Bank of England policymaker warns of ‘downside risks’ for UK economy
Newsflash: A Bank of England rate setter has warned that the central bank may be “underplaying the downside risks” for the UK economy by not cutting interest rates.
Swati Dhingra, an external member of the bank’s Monetary Policy Committe, argues that weak consumer spending and falling inflation mean the BoE should cut rates now.
Dhingra was the only policymaker to vote for a rate cut last week, when the Bank left interest rates on hold at 5.25%.
And today, she argues that not lowering borrowing costs is a risk.
Dhingra tells the Financial Times:
“I’m not fully convinced there’s some kind of really sharp excess demand in the economy coming from the consumption side.
I’m more concerned that we might be underplaying the downside risks.”
Last week, six BoE policymakers voted to leave interest rates on hold, while two pushed for higher interest rates due to concerns over persistent inflationary pressures.
Dhingra, though, is worried there are fewer “buffers” supporting households, as the savings built up in the pandemic are run down, and job vacancies fall.
She warns:
“You might see the real economy start to get negatively hit in a more profound way — and I don’t see why we should be risking that.”
More here: Bank of England policymaker warns of ‘downside risks’ for UK economy
Key events
Closing summary
Time for a quick recap
Bank of England policy-maker Swati Dhingra has warned the BoE may be “underplaying the downside risks” for the UK economy by failing to cut interest rates, as she has been pushing for.
Dhingra told the FT:
“I’m not fully convinced there’s some kind of really sharp excess demand in the economy coming from the consumption side.
I’m more concerned that we might be underplaying the downside risks.”
Confidence among UK construction firms has hit a two-year high, on hopes that interest rates will be cut….
.. but activity dropped in the sector again last month, led by another fall in housebuilding.
Despite ongoing dec in output levels & the 6th consec mth decline in new work – expectations are high for a more productive year ahead in the construction ind. The promise of “favourable underlying economic prospects” boosting moral but causing many to stall till then @SPGlobal pic.twitter.com/K5uyqPhg5R
— Emma Fildes (@emmafildes) February 6, 2024
WeWork founder Adam Neumann is trying to buy back the company after it filed for bankruptcy protection.
Neumann’s new real estate company, Flow Global, has sought to buy WeWork or its assets, as well as provide bankruptcy financing to keep it afloat, the New York Times’s Dealbook reports today.
The government’s sale of its stake in NatWest to the public could begin as soon as June, MPs have heard.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, says:
‘’The government is gearing up to launch the highest-profile public share offer since the Royal Mail IPO more than a decade ago. With confirmation from UK Government Investments (UKGI) that the sale of NatWest shares could happen as early as June, it’s clear it’s all systems go to get the process off the ground.
Between 2008 and 2009, it cost the government £45.5 billion to bail out the then Royal Bank of Scotland. This was at an average of 520p per share, much higher than the current price. Back in November, the Chancellor said any sale would be subject to market conditions and achieving value for money. It’s hard to see how that will be achieved, particularly given the current share price of 219p
The Treasury Committee also examined how much money has been lost through the UK’s investment in satellite operator OneWeb (quite a lot, by the sound of it).
BP has beaten profit expectations, and pledged to hand another $14bn to shareholders in buybacks over the next two years. Shares are up 5.5% this afternoon.
UK retail sales growth slowed to its lowest level in 17 months in January, as consumers cut back on non-food items.
Currently, WeWork’s bankruptcy plan proposes handing ownership to the company’s most senior debt holders, including those holding its credit line, first-lien notes and second-lien notes, according to court papers.
Third-lien noteholders and unsecured creditors are likely to be wiped out, Bloomberg reports.
Interestingly…Dan Loeb’s Third Point say they are still in preliminary discussions, and has not committed to financing Adam Neumann’s bid for WeWork.
Third Point said in a statement (via the FT):
“Third Point has had only preliminary conversations with Flow and Adam Neumann about their ideas for WeWork, and has not made a commitment to participate in any transaction.”
DealBook: Adam Neumann wants to buy back WeWork
An astonishing story is breaking in America – Adam Neumann, the founder of collapsed office rental company WeWork, is trying to buy the business back.
That’s according to the New York Times’s Dealbook, which reports today that Neumann has been trying to buy back the now-bankrupt business in recent months — with the help of the hedge fund mogul Dan Loeb, of Third Point.
Dealbook report that Neumann’s new real estate company Flow Global is pushing WeWork to consider its takeover approach, according to a letter his lawyers sent to WeWork’s advisers yesterday.
They say:
Flow which has already raised $350 million from the venture capital firm Andreessen Horowitz, disclosed in the letter that Loeb’s Third Point would help finance a transaction.
Flow has sought to buy WeWork or its assets, as well as provide bankruptcy financing to keep it afloat.
However, Flow’s lawyers are accusing WeWork of stonewalling for months.
They wrote:
“We write to express our dismay with WeWork’s lack of engagement even to provide information to my clients in what is intended to be a value-maximizing transaction for all stakeholders.”
WeWork filed for chapter 11 bankruptcy last November, after its share price fell by 98% last year. That left it with a market capitalization of less than $50m, down from $47bn at its peak.
WeWork was badly hit by the pandemic, as workers were forced to stay at home.
But investors also refused to accept its high valuation, concluding it was a property company not a hybrid tech one. That sunk its first attempt to float on the stock market, in 2019.
Neumann left the company in 2021 with a $445m exit package, and his personal wealth was estimated at $1.7bn last November by Bloomberg.
Bank of England rate setter says demand in the UK economy is so weak that there is at risk of a big shock from maintaining restrictive interest rates https://t.co/adeNAHQuHJ
— Bloomberg Economics (@economics) February 6, 2024
Swati Dhingra also told the FT that “we’re basically still looking at a pretty restrictive period of monetary policy” even if the Bank of England did cut rates (as she argues for).
That’s because the Bank raised interest rates 14 times between December 2021 and August 2023, from 0.1% to 5.25%.
The Bank estimates that around two-thirds of the impact of those rate rises have been felt in the real economy – as some households have yet to remortgage at higher rates.
Bank of England policymaker warns of ‘downside risks’ for UK economy
Newsflash: A Bank of England rate setter has warned that the central bank may be “underplaying the downside risks” for the UK economy by not cutting interest rates.
Swati Dhingra, an external member of the bank’s Monetary Policy Committe, argues that weak consumer spending and falling inflation mean the BoE should cut rates now.
Dhingra was the only policymaker to vote for a rate cut last week, when the Bank left interest rates on hold at 5.25%.
And today, she argues that not lowering borrowing costs is a risk.
Dhingra tells the Financial Times:
“I’m not fully convinced there’s some kind of really sharp excess demand in the economy coming from the consumption side.
I’m more concerned that we might be underplaying the downside risks.”
Last week, six BoE policymakers voted to leave interest rates on hold, while two pushed for higher interest rates due to concerns over persistent inflationary pressures.
Dhingra, though, is worried there are fewer “buffers” supporting households, as the savings built up in the pandemic are run down, and job vacancies fall.
She warns:
“You might see the real economy start to get negatively hit in a more profound way — and I don’t see why we should be risking that.”
More here: Bank of England policymaker warns of ‘downside risks’ for UK economy
Over in parliament, Labour MP Peter Dowd has asked ministers whether the sale of the government’s stake in NatWest will generate a better, or worse, return for taxpayers compared to previous sales.
Bim Afolami, economic secretary to the Treasury of the United Kingdom, doesn’t make any promises.
Afolami explains that the share sale plan is subject to “value for money concerns” and adds:
Of course, we will consider value for money at the heart of any sale of shares, and the House [of Commons] will be kept fully informed over the coming weeks and months.
NatWest shares are currently trading at 219p each.
That’s rather lower than a year ago. In May 2023, NatWest agreed to buy £1.3bn of its own shares back from the governmen at 268.4p each.
The government seems certain to make a paper loss on NatWest share sales, as it paid 500p each for them in 2008 when it rescued Royal Bank of Scotland (later rebranded as NatWest).
Streaming giant Spotify has fallen back into the red.
Spotify reported an operating loss of €75m in the last quarter, down from a €32m profit in Q3 2023, but better than the €231m loss in Q4 2022.
The company says “audiobooks start-up costs and severance related charges” ate into its profit margins.
Since last October, Spotify Premium subscribers in the UK and Australia have been able to access to up to 15 hours of audiobook content per month, from a catalogue of more than 150,000 titles. The Society of Authors warned this could have a ‘devastating effect’ on incomes.
The company also announced 1,500 job cuts in December.
Spotify also reports today:
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Monthly Active Users exceeded guidance, growing 23% year-on-year to 602 million. The addition of 28 million new users represented the second largest Q4 performance in our history.
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Subscribers exceeded guidance, growing 15% year-on-year to 236 million. The addition of 10 million new subscribers contributed to a record full-year of net additions of 31 million.
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Total Revenue grew 16% Y/Y to €3.7 billion, in line with guidance.
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Gross Margin finished at 26.7%, ahead of guidance.
Spotify:
Monthly Active Users grew 23% Y/Y to 602 million and 1 million ahead of guidance. Net additions:28 million
Subscribers grew 15% Y/Y to 236 million. Net additions were 1 million
Gross Margin: 26.7%.
Operating Loss: (€75) millionhttps://t.co/Seh3ttv89X pic.twitter.com/h049iTEVOz
— Tren Griffin (@trengriffin) February 6, 2024
Julia Kollewe
A record number of rental and affordable homes were built last year, but overall new home completions fell 12%, according to new figures.
Some 45,649 new homes were completed in the rental and affordable sector, up 10% on 2022 and the highest figure ever recorded by the National House Building Council, the UK’s largest provider of new home warranties and insurance.
Overall, 133,213 new homes were completed in 2023, down 12% on 2022, with private sector completions falling 20% to 87,564.
The outlook doesn’t look too rosy. Last year, there was a 44% drop in new home registrations – the process by which a developer registers their intent to build a new home – to 105,449. Across the UK, all regions saw a fall in registrations, with the biggest declines in the North West (-61%), West Midlands (-59%) and East (-52%).
Steve Wood, CEO at NHBC, said:
“Whilst there were considerable supply and demand pressures on the new homes market in 2023, it is very encouraging to see record numbers of new home completions in the affordable sector. Several major house builders have partnered with housing associations and Build to Rent providers, re-focusing parts of their output to help address the demand for affordable homes.
“The backdrop of high interest rates, significant inflationary pressures and challenges with planning consents has supressed private sale output in 2023. That said, there are some signs of demand returning to the market and we would expect an improved position in 2024 as consumer confidence begins to recover and mortgage rates start to fall.”
Looking to the year ahead, Wood added:
“With a general election looming, we may also see new home-buyer incentives that influence build volumes. In the mid to long-term, the industry would welcome measures that restore consumer confidence and encourage market growth.”
Today’s construction PMI report also indicates that the disruption to shipments through the Suez Canal has driven up costs for builders.
Overall construction input costs rose last month for the first time since September and at the fastest pace since May last year.
Tim Moore, economics director at S&P Global Market Intelligence, says:
“Higher prices paid for imported items contributed to a rise in overall cost burdens for the first time since last September.
The input price index in January’s PMI report rose sharply to 53.7; accountancy group RSM say “there could be further headwinds from the shipping disruption caused by the Red Sea crisis”.
UK government loses money on OneWeb deal
The UK taxpayer appears to have lost hundreds of millions of pounds through its shareholding in satellite firm OneWeb.
The Treasury committee has questioned UK Government Investments this morning about the government’s decision in June 2020 to spend £400m buying the then-bankrupt satellite company.
OneWeb was subsequently merged with France’s Eutelsat in 2022, giving the government a 11% stake in the Paris-listed communications firm.
Charles Donald, chief executive of UKGI (which handles the government’s stakes in various companies) told MPs that the 11% stake in Eutelsat is not, currently, worth the £400m investment in OneWeb.
He indicated it could be in the “tens of millions”, but didn’t have an exact figure.
When pressed on the value of the UK’s stake in Eutelsat, Donald indicated “it could be in excess of £200m”.
He also pointed out that Eutselsat withgrew its guidance for this year’s profitability and revenues last week, which knocked its share price.
But Donald insisted the shareholding in Eutelsat has a different longterm prospect than the original shareholding in OneWeb.
Harriett Baldwin MP, chair of the committee, was unimpressed, asking:
“So effectively the UK taxpayer has paid £400m for some intellectual property that now resides within a French company. And we’ve lost money on the transaction?”
Eutelsat currently has a market capitalisation of €1.75bn, meaning the UK’s 10.89% stake would be worth €190m, or £162m.
Last week, it revealed that OneWeb’s activities are “running behind schedule relative to the original roadmap”, although also “progressing well”.
OneWeb is building a “constellation” of hundreds of satellites in low-earth orbits designed to provide internet coverage everywhere on the plane.
Donald told MPs that UKGI assessed the £400m investment in OneWeb, and was “not in a position to confirm” it was good value for money. The government issued a “ministerial direction” to override concerns from civil servants.
