MPs grill Bank of England over interest rates and inflation; FTSE 100 at record high – business live

Over in parliament, the Treasury Committee is starging to quiz some of the Bank of England’s top officials.

MPs will be questioning the BoE over last week’s monetary policy report, and its decision to raise UK interest rates to 4%, the highest since 2008.

At the witness table, we have governor Andrew Bailey, chief economist Huw Pill, and two external policymakers (ie experts recruited from outside the Bank) – professor Silvana Tenreyro and professor Jonathan Haskel.

As flagged in the introduction, MPs plan to discuss the Bank’s record on combatting the outbreak of double-digit inflation, and whether we have reached its peak.

The committee adds:

MPs are likely to explore the outlook, risks and expectations for inflation, and the likelihood of future interest rate rises, as well as exploring dissenting views on interest rate policy within the MPC and the risks of over-tightening.

Other likely topics for discussion include how energy and commodity prices are impacting inflation, the Bank’s forecast of a UK recession and slow recovery, and the MPC’s approach to the sale of the £875bn it held in Government bonds, known as quantitative tightening.

At the current rate, we could see the FTSE 100 break through the 8,000 level by early next week,says Russ Mould, investment director at AJ Bell.

This would represent “a long-overdue victory for the UK stock market,” Mould says.

He explains that “renewed takeover chatter in the banking sector, a well-received set of results from AstraZeneca and another leg up from the energy sector” lifted the blue-chip index to a fresh record (now 7945 points) today.

Mould says:

“Reports suggest First Abu Dhabi Bank is still interested in buying Standard Chartered, despite guidance to the contrary last month.

“If successful, it would represent yet another UK stock acquired by a foreign player. It would also play to the theory that industry players are more likely to buy UK-listed companies than private equity in the current environment.

“Whereas the sharp rise in the cost of debt has made life harder for private equity to do leveraged deals, a lot of businesses have come out of the pandemic in a robust financial shape and have plenty of cash on their books to buy rivals in their respective sectors.”

The FTSE 100 share index has just hit a new record high as takeover speculation swirls in the City.

The blue-chip share index has jumped by 0.65% this morning to 7937.33 points, above yesterday’s intraday high of 7934.30.

Asia-Pacific focused bank Standard Chartered is the top riser, jumping over 7% this morning.

This follows a Bloomberg report that First Abu Dhabi Bank (FAB) is pressing ahead with a potential offer for Standard Chartered, as it tries to become a global financial powerhouse.

According to Bloomberg, FAB — which is worth about twice as much as Standard Chartered — is exploring an all-cash bid of in the range of $30bn to $35bn, according to sources.

Bloomberg say:

Under the code name Silver-Foxtrot, officials at the Abu Dhabi bank are working under the radar on a possible bid once a cooling off period required by UK takeover rules elapses, according to people familiar with the matter.

FAB, as the bank is known, recently completed due diligence on the London-based lender, the people said, asking not to be identified because the matter is private. Any deal would be dependent on market conditions and the performance of Standard Chartered’s share price, they said.

Gambling firm Entain is weighing on the FTSE 100, though. Entain shares are down 10%, after MGM Resorts confirmed that it has “moved on” regarding its interest in Entain, according to reports.

Consumer goods maker Unilever has warned that cost inflation will continue this year, which will concern the Bank of England as it tries to tackle the cost of living.

Unilever, which makes Marmite, Hellmann’s mayonnaise and Magnum ice creams, has already hit consumers with higher costs in the shops.

Unilever’s final results for 2022, released this morning, shows that prices jumped by 11.3% over the last year. Sales volumes fell by 2.1%, as customers sought out cheaper alternatives, but that still gave the company underlying sales growth of 9%.

Outgoing CEO Alan Jope says:

“Unilever delivered a year of strong topline growth in challenging macroeconomic conditions. Underlying sales growth was 9.0%, driven by disciplined pricing action in response to high input cost inflation

Unilever expects its costs to rise by around €1.5bn in the first half of 2023. Cost inflation is expected to slow in the second half, but Unilever does not expect cost deflation.

Unilever shares have risen slightly this morning, up 0.4%.

Jope will be succeeded by Hein Schumacher, head of a Dutch dairy co-operative.

Richard Hunter, head of markets at interactive investor, says Unilever has, again, provide steady growth without “shooting the lights out”.

The incoming CEO may have set his sights on revitalising business performance, but in the meantime Unilever continues to play to its strengths in a reliable manner.

The sheer pricing power of the group’s portfolio of household brands enables a good proportion of costs to be passed onto consumers, without overly affecting volumes.

A second housebuilder, Bellway, has also reported that demand slowed at the second half of last year.

Bellway has told the City this morning that its reservation rate fell by almost a third in the August-January period, to 138 per week, down from 202 a year earlier, due to “weaker private demand”.

Bellway says:

Elevated mortgage rates and the end of Help-to-Buy have contributed to a 43.8% decrease in the private reservation rate to 91 per week.

This was partly balanced by Bellway “accelerating the construction of social homes.”

Bellway now plans to build fewer houses this financial year. Around 11,000 homes are expected to be constructed in the year to 31 July, down from 11,198 a year earlier.

And due to the uncertain near-term economic outlook remains uncertain, Bellway has imposed a freeze on new recruitment and is limiting land approvals.

Jason Honeyman, Bellway chief executive, explains:

Following our Preliminary Results in October 2022, we experienced a period of weaker trading through to the end of December, with affordability constrained by higher mortgage rates and economic uncertainty affecting consumer confidence.

Since the start of the new calendar year, mortgage rates have fallen from their recent peak, and we have been encouraged by a seasonal increase in visitor levels and an improvement in reservations.

UK housebuilder Redrow has withdrawn its financial guidance for 2024 due to changing market conditions, and warned that this year will be ‘challenging’.

Redrow has told the City that “economic and political uncertainty” led to a fall in sales in the second half of 2022.

Its sales rate fell to 0.38 private reservations per outlet per week in July-December 2022, down from 0.64 a year earlier. Mortgage rates rose sharply last autumn, hitting demand, as the disastrous mini-budget spooked the City.

Revenues in the second half of last year dropped by £21m to £1.031bn, while pretax profits shrank by £5m to £198m, Redrow reports.

Redrow says demand has picked up so far this year, to 0.51 private reservations per outlet per week, which it calls an “encouraging start” to the second half of its financial year.

But, the housebuilder has trimmed its forecast for revenues in the full financial year (to the end of June) to £2.05bn from £2.1bn previously.

It adds:

Due to the recent change in market conditions the Company has withdrawn its guidance for 2024.

Matthew Pratt, chief executive of Redrow, says:

We have experienced a positive start to second half trading. Whilst 2023 will be a challenging year as the market resets, early indications are better than anticipated and the market appears to be finding a new, natural level.

UK house prices are falling as the market adjusts to falling demand and rising mortgage rates, economists say.

Simon Rubinsohn, chief economist at RICS, says today’s poll of surveyors shows that the market remained muted in January:

“Although some respondents to the January RICS survey have noted a little more interest in the housing market as the new year got underway, the overall tone of the feedback still remains subdued which is not altogether surprising given the jump in mortgage rates since the autumn.

“Prices, meanwhile, are now beginning to reflect the shift in balance between demand and supply.

“However, it is questionable how much downside to pricing there is likely to be given that recent macro forecasts from the Bank of England and others are now envisaging a less harsh economic environment this year.

Victoria Scholar, head of investment at interactive investor, predicts borrowing could pick up later this year:

“The Royal Institution of Chartered Surveyors (RICS) house price balance fell to -47 from -42 in December. The data fell to the lowest level since April 2009 as potential buyers hold off amid expectations that property prices will cool further this year and borrowing rates will ease.

While house prices look set to fall this year, a chronic shortage of supply and an improving view on the outlook for the UK economy look set to prevent a more painful slide. With the Bank of England approaching the peak for interest rates and mortgage lenders having to price competitively amid the drop in demand, there could be a pick up in borrowing later this year, particularly if inflationary pressures on the cost-of-living continue to ease.”

Jeremy Leaf, north London estate agent, confirms that demand has weakened:

’There’s no doubt that demand is not what it was just a few months ago following sharp rises in interest rates and lives costs particularly.

‘However, on the ground, we’ve noticed more need to, rather than want to, move buyers as mortgage repayment and job prospects become less daunting than previously envisaged.

’There is some serious haggling underway but we’ve seen a softening in prices rather than a correction while supply is slowly improving. Reduced competition means transaction numbers are down, taking longer and are more fragile.’

But, Tom Bill, head of UK residential research at estate agents Knight Frank, says the market has calmed this year:

“The first few weeks of 2023 bear little resemblance to the chaotic final three months of last year in the UK housing market.

Mortgage rates have stabilised, pre-existing buyers are cautiously reactivating plans and new buyers are coming to terms with the ‘new normal’ in the lending market. Some of the house price growth that took place during the pandemic will unwind but as the shock of the mini-Budget fades, demand is proving more resilient than expected.”

UK property demand declines as house prices in England fall, says RICS

Julia Kollewe

Property sales and house prices continued to decline across the UK in January, surveyors have reported.

Demand from new buyers and fresh listings were also down last month, the latest monthly snapshot from the Royal Institution of Chartered Surveyors (Rics) shows.

This is the ninth monthly fall in new buyer inquiries in a row, while price falls were the most widespread since 2009.

Rics said all the indicators point to a further slowdown in the housing market in the coming months, as borrowing costs have risen sharply.

Its monthly poll found that:

• Buyer enquiries, agreed sales and new instructions remain on a downward trend

• Tenant demand sees an increase at the same time as landlord instructions fall

• House prices decline further in all regions with the sharpest decline found in the East Midlands and South East

My colleague Julia Kollewe explains:

The Rics survey measures the difference between the number of estate agents and property surveyors reporting increases and those experiencing decreases in different areas of the property market.

The volume of fresh listings coming on to the market was also down, according to the survey, with a net balance of -14% respondents reporting a decline in new instructions during January.

Meanwhile, the latest feedback on national house prices points to another monthly decline, as the net balance weakened further to -47% compared with a reading of -42% in December.

All regions of England are seeing house prices retreat at present, with the sharpest drops reported across the east Midlands and the south-east.

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

MPs are to quiz the Bank of England this morning, after the UK central bank raised interest rates for the 10th time in a row last week.

The Treasury Committee are concerned that the Bank may be “behind the curve on inflation”, after it climbed to double-digit levels last autumn.

MPs are likely to explore the outlook for inflation, and the chances of future interest rate rises. They may also touch on the dissent at the Bank – as only 7 of the 9 members of the Monetary Policy Committee supported last Thursday’s rate rise to 4%.

Other likely topics for discussion include how energy and commodity prices are impacting inflation, the Bank’s forecast of a UK recession and slow recovery, and how the MPC will handle the sale of the £875bn of government bonds on its books (the process known as quantitative tightening).

BoE governor Andrew Bailey will be in the hot seat, alongside chief economist Huw Pill, and policymakers Silvana Tenreyro (who voted to hold interest rates at 3.5%) and Jonathan Haskel. The session begins at 9.45am.

Since last week’s rate rise, Pill has warned against raising borrowing costs too high, while MPC member Catherine Mann has predicted the Bank could keep raising interest rates to prevent high levels of inflation from becoming entrenched in the economy.

Yesterday, the NIESR thinktank predicted the UK could avoid recession this year (the Bank, though, forecasts a contraction), but it may still feel like a recession to millions of households.

The average middle-income household faces a hit to their personal disposable income of 13%, NIESR says, reaching up to £4,000 in the next financial year.

The agenda

• 7am GMT: German inflation report for January

• 8.30am GMT: Sweden’s Riksbank interest rate decision

• 9.30am GMT: Latest UK economic and business activity data

• 9.45am GMT: Treasury Committee question the Governor of the Bank of England and members of the Monetary Policy Committee

• 1.30pm GMT: US weekly jobless data