Bank of England policymaker calls for interest rates to be held; optimism as RMT suspends Network Rail strike – business live

Bank of England policymaker Swati Dhingra has called for UK interest rates to be kept on hold, warning that another increase in borrowing costs could damage the economy.

Speaking at the Resolution Foundation this morning, Dr Dhingra argues that there is little sign that the inflation shock from higher energy and imported good prices is becoming embedded in wages and margins.

She says:

Even after a year and a half of above-target inflation, there is little evidence for such cost-push inflation beyond what might be expected following an unprecedented terms of trade shock. Consumption remains weak and many of the tightening effects of monetary policy are yet to fully take hold.

Dhingra, a member of the Bank’s Monetary Policy Committee, opposed last month’s increase in interest rates from 3.5% to 4%, but she and fellow dove Silvana Tenreyro were outvoted by the other seven members.

She fears that the Bank could “overtighten” policy. Increased borrowing costs could hurt the supply capacity of the UK at a time when the economy is weak, and households are struggling with high energy and housing costs, she says.

Instead, Dhingra argues, it would be ‘prudent’ to leave interest rates on hold (although, as flagged at 9.51am, the markets expect another rise to 4.25%).

She explains that raising borrowing costs too high risks driving inflation below the Bank’s 2% target in the future:

Recent research indicates the persistent scarring effects of deep contractions associated with monetary policy tightening and energy market disruptions, indicating the harmful consequences of overtightening.

Such an approach would increase the downside risks of missing the inflation target in the medium term. In my view, a prudent strategy would hold policy steady amidst growing signs external price pressures are easing, and be prepared to respond to developments in price evolution.

This would avoid overtightening and return the economy sustainably to our 2% inflation target in the medium-term.

Dhingra’s comments are a reminder of the split on the Monetary Policy Committee. Yesterday, the hawkish Catherine Mann said she was worried that UK companies could be exploiting the cost of living crisis to push through inflation-busting price increases.

Investors have fully priced in that the Bank of England will raise UK interest rate by a quarter of one percent at its meeting later this month.

This following yesterday’s hints that the US Federal Reserve will raise borrowing costs higher than previously expected.

The overnight index swap market indicates that a 25 basis point increase in Bank Rate, from 4% to 4.25%, is a 97% chance.

Another large, 50bp hike, is seen as a 3% possibility.

Before Fed chair Jerome Powell’s comments, a 25bp hike was seen as a roughly 90% chance, with investors seeing a snall chance that the BoE would hold rates.

This tweet, from Reuters’ Andy Bruce, shows how a quarter-point increase has become increasingly likely:

PricewaterhouseCoopers has been hit with a £5.6m fine by the UK’s audit watchdog over serious failures for its work auditing defence group Babcock over two years.

The Financial Reporting Council said this morning there were “serious breaches” during PwC’s audits of Babcock’s accounts for the 2017 and 2018 financial years.

Breaches were identified in respect of every area of audit investigated, the FRA says, including not translating a contract written in French.

This included “repeated failures” to challenge management and obtain sufficient appropriate evidence, which showed “a general reluctance” to challenge management.

There was also a failure to follow basic audit requirements, which the FRC says was evidence of a lack of competence, care or diligence.

For example, the FRC says:

There was no evidence that the audit team had, whether in FY2018 or before, obtained and read a 30-year Public Private Partnership contract with FY2018 revenue of c.£77m and lifetime revenue of £3bn, and one contract – with an initial value of c.€640m – was written in French, but the audit team neither possessed French language skills nor obtained a translation of the contract.

This has cost PwC a £7.5m fine, cut to £5.625m due to a 25% reduction after “admissions and early disposal”.

Two former PwC audit partners have also been fined and given a severe reprimand.

Nicholas Campbell Lambert, who led the Babcock audit, was fined £150,000, while Heather Ancient, who headed the audit of a Babcock subsidiary, has been ordered to pay £48,750.

Claudia Mortimore, Deputy Executive Counsel at the FRC, says the Babcock audits fell “far short” of the standards expected of statutory auditors.

Of particular concern is the lack of scepticism applied and the failures to follow some basic audit requirements. This robust package of sanctions seeks to deter future breaches and encourage improvement by the firm, in circumstances where PwC has now been sanctioned four times since 2019.

Permanent job placements at UK companies has fallen for the fifth month in a row, a new survey has found.

Pay growth has also weakened, the latest data from the Recruitment and Employment Confederation and KPMG has found.

The REC/KPMG monthly permanent job placements index has dropped to 46.3 for February, down from 46.8 in January. Pay growth for permanent and temporary workers were the second-weakest in nearly two years.

The survey also found that companies are taking on more temporary staff, due to worries over the economic outlook.

Victoria Scholar, head of investment at interactive investor, tells us:

The figure highlights the cautiousness among businesses to hire permanent staff amid the macroeconomic headwinds of slowing growth, a softening consumer, rising interest rates, and inflated costs.

Many businesses are looking for ways to cut costs, particularly on labour given the tightness in the jobs market which makes hiring workers more expensive. Companies are relying more and more on temporary workers as a way to fulfil staffing needs without adding to their fixed labour costs.”

Restaurant Group, the owner of Wagamama, Frankie & Benny’s and Chiquito, is planning to close around 35 of its outlets as it battles rising inflation and the cost of living crisis.

The company told shareholders that it plans to exit around 35 “potentially loss-making locations over the next two years”, including by selling freeholds and ending leases.

The move will cut its estate from 116 sites today to betwen 75 and 85 sites by 2024.

The news comes as Restaurant Group reports that losses widened last year. It made a statutory pre-tax loss of £86.8m for 2022, up from a £35.2m loss in 2021.

Total sales rose to £883m, from £636.6m, despite what the company calls a “challenging casual dining market”.

So far this year, like-for-like dining in sales at Wagamama are up 9%, but delivery and takeaway like-for-like sales are down 17% compared to a year ago.

This fall in deliveries and takeaways, from 2 January to 26 February 2023, is “in line with reduced demand across the delivery market”, the group says.

Restaurant Group has been under pressure from activist investor Oasis Management, which has been pushing for a shake-up of the struggling UK casual dining operator to boost profits and shareholder returns.

Restaurant Group CEO Andy Hornby says:

“We’ve delivered a strong operating performance for the year in a market which has continued to pose a number of headwinds for casual dining operators.

Current trading has been very encouraging to the great credit of our teams who continue to ensure our customers receive the best experience possible.

We have a clear plan to increase EBITDA margins over the next three years and deliver significant value for all our stakeholders.”

The head of the UK’s largest investor has slammed the UK government for failing to encourage growth and investment.

Sir Nigel Wilson, chief executive of Legal & General, told Radio 4’s Today Programme that Britain is lagging far behind other countries in recognising the investment opportunities from the move to Net Zero.

L&G has £1.3trn of assets, and Wilson says that the company is keen to invest more in Britain, but government policy is not helping.

In a stinging rebuke to Westminster from the City, Wilson says:

“We’d like to invest a lot more here in the UK, but a combination of regulation and policy has made it very difficult to do that over the last 20, 30 years.”

Wilson pledges to keep investing in the UK, where he says L&G are “huge investors”, but insists that the government needs to take steps to encourage investment.

He says:

We have to recognise we’ve starved our economy of growth equity, and the consequence is we are a low growth, low productivity, low wage economy fraught by political infighting.

This has to change.

“We need the government to step up and put rules and policies in place that allow us to invest in the real economy in the UK.”

Wilon explains that there are “massive initiatives” in the US, Europe and China where governments have recognised that the transition to net zero is “a huge investment opportunity”.

“We’re simply lagging miles behind right now,” he warns, in a timely intervention ahead of Jeremy Hunt’s budget next week.

According to the Financial Times today, Hunt will use next week’s Budget to set out a new capital allowances regime for businesses. That would offset a sharp rise in corporation tax and the end of a £25bn “super-deduction” tax break for investment.

Elsewhere in the travel sector, Heathrow Airport has been told to cut passenger charges levied on airlines, which could lead to lower tickets prices for customers.

The Civil Aviation Authority (CAA) has ruled that Britain’s biggest airport must cut its landing charges during the 2024-26 period.

The average maximum price per passenger must fall by around 20%, from £31.57 per passenger in 2023 to £25.43 per passenger in 2024, and remain around there until 2026.

This means the average charge per passenger will be £27.49, a 90p cut to the £28.39 previously outlined by the aviation regulator.

Announcing the final decision, the CAA says:

This lower level of charges from 2024 recognises that passenger volumes are expected to return to pre-pandemic levels and should benefit passengers in terms of lower costs, while also allowing Heathrow Airport Limited to continue investing in the airport for the benefit of consumers and supporting the airport’s ability to finance its operations.

The cap on landing charges was £22 a customer in 2020, but was raised to more than £30 in January, as Heathrow struggled with the drop in passenger numbers due to the pandemic.

Today’s decision looks like a win for airlines, who have lobbied the regulator to lower the fees for landing at Heathrow.

Richard Moriarty, Chief Executive at the UK Civil Aviation Authority, says the regulator listened to both sides – who (predictably) had differing views about what was fair:

“Our priority in making this decision today is to ensure the travelling public can expect great value for money from using Heathrow in terms of having a consistently good quality of service, whilst paying no more than is needed for it.

“We have carefully considered the sharply differing views from Heathrow Airport Limited and the airlines about the future level of charges. Understandably, their respective shareholder interests lead the airport to argue for higher charges and the airlines to argue for lower charges.

Last month, Heathrow’s chief executive, John Holland-Kaye, claimed the regulator was “getting it wrong” on its pricing. He argued that airline customers such as British Airways “charge what they like” and make “huge profits” on high fares.

Today, a Heathrow spokesperson says the airport will “take some time to carefully consider our next steps.”

Good morning.

Hopes are growing of a breakthrough in Great Britain’s long-running rail dispute after the RMT union surprisingly called off all industrial action on Network Rail after receiving a new pay offer.

Last night, the RMT union cancelled a planned strike at Network Rail set for 16 March. The new offer will now be put to members in a vote.

An RMT spokesperson said last night that:

“The RMT national executive committee has taken the decision to suspend all industrial action on Network Rail following receipt of a new offer from the employer.

“Further updates will be given on all aspects of the national rail dispute in the coming days.”

Our transport correspondent Gwyn Topham reports that it is understood that the total headline pay increase has not changed, but some amendments have been made to the previous offer that totalled 9% over two years.

That previous offer had been rejected by the union’s national executive committee.

This doesn’t mean that the rail industrial dispute, which began last spring, is over.

As things stand, RMT members at 14 train operating companies are still set to take industrial action on 16 March but the effect on many services will be far smaller than from a combined strike with Network Rail. Further strikes at these train operating companies are also planned for 18 and 30th of March, and 1 April.

Hilary Ingham, senior lecturer at the Department of Economics at Lancaster University, says that that last night’s revised pay offer came ‘out of the blue’.

Ingham told Radio 5’s Wake up To Money:

It doesn’t mean that all future strike action has been called off.

So, it’s not actually over. But it does look like this might be the beginning of the end.

The breakthrough has been welcomed by Network Rail. Its chief executive, Andrew Haines, said:

“We are relieved for our people, passengers and freight customers that industrial action in Network Rail has now been suspended. We look forward to further information on plans for a referendum.”

Hopes are also growing of a breakthrough in the NHS industrial dispute this week, as talks between ministers and the NHS staff council begin today.

The Daily Mirror reports that there is optimism ministers can come up with a pay offer that unions are happy to take back to members by the end of three days of planned negotiations this week.

More here: NHS nursing pay deal ‘in sight’ with ministers ‘optimistic’ as talks begin with unions

Also coming up today

It’s International Women’s Day, which has prompted a warning that two-thirds of women with childcare responsibilities believe they have missed out on career progression as a direct result.

The warning, from business leaders at the British Chambers of Commerce (BCC), comes amid growing pressure on the government to boost support for parents.

The mood in the stock markets is nervous, after the chair of the US Federal Reserve, Jerome Powell, warned the Fed is prepared to return to bigger interest rate rises and has “has a long way to go” in its fight against inflation.

The agenda

• 10am GMT: Latest estimate of eurozone growth in Q4 2022

• Noon GMT: US weekly mortgage approvals

• 1.15pm GMT: ADP’s report of US private payrolls for February

• 3pm GMT: Federal Reserve chair Jerome Powell testifies to House Financial Services Committee

• 3pm GMT: JOLTS survey of US job vacancies