UK company growth slows in blow to Sunak; NatWest share sale threatened by general election – business live

The City have taken yesterday’s surprise general election announcement in their stride.

The pound is trading flat this morning, at $1.272, while the blue-chip FTSE 100 index is just 4 points higher, +0.05%, at 8374.

Analyts at ING says UK investors have become accustomed to political drama over the past few year.

ING cite five reasons why this election has the potential to be less exciting and volatile in markets: Labour is miles ahead in the polls; unlike 2019, Brexit is no longer a major unknown; Scottish referendum remains unlikely’; neither party is promising radical fiscal policy shifts, and an election doesn’t shift the Bank of England outlook

They add, though, that the pound could be influenced by “noise” in the July vote.

That could be generated from pre-election policy pledges by Labour. Any news concerning plans on future relationships with the EU could also generate some GBP [the pound] noise. The most impactful news would probably be on a new Scottish referendum which, as we note above, looks unlikely.

However, this would likely just be noise, and the direction will still be dictated by monetary policy in the UK and the US. As we don’t see the BoE changing its policy plans due to the election, the overall implications for sterling should be limited.

The sharp slowdown in growth in Britain’s services sector this month is a concern, as services makes up around three-quarters of the economy.

Charles Hepworth, investment director at GAM Investments, explains:

“UK Services PMI data for the month of May came in at the bottom end of forecasts at 52.9, still in expansionary territory but notably, the lowest reading in the last 6 months – it doesn’t auger well for the broader economy if the dominant services sector is genuinely starting to slow, which this data release indicates.

On the flip side, manufacturing PMI data showed a surprise move into expansion with a reading of 51.3, marking an end to the long contraction seen in this sector since August 2022.

Newsflash: the confectionary company behind Cadbury, Côte d’Or, Milka, Oreo, Ritz, Toblerone and TUC biscuits has been fined €337.5m (£287m) for breaking European competition rules.

Mondelēz has been penalised by EU antitrust regulators on Thursday for impeding the cross-border trade of chocolate, biscuits and coffee products between EU countries.

This, the EU says, prevented retailers from being able to freely source products in Member States with lower prices – allowing Mondelēz to continue charging more for its own products.

Announcing the fine, the European Commission said Mondelez had also abused its dominant position in certain national markets for the sale of chocolate tablets.

It declared that Mondelēz had engaged in 22 anticompetitive practices, including:

• Limiting the territories or customers to which seven wholesale customers (traders/“brokers”) could resell Mondelēz’ products. One agreement also included a provision ordering Mondelēz’ customer to apply higher prices for exports compared to domestic sales. These agreements and concerted practices took place between 2012 and 2019 and covered all EU markets.

• Preventing ten exclusive distributors active in certain Member States from replying to sale requests from customers located in other Member States without prior permission from Mondelēz. These agreements and practices took place between 2006 and 2020 and covered all the EU markets.

Newsflash: Growth across the UK private sector is slowing this month, in what appears to be a blow to the government’s election strategy.

Data firm S&P Global Insight’s regular poll of purchasing managers at British firms has found that the services sector is recording its weakest growth in six months during May.

More encouragingly, though, manufacturing has returned to growth – and firms are raising prices at the slowest rate in over three years.

Here’s the details:

• Flash UK PMI Composite Output Index at 52.8 (down from April’s 54.1), to 2-month low.

• Flash UK Services PMI Business Activity Index at 52.9 (down from April’s 55.0), to a 6-month low.

• Flash UK Manufacturing Output Index at 52.7 (up from April’s 49.4), to a 25-month high.

• Flash UK Manufacturing PMI at 51.3 (up from April’s 49.1), to a 22-month high.

Any reading over 50-points shows growth, so Rishi Sunak can at least point to that. But a slowdown in growth doesn’t bolster the PM’s claim the economy has “turned the corner”.

The PMI survey also found there was only a marginal increase in employment at companies this month, with some companies blaming candidate shortages and wage costs.

Chris Williamson, chief business economist at S&P Global Market Intelligence, says

“The flash PMI survey data for May signalled a further expansion of UK business activity, suggesting the economy continues to recover from the mild recession seen late last year. The survey data are consistent with GDP rising by around 0.3% in the second quarter, with an encouraging revival of manufacturing accompanied by sustained, but slower, service sector growth.

The survey also brings welcome news of a cooling in service sector inflation, which is needed to open the door for the Bank of England to start cutting interest rates. A temporary surge in wage-related cost growth seen in April is showing signs of fading in May. Firms are also reporting that strong competition is limiting their scope to raise prices, especially in the face of weakened demand due to the elevated cost of living.

Several City experts have dropped their forecasts that the Bank of England will cut UK interest rates next month, after inflation came in higher than expected yesterday.

Goldman Sachs, HSBC and Deutsche Bank all now expect the first rate cut to come in August, rather than June.

That’s a blow to Rishi Sunak’s hopes that the Bank could lower borrowing costs before July’s election, which might help people feel better off.

Goldman point to yesterday’s inflation report, telling clients:

Given firmer incoming price and wage data, we no longer expect a June Bank Rate cut. First, services inflation came in at 5.9%yoy (year on year) in April, well ahead of consensus expectations and the MPC‘s May projection of 5.5%yoy.

Goldman add that the UK’s growth outlook has “improved significantly”, having returned to growth in the first quarter of the year.

The money markets currently suggest that there’s only a 10% chance of a rate cut in June, down from over 50% at the start of the week.

General election create uncertainty in water industry

Alex Lawson

Rishi Sunak’s decision to call an election on 4 July appears to have cascaded down to the water industry, causing uncertainty over an announcement by the industry regulator.

Ofwat had been due to give its preliminary view of English and Welsh water companies’ business plans for the five years to 2030, which were submitted last year, on 12 June.

Now, that update – known as “draft determination” on the PR24 plans – may be delayed until after the election. A final decision is expected to be made at the long-scheduled meeting of the Ofwat board today.

The draft determinations are seen as particularly crucial for Thames Water, the heavily indebted supplier which is at risk of falling into a government-handled administration. Its shareholders have refused to stump up any more funds amid a stand-off with Ofwat.

An Ofwat spokesperson said:

“We are considering pre-election protocols and guidance in relation to our time table for PR24.”

Separately, Anglian Water has appointed former HS2 boss Mark Thurston has its next chief executive. He will succeed longstanding Anglian chief Peter Simpson in August.

Thurston left his role at the pared-back high-speed rail project after six years in July 2023 and was reportedly Britain’s highest paid public servant at one point during the role.