Key events
Richard Partington
UK consumers cut back on credit card borrowing in June, according to official figures from the Bank of England, as cold weather and the cost of living crisis deterred households from spending.
The latest snapshot from Threadneedle Street showed net consumer credit borrowing dipped in June to £1.2bn, from £1.5bn in May, below the expectations of City economists.
Karim Haji, global and UK head of financial services at the accountancy firm KPMG, said the figures showed recent stronger levels of economic growth and lower inflation were yet to be felt by consumers.
What is clear is that despite two straight months of inflation remaining on-target, households aren’t necessarily feeling better off for it – indeed, wage growth has slowed in recent months, which may go some way to explaining this.
The UK economy exited recession in the first quarter at a faster pace than anticipated, while inflation has cooled from a peak of 11.1% in October 2022 to hold steady at 2% for a second consecutive month in June.
It comes as financial markets predict the Bank of England’s interest rate decision on Thursday will be on a knife edge, as the monetary policy committee considers whether to launch the first cut in interest rates since the Covid pandemic.
Separate figures from the Bank showed net mortgage approvals – which indicate future levels of borrowing – remained largely unchanged in June from a month earlier, in a sign of the property market treading water ahead of the general election and Thursday’s rate decision.
Anthony Codling, European housebuilding analyst at RBC Capital Markets, said:
Stability is good, but in our view, the UK housing market appears to be treading water, waiting for, hoping for the first Bank Rate cut.
There is a small chance that cut could come on Thursday, but we believe the first cut is more likely in September. Once mortgage rates start to fall, we expect housing market activity to pick up.
Horizon scandal: Post Office was ‘badly run and messy’, says former chair
Mark Sweney
The Post Office inquiry continues today, with former chair of the Post Office having described the business as “badly run and messy”.
Neil McCausland, a senior independent director and interim chair of the Post Office between 2011 and 2016, heavily criticised the state of the business and its IT set-up at the public inquiry into the Horizon scandal on Monday.
McCausland said:
The Post Office I went into was a very badly run and messy business.
The IT infrastructure we knew was old, underinvested and creaky. The Horizon system we knew was near end of life.
McCausland, whose role was in part looking at how to put in place a new system to replace the Fujitsu-developed Horizon accounting software in the future, said it was at least 15 years old by then, when usual practice is to replace IT systems after about a decade.
He added:
We knew we had clanky, underinvested IT infrastructure,
Horizon was a clunky, creaky, not particularly intuitive system.
However, McCausland said he was given no indication that the integrity of the data and the accounting software was anything other than “sound”.
Watch the rest of the proceedings live, here:
A three month view of Bitcoin prices shows the steady price climb in recent weeks, which was boosted even further on the prospect that Trump would clear regulatory hurdles to the cryptocurrency’s ascent.
A closer look at the rise in cryptocurrency over the past five days:
As part of his pro-crypto speech, Donald Trump put the US financial watchdog, the Securities and Exchange Commission (SEC), on notice.
The Republican presidential candidate said he would sack SEC chair Gary Gensler within 24 hours of being elected.
Speaking at the bitcoin convention, Trump said:
On day one, I will fire Gary Gensler.
While the SEC boss loosened rules in January to allow for exchange-traded funds (ETFs) – a basket of assets that can be bought and sold like shares on an exchange – that track the price of bitcoin, Gensler has remained a cryptocurrency sceptic.
Gensler said in January:
Though we’re merit neutral, I’d note that the underlying assets in the metals ETPs have consumer and industrial uses, while in contrast bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing.
While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin. Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto.
Speaking at the bitcoin convention over the weekend, Trump also said he would establish a crypto presidential advisory council and create a national “stockpile” of bitcoin using cryptocurrency the US government held that was largely seized in law enforcement action:
Never sell your bitcoin
If I am elected, it will be the policy of my administration, the United States of America, to keep 100% of all the bitcoin the US government currently holds or acquires into the future.
Full story here:
UK lenders approved fewest mortgages since January
British lenders approved 59,976 mortgages in June, according to the latest money and credit data released by the Bank of England.
It marks the lowest number of home loan approvals since January, when the number fell to 55,930, and was worse than consensus forecasts for 64,000.
However, Ashley Webb, a UK Economist at Capital Economics, who had been expecting a more dramatic fall to 55,000, said it was a further sign that the UK economy was recovering:
June’s money and lending data provided a bit more evidence that the drag from higher activity is starting to fade, which supports our view that the economic recovery may be a bit stronger than most analysts expect.
But it could mean policymakers at the Bank of England may delay a rate cut even further. Webb said:
With further signs that the drag on activity from higher interest rates is starting to fade, at the margin today’s release may mean the Bank of England is a bit less likely to cut interest rates from 5.25% to 5.00% on Thursday, although it remains a very close call.
Bitcoin hits six-week high on Trump support for crypto
Bitcoin prices have jumped to a six-week high, after getting backing from US presidential candidate Donald Trump.
Speaking at a Nashville, Tennessee, at the Bitcoin 2024 convention Nashville, Tennessee, Trump said he would “persecution” of the crypto industry if he wins the US presidential election, and embrace a more pro-Bitcoin stance than rival Kamala Harris.
Trump said:
I pledge to the bitcoin community, that the day I take the oath of office, Joe Biden and Kamala Harris’ anti-crypto crusade will be over.
If we don’t embrace crypto and bitcoin technology, China will, other countries will.
They’ll dominate, and we cannot let China dominate. They are making too much progress as it is.
The cornerstone cryptocurrency has climbed more than 3% over the past 24 hours, taking it to a peak at about $69,745, the highest level since 12 June, when the cryptocurrency was changing hands at more than $69,987.
Plans for a new “Office of Value for Money” will be revealed, when chancellor Rachel Reeves addressed the Commons this afternoon.
The new Office will provide “targeted scrutiny of public spending, so that value for money governs every decision government makes,” according to an overnight release by the Treasury.
The department explained that it would use pre-existing civil service resource (rather than hiring new staff specifically to helm the body), and will put an end to “wasteful spending” in government:
The Office will immediately begin work on identifying and recommending savings for the current financial year, while also establishing where targeted reforms of the system can ensure that poor value for money spending is cut off before it begins.
UK borrowing costs fall, as 2-year bond yields hitting 14-month low
British two-year bond yields have hit their lowest level since May 2023.
They have having dropped as low as 3.864%, down 5 basis points on the day.
Falling bond yields suggest there is more demand and appetite among investors to own UK debt.
It comes as investors price in comments from Reeves’ public spending statement, and the Bank of England rate decision, due on Thursday this week.
Five-year gilt yields also fell to their lowest level since April to 4.051%, also down 5 basis points.
A reminder that bond yields represent the amount of money an investor receives for owning the debt as a percentage of its current price. When the price of a bond falls, yields rise. The yield is also commonly referred to as an interest rate, or the “cost of borrowing” to an issuer – in this case, the UK government.
Financial markets have priced in a 58% chance that Bank of England policymakers will vote for a 0.25% cut to the base rate this week, which currently stands at 5.25%,.
There is growing speculation that chancellor Rachel Reeves could try fill the public finances gap by raising capital gains tax (CGT) to match income tax levels.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said:
As Rachel Reeves peers into the hole in the public finances and is set to reveal just how deep it goes, rumours are swirling as to whether CGT changes could be used to generate extra cash to help fill it.
One of the suggestions doing the rounds is that capital gains tax rates could rise to match income tax. It was one of the things the Office for Tax Simplification explored in 2020.
The 2022/2023 financial year was a record year for CGT returns, adding £16.9bn to public finances. (Final annual details will be reported on Thursday, including breakdowns of types of gains).
But Hargreaves, which is an investment platform for everyday savers, is – perhaps unsurprisingly – against a rise in CGT. Coles said:
It’s a common myth that ‘no-one pays capital gains tax’. It is true that most of this tax is paid by a relatively small number of people, but the rapid increase in the amount of CGT paid, the cuts to the annual tax-free allowance, and the numbers paying this tax show it’s something all investors need to consider.
They note that the number of people paying CGT rose by 50% to 394,000 over 5 years to 2021/2022, and that the annual tax-free allowance was cut from £12,300 in 2022/23 to £3,000 in the current tax year.
Coles claims that this could run the risk of seeing investors “hoarding their profits until they die”.
She says this could including people who invest in buy-to-let properties, who might hold onto their homes instead of selling them off to new owners or landlords.
Coles says:
This would see a shocking hike for UK investors.
The tax system should be encouraging and rewarding long-term investing. This has been absent from the CGT system since taper relief was abolished in April 2008.
Right now, investors face the double-whammy of a system that taxes investments that are simply keeping pace with inflation and allows for far lower gains to be realised tax-free each year.
If the rates do end up rising, it would add insult to injury. We’d urge the Chancellor to reintroduce incentives that reward long-term investing.
Cabinet Office ministers: Don’t expect tax announcements from Reeves today
The public should not expect any tax announcements in Rachel Reeves’s statement on Monday, Cabinet Office minister Pat McFadden said.
McFadden told Times Radio:
Today is not a budget, people shouldn’t expect tax announcements today.
We said a number of things about tax during the election, we said that we wouldn’t increase income tax rates, national insurance rates, or VAT.
Those things still hold.
Today, what you will hear is how we are going to respond to that opening of the books. And I think what people should expect today is not tax measures but a chancellor that is prepared to take some very tough decisions on spending, to show that we put financial stability first and we take seriously that as the foundation for growing the economy.
Those comments from IFS director Paul Johnson this morning:
‘That is exactly the scale of the National Insurance cuts implemented just before the election’
Paul Johnson from the Institute for Fiscal Studies spoke to #BBCBreakfast as chancellor Rachel Reeves is set to announce immediate cuts aimed at plugging a £20bn black hole in the… pic.twitter.com/J2koZaTLX5
— BBC Breakfast (@BBCBreakfast) July 29, 2024
Introduction: Reported £20bn gap public finances equal to Tories’ national insurance cuts, economics expert says
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
All eyes are on the Treasury today, as UK chancellor Rachel Reeves prepares to issue an update on the state of the country’s public finances and what the Labour party has inherited from the former Tory government.
Reeves is expected to tell MPs that the Tories left a £20bn hole in government spending for essential public services.
And a think tank has now said that the £20bn shortfall is equivalent to the Tories’ pre-election national insurance cuts.
Paul Johnson, director of the Institute for Fiscal Studies, told BBC Breakfast:
It is very striking that if this problem is about £20 billion big, that is exactly the scale of the national insurance cuts implemented by Jeremy Hunt just before the election.
Now, if those cuts were implemented in the knowledge that there was this kind of hole, that is not good policy, to put it mildly.
The Tory government announced 2p would be cut from National Insurance in last year’s autumn statement, and announced a further 2p cut in this year’s spring budget.
The combined cuts were expected to save the average earner £900 a year.
However, the former government was said to have been been looking at further public spending cuts, had the Tories won last month’s election, as one way to pay for the tax reduction. That was despite economists’ warnings that such a move would cause public services to buckle.
Stay tuned as we look ahead to Reeve’s address, which is expected to lay the groundwork for tax rises, cuts to public spending, and delays to some major infrastructure projects.
The agenda
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9:30am BST: UK mortgage approvals, net mortgage lending and consumer credit for June
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3:30pm BST: UK Chancellor Rachel Reeves to set out state of UK public finances
