Closing summary: Lloyds, growth, tax and HBOS probe
It’s been an awfully busy day, so let’s wrap up with a reminder of the key points (with links to the appropriate news stories)
The government has slammed the brakes on its plan to sell its stake in Lloyds Banking Group to the public.
Chancellor George Osborne said it would have been “frankly quite irresponsible” to press on with the sale when Lloyds shares are just 64p, compared to a break-even price of 74p.
City analysts say Osborne made the right decision, but political opponents have claimed he was reckless in pushing for the sale at all.
The UK economy has posted its weakest annual growth in three years.
New GDP figures showed that the economy expanded by 1.9% year-on-year in the last three months of 2015. On a quarterly basis, GDP rose by 0.5%.
The probe could lead to former HBOS being banned from the City for mismanaging the bank, which was rescued by Lloyds - triggering a taxpayer-led bailout (and leaving George Osborne with a lot of shares to sell)
Announcing the move, commissioners Pierre Moscovici vowed to ‘name and shame’ those who didn’t play by the rules, but denied planning to impose a flat rate of corporation tax across the EU.
He also confirmed the EU could investigate the UK’s new tax deal with Google.
And it’s been another volatile day in the markets. Oil soared, then subsided, when rumours of OPEC supply cuts were denied.
Traders were cautious, after the US Federal Reserve said last night it was watching the global economic and financial system closely.
The FTSE 100 shed 1%, or 58 points, to close at 5931. And there were bigger losses across Europe, on concerns that global economic problems is hurting Europe’s recovery.
Conner Campbell of Spreadex has the details:
The UK index has flailed about for much of the day, only just recovering from its lunch-time losses to start the US session flat. The Eurozone was a whole different story; plunging nearly 1.5% the DAX got a taste of the dramatic today, struggling in the face of Germany’s weak inflation and import prices figures.
This helped drag the CAC with it, though the French index was slightly less hysterical, tumbling around 35 points as the day wore on.
And that is all for today. Thanks, and goodnight. GW
There’s also speculation that Lloyds could be planning to set even more money aside to cover Payment Protection Insurance compensation.
The chancellor might want to keep the share sale off the table, until the PPI scandal is off the agenda again.
Raul Sinha, banking analyst at JPMorgan Chase said:
“We are estimating that Lloyds will take £3bn of PPI provisions up to 2018 and the market fears that they might decide to take some of that now.”
Yesterday, Royal Bank of Scotland announced another £500m to cover PPI claims, while Santander put aside £450m.
PPI has already cost Lloyds an eye-watering £14bn, making it the biggest culprit.
Susan Kramer, Liberal Democrat treasury spokesman, has criticised the chancellor for his eagerness to sell the government’s remaining stake in Lloyds:
She said (via the Financial Times):
“George Osborne’s dash to sell off the public’s stake in Lloyds as soon as possible was already a bad idea.
“It is worrying that it has taken a major collapse in global economic confidence to finally make him see sense.”
More volatility in the markets!
Shares are diving on both sides of the Atlantic, as OPEC members rubbish today’s rumour of production cuts.
*SAUDI HAS NO PROPOSAL TO CUT OUTPUT 5%: OPEC GULF DELEGATE
— lemasabachthani (@lemasabachthani) January 28, 2016
The FTSE 100 index of blue chip shares listed in London has now shed 97 points, or 1.6%, to 5892. Not a great environment to be launching the Lloyds retail share offering.
The German DAX has slumped by 2.4%.
And on Wall Street, the Dow Jones is now in the red, extending yesterday’s losses.
The selloff also follows some disappointing US economic data, showing a big drop in durable goods production (that machinery and long-lasting goods).
Capital Economics explains:
The 5.1% m/m decline in durable goods was due primarily to a sharp decline in the notoriously volatile aircraft component. Nevertheless, the details suggest that equipment investment shrank in the fourth quarter.
Can’t argue with this tweet.....
Osbourne:“We will sell Lloyds to the British people, but we will do so when the time is right.” We already own it! https://t.co/5RTqSkBjf6
— Pennie Quinton (@penrosequinton) January 28, 2016
Nils Pratley: Economic fears have pushed Lloyds shares down
Our financial editor, Nils Pratley, agrees that Osborne couldn’t have got away with selling Lloyds to the public on the cheap.
But the chancellor should consider exactly why the bank’s shares have fallen so much this year.
He writes:
Before Osborne spends too much time congratulating himself on his “responsible” move, he should ask why Lloyds’ share price has fallen by a quarter since last May’s election.
Yes, those pesky turbulent markets are a major contributor. But Lloyds – more than any other big UK bank – is also a proxy for the market’s view of the health of the UK economy. Investors sense bigger problems for the chancellor than an embarrassing delay in a £2bn share-sale.
City firm IG reckons that the Lloyds share sale will be a success, eventually.
IG analyst Chris Beauchamp reports that there’s plenty of public interest in it:
“Research conducted by IG shows there is significant public appetite for the Lloyds share offer, with 43% of the UK adult population being aware of the offer and 6% likely to apply.
This is the equivalent of 2.4 million people, which exceeds the government’s goal of engaging 2 million investors based on them investing £1000.
But who are those 2 million people? I’d guess that many of them will be experienced investors, who aren’t daunted by the City, and who also have a spare grand to invest.
Speaking of the markets... the oil price is suddenly surging.
Brent crude has leapt 8% to $35 per barrel, a remarkable move, following reports that Russia and Saudi Arabia might agree a 5% production cut.
#Oil price jump >6% on reports that Opec meeting may discuss 5% output cut. pic.twitter.com/IPZWxQnYoG
— Holger Zschaepitz (@Schuldensuehner) January 28, 2016
However, there’s nothing official yet....
Is Osborne justified in blaming ‘market turbulence’ for scuppering the Lloyd sale (at least temporarily)?
I think so. The FTSE 100 has fallen by around 7% since last October, but bank shares have suffered a steeper decline - as this chart shows.
And other global markets have seen bigger losses. German’s DAX index has lost almost 9% since the start of this year, a period in which Japan’s Nikkei is down 10%.
Economic problems in China, the oil price rout, and fears of a global slowdown and rising deflation have all spooked investors this year. There’s little prospect of Lloyds share price surging from 63p to the 74p break-even point anytime soon.
Pausing the Lloyds float is embarrassing for the government, but it does avoid the possibility of a failed privatisation.
Russ Mould, investment director at stockbrokers AJ Bell, says a Lloyds flop could have undermined the zeal for Thatcherite privatisations.
He says:
“Osborne will clearly be looking for a better deal for the Government, to maximise returns as best he can, and he won’t want any issue that was aiming for substantial involvement from private investors to be a flop.
That would damage already fragile sentiment and make it harder for any future privatisations to do well.
It’s more than two years since the government sold off Royal Mail, prompting claims that it had sold the firm off far too cheaply.
Royal Mail shares are worth 450p today, around a third higher than the 330p float price, and peaked at over £6.
That’s the problem with flotations. If shares slide, they were a rip-off. And if they surge, then the company was sold off too cheaply.
George Osborne took his mind off the Lloyds sale suspension and the Google tax tow with a trip to Airbus’s factory in Filton this morning.
Looks like the chancellor enjoyed himself:
Banking analyst Ian Gordon says George Osborne has made the right call given the circumstances.
The Press Association has the details:
Lloyds shares were to be offered to retail investors at a 5% discount to the market price, with a bonus share for every 10 shares held by the investors for more than a year.
“If Osborne were to have gone ahead with the sale to retail investors ... this would have produced an effective price of sub 60 pence,” said Investec analyst Ian Gordon.
“That would be politically and economically impossible to justify. So I think that this (decision) is perfectly sensible.”
A Downing Street spokesperson has also blamed the current stock market volatility for the decision to postpone the Lloyds retail offering, saying:
“It’s important that any share sale delivers value for money and we have to take account of current market conditions.”
And the market conditions aren’t great today. After a calm start, the FTSE 100 has now fallen by 30 points or 0.5% to 5958.
Lloyds shares have dropped by 1.5% to 63.93p -- around 10p shy of the break-even level (as explained earlier).
Lloyds Banking Group has issued a statement:
“The Government has already been able to progressively reduce its stake in the Group from 43% to just 9% today, returning over £16 billion to taxpayers at a profit. This reflects the hard work undertaken over the last four years to transform the Group into a simple, low-risk and customer-focused bank. The timing of any future retail sale is a matter for the Government.
Our focus is on moving the Group forward so that it can continue to be profitable and deliver sustainable returns to all our shareholders.”
Sky News also ask George Osborne if he regrets calling the £130m Google tax deal a major success (when speaking to the Guardian at the World Economic Forum in Davos last Saturday).
Osborne says that his only interest as chancellor of the exchequer is to get the best deal for Britain. Google used to pay no tax, now it is paying tax.
And he cites his new diverted profits tax, which is aimed at large multinationals who artificially shift their profits offshore.
I regard that as a major success, he adds. Clearly there is more to do, and the ultimate solution is to create more succesful UK companies.
George Osborne has just been interviewed by @EdConwaySky about the Google tax deal - and he's still using the phrase "a major success"
— Michael Deacon (@MichaelPDeacon) January 28, 2016
So he’s still using the ‘major success’ line, but appears to be tweaking it to cover his general action on tax avoidance, not just the Google deal.
Updated
Osborne: Lloyds share sale would be irresponsible
Sky News just broadcast their interview with George Osborne.
In it, he says it would be “frankly quite irresponsible” to embark on a major share sale when the markets are so volatile. His aim is to get the best deal for the public and the country.
Q: Is the sale of Royal Bank of Scotland shares also going to be postponed?
Osborne says he will continue, when it’s right, to sell RBS shares to the market.
“My interest is a bank that works for the British people, that’s out there lending to businesses, but also ensuring that over time we do get out of that bank. We will continue to make sales to the market.
Britain currently owns around 70% of Royal Bank of Scotland, whose share price is around half the break-even price of 500p. The government is aiming to sell shares to City institutions, rather than to the public.
Updated
Hundreds of thousands of small investors will be disappointed by the postponement of the Lloyds shares sale, says Laith Khalaf of Hargreaves Lansdown.
He points out that Osborne had promised to sell the shares at a 5% discount to the market price, so he must now hope for a recovery in markets later in the year.
Market volatility in recent months has seen UK stock market values fall by around 20% since the April 2015 high, so its understandable that the share sale is being delayed.
The government are committed to returning the Bank to private hands and within that had previously pledged to offer at least £2 billion as a retail offering. Therefore we expect this share sale to proceed at some stage but the timescales are unknown.
Sky News’s Ed Conway smells a rat with the timing of the Lloyds news:
Gotta say: v convenient for Chancellor to drop the Lloyds story today, just as he faces first round of TV interviews since Google tax deal
— Ed Conway (@EdConwaySky) January 28, 2016
News story: Another Osborne u-turn
For anyone just tuning in, here’s our news story on the Lloyds share sale suspension:
George Osborne has postponed the sale of the last taxpayer-owned tranche of Lloyds Bank shares this spring, blaming “market turbulence”.
The chancellor pledged in last year’s election manifesto to sell the remaining stake in the bank – just under 10% of the company – to the public this spring.
However, he told Sky News and other broadcasters that he has decided to delay the sale following the sharp selloff in stock markets in recent weeks.
Several indices, including London’s leading share index, entered bear market territory earlier this month, pressured by the slump in oil prices coupled with concerns about China and global economic slowdown. The FTSE has recovered this week but it global equity markets remain volatile.
The Lloyds share price has dropped more than 10% below the price at which the government would make a profit from the share sale.
Osborne told reporters that:
I want to create a share-owning democracy. It’s also my responsibility to ensure economic responsibility so with these turbulent financial markets now is not the right time to have that sale.
“We will sell Lloyds to the British people but we will do so when the time is right.”
It is yet another U-turn on a manifesto pledge, following his change of heart over tax credit cuts in the autumn statement.
George Osborne postpones sale of last publicly-owned Lloyds Bank shares blaming 'market turbulence' https://t.co/n3Z1k8eceN
— Julia Kollewe (@JuliaKollewe) January 28, 2016
Why Lloyds postponement is a headache for Osborne
By announcing the postponement today, George Osborne avoids breaking the bad news in March’s budget.
But this is still a blow to his plans, and probably means he’ll need to borrow more money to balance the books.
The chancellor has billed the sale as the “biggest privatisation for 20 years”. He was planning to raise £2bn through the retail offering to small shareholders that has now been halted.
Osborne announced the sale at the Tory party conference last October, telling activists that:
Next Spring, we will make Lloyds shares available to every member of the public. They’ll be offered at a discount. Small shareholders will get priority, and long-term investors will get a bonus.
You can register from today. It’s the biggest privatisation for more than twenty years.
And every penny we raise will be used to pay off our debts.
So, with the Google tax row gathering pace, this is turning into a week to forget for the chancellor.
Our financial editor, Nils Pratley, warned two weeks ago that the Lloyds share sale was in trouble.
He wrote:
Under the drip-feed programme [sales to City firms], which has reduced the state’s stake to 9%, sales are prohibited below 73.6p, the break-even price.
And, if the drip-feed programme is stalled, can Osborne really go ahead with his parallel idea to exit Lloyds with a flourish this spring by selling £2bn worth of discounted shares to the public?
Technically, he can. But it would be highly embarrassing, politically speaking, to sell Lloyds shares to private punters at a loss to the public purse.
Updated
At today’s share price, the government would swallow a chunky loss if it carried on with the Lloyds sale.
The break-even point, above which Osborne could boast a profit, is 73.6p.
Lloyds shares are changing hands this morning at 63.9p. They haven’t been above 74p since New Year’s Eve 2015, before global stock markets began 2016 with hefty falls.
Osborne has confirmed that the sale of Lloyds shares is off:
We'll build a share owning democracy. So British people can buy Lloyds shares but we'll only sell when turbulent markets have calmed down
— George Osborne (@George_Osborne) January 28, 2016
UK government puts Lloyds sale on hold
It’s all go today!
Back in the UK, the chancellor has just announced that he’s putting the sale of Lloyds Banking Group shares to the public on hold.
He blames market turbulence.
Breaking: Chancellor says he will delay the sale of the final Government holdings of Lloyds shares to public due to market turbulence
— Ed Conway (@EdConwaySky) January 28, 2016
Osborne on Lloyds: “With turbulent financial markets now is not the right time to have that sale. We will do so when the time is right.”
— Ed Conway (@EdConwaySky) January 28, 2016
Britain acquired a 43% shareholding in Lloyds following the collapse of HBOS (now being freshly probed, of course).
Osborne has managed to whittle it down to 9% 14% , and had hoped to shift the rest to the public soon.
But Lloyds shares have shed a quarter of their value in the last eight months, and clearly the sale is no longer ‘a goer’.
Updated
Q: These proposals still allow companies to shift profits to other EU, or non-EU countries. Won’t that simply lead to a race to the bottom, as member states cut their corporation tax bills.
We don’t want to impose corporation tax at the national level, Pierre Moscovici reiterates. But there are also fiscal rules, public services to fund, which means countries cannot afford a race to the bottom.
Q: And will you impose more punitive measures, if we don’t see the €50bn-€70bn lost to tax evasion flooding into EU coffers.
That’s an official estimate, but we won’t use it as a benchmark of success, Moscovici says.
Q: Which countries are helping multinational companies avoid paying fair tax? Switzerland, perhaps?
I was at Davos last week, says Moscovici. I met the new Swiss minister for finance, and we agreed that the excellent co-operation that exists between the EC and Switzerland would continue.
A recent EC-Swiss agreement means that the banking secrecy no longer exists, and will aid the exchange of information, Moscovici adds.
He doesn’t want to point a finger at any countries, but wants to create a new system to prevent aggressive tax avoidance and boost transparency.
Would EC's proposals hit Google?
Q: Would these EC’s new proposals on tax avoidance stop legal arrangements such as Google, where the UK operations are carried out by a separate company working for Google in Dublin, who is paid a fee, to ensure the UK operations make as small a profit as possible?
Moscovici says he can’t talk directly about the Google deal. however.
There are some measures inside our proposed directive that can address the issue.
Especially exit taxation, to prevent companies relocating assets purely to avoid taxation.
Q: How does this deal relate to the UK’s controversial deal with Google, under which the search giant will pay £130m in back taxes?
Pierre Moscovici says they aren’t directly linked.
The commission could investigate the UK’s deal with Google, and the broad principle is that:
All companies must pay their fair share of taxes, where they pay their profits.
That’s why we have been active in preventing member states ability to offer sweetheart deals.
The measures I am announcing today will tackle the most common loopholes in international law, Moscovici insists. It should have a major impact in tackling aggressive tax planning.
Q: Won’t these new rules penalise countries a long way from the centre of Europe, who might struggle to attract firms without an attractive corporation ? (Ireland, perhaps)
Moscovici says the EC isn’t planning to set tax rates across the region. It’s talking about common rules.
@pierremoscovici outlining #EU plan to combat corporate tax avoidance, says €50-70bn lost to aggressive tax planning each yr.
— Jennifer Rankin (@JenniferMerode) January 28, 2016
Pierre Moscovici is taking questions now
Q: How confidence is the EC that member states will accept new rules on tax?
Moscovici says he expect a lively debate with national governments. He doesn’t think his new plan will be accepted 100%, but he has “every confidence” that new rules to combat tax avoidance will be agreed.
EC launches new attack on tax avoidance
Over in Brussels, European commissioner Pierre Moscovici is announcing a new crackdown on multinational companies’ tax avoidance.
Moscovici, Commissioner for economic and financial affairs, taxation and customs, is telling reporters that tax avoidance is a “global problem”. But the EC is determined to crack down on companies who play the system and cut their tax bills.
It is “too easy for companies to escape taxation by shifting assets to tax havens”, Moscovici says, vowing to “name and shame” companies who don’t play fair.
Our battle against tax avoidance is one for fair competition btw businesses and fair play amongst MSs. #FairTaxation pic.twitter.com/k5uvB4Ifp5
— Pierre Moscovici (@pierremoscovici) January 28, 2016
The Commission is also keen to rein in member states who offer unfairly low tax rates to encourage multinationals to base their HQs there.
Today we take action to put states on an equal footing, by setting legally binding rules that they must all abide by.....Member states must all apply a minimum level protection against tax avoidance.
And he concludes:
The days are numbered for companies who avoid paying tax at the expense of others.
A fairer, simpler and more stable tax environment is better for all businesses in the EU. #FairTaxation @EU_Commission @EU_Taxud
— Pierre Moscovici (@pierremoscovici) January 28, 2016
City regulators certainly haven’t been quick-off-the mark on the HBOS scandal.
Yes, HBOS bosses could potentially be banned from the City, but it’s eight years since the bank was rescued by Lloyds Banking Group, who then required a massive taxpayer bailout.
Financial watchdogs to (finally) investigate former bosses of HBOS over who to blame for need to bail out using £30b of our money
— Chris Choi (@Chrisitv) January 28, 2016
The decision to start investigating HBOS’s former top managers is a significant moment.
Until now, only one HBOS banker - Peter Cummings -- has been banned, even through a parliamentary inquiry blamed “colossal failure of management” for its failure.
Finally! FCA to investigate "former HBOS senior managers" https://t.co/LgLZdf2T6Q 4 yrs after Peter Cummings https://t.co/wdGLJbv2aq
— Simon Bowers (@sbowers00) January 28, 2016
FCA and PRA have begun investigations into "certain senior former managers" of HBOS. First time top execs of a big bank probed over crisis.
— Harry Wilson (@harrynwilson) January 28, 2016
City watchdogs launches probe into HBOS bosses
Breaking news: Britain’s City watchdogs have announced they are starting a probe into some of the top managers at HBOS, the bank which collapsed during the financial crisis.
This statement just landed in my inbox:
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have decided to start investigations into certain former HBOS senior managers.
These investigations will determine whether or not any prohibition proceedings should be commenced against them. The FCA and PRA continue to review materials with a view to making further decisions regarding other former HBOS senior managers.
The move comes two months after an official report into the HBOS affair was finally published.
It concluded that the decision to not investigate at least 10 former executives was “materially flawed”. That list included chairman Lord Stevenson and chief executives Andy Hornby and James Crosby.
Potentially, the FCA and the PRA could decide to ban former HBOS top executives from working in the City.....
Updated
The GDP report shows that Britain’s economy has suffered from the slump in oil prices in the last year:
Further evidence of struggles in North Sea oil industry. GDP figs show 1.4% fall in mining & quarrying sector in Q4
— Ed Conway (@EdConwaySky) January 28, 2016
Britain’s growth was “relatively lacklustre” and “worryingly lopsided”, warns Howard Archer of IHS Global Insight, an analyst group.
It was completely dependent on the services sector, which saw output growth pick up to 0.7% quarter-on-quarter from 0.6% in the third quarter.
There was marginal contraction in construction output (0.1% quarter-on-quarter) and industrial production (down 0.2%).
Services is the only part of the UK economy that is larger than before 2008, when the financial crisis began.
Quick clarification. Today’s report shows that GDP was 1.9% higher in Quarter 4 (Oct to Dec) 2015 compared with the same quarter a year ago.
During 2015, the economy grew by 2.2%. That’s a slowdown, as the UK grew by 2.6% during 2014.
Osborne warns of bumps ahead
The chancellor tweets:
Latest stats show economy grew at 0.5%. Shows UK continues to grow steadily & despite turbulence in global economy we're pushing ahead
— George Osborne (@George_Osborne) January 28, 2016
With turbulence in world, there may be bumpy times ahead. UK must stick with plan that's cutting deficit, attracting business, creating jobs
— George Osborne (@George_Osborne) January 28, 2016
Britain’s economy has now posted 12 quarters of growth, and is estimated to be 6.6% higher than the pre- economic downturn peak in Q1 2008.
This chart highlights how Britain relies on the service sector for growth (it does make up around 80% of the economy)
Service sector expands, but production contracts
Britain economy continues to rely on services company for growth, while manufacturers failed to grow.
The ONS reports that:
- The service sector grew by 0.7% in the last quarter
- agriculture grew by 0.6%
- But the production sector shrank by 0.2%, with manufacturing output flat
- Construction decreased by 0.1%
0.5% growth in #GDP in Q4, up from 0.4% in Q3 https://t.co/HtgUwDgHly
— ONS (@ONS) January 28, 2016
UK economy ends year on 'soft note'
Here’s Reuters first take on the GDP figures (they’ve been in a lock-in at the Office for National Statistics):
Britain’s economy ended 2015 on a soft note after the annual pace of growth slowed to its weakest in nearly three years as the global economic slowdown weighed on its previously rapid expansion.
Fourth-quarter gross domestic product grew by 0.5%, up slightly from 0.4% in the three months to September, the Office for National Statistics said on Thursday, and in line with economists’ forecasts.
Output in the three months to December was 1.9% higher than a year earlier, down from 2.1% in the third quarter and the smallest increase since early 2013.
The figures are likely to ease worries that Britain is facing a sharp economic slowdown, as domestic demand appears to have remained resilient. But they suggest that the robust growth of the past two years will not return until the world economy regains strength.
Updated
UK GDP figures released
Breaking! The UK economy grew by 0.5% in the final three months of 2015.
That’s up from 0.4% in the third quarter, and in line with expectations.
But annual growth has slowed to 1.9% - the slowest in three years.
More to follow....
Just 10 minutes to go until the GDP figures are released.
Reminder: The City is expecting UK growth of 0.5% in the last quarter, with annual growth dipping to 1.9%
UK #GDP due at the bottom of this hour. The economy is expected to have grown 0.5% in Q4 vs 04.% in Q3 ^FR
— FOREX.com (@FOREXcom) January 28, 2016
Heads up. UK GDP for Q4 out in 10 minutes. Expecting to see Q4 growth quicken to 0.5% from 0.4% with annual growth slowing to 1.9% #GBP
— Joshua Raymond (@Josh_RaymondUK) January 28, 2016
Updated
Gross domestic product is a blunt tool for assessing a country’s economy.
Although it measures activity within an economy, GDP doesn’t assess the actual value of that work. Burning down a rainforest and building a new railway are seen in the same way.
And it doesn’t measure inequality - whether the fruits of the economic success are shared fairly.
This message has finally filtered through to the global elite at Davos last week, where IMF chief Christine Lagarde called for a shake-up.
Lagarde told the World Economic Forum that:
“We have to go back to GDP, the calculation of productivity, the value of things – in order to assess, and probably change, the way we look at the economy.”
As we reinvent #business, we also need to reinvent our measures to replace GDP: @erikbryn https://t.co/0SGbqJW0QG #wef
— World Economic Forum (@Davos) January 23, 2016
Updated
Newsflash from Japan: the economy minister, Akira Amari, has announced his resignation.
It follows allegations that he had received at least 12 million yen (about £70,000) from a construction company, breaching political funding law.
Amari, a key player in the stimulus programme spearheaded by prime minister Sinzo Abe, had denied wrong-doing.
Japan's 'Abenomics' Minister Amari to Resign Over Graft Scandal https://t.co/h7dIWZ2Dza via @business
— Francine Lacqua (@flacqua) January 28, 2016
We’ll be hearing from George Osborne shortly, flags up Sky News Faisal Islam.
On Google/multinational tax - this story will move today, because we will hear from @George_Osborne - the Chancellor doing a GDP media round
— Faisal Islam (@faisalislam) January 28, 2016
That may be a sign that today’s growth figures is OK; the chancellor has a habit of being ‘otherwise engaged’ when there’s bad news to discuss....
European markets are pretty calm this morning, as investors wait for the UK growth figures in 45 minutes time.
The main indices are all up, a little, and oil is hovering around $33 per barrel.
But Conner Campbell of SpreadEx warns that Britain’s GDP report could spoil the mood:
The upward movement from Brent Crude has caused a wave of green to overcome the UK index’s crucial oil and mining stocks, in turn allowing the FTSE to flirt seriously with the 6000 mark for the first time in a fortnight.
However, a major spanner in the works could be thrown in if the day’s first look at the UK’s fourth quarter GDP disappoints. Analysts are expecting 0.5%, marginally better than the 0.4% seen back in Q3; yet there is more than a chance that the figure might underperform, with the Chinese slowdown, Brexit fears AND those weaker than hoped for Christmas retail sales all swirling around to potentially take a point or two off the reading.
Corporate round-up
Here’s a round-up of today’s other corporate news:
Transport company FirstGroup warned profits would come in lower than expected. It blamed the recent wet weather and flooding in Britain and driver shortages in the US.
Drinks giant Diageo, which makes Johnnie Walker scotch and Smirnoff vodka, reported a 1.8% rise in first-half sales. It took a hit from foreign exchange rates and the sale of assets, including its wine business.
Sweden’s H&M has also been hit by the strong dollar, which drove up its purchasing costs (it buys most of its clothes in Asia in US dollars), and warned that big markdowns on winter wear will hurt its profit margins in the first quarter. Like rivals, the world’s second-biggest fashion retailer pointed to the unusually warm weather in many part of Europe and north America, which put customers off buying winter clothes.
Jimmy Choo had a good 2015, as Asian shoppers snapped up its luxury shoes. It said strong demand in Asia, especially Japan, had countered the loss of Russian visitors at its European stores and the impact of the Paris terrorist attacks. Retail net revenues grew by 9% at constant exchange rates to £208m, contributing to 7% growth in overall revenues to £318m.
Discover bold Spring colours with the #JimmyChoo made-to-order service https://t.co/bB63nmZkmP pic.twitter.com/i7tSZSzzm6
— Jimmy Choo (@jimmychoo) January 21, 2016
Updated
But the price cut does not even come close to the drop in wholesale gas prices, consumer experts point out.
Money Saving Expert Martin Lewis, founder of www.cheapenergyclub.co.uk, said:
Baaaah. SSE has bleated and followed Eon’s price cut last week, the rest of the big six sheep will likely soon follow. And again it’s just a trivial 5% on gas only not electricity, nothing close to the drop in wholesale prices. Energy firms must be whooping for joy that they can get away with such small cuts and have the energy minister praising them, albeit slightly. Yet the real picture here is that even after cuts the vast majority of households in the UK are massively overpaying for their energy.
E.ON and SEE customers with typical usage on their standard tariffs will be paying at least £1,050, after the cuts, and those from other firms even more. Yet the market’s cheapest tariffs for switchers are around £770 a year on the same usage. And indeed both E.ON and SSE offer these for those who bother to switch.”
SSE cuts gas prices by 5.3% from end March
SSE, one of Britain’s big six energy companies, will cut its domestic gas prices by an average of 5.3% – but not until after Easter. The company said:
This latest reduction will save a typical household gas customer on our standard tariff £32 a year compared with existing prices.”
The move, which takes effect on 29 March, comes a week after rival E.On reduced its gas prices by 5.1% from 1 February.
SSE said it lost 300,000 customers in the first nine months of its financial year, as customers defected to smaller utility firms – part of a wider trend. Customer accounts dropped to 8.28m by 31 December. Even so, the company stuck to its full-year adjusted earnings per share target of 115p and said it would hike its dividend at least in line with retail price inflation.
China and Brexit fears may hit growth
Some economists fear that UK growth slowed to just 0.3% in the last quarter, due to economic problems overseas and political uncertainty back home.
Others predict a healthy pick-up in GDP.
My colleague Katie Allen explains:
Economists forecast that the figures will show growth of 0.5% in the final three months of 2015, slightly faster than growth of 0.4% in the previous quarter, according to the consensus in a Reuters poll.
But with worries about China’s downturn and the wider global economy clouding the outlook, there is significant uncertainty over the UK’s performance. Individual economists’ forecasts range from 0.3% to 0.6%. Weak retail sales figures for the key Christmas season
There have also been warnings from businesses that the looming EU referendum is hurting confidence and forcing some firms to put investment plans on hold. With polls pointing to a tight vote, the pound has fallen sharply in recent weeks.
Britain’s place in the world....
The global economy (nominal GDP) US: 23.32% China: 13.9% Japan: 6.18% Germany: 5.17% UK: 3.94% @wef #Davos pic.twitter.com/26PlJzZPm8
— ian bremmer (@ianbremmer) January 21, 2016
Introduction: It's UK GDP Day
Good morning.
We’re about to find out how well, or badly, Britain’s economy fared in the last three months of 2015.
Fresh GDP data for the October-December period is released at 9.30am. It will show how the UK performed during a time of growing worries about the global economy, and volatility in the markets.
Economists predict that the UK economy expanded by around 0.5% during the quarter. That would be a small improvement on the 0.4% growth posted in July-September, and fairly unremarkable compared with long-term averages.
But in the current climate, with China suffering a somewhat bumpy slowdown, any growth is better than nothing.
The figures have global significance; Britain is the first major advance economy to report fourth-quarter GDP data.
As we covered in last night’s blog, the US central bank has said it’s watching the global economy and the markets closely.
And domestically, the data are another quarterly term card report for George Osborne, and his management of the economy. It’s likely that service sector firms provided most of the growth, not the industrial sector that the chancellor hoped to reinvigorate.
UK Q4 #GDP coming at 09:30 @business forecast 0.5% v 0.4%, but services taking far too much of the load.
— Fergal O'Brien (@fergalob) January 28, 2016
We’ll be covering the build-up to the figures at 9.30am, and instant reaction and analysis once they are released.
Updated
