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

FTSE 250 group Carnival is gearing up for a record year after a surge in people booking cruises for the first time.

Customers are choosing to holiday at sea rather than spend a fortune on hotels or flights.

Keysight Technologies has reached a deal to snap up Spirent Communications for £1.16billion.

The FTSE 100 has opened higher this morning, bolstered broadly by commodity-linked stocks, while telecommunications testing firm Spirent Communications has jumped 10 per cent on a deal with Keysight Technologies.

Energy stocks have added 0.5 per cent as oil prices edged up after two days of declines, while most base metals have been boosted by signs of stabilisation in China’s broader economy.

JD Sports shares have climbed 5.9 per cnet after the sportswear retailer said its pretax profit for the year to 4 Febuary would meet guidance it downgraded in January in the range of £915million to £935million.

Spirent Communications is up 10.2 per cent on agreeing to Keysight Technologies’s offer valuing the firm at £1.16billion.

M&G, Smith & Nephew and Taylor Wimpey are down between 1 and 6 per cent as they traded ex-dividend.

The Competition and Markets Authority has cleared Aviva’s acquisition of AIG Life.

Lloyd’s of London has achieved its strongest annual results ‘in recent history’ after swinging to a bumper profit from a loss the prior year.

The world’s biggest insurance marketplace, whose roots date back to a 17th-century coffee house, rebounded to a £10.7billion profit last year after making a £800million pre-tax loss in 2022.

It credited the performance to higher interest rates and an ‘unwind of the previously booked mark-to-market loss’.

The new boss of Morrisons says his turnaround is ‘in full swing’ after sales grew at the fastest rate for three years.

After struggling to make headway following its private equity takeover, the supermarket said sales in the three months to January 31 were 4.6 per cent up on a year earlier.

Thames Water shareholders are refusing to give the debt laden utility extra cash unless the group hikes bills for customers.

Fears for the future of Thames Water, which sits on a £14billion debt pile, were heightened on Thursday as it announced shareholders will not be injecting the first £500million of funding that was agreed last summer.

The shareholders blame industry regulations they say make its business plan ‘uninvestible’.

London commodities broker Marex Group is planning to list in New York.

It filed documents with the US regulator about an initial public offering –becoming the latest business to snub London’s stock market as firms look to achieve higher valuations.

itish North Sea-focused oil producer EnQuest narrowed its annual loss to $30.8million last year, down from a $41.2million loss in 2022, it said on Thursday.

The company said it posted a loss after tax due to the energy profit levy (EPL) which was extended by one year by Chancellor Jeremy Hunt earlier this month.

EnQuest has for years been shielded from UK taxes as it could offset bills against reported tax losses, which stood at $2billion at the end of 2023.

‘The EPL has resulted in a number of industry participants accelerating their shift in focus away from the UK North Sea,’ said boss Amjad Bseisu.

‘Our significant tax loss position and the impact of the EPL on marginal tax rates means that the transfer of assets to EnQuest ownership would increase their relative value to a multiple of that in the hands of existing owners.’

Richard Hunter, head of markets at Interactive Investor

‘Despite the drag of the usual raft of Thursday ex-dividend stocks, including but not limited to M&G, Melrose and Prudential, progress was also made on home shores, helped along by buying interest in the miners and oil majors. The more recent advances for the FTSE100 have resulted in a somewhat unnoticed and certainly unloved rally which leaves the premier index up by 2.8% so far this year and indeed less than 1% away from the record high of just over 8000, achieved in February last year.

‘The more domestically focused FTSE250 has also turned positive of late and is now ahead by 0.7% in the year to date despite confirmation of a technical recession in the UK. The recession is, however, widely expected to be shallow and brief and the prospects of interest rate cuts towards the middle of the year have buoyed sentiment. This also comes with the possibility that the UK market as a whole is being considered anew by international investors, who have eschewed investment but are now increasingly being tempted by the deeply discounted valuation levels compared to many global peers.’

A joint statement from Thames Water’s nine shareholders:

‘Shareholders and Thames Water have been working with the regulator Ofwat for over a year on how to address the complex challenges facing the business. These include both meeting current funding demands and the urgent need for substantial investment to improve performance.

‘These discussions led to the submission of a business plan which included the largest ever investment programme by any UK water company – over £18 billion – to improve customer service and environmental standards. To support such unprecedented investment, shareholders committed to supporting a further £3.25 billion of investment on top of the £500 million provided last year, and pledged to take no cash out of the business until a turnaround was delivered. This was a solution which addresses the root cause of Thames Water’s challenges without the need for any taxpayer funding.

‘However, after more than a year of negotiations with the regulator, Ofwat has not been prepared to provide the necessary regulatory support for a business plan which ultimately addresses the issues that Thames Water faces. As a result, shareholders are not in a position to provide further funding to Thames Water.

‘Shareholders will work constructively with Thames Water, Ofwat and Government on how to address the consequences of Ofwat’s decision.’

Lindsay James, investment strategist at Quilter Investors:

‘It would be premature to declare that the economy has completely turned a corner; however, the indicators suggest that the recession experienced was relatively brief.

‘The current expectations align more with a stabilisation in the first half of 2024 rather than a robust bounce-back, primarily due to the ongoing impact of high interest rates and their delayed effects on the market.

‘Governor Andrew Bailey’s recent remarks that interest rate cuts are now ‘in play’ for future meetings hint at potential stimuli for growth in the latter part of the year.

‘Nevertheless, while there are indications that business activity is on an upswing, the threat of inflationary pressures making a comeback cannot be ignored.

‘Despite the base effects and a reduction in the Energy Price Cap contributing to a decrease in headline figures in the near term, the possibility of experiencing further inflationary surges persists. Such developments could constrain the Bank of England’s ability to implement rate cuts in the subsequent quarters.

‘In summary, the UK economy shows signs of steadying, yet caution remains paramount as we navigate through the complexities of inflation and interest rate dynamics.’

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

The insurance market, which has more than 50 member firms, suffered an £800million loss in 2022.

Commercial insurers, who underwrite anything from oil rigs to professional footballers’ legs, have coped in recent years with a pandemic, wars, inflation and rising losses from natural catastrophes by excluding some business and raising prices.

‘We’ll continue working with our market to deliver consistent profitable performance through disciplined underwriting,’ Chief executive John Neal said.

Thames Water shareholders have refused to stump up a promised £500million of equity, heightening concerns about Britain’s largest water utility’s survival, after it failed to agree future bills and conditions with the regulator.

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

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

The company’s shareholders, who include Ontario Municipal Employees Retirement System and the UK’s Universities Superannuation Scheme, had been due to provide the new equity by 31 March.

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 benchmark lending rate Libor, will now seek to take his case to the Supreme Court.

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

Thomas Pugh, economist at RSM UK:

‘This morning’s data confirmed that the UK endured the smallest of recessions in the second half of last year. But it’s almost certainly already over.

‘A jump in retail sales and an improvement in business surveys, such as the PMIs, point to the economy 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 give households an income boost.

‘The big unknown is how much of this rise in incomes households will actually spend. Indeed, despite real households’ disposable income growing by 0.7% in Q4, the household saving ratio rose to 10.2% in the latest quarter, up from 10.1% in Quarter 3, suggesting that households were still rebuilding saving buffers at the end of last year.

‘The good news is that consumer confidence has been improving gradually over the last year and UK consumers’ confidence in their personal finances has reached the highest since 2021 as the impact of rising real wages filters through into people’s pockets, even though consumers remain cautious overall.

‘We expect this to continue over the next year. That suggests household savings patterns will start to return to more normal levels in the first half of the year.

‘On that basis, we think the improvement in households’ real incomes that is set to intensify later this year will translate into an increase in spending that will kick start the economic recovery and finally drag the UK out of stagnation.’

Britain’s economy entered a recession in the second half of last year, fresh data from the Office for National Statistics confirms.

GDP shrank by 0.1 per cent in the third quarter and by 0.3 per cent in the fourth quarter, unchanged from preliminary estimates.