Yahoo Finance FTSE 100 Live: ‘Pressure to increase interest rates intense’, mortgage rates at 15-year high, shares down
Unemployment and wage growth both unexpectedly rose today, fuelling fears of stagflation in the UK economy.
The figures from the Office for National Statistics also led to more City bets on the Bank of England raising rates by 0.5% next month.
Two-year mortgage rates set a 15-year high and sterling rallied, meaning pressure on overseas earning stocks in the FTSE 100 index.
FTSE 100 Live Tuesday
Pound rallies as pay figures point to more rate hikes
Two-year mortgage rates at 15-year high
Begbies Traynor sees rise in restructuring workload
Wall Street shares steady again
15:44 , Daniel O'Boyle
US shares are steady again today as the country awaits the latest consumer price index data.
The top risers have included Etsy, HP and a number of regional banks. Daim maker Mondelez and chip firm AMD are among the top fallers.
Fintech firms voice frustration as regulatory approvals plunge to fresh lows
15:25 , Daniel O'Boyle
Regulatory approvals for fintech firms plunged to fresh lows in 2022, the Standard can reveal, as the UK’s financial watchdog mounted a draconian crackdown on London’s fintech sector.
The approval rate of applications for Electronic Money Institution status, required for processing digital cash payments, fell to just 8% in 2022, figures obtained from the Financial Conduct Authority via a Freedom of Information request show, amounting to just 33 approvals. That compares to an approval rate of 90% in 2018 and a rate of 47% in 2021.
Just seven applications were approved in the first quarter of 2023, the FCA said, in signs fintech firms face a near-impossible pathway to getting regulatory clearance to operate in the UK.
Fintech firms voice frustration as regulatory approvals plunge to fresh lows
15:25 , Simon Hunt
Regulatory approvals for fintech firms plunged to fresh lows in 2022, the Standard can reveal, as the UK’s financial watchdog mounted a draconian crackdown on London’s fintech sector.
The approval rate of applications for Electronic Money Institution status, required for processing digital cash payments, fell to just 8% in 2022, figures obtained from the Financial Conduct Authority via a Freedom of Information request show, amounting to just 33 approvals. That compares to an approval rate of 90% in 2018 and a rate of 47% in 2021.
Just seven applications were approved in the first quarter of 2023, the FCA said, in signs fintech firms face a near-impossible pathway to getting regulatory clearance to operate in the UK.
Industry insiders told the Standard a combination of poor staffing levels and regulators spooked by the recent spate of crypto firm collapses have contributed to the fall in approvals.
Afternoon market snapshot
14:27 , Daniel O'Boyle
Take a look at all the key market data below:
‘I have never had to deliver so much bad news’ — life as a mortgage broker in 2023
14:07 , Daniel O'Boyle
“The last six months have been incredibly challenging and often exasperating. Unfortunately, I have never had to deliver so much bad news,” Jed Newton writes
“The battle to achieve the best possible outcomes for our clients has been a real fight. In a turbulent and fast-moving rate environment, the consequences of a couple of days’ delay to a mortgage application can lead to borrowers taking significantly higher rates as the lenders have been repricing multiple times a week and often with little or no notice.
“We have frequently quoted mortgage rates to clients for them to be no longer available a few hours later; this leads to disappointment and frustration.”
Insolvency specialist Begbies Traynor sees rise of companies going bust to continue into 2024
13:45 , Daniel O'Boyle
Insolvency specialists Begbies Traynor said the amount of companies going bust could keep rising all the way into 2024, but the growth will be steady rather than a sudden jump.
Profit grew to £6 million last year at the restructuring business last year, as more large firms used its services. Among the insolvencies handled by Begbies were Paperchase, Worcester Rugby Club and the operator of the Park Lane Casino.
According to the Insolvency Service, the number of companies declared insolvent in the year to 31 March was 22,983, up from 16,575.
But further profit growth could be on the way in the year ahead as the company looks like one of the most obvious beneficiaries of a possible downturn.
City Comment: Wage restraint fantasy borders on the comical
12:45 , Daniel O'Boyle
A note from the land of optimistic fantasy: “Bailey and Hunt urge wage restraint in joint pledge to conquer inflation.”
That’s the headline in this morning’s FT.
Back in the real world, figures today just how far off that is from reality, and how absurd it is to imagine anyone is going to turn down a pay rise, including the 537 Bank of England staff the annual report shows earn more than £100,000.
Traders double down on interest rate rise bets as pound hits 15-month high
11:44 , Daniel O'Boyle
The pound hit its highest level in 15 months today and City traders doubled down on bets for more Bank of England rate hikes after data on wage rises powered through forecasts.
Sterling peaked at $1.2913 after the wages data, taking it up by over half a cent on the day.
The rally came as financial markets moved to factor in a higher peak for UK rates, with inflation looking likely to stick at high levels and both the Chancellor and the Governor of the Bank of England repeating their determination to tame the upward spiral in prices.
Market snapshot as shares fall
10:40 , Daniel O'Boyle
Take a look at the latest market snapshot as the FTSE falls.
Sosandar turns first profit
10:15 , Daniel O'Boyle
Womenswear brand Sosandar turned its first full-year profit, it revealed today, as customers continued to buy party dresses and formal clothes amid the cost-of-living crisis.
Revenue grew to £42.5 million at the brand, founded by two former Look magazine employees six years ago, with strong sales from partnerships with Next, M&S and Sainsbury’s.
That helped Sosandar bring in £1.6 million in profit after a £600,000 loss last year.
CEO and founder Julie Lavington told the Standard she’d seen customers focus more on ‘occasion’ items: “Our customers are generally slightly more affluent. So in terms of spending on clothes, we’ve still seen them being very enthusiastic. But they’re more discerning about what they’re spending money on.
“They’re spending more money on pieces that are more glamorous, occasion type of pieces.”
Shares are down 1.6p to 23.7p.
Vodafone lower as FTSE 100 underperforms, M&S gets City backing
10:14 , Graeme Evans
Vodafone shares dipped below 70p today as the pressure on London’s one-time largest stock continues.
The slump in the mobile phone giant’s valuation has intensified this year despite new boss Margherita Della Valle vowing to accelerate the company’s pace of change.
Her strategy includes a merger with CK Hutchison-owned Three, but investors are fearful this UK plan will be held up by a regulatory investigation.
Vodafone shares have fallen by around a fifth this year to their lowest in three decades, reaching 69.7p earlier today before settling half a penny down at 70.1p.
Fellow telco BT has fared little better in recent weeks and also dipped 0.7p to 121.3p during a subdued blue-chip session.
The impact of the pound’s 15-month high on the value of overseas earnings meant the FTSE 100 index fell 2.32 points to 7271.47, whereas the UK-focused FTSE 250 index rose 0.6% or 109.77 points to 18,137.73.
One of the best second tier performers was British Land as the Broadgate and Paddington Central campuses owner revealed “strong operational momentum” in the face of economic headwinds.
The former blue-chip stock rose 2% or 5.8p to 309p after recording 552,000 sq ft of leasing activity in the first quarter, with a further 1.2 million sq ft under offer.
The AGM trading statement helped to counter the pessimism of HSBC analysts after their downgrade for 11 commercial property stocks yesterday.
British Land shares are down 20% this year but UBS today revealed a target of 450p after noting the landlord has no refinancing requirements until early 2026.
Elsewhere in the FTSE 250, Marks & Spencer continues to do well as the City tunes into recent evidence that the retailer’s turnaround won’t be another another false dawn.
The shares are up more than 50% this year and added another 1.3p to 194.1p today after Peel Hunt analysts backed further upside to 220p.
They wrote: “We have no reason to doubt things are ticking over nicely at M&S. Margin targets do not feel onerous and crucial ground is being made on style and value perceptions.”
Market snapshot with FTSE flat
09:21 , Daniel O'Boyle
Take a look at today’s market data as US blue-chips started flat following the latest employment and wages data.
Retail sales boosted by warm June weather
09:18 , Daniel O'Boyle
Retail sales received a warm weather boost in June as consumers splashed out on swimwear and outdoor furniture.
Total retail sales were 4.9% higher than last June – and above the three-month average growth of 4.6% – as the hot weather prompted purchases of swimwear and beach towels, sunscreen, outdoor games, garden furniture and barbecue food, according to the BRC-KPMG Retail Sales Monitor.
Sales were boosted by families celebrating Father’s Day but consumers were more cautious about big-ticket buys such as indoor furniture and technology equipment.
Two-year mortgage rates at 15-year high
08:36 , Daniel O'Boyle
Two-year mortgage rates are at a 15-year high of 6.66%, surpassing the peak hit in the wake of last year’s mini-budget.
The average interest rate on a two-year deal is up from 6.63% yesterday, according to data from Moneyfacts.
The average five-year rate also rose, to 6.17%.
More rises might be coming, as almost 300 lenders withdrew their products from the market.
British Land shares up 3%, Vodafone below 70p
08:30 , Graeme Evans
Property stocks have staged a fightback after the Broadgate and Paddington Central campuses owner British Land reported “strong operational momentum”.
The former blue-chip stock rose 3% or 7.9p to 311p on the back of its AGM trading update, with Land Securities and Segro also up by 1.5% in the FTSE 100 index.
The rally follows yesterday’s cautious note by HSBC, which downgraded British Land and several other property stocks on fears of another round of asset price writedowns.
The developments left the FTSE 100 index 4.47 points higher at 7278.26, with the FTSE 250 index up 57.63 points to 18,085.59.
Other strongly performing stocks in London’s top flight included Rio Tinto, which rose 60p to 4928.5p. However, Vodafone dipped below 70p after a fall of 0.8p.
“The pressure on the MPC to continue increasing rates will be intense. “
08:14 , Daniel O'Boyle
Martin Beck, chief economic advisor to the EY ITEM Club, says today’s employment and wages data will only up the pressure on the Bank of England to keep hiking interest rates.
“Headline (three-month average of the annual rate) total earnings growth increased to 6.9% in May, a 21-month high,” Beck said. “Private sector regular pay rose 7.7% on the same basis, a record high outside the pandemic period and running well ahead of the Bank of England's forecast for growth of 6.3% in Q2.
“The pressure on the MPC to continue increasing rates in August will be intense. “
“Labour market still too hot"
07:57 , Daniel O'Boyle
Despite the rise in unemployment, Yaelâ¯Selfin, chief economist at KPMG UK, said the labour market is still “too hot”.
“The labour market continues to cause a headache for the Bank of England” Selfin said.
“Today’s data confirm that the labour market is still too hot, as pay growth remains uncomfortably high despite a further drop in vacancies.
“UK pay has been rising well above the rate consistent with the Bank’s 2% target due to a combination of a severe inflation shock and a tight labour market, compounded by post-Brexit staff shortages and supply chain issues. These have created unique circumstances when compared to the US or Europe, and will probably require higher UK interest rates to bring pay growth to levels where the Bank of England is comfortable.
“While the labour market is likely to weaken in the coming months, as the Bank of England becomes more insistent in its fight against inflation, any rise in unemployment may be limited by a slowing recovery in the participation rate. We expect the unemployment rate to average 4.1% this year, in line with its levels over 2017-19.”
Restructuring experts Begbies Traynor sees order book boost as more companies go bust
07:44 , Daniel O'Boyle
Administration and liquidation specialists Begbies Traynor’s order book is up 19%, thanks to a “continued increase” in companies going bust.
Profit grew to £6 million last year at the restructuring business last year, as more large firms used its services.
But further profit growth could be on the way in the year ahead as the company looks like one of the most obvious beneficiaries of a possible downturn.
Ric Traynor, executive chairman of Begbies Traynor Group, said: “We have reported another successful year of continued growth, with reported results ahead of original market expectations and increased our dividend by 9%.
“We have a proven growth strategy which, over the five year period between 2019 and 2023, has doubled revenue and tripled adjusted profit before tax, from a combination of organic growth and acquisitions. This growth has been delivered across insolvency and our full range of advisory and transactional services.
“We have started our new financial year confident in our outlook. The increased scale of the group with complementary professional services and an enhanced client base provides a strong platform for us to continue delivering growth. With 80% of income generated from counter-cyclical and defensive activities, we are well-positioned in the current challenging economic environment.
“Our strong balance sheet and cash generation underpin our capacity to deliver organic growth initiatives and progress our pipeline of acquisitions, thereby continuing our track record of growth.”
Pound rallies after rise in UK wages points to more rate hikes
07:41 , Michael Hunter
The pound rallied on currency markets as wage inflation was stuck at levels the Bank of England’s governor has identified as one of the causes of inflation, in a sign that further rate rises may follow.
Sterling rose back over $1.29, up by 0.4% to $1.2901.
The rally came after the latest official numbers showed average earnings up by 7.3% in May, pointing to further rare rises from the Bank of England. It lifted rates for the 13th consecutive time in June, taking them to 5%, in a jumbo half-point hike.
Pawnbroker H&T says demand for lending at record high
07:23 , Simon Hunt
H&T has said demand for lending is at a record high as customers flock to the pawnbroker amid continued cost-of-living pressures.
The Sutton-based business said gross lending grew 22% to £128 million in the first half of 2023, while demand for high quality new and pre-owned jewellery and watches continues to rise, with sales by value up c.10% year on year.
CEO Chris Gillespie said: “I am very pleased with the progress we have made in the first half of 2023 in an environment of rising interest rates and persistent inflation. I am particularly encouraged by the growing momentum with which we enter the busy second half of the year.”
Wall Street ends losing run, Hang Seng index rallies 1%
07:16 , Graeme Evans
A three-day losing streak for Wall Street markets ended last night as the S&P 500 index closed 0.2% higher and the Dow Jones Industrial Average improved 0.6%.
The modest rally came as investors positioned for Wednesday’s US inflation reading, which is expected to show a drop in the headline rate from 4% to 3.2% but with core prices proving to be more stubborn at 5%.
A further interest rate hike by the Federal Reserve is still expected later this month, although optimism is building that rates may be cut in the first half of 2024.
Comments from various Fed policymakers fuelled the debate yesterday, with San Francisco’s Mary Daly warning that the risks of doing too little to curb inflation outweighed the risks of doing too much.
Asian markets followed Wall Street’s lead this morning, with the Hang Seng index in Hong Kong up by 1% as sentiment was further helped by China’s central bank signalling more support for the country’s property sector.
The FTSE 100 index finished 0.2% higher yesterday and is forecast by CMC Markets to open unchanged at 7274 this morning.
UK jobless rate hits 4% as unemployment claimant count surges and wage rises stay over 7%
07:09 , Michael Hunter
The UK’s rate of jobless rate rose faster than expected in June, when the Bank of England made its 13th consecutive rate hike.
The jobless rate hit 4%, higher than the 3.8% expected. The number of people out of work and claiming benefits surged by 25,700, significantly more than the drop of 8,600 expected by economists.
While experts usually warn against reading too much into one set of data, the numbers may stoke concern about the impact of the BOE’s fight against inflation on the UK’s underlying economy.
Meanwhile, data on wages show the extent to which inflation remains a problem. Average earnings excluding bonuses rose by 7.3% in May, more than the 7.1% forecast and in line with the previous reading.
ONS director of economic statistics Darren Morgan said: “Total employment grew in the latest three months while the number of people actively looking for work also increased, both driven by men rejoining the labour market.
“While the total number of vacancies remain high, it has now been falling for a year and the pace of decline has accelerated recently. Pay excluding bonuses has again risen at record levels in cash terms. Due to high inflation, however, the real value of weekly earnings are still falling, although now at its slowest rate since the end of 2021.
“The number of working days lost to strikes fell back to their lowest level in nearly a year, with a notable drop in public sector disruption.”
Morning refresh: What you need to know to start the day
06:24 , Simon Hunt
Good morning from the Standard’s City desk.
All eyes were on Jeremy Hunt last night as the Chancellor delivered his annual Mansion House speech. Hunt laid out a fresh vision to unlock tens of billions of pounds from pension funds by urging them to up investments into early-stage businesses and private equity. But he looks set to stop short of formal mandates over investment allocations.
London has faced growing competition from New York as a home for the listing of shares, because the US financial centre features a deeper pool of capital and so potentially higher company valuations. There has also been criticism of the regulatory burden firms face in coming to market in the UK. The Treasury estimates that reforming retirement plans could increase average pots by as much as 12%.
In a blow to Tory MPs hoping for pre-election giveaways, Hunt also signalled that he wanted to prioritise bringing inflation down over cutting taxes, because bringing down price rises ”puts more money into people’s pockets than any tax cut.”
Here’s a recap of our top stories from yesterday:
Thames Water has handed a half a million pound payout to its former CEO, Sarah Bentley, who abruptly quit the firm last month. The company is facing the spectre of nationalisation as it wrestles to pay down a heavy £14 billion debt burden.
BT Group’s CEO Philip Jansen confirmed he would be departing the telecoms company in the coming months after setting in motion a mass layoff programme that could see more than 50,000 redundancies by the end of the decade. Replacing Jansen could prove difficult, says our Finance editor Simon English.
Fresh research has found that the pay gap for top UK finance roles is as much as twice as large as US and Europe, with women in some roles earning just £77,000 for every £100,000 made by men.
Fintech funding in the UK fell by more than a third in the first half of 2023, a significantly higher drop than the global average, in signs it’s becoming increasingly challenging to access the cash needed to scale-up British tech firms.
Overnight, shares rallied in Asia as investors bet US inflation data would signal an end to further interest rate hikes by the Federal Reserve.
This morning we’re expecting annual results from corporate restructuring business Begbies Traynor and a trading update from house builder Vistry. UK unemployment data will also be released.
