Closing summary: Rachel Reeves asks for Treasury assessment of UK economy
Rachel Reeves is to provide an emergency assessment of the government’s spending inheritance before MPs leave for their summer break as she attempts to pin the blame for looming tough decisions on the defeated Tories.
The new chancellor used her first speech since arriving at the Treasury to insist there would be no deviation from Labour’s hardline stance on reducing the national debt despite being bequeathed the “worst set of circumstances since the second world war”.
Reeves said one of her first decisions in post had been to ask officials to provide an assessment of the UK’s public spending position so that she could better understand the scale of the challenge ahead.
You can read the report from the Guardian’s Larry Elliott here:
Will the new Labour government receive an economic tailwind from the Bank of England? If Jonathan Haskel had his way, monetary support for the economy would come later rather than sooner.
Haskel, an outgoing member of the monetary policy committee, said that he would rather hold rates for longer – rather than cutting them – to ensure that inflationary pressures have properly dissipated.
In other news from the world of business and economics:
France’s benchmark Cac 40 index and the euro dropped in early trading before swinging into the black on Monday after French elections, as investors weighed up the prospects for a political stalemate that would make radical fiscal changes unlikely.
Shares in pub company Marston’s surged after it agreed for Carlsberg to buy out its part of a brewing joint venture for £206m. Carlsberg has been busy, also agreeing a £3.3bn deal to buy Robinson’s drink maker Britvic.
Boeing will plead guilty to a criminal fraud charge stemming from two deadly crashes of 737 Max jetliners.
Paramount Global, one of Hollywood’s best-known companies, has agreed to a merger with the independent film studio Skydance, in a deal that ends its links with the Redstone family.
You can continue to follow our live coverage from around the world:
In the UK, Rachel Reeves says the new government has inherited ‘worst set of circumstances since second world war’
In our coverage of the Gaza conflict, an Israeli minister says a hostage deal with Hamas would be ‘humiliation’ as Netanyahu is offered ‘political safety net’ by opposition
In our coverage of the Russia-Ukraine war, Italy accuses Russia of war crime over strike on children’s hospital as Zelenskiy vows to retaliate over missile attack on Kyiv
US stock markets have followed the lead of Europe to rise slightly in the opening trades (after France in particular got through a wobbly start after its election result).
Here are the opening snaps, via Reuters, from Wall Street:
S&P 500 UP 5.04 POINTS, OR 0.09%, AT 5,572.23
NASDAQ UP 12.31 POINTS, OR 0.07%, AT 18,365.07
DOW JONES UP 103.29 POINTS, OR 0.26%, AT 39,479.16
Labour’s growth plans include building green energy infrastructure. The effective ban on onshore windfarms was today dropped by the Labour government, in news that has delighted environmental and energy experts.
The ban was caused by two footnotes to the National Planning Policy Framework (NPPF), the rules which govern the building of homes and infrastructure.
These footnotes applied only to onshore wind, no other type of infrastructure, and required such strong proof that there was no opposition locally that they made building turbines impossible, given there is nearly always some local resistance to any building proposal.
In Labour’s proposed new NPPF, these footnotes have been deleted in their entirety, meaning that onshore wind projects are now on an even footing with all other forms of infrastructure. The change will officially come into force when parliament resumes on 18 July.
In its update on the UK following the election, Fitch wrote:
Labour plans to boost growth through a combination of public and private investment supported by improved stability and ambitious reform to parts of the economy, such as the planning system. Faster growth would somewhat ease the policy trade-offs needed to ensure public finance sustainability.
UK economic prospects have improved after election, says Fitch
The UK’s economic prospects this year have improved after the general election, according to Fitch Ratings, an influential credit rating agency.
The Labour party’s commitment to debt reduction means the entry of a new government under Keir Starmer “will not lead to an immediate shift in fiscal strategy”.
In March Fitch upgraded the outlook on the UK’s AA- rating from “negative” to “stable” after the chaos of Liz Truss and Kwasi Kwarteng’s “mini-budget”. The election result will mean more “near-term political stability”, Fitch said on Monday.
Views on the sustainability or otherwise of sovereign debts are somewhat subjective, but Fitch – along with rivals S&P Global and Moody’s – still retain power as some investors take into account ratings when deciding on investments.
Fitch said that Labour could struggle to stick to the path of “fiscal consolidation” – reducing debt.
We still view implementing this projected consolidation as politically challenging, notwithstanding the margin of Labour’s election victory, as it would involve real cuts in unprotected spending and investment that would likely further strain public services.
A branch of Metro Bank in Manchester. Photograph: Christopher Thomond/The Guardian
Metro Bank is reportedly trying to sell a chunk of mortgages as it tries to turn its fortunes around after a rescue deal.
The high street lender is working with investment bank Morgan Stanley on a process to raise capital from the sale of the mortgages, and could make between £3bn and £4bn, Sky News reported, citing sources.
It reached a £925m rescue package in October led by the Colombian billionaire Jaime Gilinski Bacal, who took a 53% stake in Metro as a result of the deal.
Since then it has cut 1,000 workers and stopped opening seven days a week as it tries to clamp down on costs.
Haskel says that inflation can become sticky at higher rates if the labour market is “impaired” – meaning it is harder to match unemployed people to vacancies.
He worries that the economy is still impaired, meaning the Bank of England will have to respond with relatively tighter monetary policy in order to get inflation sustainably down to its 2% target.
The labour market continues to be tight, and I worry it is still impaired. I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.
While there may be variation across firms, products and industries, there is no evidence for this in aggregate in the UK, at least that I can discern in official data. The level of corporate profits has increased, but so too has the level of wages and the level of prices. As a share of total national income, profits have remained largely the same.
Jonathan Haskel has served on the Bank of England’s monetary policy committee for six years. As he comes to the end of his second and final term, he appears to be less concerned about showing his hand.
He argues in his speech that the Bank was right to raise interest rates in 2021 to stop inflationary pressures from building up further during the global supply chain chaos caused by coronavirus pandemic lockdowns. He said:
High inflation, no matter what the cause, risks becoming embedded if it persists for too long.
And he thinks that some of those pressures remain in the UK, even as some of the massive price increases caused by the energy crisis after Russia’s invasion of Ukraine have faded.
Underlying inflation is persistent and declining more slowly, with headline inflation pushed around by volatile energy and base effects.
Bank of England rate-setter: 'I would rather hold rates'
Prof Jonathan Haskel giving evidence to the Treasury select committee at the House of Commons, London, in 2019. Photograph: House of Commons/PA
The Bank of England should hold interest rates steady rather than cutting to ensure inflationary pressures have subsided, according to a member of the monetary policy committee (MPC).
Jonathan Haskel, professor of economics at Imperial College and an external member of the rate-setting MPC, said that despite “encouraging signs” on falling inflation, “I would rather hold rates”.
In a speech at King’s College London, he said:
There are considerable encouraging signs, most notably from normalising inflation expectations and a (spoiler: temporary) return of headline inflation to target in May 2024. However, the wage-price system in the UK has been subject to a sequence of enormous shocks over recent years. The playing out of those shocks through the economy, and the continued tight and impaired labour market, means that inflation will remain above target for quite some time. I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.
Shares in London-listed insurer Hiscox have jumped 14% after reports that two rivals were considering takeover bids.
Japan’s Sompo and Italy’s Generali are interested in a possible buyout, according to industry publication Insurance Insider.
Hiscox was valued at £3.8bn at the end of last week – meaning Monday’s share price move has added half a billion pounds to its market value.
If it retains that valuation – or indeed if a takeover bid comes through – then it could be enough to push the company back into the FTSE 100 index. Hiscox is one of the biggest members of the FTSE 250 index, having previously entered the FTSE 100.
FILE - A Boeing 737 Max jet, piloted by Federal Aviation Administration chief Steve Dickson, prepares to land at Boeing Field following a test flight in 2020. Photograph: Elaine Thompson/AP
Boeing will plead guilty to a criminal fraud charge stemming from two deadly crashes of 737 Max jetliners, after the government determined the company violated an agreement that had protected it from prosecution for more than three years, the US the government said in court filing late on Sunday.
Federal prosecutors gave Boeing the choice this week of entering a guilty plea and paying a fine as part of its sentence, or facing a trial on the felony criminal charge of conspiracy to defraud the US.
The plea deal, which still must receive the approval of a federal judge to take effect, calls for Boeing to pay an additional $243.6m fine, according to a justice department (DOJ) document filed in federal court in Texas.
Boeing has also agreed to invest at least $455m over the next three years to strengthen its safety and compliance programs, the DOJ said. The department will appoint a third-party monitor to oversee the firm’s compliance. The monitor will have to publicly file with the court annual reports on the company’s progress.
A guilty plea potentially threatens the company’s ability to secure lucrative government contracts with the likes of the US defence department and Nasa, although it could seek waivers. Boeing became exposed to criminal prosecution after the justice department in May found the company violated a 2021 settlement involving the fatal crashes.
Rachel Reeves has said that the government has no intention of changing the way that the Bank of England treats reserve remuneration.
That idea has been floated by various economists and commentators – and even made its way into the Reform UK manifesto. It would mean the Bank of England paying a lower rate of interest to commercial banks. However, Reeves has now ruled it out pretty firmly.
You can follow more from Reeves’s speech on our politics live blog here:
