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BP (+3.5%) is pushing the FTSE 100 back towards the record highs set last Friday.
The blue-chip share index has gained 35 points this morning, or 0.45%, to 7871 points. It hit a new alltime high of 7906.58 on Friday afternoon.
Russ Mould, investment director at AJ Bell, says:
“BP may be enemy number one in the public’s eyes for its record profits, but its latest success has helped to drive up the FTSE 100, which in turn will benefit people up and down the country with exposure to UK stocks in their pension,” says
“The UK blue chip index advanced 0.5% to 7,873 with energy companies the key driver, alongside a good showing from banks and pharmaceuticals.
This follows losses on Wall Street last night, where the tech-focused Nasdaq fell 1% and the broader S&P 500 dropped 0.6%.
Mould explains how the prospect of further interest rate increases are moving the markets, following stronger than expected jobs numbers last Friday in the US.
A strengthening labour market theoretically makes it less likely that the Federal Reserve will halt interest rate rises anytime soon.
The Fed needs to see both the jobs market and inflation start to cool before it can justify changing its stance on rates.
“Over the past month or so, investors have become more optimistic that we’re near the top of the rate rise cycle, hence why you’ve seen higher-risk companies do well on the stock market. If this optimism turns out to be misplaced then we’ll likely see investors flock back to sectors where you can typically find value stocks such as banking, energy and tobacco. In a way, today’s movement on the FTSE 100 already reflects this investor thinking.”
The stabilisation in UK house prices in January may be just a ‘blip’, suggests Mike Scott, chief analyst at estate agency Yopa.
Prices may fall again over the next few months. he suggests, although Yopa does expect that house prices will return to growth later this year, though not at the kind of rapid growth rates that we saw from 2020 to 2022.
Scott adds:
Despite last week’s base rate rise to 4%, mortgage interest rates are now falling as market expectations for further base rate rises are easing off. In addition, average earnings increases may be running behind overall inflation, but they are now well ahead of house price growth, and there is still a serious shortage of homes.
All of these factors will drive renewed house price growth once the shock of last autumn’s abrupt interest rises is behind us.
One in five households with prepayment meters have not cashed in their energy vouchers issued to help pay bills.
About one in five people did not redeem the £66 energy support voucher they were sent by PayPoint in November, the company has said this morning.
PayPoint had sent out hundreds of thousands of vouchers in November under a Government support scheme. But only 81% of those vouchers had been redeemed on Sunday when they ran out – 90 days after they were issued.
It means that thousands of households with prepayment meters have missed out on energy bill support that they were entitled to.
Back in December, charities and MPs called on ministers to intervene after it emerged that around 1.3m vouchers for homes with prepayment meters had been either lost, delayed or unclaimed.
German industrial production slides as high energy prices hit economy
Fears of a German recession are swirling again this morning after factory production in Europe’s largest economy fell by more than expected.
German industrial production dropped by 3.1% in December, new data this morning shows, and was 3.9% lower than a year ago.
Production at energy-intensive industries fell by 6.1% during December, month-on-month, as soaring gas and electricity prices continued to hit manufacturers.
This “terrible industrial production report” confirms that Germany’s economy’s came to a “sudden and hard halt in December”, says Carsten Brzeski, economist at ING.
Brzeski warns:
The former growth engine of the German economy is stuttering and no improvement is in sight.
Despite the recent return of optimism as illustrated by improving sentiment indicators, the sharp drop in new orders, the inventory build-up in recent months and the lagged impact of high energy prices all still bode ill for the short-term outlook.
Today’s industrial production was the last hard data for the month of December. It is a month to forget. Retail sales, exports and imports all fell sharply. Either this data will be strongly revised upwards in the coming months or the German economy entered hibernation in December.
Despite the latest optimism reflected in improving sentiment indicators, this economic hibernation is unlikely to end any time soon.
Just when investors were pricing out a Eurozone #recession, data came back with a vengeance.#Germany‘s industrial production was down 3.1% in December, down 6.5% since Dec 2020
Construction output was down 8.0%(!) in December and 19% from its peak in Dec 2020. pic.twitter.com/gKqX3coSvS
— jeroen blokland (@jsblokland) February 7, 2023
Blanchflower predicts housing market collapse will prompt interest rate cuts
Danny Blanchflower, a former Bank of England policy maker, has predicted that “collapsing” house prices will push the UK central bank into a rapid pivot toward interest rate cuts.
Blanchflower, who is now a professor of economics at Dartmouth College, told Bloomberg Radio that economic data will deteriorate as the sharp increase in interest rates hit activity.
Blanchflower predicted:
“We are seeing house prices tumbling.
You’re going to start to see really bad stuff appearing as these economies slow fast and the central bank and the markets are then going to respond to that.
Blanchflower, who served on the Bank’s monetary policy committee between 2006 and 2009 (during the financial crisis), says policymakers should have cut rates last week, rather than raising them to 4%.
He explains:
As I sat at the Bank of England, my job was to think about what inflation was going to be at about 18 months to two years down the road. And you change rates now because it takes time to have an effect.
“What people should see is a collapsing housing market, a slowing economy and the reason is that these interest rate hikes that have been going crazily haven’t actually impacted the economy yet.”
BP shares highest since late November
Shares in BP have jumped to their highest level in over two months, after it reported profits doubled last year and lifted its dividend by 10%.
BP shares are up 4.1% at 498p, making it the top riser on the FTSE 100 index of blue-chip shares.
The company said this morning it hopes to “materially increase earnings through 2030”, and is aiming for profits of $51-56bn on an EBITDA basis in 2030.
BP also said it plans to invest up to $8bn more in renewable energy systems, such as bioenergy and electric car charging networks. But it will also spend an extra $8bn in oil and gas by 2030, despite pressure from environmental campaigners to shift away from fossil fuels faster.
CEO Bernard Looney says
We need continuing near-term investment into today’s energy system – which depends on oil and gas – to meet today’s demands and to make sure the transition is an orderly one. We have high-quality options throughout our portfolio, allowing us to choose only the best.
We will prioritise projects where we can deliver quickly, at low cost, using our existing infrastructure, allowing us to minimise additional emissions and maximise both value and our contribution to energy security and affordability.”
The thing with oil and gas is that they make a lot of money. Even BP CEO Bernard Looney has realized. And hence, quite a turn-around in strategy. $BP puts some fine words about renewables. But this is a company that has gone from “Beyond Petroleum” to “Back to Petroleum”. pic.twitter.com/QV02PhQ2Wo
— Javier Blas (@JavierBlas) February 7, 2023
The UK housing market is grinding to a halt and prices could soon be lower than a year ago, predicts Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:
Annual house price growth has slowed right down and is now just 1.9% – the consensus of data from around the market seems to suggest we will soon be seeing annual price falls.
It’s been a turbulent time for the property market with soaring inflation putting pressure on our finances while the turmoil caused by the mini-Budget sent buyers running for the hills. It looks like the pain may not be over yet, because the RICS survey results show demand continues to fall, while Bank of England figures reveal mortgage demand has dropped as low as when the market was effectively closed at the start of the pandemic.
We are starting to see mortgage rates come down, but it may not be enough to tempt many would-be buyers into the market just yet.
January’s house price ‘stability’ could prove only a temporary interruption in advance of a further fall in prices, suggests Martin Beck, chief economic advisor to the EY ITEM Club.
Beck points out that Nationwide reported last week that house prices fell again in January, for the fifth month running, rather than stalling as Halifax reported this morning.
Mortgage rates are much higher than a year ago, at a time when inflation is squeezing household budgets, Beck says:
January’s flatlining in values may prove only a temporary interruption to a trend of falling prices. Although mortgage rates have dipped from post-mini-Budget peaks, they’re still at their highest in a decade.
The average interest rate on a new mortgage ended 2022 at 3.68% – up from 1.59% 12 months earlier. Rates on larger mortgages have seen much bigger increases. For example, the average quoted rate for a two-year fix at 90% loan-to-value was 5.96% in December, 400bps higher than at the start of the year. Meanwhile, households’ ability to service debts is being squeezed by falling real incomes, and widespread predictions of a decline in property values are expected to encourage some potential buyers to wait before purchasing, weighing on demand and potentially making expectations of price falls self-fulfilling.
Anger over BP’s record profits
Ed Miliband MP, Labour’s Shadow Climate Change and Net Zero Secretary, says it is ‘outrageous’ that the UK hasn’t brought in a tougher windfall tax on energy companies.
Responding to BP reporting profits of $28bn (£23.2bn) for last year, Miliband says:
“It’s yet another day of enormous profits at an energy giant, the windfalls of war, coming directly out of the pockets of the British people.
“What is so outrageous is that as fossil fuel companies rake in these enormous sums, Rishi Sunak still refuses to bring in a proper windfall tax that would make them pay their fair share.
“This is why people are sick and tired of the way the country is run under the Tories.
In just eight weeks’ time, the Government plans to allow the energy price cap to rise to £3,000. Labour would use a proper windfall tax to stop prices going up in April.
The currrent ‘energy profits levy’, announced last year, allows energy firms to use new investment in the North Sea to offset their windfall tax bill. TUC General Secretary Paul Nowak insists it should be beefed up.
Nowak says:
“As millions struggle to heat their homes and put food on the table, BP are laughing all the way to the bank.
“Hard-pressed families will rightly feel furious – they are being treated like cash machines.
“This boils down to political choices.
“Ministers are letting big oil and gas companies pocket billions in excess profits. But they are refusing to give nurses, teachers and other key workers a decent pay rise.
“We need a government on the side of working people – not fat cat energy producers.
“That means imposing a higher windfall tax on the likes of BP and Shell. It means giving public servants fair pay. And it means giving households extra financial support as bills rise this April.”
Back in November 2021, before the full-scale invasion of Ukraine, BP’s boss Bernard Looney notoriously described the energy giant as a ‘cash machine’.
Nick Dearden, director at Global Justice Now, says BP’s earnings underline the need for a polluters tax.
“It should sicken people to their core that BP is responsible for more global historic emissions than most countries on earth, yet has no plans to stop polluting even in the face of a global climate crisis. With a newly established Loss and Damage fund, it’s high time governments mandated fossil fuel companies to start paying up for their role in the climate crisis, starting with these enormous profits announced today.
What’s even worse is that more than half of this ($14.7bn), made from the destruction of our planet, is leaving the pockets of struggling families and heading straight to super-rich shareholders, when millions of people can’t even afford to heat their homes.
Enough is enough. It’s time to bring in a polluters tax and hold BP truly accountable for the destruction they’ve wreaked across the planet.”
The key to selling a house in the current market is “getting the pricing right”, says Nathan Emerson, CEO of Estate Agent Body Propertymark.
Those priced accordingly have sold quickly but those who are testing the market at higher prices, trying to align with last year are finding they have to reduce or be open to offers.
The rise in interest rates will undoubtedly be affecting buyers overall budgets and sellers need to be realistic.
This doesn’t look set to change any time soon as it’s likely the Bank of England will raise rates again in order to bring inflation under control.”
The slowdown in annual house price growth to a three-year low of 1.9% in January shows the impact of higher borrowing costs on the UK housing market.
And there could be further pressure on the housing market, with the Bank of England expected to raise interest rates above their current level of 4% this spring.
Victoria Scholar, head of investment at interactive investor, explains:
Property transactions and mortgage demand have been slowing, weighed down by the Bank of England’s ten consecutive rate rises as the central bank looks to curtail borrowing in an attempt to stem stubbornly higher double-digit inflation levels in the UK. Potential buyers have been holding off with the hope that the housing market will cool further this year and mortgage rates will ease off.
Just this week Bank of England policymaker Catherine Mann indicated the central bank is likely to raise rates again, which will add to the cost of borrowing for mortgage holders, particularly for those on variable rates. However, looking further ahead, the central bank could pause on interest rates or even cut rates later this year, which could help support the housing market, particularly if the economic downturn reveals itself to be less aggressive than previously feared.
BP profits soar to record of $28bn
Oil giant BP has doubled its profits last year, as the surge in energy prices since Russia’s invasion of Ukraine boosted its earnings.
BP has reported underlying profits of $27.5bn for 2022 this morning, up from $12.8bn in 2021. Such bumper profits will surely lead to fresh calls for more stringent windfall taxes on the energy giants.
BP has also lifted its dividend by 10%, and announced a new $2.75bn share buyback programme this morning.
In the last quarter of 2022, BP’s fourth-quarter underlying replacement cost profit, the company’s definition of net income, came in at $4.8bn – up from $4bn a year earlier, but down on the $8.2bn made in the third quarter of 2022.
In Q4 BP made a further £4 billion in profits , taking their total annual profits to a record £23 billion 💰
BP also announced a new round of share buybacks, transferring £2.3 billion to shareholders in Q1 2023, on top of a total of £9 billion in all of 2022 📈 #profits
— George Dibb (@GeorgeDibb) February 7, 2023
The average UK house price is now around £12,500 (-4.2%) below its peak in August last year, Halifax’s data shows.
That’s still around £5,000 higher than in January 2022, when the average property cost £276,483.
Another month, another dip, in AVG house prices. The AVG house price in Jan 2023 is now £281,684 around £12,500 (-4.2%) below its peak in August last year, though some £5,000 higher than in January 2022 (£276,483) @HalifaxBank pic.twitter.com/fqWCtOKHbx
— Emma Fildes (@emmafildes) February 7, 2023
Introduction: Halifax reports UK house prices stable in January
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
UK house prices stabilised in January, new figures from building society Halifax show, after falling in the final months of 2022.
Halifax’s latest healthcheck on the housing market, just released, shows that the typical UK property cost £281,684 in January, little changed on December’s £281,713.
That follows a 1.3% fall in December, and a 2.4% drop in November, as rising mortgage costs and the cost of living squeeze hit borrowers.
The annual rate of house price growth slowed to +1.9%, from +2.1% in December, with the market cooling across the UK. That’s the slowest rate of annual growth in three years.
The rise in mortgage rates last autumn and winter hit demand for mortgages, Bank of England data last month has showed.
The start of 2023 has brought some stability to UK house prices, says Kim Kinnaird, Director of Halifax Mortgages.
Kinnaird warns that rising borrowing costs could hit demand this year.
“We expected that the squeeze on household incomes from the rising cost of living and higher interest rates would lead to a slower housing market, particularly compared to the rapid growth of recent years. As we move through 2023, that trend is likely to continue as higher borrowing costs lead to reduced demand.
For those looking to get on or up the housing ladder, confidence may improve beyond the near-term. Lower house prices and the potential for interest rates to peak below the level being anticipated last year should lead to an improvement in home buying affordability over time.
Also coming up today
UK retailers suffered a disappointing January, new spending figures show, as consumers kept a tight rein on spending after Christmas.
Total UK retail sales increased by 4.2% in January – less than half the 11.9% rise seen a year earlier and below the three-month average growth of 5.2%, according to the British Retail Consortium (BRC)-KPMG retail sales monitor.
That rise in sales actually shows a significant drop in volumes, given inflation has been at double-digit levels in recent months.
Helen Dickinson OBE, chief executive at British Retail Consortium (BRC), says consumer confidence remains “stubbornly low” as consumers brace for bills to rise this spring.
She explained:
“With ongoing cost pressures and labour shortages increases in sales don’t convert into increases in profits or cash.”
The UK Treasury and Bank of England are designing a “digital pound” as an alternative to cash, and it could be here by the end of the decade
The government is speeding up its response to the rise of privately issued cryptocurrencies and stable coins with a four-month public consultation process – they insist the digital pound would be as safe as cash.
MPs on the UK’s Treasury committee will quiz the UK’s ‘big four’ largest banks over isseues including savings rates, the mortgage market, bank branch closures and reforms to financial services regulation this morning.
The agenda
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9.45am GMT: UK Treasury Committee to question UK’s biggest banks on savings rates, bank branch closures and changes to financial regulations
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1.30pm GMT: US trade balance for December
