Key events:
Rob Davies
The house always wins, except today when gambling stocks are dominating the list of biggest losers on the London stock market.
The most obvious cause was a forecast downgrade from Entain, owner of Ladbrokes and Coral, which cut guidance for the full year, blaming soaraway inflation for curtailing punters’ spending power (see earlier post).
But political factors may well have been at play too.
As the Guardian has reported, senior No10 advisers with ties to the gambling industry, as well as Jacob Rees-Mogg, were believed to be trying to water down tough regulatory reforms drafted by gambling minister Chris Philp. A white paper, due next week before the political chaos, was expected to be a lucky escape for bookies and online casinos.
Now the PM is headed for the exit, helped on his way by resignations including that of Philp himself, once a staunch Johnson loyalist. Philp parted with a warning shot to the PM, to publish a “full and undiluted” version of the white paper.
I’m deeply saddened it has come to this, but the PM should step down given public and Parliamentary confidence has clearly gone, and given the importance of integrity in public life. I’m therefore stepping down as Minister for Tech and the Digital Economy now pic.twitter.com/iXyd7inBQP
— Chris Philp (@CPhilpOfficial) July 7, 2022
With the power balance shifting fast, final publication of the white paper could be delayed, giving reformists such as Iain Duncan Smith the power and the time to get tougher reforms reinstated.
Gambling shares extended early losses as reports leaked out that the PM was preparing to address the nation.
Entain, which started the sell-off with its gloomy update, lost as much as 10% before recovering to be 6.75% down by early afternoon, the biggest faller on a rising FTSE100. Flutter lost 4.4%, while 888 was 4% lower.
Economic news: The United States trade deficit with the rest of the world has fallen, due to a pick-up in exports.
The trade deficit narrowed 1.3% in May to $85.5 billion, the Commerce Department reported, the smallest trade deficit since December’s $78.9bn.
Exports rose 1.2% to a record $255.9bn, the fourth straight monthly gain as rising energy prices pushed up the value of sales overseas.
Imports rose 0.6% to $341.4bn, still below March’s record high, with shipments of consumer goods dropping.
The US trade deficit shrunk in May to the lowest level of the year, reflecting a pickup in exports of goods and services https://t.co/eVhUWQejtP
— Bloomberg Asia (@BloombergAsia) July 7, 2022
Stuart Rose, the veteran retailer and Conservative peer, has urged Boris Johnson to leave 10 Downing Street now, describing him as a “lame duck prime minister”.
Lord Rose, chair of supermarket chain Asda, warned the economy was being neglected amid the political crisis:
This has been too long in happening and it is unsustainable to continue with a hamstrung, lame duck prime minister into the autumn.
There doesn’t seem to be anybody dealing with the serious issue of the economy. This political crisis has hamstrung everything.”
His comments came as a series of business leaders responded to Johnson’s resignation and the appointment of an interim cabinet by calling for tax cuts to support the UK’s deteriorating economy. More here:
Moody’s Analytics: Johnson’s resignation creates period of additional uncertainty
Britain’s next leader needs to get to grips with the cost of living crisis, regional inequalities, and the risks from climate change, says Moody’s Analytics senior economist, David Muir.
Boris Johnson’s resignation creates a period of additional uncertainty for the UK which would ideally be quickly resolved.
Whoever takes over will need to re-focus policy on addressing the key risks to the economy, such as the cost of living squeeze, and also the UK’s longer term challenges, in particular, measures to take forward the levelling up agenda and to mitigate risks from climate change.”
You can catch up with all the latest dramatic political developments here:
Gwyn Topham
The dispute that threatened a walkout of British Airways check-in staff at Heathrow airport during the summer holidays was suspended, after the airline made a “vastly improved” pay offer, transport correspondent Gwyn Topham explains.
After a day of talks on Wednesday a package was agreed with the Unite union that sources said in effect met its demand to restore the 10% pay cut introduced during the pandemic.
A one-off bonus payment for 2022 worth 10% of pay had earlier been rejected.
The offer will now be put to a ballot of Unite members but both parties hope that the agreement will resolve the immediate dispute.
A British Airways spokesperson said:
“We are very pleased that, following collaboration with the unions, they have decided not to issue dates for industrial action. This is great news for our customers and our people.”
The FTSE 250 index of medium-sized firms is up around 1% today, at a one-week high,
James Penny, chief investment officer at TAM Asset Management, says domestic firms could benefit from a new PM.
“Clear winners from Boris Johnson’s resignation might not be immediately apparent until a successor is found. Having said that, it’s likely his successor will have a softer stance on Europe and Brexit negotiations, boosting positivity for UK domestic businesses found in the mid and small cap space which have been battered as of late. This could be further boosted if the successor manages to right the UK ship and thus stabilise the pound, which would boost domestic businesses in the FTSE 250 and AIM.
“The UK economy will always respond positively to a firm hand on the tiller of the country, so this is only a benefit for the economy and its prospects as we head into a time of economic contraction. The crossroads of inflation and the cost-of-living crisis are also likely to be more clearly managed going forward.
Both should boost the pound and boost domestic asset prices. The overarching caveat is the UK is ostensibly a lot closer to an economic recession than many other developed nations, so the storm clouds on the UK market are far from dissipating. However, this development is undoubtedly positive for the UK market, the UK economy and its voters.
Market reactions after #BorisJohnson resigns as UK PM:
FTSE 250⬆️to a 1-week high
FTSE 100 index eased slightly, ⬆️1%.
Sterling ⬆️to $1.1994, 0.6% at the day’s high, from $1.1938 before the news broke – @reuters $GBP $FTSE #stocks #UK #markets— Global Markets Forum (@ReutersGMF) July 7, 2022
Shares in British Airways parent company rose after the industrial dispute affecting its check-in staff at London’s Heathrow airport was suspended
IAG shares are now up 3.5%, adding to earlier gains, after Unite reported the two sides have reached a deal over pay.
Heathrow check-in staff dispute suspended as BA makes improved pay offer
The industrial dispute affecting British Airways’ check-in staff at Heathrow airport has been suspended after the company made a “vastly improved” pay offer, the Unite union says.
Unite has announced that BA has made an increased pay offer for check-in staff, following talks yesterday.
Unite will now ballot members involved in the dispute on the proposed offer, with the dispute suspended.
Unite general secretary Sharon Graham said:
We welcome that BA has finally listened to the voice of its check-in staff.
Unite has repeatedly warned that pay disputes at BA were inevitable unless the company took our members’ legitimate grievances seriously. I pay tribute to, and stand with, our members who have fought hard to protect their pay.”
Those strikes were expected to cause disruption over the summer holiday period:
A simple reading of post-war UK fiscal history suggests that the “inevitable periodic shocks” to come could push the national debt to nearly 320% of GDP in 50 years — over triple current levels.
So warns the Office for Budget Responsibility in today’s report, as it explains why it believes Britain faces an unsustainable debt burden unless future governments raise taxes.
It’s tweeted the key charts:
Looking at spending and receipts over the next 50 years:
– Receipts fall slightly due to loss of motoring taxes
– The low birth rate reduces spending on education
– An ageing population and other cost pressures raise health, pensions, and social care spending pic.twitter.com/IPL0RkTpDF— Office for Budget Responsibility (@OBR_UK) July 7, 2022
The net result is a primary deficit that is lower in the near term (due to a better fiscal starting position & lower education spending) but higher in the long term (due to the rising cost of ageing & loss of motoring taxes) relative to our previous long-term projection pic.twitter.com/d39OsZFQjH
— Office for Budget Responsibility (@OBR_UK) July 7, 2022
The overall ageing of the population, rising cost of health and other age-related services, and loss of motoring taxes see the government’s stock of debt more than double to over 250% of GDP by the early 2070s if no further fiscal action is taken pic.twitter.com/LoEZm48TFQ
— Office for Budget Responsibility (@OBR_UK) July 7, 2022
Factoring in the ratchet effect from periodic economic shocks could cause debt to almost quadruple to 320% of GDP by the 2070s, while the fiscal implications of the specific risks explored in this report would also worsen the long-term outlook pic.twitter.com/jquNgkTEbJ
— Office for Budget Responsibility (@OBR_UK) July 7, 2022
UK’s public finances on ‘unsustainable’ path, as inflation threatens recession
The UK’s public finances are on an ‘unsustainable’ long-term path, the UK’s independent fiscal watchdog has warned today.
In its latest assessment, The Office for Budget Responsibility says the public finances will come under more strain from an aging population, and the loss of existing motoring taxes as petrol and diesel cars are phased out.
The report is a timely warning of the challenge that current government, and future administrations, face as they steer the public finances through inevitable future shocks, while managing multiple slow-building pressures.
The OBR warns that government debt levels could rise to more than double GDP unless there are tax rises or spending cuts.
That could dampen talk of tax cuts from those keen to become the next prime minister.
The OBR says:
Our long-term projections show debt rising to over 100 per cent of GDP by 2052-53 and reaching 267 per cent of GDP in 50 years if upward pressures on health, pensions and social care spending, and the loss of motoring taxes, are accommodated.
Bringing debt back to 75% of GDP – the level at which it stabilised in the Government’s pre-pandemic March 2020 Budget – would need taxes to rise, spending to fall, or a combination of both, amounting to a 1.5% of GDP additional tightening (£37 billion a year in today’s terms) at the beginning of each decade over the next 50 years.
The shorter term outlook is worrying too, with Russia’s invasion of Ukraine intensifying geopolitical tensions and driving energy prices up, and fuelling worries about cyberwarfare.
The OBR warns that soaring energy prices and inflation threaten to tip the UK into recession:
Many threats remain, with rising inflation potentially tipping the economy into recession, continued uncertainty about our future trading relationship with the EU, a resurgence in Covid cases, a changing global climate, and rising interest rates all continuing to hang over the fiscal outlook.
The fiscal watchdog also cites surging energy costs as a threat:
The recent more than doubling of gas and oil prices and the rise in inflation to rates not seen since the energy crises of the 1970s have underscored the economic and fiscal risks associated with the UK’s continued dependence on fossil fuel imports.
And it adds that Russia’s invasion of Ukraine has prompted a reappraisal of levels of defence spending across Western countries, and highlighted fears of a cyberwarfare.
Jet2 says it has awarded all its staff a pay increase of 8%, which should help them through the cost of living squeeze.
The airline will also pay all colleagues an extra £1,000 at the end of the summer.
Jet2 results out today. They awarded staff an 8% pay increase
They’re also not cancelling thousands of flights – funny that
[They are excoriating airports for being “woefully ill‐prepared and poorly resourced for the volume of customers they could reasonably expect” though]
— Jonathan Eley (@JonathanEley) July 7, 2022
