UK house prices to ‘fall up to 4%’ in 2024; business activity picks up in December – business live

A top US Federal Reserve official has sought to dampen expectations of imminent interest rate cuts as “premature”.

John Williams, president of the Fed’s New York branch and a member of the rate-setting federal open market committee, spoke a couple of days after the bank signalled strongly that the debate was shifting towards cutting rates, sparking a rally in US stocks and bonds that also boosted other markets.

Williams said in an interview with CNBC:

We aren’t really talking about rate cuts right now.

We’re very focused on the question in front of us, which as chair [Jerome] Powell said… is, have we gotten monetary policy to sufficiently restrictive stance in order to ensure the inflation comes back down to 2%? That’s the question in front of us.

The Dow Jones Industrial average jumped to a record high and the 10-year Treasury bond yield fell below 4.3% after the Fed on Wednesday forecast three rate cuts next year, which traders interpreted as a sign that the central bank is changing its tough stance and will start cutting rates sooner than expected next year.

More comments from Bank of England deputy governor Dave Ramsden, who is in charge of markets and banking. He told an event hosted by the accountancy firm Deloitte that Britain’s banks should keep testing their failure procedures and never assume they are ‘too big to fail’, following the collapse of Credit Suisse and Silicon Valley Bank.

After taxpayers had to bail out lenders during the 2007-9 global financial crisis, regulators introduced rules to “resolve” a failing lender without causing market mayhem.

However, during the Swiss authorities’ rescue takeover of Credit Suisse by bigger bank UBS public funds were used, raising doubts about the global resolution framework.

The banking crisis in March also prompted the Bank of England and Treasury to engineer a takeover of Silicon Valley Bank’s UK subsidiary by HSBC.

Ramsden said:

We have done a lot to overcome the problem of ‘too big to fail,’ but it’s really important to stress that this isn’t a done-and-done thing. You need to keep testing that conclusion.

That banking crisis showed the need to improve regulators’ “toolkit” for smaller bank failures, and to enhance the readiness to “bail in” banks using their own resources.

The Bank will publish an update next summer on how it would close down a big UK bank without disruption to customers.

In Scotland, ministers are facing a £1.5bn black hole before next week’s draft budget, as a combination of surging inflation and expensive public sector pay deals put extreme pressure on government spending.

The independent Fraser of Allander Institute describes the situation facing the finance minister, Shona Robison, as “one of the most challenging fiscal backdrops in the history of Scottish devolution” in its annual budget report.

But the institute, part of the University of Strathclyde, warns that plans to create a new higher band of income tax are “nowhere near enough” to balance the books.

With severe cuts anticipated across the public sector to protect frontline areas such as health and social security, Robison, who is also deputy first minister, has already warned there is “no doubt” that staffing for public services will have to be reduced.

Thames Water’s parent company has been hit by a second downgrade to its credit rating in six months, with Moody’s warning of “materially” increased risks that regulators will block the flow of dividends.

The watchdog Ofwat is considering whether to investigate Thames for a potential breach of its licence when it paid a £37.5m dividend in October, as revealed by the Guardian last week. The cash was paid from the core operating company that serves 16 million customers across London and the Thames Valley to a holding company.

The market price of a £400m bond issued by Thames Water (Kemble) Finance, one of the key financing entities that sits above the regulated water company, hit an all-time low of less than 50p in the pound after Moody’s unpublicised downgrade on Wednesday. The dividend was part-used to service its debt obligations.

The move comes in a week in which Thames appointed a new chief executive but its chair revealed he was speaking “two or three times a week” to shareholders to “jolly them along” before their crunch decision next year on whether to inject more equity to prop up a group with overall debts of £16bn.

The regulator introduced a new licence condition in May that places stricter restrictions on dividend payments if a company is failing customers or the environment, or if its financial resilience could be harmed. Thames is among the worst-performing major water companies and also one of the most indebted, with borrowings of almost 80% of the value of its assets versus a regulatory norm of 60%.

Ofwat’s demand for information from Thames on the dividend prompted the Moody’s review, even though the Kemble company’s rating was cut from B1 to B2 as recently as July. The new rating is B3, a lower level of junk.

The agency wrote: “Because of the further tightened regulatory scrutiny of Thames Water’s distributions, Moody’s believes that the uncertainty around the operating company’s ability to make necessary distributions has increased materially.”

Pearson’s biggest investor says it should re-list in the US

Mark Sweney

Pearson’s biggest shareholder has said that it should re-list in the US, arguing that leaving London would be better for shareholders as most of the education publisher’s business and rivals are based in North America.

The founder of Cevian Capital, Europe’s largest activist investor, said that joining the increasing number of London-listed companies moving out of the FTSE would be an “easy and effortless way” to increase the value of Pearson which has seen its market value flatline this year.

“Pearson is a US company with the majority of sales and executives there,” said Christer Gardell, managing partner of the Stockholm-based investor, in an interview with Bloomberg. “It is only due to historical reasons it is still listed in the UK.”

Pearson makes almost two-thirds of its £3.8bn annual revenues in North America.

Cevian, which successfully helped pressure building materials group CRH, one of the biggest companies on the FTSE 100, to move its primary listing to the US, after the UK-based plumbing equipment supplier Ferguson did the same last year.

Last week, Europe’s biggest package holiday operator, Tui, said it was considering moving its stock exchange listing from the FTSE 250 to solely Frankfurt.

Earlier this month, betting firm Flutter, formerly known as Paddy Power Betfair, said it is pursuing a secondary listing in the US, but will keep its premium listing in London.

Sales at H&M have fallen, reflecting a slowdown in consumer spending and the impact of store closures in Russia.

Sales dropped 4% year-on-year between September and November, which was worse than expected. This piles pressure on the Swedish clothing retailer to ramp up discounts to clear stock, as it tackles the biggest buildup in unsold garments for more than seven years.

Excluding Russia and Belarus, sales declined by 1%. Last year, sales were boosted by a temporary reopening in Russia before H&M shut its shops there.

In late September, it said sales were down 10% that month and blamed the steep decline on an unusually warm start to autumn in Europe, even though its arch rival Inditex, the owner of Zara, did much better.

The Swedish company, which also owns the Weekday and Monki brands, and the more upmarket chains & Other Stories and Arket, is the world’s second largest fashion retailer with more than 4,000 stores, behind Spain’s Inditex, which owns Bershka, Massimo Dutti and Pull&Bear.

Inditex has fared better. On Wednesday, it reported a 15% rise for the nine months through October, and a 14% rise for the following six weeks.