UK borrowing costs drop as inflation pressures ease, reversing gains after market turbulence – business live

Stocks have jumped on both sides of the Atlantic after data showing cooling inflationary pressures in the UK and the US, while the dollar has fallen and government borrowing costs have dropped sharply – reversing the gains seen over the past week.

The FTSE 100 index in London has rallied 1.2%, up almost 100 points to 8,299 while the FTSE 250 is 2.5% ahead. The German, French and Italian markets have all risen by more than 1%.

On Wall Street, the Nasdaq has jumped more than 2% and the S&P 500 and Dow Jones both climbed by around 1.5%, after data showed an easing in ‘core’ inflation.

Government bond yields have fallen sharply in the UK, the US and the eurozone today, bringing welcome relief after last week’s turbulence that saw UK yields hit multi-decade highs – indicating higher borrowing costs for the government.

The yield, or interest rate, on the 30-year gilt, as UK government bonds are known, fell by 15 basis points to 5.293%. This compares with Monday’s level of 5.472%, the highest since 1998. The 10-year bond yield dropped by 10 basis points to 4.744% after hitting 4.925% last week, the highest since 2008.

The pound has gained by 0.3% to $1.2252, as the dollar lost 0.4% against a basket of six major currencies (including sterling).

A surprise fall in UK inflation to 2.5% in December, with the core measure and services inflation also slowing, have firmed up investors’ expectations of a cut when the Bank announces its next rates decision on 6 February. Markets now see a near-84% probability of a rate cut at the meeting, and are fully pricing in two quarter-point reductions by the end of the year again.

US inflation ticked up to 2.9% last month, as expected, but investors were cheered by a surprise drop in the closely watched “core” measure, which strips out volatile food and energy prices, which edged down to 3.2% from 3.3%.

Germany’s economy has shrunk for a second consecutive year for the first time in more than two decades, highlighting the challenges the next government will face after snap elections in February.

As voters prepare to head to the polls amid heightened political uncertainty in Europe’s largest economy, official figures showed gross domestic product fell by 0.2% last year after dropping by 0.3% in 2023.

The figures represent only the second two-year contraction in the German economy since the 1950s, after it shrank in 2002 and 2003.

Our other main stories today:

Thank you for reading. We’ll be back tomorrow with the latest UK economic growth data coming out first thing. Take care! – JK

Lloyds Banking Group plans 500 job cuts and two office closures as part of a shake-up under chief executive Charlie Nunn.

The plans are thought to include a net reduction of about 500 jobs at the bank, which has more than 60,000 staff, in areas such as customer service, operations, marketing and sustainability, targeting middle manager roles.

The bank is shutting an office in Pitreavie in Scotland next year, which will affect 1,500 staff, as well as its office in Speke in Liverpool, which the Unite union condemned as a “huge mistake” and a “blow to Liverpool”.

About 70% of the staff in Pitreavie are already working remotely or will move to remote working when the building closes, while the remainder will relocate to the bank’s Citymark building in Edinburgh city centre.

We reported earlier that Lloyds is closing its office in Speke, where 500 people work, forcing some of them to commute to Chester while others will work remotely.

A Lloyds spokesperson said:

To achieve the ambitious strategy we launched in February 2022 and deliver a better service to our customers, we are transforming our business. We are really excited about the progress we have made, and it is already delivering benefits. To do this and move forward faster, we hired 10,000 experts last year to drive our transformation and we will continue to look at all options to ensure we are well placed to deliver for our customers.

Making changes means not only creating new roles and upskilling colleagues in some parts of the business but also having to say goodbye to talented people who have been a part of the Group’s success in the past. Where that is unfortunately the case, we will do everything we can to support them with the changes recently announced.

Core US inflation – which strips out energy and food – rose by 0.2% in December from November, following a 0.3% monthly rise in the previous four months.

Following the data, the US rate futures market priced in 40 basis points of interest rate cuts this year up from 26bps last night.

Kyle Chapman, currency markets analyst at Ballinger Group, said:

US CPI inflation rose to 2.9% as expected in December, but the first sub-0.3% monthly core print in five months has sparked relief in the bond market that inflation may not be reaccelerating.

The market has tacked on around 10 basis points in extra easing this year to fully price an interest rate cut by July.

US Treasury yields fell sharply, with the 10-year government bond yield down nearly 12 basis points at 4.671%, on track for its biggest daily fall since late November.

The two-year yield, which reflects interest rate expectations, dropped by more than 9 basis points to 4.27%, on course for its largest daily decline in about two months.

Kathy Jones, chief income strategist at Charles Schwab, posted on X:

Gerrit Smit, a fund manager at Stonehage Fleming, said:

The rise is headline inflation to 2.9% is purely to do with energy, while the most critical component – the cost of shelter – continues dropping. Despite the rise, it can be taken as a constructive reading.

US stocks are extending gains, pushing the tech-heavy Nasdaq 2% higher.

Here’s more reaction to the US inflation data.

Colin Finlayson, investment manager at Aegon Asset Management:

The US Treasury market (and global rates markets) breathed a sigh of relief as the US consumer prices index contained few surprises – in fact the small miss on core CPI was cheered on by the market, pushing bond yields sharply lower.

The small miss on Core CPI at 3.2% vs 3.3% – led by an easing back in core services prices – was welcome relief to investors after a relentless sell off over the last month. For a market living on its nerves, anything other than an upside surprise was a “win”.

After the softer inflation data in the UK this morning, this has offered a crumb of support to bond market “bulls” and was a reminder that things other than fears over fiscal spending and term premia can drive government bond markets. For the Fed, this keeps the path in rates still to the downside and has brought forward the pricing of the next cut from December – as it was after the recent employment report– to July.

Despite the drop in US core inflation, ING economist James Knightley said

the trend remains too hot for comfort and the Fed is likely to extend its well telegraphed pause in rate cuts beyond March. The run-up in Treasury yields and the stronger dollar will provide headwinds to growth and we still look for three 25bp rate cuts in 2025.

However, he is expecting interest rate cuts in the latter half of the year.

The near 10% jump in the trade-weighted dollar since September and the surge in Treasury yields (still up more than 100bp since September despite today’s moves) will be headwinds to growth – note mortgage rates are back above 7% and credit card borrowing costs remain close to all-time highs – and will help to dampen inflation pressures too. This should give the Fed greater scope to respond with lower rates in the second half of 2025.

US stocks have jumped at the open, after core inflation unexpectedly cooled in December, and strong results from Wall Street banks.

The Dow Jones leapt by 655 points or 1.5%, to 43,173 while the tech heavy Nasdaq rose by 352 points, or 1.85%, to 19,396 and the S&P 500 gained 90 points to 5,933, a 1.55% increase.

UK government borrowing costs have fallen sharply in the wake of the US inflation figures after hitting multi-decade highs in the past week while the pound has gained.

The change in bond yields, the effective interest rate, follows a week of difficult headlines for the Labour government after rates on some UK debt rose to 25-year highs.

The change came after US inflation ticked up to an annual rate of 2.9% in December, in line with expectations, and accelerates a decline that began after UK inflation figures for the same month showed a surprise drop to 2.5%.

The 30-year gilt yield is on course for its biggest daily fall since December 2023, down almost 13 basis points at 5.327%. The 10-year yield is down by 14 basis points at 4.746%.

Meanwhile the FTSE 100 index has gained 84 points to 8,271, a 1% rise, while the FTSE 250 index has jumped by 2.1%. The German, Italian and French markets have also all gained at least 1%.

The pound is up by nearly 0.6% against the dollar at $1.2284 after the US inflation data, while the euro has gained 0.3% to $1.0335.

Inflation in the United States accelerated last month, as expected.

According to the US Bureau of Labor Statistics, the consumer price index ticked up from 2.7% in November to 2.9% in December on an annual basis.

However, the core rate which excludes volatile food and energy costs slowed to 3.2% from 3.3% – good news for those betting on interest rate cuts.

The dollar fell after the figures were released, losing 0.5% against a basket of major currrencies.

Wells Fargo, another US bank, also beat Wall Street forecasts with four-quarter profits as a rebound a dealmaking boosted its investment banking arm.

The firm, which says it serves one in three households and more than 10% of small businesses in the United States, made $725m in fees from investment banking in the October to December quarter, up 59% from a year earlier. Global investment banking revenue rose by 26% to $86.8bn last year.

The fourth-largest US lender made a $5.08bn profit last year, up from $3.45bn a year earlier.

Wells Fargo said its net interest income will go up in 2025, referring to the difference between the interest it earns on loans and the savings rates it pays out on deposits.

Bankers expected this year to be even busier for deals, on the back of hopes of lower corporate taxes, a relaxation of regulations and a generally pro-business stance under new president Donald Trump, who takes office on Monday.

BlackRock’s assets hit a record $11.6 trillion in the fourth quarter of last year as the world’s largest fund manager posted a 21% rise in profits, with fee income lifted by stronger equity markets.

Assets managed by the New York-based firm increased to $11.55 trillion from $10.01 trillion a year earlier. It made a profit of $1.67bn in the three months to 31 December.

Client assets were buoyed by a US stock market rally after Donald Trump’s presidential election victory in November, with investors betting on lower corporate taxes and a wave of deregulation.

JPMorgan Chase has reported its biggest ever annual profit, as its dealmakers and traders capitalised on a rebound in markets in the final quarter of 2024.

The Wall Street bank benefited from a strong economy and interest rate cuts that boosted stock sales and bond offerings, as well as more mergers and acquisitions after years of moderate activity.

Profit for 2024 rose to $58.5bn from $49.6bn in 2023, with $14bn in the fourth quarter, up from $9.3bn a year earlier.

Pointing to low unemployment and healthy consumer spending, chief executive Jamie Dimon said:

The US economy has been resilient. Businesses are more optimistic about the economy, and they are encouraged by expectations for a more pro-growth agenda and improved collaboration between government and business.

Among risks, he cited increasing government spending, inflation, and geopolitical conditions.

The bank posted a 49% jump in investment banking fees and a 21% rise in trading revenue in the fourth quarter – better than expected. Stronger trading in credit, currencies and emerging markets boosted the fixed-income division.

JPMorgan forecast net interest income (the difference between what it earns on loans and pays out on deposits) of $94bn for 2025, topping analysts’ estimate of close to $91bn.

Carlsberg’s £3.3bn deal to buy UK drinks maker Britvic, the company behind J2O juice and Robinsons squash, has been approved by a High Court judge.

The Danish brewery, which owns other brands including 1664 and Brooklyn, plans to create a drinks giant called Carlsberg Britvic.

Britvic, based in Hemel Hempstead, Hertfordshire, employs 4,500 people and owns 39 brands, including Tango.

The two companies agreed the deal last July, saying it would create an “enlarged international group” that can expand into “multiple drinks sectors”. It was approved by Britvic’s shareholders in August, and the Competition and Markets Authority, Britain’s competition watchdog, gave it the green light in December.

Mr Justice Hildyard sanctioned the takeover at a short hearing today, stating the scheme “could be and should be approved”.

Andrew Thornton KC, for Britvic, said in written submissions that the UK company is “the largest supplier of branded still soft drinks and the number two supplier of carbonated soft drinks in Great Britain”.

Thornton added that the scheme received a “unanimous recommendation” from Britvic’s directors, and “will not have any adverse impact on the interests of the company’s creditors”.

Carlsberg has said it believes the integration with Britvic can lead to £100m in cost efficiencies a year. This raised fears of job losses.

It also announced that it would buy out Wolverhampton-based Marston’s, which makes Pedigree and Hobgoblin beers, from the joint venture brewing business run by the two firms for £206m.

Britvic holds an exclusive licence with US partner PepsiCo to make and sell brands such as Pepsi, 7up and Lipton Ice Tea in the UK, which Thornton told the court will continue following the takeover.

Lloyds Banking Group is closing its office in Speke in Liverpool, but insists there won’t be any job cuts, as people will either work remotely (80%) or commute to its Cawley House office in nearby Chester. Around 500 people are affected.

A Lloyds spokesperson said:

In line with our commitment to enhancing our property estate, we are creating fewer, better-equipped, modern and sustainable offices to suit the future of our business. As part of this, we are building hubs and communities in key locations across the UK to help deliver on our strategy.

However, the Unite union warned that this is a “huge mistake” and a blow to Liverpool.

Unite national officer Dominic Hook said:

The proposed closure of the large Lloyds Banking Group centre in Liverpool Speke is a huge mistake. The impact on the hundreds of staff and the region will be significant and is wholly unnecessary.

The impact of the longer commute to Chester for colleagues is huge. While some workers in Speke do currently work from home, a substantial number still do need to travel into the centre for work. The refusal of LBG to open an alternative Liverpool office is completely unjustified and damaging. Poor communication of the site closure has added insult to injury, with management telling staff of the decision by email.

The loss of important jobs from Liverpool is a blow. Unite wants to see Lloyds Banking Group maintain its presence in the city and ensure that those who work in its Liverpool office continue to have a safe local facility to do their jobs.

Unite has serious concerns for staff who do not wish or are unable to work from home. The suggestion that they will be required to travel an additional distance, in some cases adding an hour to their commute, is unacceptable, it said.

The site in Speke is a large contact centre dealing with fraud and customer services.

I travelled to the area recently to look at the cluster of life science companies there.

Margaret Thatcher’s right-to-buy scheme has left Britain with the legacy of a social housing shortfall that would cost the government £50bn to return the number of affordable homes back to 2010 levels.

In a report issued as Labour pushes to reform the Conservative policy introduced in the 1980s, the Resolution Foundation said Keir Starmer’s government faced a huge task to replenish the UK’s affordable housing stock.

The thinktank said clamping down on a council tenant’s ability to buy their home would significantly blunt the policy’s impact on the affordable housing supply, but challenges still remained if ministers wanted to increase the availability of sub-market rent properties.

Local authority tenants have been able to purchase their homes since 1936, but changes made under the first Thatcher government in 1980 turbocharged the sale of council homes by offering tenants a discounted rate.

A US financial regulator has sued Elon Musk for allegedly failing to disclose his ownership of Twitter stock and later acquiring shares in the company at “artificially low prices”, stiffing other shareholders.

The Securities and Exchange Commission (SEC) filed suit against Musk late on Tuesday in federal court in Washington DC for alleged securities violations. According to the suit, Musk did not disclose that he had acquired a 5% stake in the company in a timely manner, which allowed him “to underpay by at least $150m for shares he purchased after his financial beneficial ownership report was due”.

Musk bought Twitter in 2022 for $44bn and later renamed it X. Before the purchase, Musk bought the 5% stake in the company, which typically requires a public disclosure. The SEC alleges that it wasn’t until 11 days after the report was due that Musk disclosed his ownership in Twitter.