Key events
Closing post
Time to recap.
Hotel, travel and airline stocks fell into the red on Friday, as they fell victim to a sell-off linked to the Heathrow Airport closure caused by a fire at a nearby electrical substation overnight.
Among the fallers were BA and Iberia owner IAG, as well as InterContinental Hotels Group, which owns hotel brands including InterContinental, Regent, Crowne Plaza, and Holiday Inn. Premier Inn owner Whitbread also took a hit, as did German-travel business TUI.
The International Air Transport Association (IATA) also took a swipe at Heathrow, saing tha serious questions needed to be answered about how such a core piece of infrastructure could rely on a single source of power, without any backup plans.
Meanwhile, the government overshot the UK deficit forecasts in February, having borrowed £10.7bn last month compared to forecasts of £6.6bn.
Some analysts said that while the data points to further welfare and government department cuts, it could eventually mean tax rises in the autumn budget later this year.
It created a more gloomy picture for chancellor Rachel Reeves who is due to deliver her spring statement next week.
Howard Bassford, a partner at lawfirm DLA Piper, says that the Heathrow closure proves how essential infrastructure upgrades to the grid and rail are to the UK.
They don’t just provide new infrastructure, they ensure that the risk of events like the power loss at Heathrow are managed better.
When there are two rail routes or multiple power lines there is no single point of failure. New infrastructure makes us all safer and more secure.
US stocks are open for trading and have followed Europe into the red.
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The Dow is down 0.95%
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S&P 500 is down 0.8%
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Nasdaq is down 0.7%
Hotel stocks drop, joining market travel woes
Hotel stocks have followed airlines into the red over the disruptive Heathrow closure.
That includes InterContinental Hotels Group, which owns brands including InterContinental, Regent, Crowne Plaza, and Holiday Inn, is one of the worst performers on the FTSE 100, with shares down 4.1%.
Premier Inn owner Whitbread has also taken a hit, falling 2.7%,
It has contributed to the worsening performance of the FTSE 100 which is down 0.64%.
Mainland European stocks are not immune either, with German-listed travel and tourism group TUI is down 2.8%
IATA says Heathrow closure ‘begs some serious questions’
The International Air Transport Association (IATA), which represents some 340 airlines comprising over 80% of global air traffic, has taken a swipe at Heathrow’s management.
They’ve said serious questions needed to be answered about how such a core piece of infrastructure could rely on a single source of power, without any backup plans.
Willie Walsh, IATA’s director general, said:
This is yet another case of Heathrow letting down both travelers and airlines. And that begs some serious questions.
Firstly, how is it that critical infrastructure—of national and global importance—is totally dependent on a single power source without an alternative.
If that is the case—as it seems—then it is a clear planning failure by the airport. And, from that arises the question of who bears the costs of taking care of disrupted travelers.
We must find a fairer allocation of passenger care costs than airlines alone picking up the tab when infrastructure fails.
Until that happens, Heathrow has very little incentive to improve.
However, ING’s James Smith says that UK tax rises are almost inevitable this autumn, given that spending cuts can only go so far.
The debate around welfare cuts this weeks shows how politically challenging it would be for Reeves to make cuts on a deeper scale.
Smith says:
If the scope to cut public spending becomes more limited, the Treasury struggles to convince the OBR to upgrade its growth forecasts, and it is reticent to make further changes to its fiscal rules, then that leaves one final option: raise taxes.
Indeed we think that’s now inevitable in the autumn, and the only question is which taxes will end up rising.
In October, the Treasury centred its tax rises on businesses via a sizeable increase in employers National Insurance, in part because Labour had ruled out changes to income tax or VAT at last year’s election.
We wouldn’t be surprised if a similar strategy is repeated later this year.
The chancellor might point to the fact that by European standards, employer social security contributions are still relatively low as a share of an average worker’s salary.
James Smith, a developed markets economist covering the UK for ING, says further cuts to welfare and government departments are looking likely after today’s public borrowing figures.
In short, the goal of next week’s Spring Statement is to recoup the £10bn in ‘headroom’ lost to higher debt interest forecasts.
And, on paper at least, that’s not particularly difficult.
For instance, simply extending the freeze on income tax brackets beyond 2028 for a couple more years could recoup most, if not all, of what the Treasury is projected to lose to higher debt interest costs.
More likely though, the Treasury will have to curtail its future spending ambitions.
We already know that the government hopes to save £5bn/year on welfare. The remaining savings would presumably come from trimming departmental budgets.
As things stand, those budgets are set to rise by an average of 1.3% per year in real terms beyond the next 12 months.
To save £10bn/year by the end of the decade, that yearly growth would need to fall to 0.8%, and perhaps lower still if the OBR makes big upgrades to its inflation forecasts.
But tax hikes are still on the horizon, Smith warns.
Whatever happens, there are enough options here to get the Treasury through the Spring Statement, without having to enter into a fraught debate about further tax rises.
But it’s a debate that can only be avoided for so long.
Russia’s central bank has kept its key interest rate at 21%, but said more rate hikes could be on the cards as inflationary pressures remain high.
It comes days after president Vladimir Putin urged economic officials to avoid “excessive cooling” of the economy “like in a cryotherapy chamber.”
Russian policymakers hiked the interest rate to 21% in October, marking the highest level since the early 2000s.
The Bank of Russia said in a statement on Friday:
The Bank of Russia estimates that the achieved tightness of monetary conditions creates the necessary prerequisites for returning inflation to the target in 2026.
If inflation dynamics do not ensure achieving the inflation target, the Bank of Russia will consider raising the key rate.
While inflation remains stubbornly high, the latest data showed the annual rate slipped slightly but remained above 10%. The central bank’s target is 4%
The Association of British Insurers (ABI) says travellers whose insurance coverage includes trip disruption should be covered for today’s Heathrow shutdown:
Jonathan Fong, manager of general Insurance policy at the ABI, said:
People will naturally be concerned about their travel plans following the fire near Heathrow airport.
If your flight is cancelled, refunds should be sought from the airline or tour operator in the first instance.
Any bookings made through a credit card may also have recoverable costs.
If your travel insurance policy includes trip disruption, you should be covered if you have to cancel your travel plans.
Check your policy details and speak to your insurer if you’re not sure what is included
Heather Stewart
Borrowing overshoot will test Rachel Reeves’s resolve on tax rises
February’s public finances data, published on Friday, is only likely to make Rachel Reeves more convinced that she needs to take action at next Wednesday’s spring statement.
Despite scepticism from economists and some colleagues, including in the cabinet, Reeves is determined to make spending cuts, including the £5bn reduction in welfare spending already announced, to restore the headroom against her self-imposed fiscal rules.
February’s data underscored why she believes something has to be done.
The government borrowed £10.7bn in February, against the £6.5bn that the Office for Budget Responsibility had estimated, in the light of Reeves’s budget.
It is not surprising there are pressures: growth has been weaker than expected, and borrowing costs higher, as global markets have driven up interest rates. And tax receipts always bounce around at the start of the year because of the timing of self-assessment returns.
However, the Office for National Statistics said this was the fourth highest borrowing for a February since records began in 1993 (the three others occurring in the wake of the global financial crisis and during the Covid pandemic).
After Reeves set out her tax and spending plans in October, the OBR was expecting borrowing for the full fiscal year to be £127.5bn. But Friday’s data shows the government has already borrowed £132.2bn, with March still to go.
Read more:
The FTSE 100 is down 0.4%, with nearly all sectors in the red this Friday.
But airlines and hotels groups are some of the biggest losers, and as Kathleen Brooks, research director at XTB notes, the Heathrow closure has given investors another excuse to sell airlines.
The fire in Heathrow is having a big effect on the airline sector in Europe and elsewhere.
IAG, the owner of BA and Iberia, is down more than 3%, while KLM-Air France is also lower by 1.5% so far.
But it’s also dragging down airlines that don’t even land at the airport, Brooks notes, with Ryanair joining the sell off.
In the US, Delta and American Airlines are mostly flat in the pre-market.
The disruption caused by the Heathrow closure for the entire day on Friday is huge, but it will be temporary, and we expect airline stocks to stabilise after an initial knee jerk sell off.
The airline sector is fragile now, due to concerns about a US recession and a weak global consumer.
IAG’s share price is down 16% in the past month, so news of disruption at Europe’s busiest airport is the latest event to knock this sector.
Lisa O’Carroll
A trade war between the US and the EU could cost Ireland more than €18bn in lost trade and shrink the economy by 3.7% in the next five to seven years, according to a new report co-authored by the Irish government’s department of finance.
The Economic and Social Research Institute looked at a possible 25% tariff on all EU exports imposed by Donald Trump and retaliatory measures being considered by the EU.
It said nearly all tariff scenarios would have a “significant negative impact” on the Irish economy.
Even if Trump imposes 10% tariffs on all global imports, GDP could drop by 3.2% compared to a scenario with no tariffs, it found.
Loss of multinational investment and subsequently jobs was also a potential impact of tariffs, the ESRI’s author Paul Egan said:
Protectionist policies may also prompt multinationals to relocate to the US, posing further risks to the Irish economy and public finances.
Looking at the the UK government borrowing figures for February alone – that is, the £10.7bn figure – borrowing was broadly similar to last year.
That breaks the trend over the previous six months, where borrowing was roughly £3bn higher per month, compared to a year earlier, Ellie Henderson, an economist at Investec explained.
That was helped by a £3.2bn increase in central government receipts, driven largely by £2.8bn in extra income tax.
But the reason that the headline figure did not look more favourable was due to higher spending, with central government current expenditure rising by £3.8bn, Henderson said.
Departmental spend on goods and services can account for the bulk of that, increasing by £2.9bn on the year, which has been attributed to pay rises and inflated running costs.
Unlike previous reports, net interest payments were not a big driver of the February numbers, as at £7.4bn payments were roughly equal to that of February 2024.
Jasper Jolly
The BBC, ITV, BT and sports production company IMG have been fined £4.2m for illegally sharing information about fees for freelance workers at football and rugby matches.
The sharing of information, which breached competition law, affected workers such as camera operators and sound technicians, according to the Competition and Markets Authority.
The regulator opened an investigation into possible cartel-like behaviour in 2022, after it was tipped off by Sky, which broadcasts hundreds of Premier League football matches each year.
Sky was found to be the most persistent offender, with 10 instances of anti-competitive behaviour, but it escaped a fine by alerting the CMA itself.
Producers at the broadcasters shared pay details with one another to try to limit pay for the freelancers on whom much of the TV industry depends.
The CMA said that “in most cases, the explicit aim was to coordinate how much to pay freelancers” between 2014 and 2021.
BT, which has since stopped broadcasting sport, will pay £1.7m for six infringements. IMG will also pay £1.7m, the BBC £424,000, and ITV £340,000.
All the companies received discounts for settling early.
Richard Partington
UK government borrowing rose by more than expected in February to £10.7bn, underscoring the challenge for Rachel Reeves before next week’s spring statement.
Figures from the Office for National Statistics showed borrowing – the difference between total public sector spending and income – was little changed from the same month a year earlier. However, over the financial year to date borrowing was up nearly £15bn on the same period last year.
In a setback for the chancellor, the monthly total was higher than expected in a Reuters poll that predicted a deficit of £6.6bn.
Reeves will make her spring statement to the Commons on Wednesday against a backdrop of sluggish economic growth, stubbornly high inflation and rising government borrowing costs.
Updated forecasts from the Office for Budget Responsibility due alongside the statement are expected to show her self-imposed fiscal rules would be broken without action.
Darren Jones, the chief secretary to the Treasury, said the government needed to go “further and faster to create an agile and productive state that works for people”.
Read more here:
ONS warns over errors in growth figures
Richard Partington
The Office for National Statistics has warned there are errors in its growth figures after spotting problems with the price data it uses to calculate the size of Britain’s economy.
In the latest admission of failure to maintain reliable economic data, the government statistics agency said it had uncovered problems with two indices used to measure prices in the economy.
The admission will come as an embarrassment for the ONS as it battles to fix another key economic statistic, the flagship labour force survey, which provides headline unemployment and employment data.
Experts have warned these problems have left the Bank of England and the government “flying blind” amid reliability issues that could take until 2027 – more than three years in total – to rectify.
The ONS said its latest errors were uncovered during work to improve the systems used to create its producer price index (PPI) and services producer price indices (SPPI):
Our quality assurance identified a problem with the chain-liking methods used to calculate these indices.
Often referred to as “factory gate prices,” the indices are published with the ONS’s monthly inflation snapshot, and gauge changes in price for goods and services bought and sold by manufacturers and service-sector companies. The ONS said its headline consumer prices index, and another key inflation metric including housing costs, were “completely unaffected by this issue”.
However, it warned the PPI and SPPI data was used within its estimates for gross domestic product (GDP), regarded as one of the most important yardsticks in economics, which could force it to revise its data for 2022 and 2023.
The UK economy grew by 4.8% in 2022, in a rapid rebound from the Covid pandemic, and by 0.4% in 2023, as high inflation and interest rates weighed on output.
The ONS said the changes were most likely to lead to impacts on the level of GDP in some industries, and could lead to some revisions for the UK’s dominant services sector, as well as production and construction.
Despite this, at an aggregate level for GDP, these revisions should be offsetting to an extent, meaning there is unlikely to be an impact in the UK’s headline growth figures. The ONS also said early indications suggest that there would not be a notable change in the recent economic trends seen in the data.
The ONS said it was pausing the release of its PPI and SPPI data, with a plan to recommence publication in the summer.
The ONS apologises for the inconvenience caused.
Airline shares tumble on Heathrow fire
Airline shares have fallen as markets assess the fallout of the fire near Heathrow, which has forced the UK’s largest airport to close.
More than 1,300 flights are expected to be affected by the fire at the North Hyde electrical substation in west London, after a nearby fire triggered a “significant” power cut.
Affect flights include 679 scheduled to land and 678 due to take off.
Airlines have been diverting flights, though others like Air France are announcing cancellations, causing widespread travel disruption.
It has already caused shares in British Airways owner IAG to drop 4.1%.
Budget airline Ryanair is also down 1.25%, while rival EasyJet has tumbled 2.3%.
Follow the latest developments on the Heathrow shutdown here:
UK consumer confidence lifts in March – GfK Index
We also have GFK Consumer Confidence showing another uptick in morale.
The index rose for the second month in a row, edging upwards to -19 from a measure of -20. The new reaching represents a three-month high but is still below the survey’s long-run average of -10.
It adds to a mixed picture for Reeves, with the figures suggesting marginal improvements in the perception of the UK economy but that confidence is still fragile.
Neil Bellamy, consumer insights director at GfK said:
We are still below the long-term average of -10. If consumer confidence were a patient languishing in a hospital bed, a doctor would say there is little evidence of a recovery as yet. Where do we go from here?
The current stability is to be welcomed but it won’t take much to upset the fragile consumer mood.
Introduction: UK borrowing hits £10.7bn in February
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The health of Britain’s public finances is being closely watched in both Westminster and the City of London, just days before chancellor Rachel Reeves is due to deliver her spring statement on 26 March.
And the latest public finances data, just released by the Office for National Statistics, shows that the UK borrowed more than economists expected last month to balance the books.
Public borrowing hit £10.7bn in February, higher than the £6.6bn forecasted by City economists.
It illustrates the scale of the challenge facing Reeves, who is due to announce cuts to spending, alongside fresh economic and public finance forecasts from the Office for Budget Responsibility, next week.
The ONS said that overall, government borrowing hit £132.2bn in the financial year to February, which is £14.7bn more than the same period a year earlier
Alex Kerr, UK economist at Capital Economics, said:
Although they will have no impact on the fiscal update next week, the significant overshoot in borrowing in February highlights the Chancellor’s tight fiscal backdrop. The OBR will still most likely conclude that the chancellor’s headroom against her fiscal rules has been wiped out.
So we expect her to announce further non-defence spending cuts, on top of the welfare cuts already unveiled earlier this week.
