UK factories raise prices at record pace; windfall tax calls grows as BP earnings swell – as it happened

A late PS: P&O Ferries first passenger trip from Dover to Calais since cross-channel tourist services were suspended in March is under way.

The Spirit of Britain departed the Port of Dover this afternoon, having arrived frrom Calais earlier as cross-Channel sailings restarted.

As explained earlier, it has been crossing the English channel for just under a week, carrying freight-only traffic, but will now carry passengers too.

It is due to return from Calais back to Dover this evening, now that the boat has passed safety inspections.

However, three other vessels cannot run on the service yet. The Pride of Kent is unable to sail having failed a safety inspection, while Pride of Canterbury and Spirit of France haven’t been inspected yet.

The Australian dollar had a strong day, after the Reserve Bank of Australia hiked rates by 0.25% - the first rate rise in 11 years.

The central bank lifted its cash rate target from the record low 0.1% it had hovered at since November 2020, during the depths of the Covid pandemic. It was raised more than expected to 0.35%, and the RBA signalled more rises to come.

RBA governor Philip Lowe said in a statement that:

“The board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic,”

David Madden, market analyst at Equiti Capital, says:

In November, the RBA signalled the first rate-hike might not be until 2024, so this goes to show how much things have changed in the past six months.

Australia, like other countries is dealing with high inflation, which hit 5.1% - its highest mark in 20 years. This hike comes at a time when the Chinese economy is cooling. Australia is dependant on China for trade, so higher domestic interest rates, plus a slowing Chinese economy does not bode well for Australia.

European markets all ended the day higher, as they shrugged off Monday’s losses.

Germany’s DAX and France’s CAC both gained around 0.7%, while Italy’s FTSE MIB jumped 1.6%.

Yesterday’s selloff was partly due to worries over the global economy, the prospect of a hike in US interest rates tomorrow, and jitters after a Citigroup trader accidentally caused a brief flash crash.

UK energy suppliers who hiked their customers direct debit payments unfairly have been warned that they could be fined.

Business secretary Kwasi Kwarteng has revealed that household energy suppliers face a crackdown on direct debit payment demands, as customers grapple with record bills for gas and electricity.

Kwarteng tweeted that some companies had been increasing direct debit payments “beyond what is required”, and that regulator Ofgem had launched a compliance review which could results in financial penalties.

In March, consumer campaigner Martin Lewis told MPs that some companies had unfairly increased direct debits in a bid to improve their cash flow at the expense of their customers.

The founder of moneysavingexpert.com said the move could breach energy companies’ licence conditions.

Mortgage giant Halifax has jumped the gun ahead of Thursday’s UK interest rate decision.

Halifax has apologised for sending emails in error to customers, wrongly telling them that the Bank of England base rate had changed today.

Customers of Halifax and Lloyds Bank, which is in the same banking group, were affected by the blunder.

The emails state “we want to help you understand what this could mean for you”, and go on to explain the differences between fixed and variable rate mortgages.

They also highlight the support available if customers are struggling with their repayments.

The base rate is currently 0.75% after three hikes in a row, and economsts widely expect another rise on Thursday to 1% as inflation remains inflation.

A Lloyds Banking Group spokesperson said (via PA Media).

“We are sorry for any confusion caused by an email issued in error this morning.

“The email had been prepared in advance of Thursday’s MPC (Bank of England Monetary Policy Committee) decision so that in the event of a rise we could quickly advise customers and help them understand how that might affect their mortgage.

“We are emailing customers today to apologise and confirm that there are no changes to their mortgage or rates.”

Back to manufacturing.... and US factories had a stronger March than expected.

Orders for manufactured goods jumped by 2.2% during the month, twice as fast as forecast, up from a 0.1% rise in February (revised up from a 0.5% fall).

Durable goods orders rose 1.1%, led by computers and electronic products, while non-durables were up 3.2%.

That suggests demand for goods held up at the end of the first quarter, even though US GDP shrank unexpectedly by 0.4%.

Over in Dover, P&O Ferries’ Spirit of Britain has arrived from Calais as its cross-channel passenger service finally resumes today (see earlier post).

It will now get ready to transport UK tourists back to France for the first time since mid-March, when sailings were suspended and almost 800 staff sacked.

Boris Johnson has joined the lobbying effort to convince the British-based chip designer Arm to float in London, as the government fears the damage of losing out to New York in the battle to attract high-profile tech companies looking to list.

After the collapse of the $66bn sale of the Cambridge-based business to US-based Nvidia earlier this year, Masayoshi Son, the chief executive of Arm’s Japanese parent company Softbank, immediately snubbed the UK for a flotation.

“We think that the Nasdaq stock exchange in the US, which is at the centre of global hi-tech, would be most suitable,” he said in February.

Johnson has joined the lobbying efforts already under way by London Stock Exchange executives and a number of government departments and senior officials, writing a letter to Softbank executives, according to the Financial Times.

The effort includes the Department for Digital, Culture, Media and Sport (DCMS), the Treasury, the business department as well as Downing Street. Chris Philp, the digital minister, and Gerry Grimstone, the former Barclays chair who now heads the UK’s Office for Investment, are leading the lobbying efforts ...

Six in 10 people think company bosses should be prevented from earning more than 10 times the average paid to employees, according to polling shared exclusively with the Guardian.

A poll for the High Pay Centre, a thinktank that campaigns for fairer pay for workers, found that 63% of Britons said chief executives should be paid no more than 10 times the earnings of lower- or mid-ranking employees.

The survey of 1,104 UK adults found that only 3% of people thought it was appropriate for chief executives to get paid more than 50 times the company’s average pay.

In reality, bosses of the 350 biggest UK-listed companies are paid 53 times more than the median employee, according to separate High Pay Centre research published in December 2020. A total of 43 bosses of FTSE 350 companies received more than 100 times as much as the average employee ...

More here:

Shares in BP are now trading at their highest level since mid-February, up more than 4% at 408p.

Walid Koudmani, chief market analyst at financial brokerage XTB, says:

Despite significant volatility in the energy markets, BP’s results showed a relatively positive performance with net debt continuing to fall and the announcement of a further $2.5bn share buyback.

The company remains optimistic despite a reported loss for the quarter of $20.4bn, and attempted to reassure investors with plans to adapt to the future. While today’s report appears to be mixed, share price reacted positively and could continue to be volatile as it is affected by ongoing geopolitical events.

It makes sense that BP’s £18bn investment plans wouldn’t be scuppered by a windfall tax on North Sea producers (see previous post).

Many of the projects BP outlined today are in renewables, such as offshore wind in the Irish Sea and off the east coast of Scotland, and in hydrogen, where the long-term commercial viability isn’t affected by any windfall levy on North Sea producers.

BP is also planning to develop “lower-emission oil and gas projects” at some North Sea fields, and to invest in exploration around its existing North Sea hubs. Having lost its interest in Rosneft, BP will be keen to add more oil reserves.

Plus, the company is throwing off billions of dollars each quarter in surplus cash, which is why it will spend another $2.5bn on share buybacks this quarter.

Roberto Rivero, market analyst at Admirals says:

Rosneft accounted for roughly half of BP’s oil and gas reserves and a third of its production. The loss of this source of oil and gas may not be fully felt until we see the company’s results for the current quarter.

Although high oil and gas prices will continue to result in high revenue for BP, the loss of its Russian operations may negatively impact future results.

BP CEO Bernard Looney has told the Times that none of its £18bn of planned investment over the next eight years would be sunk by a windfall tax on profits.

Energy editor Emily Gosden has the details:

This undermines the UK government’s whole case against the windfall tax, points out Ed Miliband, Labour’s shadow secretary of state for climate change and net zero.

Hong Kong’s economy has shrunk by more than expected, amid its worst Covid-19 outbreak.

GDP in Hong Kong shrank by 2.9% during the January-March quarter, and was 4% smaller than a year ago - the first year-on-year decline in four quarters.

Hong Kong suffered a surge in infections and thousands of deaths this year, as the omicron variant spread through the city after two years of a “zero-Covid” strategy of mass testing, contact tracing, border closures and strict quarantine rules.

Authorities also introduced tighter restrictions at the start of the year, including a ban on evening dining-in at hospitality venues, and the temporary closure of many hospitality venues including gyms and beauty salons.

A government spokesman said that the Hong Kong economy faced immense pressure in the first quarter of 2022, at home and abroad.

Externally, moderating global demand growth and epidemic-induced cross boundary transportation disruptions posed substantial drags to exports.

Domestically, a wide range of economic activities as well as economic sentiment were hard hit by the fifth wave of local epidemic and resultant anti-epidemic measures.

Consumers will soon be hit by the jump in factory goods prices last month.

Mike Thornton, national head of manufacturing at the accountancy group RSM UK, says the government isn’t providing enough help to firms facing rampant energy prices.

Prolonged supply chain disruption and soaring input costs also drove up output prices at record pace, he adds:

With the Russia-Ukraine crisis and the latest lockdowns in China, pressure on supply chains will be exacerbated further. Now more than ever, manufacturers will need to balance inflationary costs, soaring energy prices and the cost of living squeeze, to mitigate risks in a volatile market.

The extra financial support from the Government to assist high energy usage doesn’t go far enough, so price inflation is almost inevitable and consumers will feel the hit throughout 2022.

Last week ministers extended, and doubled, a scheme to help high-energy users with the jump in bills.

UK manufacturers grew (understandably) gloomier last month, with business expectations the lowest since December 2020.

Firms were also hit by more delays to receive parts and materials, as supply chains struggle.

The PMI report says:

Vendor lead times lengthened again in April. This reflected input shortages, port congestion, Covid issues, a lack of transportation capacity (especially for trucks and shipping), customs clearance delays, lockdown in China and the war in Ukraine.

Cosmetics group Estee Lauder has cut its sales forecast, as China’s Covid-19 restrictions and Russia’s invasion of Ukraine both hit its business.

The company expects net sales for the full year to rise between 7% and 9%, down from its prior forecast of a 13% to 16% increase.

In its latest results, Estee Lauder reported that net sales grew by 10% in the first three months of the year, with Western markets outperforming.

But net sales fell in Russia and Ukraine, where it suspended all commercial activity following the invasion.

Estee Lauder also reported that China’s Covid restrictions hit consumer traffic and travel, and also limited its capacity to ship orders from its distribution facilities in Shanghai.

Looking ahead, it says:

Global volatility and variability is expected to continue, including inflation, supply chain disruption (including temporary reduced capacity at China distribution facilities), impacts related to current Covid-19 restrictions (primarily in Greater China including store closures, reduced traffic and less travel), and disruptions in Europe related to the invasion in Ukraine.

Credit rating agency Fitch has cut its growth forecasts for China, warning that restrictions to fight the spread of Covid-19 are hitting the economy.

Fitch cut its forecast for China’s 2022 GDP growth to 4.3%, from 4.8%, citing the lockdown which began five weeks ago in Shanghai, and wider disruption.

It also nudged up its 2023 growth forecast slightly higher to 5.2%, from 5.1%, on the assumption that China will only gradually phase out its ‘dynamic zero-Covid’ policy over the course of next year.

Fitch says:

Policies adopted by the authorities since mid-March to contain the spread of the Omicron strain of Covid-19 have led to an extended lockdown in the important commercial hub of Shanghai, and a rise in public health and mobility restrictions across China more broadly.

Spillover to economic activity from Covid-19 pandemic-related disruption became apparent in March, with retail sales falling by 3.5%, the first yoy decline since mid-2020. Selected sub-components contracted even more severely; for example, catering was down by 15.6% yoy. Other areas of activity, including industrial production and fixed-asset investment, also slowed noticeably, as health and movement controls disrupted domestic supply chains and labour availability.

The head of Norway’s $1.2trn sovereign wealth fund, the world’s largest, has warned that geopolitical events and inflation will continue to buffett the markets.

Nicolai Tangen told a parliamentary hearing that

“The geopolitical consequences of the war are difficult to predict, but we probably face the greatest changes for 30 years.

“There is little doubt that growing frictions between superpowers and a reversal of globalisation will affect the markets,”

The Norwegian fund was set up with the profits from the North Sea oil boom. It invests all its assets in foreign stocks, bonds, real estate and renewable energy projects, having voted to divest from fossil fuels in 2019.

That means it’s exposed to global markets, leading Tangen to warn that “we have a rocky ride ahead.”

Stagflation - a period of rising prices and weak growth - is a key risk:

Unemployment in the eurozone dropped to a record low in March, despite the early economy damage caused by the Ukraine war.

The euro-area jobless rate dipped to 6.8%, from an (upwardly revised) 6.9% in February, the lowest since the single currency bloc was introduced.

However, that’s higher than the 6.7% expected, which may show that the jobs recovery has slowed.

Since March 2021, unemployment fell by 1.931m in the euro area and 2.359m million in the wider EU, as firms took on staff as economies recovered from the pandemic shock.

Boris Johnson also argued it’s vital for firms to invest in energy security for the future, as he pushed back on calls for a windfall tax on exceess earnings.

He cites the ‘insane’ position of the UK importing electricity from countries such as France, during his Good Morning Britain interview.

But that’s not going to help families facing a cost of living crisis today -- where a one-off windfall tax could help cushion the surge in bills, pointed out GMB’s Susanna Reid in this morning’s interview.

Johnson also struggled when told about a pensioner whose energy bills have jumped from £17 a month to £85 a month. Elsie now eats one meal a day, and travels on buses on her free pass all day, to save on spending energy at home.

Johnson’s response, that he introduced the 24-hour Freedom bus pass when mayor of London, looks tone deaf given the scale of the crisis.... and also inaccurate:

As my colleague Andrew Sparrow points out, Johnson also claimed there was a risk of an ‘inflationary spiral’ if the UK stops its ‘prudent’ approach to spending.

That may disappoint those hoping for a lot more help in the cost of living crisis, although Johnson did admit: “There is more that we can do”.

Oil company results are rarely the easiest to digest.

And this morning, BP has reported both a whopping $20bn pretax loss due to quitting Russia, and a sizzling $6.2bn profit on an underlying basis that reflects its performance.

AJ Bell investment director Russ Mould says the underlying profits show the boost from surging energy prices, and will add to pressure over a windfall tax.

“The oil giant might have hoped attention would focus on an apparent $20.4 billion loss – created by impairments linked to its exit of interests in Russia – but the strongest underlying profit in a decade of $6.25 billion was more revealing of the impact of surging oil and gas prices on the business.

“What feels like an achievement worth celebrating almost needs an apology by BP – and there may almost be an element of regret on its part that the numbers are so far ahead of forecasts.

“The argument for the windfall tax goes something like this – BP’s profit and cash flow is being artificially inflated by the war in Ukraine and ordinary people are already paying the price through much higher household bills. Shouldn’t BP, with its broader shoulders, share the burden? Particularly given it feels able to boost shareholder returns with an enhanced share buyback programme.

“It was no surprise to hear chief executive Bernard Looney talking about ‘backing Britain’ and flagging billions of pounds worth of investment in projects to boost domestic energy security.

“Whether this will be enough to stave off a new levy remains to be seen. The political pressure to do so is only likely to escalate as the cost of living continues to surge in the UK.

“The exit from Russia, while bringing with it considerable costs, arguably helps with the transformation of the group and strong cash flow is helping to bring down debt.

“BP has ambitious plans to become cleaner and greener but today’s update is a reminder that fossil fuels, with all the environmental and geopolitical mess they entail, remain central to the company for now.”

Freetrade senior analyst Dan Lane points out that BP could have set aside more of its free cash for investment, rather than directing $2.5bn to additional share buybacks over the next quarter.

Letting go of Rosneft has clearly hurt BP but that kind of swift action and commitment to values won’t be forgotten. It’s not often you get the stage to put your money where your mouth is and the company has done exactly that. For now though, that’s a big hit to profits over a quarter that saw a booming oil price.

Another round of buybacks might look beneficial for shareholders on the surface but you always have to ask if there was anything the firm could have done with that cash to grow otherwise. The overwhelming answer here is BP could have further demonstrated its ESG credentials by pumping it into its green strategies.

Today’s results mark “a tricky moment” for BP, as calls rising for a windfall tax on oil and gas firms to ease the cost-of-living crisis, says Mark Crouch, analyst at social investing network eToro:

While calls for such a tax have seemed unlikely to be implemented, Rishi Sunak appears to be wavering, having told Mumsnet that unless oil and gas firms invest their profits in the UK’s energy security, he could consider such a move.

“This is of course a long way from actual policy action, but the challenge is clear that the firm needs to be seen to invest its increased take. Anything less could heighten the jeopardy it faces from a hot-blooded political environment.”

The Russia-Ukraine war means the oil price is likely to remain volatile, BP warns in today’s Q1 results.

It explains:

BP expects an ongoing elevated risk of oil price volatility.

This reflects uncertainties around the level of disruption to Russian supply, the capacity for increased OPEC+ supply, the ongoing impact of COVID-19 on demand and the impact of the conflict in Ukraine on economic growth.

BP also points out that short-term gas prices will be heavily influence by Russian pipeline flows to Europe, while its customers face an “elevated level of uncertainty” due to the conflict in Ukraine and ongoing Covid-19 restrictions.

Shares in BP have risen over 2% in early trading, after its underlying profits beat expectations in the last quarter.

Investors will also be cheered that BP has boosted its share buybacks by $2.5bn today, after its cash flow surged thanks to rising energy prices.

Liberal Democrat Leader Ed Davey is also calling for a windfall tax on energy firms:

“The Conservative government’s refusal to introduce a windfall tax on the super profits of oil companies is becoming impossible to justify.

BP is raking in eye-watering profits while millions of people struggle to pay the bills. It is an unforgivable lack of leadership from Boris Johnson at a time of national crisis.

Oil companies are handing out huge dividends and buying back shares, they could easily afford to pay a little more to help the most vulnerable.

Labour’s shadow chancellor, Rachel Reeves, says the case for a windfall tax to help families strugging with higher energy bills ‘cannot be ignored’: