[ad_1]
UK GDP grew 0.2% in April
Newsflash! The UK economy has returned to growth.
UK GDP increased by 0.2% in April, new figures from the Office for National Statistics show, matching City forecasts.
That follows the 0.3% contraction recorded in March.
Over the three months to April, the economy only expanded by 0.1%
The ONS says the services sector was the main contributor to the growth in monthly GDP in April, expanding by 0.3%.
Output in consumer-facing services grew by 1.0% in April 2023, following a fall of 0.8% in March 2023.
But the production sector shrank by 0.3% in April, while construction output shrank by 0.6%.
Key events
Unite union urges government to block Vodafone-Three deal
The Unite union are urging the government to block the merger of Vodafone and Three in the UK, calling it ‘reckless’.
Gail Cartmail, executive head of operations for Unite said:
“This deal will give a company with deep ties to the Chinese state an even more prominent place at the heart of the UK’s telecommunications infrastructure.
On top of that, it will hike people’s bills and mean job losses for Vodafone and Three workers. The government must step in and stop this reckless merger and Unite is building a cross-party coalition to demand they do so.”
Three’s owner, CK Hutchison Group Telecom, is based in Hong Kong. It launched the Uk’s first 3G network around 20 years ago.
UK is not in a wage-price spiral: PM Sunak’s spokesman
The British economy is not in a wage-price spiral, a spokesman for Prime Minister Rishi Sunak has told reporters in Westminster.
Asked if the economy was in a wage-price spiral, the spokesman said:
“No. I think what we have seen, and as the chancellor has said, the economy is showing resilience.
“We are conscious about the potential for wage-price spirals and, of course, that is why we are making the difficult decisions when it comes to public-sector pay, and it is important we maintain that discipline.”
Sunak’s Spokesman says government is working in lockstep with BOE to reduce inflation
— CGTN America (@cgtnamerica) June 14, 2023
Yesterday’s unemployment report showed regular pay rose by 7.2% per year in February-April, meaning a smaller fall in real pay (after inflation).
Fears of a wage-price spiral have haunted the Bank of England for months, with policymakers fretting about so-called ‘second round effects’ (where firms hike prices to pay for higher wages, keeping inflation high).
Over in parliament, the Treasury Committee has given its approval for economist Megan Greene to join the Bank of England’s Monetary Policy Committee (MPC) next month.
Following a pre-appointment hearing yesterday, MPs say they are satisfied that Greene has the appropriate professional competence and personal independence for the role.
During the hearing, Greene warned that bringing inflation all the way down to the 2% target (from 8.7% in April) will be tough, saying:
“I think that there is some underlying persistence and so getting from 10% to 5% … is probably easier than getting from 5% to 2%.”
✅ Following yesterday’s session, we have today published a report signalling our agreement to the appointment of Megan Greene to the @bankofengland Monetary Policy Committee.
📗 Read the report in full 👇https://t.co/V9MZvYZX8Q
— Treasury Committee (@CommonsTreasury) June 14, 2023
MPs do not have the power to block roles at the Bank, but their views do carry weight – as in 2016, when newly-appointed deputy governor Charlotte Hogg resigned following a critical report, after failing to disclose that her brother works for Barclays.
Alphabet, which owns Google, says it disagrees with the EU’s antitrust charge (see previous post).
Dan Taylor, Google’s vice-president of global ads, says:
“The Commission’s investigation focuses on a narrow aspect of our advertising business and is not new. We disagree with the EC’s view.”
EU antitrust regulators charge Google over anti-competitive adtech practices
Newsflash: European antitrust regulators have hit Google with fresh charges of anti-competitive practices in its digital advertising business.
The European Commission accuses Google of favouring its own online display advertising technology services, at the expense of rivals, which hurts online advertisers and publishers.
The EC has set out its charges in a statement of objections, two years after it opened an investigation into the case.
It suggests that Google may need to sell part of its online advertising business, saying:
“The Commission’s preliminary view is therefore that only the mandatory divestment by Google of part of its services would address its competition concerns.”
Ernest Doku, telecoms expert at Uswitch.com says there are potential pros and cons for consumers from the Vodafone-Three merger.
Consolidation in the UK market – reducing four Mobile Network Operators (MNOs) down to three – brings a risk of reduced competition and subsequent increased prices, Doku explains.
Doku adds:
“At a time when millions across the UK are facing the highest mid-contract prices we’ve ever seen, consumers need assurances that this merger will not result in even higher household bills. The pledge of a significant investment in 5G over the next decade is some solace that they will be building for a better future of connectivity, so long as it is adhered to. What we don’t want to see is customers footing the bill with further increases to pricing.
“They should also commit to ensuring smaller virtual networks (MVNOs) who rely on Three and Vodafone’s infrastructure can continue to offer competitive value and service.
“Also, while the cost saving benefits for Vodafone and Hutchinson are clear, the merged company needs to ensure it delivers an upside for consumers – specifically, its promise of innovation and an advanced standalone 5G network.”
Victoria Scholar, head of investment at interactive investor, suggests getting regulatory approval for the Vodafone-Three merger “could be a tall order” given the likely concerns over diminished competition and consumer choice.
She explains:
In 2016, the UK and European regulators blocked a takeover of O2 by Three, citing concerns about higher prices. However, Vodafone’s new CEO Margherita Della Valle insists this deal will be ‘great for competition.’
Shares in Vodafone have jumped following the announcement reflecting the excitement among investors about the benefits of this tie-up after longstanding talks since last year. This is likely to be Della Valle’s biggest accomplishment in the top job so far if the deal crosses the line.
Investors have fallen out of favour with Vodafone lately with shares down 40% over the past 12 months even after today’s jump, Scholar adds:
The FTSE 100 telecoms business has been grappling with intense competition in Europe’s largest economy, Germany where subscribers are falling, and services revenue is under pressure. It has also been having a tough time in Spain and Italy where mobile phone competition is fierce. On top of that, like many businesses, Vodafone has been facing pressures from inflation, particularly energy bills which are driving up costs and make profitability more of a challenge. As a result, Vodafone has been targeted by activist investors such as French telecoms billionaire Xavier Niel who has been arguing for consolidation.
Perhaps this deal could reinvigorate Vodafone’s bull case amid hopes that the combined entity will benefit from its increased force in the sector and economies of scale to fend off competition.”
The UK’s competition watchdog, the Competition and Markets Authority, will judge whether the Vodadone-Three deal can complete, says James Robinson, senior analyst at research group Assembly.
Robinson says the climate “feels less hostile” than when a merger between O2 and Three was blocked in 2016 by the CMA and Ofcom.
Last year, Ofcom dropped its long-held belief that a merger between any of the UK’s big four mobile operators should be blocked at all costs.
Robinson writes:
“While the CMA has remained tight-lipped, DSIT and Ofcom have publicly expressed their openness to consolidation, recognising the challenging financial state of both operators, the investment required for 5G, the need for more resilient networks and the emerging competitive pressure from big tech.
“With the Government’s recent Wireless Infrastructure Strategy, the merger announcement, with its commitment to investment and jobs, comes at an opportune moment. Together, Three and Vodafone would be better equipped to deliver ultrafast, reliable and secure mobile connectivity throughout the UK – the exact thing the Government’s pro-investment strategy wants to see.
“The CMA will be the decision-maker on the deal. Though the parties have made a strong case, the competition authority’s review will soon reveal how well their arguments have landed. Its assessment is likely to focus on spectrum holdings, networking sharing agreements, access for MVNOs and retail prices for consumers.
“A combined Three/Vodafone will face calls from rivals to give up some of its enviable 5G spectrum holding. As divestment is a fairly standard mobile merger remedy, that shouldn’t be a barrier to getting the deal through. Neither should network sharing, with competition issues relating to existing agreements easier to overcome than in the past.
Vodafone and CK Hutchison also argue that the merger will be good for the UK, saying:
The combined business will invest £11 billion in the UK over ten years to create one of Europe’s most advanced standalone 5G networks, in full support of UK Government targets.
By having a best-in-class 5G network in place sooner, the merger will deliver up to £5 billion per year in economic benefit by 2030, create jobs and support digital transformation of the UK’s businesses. Every school and hospital in the UK will have access to standalone 5G by 2030.
The merger of Vodafone and Three’s UK networks is expected to close before the end of 2024, subject to regulatory and shareholder approvals.
No cash is involved. The two sides are contributing different amounts of debt to the merged company, though, to achieve a 51:49 split between Vodafone and CKHGT.
Shares in Vodafone have jumped to the top of the FTSE 100 leaderboard, up 4%, after the merger with Three was announced.
Vodafone-Three merger agreed
Newsflash: A long-awaited merge between mobile phone networks Vodafone UK and Three UK has just been announced.
Vodafone Group and CK Hutchison Group Telecom Holdings, which owns Three, have agreed a deal to merge their UK telecommunication businesses.
Vodafone will own 51% of the combined business, with CKHGT holding 49%.
The merger will create Britain’s biggest mobile operator, analysts say, overtaking BT’s (BT.L) EE and VM O2.
Margherita Della Valle, Vodafone Group chief executive, says the merger is:
“great for customers, great for the country and great for competition.”
The two companies have been negotiating the merger for some weeks.
They say the deal will mean customers of Vodafone UK and Three UK will get “a better network experience” with greater coverage and reliability at no extra cost.
This will include:
… certain flexible, contract-free offers with no annual price increases, and social tariffs.
The combined company will reach more than 99% of the UK population with its 5G standalone network, “delivering to customers up to a six-fold increase in average data speeds by 2034”.
Canning Fok, Group Co-Managing Director of CK Hutchison, adds that the deal will help rollout a faster mobile network, explaining:
Three UK and Vodafone UK currently lack the necessary scale on their own to earn their cost of capital. This has long been a challenge for Three UK’s ability to invest and compete.
Together, we will have the scale needed to deliver a best-in-class 5G network for the UK, transforming mobile services for our customers and opening up new opportunities for businesses across the length and breadth of the UK.
Jeremy Hunt has said there is “no alternative” but to hike interest rates in a bid to tackle rising prices, the BBC reports.
He also urged support for the Bank of England as it tries to squeeze out inflation.
“We have to do everything we can as a government, as a country, to support the Bank of England in their mission to squeeze inflation out of the system, and that is our primary focus.”
Chancellor @Jeremy_Hunt responds to statistics today showing 0.2% growth in April 👇 pic.twitter.com/b0KcB8ue6C
— HM Treasury (@hmtreasury) June 14, 2023
It’s notable that Hunt (correctly) identifies that keeping inflation at target is the Bank’s mission, given the government has set itself a target of halving the pace of price rises by the end of the year….
And altho it’s the independent Bank of England’s job to curb inflation via interest rates, the Truss debacle has linked hikes to the Tories.
Sunak has compounded the problem by declaring that it is “on me personally” if his target of halving inflation this year is not met.
— Paul Waugh (@paulwaugh) June 14, 2023
Former Treasury mandarin: higher rates will make recession inevitable
Jeremy Hunt can claim that the UK is in a very different situation than last autumn (see earlier post), but the surge in borrowing costs is still politically very damaging, as it proved for Liz Truss and Kwasi Kwarteng.
Lord Nick Macpherson, a former permanent secretary (top civil servant) to the Treasury, has written an interesting thread about the surge in the UK’s two-year borrowing costs yesterday.
Macpherson, a Treasury veteran, says he can’t remember a time when interest rates were rising steeply just 18 months before an election (or possibly sooner).
He fears that the Bank of England will raise rates to a level where a recession next year becomes inevitable.
A brief thread on gilts. Apologies, it’s an arcane subject. But the market in government debt, much more than the Bank of England, determines the interest rate homeowners and businesses pay. Today, the yield on 2 year money rose by 26 basis points. 1/6
— Nick Macpherson (@nickmacpherson2) June 13, 2023
Inflationary pressures are persisting in the UK more than in other countries, and this is feeding through to 2nd round effects on wages. Employees and employers are being perfectly rational. We are at full employment. Labour has negotiating power, 2/6
— Nick Macpherson (@nickmacpherson2) June 13, 2023
albeit not enough to secure anything other than real wage reductions. But the BoE which has been behind the curve on interest rates has to act decisively otherwise sterling will fall creating more inflation. Higher interest rates cause massive problems for households. 3/6
— Nick Macpherson (@nickmacpherson2) June 13, 2023
They also cause massively problems for the government. Debt interest payments are already growing faster than any other spending programme, crowding out spending priorities like the NHS. An election is on the horizon. 4/6
— Nick Macpherson (@nickmacpherson2) June 13, 2023
But I can’t remember an election when 18 months out interest rates were still rising steeply. It’s still possible the government may get lucky: underlying inflation may come down quicker than expected. But I wouldn’t bet on that. 5/6
— Nick Macpherson (@nickmacpherson2) June 13, 2023
Much more likely that the Bank of England will raise rates to a level where a recession next year becomes inevitable. As a Chancellor said 34 years ago (albeit a year further out from an election) “if it isn’t hurting, it isn’t working”. #soundmoney 6/6
— Nick Macpherson (@nickmacpherson2) June 13, 2023
Pound hits one-month high
Back in the City, sterling has hit a one-month high against the US dollar this morning, as investors anticipate higher UK interest rates.
The pound has hit $1.264 this morning, the highest since 10th May.
Jack Sirett, partner at global financial services firm Ebury, says today’s GDP report has also helped the pound.
“Persistent inflation and higher interest rates continue to constrain the UK economy, yet April marked a welcome return to growth. The likelihood of recession continues to fade which should give the pound a boost.
“The GDP print follows hot on the heels of data showing wages rising at their fastest rate in 20 years outside of the pandemic. It builds into the expectation that not only will the Bank of England be forced into yet another hike next week, but that the peak base rate could reach well above 5%.”
[ad_2]
Source link
(This article is generated through the syndicated feed sources, Financetin doesn’t own any part of this article)
