unlikely to spark the sort of fear that would have been inspired by an administration whose driving forces were Jeremy Corbyn and John McDonnell.

Moreover, the current Conservative government, whose tenure effectively dates back to 2010 and covers a flurry of five prime ministers, could be seen as having taken an increasingly interventionist approach to the economy, given such initiatives as sugar taxes, Help to Buy, energy price caps, windfall taxes on North Sea oil producers, 2021’s National Security and Investment Act and proposals for changes to the 2005 Gambling Act under the recent review.

Over in Istanbul, Turkey’s central bank has left kept interest rates unchanged today…. at 50%.

The Central Bank of the Republic of Türkiye resisted changing borrowing costs, after inflation climbed to 69.8% in April, up from 68.5% in March.

The Bank’s monetary policy committee says it is highly attentive to inflation risks, adding:

The tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range. Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen.

Updated

ING: Five reasons why markets seem relaxed about general election

The City have taken yesterday’s surprise general election announcement in their stride.

The pound is trading flat this morning, at $1.272, while the blue-chip FTSE 100 index is just 4 points higher, +0.05%, at 8374.

Analyts at ING says UK investors have become accustomed to political drama over the past few year.

ING cite five reasons why this election has the potential to be less exciting and volatile in markets: Labour is miles ahead in the polls; unlike 2019, Brexit is no longer a major unknown; Scottish referendum remains unlikely'; neither party is promising radical fiscal policy shifts, and an election doesn’t shift the Bank of England outlook

They add, though, that the pound could be influenced by “noise” in the July vote.

That could be generated from pre-election policy pledges by Labour. Any news concerning plans on future relationships with the EU could also generate some GBP [the pound] noise. The most impactful news would probably be on a new Scottish referendum which, as we note above, looks unlikely.

However, this would likely just be noise, and the direction will still be dictated by monetary policy in the UK and the US. As we don’t see the BoE changing its policy plans due to the election, the overall implications for sterling should be limited.

Updated

The Treasury says it is “working through internal due process” with regard to the proposed sale of its stake in NatWest (see earlier post).

The sale seems likely to be scuppered by the purdah period that restricts government activity in the run-up to a general election. That must disappoint chancellor Jeremy Hunt, who had hoped to stimulate public interest in London’s stock market, as the Conservative privatisations of the 1980s did.

GAM: Service sector slowdown doesn’t auger well for the broader economy

The sharp slowdown in growth in Britain’s services sector this month is a concern, as services makes up around three-quarters of the economy.

Charles Hepworth, investment director at GAM Investments, explains:

“UK Services PMI data for the month of May came in at the bottom end of forecasts at 52.9, still in expansionary territory but notably, the lowest reading in the last 6 months – it doesn’t auger well for the broader economy if the dominant services sector is genuinely starting to slow, which this data release indicates.

On the flip side, manufacturing PMI data showed a surprise move into expansion with a reading of 51.3, marking an end to the long contraction seen in this sector since August 2022.

The UK’s financial watchdog has fined HSBC £6.2m for failing to properly treat customers who were in arrears or experiencing financial difficulty.

The Financial Conduct Authority imposed the penalty after finding that, between June 2017 and October 2018, HSBC failed to properly consider people’s circumstances when they had missed payments.

This meant that HSBC didn’t conduct the right affordability assessments when entering arrangements with people to reduce or clear their arrears'; on some occasions the bank took “disproportionate action” when people fell behind with payments, which risked pushing them into deeper financial difficulty.

Overall, the PMIs paint a picture of a recovering economy, says Thomas Pugh, economist at RSM UK, adding:

It will probably not be until the second half of the year when growth picks up sharply with lower inflation, falling interest rates and tax cuts kickstarting consumer spending, which should then flow through to an improvement in business confidence and the rest of the economy.”

Updated

Although the composite UK PMI has fallen in May, the survey data is consistent with GDP rising by around 0.3% in the second quarter of this year, says Daniel Mahoney, UK economist at Handelsbanken.

That would be a slowdown on Q1, when the economy expanded by 0.6% – but would also mean the UK was still growing, after last year’s short, shallow, technical recession.

Mondelēz fined by EU over trade curbs

Newsflash: the confectionary company behind Cadbury, Côte d’Or, Milka, Oreo, Ritz, Toblerone and TUC biscuits has been fined €337.5m (£287m) for breaking European competition rules.

Mondelēz has been penalised by EU antitrust regulators on Thursday for impeding the cross-border trade of chocolate, biscuits and coffee products between EU countries.

This, the EU says, prevented retailers from being able to freely source products in Member States with lower prices – allowing Mondelēz to continue charging more for its own products.

Announcing the fine, the European Commission said Mondelez had also abused its dominant position in certain national markets for the sale of chocolate tablets.

It declared that Mondelēz had engaged in 22 anticompetitive practices, including:

  • Limiting the territories or customers to which seven wholesale customers (traders/“brokers”) could resell Mondelēz’ products. One agreement also included a provision ordering Mondelēz’ customer to apply higher prices for exports compared to domestic sales. These agreements and concerted practices took place between 2012 and 2019 and covered all EU markets.

  • Preventing ten exclusive distributors active in certain Member States from replying to sale requests from customers located in other Member States without prior permission from Mondelēz. These agreements and practices took place between 2006 and 2020 and covered all the EU markets.

On the other hand…. economist Julian Jessop of the free market Institute of Economic Affairs says today’s PMI report shows the economy is recovering:

As flagged earlier, the drop in the composite PMI shows the private sector economy is growing slower in May than in April.

Today’s May flash PMI survey will have provided the Bank of England with some comfort after the stronger-than-expected inflation data for April, says Capital Economics.

They told clients:

Crucially, the further fall in the services output prices balance suggests that services inflation will continue to drop. The output and activity balances were also weaker than anticipated, suggesting that GDP growth will not repeat Q1’s bumper increase.

This month’s UK PMI report (see last post) is weaker than expected, points out Reuters, adding:

Growth across British businesses has cooled noticeably this month and by more than any economist polled by Reuters had predicted, a survey showed on Thursday, in an early blow for Prime Minister Rishi Sunak’s election campaign.

More here.

UK company growth is slowing

Newsflash: Growth across the UK private sector is slowing this month, in what appears to be a blow to the government’s election strategy.

Data firm S&P Global Insight’s regular poll of purchasing managers at British firms has found that the services sector is recording its weakest growth in six months during May.

More encouragingly, though, manufacturing has returned to growth – and firms are raising prices at the slowest rate in over three years.

Here’s the details:

  • Flash UK PMI Composite Output Index at 52.8 (down from April’s 54.1), to 2-month low.

  • Flash UK Services PMI Business Activity Index at 52.9 (down from April’s 55.0), to a 6-month low.

  • Flash UK Manufacturing Output Index at 52.7 (up from April’s 49.4), to a 25-month high.

  • Flash UK Manufacturing PMI at 51.3 (up from April’s 49.1), to a 22-month high.

Any reading over 50-points shows growth, so Rishi Sunak can at least point to that. But a slowdown in growth doesn’t bolster the PM’s claim the economy has “turned the corner”.

The PMI survey also found there was only a marginal increase in employment at companies this month, with some companies blaming candidate shortages and wage costs.

Chris Williamson, chief business economist at S&P Global Market Intelligence, says

“The flash PMI survey data for May signalled a further expansion of UK business activity, suggesting the economy continues to recover from the mild recession seen late last year. The survey data are consistent with GDP rising by around 0.3% in the second quarter, with an encouraging revival of manufacturing accompanied by sustained, but slower, service sector growth.

The survey also brings welcome news of a cooling in service sector inflation, which is needed to open the door for the Bank of England to start cutting interest rates. A temporary surge in wage-related cost growth seen in April is showing signs of fading in May. Firms are also reporting that strong competition is limiting their scope to raise prices, especially in the face of weakened demand due to the elevated cost of living.

Updated

June interest rate cut forecasts cut

Several City experts have dropped their forecasts that the Bank of England will cut UK interest rates next month, after inflation came in higher than expected yesterday.

Goldman Sachs, HSBC and Deutsche Bank all now expect the first rate cut to come in August, rather than June.

That’s a blow to Rishi Sunak’s hopes that the Bank could lower borrowing costs before July’s election, which might help people feel better off.

Goldman point to yesterday’s inflation report, telling clients:

Given firmer incoming price and wage data, we no longer expect a June Bank Rate cut. First, services inflation came in at 5.9%yoy (year on year) in April, well ahead of consensus expectations and the MPC‘s May projection of 5.5%yoy.

Goldman add that the UK’s growth outlook has “improved significantly”, having returned to growth in the first quarter of the year.

The money markets currently suggest that there’s only a 10% chance of a rate cut in June, down from over 50% at the start of the week.

Updated

General election create uncertainty in water industry

Rishi Sunak’s decision to call an election on 4 July appears to have cascaded down to the water industry, causing uncertainty over an announcement by the industry regulator.

Ofwat had been due to give its preliminary view of English and Welsh water companies’ business plans for the five years to 2030, which were submitted last year, on 12 June.

Now, that update – known as “draft determination” on the PR24 plans - may be delayed until after the election. A final decision is expected to be made at the long-scheduled meeting of the Ofwat board today.

The draft determinations are seen as particularly crucial for Thames Water, the heavily indebted supplier which is at risk of falling into a government-handled administration. Its shareholders have refused to stump up any more funds amid a stand-off with Ofwat.

An Ofwat spokesperson said:

“We are considering pre-election protocols and guidance in relation to our time table for PR24.”

Separately, Anglian Water has appointed former HS2 boss Mark Thurston has its next chief executive. He will succeed longstanding Anglian chief Peter Simpson in August.

Thurston left his role at the pared-back high-speed rail project after six years in July 2023 and was reportedly Britain’s highest paid public servant at one point during the role.

Eurozone company growth hits one-year high

Happy news from Europe: the eurozone economic recovery is gathering pace with new orders rising at the fastest rate in over a year, new data shows.

The latest survey of purchasing managers shows that eurozone companies are growing at the fastest rate in 12 months, with business activity, new orders and employment growing at a more rapid pace in May.

This lifted the HCOB Flash eurozone composite PMI output index up to 52.3 this month, up from April’s 51.7 – any reading over 50 shows growth.

Updated

General election could sink NatWest share sale plan

The July election could scupper plans to sell the government’s stake in NatWest bank back to the public.

Chancellor Jeremy Hunt had been aiming to do a “Tell Sid”-style sale of the stake this summer, aiming to raise funds by selling shares at a discount to small investors.

But with the general election now set for 4 July, the fate of the government’s near-30% stake could fall to the next administration.

Three sources have told Reuters that Britain is poised to scrap the milestone sale of shares, which were acquired when the government bailed out Royal Bank of Scotland (as NatWest was then known) in the 2008 financial crisis.

Analysts at Peel Hunt agree that there is fresh uncertainty over NatWest now, telling clients:

This share sale cannot take place before the General Election and the new government, which polls are currently suggesting is likely to be formed by the Labour Party, may or may not proceed with this initiative. Although the UK Government is a passive investor only in NatWest, the presence of the State on the share register in our view is not helpful for the rating of NatWest’s shares.

If the Retail Offer is cancelled, this might extend the timeframe over which the complete exit of the UK Government from the register is achieved. Whilst this development does not alter our positive view on the outlook for the company and its shares, the uncertainty is modestly unhelpful for NatWest in our view.

Shares in NatWest have dropped by over 1% this morning.

Last week, my colleague. Nils Pratley argued that the government should drop the flashy share sale, and stick with its current ‘trading plan’ in which NatWest shares are being dribbled into the market.

Updated

Elsewhere in the City, shares in energy company National Grid have tumbled 8% after it announced a massive cash call to fund the delivery of renewable energy.

National Grid is raising £7bn through a rights issue, in which existing shareholders can buy 7 new shares for every 24 they already own.

This £7bn will help to fund a new £60bn capital investment programme, which National Grid says will “deliver a significant step-change” in rolling out critical energy infrastructure in the UK and US.

National Grid’s CEO, John Pettigrew, says the plan is “a defining moment for National Grid”, adding:

On both sides of the Atlantic, governments and regulators are moving with increased urgency to attract the levels of investment required to meet their decarbonisation targets.

As economies become increasingly digital, electrified and decarbonised, the need for energy infrastructure has rarely been more pressing. Our investment will unlock significant economic growth and, by the end of the decade, National Grid is expected to support over 60,000 more jobs, while also decarbonising our energy systems, bolstering security of supply, and reducing consumer bills in the long term.

Shares in major veterinary companies are dropping, at the start of trading in London.

Pets At Home, which owns around 450 vets practices, are down over 3%.

CVS (who we just heard from) are 1% lower.

CVS, one of the Big Six companies who now dominate the vets market, has told the London stock market that it will support the CMA with its investigation.

In a statement to the City, CVS says:

CVS has a clear strategy with its purpose to give the best possible care to animals and its vision to be the veterinary company people most want to work for. The Group is proud of the dedication and commitment of its colleagues in providing great care to its clients and their animals.

CVS launched a new clinical governance framework in November 2023 as an industry first in the UK veterinary sector. This clinical governance framework places contextualised care at the heart of the Group’s approach to providing clients and their pets with appropriate care. This focus is neatly reflected in the Group’s approach to understanding client needs under the mantra of “what matters to you, matters to us”.

CVS understands that the CMA market investigation commences today and will be conducted over the next 18 months and looks forward to further updates from the CMA at the appropriate time.

Updated

Last month, my colleague Rupert Neate wrote an excellent piece examining how pet care become such big business.

It outlined how pet owners have been paying hundreds, or thousands, of pounds for ever more complex treatments.

For example…

Everyone seems to have a story: £3,000 for blood tests for a lethargic cat; £2,000 to have a jack russell’s broken tooth removed; £400 to bandage a rabbit’s dislocated toe. Others complain of routinely being sold drugs at several times what they cost online.

These spiralling costs have come as six big corporate chains have acquired more and more vets practices, and now own 60% of the market.

As Rupert explained:

Until a change in the law in 1999, only qualified veterinary surgeons could own vet clinics. This meant most practices were small businesses run by partners who knew their patients and played an important role in the community, just as in the cosy 1980s TV series All Creatures Great and Small. In the last few decades, though, big businesses have been buying up practices at a furious pace, drawn by their often healthy profit margins, which could be increased by consolidating services under a big corporate umbrella. Vets are also regarded as “recession-proof”, as Britons will cut back on just about everything else to prioritise their pets.

In 2013 about 10% of vet practices were owned by six large corporations; now 60% are. But the march of the “big six” corporations has gone unnoticed by many pet owners as four out of six practices keep the name and branding of the previous independent business. In the majority of cases they also keep on the existing vets, giving the former owners new titles such as clinical director (and, often, a lottery winner-sized cheque).

Well worth a read:

The terms of reference of the CMA’s investigation are online here.

They explain that the inquiry will examine the supply in the United Kingdom of veterinary services for household pets, including the supply of prescribed veterinary medicines for such pets.

It adds:

The CMA has reasonable grounds to suspect that a feature or a combination of features of the market for the supply of those goods and services in the UK prevents, restricts, or distorts competition.

The CMA’s top 3 tips for pet owners

The CMA has also issued three tips to help pet owners get a good service.

1. Look further than the closest vet

Many pet owners told us they choose a vet based simply on how close it is to where they live. It might feel convenient, but fees and services do differ between practices so check to be sure it’s the right one for you.

2. Ask if there are other treatment options

Getting a treatment that works for you and your pet is what matters most. It’s important that you understand why your vet has recommended a particular treatment or test. But if you’re not sure about a treatment, or you’re worried about the cost, speak to your vet.

3. If it’s not urgent, consider buying the medication elsewhere

When it’s an emergency, we just want to get our pet the medication they need as quickly as possible. But if your pet needs non-urgent care, then it can be cheaper, even when you include your vet’s prescription fee, to buy the medication elsewhere – such as an online pharmacy or specialist pet shop. About one-quarter of pet owners who responded to our call for information were not aware of this.

Updated

The CMA has appointed an inquiry group to handle its investigation into the veterinary services markets.

The group will be chaired by Martin Coleman, a former partner at law firm Norton Rose Fulbright, and spend its first few months collecting more evidence and analysing it.

Coleman says the inquiry will be both comprehensive and complex, explaining:

The vet services market is worth an estimated £5bn a year and provides a necessary service to pet owners so it’s right that we fully investigate competition concerns – this matters to businesses, veterinary professionals and, crucially, the 16m households in the UK who have pets.

Market investigations are, by their nature, comprehensive and complex. They require time to fully explore concerns and to ensure that all points of view are heard so we can reach the right outcomes and take appropriate action, if needed, to make the market work for everyone.

Updated

Introduction: Full investigation into vets market announced

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

Britain’s competition authority is getting its teeth into the UK’s £5bn a year veterinary practice market, by launching a full investigation into the sector.

The Competition and Markets Authority (CMA) has announced this morning it will examine concerns that the market wasn’t working properly and that customers are getting a bad deal.

The CMA’s move comes after 56,000 people, including customers and vet professionals, raised concerns about practices within the £2bn industry, through the regulator’s initial inquiry into vets.

The investigation could force vets to give certain information to consumers – to address concerns that they’re not given the full facts when making decisions about pet care, or impose maximum prescription fees to prevent them bring ripped off.

The CMA adds that it could also order the sale or disposal of a business or assets – addressing concerns that private firms have muscled into the vets market in recent years.

Sarah Cardell, chief executive of the CMA, says this morning that a formal market investigation is “essential”.

The message from our vets work so far has been loud and clear – many pet owners and professionals have concerns that need further investigation.

We’ve heard from people who are struggling to pay vet bills, potentially overpaying for medicines and don’t always know the best treatment options available to them. We also remain concerned about the potential impact of sector consolidation and the incentives for large, integrated vet groups to act in ways which reduce consumer choice.

In March, we proposed that a formal market investigation was the best route to fully explore these concerns and, if appropriate, take direct action to address them. That proposal has been overwhelmingly endorsed through our consultation.

While we’re aware of acute staff shortages and difficult working conditions for vets, we consider a formal market investigation is essential to ensure good outcomes for the millions of pet owners in the UK as well as professionals working in the sector. The independent inquiry group will now take this investigation forward and, in the meantime, we’re publishing some tips to help pet owners better navigate vet services.

The CMA’s inquiry will examine whether:

  • consumers are getting the information they need, at the right time, to make informed decisions

  • a limited choice of vet businesses in some local areas is impacting pet owners

  • profits earned are consistent with the levels expected in a competitive market

  • vet businesses have the incentive and ability to limit consumer choice when providing treatments or recommending related services, particularly when they are part of large integrated groups

  • the regulatory framework is preventing the market from functioning as well as it could

Also coming up today

New economic data from the UK, and across the eurozone, will show how Britain and Europe’s private sector companies are faring this month.

The UK purchasing managers index is expected to show solid growth across the services sector, and a small contraction in manufacturing.

The health of the economy will be closely watched after Rishi Sunak yesterday announced a general election on 4th of July, in a high-stakes gamble.

The election is coming earlier than the City expected, says Ipek Ozkardeskaya, senior analyst at Swissquote Bank

Maybe he is scared that inflation will pick up until autumn and he will lose his ‘we pulled inflation to normal levels’ rhetoric. Whatever it is, the fact that the UK election is due on 4 July combined with yesterday’s hotter-than-expected inflation print, washed out the expectation of a June rate cut from the Bank of England (BoE). That expectation went from a coin flip to none in just one session.

Former British Post Office boss Paula Vennells is due to resume her testimony to the inquiry into the Horizon scandal – here’s how day one unfolded:

The agenda

  • 9am BST: Eurozone flash PMI survey for May

  • 9.30am BST: UK flash PMI survey for May

  • 12.30pm BST: Bank of England chief economist Huw Pill speaking at the Reykjavík Economic Conference

  • 1.30pm BST: US new housing index for April

Updated

 

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