CBI chief warns against ‘large scale tax cuts driven by short-termism’; BoE’s Mann warns of ‘pernicious’ inflation – as it happened | Business

Time to wrap up.

The chief of the CBI has said “large-scale” tax cuts should be kept off the table as the country gears up for an election.

Rain Newton-Smith told an audience in London that businesses “want stability so they can invest for the future”, not tax cuts driven by short-termism.

She insisted:

To fund our public services with an ageing population, we must keep large-scale tax cuts off the table.

Bank of England policymaker Catherine Mann has warned that inflation is “the most pernicious of taxes”, as she explained why she wanted to raise interest rates last week.

Mann warned of risks of “continued inflation momentum and embedded persistence”, adding that Red Sea disruption could also push up prices in the UK.

China has the opposite problem, though – deflation. Its consumer prices index fell at the fastest pace in 15 years in January, pulled down by cheaper food.

The outlook for the UK housing market has improved, surveyors say…..

…but more mortgage-holders have dropped into arrears in the last quarter.

Shares in UK chip designer Arm has soared after it reported seeing higher royalty and licensing revenue amid strong AI demand.

Here’s the rest of today’s news stories:

Bank of England policymaker Catherine Mann is explaining that she voted to raise UK interest rates last week because of the need to fight the “pernicious” tax of inflation.

In a speech to the Official Monetary and Financial Institutions Forum this afternoon, Mann warns that there are risks of “continued inflation momentum and embedded persistence”, due to sluggish supply growth and the risk of “upside shocks”.

Mann explains that the UK jobs market is “still relatively tight” and is loosening only slowly.

She also points out that financial conditions have eased substantially since September, as the markets have anticipated cuts to Bank Rate in the coming months.

Mann says:

Inflation is the most pernicious of taxes, affecting all households, and those at lower incomes most severely.

Considering both backward-looking outcomes and my forward-looking assessments and risks, I determined it was prudent to vote for another increase in Bank Rate. It was a finely balanced decision.

Mann was joined in her vote to raise interest rates to 5.5% by fellow policymaker Jonathan Haskel. Six of the nine committee members voted to hold rates, while one, Swati Dhingra, voted for a cut.

Mann warns today that there is evidence of “upward bias” by firms when they set their prices, which would add to inflationary pressures.

The Bank of England forecasts that inflation will fall to its 2% target this spring, down from 4% in December, before rising by the end of the year

She also fears that Middle East turmoil could quickly push up prices in the UK:

More immediately, upside risk to shipping and insurance costs associated with the Red Sea turmoil may affect near-term inflation outcomes and be magnified through firm-level price setting behaviors, which would augment persistence.

I worry that such an upward inflation shock coming on the heels of the recent high inflation environment will be more swiftly incorporated into firms’ costs and prices, exacerbating upside momentum, which is slow to dissipate when the inflation shock subsides.

The value of UK chip designer ARM has surged by over a third at the start of Wall Street trading, after it beat revenue expectations last night.

Investors have driven ARM’s share price up by 36% to $105.14, after it lifted its outlook for this year, citing a recovery in the smartphone market and high demand for artificial intelligence technology.

Arm is the biggest supplier of design elements for the processing chips used in products from smartphones to games consoles.

It floated in New York last autum at an offer price of $51 each, so anyone who bought shares in the IPO have now doubled their money.

The boss of the Confederation of British Industry has urged politicians to keep “large-scale” tax cuts off the table, and to focus on funding public services.

Speaking at a conference in Westminster, CBI director general Rain Newton-Smith said that companies do not want to see tax reductions “driven by short-termism”.

Newton-Smith argued that for growth to be truly sustainable, it must prevent persistent high inflation.

She says:

Business investment is set to fall five per cent this year, in part because of higher interest rates needed to bring inflation down. As one business leader told me, they don’t want to see tax cuts driven by short-termism which leads to higher interest rates. They want stability so they can invest for the future.

To fund our public services with an ageing population, we must keep large-scale tax cuts off the table.

Last week, the International Monetary Fund issued a strong warning to Jeremy Hunt against cutting taxes in his budget in March, stressing the need to boost key areas of public spending instead.

Hunt had been hinting that the budget would include tax cuts. But following the IMF’s intervention, he played down the prospect, saying there was less room for tax reductions than hoped.

Newton-Smith also called for green investment to be increased from £10bn to £50bn per year by 2030, so the UK can hit its net zero target by 2050.

She says:

The majority will need to come from the private sector. But public sector investment in green technologies is essential as a catalyst to crowd that in. Whether that is de-risking Sustainable Aviation Fuels through contracts for difference, or helping our public buildings to move to low carbon heat and our social housing sector to insulate homes, lowering bills.

Just look at the Port of Tyne, a fantastic CBI member I visited two weeks ago. Last year they secured £100m for their Tyne 2050 project – half catalytic public investment; half all-important private sector investment.

But in the UK, overall public sector investment is too low and too volatile. The average OECD country invests nearly fifty per cent more.

That’s a timely intervention, with the Labour party expected to scale back its £28bn green investment programme today….

….a decision that has been criticised by environmentalists, progressive campaigners, and policy experts today:

Newton-Smith was appointed the CBI’s director last spring, after her predecessor Tony Danker was dismissed after the Guardian revealed unrelated complaints about his conduct in March.

The CBI settled with Danker for an undisclosed sum this week and reiterated that his departure was unrelated to other allegations of misconduct at the group.

Over in Germany, house prices have dropped at the fastest pace on record.

The German Real Estate Index, published by the Kiel Institute for the World Economy, shows that property prices dropped sharply in Europe’s largest economy last year.

Sale prices of apartments fell by 8.9% during 2023, while single-family home price fell 11.3%. The price of multi-family homes dropped 20.1% during the year.

The report says:

The speed and extent of the current fall in real estate prices in Germany are historically unprecedented. Never since the expert committees started recording prices in the 1960s, have real estate prices fallen so quickly and sharply.

There’s more takeover action bubbling in the City today.

Shares in packaging firm DS Smith have jumped 10% after it revealed it has received a “highly preliminary expression of interest” from rival, and fellow FTSE 100 member, Mondi.

It says:

The Board of DS Smith understands that Mondi is considering a possible offer for DS Smith although no proposal has been received at this stage.

There can be no certainty as to whether any proposal will be made or the terms of any such proposal. A further announcement will be made if and when appropriate.

Mondi now has until 5.00pm on 7 March to make an offer, or walk away for six months.

It’s official: NatWest Group has announced the appointment of Wealth Management executive Emma Crystal as the new CEO of its Wealth Businesses, including Coutts, subject to regulatory approval.

Paul Thwaite, NatWest’s interim CEO, says:

“Emma’s extensive Wealth Management experience and deep client focus make her the ideal person to lead our Wealth Businesses at this time.

The UK Wealth Management market is large and growing and Emma’s proven ability to work across organisational boundaries will be invaluable in helping us deliver an outstanding client experience and achieve our growth ambitions.”

As covered earlier (9.38am), the position has been vacant since Peter Flavel was pushed out of Coutts in the row over the “debanking” of Nigel Farage.

Rising cost-of-living pressures and higher interest rates have pushed more mortgage holders into arrears on their loans, new data shows.

UK Finance reports that the number of homeowner mortgages in arrears increased by 7% in the last quarter of 2023, to 93,680.

There was an 18% increase in buy-to-let mortgages in arrears, up to 13,570, as more landlords struggled to cope with higher borrowing costs.

But although arrears are rising, the number of homeowner mortgaged homes being taken into possession dropped by 14% in the last quarter, to 540.

Also, 500 BTL mortgaged properties were taken into possession in Q4, 11% greater than the previous quarter.

That combined total of 1,040 repossessions in Q4 2023 is almost half the nearly 2,000 repossessed in the last three months of 2019, before the pandemic.

Eric Leenders, managing director of Personal Finance at UK Finance, says:

“The number of mortgage holders in arrears, whilst still low, is continuing to rise as the cost-of-living and high interest rates take their toll on households.

Importantly, help is available to anyone worried about their finances – please reach out to your lender as soon as possible to discuss the support options available. Lenders have teams of trained experts ready to help. Contacting your lender to find out what support is available won’t affect your credit score.”