Inflation drives up UK debt bill; Price rises boost Unilever sales – business live

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General Motors has raised its profit target for the year by around $1 billion and reported second-quarter earnings which beat analysts expectations.

GM now expects to make underlying profits of between $12bn and $14bn this year, up from a previous forecast of $11bn-$13bn.

The forecast is dependent on GM successfully negotiating new labor agreements without a work stoppage, says chief executive Mary Barra.

Barra told shareholders:

The biggest driving force behind our financial results is customer demand for our vehicles, which have now led the U.S. industry in initial quality for two consecutive years.

We have earned four consecutive quarters of higher retail market share in the U.S. versus a year ago with continued strong pricing and incentive discipline, we’re leading in both commercial and total fleet deliveries calendar year to date, and we’re growing profitably in international markets such as Brazil and Korea.

Ukrainian activists are continuing to urge Unilever to withdraw from Russia.

Valeriia Voshchevska of the Ukraine Solidarity Project, says:

“Unilever’s continuing operations in Russia are turning into a real nightmare.

Their global sales are up: but it’s hard to hear their champagne corks popping over the sound of Russian shelling.

The business and political world is looking at them aghast. Their customers are horrified at the prospect of complicity in war crimes. Russian profits and share of turnover are down.

And now Unilever is staring down the barrel of having to facilitate the conscription of the Russian workers it claimed to be protecting. It’s economically wrong-headed, morally repulsive and reputationally disastrous. Unilever needs to pack up and ship out of Russia before it’s too late.”

Unilever continue to lead the FTSE 100 after beating expectations this morning, with its shares up 4.66%

Chris Beauchamp, chief market analyst at IG Group, says:

Traders are buying up Unilever with abandon this morning after its solid set of numbers.

A solid recovery in activity across the group and a rosy outlook chime with hopes that the UK economy can avoid a recession. But with the CMA’s focus on prices turning to the supply chain, Unilever needs to tread carefully when celebrating this morning’s numbers.

The news that Unilever’s European prices are up 14.2% this year, lifting sales by 6.4% (with volumes falling by 6.8%) does focus attention on theprice pressures fuelling consumer price inflation.

Supermarket, who buy from Unilever and pass on (or swallow) these higher prices, have insisted they aren’t profiteering…..

A glimmer of good news – the decline in UK manufacturing orders has eased this month.

The CBI’s monthly’s healthcheck on British industry has found that manufacturing orders declined in July at the weakest rate this year. This lifted its monthly balance of new orders to -9 from -15 in June, the highest reading since December.

Recent falls in output have bottomed out, with firms predicting a pick-up in production over the next quarter.

Encouragingly for consumers, expectations for increases in selling prices cooled further too.

Business sentiment rose, with bosses more optimistic about their export prospects, but investment intentions for the year ahead weakened.

Airlines flying to Heathrow have been told to carry as much fuel as possible in their tanks because of supply problems at Britain’s largest airport, in a controversial practice that can increase carbon emissions.

The airport asked airlines to carry excess fuel on the way to London and to avoid carrying too much when departing, citing supply issues, in a notice sent on Sunday. The notice covered nine days from Sunday 23 July to Monday 31 July.

Heathrow said there had been no impact on passengers or flights from the request.

Fuel tankering is controversial because the practice significantly increases the weight of kerosene stored in the aircraft’s wings. That extra weight increases the amount of fuel burned on a flight, and therefore its carbon footprint. Yet despite the extra cost and carbon emissions, it can be financially worthwhile for airlines if fuel is cheaper at one airport than at another.

More here.

NatWest bank remains under pressure this morning over the controversial decision to close former Ukip leader Nigel Farage’s accounts at its exclusive private bank, Coutts, and the misreporting of the move.

Cabinet minister Michael Gove has said this morning that NatWest has “further to go” in resolving the matter.

Amid claims in the Daily Telegraph that chief executive Dame Alison Rose’s career is hanging in the balance, Gove told Sky News:

“I have a lot of sympathy for the position Nigel Farage has found himself in.

“As far as I can tell the decision that was taken to deprive him of banking facilities was a big mistake, something done for the wrong reasons.

“But it’s not for me to determine what the company should do but I definitely think he was owed an apology, he’s got one, but I think the company has further to go in order to make sure this matter ends appropriately.”

Last night, the BBC wrote to Farage to apologise for reporting that Coutts closed the account because he was no longer sufficiently wealthy to hold one, and that it was not a political decision.

Simon Jack, the BBC’s business editor who landed this now-corrected story, also apologised… and revealed the line came from “a trusted and senior source.”

NatWest offered Farage its own apology last week, after the politician revealed that an internal Coutts report said he was “considered by many to be a disingenuous grifter”, and “has – and projects – xenophobic, chauvinistic and racist views”.

The report, from last November, recommended keeping Farage as a client “for now”, and setting a “glide path to exiting” him on commercial grounds once his mortgage expired this summer.

But, NatWest CEO Rose is now in the firing line, with the Daily Telegraph suggesting that chairman Sir Howard Davies may face a “fateful decision”.

Boris Johnson argued last weekend that Rose “really needs to go” if she was in any responsible for the misreporting of the circumstances behind Farage’s exit from Coutts.

Johnson wrote in the Daily Mail:

As a subsidiary of NatWest, Coutts belongs nearly 40 per cent to you and me, the taxpayers, because we bailed it out in 2008; and Alison Rose is publicly accountable for her decisions and her ?5.2million salary.

That matters because what this bank has done is — paradoxically — disastrous for the reputation of UK financial services.

Conservative MP Jacob Rees-Mogg told Farage’s TV show last night that Rose’s position was “really difficult” following the BBC’s apology:

As we’re about to enter the UK bank reporting season, NatWest will present its latest financial results on Friday morning, so it can’t escape more questions about the issue…

Having bought Credit Suisse in a rescue deal in the spring, UBS has been coughing up for its misconduct.

Last night, the Bank of England fined Credit Suisse a record ?87m for “significant failures in risk management and governance”.

The fine, from the Bank’s Prudential Regulation Authority, related to Credit Suisse’s dealings with private investment firm Archegos Capital Management.

Archegos collapsed in 2021, leaving Credit Suisse nursing around $5.1bn (?4bn) of losses.

The PRA says that the bank’s risk management oversight and practices fell well below the regulatory standards required, and were symptomatic of an “unsound risk culture”.

Sam Woods, deputy governor for Prudential Regulation and Chief Executive Officer of the PRA, said last night:

“Credit Suisse’s failures to manage risks effectively were extremely serious, and created a major threat to the safety and soundness of the firm. The seriousness and widespread nature of those failures has led to today’s fine, which is the largest ever imposed by the PRA.”

Other regulators concur. The Swiss Financial Market Supervisory Authority and the Federal Reserve Board have also announced fines, leading to a total penalty of $387.5m.

Telecoms giant Virgin Media O2 is to axe up to 2,000 jobs by the end of the year.

The mobile operator said the move, which includes around 800 previously reported job cuts, will affect around 12% of its workforce.

These are the first major job cuts at the group since it was created two years ago by the ?31bn merger between mobile operator O2 and broadband and TV specialist Virgin Media.

A spokesman said:

“As we continue to integrate and transform as a company, we are currently consulting on proposals to simplify our operating model to better deliver for customers, which will see a reduction in some roles this year.

“While we know any period of change can be difficult, we are committed to supporting all of our people and are working closely with the CWU (Communication Workers Union) and Prospect along with our internal employee representatives as we have open and honest conversations on the future direction of our business.”

Back in May, rival telco BT announced plans to cut tens of thousands of jobs in the coming years, with Vodafone also planning to cut its workforce.

Over in Germany, business confidence has worsened as the country struggles to leave recession.

German business morale deteriorated in July for the third month in a row, according to the Ifo Institute.

Its business climate index has dropped to 87.3 this month, following a revised reading of 88.6 in June.

IFO says:

In particular, companies were notably less satisfied with their current business. Expectations were also lower. The situation in the German economy is turning bleaker.

UK mortgage rates have climbed again, despite last week’s drop in inflation.

The average 2-year fixed residential mortgage rate today is 6.83%, data provider Moneyfacts, up from 6.81% on Monday.

The average 5-year fixed residential mortgage rate has risen to 6.34%, up from 6.32% on Monday.

More mortgages are available – 4,699 products are on the market, up from 4,557 yesterday.

But… banks have not lifted their savings rates as quickly as their mortgage rates today.

Moneyfacts report:

The average 1-year fixed savings rate today is 5.15%. This is the same average rate as the previous working day.

The average easy access savings rate today is 2.74%. This is up from an average rate of 2.73% on the previous working day.

The average 1-year fixed Cash ISA rate today is 4.90%. This is the same average rate as the previous working day.

The average easy access ISA rate today is 2.84%. This is up from an average rate of 2.83% on the previous working day.

Unilever has indicated it could continue to hike prices across household brands as it reported a jump in sales despite stagnant consumer spending.

Unilever’s chief financial officer Graeme Pitkethly said that European and UK consumers were more “hard pressed” than those in the rest of the world, thanks to high levels of inflation, PA Media reports.

But he said the company is unlikely to cut its prices any time soon.

Pitkethly said:

“I think we are past ‘peak’ inflation but there will continue to be a high contribution of pricing growth.”

The volatility of commodity markets, particularly in nutrition and ice cream, means prices must be managed responsibly, he said.

But the company stressed that price growth will continue to “moderate” through the year, as flagged earlier.

Unilever has cautioned this morning that there “remains a risk” that its operations in Russia are unable to continue. That could lead to a loss of turnover, profit and a write-down of assets, it says.

Unilever currently employs around 3,000 people in Russia making personal care and hygiene products, but also ice-cream. It generates 1.2% of its turnover and 1.5% of net profits.

In March 2022, Unilever said it would suspend all imports and exports of Unilever products into and out of Russia and cease any capital flows in and out of the country.

It has defended its decision to keep operating despite the Ukraine war, arguing that it wants to “both to avoid the risk of our business ending up in the hands of the Russian state, either directly or indirectly, and to help protect our people”.

But it has been criticised for not quitting Russia.

Earlier this month, the Ukrainian government named Unilever an international sponsor of war; it is subject to a law in Russia obliging all large companies operating in the country to contribute directly to its war effort.

That could include supplying Vladimir Putin with soldiers. Last weekend, it emerged Unilever will comply with Russian conscription law, meaning its Russian employees could be sent to war in Ukraine if called up.

Unilever’s results also show that prices for its goods in Europe are up over 14% so far this year, fuelling inflation in the region.

Some consumers have baulked at such price increases, with sales volumes down 6.8%, resulting in sales growth of 6.4%.

Unilever says “underlying price growth remained elevated in Europe given its higher exposure to categories with significant cost inflation.”

Here’s a handy chart from the FT showing how the UK’s debt interest costs are surging towards record highs:

Roberto Rivero, market analyst at Admirals, cautions that Unilever can’t keep raising prices without eventually losing customers.

Following today’s financial results from Unilever, Rivero says:

“As anticipated, turnover has increased year on year. However, whilst analysts had expected operating profit to take a hit in the first half of the year, it has in fact grown as margins increased.

In an inflationary environment, companies need to pass higher input costs on to consumers if they are to preserve profit margins. Whilst this may sound simple enough, not every company can do this without losing customers.

However, Unilever’s wide variety of globally respected brands and consumer staples grant it a fairly high degree of pricing power which, in turn, has allowed it to navigate this inflationary environment well.

Nevertheless, consumers can only be pushed so far. Even a company with Unilever’s pricing power can only get away with hiking prices for so long. Fortunately, inflation has peaked in most of Unilever’s key markets and has been falling throughout the first half of the year. Eventually, this should lead to prices stabilising but this may take some time to filter through to consumers”.

China’s stock markets have jumped this morning after the country’s top leaders pledged to step up policy support for the economy.

Beijing plans to stimuate the recovery from the Covid-19 pandemic by stepping up its economic policy adjustments, focusing on expanding domestic demand, boosting confidence and preventing risks, state news agency Xinhua reported.

The decision comes after China’s growth slowed in the second quarter of 2023, to 0.8%, down from 2.2% growth in January-March.

China’s CSI 300 share inded has jumped almost 3%.

Victoria Scholar, head of investment at interactive investor, says:

Chinese markets rallied sharply overnight with property stocks jumping, the yuan hitting a 2-week high and the Hang Seng gaining over 4% after the authorities pledged to support its stuttering economy.