Closing summary
The boss of Royal Mail has been recalled to parliament after doubts were raised over the accuracy of evidence he gave to MPs last week.
In a rare move, the business, energy and industrial strategy committee decided to recall Simon Thompson, chief executive of the postal company. Royal Mail has been locked in a months-long dispute with postal workers over pay and working conditions.
UK government borrowing more than doubled in December to £27.4bn, the highest December figure on record, largely because of spending on energy support schemes and higher debt interest payments (also at a record). Big giveaways in the spring budget on 15 March look somewhat unlikely as a result.
Business activity contracted at its fastest pace in two years in January as the high cost of living restricted household spending and companies cut investment, raising the prospect of a UK recession.
The eurozone fared better, where business activity edged into positive territory, while private sector firms in the US recorded a further decline in output at the start of the year.
Our other main stories:
Thanks for reading. We’ll be back tomorrow. Take care – JK
Updated
US business activity decline continues in January
Private sector firms in the US registered a further decline in output at the start of 2023, with a renewed pick up in cost pressures, according to latest ‘flash’ PMI data from S&P Global. The fall in business activity softened to the slowest in three months, however, as things improved slightly at both manufacturers and service providers.
The S&P Global PMI improved slightly, but stayed in negative territory. The index rose to 46.6 from 45.0 in December, indicating further declines (any reading below 50 points to contraction).
The @SPGlobalPMI Flash US Composite PMI was 46.6 in Jan, up from 45.0 in Dec. The Services index was at 46.6 (prev 44.7), and the Manufacturing index was 46.8 (prev 46.2). #pmi #economy https://t.co/5YPG563xGl pic.twitter.com/2PbtWI3EfQ
— MTS Insights (@MTSInsights) January 24, 2023
Chris Williamson, chief business economist at S&P Global Market Intelligence, says:
The US economy has started 2023 on a disappointingly soft note, with business activity contracting sharply again in January. Although moderating compared to December, the rate of decline is among the steepest seen since the global financial crisis, reflecting falling activity across both manufacturing and services.
Jobs growth has also cooled, with January seeing a far weaker increase in payroll numbers than evident throughout much of last year, reflecting a hesitancy to expand capacity in the face of uncertain trading conditions in the months ahead. Although the survey saw a moderation in the rate of order book losses and an encouraging upturn in business sentiment, the overall level of confidence remains subdued by historical standards. Companies cite concerns over the ongoing impact of high prices and rising interest rates, as well as lingering worries over supply and labor shortages.
The worry is that, not only has the survey indicated a downturn in economic activity at the start of the year, but the rate of input cost inflation has accelerated into the new year, linked in part to upward wage pressures, which could encourage a further aggressive tightening of Fed policy despite rising recession risks.
Here is our story on last week’s meeting, where the CWU boss Dave Ward also testified.
And our analysis of the meeting, by the Guardian’s financial editor Nils Pratley who wrote:
There have been worse performers in front of a business select committee, but Simon Thompson, chief executive of Royal Mail, had a shocker on Tuesday. When the session ends with the committee chair – the normally mild-mannered Labour MP Darren Jones – issuing a warning about the seriousness of misleading parliament, you know it did not go well.
The Communication Workers Union was quick to respond to the news. A spokesperson says:
In the interests of democracy and public standards, we wholeheartedly welcome this decision.
Politicians tasked by voters to conduct scrutinising work with the greatest possible knowledge and clarity have grave concerns about Simon Thompson’s evasive conduct.
These concerns are shared by millions of people, who need to know the facts from those who run the postal services they rely on, and deserve to be treated with the utmost seriousness.
Updated
Royal Mail boss recalled after claims of inaccurate testimony
The boss of Royal Mail has been recalled to parliament after doubts were raised over the accuracy of evidence he gave to MPs last week.
In a rare move, the business, energy and industrial strategy committee decided to recall Simon Thompson, chief executive of the postal company. Royal Mail has been locked in a months-long dispute with postal workers over pay and working conditions.
Members of the committee received hundreds of emails following his appearance on 17 January. They questioned his denials that Royal Mail used the postal digital assistant system to track workers’ productivity and urge staff to work faster, and that Royal Mail policy prioritises parcels, potentially compromising the delivery of the universal service obligation that guarantees a minimum mail service.
The committee is also seeking clarity on statements made by Thompson on employee sick pay arrangements.
Committee chair Darren Jones said:
Since Mr Thompson appeared before the committee last week we’ve had significant quantities of evidence that suggest his answers may not have been wholly correct.
Giving inaccurate information to a parliamentary committee, whether by accident or otherwise, is taken very seriously. We must get to the bottom of these inconsistencies on behalf of parliament and intend to do so during this additional hearing.
Updated
Eurostar trains forced to run with empty seats due to Brexit passport rules
Peak time Eurostar trains are daily forced to run across the Channel with hundreds of empty seats because border police cannot process passports quick enough.
About 350 out of 900 seats are normally left unsold on the first services between London, Paris and Brussels despite “huge demand” for the greenest form of international travel, Eurostar bosses said, as they unveiled Eurostar’s new logo.
British passports have to be stamped separately, even for travellers who can go through electronic gates, since Brexit. Passengers are now told to arrive up to 90 minutes before some departures but bottlenecks at stations still mean that they cannot all be processed in time, said the chief executive, Gwendoline Cazenave.
She said the Covid pandemic, when international travel was largely ruled out, had “reduced drastically the number of border police staff in Paris Nord and St Pancras”, and with Brexit rules in force, “you have to stamp UK passports”.
Cazenave, who has run the group since October 2022, added: “Even I – I have a work permit, they know who I am – they ask: ‘What are you going to do in the UK?’. It takes almost 30% more time [than before].”
She said tackling capacity issues at stations was her main priority, with Eurostar only able to offer about 70% of pre-Covid and Brexit seats across the Channel.
Only 250 seats can be filled leaving Amsterdam because of the lack of space at the station for border controls, yet London to the Dutch capital is one of the busiest air routes in Europe, Cazenave said.
UK factory output flat while cost pressures ease – CBI
More news on the UK economy. Factories reported stable output in the quarter to January following a small decline in the quarter to December, according to the CBI’s latest industrial trends survey.
New orders were flat, while the volume of total order books fell further below normal, suggesting that output has held up in part due to manufacturers tackling backlogs of work.
Cost and pricing pressures in manufacturing remain high but shows signs of easing. In the quarter to January, average unit costs grew at the slowest pace since April 2021, while domestic selling price inflation was the slowest since July 2021, although both remained far above their long-run averages.
Looking ahead, manufacturers expect new orders and output volumes to increase in the next quarter, but the share of firms reporting that orders or sales would constrain output reached its highest level since April 2021.
Anna Leach, CBI deputy chief economist, says:
Mixed conditions are apparent in the manufacturing sector this month. Global supply chain pressures, labour shortages and energy costs are easing, enabling unit cost growth to ease back from record highs.
But there are signs that demand is easing too, with order books weakening sharply, spare capacity in the manufacturing sector rising and the share of firms citing the strength of sales or orders as a potential constraint on output rising to its highest in almost two years.
The survey, based on the responses of 321 manufacturing firms, found that:
Business sentiment fell for the fifth consecutive quarter, but at a much slower rate than in the three months to October (balance of -5%, from -48%). Export optimism also fell, but less quickly than in October, when it dropped at the fastest pace in two years (-22%, from -31%).
Output volumes were stable in the quarter to January, after falling in the three months to December (weighted balance of -1% from -9%). Rising output in the mechanical engineering and food, drink & tobacco sub-sectors was offset by falls in chemicals, metal manufacturing and motor vehicles & transport equipment. Firms expect volumes to increase briskly in the next three months (+19%).
Total new orders were broadly stable in the quarter to January (balance of -3%, from -8%). However, the volume of total order books fell further below normal (balance of -17%, from -6% in October). Manufacturers expect new orders to rise over the next three months (+9%).
Average costs growth remained exceptionally strong in the quarter to January, but eased, with costs rising at the slowest pace since April 2021 (balance of +64%, from +82% in October; average of +17%). Cost growth is expected to slow further in the quarter to April (+53%).
Average domestic selling price inflation also eased but remained elevated in the quarter to January (balance of +37%, from +50% in October; vs average of +2%). Domestic price inflation is expected to remain high over the next three months (+41%).
Numbers employed continued to rise in the three months to January, albeit at a slower pace (+14%, from +26% in October). Firms expect headcount to rise further in the next three months (+24%).
Investment intentions for the year ahead were mixed. Manufacturers expect to raise investment in training and retraining (+20%, from +14%), plant and machinery (+8%, from +6%) and product and process innovation (+6%, from +7%). Investment in buildings is expected to decline in the year ahead (-9% from -5%).
Here’s a round-up of today’s other main stories:
National Grid is expected to pay out more than £2m to households and businesses to encourage them to cut their power use at peak times on Tuesday.
The electricity system operator plans to run its “demand flexibility service” – which incentivises households in Great Britain to use less power during a designated period – between 4.30pm and 6.30pm.
Primark’s sales rose ahead of expectations over Christmas as shoppers returned to city centres and consumer spending was more resilient than anticipated.
Sales at the cut-price fashion chain’s established stores rose by 11% in the four months to 17 January, compared with the same period a year before, as owner Associated British Foods (ABF) said it had sold more items of clothing while prices had also risen.
The UK’s least affluent households have almost £40 a month less spare cash than they did a year ago while the richest have gained a similar sum in the same period, according to figures exposing how inflation has hit the poorest the hardest.
The wealthiest 20% of households had £36 a month more in discretionary income in December compared with a year before, as they enjoyed record earnings growth which offset rising energy and food bills, analysts at Retail Economics found.
A Brisbane-based cryptocurrency exchange will continue to operate after creditors agreed to a long-term plan from administrators keep the business going in an attempt to recover from the global collapse of FTX.
Digital Surge went into administration in December last year as a result of the company having transferred $33m worth of its assets to global platform FTX just two weeks before that company’s spectacular collapse in November.
Updated
And here’s analysis of today’s public finance figures.
Budget day on 15 March is less than two months away and if ever there was a government in need of a feelgood event then this is it. Unfortunately for Rishi Sunak, the state of the public finances means the chances of a voter-friendly giveaway to counter a cost of living crisis and sleaze allegations look vanishingly small.
Jeremy Hunt certainly provided no hint in his response to the latest Office for National Statistics figures that he was preparing anything other than a steady-as-she-goes package. It was vital, the chancellor said, to stick to his deficit reduction plan.
Government payments to soften the impact of rocketing energy bills helped send UK public borrowing soaring to more than £27bn last month – the highest figure for December since modern records began 30 years ago.
The latest bulletin on the health of the UK’s finances from the Office for National Statistics showed government spending last month exceeded receipts by £27.4bn, £16.7bn higher than borrowing in December 2021.
Tax receipts in December were up slightly on December 2021 at more than £74bn, but energy support added just over £9bn to public spending, according to the official data.
Updated
Ford plans to cut 3,200 jobs across Europe, according to Germany’s largest union, as the carmaker looks to slash costs and shift focus towards electric vehicles.
Most of the 2,500 jobs in product development and up to 700 in administrative roles the automaker is hoping to cut are located in Germany, said IG Metall.
The union, which represents 2.2 million members in the metal, electrical, iron, steel and automotive industries, said other cuts could fall at sites in Belgium and the UK, the Financial Times reported.
The workers at the Cologne site, which employs about 14,000 people, were informed of the plans on Monday.
Twitter is being sued by the crown estate for allegedly failing to pay rent on its London headquarters.
The estate, which manages property belonging to King Charles III, filed a claim against Twitter in the high court in the capital last week. The alleged rental arrears relates to office space near Piccadilly Circus in central London, according to the BBC.
Twitter did not immediately respond for a request for comment.
The crown estate, which owns a property portfolio worth £15.6bn, including 241 locations in central London, said the court action related to “rental arrears” on the social media platform’s office space in the city.
It comes after Twitter was taken over by Elon Musk, the co-owner of Tesla and SpaceX, in October last year. Musk paid $44bn (£36bn) for the platform and quickly initiated sweeping job cuts to the firm’s 7,000-strong workforce – cutting it by 50%.
Musk’s takeover has not been without issues, including a chaotic relaunch of the blue tick scheme for verified users led to a number of impersonator accounts and advertisers withdrawing from the platform over concerns about a rise in hate speech.
Updated
Back to the UK. JPMorgan economist Allan Monks sees broader resilience in the detail of the PMI.
The flash PMI for January fell 1.2 percentage points to 47.8, marking a departure from the improvement in the same surveys generally seen elsewhere in Europe. While weak, we had expected to see a decline in the UK and the current level of the PMI is not empirically consistent with a recession – which typically sees the survey drop to around 46 or below.
Moreover, the details of the report were some way better than the headline. While services activity was exclusively responsible for the decline, both the manufacturing sector and details of the services industry gave grounds for some optimism. Overall, the composite new orders reading rose by just under a point to 48.9. Likewise, the employment reading rose half a point to 49.8, while the year-ahead future output reading jumped by just under four points to 66.8.
This should help to further allay fears that the UK is entering a job shedding episode and full recession scenario in the near term, especially with gas prices falling and inflation heading lower. Together with strong wage growth, this probably offers some support to our view the BoE will hike 50bps next week – given the BoE had been expecting a recession – even if the doves choose to focus on the drop in the headline PMI instead.
Bert Colijn, senior eurozone economist at ING, says:
The jump in the composite PMI from 49.3 to 50.2 indicates that the economy is performing better than expected. Businesses are experiencing fewer cost pressures than before, but selling prices remain high. For the ECB, this should seal the deal for a 50 basis point hike next week.
Sometimes you just need a bit of luck. The eurozone economy has avoided dramatic scenarios for the winter thanks to an extremely mild December in which gas storages have been depleted much less than feared.
Whether this is a recession or not is almost semantics at this point. The PMI jumped above the 50 level, which indicates growth in the business economy. While the difference between -0.1 and 0.1% growth is interesting for economists, the overall sense of stagnation will likely prevail for most.
More important is that improvements in the PMI were broad-based as both the manufacturing and services PMIs ticked up. New orders are still falling, but at a slower pace than before and businesses have again seen hiring increase. The latter confirms our view that labour shortages are here to stay despite the sluggish economic performance. That brings upside risk to the wage growth outlook.
For inflation, the survey continues to bring good news on supply-side pressures. Input costs are rising much less rapidly than before, but for now that mainly seems to benefit corporate profitability as selling price growth is expected to remain high, according to the survey. This means that while headline inflation is set to fade more substantially over the coming months, risks to core inflation staying high remain.
Within the eurozone, Germany reported a slight drop in output, as the composite PMI rose from 49.0 in December to 49.7, its highest since output began falling last July. This was led by a return to growth in services activity.
While manufacturing output continued to fall at a rate unchanged on December, the decline remained far less marked than those seen last autumn.
Flash Germany PMI Composite Output Index at 49.7 (Dec: 49.0). 7-month high.
Flash Germany Services PMI Activity Index at 50.4 (Dec: 49.2). 7-month high.
Flash Germany Manufacturing Output Index at 48.4 (Dec: 48.4). Unchanged.
Flash Germany Manufacturing PMI at 47.0 (Dec: 47.1). 2-month low.
Output fell for a third month in France, where the PMI slipped from 49.1 to 49.0, due to a sharper fall in services activity.
Recession fears ease for #Germany after better than expected flash #PMI for January.
— Chris Williamson (@WilliamsonChris) January 24, 2023
Service sector returns to (marginal) growth, supply chains improve and confidence lifts higher. But concerns persist as manufacturing remains in decline.
Full release https://t.co/c5fBdTGdw4 pic.twitter.com/3DlgHn9uPO
Chris Williamson, chief business economist at S&P Global Market Intelligence, says:
A steadying of the eurozone economy at the start of the years adds to evidence that the region might escape recession. The survey suggests that a nadir was reached back in October, since when fears over the energy market in particular have been alleviated by falling prices, helped by the warmer than usual weather and generous government assistance. At the same time, supply chain stress has eased, benefitting producers most notably in Germany, and more recently the reopening of the Chinese economy has helped to restore confidence in the broader global economic outlook for 2023, propelling business optimism sharply higher.
The region is by no means out of the woods yet, however, as demand continues to fall – merely dropping at a reduced rate – and an upturn in the rate of inflation of selling prices for both goods and services will add encouragement to the hawks to push for further monetary policy tightening. The case for higher interest rates is fuelled further by the upturn in employment growth recorded during the month and signs of higher wages driving the latest upturn in price pressures.
Eurozone edges back into growth, inflation ticks higher
Things look more rosy in the eurozone, which edged back into growth in January, while inflationary pressures picked up.
The S&P Global PMI for the eurozone rose to 50.2, a seven-month high, as the services sector moved back into growth, with that index at 50.7. Activity in the manufacturing sector continued to decline, but at a slower pace.
Although input cost inflation slowed, average prices charged for goods and services rose at a slightly steeper rate than in December, with rates of inflation edging higher in both manufacturing and services.
The survey says:
Growth was driven by technology (both IT services and equipment), as well as healthcare and pharmaceutical sectors, though industrial services also rebounded into growth territory. However, downturns also eased in financial services, notably including real estate, and in basic resources sectors, while consumer-facing sectors such as tourism and recreation and household goods showed signs of stabilising after several months of decline.
Flash Eurozone PMI Composite Output Index at 50.2 (Dec: 49.3). 7-month high.
Flash Eurozone Services PMI Activity Index at 50.7 (Dec: 49.8). 6-month high.
Flash Eurozone Manufacturing Output Index at 49.0 (Dec: 47.8). 7-month high.
Flash Eurozone Manufacturing PMI at 48.8 (Dec: 47.8). 5-month high.
Chris Williamson, chief business economist at S&P Global Market Intelligence, says:
Weaker than expected PMI numbers in January underscore the risk of the UK slipping into recession. Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year. Jobs also continued to be lost as firms tightened their belts in the face of these headwinds, though many other firms reported being constrained by an ongoing lack of available labour.
There were some bright spots in the survey, including improved business expectations for the year ahead and a further cooling of inflationary pressures. The overall rate of decline indicated also remains only modest.
But this is undeniably a disappointing start to the year for the UK, reflecting not just short-term hits to growth such as strike action and the rise in energy costs due to the Ukraine war, but also highlighting the ongoing damage to the economy from longer term structural issues such as labour shortages and trade woes linked to Brexit.
Updated
Sharpest drop in UK business activity for two years, but growth expectations rebound – PMI
A closely watched survey points to the sharpest decline in UK business activity for two years, while growth expectations rebounded in the wake of reduced inflationary pressures.
The composite purchasing managers’ index (PMI) from S&P Global/CIPS fell to 47.8 in January, a 24-month low. Any reading below 50 indicates contraction; any reading above points to expansion.
This was because of a worsening in the dominant services sector, where activity was also at a two-year low, while manufacturing production decreased considerably in January (index at 46.6), but the rate of contraction was the least marked since July 2022.
The survey says:
January data highlighted a sustained downturn in UK private sector business activity. Although only modest, the overall rate of decline accelerated to its fastest for two years. Service providers experienced a marked loss of momentum since December, with survey respondents citing higher interest rates and low consumer confidence as key factors that held back business activity.
Despite falling output volumes and weak demand, optimism regarding the year ahead outlook for business activity picked up in January and was the strongest since May 2022. This improvement appeared to reflect hopes of a turnaround in global economic conditions and a further slowdown in cost pressures over the course of 2023.
Flash UK PMI Composite Output Index at 47.8 (Dec: 49.0). 24-month low
Flash UK Services PMI Business Activity Index at 48.0 (Dec: 49.9). 24-month low.
Flash UK Manufacturing Output Index at 46.6 (Dec: 44.4). 6-month high.
Flash UK Manufacturing PMI at 46.7 (Dec: 45.3). 4-month high.
Updated
Victoria Scholar, head of investment at interactive investor, has also looked at the weakening dollar.
The US dollar is weakening across the board with the euro, pound, Swiss franc and yen all trading higher against it. The euro is close to a nine-month high. Cable (sterling-dollar) has been on the climb since last September, rallying more than 15% off the lows.
2022 was the year of the King Dollar but the greenback appears to be losing its crown amid a dovish shift from Fed policymakers. Bank of Philadelphia Fed President Patrick Harker recently commented that he is ready for a smaller 25 basis point increase. Expectations are for two 0.25 percentage point increases in the first quarter of 2023 before a pause on interest rates for the rest of the year, in stark contrast to last year’s inflation combative stream of jumbo Fed rate hikes. US inflation appears to have peaked, paving the way for a less aggressive tightening phase.
Focus is on US GDP data on Thursday for clues into the resilience of the US economy in the face of monetary tightening and a challenging macroeconomic backdrop.
Markets summary
European stock markets are mixed. The FTSE 100 index in London is trading 30 points lower at 7,754, a 0.38% drop. Germany’s Dax and Italy’s FTSE MiB have obth edged 0.1% higher, while France’s CAC has gained 0.2%.
The dollar is under pressure against sterling, the euro and the yen, due to different interest rate expectations.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, explains:
Despite the fiscal squeeze, the pound gained a little more ground against the dollar, trading around $1.24, amid expectations that the Bank of England will still press on with steeper interest rate rises in the months ahead, compared to the US Federal Reserve.
Martin Beck, chief economic advisor to the EY ITEM Club, is more sanguine.
The substantial fall in energy futures prices over the past few weeks is unlikely to make much difference to the government finances over the remaining three months of this fiscal year. However, if sustained, it appears likely to ensure that borrowing is significantly lower than the £140bn that the OBR expects for 2023-2024.
Still, given the support schemes were only due to run for one more year, and the government has adopted a five-year horizon for its fiscal targets, recent developments likely have few implications for March’s budget. Indeed, it’s hard to identify any major developments since the autumn statement that would have a material impact on the OBR’s longer-run forecasts for the public finances, so the EY Item Club is not expecting to see scope for any major changes to policy on 15 March.
Here is our full story on the surge in UK government borrowing:
Victoria Scholar, head of investment at interactive investor, says:
Public sector borrowing outweighed tax receipts in December, which is typically the case. While tax revenues increased, driven by rises in VAT, PAYE income tax and corporation tax including the energy profits levy, there were decreases in fuel duty, stamp duty and self-assessed income tax.
The central government also spent more on day-to-day expenditure versus December 2021 because of support for households and businesses with rising energy bills, adding to the imbalance. December’s borrowing also spiked largely because of student loan assumptions made by the OBR while government debt interest payable rose because of the effect of retail prices index (RPI) changes on index-linked gilts.
The figures pave the way for a slimmed down budget with few rabbits out of the hat when the chancellor Jeremy Hunt delivers his budget on 15th March.
Updated
Economists are particularly worried about the rise in government debt interest payments, as the cost of servicing central government debt jumped to £17.3bn, more than twice that in the previous month.
Public sector debt totalled £2.5 trillion – around 99.5% of gross domestic product (GDP) at the end of December, reaching one of the highest debt to GDP levels since the early 1960s.
Divya Sridhar, economist at PwC, says:
Falling national debt was one of the five priorities set out by PM Rishi Sunak at the start of the year. The OBR expects net government debt (incl. Bank of England) as a proportion of GDP to rise by 5 percentage points over the next year.
However, slowing inflation, reduced energy bills support and indications that there will be no immediate tax cuts in the spring budget are all likely to bolster public finances in the short term.
Borrowing overshoot limits chances of big budget giveaways
The borrowing overshoot further limits chances of big budget giveaways, says Ruth Gregory, senior UK economist at Capital Economics.
December’s public finances figures provided more evidence that the government’s fiscal position is deteriorating fast. And high government spending in the early months of 2022/23 and the pressures from the weakening economy implies borrowing will come in at about £175bn, broadly in line with the OBR’s forecast of £177bn, but a huge £52bn above the 2021/22 total.
Total tax receipts in December, at £74.6bn, were higher than last December’s £70.6bn. But the recent rises in RPI inflation (to which index-linked gilts are pegged) caused eye-watering high debt interest payments of £17.3bn (OBR forecast: £17.1bn), the highest December figure since records began. Meanwhile, the Chancellor’s energy support added £9.1bn. As a result, total public expenditure came in at £91.2bn, a whopping £16.4bn higher than last December, although that was still a bit lower than the £91.6bn the OBR had expected.
Admittedly, after nine months of the 2022/23 fiscal year, cumulative borrowing is still £2.7bn lower than the OBR’s November forecast (note figures for borrowing in previous months were revised down by a cumulative £4.6bn). Even so, this leaves the budget deficit on a deteriorating path. And that’s before taking into account the government’s energy price support in the remaining three months of the 2022/23 fiscal year.
Overall, today’s worse-than-expected public finances figures will only embolden the chancellor in the budget on 15 March to keep a tight grip on the public finances and mean that he waits until closer to the next general election, perhaps in 2024, before announcing any significant tax cuts.
Updated
Samuel Tombs, chief UK economist Pantheon Macroeconomics, has crunched the numbers.
Turning to the details of December’s data, interest payments leapt to £17.3bn, from £8.7bn a year ago, due to the big month-to-month jump in the RPI [retail prices index] two months earlier, which primarily reflected October’s increase in consumer energy prices. Note that changes in the RPI determine the accrued level of payouts on index-linked gilts.
In addition, the Energy Bills Support Scheme and the Energy Price Guarantee collectively drove a £4.8bn year-over-year rise in subsidies.
Meanwhile, national insurance receipts rose only 2.2% year-over-year, compared to the 16.0% growth rate recorded in the first seven months of the fiscal year, primarily as a result of the reversal of April’s hike towards the beginning of November. Total receipts, however, came in £0.3bn higher than the OBR forecast.
To help them cope with spiralling energy prices, the government is giving households £400 towards the cost of their energy bills, paid in six evenly spread portions between October and March. Businesses have also received support with their energy bills, but this will be scaled back drastically from April.
Introduction: UK government borrowing at record December high due to energy support and debt interest
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK’s public finances have worsened considerably. The government borrowed £27.4bn in December, the highest December figure on record, largely because of spending on energy support schemes and higher debt interest.
December’s borrowing was £16.7bn higher than in December 2021, and the highest since monthly records began in January 1993. Economists had forecast £17.75bn.
The figure was also £9.8bn more than the £17.6bn forecast by the Office for Budget Responsibility (OBR). This means that the chancellor may have little room for tax cuts in the spring budget.
Debt interest payable by the central government amounted to £17.3bn, also the highest December figure on record. This is largely because of the impact of the rise in inflation, as measured by the retail prices index, on index-linked UK government bonds, known as gilts.
Public sector net borrowing excluding public sector banks was £27.4 billion in December 2022.
— Office for National Statistics (ONS) (@ONS) January 24, 2023
This was the highest December borrowing on record, largely because of spending on energy support schemes and higher debt interest.
➡️ https://t.co/wFBmlu7vSV pic.twitter.com/uGnySTO3DF
The chancellor of the exchequer, Jeremy Hunt, says:
Right now we are helping millions of families with the cost of living, but we must also ensure that our level of debt is fair for future generations.
We have already taken some tough decisions to get debt falling, and it is vital that we stick to this plan so we can halve inflation this year and get growth going again - creating better paid jobs across the country.
Elsewhere, the US carmaker Ford has announced 3,200 job losses in Europe, with Germany hard hit. The news sent its share price 3.2% higher.
US markets had a good start to the week, with the S&P 500 closing above the 4,000 level, up 1.2%, and the Nasdaq 100 leading the way higher with its second daily gain of more than 2%. There were also more job cuts in the tech sector, as the music streaming service Spotify said it was cutting about 600 jobs – the latest big tech company to admit it expanded too quickly during the coronavirus pandemic.
Michael Hewson, chief market analyst at CMC Markets UK, says:
The outperformance in tech appears to point to a growing conviction on the part of investors that the Fed will soon have to look at cutting rates before the end of the year, although to look at bond markets yesterday, yields also moved higher, as money flowed out of treasury markets.
With a lot of tech companies starting to announce job cuts, as well as other measures to rein in costs, and inflationary pressures showing further signs of easing, it would appear that US investors are starting to think in terms of the next move higher, despite concerns over lower profits.
Given the uncertain economic backdrop this comes across as a bit of a leap of faith, and its also notable that while US markets have started to gain momentum in the past few days, European markets have started to lose some of their early year momentum.
While US markets surged higher yesterday it is notable that today’s European market open is likely to be a much more tepid affair, suggesting perhaps that investors in Europe don’t share the same enthusiasm about the economic outlook, despite the reopening of the Chinese economy, which may help to provide a demand boost.
Today’s flash PMI surveys for January are expected to show a further improvement in economic activity due to the sharp falls in wholesale energy prices from the peaks in August and September.
The Agenda
8.15am GMT: France S&P Global PMI surveys flash for January
8.30am GMT: Germany S&P Global PMIs
9am GMT: Eurozone S&P Global PMIs
9.30am GMT: UK S&P Global/CIPS PMIs flash for January
9.45am GMT: ECB President Christine Lagarde speaks
11am GMT: UK CBI Industrial trends survey for January
2.45pm GMT: US S&P Global PMIs flash for January
Updated
