UK factories hit by Red Sea crisis, but recession could be avoided – business live | Business

Metro Bank’s white knight moves onto the board

Kalyeena Makortoff

Metro Bank’s white knight investor – the Columbian billionaire who helped rescue the bank in early October – has clinched a seat on the lender’s board.

Metro confirmed that the 65-year-old banking tycoon Jaime Gilinski Bacal would become a non-executive director, months after ploughing £100m of emergency funds into the lender in exchange a 53% stake.

Metro Bank’s chair, Robert Sharpe, said:

“Jaime’s appointment underscores the commitment he has long shown to the bank as a supportive, long-term shareholder. He brings decades of banking expertise and experience which will prove invaluable on the next stage of the bank’s journey.”

As part of his rescue agreement, Bacal has been given the green light to appoint up to three directors in total to the board.

However, he already leveraged his position into a boardroom seat for his daughter Dorita Gilinski in autumn 2022.

Bacal said in a statement:

“There are many opportunities for Metro Bank to grow and I am looking forward to playing a part in the evolution of the bank as we build on the solid foundational work undertaken to date.”

Newsflash: British manufacturers have been hit with a fresh drop in orders and have scaled back their investment plans, new data from the CBI shows.

The CBI’s industrial trends survey shows a contration in orders – its quarterly order book balance dropped to -13 in the three months to January, its lowest since July 2020.

The survey also shows firms expect to cut back on investment in tangible assets such as buildings, machinery and equipment.

It also shows a rise in costs – which may be due to the Red Sea crisis disrupting supply chains, as this morning’s PMI report showed.

CBI Deputy Chief Economist Anna Leach says:

“Conditions in the manufacturing sector deteriorated unexpectedly at the start of the year, with output falling and order books at their weakest since the depths of the COVID-19 pandemic,”

Worryingly, the report also shows manufacturers are cutting back on their headcounts:

Over in the eurozone, business activity in the euro area fell at the slowest rate for six months in January.

The eurozone Composite PMI Output Index has risen to 47.9, showing the smallest monthly contraction in six months (but below the UK’s 52.5, which showed growth).

And although disruptions to shipping in the Red Sea caused eurozone supply chains to lengthen for the first time in a year, manufacturing input costs continued to fall on average, S&P Global reports.

Newsflash: the Red Sea crisis is hitting UK manufacturing supply chains and pushing up input costs.

Data firm S&P Global reports that its flash UK Manufacturing Output Index, which tracks factory production, has fallen to a three-month low of 44.9. Any reading below 50 shows a contraction.

S&P Global’s survey of UK purchasing managers has found that manufacturing supply chains suffered from longer wait times for container freight during January in the wake of the Red Sea crisis.

With supplies taking longer to arrive, firms have been running down their inventories.

S&P Global explains:

Supplier delays were overwhelmingly linked to longer international shipping times as vessels rerouted away from the Suez Canal. At the same time, preproduction inventories fell to the greatest extent since last August as safety stocks were depleted.

These longer delivery times are adding to costs, with S&P Global predicting UK inflation will remain “stubbornly higher” in the 3-4% range in the near future (it rose to 4% in December).

The better news is that services companies are growing at the fastest rate in eight months, with the UK Services PMI rising to 53.8.

That helped the wider recovery in private sector output gains momentum in January, lifting the overall UK PMI Composite to a seven-month high of 52.5.

That should help the economy avoid recession, they say.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

“UK business activity growth accelerated for a third straight month in January, according to early PMI survey data, marking a promising start to the year. The survey data point to the economy growing at a quarterly rate of 0.2% after a flat fourth quarter, therefore skirting recession and showing signs of renewed momentum.

Businesses have also become more optimistic about the year ahead, with confidence rebounding to its highest since last May. Business activity and confidence are being in part driven by hopes of faster economic growth in 2024, in turn linked to the prospect of falling inflation and commensurately lower interest rates.

Shares in Royal Mail’s parent company, International Distributions Services, have now jumped 3.4% in London, as traders ponder the savings it could make from fewer deliveries.

That’re up 9p at 270p, adding to their earlier gains.

Royal Mail shares floated at 330p in 2013, and swiftly surged over 500p.

But they’ve had a choppy ride since, hitting record lows below 120p early in the pandemic before receiving a boost from parcel demand.

Victoria Scholar, head of investment at interactive investor, points out that there is opposition to Ofcom’s suggested improvements to the Royal Mail universal service obligation:

Royal Mail has long had its calls to scrap the government’s USO rejected. Now it looks like the tide could potentially be turning. Although there is still considerable opposition including from the Communication Workers Union (CWU) which argues a three day service would ‘destroy’ the company, as well as the Postal Affairs Minister Kevin Hollinrake who said the government is committed to a six-day service.

The company owned by International Distribution Services, has been facing a series of painful setbacks like the postal strikes, a fine from Ofcom for missing delivery targets and a cyber security incident. It has also been struggling with heavy operating losses on the back of a long-term structural decline in letter demand and the loss of its 360-year-old monopoly on delivery parcels from Post Office branches. Ofcom said letter volumes have halved since 2011, raising existential concerns about the future of Royal Mail and prompting calls for a drastic overhaul of the business to revitalise its finances and operations to ensure it doesn’t become ‘unsustainable.’

Shares in IDS are trading higher today reflecting optimism towards the regulator’s openness towards change at the embattled postal business. But shares are still sharply lower than the recent highs seen in 2021 during covid.”

Kevin Hollinrake, the minister for postal services, believes Japanese IT firm Fujitsu should pay “hundreds of millions of pounds” in compensation for its role in the Post Office scandal.

Speaking to the Today programme, Hollinrake said:

This will cost the taxpayer a billion pounds, maybe more than that.

He added that Fujitsu, which supplied the flawed Horizon software, should pay “a significant proportion” of that bill.

Last week, Fujitsu Europe’s boss admitted the firm has a “moral obligation” to contribute to compensation for sub-postmasters who were wrongly prosecuted due to Horizon reporting that money was missing from their branches.

The inquiry into Horizon also heard last week that some Horizone bugs were known about as early as 1999, but this information was kept from the courts.

Hollinrake says what has happened is “absolutely disgraceful” and a “horrendous scandal”, in terms of both its scale and depth, and the impact on people’s lives.