BUSINESS LIVE: Recession confirmed; Thames Water survival fears; Lloyd’s of London swings to profit

Lindsay James, investment strategist at Quilter Investors:

‘It would be premature to say that the economy has turned completely around; however, indicators suggest that the recession was relatively short-lived.

‘Current expectations are more consistent with a stabilization in the first half of 2024 than with a robust recovery, mainly due to the continued impact of high interest rates and their delayed effects on the market.

“Governor Andrew Bailey’s recent comments that rate cuts are now ‘in play’ for future rallies point to potential stimulus for growth in the second half of the year.

“While there are indications that business activity is on the rise, the threat of a comeback in inflationary pressures cannot be ignored.

‘Despite base effects and a reduction in the energy price ceiling, which contributes to a decline in headline figures in the near term, the possibility of further increases in inflation remains. Such developments could limit the Bank of England’s ability to make interest rate cuts in subsequent quarters.

‘In summary, the UK economy is showing signs of stabilisation, but caution remains paramount as we navigate the complexities of inflation and interest rate dynamics.’

Lloyd’s of London posted pre-tax profits of £10.7 billion in 2023, with the commercial insurance market boosted by strong underwriting and investment performance.

The insurance market, which has more than 50 member companies, suffered a loss of £800 million in 2022.

Commercial insurers, which insure everything from oil rigs to the legs of professional football players, have in recent years battled a pandemic, wars, inflation and mounting losses from natural disasters by excluding certain companies and raising prices.

“We will continue to work with our market to deliver consistent profitable performance through disciplined underwriting,” said CEO John Neal.

Thames Water shareholders have refused to raise a promised £500 million in equity, increasing concerns over the survival of Britain’s biggest water company after it failed to negotiate future bills and terms with the regulator to agree.

Thames Water said it is operating ‘business as usual’ and trying to reassure its 16 million customers after a year of speculation that it could collapse under the weight of its debts of more than £14 billion.

“Discussions with Ofwat and other stakeholders are ongoing,” Thames Water said in its statement.

The company’s shareholders, which include the Ontario Municipal Employees Retirement System and the U.K. Universities Superannuation Scheme, should have provided the new equity by March 31.

Convicted Libor trader Tom Hayes has vowed to fight on to clear his name after losing his appeal against conviction.

Hayes, who was jailed in 2015 for manipulating the Libor benchmark rate, will now seek to take his case to the Supreme Court.

The former Citigroup and UBS trader claims he has been made a scapegoat for the financial crisis.

Thomas Pugh, economist at RSM UK:

‘This morning’s data confirmed that Britain suffered its smallest recession in the second half of last year. But it’s almost certainly over already.

“A jump in retail sales and an improvement in business surveys such as PMIs indicate the economy is improving in the first quarter of this year. We then expect growth to accelerate in the second half of this year and into 2025 as sharply lower inflation, tax cuts and falling interest rates provide households with an income boost.

‘The big unknown is how much of this income increase households will actually spend. Despite real disposable household income growing by 0.7% in the fourth quarter, the household savings rate rose to 10.2% in the last quarter, up from 10.1% in the third quarter, indicating that households were still busy building up savings buffers at the end of last year. .

‘The good news is that consumer confidence has gradually improved over the past year and UK consumer confidence in their personal finances has reached the highest level since 2021, as the impact of rising real wages continues to filter into people’s pockets, even as consumers remain generally cautious. .

‘We expect this to continue in the coming year. This suggests that household savings patterns will return to more normal levels in the first half of the year.

‘On this basis, we believe that the improvement in real household incomes, which will intensify later this year, will translate into a boost in spending that will kick-start the economic recovery and ultimately lift Britain out of stagnation .’

The UK economy entered a recession in the second half of last year, new data from the Office for National Statistics has confirmed.

GDP contracted 0.1 percent in the third quarter and 0.3 percent in the fourth quarter, unchanged from preliminary estimates.