Rising mortgage rates will cause ‘financial stress’, MPs hear, as two-year fixed rates hit 15-year high – business live

UK’s ‘zombie’ firms will be wiped out by rising interest rates

Julia Kollewe

Britain’s debt-laden “zombie” companies are expected to be wiped out by the surge in interest rates, an insolvency specialist has predicted.

Begbies Traynor, a business recovery and financial consultancy, has said all of the nation’s zombies – companies struggling to service debts that have avoided bankruptcy through cheap borrowing costs – will have failed by the end of next year.

“Over the next 18 months, we’ll see virtually all of them finally come to an end,” Ric Traynor, the executive chairman of the company, which is seen as a bellwether for the health of UK businesses, told Bloomberg.

Thames Water: smart meters could curb hosepipe usage

Helena Horton

Cathryn Ross has said that Thames Water is looking at using smart meters to charge households for excessive water consumption in order to curb the use of hosepipes.

She has taken aim at those with big gardens who “think that they care less about their water bills”.

The CEO explained:

“One of the biggest single useages of water is people watering gardens, if you put a hosepipe on for 10 minutes, that could easily use a typical daily consumption.

So what we are looking at now we are pushing ahead with the smart meter roll out, could we look at tariff innovation that charged a set amount up to 100 litres of water per person per day, maybe a bit more for 110 120 let’s say, and then if you’re using more than 130 we can start charging you really much more, that might send signals about more efficient water usage”.

She added:

“People [who] have bigger houses with bigger gardens, maybe they think that they care less about their water bill, maybe those are precisely the sort of people who could pay more so we could then take some more of that money and invest it in the network or invest it in social tariffs”

Thames Water CEO: Climate breakdown puts London’s supplies at risk

Helena Horton

Back at the London Assembly Environment Committee, Thames Water’s CEO has warned that water supplies are at risk in London due to climate breakdown.

When asked about whether supplies are resilient, Cathryn Ross said:

“In a nutshell we are living with an asset base that is older than we would like it to be, and even if it was in tip top condition if you were designing it today you wouldn’t be designing it in the way that we have it.

It simply is not capable of delivering the resilience that people want today in the 21st century.”

She said “numerous parts of the network” face a cocktail of problems and it is “not as resilient as we would like it to be”.

Ross added:

“The management of it during periods of extreme weather is becoming more challenging. We haven’t planned into business as usual what it takes to manage the resilient provision of water and waste water services in the face of climate change.

MPs on the Treasury committee have also been warned that mortgage rates could rise to a ‘tipping point’.

According to Henry Jordan, home commercial director at Nationwide, that could be between 6.25% and 6.5% for customers remortgaging their home loans.

We covered earlier that Jordan had explained that borrowers face an average increase of £235 per month as they move off existing fixed rate deals (at, say, 2.25%) onto new ones at around 5.5%.

Jordan told MPs that a customer who extends the term of their mortgage could cut the monthly increase to £134.

If they also move to an interest-only product, then they could move to a lower payment than they’re paying currently.

That remains true, Jordon says, until average remortgaging rates reach between 6.25% to 6.5%.

That might be a tipping point at which options such as interest only won’t be sufficient to offset the increase in payments that customer will see.

We flagged earlier that average two-year mortgage rates are now 6.66%, but a customer remortgaging with their lender will typically get a lower rate than that.

Newsflash: The Bank of England may need to keep interest rates high for an extended period if inflation pressures persist, the International Monetary Fund’s directors have warned.

In a review of the UK economy, the IMF warns that the country faces a challenging economic outlook, despite being expected to avoid a recession.

The IMF warns that the UK’s long-run prosperity hinges on “ambitious reforms”.

And in a stern assessment of Britain’s economic progress, the Fund says that the UK, once a “strong performer”, has now lost economic momentum.

It explains:

Prior to the 2008 global financial crisis, the UK had been a strong performer among the Group of Seven countries. But this momentum was lost in the middle of the last decade. By 2022, real business investment was still slightly lower than in 2016 — in contrast to the 14 percent increase among other G7 economies.

Labor supply, which has just reached its pre-pandemic level, has also been weaker than peers. As in other advanced economies, productivity growth has been sluggish, reflecting a slower pace of innovation and technological diffusion.

The IMF says it is critical to improve UK health outcomes, due to the long-term sickness that has driven the post-pandemic spike in inactivity.

And they say investor confidence would be boosted by a stable, long-term strategy to promote business investment – which could include a “permanent set of tax incentives that could potentially apply to investments other than plant and machinery”.

Chancellor Jeremy Hunt announced a temporary ‘full expensing’ tax break in March’s budget.

And, as it concludes its annual Article IV consultation with the UK, the IMF welcomed last month’s hike in interest rates to 5% – and warned that more may be needed.

The fund says:

Directors welcomed the Bank of England’s (BoE) policy response to arrest inflation pressures, including the 50 bps policy rate increase on June 22.

Given risks and uncertainty about the outlook and inflation persistence, Directors concurred that a continuous review of the pace and magnitude of monetary tightening is warranted. Should inflationary pressures show signs of further persistence, the policy rate may have to be raised further and would need to remain higher for longer to durably lower inflation and keep inflation expectations anchored.

Helena Horton

Thames Water CEO Cathryn Ross then told the London Assembly Environment Committee that “progressive charging” for water bills would mean customers with the means to do so could pay more.

Ross expained, during this morning’s hearing:

“If we found a more progressive way of charging we would unlock the ability to charge those who can pay more”.

Defending privatisation, Ross compared it to mortgaging a home:

“We use finance to smooth the cost of those projects over a big period. We don’t get that money for free, when investors do give us that money they expect a return. They should get a reasonable level of return rather than an egregious level of return.

If our investors get the sort of return Ofwat says is fair, that’s absolutely fine with them. That would mean we would pay some dividends if we were getting that level of return.

We are not a profitable company. The annual results that we put out on Monday – we are making a loss of £30m after tax. This will be the sixth year they have not taken a dividend and they are putting a significant amount of money into the company. We are not at the position at the moment of having any profit to give back to shareholders.

“When water companies were privatised they were privatised with a clean balance sheet – no debt. One of the reasons they were privatised is it was known there was a huge amount of investment that was needed. You can pay for that investment as you go so the cost of all that goes on the customer bill today. Or you can spread the cost.

One of the reasons why the water companies were privatised in the way that they were was so the cost could be smoothed over time. We have taken a lot of debt, our total debt at the moment is £14bn. But you have to remember that our assets are worth £19bn. If we are taking on more debt to make our assets worth more it is like borrowing more to do an extension on your mortgaged house – it increases the value of your house.”

On whether nationalisation is feasible she said “I don’t really have a view” and said it was a matter for “government manifestos in the context of an election”.

Thames Water CEO quizzed over leakage failings

Helena Horton

The interim CEO of Thames Water is being grilled right now by the London Assembly Environment Committee.

Cathryn Ross took over the unenviable role of running the beleagured water company after the abrupt departure of former CEO Sarah Bentley.

She told the committee that we take water for granted in this country, and the government’s Plan for Water is not ambitious enough.

She said:

“I don’t think at the moment the Plan for Water goes far enough. It’s a useful step forward but doesn’t go far enough. Yes there is more we need to do but we actually need to change our national conversation about water. We need to understand for example that London has the same rainfall as Jerusalem and we aren’t living in a wet country where we can take water for granted.”

Ross was also grilled on Thames Water’s woeful record on leaks by Environment Committee Chairwoman Leonie Cooper, who said:

“It’s an unthinkable quantity. How can we persuade people to use less water if Thames Water is losing 602m litres a day?”

The CEO added:

“You are quite right, I accept we are not where we need to be on leakage. I also completely understand, and we were seeing this last year, that when we were asking customers to use water wisely, this quite rightly was undermined by customers saying well we are doing our bit, why aren’t you doing your bit.”

But added she has “increased the number of [leak fixing] gangs out there” and Thames Water is “literally fixing a leak every seven and a half minutes, that hasn’t happened before”.

She added that a third of leaks are from holes in customers’ pipes rather than in Thames water’s pipes.

Over in Vilnius, prime minister Rishi Sunak has admitted inflation is “proving to be more persistent than people thought”.

Speaking to broadcasters as he travels to the NATO leaders summit, the Prime Minister acknowledged “things are difficult” for families across the country amid a rise in interest rates. But he insists that his course of action isn’t “wrong”.

Sunak told reporters:

“I know things are difficult for many families across the country. The UK is not alone in experiencing a rise in interest rates… the crucial thing that we have to do is bring inflation down.

“That’s how we’re going to ease the burden for families. That’s how we’re going to stop the rise in interest rates. And that’s why my priority is to halve inflation.

“Of course, that is proving to be more persistent than people thought, but that doesn’t mean the course of action is wrong. We’ve got to stick to it.”