Closing summary: Transport strikes and cancellations ahead
School is not yet out, but the UK’s transport network appears to be readying itself for summer disruption.
EasyJet has cancelled 1,700 summer flights, primarily from London Gatwick, potentially disrupting the holiday plans of thousands of passengers.
And London Underground drivers will strike on Wednesday 26 July and Friday 28 July in a dispute over pensions and working conditions, the Aslef union has announced.
In other business news today:
And a slightly longer read on Rachel Reeves, who wants to be a Labour chancellor.
In the UK, Downing Street plays down reports of UK-US split over Ukraine Nato membership after Sunak-Biden meeting
In our coverage of the BBC crisis: minister tells broadcaster to get ‘house in order’ over suspended presenter
In the US, campaigners to call for formal investigations into alleged supreme court corruption
In our coverage of the Russia-Ukraine war: Nato chief ‘absolutely certain’ summit will have ‘unity and a strong message’ on Ukraine membership
Thank you for following our live coverage of business, economics and financial markets. Please do join us bright and early tomorrow for more of the same. JJ
Key events
Transport for London (TfL) has been locked in a long-running dispute with unions over plans to reduce staff numbers to save costs.
The cost-cutting programme was part of the conditions of the transport body’s reduced funding settlement with central government after Covid slashed revenues.
Aslef said it had a long list of issues that were not resolved, as it announced it would join strike action.
Finn Brennan, Aslef’s London Underground organiser, said there were problems around:
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A new attendance procedure which would “mean no right to representation or appeal at stage one of the disciplinary process and the length of all warnings would be doubled from 26 to 52 weeks.”
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The ability of TfL to redeploy drivers if they are sick for longer than one week.
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A programme of “trains modernisation”, which the union said could drive shifts up to 10 hours long.
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The replacement of all existing agreements, “allowing them to cut hundreds more jobs and forcing those of us who remain to work harder for longer”.
More train drivers to strike on London Underground on 26 and 28 July
London Underground train drivers who are members of Aslef will strike on Wednesday 26 and Friday 28 July, the train drivers’ union has announced.
Aslef drivers will join counterparts represented by the RMT, who were already planning action at the same time.
Finn Brennan, Aslef’s full-time organiser on London Underground, said:
We take action only when needed. Unfortunately, the last few weeks have shown that London Underground management are determined to try to push through detrimental changes – despite trade union opposition – if they think they can get away with it.
Aslef members on the tube – including management grades, London Underground offices, and London Underground test trains – will not book on for any duty between 00.01 and 23.59 on Wednesday 26 and any duty between 00.01 and 23.59 Friday 28 July.
The Unite union, one of the biggest in the UK, has voted to remain affiliated with the Labour party, but warned that it will not be given a “blank cheque” if it comes to power.
A move to disaffiliate would have represented a major change in the relations between small “l” labour and the state, but Unite’s leadership argued that it was better to retain influence – by continuing to fund the Labour party – with all indications from polling suggesting that Keir Starmer will be the next prime minister.
Unite counts workers from across the economy as its workers, ranging from bus drivers, to factory workers and cleaners.
The Guardian’s senior political correspondent, Aubrey Allegretti, reports:
Keir Starmer has been put “on notice” by the leader of Britain’s biggest trade union, who said that its support should not be treated as a “blank cheque”.
Sharon Graham, the general secretary of Unite, signalled a rift remained with the Labour leadership despite delegates voting to remain affiliated with the party.
Delegates “overwhelmingly” chose to retain Unite’s formal link with Labour, with Graham among those who spoke in favour.
“This is the moment of maximum leverage for the union where we can hold Labour to account,” she said. “Now cannot be the time to walk away. We would be weakening our own arm.
“It would be the worst time to leave the Labour party when they are in touching distance of power. If we leave we wouldn’t influence that power.”
You can read the full report here:
Oil prices have dropped by 1% on Monday as traders react to the prospect of a slowing Chinese economy.
The price of a barrel of Brent crude (the North Sea benchmark) for September delivery dropped to $77.73 on Monday, while the West Texas Intermediate benchmark hit $73.14.
Deflation in China could herald less economic activity across the world, leading to lower demand for fuel. However, prices have been held up by Opec (the Organisation of Petroleum-Exporting Countries, a global cartel).
Reuters explains:
Oil benchmarks gained more than 4% last week to touch their highest marks since May, rising for a second straight week after the world’s biggest oil exporters Saudi Arabia and Russia pledged to deepen supply cuts in August.
“The presence of economic slowdowns in China adds to the prevailing uncertainty in the oil market,” said Mukesh Sahdev, head of downstream and oil trading at Rystad Energy.
“The market’s instability is further fueled by the ongoing tug-of-war between fears of demand control by Western economies and the supply-control strategies employed by OPEC, which impacts the oil market’s delicate balance.”
The pound is down by 0.4% against the US dollar on Monday, but it remains close to a 15-month high at $1.2785.
That is the Bank of England’s doing: its determination to raise interest rates has made sterling more attractive for investors. Gone are the days of last autumn when the pound approached parity with the dollar following Liz Truss and Kwasi Kwarteng’s disastrous “mini-budget” fiscal expansion.
However, any talk of relative strength has to be put in context: the last 10 years have not been kind to people holding sterling. From above $1.70 in 2014 one pound is now only worth $1.27.
Back on the mortgage front, the Financial Times reports an increase in remortgaging as homeowners try to lock in rates that a few years ago would have looked impossibly high.
The average 2-year fixed residential mortgage rate today is 6.63%, as Moneyfacts reported. The Bank of England’s base rate is 5%. But if the base rate rises to 6.5% – a situation that financial market bets suggest is almost a 50/50 probability by March – then mortgage rates could well be above 8%.
It is an unenviable situation for people whose fixed-rate terms run out in the next year: lock in rates that may seem unaffordable now, or risk them rising much higher later.
The value of new remortgages written by Knight Frank Finance jumped 41 per cent over May and June compared with the previous two-month period, the broker said.
Meanwhile, customers’ remortgage requests at Moneybox Homebuying, an online mortgage service provider, rose to represent 17 per cent of its mortgage-related applications in June, above a monthly average of 11 per cent.
The interest rate pain will not be felt immediately across the population because so many homeowners are on fixed rates. That is good and bad news for the government: good, because it spreads the hit to the economy over a longer period (by which time growth may have picked up); bad, because it means that interest rate increases may take longer to feed through to lower inflation.
The UK might be grappling with inflation well above target, but financial traders have today been eyeing Chinese price data which suggests the world’s second-largest economy is facing the opposite problem: deflation.
China’s consumer price index was unchanged year-on-year for June, after rising by 0.2% in May. Economists had expected a 0.2% rise. Producer prices (which measures what things cost when they leave the factory) also fell sharply.
Reuters said:
The worsening factory-gate price deflation and the move by consumer prices towards deflation for the first time since February 2021 bode ill for China’s economic growth.
Momentum in China’s post-pandemic recovery has slowed from a brisk pickup seen in the first quarter with demand for industrial and consumer products weakening, raising concerns about the health of the world’s second-largest economy.
The Financial Times reported:
Analysts expected the figures to lead China’s central bank, the People’s Bank of China, to reduce interest rates again, adding to a round of cuts last month that many believe Beijing will have to supplement with fiscal stimulus policies.
“China is still growing — the question is whether it will hit its target,” said Heron Lim, economist at Moody’s Analytics. “In terms of that recovery, it is still there, but the concern is it’s slowing down.”
We focused on the mortgage rates data earlier from Moneyfacts, but there is also an interesting point in their update on rates offered to savers: they are rising, but not nearly as fast.
While mortgage rates charged to borrowers rose by 0.09 percentage points, savings rates paid to savers (who are lending their cash to the bank), rose by much less.
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The average easy access savings rate today is 2.53%. This is up from an average rate of 2.52% on the previous working day.
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The average 1-year fixed savings rate today is 4.93%. This is up from an average rate of 4.88% on the previous working day.
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The average 2-year fixed residential mortgage rate today is 6.63%. This is up from an average rate of 6.54% on the previous working day.
This shows why banks (for the most part) like higher interest rates: they can expand the difference between the price they charge borrowers, and the price they pay lenders – called net interest margin.
Flight cancellations are a summer perennial, but it is always good to remember that travellers have fairly strong rights if they are left in the lurch.
Here are some things to remember (from a handy guide from this time last year):
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When a flight is cancelled, you have the right to be refunded or rerouted. The airline is required to get you to your destination as soon as possible, even if it involves you travelling with a different carrier.
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If the flight is cancelled within 14 days of the departure date, or if it is delayed by more than three hours, you are also entitled to a set amount of compensation starting at £220 a passenger, depending on how many days’ notice you were given and how far the destination. The exception is if the cancellation was down to an “extraordinary circumstance”.
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Go direct to the airline to claim compensation, and ignore the ads for third-party claims firms that appear at the top of a Google search.
For easyJet you can claim compensation here for cancelled flights (but only if your flight was due to leave in the next fortnight).
Here is that handy guide:
EasyJet cancels 1,700 summer flights as Gatwick struggles with high demand
EasyJet has cancelled 1,700 flights over July, August and September mostly at Gatwick as London’s second-largest airport struggles to cope with the first fully post-pandemic year.
The cancellations will affect 180,000 passengers, although the airline said that 95% of those affected had already been booked onto alternative flights. The rest have been offered a refund.
The airline blamed air traffic control delays that have been worsened by the war in Ukraine, rather than pilot or crew shortages. The majority of the cancellations are at Gatwick because of easyJet’s major presence there, but it is also understood that air traffic control delays at Gatwick are around three times longer before the pandemic.
An easyJet spokeswoman said:
We are currently operating up to around 1800 flights and carrying around 250,000 customers per day with more crew and pilots flying than ever before and like all airlines, we review our flights on an ongoing basis. As Eurocontrol has stated, the whole industry is seeing challenging conditions this summer with more constrained air space due to the war in Ukraine resulting in unprecedented ATC delays, as well as further potential ATC strike action. We have therefore made some pre-emptive adjustments to our programme consolidating a small number of flights at Gatwick, where we have multiple daily frequencies, in order to help mitigate these external challenges on the day of travel for our customers and we continue to operate around over 90,000 flights over this period.
Customers whose flights are affected are being informed, with 95% customers being rebooked onto an alternative flight and all customers provided with the option to rebook or receive a refund. We are sorry for any inconvenience that this may have caused.
Here is some interesting mortgage data this morning from Moneyfacts: average two-year fixed mortgage rates have risen to almost the same level as they were when Liz Truss’s premiership collapsed in chaos.
Reuters reports:
Average two-year fixed rates stood at 6.63%, up from 6.54% on Friday and a fraction below their peak of 6.65% on 20 October.
Mortgage rates surged in October as financial markets reacted to a big fiscal expansion planned by Truss and her even-briefer-in-post chancellor, Kwasi Kwarteng. The thinking was that the Bank of England would be forced to raise interest rates sharply to tame expected inflation.
Truss and Kwarteng were forced out before that could happen, to be replaced by Rishi Sunak and Jeremy Hunt. But it appears the respite was only brief: stubborn inflation has prompted the Bank of England to raise rates anyway. That is a huge problem for the Conservative party, which (probably) can’t pull the same trick twice of switching the leadership team to get rates back down.
The share price movement after a chief executive resignation announcement is about as close you can get to a market valuation for a person. So what has happened at BT after news of Philip Jansen’s departure in the coming year?
Shares in BT have dropped by 1.1% in early trading on Monday morning. That is a drop of about £130m. Then again, Jansen’s departure had already been floated earlier this year, so perhaps we shouldn’t read into it too closely.
Of more import for shareholders is BT’s performance during Jansen’s time as leader. The company has struggled, and shares have almost halved.
A quick check in on stock markets after they opened for the week shows us… not much.
The FTSE 100 is very flat. The biggest mover is Ocado, down 2.7% after broker Barclays lowered its valuation of the company.
Perhaps more interestingly, the biggest risers are publicly listed water companies Severn Trent and United Utilities, up by 1.5% and 1.3% respectively. That is likely because of Thames Water’s successful fundraising efforts – which may show that big investors are still willing to back the sector.
Thames Water’s shares are not listed, but there has been some buying of its bonds, Reuters reported:
Some Thames Water bonds rose on Monday, data from Refinitiv showed.
The bonds were up by as much as two pence in the pound after the company said its investors had agreed to invest £750m into the troubled company – Britain’s biggest water business.
Thames Water’s interim co-chief executive, Cathryn Ross, has rejected criticisms that regulators and the water industry are too cosy.
“I don’t accept that,” she said. Ross highlighted her three and a half years at BT between working at Ofwat and Thames Water.
I can honestly say the thought [of working for Thames Water] had never occurred to me when I worked at Ofwat. In fact, I thought I would stay in the public sector at the time that I was there.
Ross said she is “deeply passionate about the water industry”, but added that all senior public officials who join the industry within a few years must seek assent from Acoba, or the Advisory Committee on Business Appointments. The committee can object or ask for conditions on employment by former public servants, although it has long been criticised as a toothless regulator. Ross said:
I think the experience I gained at Ofwat is actually standing me in good stead and is helping us to deliver more for customers.
I can see why people are asking the question, but with all public servants, we are all subject to the Acoba rules.
Ross was also asked about a finding last week by a judge that the company had made a “deliberate attempt” to mislead the Environment Agency after pumping millions of litres of sewage into rivers near Gatwick airport. Thames Water was fined £3.3m.
However, Ross said she did not agree with that finding:
I don’t believe that our people at Thames Water had a deliberate intent to mislead.
We have to accept those findings, we have to learn the lessons and move on, and that’s what we’re doing.
Thames Water’s boss has defended the company against accusations that shareholders are benefiting from interest payments on its big debt pile, saying the company has the “lowest level of indebtedness in a decade”.
Thames Water paid £45m to service the debt held by shareholders in the last year, Cathryn Ross said, comparing it to revenues of £2.3bn. She said:
The vast majority of our debt comes from bondholders in the open market.
We have £14bn of debt. That is a large sum, but you have to remember our assets are worth £19bn.
“It is an option the government has, but it’s a very high bar and we are not close to it,” said Thames Water boss Ross.
Thames water boss: We are not close to emergency nationalisation
Thames Water interim co-chief executive Cathryn Ross has said the company is not close to needing temporary nationalisation.
Speaking on BBC radio’s Today programme to explain the new injection of £750m in equity funding, Ross said the company now has enough money to pay its debts for the next year and into the future.
Asked whether Thames was in a financial hole, Ross said: “Not at all.” The company’s £4.4bn in cash and credit facilities would tide the company over, she said:
That’s absolutely enough to pay everything we need to pay this year, next year and into the future.
Special administration – in which the government would take temporary control of the company in order to make sure homes and businesses still received their water – would be the “nuclear option”, with a “very high bar”.
The company is “absolutely not” close to that bar, Ross said.
Struggling Thames Water gains £750m from shareholders
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Shareholders in Thames Water have agreed to provide £750m in new funding for the struggling utility as it tries to stay afloat without government intervention.
The new money will be delivered by Thames Water until March 2025, the company said in a statement to investors. It adds to £500m in funding received last year.
Ian Marchant, Thames Water’s chair, said it was the “largest equity support package ever seen in the UK water sector”. Yet the company also acknowledged that “significant additional funding” of as much as £2.5bn will be required between 2025 and 2030.
That is a reflection of just how badly things had gone at the utility, which provides water to 15m homes in London and the Thames Valley. Thames Water announced the shock resignation of former chief executive Sarah Bentley late last month, and hours later it emerged that officials were drawing up contingency plans to temporarily renationalise the company.
The company has been caught out by rising interest rates, which have threatened its ability to pay interest on its £16bn debt pile.
Cathryn Ross and Alastair Cochran, interim Co-CEOs of Thames Water, said:
This announcement is a major milestone for Thames and all our stakeholders.
The substantial equity support package announced today will underpin the delivery of a more focused turnaround plan that builds on the foundations that have been put in place over the last two years and focuses expenditure on a smaller number of initiatives, which will deliver material and sustainable improvements in key performance metrics over the next three years.
BT boss Philip Jansen to leave in next year
BT has confirmed that it is looking for a successor to its boss Philip Jansen, after he told the board he was planning to leave the FTSE 100 telecoms company.
Jansen will step down “at an appropriate moment over the next 12 months he intends to step down from his role”, BT said in a stock market announcement on Monday.
Adam Crozier, BT Group chairman, said BT would be in “business-as-usual” mode. He said:
Philip has done an excellent job in his time at BT and the board is fully supportive of our long-term strategy which he and his team are pursuing. Whilst we are still in the early years of that transformation we are on track to deliver.
The succession process to replace Philip is something that the board was well prepared for. All appropriate candidates are being considered and we expect to be able to update the market on progress over the course of the summer. In the meantime, it is business as usual, and we are focused on executing our plans and delivering for all our stakeholders.
Jansen’s successor will have the task of carrying out a major job cuts programme as the company seeks to be more efficient – once it has completed the rollout of 5G mobile infrastructure.
Jansen said:
We’ve made a lot of progress over the last four and half years and I’m proud of what we’ve achieved to date. We’re investing heavily in both BT’s and the UK’s future. We’re building like fury, have now passed over 11m homes with fibre, have got 5G service to 68% of the country and our customer service is much improved.
This is creating a much stronger BT Group which is starting to drive growth for both investors and the UK. But there’s a lot more to do and I am fully committed to driving the business forward until I hand over to my successor.
Also coming up today
The great and the good of the City will gather at Mansion House in London tonight, to hear from the chancellor and the governor of the Bank of England.
Jeremy Hunt is expected to reveal plans for British pensions to release billions of pounds to help fund fast-growing companies, as part of wider government efforts to boost growth and attract more business to the UK.
Hunt is expected to tell an audience of City leaders and chief executives that the government has reached a so-called “compact” deal with some of the UK’s largest investment firms that could see about 5% of pension fund investments reserved for early-stage businesses in sectors including life sciences and fintech.
In his first Mansion House speech, Hunt is likely to say:
“I want to lay out plans to enable our financial services sector to increase returns for pensioners, improve outcomes for investors and unlock capital for our growth businesses.”
The agenda
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2pm BST: Bank of Israel’s interest rate decision
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4pm BST: Bank of England governor Andrew Bailey’s Mansion House speech to be pre-released
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Evening: Mansion House event
