UK economy at turning point as output rises; ‘shocking’ rise in ultra-long mortgages – business live

There’s a flurry of meme stock excitement in the markets again today.

Shares in Gamestop, the electronics retailer, have surged by over 19% in pre-market trading, rekindling memories of its surge in early 2021 when small traders took on Wall Street investors who had short-sold its stock.

The rally comes after the analyst who sparked the Gamestop short squeeze, Keith Gill, made his first online post through his Roaring Kitty persona in three years.

Gill tweeted a meme of a man holding a smartphone leaning forward in an intent pose – which is being taken as a sign that something may be afoot….

A Solana memecoin called $GME, created to mark the Gamestop drama, has surged by around 500%.

The UK government’s stake in NatWwest has dipped again – just as a US investor builds up a stake.

The government’s holding has now fallen to 26.95%, due to its ongoing trading plan through which UK Government Investments (UKGI) has been trimming its stake.

UKGI is still NatWest’s biggest shareholder; it stopped holding a controlling stake in March when its holding fell below 30%.

The stake dates back to the rescue of Royal Bank of Scotland, as NatWest was then called, in 2008 – which left the government owning 86% of the bank.

The government is hoping to sell its stake to the public this summer.

The Guardian reported yesterday that Los Angeles-headquartered Capital Group, which is one of the world’s oldest and largest investment firms, with more than £2.5tn under management, has bought more than £110m worth of NatWest shares, pushing the group into the bank’s top 30 shareholder list.

A cut to UK interest rates next month is now more likely than not, according to the money markets.

LSEG data this morning shows there is a 54% chance that the Bank of England lowers base rate to 5% at its June meeting, and a 46% chance that it leaves rates on hold at 5.25%.

Last week, BoE governor Andrew Bailey told reporters that a June rate cut was neither “ruled out” nor a “fait accompli” – it would depend whether economic data showed inflation was falling sustainably to its 2% target.

Last week, a June rate cut was basically a coin-toss, with ‘no change’ slightly more likely….

The money markets also suggest that a rate cut by August is fully priced in, and that the BoE will manage a second cut to 4.75% by December.

Back in the UK housing market, borrowers are being squeezed by rising mortgage rates.

New data from Moneyfacts shows that the average two- and five-year fixed mortgage rates rose in April.

Mortgage rates increased as the City dialled back its expectations for interest rate cuts, with just two quarter-point reductions expected this year. That prompted several major lenders to raise their rates

Moneyfacts reports:

• The overall average two- and five-year fixed rates rose between the start of April and the start of May, to 5.91% and 5.48% respectively. The average two-year fixed rate stands 0.43% higher than the five-year equivalent, the biggest difference seen in six months (November 2023 – 0.43%).

• The average ‘revert to’ rate or Standard Variable Rate (SVR) remained at 8.18%, just shy of the highest recorded (8.19%) during November and December 2023.

• The average two-year tracker variable mortgage fell to 6.12%.

Jobcentre security guards across the UK are on strike today in a dispute over pay, PA Media reports.

The GMB said more than 1,000 of its members employed by G4S for the Department for Work and Pensions walked out for the day.

The union said more than two thirds of the guards are paid the minimum wage.

Eamon O’Hearn, GMB national officer, said:

“Jobcentre security guards are eking out a living on just above the minimum wage, despite facing horrific violence and abuse while on the job.

“G4S can afford to pay these workers what they deserve, unless they do they are going to face a prolonged period of industrial action.”

A G4S spokesman said:

“We’re disappointed that the GMB have refused to take our improved pay offer to their members.

“We are continuing to try to reach an amicable agreement, and have implemented contingency plans to minimise disruption to our customers.”

Heathrow Airport has accused the government of curtailing the UK’s global connectivity through bad policies.

In its latest traffic update, Heathrow says the government is failing to support UK aviation and help it compete globally.

It says:

Initiatives like the introduction of unnecessary visas for transiting passengers, the absence of tax-free shopping and the recently proposed hike in business rates, underscore the need for Ministers to take a cross-Government approach to policymaking that supports UK aviation’s global competitiveness.

Last month, Heathrow urged ministers to scrap a new £10 charge for overseas travellers using UK airports to connect to other flights.

Despite these problems, Heathrow reports that it handled 6.7m passengers in April, bringing the total for the year so far up to 25.2 million. It says it “remains on-track” for a record-breaking number of passengers in 2024.

Friday 19 April was its busiest day since the pandemic, with 1,337 flights.

Heathrow CEO Thomas Woldbye says:

As we continue to grow, our focus is on making Heathrow fit for the future, delivering reliable journeys for all our customers today and getting ready for the challenges and opportunities of tomorrow.

But to unlock our full potential to help grow the country’s economy, we need the Government to implement policies that support UK aviation’s ability to compete globally, and thus make the UK more competitive overall.

Former UK chancellor Nadhim Zahawi has become the chair of one of Britain’s biggest online retailers, just days after announcing he will step down from parliament at the next election.

The Very Group, which operates digital retailers Very and Littlewoods and is owned by the Barclay family, has announced that they have appointed Zahawi as non-executive chair and board member.

Zahawi will replace current non-executive chair Aidan Barclay, who took on the job on a temporary basis back in February.

Zahawi, currently MP for Stratford-on-Avon, announced last week that he will stand down as an MP at the next election, declaring “My mistakes have been mine.”

Those mistakes include failing to declare that HMRC were investigating his tax affairs – a breach of the ministerial code, leading to his dismissal as chancellor. Yesterday, Zahawi admitted for the first time he paid nearly £5m to the tax authority to settle his tax affairs.

Zahawi, who also served as vaccine minister in the pandemic, also co-founded polling company YouGov.

Aidan Barclay says he’s an ideal candidate to lead the Very board, explaining:

“I am delighted to welcome Nadhim to the Board of The Very Group. With a proven track record in digital growth and innovation, and highly respected in the UK and global markets, he is ideally suited to lead our Board as the company enters its next stage of strategic development and growth.”

“The Great Resignation” that gripped the UK economy is over, according to the Chartered Institute of Personnel and Development (CIPD).

CIPD’s latest Labour Market Outlook report has found that 55% of employers are looking to maintain their current staff level – the highest level since winter 2016/17 – rather than taking on more workers to handle increased demand.

Instead, CIPD reports that the UK labour market is now less dynamic and competitive, leading more workers to stick with their currrent jobs rather than risk a move.

James Cockett, labour market economist for the CIPD, says

“When the economy reopened post-pandemic, turnover and vacancy levels rose in response to the hot recruitment market. Now, the so-called ‘Great Resignation’ is well and truly over and has been replaced by ‘The Big Stay’, with more people opting for job stability. Falling staff turnover and vacancies also mean the balance of power in the labour market is moving in the direction of employers and away from workers.

“Based on the trends in our report, there’s likely to be further falls in both turnover and vacancy levels in 2024. Employers will need to look forward and factor in this lower attrition when making decisions around staffing levels and the future of their workforce. We are now entering a more stable period, as recruitment trends bounce back to pre-pandemic levels.

The report also found that British employers expect to raise wages by 4% over the coming 12 months. That would still mean a rise in real wages, as inflation is expected to fall to around 2% this spring.

A former pensions minister has warned that young home buyers are being forced to gamble with their retirement prospects by taking on ultra-long mortgages.

Steve Webb is concerned that 42% of new mortgages agreed in the fourth quarter of 2023 – or 91,394 – had terms going beyond the state pension age. That’s up from 31% in the last quarter of 2021.

Many of those loans are being taken out by 30- to 39-year-olds, who would typically be expected to be taking out their first mortgage, or those in their 40s.

Demand for such long loans has increased following the rise in mortgage rates; taking out a longer loan lowers the monthly repayment cost (even though the total interest bill may end up higher).

Webb, a partner at the pension consultants LCP, obtained the data via a freedom of information request to the Bank of England.

He says the number of mortgages set to run past state pension age is “shocking,” and may make it harder for people in retirement.

Webb explains:

“The challenge of getting on the housing ladder is forcing large numbers of young homebuyers to gamble with their retirement prospects by taking on ultra-long mortgages.

“We already know that millions of people are not saving enough for their retirement and if some of that limited retirement saving has to be used to clear a mortgage balance at retirement they will be at even greater risk of poverty in old age. Serious questions need to be asked of mortgage lenders as to whether this lending is really in the borrower’s best interests.”

Here’s the full story:

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

Having exited out of recession strongly last Friday, the UK economy appears to have turned the corner after a tough couple of years.

The latest Business Trends report, released by accounting and business advisory firm BDO this morning, shows that output rose last month to its highest level in almost two years.

BDO reports that UK business output and confidence rose in April, as the inflation pressures that have dogged firms for months ease.

This upturn has pushed up BDO’s output index by 2.09 points to 103.92 in April – the highest level since May 2022.

The UK’s services sector led the bounceback in April, says BDO, thanks to consumers having more money to spend at hospitality, retail and leisure companies as energy bills fall.

Hopes of a cut to UK interest rates by the autumn helped lift business confidence. Last week, Bank of England governor Andrew Bailey said it was “likely” that Bank Rate will be cut over the coming quarters, after the BoE left rates on hold again.

Worryingly, though, BDO’s employment index fell for the 10th month running, to its lowest level since February 2013, suggesting the UK jobs market is cooling.

Kaley Crossthwaite, partner at BDO, says:

“Cautious optimism is the order of the day for UK businesses hoping for an interest rate cut this summer.

“It’s heartening to see a turning point begin to materialise for the economy, with the services sector driving the bounce back so far from last year’s technical recession. But businesses across the board need more certainty from the government and we urge them to provide a clear, stable and long-term tax roadmap as soon as they’re able to, alongside much needed reforms to the apprenticeship levy.

Only once businesses have this will we start to see the more stable optimism, investment and hiring intentions needed for a robust recovery.”

The latest Regional PMI survey data from NatWest confirm that business activity continued to rise across almost all UK nations and regions last month.

London saw the fastest growth, followed by the West Midlands and Northern Ireland.

Yorkshire & Humber was the only area where activity fell.

Firms across the UK also reported a rise in cost inflation last month, driven by a rise in staff pay (partly due to the rise in the minimum wage at the start of April).

Sebastian Burnside, NatWest chief economist, explains:

“Most areas of the UK are enjoying a revival in business activity, with growth even accelerating in most cases in April.

“Yorkshire & Humber is the one area where we are yet to see the economy kick into gear, though the region’s firms are optimistic about their prospects for the coming year, as is the case across the UK.

The agenda

• 10am BST: China’s current account for Q1 2024

• 1pm BST: India’s inflation report for April

• 3pm BST: Eurozone finance ministers meet for Eurogroup meeting