UK consumer confidence tumbles as households fear ‘painful’ budget; UK debt hits 100% of GDP – as it happened
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.Fears of a ‘painful budget’ next month have knocked morale among UK consumers – a bad sign for the economy.The latest poll of UK consumer confidence has fallen sharply this month, with optimism over people’s personal finances, their purchase intentions, and the state of the economy all sharply lower than in August.The index, published by data provider GfK, has dropped to -20 this month, down from -13 in August.That is the lowest reading since March, when the index was -21,Consumer confidence had been improving as the economy grew robustly in the first half of this year and inflation dropped.
But September’s large drop has almost wiped out the recovery in confidence seen since this spring.The drop follows repeated warnings that next month’s budget will include tax rises to fix the public finances, following the unpopular decision to means-test the winter fuel payments for pensioners.Neil Bellamy, consumer insights director at GfK, says the forward-looking indicators which feed into the index have dropped notably:Bellamy explains:All five measures are down but there are major corrections in the outlook for our personal financial situation for the next 12 months (down nine points), our views on the general economy for the coming year (down 12 points), and the major purchase index (down ten points).These three measures are key forward-looking indicators so, despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new government.Strong consumer confidence matters because it underpins economic growth and is a significant driver of shoppers’ willingness to spend, Bellamy adds.
Earlier this week, DIY company Kingfisher reported weak demand for kitchens and bathrooms, as people resisted buying ‘big ticket’ items.Bellamy adds that consumers are “nervously” awaiting Rachel Reeves’s budget statement on 30 October, saying:Following the withdrawal of the winter fuel payments, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the Budget decisions on 30th October.”GfK polled just over 2,000 people, between 30 August and 13 September.A few days before the survey began, Keir Starmer warned in a setpiece speech that the budget is “going to be painful”, and that “things are worse than we ever imagined”, after the government discovered what it calls a £22bn “black hole” in the public finances.On the final day of its survey, Starmer hammered the point home, warned that painful decisions such as cutting winter fuel payment were necessary to fix the UK.
That message appears to have got through to consumers, even though Labour have also pledged not to raise the taxes on working people,7am BST: UK retail sales for August7am BST: UK public finances for August9am BST: Bank of England policymaker Catherine Mann speaks about the issue of macroeconomic adjustments after large global shocks3,50pm BST: European Central Bank chief Christine Lagarde to deliver 2024 Michel Camdessus Annual Central Banking LectureTime to wrap up, after an exciting week dominated by action (or inaction) by the world’s most powerful central banks,Here’s today’s main stories so far:Microsoft has signed a major deal with nuclear plant owner Constellation Energy to restart its closed Three Mile Island plant by 2028 to power its data centres,Mercedes-Benz has warned that slowing sales in China would hit profits, knocking its shares todayPersonal insolvencies in England and Wales have jumped 16% year-on-year……but people are still spending in the shops, lifting retail sales volumes by 1% last monthEY have announced that, as expected, they have been appointed as the administrators for construction firm ISG’s UK operations (as flagged earlier).
EY say:On 20 September 2024 Timothy Graham Vance, Alan Michael Hudson and Dan Edkins of EY-Parthenon’s Turnaround & Restructuring Strategy team were appointed as Joint Administrators to the following eight UK trading entities of ISG: ISG Central Services Limited, ISG Interior Services Group UK Limited, ISG Fit Out Limited, ISG Engineering Services Limited, ISG UK Retail Limited, ISG Retail Limited, ISG Construction Limited and ISG Jackson Limited (all in Administration) (together “the Companies”).ISG’s UK operations, which provided construction and related services across the UK, have ceased to trade with immediate effect.ISG’s UK business has experienced liquidity constraints in recent months.The Directors explored a number of options to secure the future of the business, including a sale of all or part of the Group and refinancing options.Despite significant efforts to secure a sale of the group over many months, a deal could not be completed.
Whilst there has been misleading speculation surrounding the potential sale in the last few days, we wish to be clear to employees, suppliers, and customers that it was not possible to conclude a sale as the potential purchaser could not, despite repeated requests of them to do so, adequately demonstrate that they had the funding needed to recapitalise the business and keep it solvent.Due to current market conditions, an alternative sale or additional funding could not be secured.As a result, the Directors made an application to Court to place certain UK trading entities of ISG in administration.A day after stocks hit record highs, the mood on Wall Street is a little more subdued today.The S&P 500 share index has dipped by 16 points, or 0.
3%, to 5,697 points.Yesterday it closed at its first record high since July, as investors welcomed Wednesday’s cut to US interest rates.London’s stock market is ending the week on a low note too, with the FTSE 100 now down 94 points or 1.1% at 8234 points.Back in the UK, thousands of jobs could be at risk and dozens of government construction projects paused as ISG, one of the UK’s largest contractors, filed for administration.
In the biggest collapse of a UK construction company since Carillion, the ISG chief executive, Zoe Price, confirmed in an email on Thursday that the company had filed for administration and shut down all of its sites.ISG is involved in 69 live central government schemes, including several projects as part of the Ministry of Justice’s plan to increase the capacity in Britain’s prisons by an extra 20,000 spaces.It is also working on schemes for the Department for Work and Pensions and several school building projects.The Cabinet Office said it had implemented “detailed contingency plans” and departments were working to ensure sites were safe and secure.ISG is the sixth biggest construction contractor in the UK by turnover, with revenues of £2.
2bn and about 3,000 staff.An astonishing story is breaking in the US today – the shuttered Three Mile Island nuclear plant in Pennsylvania is to be reopened in a deal with Microsoft.Constellation Energy Corp, which owns the Unit 1 reactor at Three Mile Island, has signed a 20-year power purchase agreement with Microsoft, to power its data centers with carbon-free energy.Unde the plan Three Mile Island Unit 1, which was shut down exactly five years ago for economic reasons, will be restarted by 2028.Wow.
They're restarting the nuclear plant at Three Mile Island in order to supply power to Microsoft.The site is expected to come back online in 2028 https://t.co/E3zZBvt26HJoe Dominguez, president and CEO of Constellation, says:“Powering industries critical to our nation’s global economic and technological competitiveness, including data centers, requires an abundance of energy that is carbon-free and reliable every hour of every day, and nuclear plants are the only energy sources that can consistently deliver on that promise.”Constellation point out that Unit 1 is not the part of Three Mile Island which suffered a partial meltdown in 1979 – that was Unit 2, which is still being decommissioned.The boom in demand for artificial intelligence systems has been driving up energy consumption by tech firms.
Earlier this year, Microsoft admitted that AI would make it harder to hit its ”moonshot” target of being carbon negative by 2030,Bobby Hollis, VP of Energy at Microsoft, says:“This agreement is a major milestone in Microsoft’s efforts to help decarbonize the grid in support of our commitment to become carbon negative,Microsoft continues to collaborate with energy providers to develop carbon-free energy sources to help meet the grids’ capacity and reliability needs,”For those of a certain age, Three Mile Island will always be associated with the dangers of nuclear power – rather like Windscale, the nuclear site in Cumbria which was renamed Sellafield after the UK’s worst nuclear accident (this hasn’t ended problems at the site, though),Perhaps in that spirit, Constellation are renaming Three Mile Island Unit 1 as the “Crane Clean Energy Center.
” in tribute to their former CEO, Chris Crane, who died in April.Dominguez says:“We are especially honored to name this new plant after our former CEO Chris Crane, who was a fierce advocate for our business, devoting his entire career to the safe, reliable operation of our nation’s nuclear fleet, and we will continue that legacy at the Crane Clean Energy Center.”A painful budget next month could be a blow to Christmas spending plans, fears Moody’s Analytics.Following the surprisingly strong 1% jump in retail spending in August (see earlier post), Moody’s Analytics’ economist Barbara Teixeira Araujo says warm wather boosted the clothing sector last month.But, she adds, consumers could cut back if tax rises are announced in October’s budget, further denting already-weak consumer confidence:August’s results chime in with our forecast that retail activity will see solid growth in the third quarter following a weak second quarter, in line with the continued rebound in real wages.
But with the boost to real household incomes from the earlier sharp fall in inflation now fading, the pace of growth in retail spending may soon level off.To that we add the high likelihood of further tax rises being announced in October’s budget, which could further dent retailers’ prospects.Already, separate data from GfK today showed that U.K.consumer confidence has tumbled to its lowest level since March in September.
If this trend gathers momentum, retailers could be looking into a chillier-than-expected end to the year.”Back in Germany’s car indusry, German economy minister Robert Habeck has said he wants to help Volkswagen get through a period of cost-cutting without having to resort to site closures.But despite Berline’s concerns about the country’s biggest carmaker, Habeck indicated that VW would have to tackle most of its problems itself.During a visit to the Volkswagen’s factory in Emden, Germany, the minister said he also wants to ensure that personnel policy measures remain within the normal collective bargaining framework.Habeck’s comments come as Volkswagen’s management is set to enter heated talks with powerful unions over new wage agreements and possible plant closures in Germany, considerations that have sent shockwaves through the global car industry.
Habeck said there were limits to what his government could do to support Volkswagen, adding that the structure and viability of the business was down to company policy,He told reporters:“A large part of the tasks have to be dealt with by Volkswagen itself,This is the company’s job,”Politicians could help by improving the framework and sending the right market signals, Habeck added,Yesterday, the European car industry called for EU emissions targets to be relaxed, after sales of electric cars stalled further in August, adding to growing political pressure that threatens to slow the transition away from fossil fuels,The Exchequer Secretary to the Treasury has blamed a “dire economic inheritance from the previous government” on a jump in Government borrowing last month.
As reported this morning, the UK’s public sector debt hit 100% of gross domestic product in August for the first time since the early 1960s.James Murray said the latest Government borrowing figures were “far worse than expected”, having come in higher than forecast by the Office for Budget Responsibility.The MP said the Treasury was facing a black hole in public finances that it was “going to have to address in the Budget” with “difficult decisions around taxation, welfare and spending” to come.Back in the City, shares in footwear maker Dr Martens have dropped to a record low after reports that a consortium of investors had sold their stake.According to Marketwatch, Goldman Sachs sold a block of 70m shares in Dr Martens on behalf of a group of institutional investors at a price of 57.
85 pence per share.That price was shy of last night’s closing price of 64.1p.And the market has responded accordingly, knocking Dr Marten’s shares down by 17% to 53p today.Dr Martens floated on the stock market in 2021 at 370p per share, and has been struggling since.
In April, it issued its fifth profits warning in its three years as a listed company, and has been cutting costs to help it handle disappointing sales in the US.The gold price has jumped to a fresh record high, as investors flock to bullion.The spot price of gold is up 1% today at $2,612 per ounce.JUST IN: Spot #Gold Reaches New Historical High of $2600.pic.
twitter.com/FMYgOpJONPGold was pushed up by the weaker dollar, which has been falling after the US Federal Reserve cut US interest rates sharply on Wednesday.The prospect of further interest rate cuts is also positive for gold, which doesn’t pay interest.Ryan McIntyre, senior portfolio manager at Sprott Asset Management, explains:“We remain very positive on gold, as it is significantly under owned in the Western world and is one of the few assets that can counter the many fiscal threats that currently exist.“Beyond rate cuts, gold will also benefit from the ongoing debasement of the U.
S.dollar, the precarious fiscal situations of many Western nations, and the global desire for a store of value independent of other assets and institutions.”Mercedes-Benz shares have dropped by 7% after the German carmaker warned that slowing sales in China would hit profits.Chinese sales - including for the most expensive cars - have been hit by weaker consumption and the slump in the property market of the world’s second largest economy, Mercedes-Benz said in a stock market announcement on Friday.The company also warned of “the dynamic pricing environment”, suggesting that it is under pressure to drop prices to attract buyers.
The global car industry is going through a tough period.Sales have weakened after a post-pandemic boom, while carmakers are also trying to pay for the shift to electric cars.For European camarkers - used to fat profits from their petrol and diesel products - the shift to electric is proving particularly difficult because they are also competing with Chinese manufacturers who can undercut them.Chinese companies were never contenders for internal combustion engines, but the combination of simpler technology and heavy state subsidies has opened the door for them.Mercedes-Benz warned that profits before interest and tax and cash flow are “expected to be significantly below the prior year level”.
It had previously said profits and cash flow would be only “slightly below” last year,Return on sales - a measure of profitability - will also fall, Mercedes-Benz said,Staff on the Heathrow Express train link will take 48 hours of strike action from Monday, the RMT union has announced,The walkout will begin after workers rejected a pay offer,RMT General Secretary Mick Lynch said:“Our members at Heathrow Express have made their position clear with a strong mandate for action.
They are determined to secure fair pay and better working conditions.“Heathrow Express management must now recognise the serious concerns of the workforce and return to the table with a meaningful offer.”Heathrow Express, though, say the strike won’t disrupt services.A Heathrow Express spokesperson said:“It is incredibly disappointing that RMT is planning strikes, but our well-planned contingencies are ready to go.“Schedules will continue as normal, and we will keep our passengers moving safely and efficiently.
There will be no disruption to Heathrow Express services as a result of this action.Although more people are filing for insolvency than a year ago, the number of companies that became insolvent last month was 15% lower than in August 2023.There were 1953 registered company insolvencies in England and Wales was 1,953 this August, which is also 9% lower than in July.Jeremy Whiteson, restructuring and insolvency partner at Fladgate, says:A monthly fall of 9% in total company insolvencies in August 2024 (by comparison to July 2024) would seem to be a positive sign for the economy- particularly as it is also 15% lower than the previous year (August 2023).More grounds for hope can also be discerned in the spread of the reduction