European Central Bank ready to cut interest rates; UK retail sales jump as inflation slows – business live

Introduction: European Central Bank firmly on track for June rate cut

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

European consumers and businesses can look forward to lower borrowing costs, with the European Central Bank looking firmly on track to cut interest rates next week.

With inflation having fallen close to the ECB’s 2% target, several policymakers are hinting that the bank will be able to lower rates at its meeting next week.

Philip Lane, the ECB’s chief economist, declared in a speech in Dublin:

At our June meeting, if our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.

After the speech, Lane told reporters that “The discussion about a rate cut next week is not a declaration of victory,” according to the Financial Times.

French central bank chief Francois Villeroy de Galhau was even more categorical, declaring a June rate cut “a done deal” unless there is a shock.

Villeroy de Galhau, who like Lane is a member of the ECB’s governing council, told Germany’s Boersen Zeitung newspaper:

“Barring a surprise, the first rate cut in June is a done deal, but afterwards we have several degrees of freedom,”

Villeroy de Galhau argued that the ECB should keep its options open about possible future cuts, adding:

“I don’t say that we should commit already on July, but let us keep our freedom on the timing and pace.”

A cut in June would make the ECB one of the first major central banks to lower rates in the current cycle, after the Swiss National Bank which surprised the markets with a rate cut in March.

Currently, the ECB’s deposit facility – paid to banks who make overnight deposits with the Eurosystem – is a record high of 4%.

Its main refinancing operations, the rate banks pay when they borrow money from the ECB for one week, is 4.5%.

Annual inflation in the euro area was just 2.4% in April 2024, a near three-year low, down from 7% a year before.

A chart showing eurozone inflation, from Philip Lane
A chart showing eurozone inflation, from Philip Lane Photograph: ECB

In the UK, inflation was even lower, at 2.3% in the year to April. But with services inflation looking sticky, the Bank of England now isn’t expected to start cutting rates until November.

The US Federal Reserve may also wait until November, market pricing indicates, with US inflation running over 3%.

The agenda

  • 7am BST: German wholesale price inflaion

  • 11am BST: CBI distributive trades survey for May

  • 2pm BST: US house price index for March

Key events

Boohoo abandons executive bonus plan after investor anger

Fashion retailer Boohoo’s factory and offices in Leicester, England. Photograph: Christopher Furlong/Getty Images

Newsflash: Boohoo has sensationally backed down over a controversial scheme that would have handed sizeable bonuses to directors of the loss-making fast fashion group.

Boohoo has told shareholders that it has withdrawn a resolution from next month’s AGM which would have handed £1m bonuses to Mahmud Kamani and Carol Kane, its co-founders, and to CEOJohn Lyttle.

The u-turn comes after a backlash from some investors, who were gearing up to revolt against the plan when it came to a vote at the AGM on 20th June.

Boohoo says that having engaged with “certain shareholders”, it has decided not to implement the Incentive Plan at this time.

Kamani, Kane and Lyttle were not due bonuses because they missed financial targets for the last year. However, Boohoo’s remuneration committee agreed to a pay out anyway, citing their “overall performance” and a change of strategy during the year.

In the company’s latest annual report, they explained:

However, the Remuneration Committee considered at great length the overall formulaic outcomes and determined that they were not reflective of the overall performance of the management team during the financial year.

This was against the backdrop of an agreed change in focus by the board during the second half of the year placing greater emphasis on cash and inventory management, to ensure the business continues to be well positioned to capitalise on top line growth going forward.

The pound has risen to a two-month high against the US dollar this morning.

Sterling is trading at $1.2794, its highest level since 21 March, showing traders have not been spooked by the general election.

Goldman Sachs told clients that they do not expect the UK general election to have a major influence on sterling in the short term, adding:

Labour leads in the polling averages by about 20ppts, and fiscal space will be relatively limited in the next Autumn Statement, so the space for policy uncertainty in the near term is relatively limited as well.

The pound has also benefitted by falling expectations of interest rate cuts this year, with just one quarter-point cut now priced in for 2024.


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Sow chancellor Rachel Reeves delivers a speech during a visit to Rolls-Royce in Derby today Photograph: Stefan Rousseau/PA

Shadow chancellor Rachel Reeves has set out “five missions for a decade of national renewal”, and dropped a strong hint that a Labour victory won’t be followed by an emergency budget.

Reeves, and Labour leader Sir Kier Starmer, visited Rolls-Royce’s factory in Derby today, for a major speech on the economy.

In it, she outlined plans for 40,000 new NHS appointments every single week, a Border Security Command to “smash the criminal gangs and strengthen our borders”, a publicly owned Great British Energy company, an antisocial behaviour crackdown and plans for 6,500 new teachers.

Reeves also said Labour will not announce any additional tax rises during the election campaign, insisting “no additional tax rises [are] needed beyond the ones I have set out”.

Reeves also ruled out holding an emergency budget if Labour won the election, saying she would not hold a fiscal event without a forecast from the Office for Budget Responsibility – a process that would take 10 weeks.

Labour Party leader Sir Keir Starmer and Rachel Reeves. Photograph: Stefan Rousseau/PA

Water company shares fall after report price hikes have been blocked

Shares in UK water companies are falling today, after The Guardian reported that regulator Ofwat is poised to refuse of the industry’s requests to lift consumer bills sharply.

Ofwat’s draft determination, which will set how much water companies can raise bills, has been postponed until after the general election.

Many water companies had sought hefty increases, to fund network improvements, but some will receive as little as half of what they have asked.

My colleague Anna Isaac reported:

Britain’s biggest water monopoly company, Thames Water, which serves more than 16million customers in the London and Thames Valley regions, faces nationalisation unless it can attract vast quantities of fresh capital. It has requested bill rises of 59% – after accounting for inflation – from the regulator.

These figures have been rejected by Ofwat based on the latest iteration of Thames’s business and turnaround plans. The documents were described as a “microwave job”, according to sources who have reviewed them. They include “fag-packet figures” and reflect a board whose members appear determined to “sit on a deckchair on the Titanic”, the same sources said.

In the City today, Pennon Group’s shares have fallen 3.5% – the top faller on the FTSE 250 share index. On the larger FTSE 100 index, United Utilities and Severn Trent have both lost 2.8%.


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OpenAI board forms safety and security committee

In the artificial intelligence world, OpenAI – the creator of the ChatGPT chatbot – has set up a new Safety and Security Committee.

The new committee is responsible for making recommendations on critical safety and security decisions for all OpenAI projects – a crucial issue, given concerns about the dangers which AI could pose.

Its first task is to evaluate and further develop OpenAI’s processes and safeguards over the next 90 days, before making recommendations to its board. OpenAI says it will review them, and then announce its “adopted recommendations”.

OpenAI says:

OpenAI has recently begun training its next frontier model and we anticipate the resulting systems to bring us to the next level of capabilities on our path to AGI.

While we are proud to build and release models that are industry-leading on both capabilities and safety, we welcome a robust debate at this important moment.

The commmittee will be led by OpenAI’s chair Bret Taylor, CEO Sam Altman, and directors Adam D’Angelo and Nicole Seligman.

Earlier this month, a former senior employee at OpenAI said the company was prioritising “shiny products” over safety, revealing that he quit after a disagreement over key aims reached “breaking point”.

And last week, a leading scientist and artificial intelligence campaigner told The Guardian that major tech firms had distracted the world from the existential risk to humanity posed by AI.

Also, disappointingly, the retail sector continued to cut staff over the last year, the CBI’s distributive trades survey shows:

Employment in the retail sector in the year to May fell for the seventh consecutive quarter, with the decline set to continue in June, but at a more moderate pace (-18%). #DTS

— CBI Economics (@CBI_Economics) May 28, 2024

Less encouragingly, retailers’ investment intentions for the year ahead have deteriorated, the CBI reports:


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CBI: UK retail sales bounced back in May as inflation slowed

UK retail sales have bounced back this month, new data shows, as slowing inflation encouraged customers to spend in the shops.

The latest CBI Distributive Trades Survey shows that UK retail sales grew at their fastest pace since December 2022 in the year to May.

A net balance of +8% of retailers reported that sales volumes were up year-on-year, a sharp improvement on the -44% recorded in April [the balance is the difference between firms who answered ‘up’ or ‘down’].

That may be a sign that the economic recovery picked up this month; potentially a boost to Rishi Sunak, as he argues “the economy is turning a corner”.

However, a small majority of retailers expect sales to fall moderately next month.

Retail sales volumes grew year-on-year in May, at the fastest pace since December 2022. However, this recovery is expected to be short-lived as retailers anticipating another dip in sales next month. #DTS

— CBI Economics (@CBI_Economics) May 28, 2024

Sales were seen as “average” for the time of year – the strongest reading in eight months.

Sales in May were seen as “average” for the time of year, which was the firmest outturn in eight months. Retailers expect sales to remain broadly in line with seasonal norms in June. #DTS

— CBI Economics (@CBI_Economics) May 28, 2024

The CBI also reports that selling price inflation in the retail sector eased considerably in May, to its lowest since August 2020.

A balance of 20% of retailers reported they’d raised their prices, down from 54% in February.

That chimes with this morning’s survey from the BRC, showing shop inflation had returned to normal levels.

Fewer wholesalers reporting higher prices than in February, too.

Alpesh Paleja, CBI lead economist, says:

“May’s increase in retail sales adds to the swathe of data pointing to an improvement in activity over the near-term. Falling inflation, and continuing real wage growth will contribute to a healthier consumer outlook, in turn supporting the retail sector further.

“That being said, retailers are restrained about their business situation over the coming quarter. Headlines sales are expected to fall moderately next month, and it’s concerning that retailers’ investment intentions have deteriorated noticeably.

“The mixed mood from our survey demonstrates just how nascent the economic recovery is. All parties should use this general election campaign to embrace policies which will embed sustainable growth, foster the investment we need to develop a labour market which delivers higher living standards, and to accelerate our transition to net zero.”

NatWest apologises to customers for any inconvenience caused

NatWest has confirmed that the IT problems which affected its services this morning are now resolved.

A NatWest spokesperson said:

“We are aware that some customers were experiencing difficulties accessing NatWest mobile and online banking this morning. The issue has been resolved and customers are now able to log in as normal. We apologise to customers for any inconvenience caused.”

NatWest: online banking service now working normally

NatWest’s website now declares that its online banking service is “working normally” again.

But, it says there is still some service disruption on the mobile app, with some customers unable to view their credit card information on our mobile app.

“We’re working hard to fix this, sorry if it’s causing you any issues,” NatWest adds.

The IT problems at NatWest could be solved….

The bank has told several customers:

The mobile app and online banking service should now be working as expected. Please try logging in as normal.

Thank you for your patience and apologies for any inconvenience. If you have other questions or need any further support then please let me know-Erin

Hi there Steven, The mobile app and online banking service should now be working as expected. Please try logging in as normal. Thank you for your patience and apologies for any inconvenience. If you have other questions or need any further support then please let me know-Erin

— NatWest (@NatWest_Help) May 28, 2024

Morning Tarun☕, The mobile app and online banking service should now be working as expected. Please try logging in as normal. Thank you for your patience and apologies for any inconvenience caused. – Carina

— NatWest (@NatWest_Help) May 28, 2024

However, NatWest’s service status page still says there is service disruption with the mobile app and online banking.


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