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UK sells £1bn of bonds on most expensive terms since 2004 – business live


UK sells £1bn of bonds on most expensive terms since 2004

More on today’s UK government bond auction (see post at 10.10am GMT) – Reuters have crunched the numbers.

The bond sale attracted solid demand, but it was on the most expensive terms since 2004, underscoring the cost to taxpayers from a recent sell-off in bond markets, which has pushed yields to multi-year highs.

The Debt Management Office sold £1bn of inflation-linked gilts due in 2054 and received bids worth 3.06 times that sum. While this was the weakest ratio for a linker sale since August, it showed healthy demand during a period of turmoil in the gilt market.

The bonds sold with a real yield of 2.126%, the highest seen at an auction of inflation-linked gilts since July 2004. The real yield refers to the annual return investors will receive above the inflation rate.

The UK has been among the markets most hit by a surge in global borrowing costs, reflecting concerns about rising inflation at home and in the United States, with reduced chances of interest rate cuts in both countries, and uncertainty over how Donald Trump will conduct economic policy when he takes office next week.

Investors are also watching to see how businesses are responding to a sharp increase in payroll taxes imposed in UK chancellor Rachel Reeves’ autumn budget. Many, such as retailers, have said they will be forced to raise their prices and may have to cut jobs.

Gilt yields are flat to slightly lower today in bond markets, a crumb of comfort for Reeves, after yields rose for six consecutive sessions.

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Key events

UK government sells down NatWest stake

Kalyeena Makortoff

Kalyeena Makortoff

It’s the final countdown to privatisation, with the government having again cut its stake in NatWest Group (formerly RBS) – this time down to 8.9% from 9.99% in December.

The government has been steadily drip-feeding shares into the market, benefitting from a jump in shares in recent months, with the stock reaching a 13-year high of 415p in December.

However, that is still shy of the 502p buy-in price that the government paid as part of a £46bn bailout of the bank during the financial crisis in 2008.

Some estimates, including by The Sunday Times, suggest the continued shortfall could leave the taxpayer with a £20bn loss by the time that the government sells off its remaining stake. But that could be mitigated by further dividends, including any announced at full-year results on 20 February.

NatWest CEO Paul Thwaite said last month that the government is likely to fully exit its stake by the end of June 2025.

He added would be a symbolic moment for NatWest Group staff and the wider banking sector, allowing the industry to close another chapter of the fallout from the 2008 banking crash.

NatWest said in a statement on Tuesday:

We are pleased with the sustained momentum in reducing HM Treasury’s stake in NatWest Group. Returning the bank to full private ownership is a shared ambition and one that is in the interest of all our stakeholders.

A branch of NatWest in London. Photograph: Matt Crossick/PA
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Daniel Boffey

Daniel Boffey

A minister has accused Centrica, the owner of British Gas, of promoting “alarmist headlines” to secure government subsidies after its chief executive claimed the country had only a week’s worth of gas available amid freezing temperatures.

Lord Hunt, an energy minister, dismissed the company’s concerns that the UK had only enough gas in storage for one week, compared with 89 days for Germany, 103 days for France and 123 days for the Netherlands.

In response to questions about the country’s supply, Hunt told peers:

What we had was one company looking for government subsidies using the opportunity to make alarmist headlines.

Over the weekend, Gary O’Shea, chief executive of Centrica had claimed that the UK stood out in Europe in maintaining just a week of stored gas. He said:

The UK’s gas storage levels are concerningly low. We are an outlier from the rest of Europe when it comes to the role of storage in our energy system and we are now seeing the implications of that.

Gas is key to Britain’s energy supplies providing around 40% of the country’s electricity. Around 28m UK homes are reliant on gas boilers for heating and hot water.

UK sells £1bn of bonds on most expensive terms since 2004

More on today’s UK government bond auction (see post at 10.10am GMT) – Reuters have crunched the numbers.

The bond sale attracted solid demand, but it was on the most expensive terms since 2004, underscoring the cost to taxpayers from a recent sell-off in bond markets, which has pushed yields to multi-year highs.

The Debt Management Office sold £1bn of inflation-linked gilts due in 2054 and received bids worth 3.06 times that sum. While this was the weakest ratio for a linker sale since August, it showed healthy demand during a period of turmoil in the gilt market.

The bonds sold with a real yield of 2.126%, the highest seen at an auction of inflation-linked gilts since July 2004. The real yield refers to the annual return investors will receive above the inflation rate.

The UK has been among the markets most hit by a surge in global borrowing costs, reflecting concerns about rising inflation at home and in the United States, with reduced chances of interest rate cuts in both countries, and uncertainty over how Donald Trump will conduct economic policy when he takes office next week.

Investors are also watching to see how businesses are responding to a sharp increase in payroll taxes imposed in UK chancellor Rachel Reeves’ autumn budget. Many, such as retailers, have said they will be forced to raise their prices and may have to cut jobs.

Gilt yields are flat to slightly lower today in bond markets, a crumb of comfort for Reeves, after yields rose for six consecutive sessions.

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Wellcome Trust pays investment team £11m as portfolio rises in value

The Wellcome Trust paid its investment executives more than £11m last year, including £5m for its chief investment officer, after its investment portfolio rose in value.

Its investment portfolio returned 5.2% in the year to 30 September, or 3.5% after inflation, and the portfolio is now valued at £37.6bn, up from £36.8bn the year before.

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Charitable spending was £1.6bn last year, in line with its plan to pay out £16bn over the decade to 2032, but down slightly from 1.7bn the previous year.

Wellcome has backed the world’s first-ever vaccine against chikungunya, a debilitating mosquito-borne viral disease, which gained approval, through the Coalition for Epidemic Preparedness Innovations, co-founded by Wellcome and partners in 2017.

Wellcome also funded the early trials of Cobenfy, the first new drug for schizophrenia in 50 years.

The charity’s senior investment team was paid £11.1m last year, up from £9.5m the year before, dwarfing its governors’ remuneration of £803,665. Nick Moakes, the chief investment officer, received more than £5m, and is among the highest-paid charity workers in the UK. Moakes is leaving in March.

Wellcome noted that much of it will be deferred, depending on the future performance of its investment portfolio.

It argues:

Having an in-house investment team rather than outsourcing to external investment managers saves us hundreds of millions a year which we can spend on science to solve urgent health challenges.

Moakes will be replaced by two of the existing team who will become co-chief investment officers, Lisha Patel and Fabian Thehos.

The Wellcome Trust Gallery, Living and Dying, at the British Museum, which Geoff Pickup designed and which was opened in 2003. Photograph: from family/Trustees of the British Museum

Julia Gillard, chair of Wellcome’s board of governors, said:

This year, impacts from Wellcome’s work include a new treatment for schizophrenia, the first ever vaccine for the infectious disease chikungunya, and our new funding scheme for researchers from under-represented backgrounds in UK research to progress their careers.

Advances made by researchers we fund – and which we hope will have health impact in years to come – include insights into liver regeneration, drivers of autoimmune diseases, and a neural map of an adult fly’s brain which will help unlock new knowledge about how our own brains work.

We are well on track with our plan to spend £16bn between 2022 and 2032 on supporting science to solve the urgent health challenges facing everyone.

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Google said it will engage “constructively” with the UK competition regulator, after the watchdog used new powers to launch an investigation into the US tech giant’s search services (see post at 10.16am GMT).

A Google spokesperson told Reuters:

We will continue to engage constructively with the CMA to ensure that new rules benefit all types of websites, and still allow people in the UK to benefit from helpful and cutting edge services.

Here’s our full story on JD Sports – the shares are still down by around 9%, making it the biggest faller on the FTSE 100.

The UK’s blue-chip index is now up 0.16% but lagging behind other European stock markets, which are up between 0.76% (Germany) and 1% (France).

JD Sports has cut profit expectations for the second time in eight weeks, blaming heavy discounting across the fashion market.

The retailer said it did not expect any growth in sales at established stores during the year and warned that annual profits would be no more than £935m, down from previous hopes of between £955m and £1.03bn.

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Shares in JD, which also owns the Size?, Blacks and Millets brands in the UK, fell 10% as it cut forecasts below its previous expectations and warned of a tough economic backdrop for retailers.

The JD Group chief executive, Régis Schultz, said: “With these trading conditions expected to continue, we are taking a cautious view of the new financial year.”

Sales at established stores were down 1.5% in November and December in a “challenging and volatile market that saw increased promotional activity”, as a rise in sales in the final weeks of the year failed to offset a poor November.

Trading in the UK and US was particularly weak, while its stores outperformed its online arm, in contrast with Christmas trading at other listed fashion retailers, such as Marks & Spencer and Next.

UK’s competition watchdog to investigate Google’s search services

Britain’s competition watchdog said it will investigate Google’s search services using its new powers to determine how they impact consumers and businesses, including advertisers, news publishers and rival search engines.

The Competition and Markets Authority said it is undertaking the investigation under the new digital markets competition regime that came into force on 1 January.

The issues that will form part of the CMA’s investigation include:

  • Weak competition and barriers to entry and innovation in search. The CMA will assess how competition is working and if Google is using its position to prevent innovation by others. This includes whether barriers to entry are preventing other competitors from entering the market, in particular whether Google is able to shape the development of new AI services and interfaces, including ‘answer engines’, in ways which limit the competitive constraint they impose on Google Search.

  • Possible leveraging of market power and ensuring open markets. This will include investigating whether Google is using its position in the market to self-preference its own services, for example specialised search services covering shopping and travel.

  • Potential exploitative conduct. This will include investigating the collection and use of large quantities of consumer data without informed consent, and the use of publisher content without fair terms and conditions (including payment terms).

Sarah Cardell, the regulator’s chief executive, said:

Millions of people and businesses across the UK rely on Google’s search and advertising services – with 90 per cent of searches happening on their platform and more than 200,000 UK businesses advertising there. That’s why it’s so important to ensure these services are delivering good outcomes for people and businesses and that there is a level playing field, especially as AI has the potential to transform search services.

It’s our job to ensure people get the full benefit of choice and innovation in search services and get a fair deal – for example in how their data is collected and stored. And for businesses, whether you are a rival search engine, an advertiser or a news organisation, we want to ensure there is a level playing field for all businesses, large and small, to succeed.

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The UK government has just sold £1bn of 30-year bonds in a scheduled auction and saw good demand.

The auction was covered 3.06 times. The bonds were sold at £80.714 with a real yield of 2.126%.

In the bond market, 30-year gilts currently have a yield (or interest rate) of 5.432%.

UK economy reporter Tom Rees said on X yesterday:

The UK has seen gilt yields rise sharply in early 2025 no doubt but they don’t look quite as horrific when you look at it like this. Gloomy UK narrative looks overdone
– 2-yr yield in line.
– 10-yr yield 5bps above average
– 30-yr yield a bit worse, 7bps above average pic.twitter.com/B4mnWA3VDB

— Tom Rees (@tomelleryrees) January 13, 2025

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Ocado flags lower price rises than rivals

Sarah Butler

Sarah Butler

More on online grocer Ocado (see post 7.57am GMT), which shrugged off fears of slowing consumer spending with a 17.5% rise in sales in the three months to 1 December as it grabbed market share from rivals.

Hannah Gibson, the chief executive of Ocado Retail which is a joint venture
between Marks & Spencer and the Ocado technology group, said strong trading had continued into December and the new year with the group seeing some of its biggest days ever over the festive period including growth on premium lines.

The business benefited from adding more M&S products, keeping a lid on price
rises and improving service. However she cautioned it was not clear if consumers would continue to increase spending saying it was “very early in the year and we don’t quite know what is happening.”

Growth was driven by a rise in customer numbers and the group’s existing customers also bought more often as Gibson said the group had invested in keeping prices down. She said Ocado would continue to invest to keep price rises below the wider market saying there were some predictions that general food inflation could reach 4.5%.

Gibson added that Ocado had no additional plans to bring forward new forms of automation to offset the rising costs of labour because of changes to employers’ national insurance and the legal minimum wage.

However Gibson said Ocado hoped to squeeze more capacity out of its existing estate, despite it running at more than 80% of capacity. “They have exceeded the throughput we originally thought they could achieve,” she said. “We believe there is further opportunity to go.”

An Ocado grocery delivery van is driven along a street in London. Photograph: Toby Melville/Reuters
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Pound slips again, government borrowing costs slightly lower

The pound has reversed its earlier modest rise and is now trading by 0.1% lower at $1.2184, amid mounting pressure on the chancellor, Rachel Reeves.

The euro is still up by 0.1% against the dollar, at $1.0257, while the US currency weakened by 0.4% against a basket of other major currencies, following a strong run in recent days.

UK government borrowing costs are flat to slightly lower, with the yield on the 30-year and 10-year bonds falling by 1 basis point, but remain near multi-year highs. Yesterday, the 30-year yield hit its highest level since 1998 while the 10-year yield was at its highest since 2008. Eurozone and US bond yields have also eased from multi-month highs.

Keir Starmer has backed Reeves, saying she will remain as chancellor until the next genera election, as as he warned yesterday that the Treasury would be “ruthless” over public spending cuts to help meet the government’s fiscal rules.

Starbucks says people using its coffee shops must buy something in U-turn

Starbucks has said that people using its coffee shops in North America need to buy something, u-turning on a policy which allowed anyone to use its toilets even if they had not made a purchase.

The world’s biggest coffee chain this week published a new code of conduct saying that “Starbucks spaces are for use by our partners and customers – this includes our cafes, patios and restrooms”.

The policy of allowing people to use Starbucks toilets without making a purchase was introduced in 2018 after the arrest of two black men in a branch in Philadelphia, Pennsylvania.

Starbucks was accused by the city’s mayor of actions that appeared to “exemplify what racial discrimination looks like in 2018”. The company temporarily closed all of its stores to conduct racial sensitivity training.

The new policy is being introduced as Brian Niccol, the chief executive since September, tries to turn around its performance. The company, which has 36,000 outlets in 84 countries, in October reported falling global sales and profits, and promised to cut down its “overly complex menu” to try to attract customers back with more affordable drinks.

Shoppers at the Walden Galleria in Buffalo, NY, stop by the Starbucks kiosk on Nov. 30, 2024. Photograph: Gene J Puskar/AP

Turning to JD Sports, Hunter thinks the company will benefit from its recent acquisitions in the US and France in the long run. He said:

JD Sports chose not to engage in promotional activity in the latest period, choosing instead to protect its cash management and gross margin positions, and this strategy appears to have backfired somewhat…

The remainder of the picture is mixed, with strength in Europe and Asia not sufficient to offset weakness in the UK and North America…

Further out, the most promising and obvious opportunity is JD’s growing brand presence in the major US market. The group recently completed the £900m acquisition of US retailer Hibbett, which should further propel brand awareness, especially in the southeastern corner of the country. North American revenues already account for 35% of the group total, and once Hibbett is fully integrated, this is expected to rise to 40%.

The £450m purchase of French retailer Courir has also received the European regulatory green light, although of course the group’s acquisition strategy does not come without risk, particularly at a time when there are questions over the resilience of the consumer on both sides of the pond as evidenced in this update.

Shares in FTSE 250-listed Ocado jumped by 12% after it reported its best Christmas ever.

Richard Hunter, head of markets at the trading platform interactive investor, said:

Today’s update is a welcome relief for a group which has been subject to severe investment disappointment over recent years, with a share price boost which reflects the sheer strength and success of the grocery arm over the latest quarter.

There are strong signs that Ocado is emerging as the fastest-growing UK grocer, following a focus on its selling prices which is having the desired effect of changing perceptions. The joint venture with Marks & Spencer provides the main slug of revenues and so this update provides a strong base as Ocado attempts to reverse some of the significant damage which the Technology Solutions business has wrought on the group as a whole.

Ocado’s technology business provides its grid-based warehouse systems where robots zip around moving groceries to other retailers around the world.

Today’s statement excludes any update on that business which has tended to be the “thorn in the side for the group,” Hunter said. Such details will follow when the group reports its full-year results at the end of next month. He added:

Even so, signs of exasperation with the group’s progress have been starkly expressed by a share price performance which saw the group relegated from the premier index in June, with the shares now having fallen by 59% over the last year, as compared to a gain of 2.7% for the wider FTSE 250. Over a three-year period, the price has cratered by 82% which only begins to underscore the immensity of the challenge which the group faces, even though today could yet mark a line in the sand.

JD Sports and BP weigh on FTSE 100; European stock markets rise

The UK’s stock market is the only one in Europe that’s flat this morning, while indices in Germany, Italy and France are between 0.6% and 1% ahead.

The FTSE 100 index initially slipped and is now flat at 8,227.

JD Sports is the biggest faller, down by more than 10%, after Britain’s biggest sports retailer cut profit expectations for the second time in eight weeks, blaming heavy discounting across the fashion market. The retailer said it does not expect any growth in sales at established stores during its financial year and full-year profits will be no more than £935m, down from previous hopes of around £955m.

BP is the second-biggest loser on the FTSE 100, falling 2.6%, after the company warned of a hit to fourth-quarter profits.

The oil and gas giant said lower production, weak margins in its refining business and lacklustre trading will result in a drop in fourth-quarter profit from the previous three months. Lower refining margins and a higher impact from maintenance work will reduce profits by up to $300m, with a further hit of between $200m and $400m from its oil production and operations division.

BP’s third-quarter profit was $2.27bn, already the weakest since the fourth quarter of 2020, when profits plummeted during the Covid-19 pandemic. BP releases fourth-quarter results on 11 February.

An investor day scheduled for that day in New York will now take place on 26 February in London. BP’s chief executive Murray Auchincloss, who has scaled back the firm’s energy transition strategy adopted by his predecessor Bernard Looney, in an attempt to boost profits and regain investor confidence, is currently recovering from a planned medical procedure.

Rivals Shell and Exxon Mobil in the US have also reported weaker performances.

Government bond yields ease but remain near multi-year highs

Government borrowing costs are easing, bringing some respite to the beleaguered chancellor, Rachel Reeves.

The yield, or interest rate, on the 30-year gilt, fell by 2 basis points to 5.407%. Yesterday, it spiked to 5.472%, the highest since 1998 as investors sold off UK government bonds. (When the price of a bond goes up, the yield goes down.)

The 10-year gilt yield is down by nearly 3 basis points at 4.846%, mirroring eurozone bond yields which are down by a similar amount, in Italy, Portugal and Greece.

Germany’s 10-year yield, the benchmark for the eurozone, is down almost a basis point at 2.579%, after rising to 2.612% yesterday, the highest since July.

US Treasury yields also fell in Asian trade, after a similar modest decline in the final 20 minutes of US trading yesterday when Bloomberg’s tariff story came out, analysts at Deutsche Bank note.

Bloomberg reported that Trump’s team are discussing slowly ramping up tariffs month by month to boost negotiating leverage.

Reeves is not out of the woods yet, with government bond yields remaining near multi-year highs.

Deutsche Bank analysts led by Jim Reid said:

Even though US Treasuries have been the primary focus given their importance as a global benchmark, the UK has seen some of the most severe losses, and yesterday saw those continue across multiple asset classes.

In particular, the 10yr gilt yield (+4.7bps) was up to another post-2008 high of 4.88%, and the 30yr yield (+3.1bps) was at a post-1998 high of 5.43%. In both cases, that was the sixth consecutive day they’ve moved higher, and the rise in yields means the government is at increasing risk of breaching its fiscal rules without fresh tax rises or spending cuts.

Keir Starmer has backed Reeves, saying she will remain as chancellor until the next genera election, as as he warned the Treasury would be “ruthless” over public spending cuts to help meet the government’s fiscal rules.

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Introduction: JD Sports warns of lower profits; pound rises amid pressure on Reeves

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

JD Sports, Britain’s biggest sports retailer, has issued another profit warning, blaming heavy discounting across the fashion market, while the online grocer Ocado reported its best Christmas ever.

Régis Schultz, the JD chief executive, said “market headwinds were higher than we anticipated”. The company owns JD Sports, Size?, Blacks and Millets in the UK as well as Finish Line in the US and Sports Zone and Sprinter in mainland Europe.

Despite a strong Christmas, with like-for-like revenue in December up 1.5%, JD sales are flat in its financial year so far, and are expected to show no growth for the year as a whole. As a result, the retailer expects full-year profit before tax to come in between £915m and £935m. In November, it said profits would be at the lower end of its previous range of between £955m and £1.03bn.

Shoe sales have grown and outperformed clothing, and JD’s stores did better than online sales, it said.

JD’s poor performance comes amid a difficult period for fashion retail in the UK as a warm autumn and start to the winter held back sales of more expensive items such as boots and coats while storms disrupted trips to the high street in many parts of the country, writes our retail correspondent Sarah Butler.

Leading sports brand Nike has also been struggling amid competition from up-coming brands and fears that athleisure styles are becoming less fashionable.

Ocado Retail – a joint venture between Ocado Group and Marks & Spencer – won more customers after lowering more prices through its ‘Big Price Drops,’ and matching prices on 10,000 like-for-like products with Tesco.

Ocado’s retail revenue climbed by 17.5% to £715.8m in the 13 weeks to 1 December, up from 15.5% growth in the previous quarter, as active customer numbers increased by 12.1% to 1.12 million.

In financial markets, the US dollar is hovering near its highest level in more than two years, as traders dialled back rate cut expectations after a strong jobs report underscored the strength of the US economy. They are now forecasting just one quarter point rate cut from the Federal Reserve this year.

The dollar index, which measures the US currency against six other major currencies, has edged 0.06% higher to 109.5, not far from the 26-month high of 110.17 it touched yesterday.

The pound has risen by a smidgen, trading 0.16% higher at $1.2220 while the euro is up by a similar amount, at $1.0260. Sterling has had a tough few days, falling to a 14-month low as government bond yields rose sharply, reflecting markets’ concerns about the outlook for the UK’s public finances.

Oil prices have slipped but remain near four-month highs, as Chinese and Indian buyers seek new suppliers after the US government imposed tougher sanctions on Russian oil. Brent crude futures fell by 46 cents to $80.55 a barrel while West Texas Intermediate crude lost 34 cents to $78.48 a barrel.

ING analysts said:

A large portion of Russia’s shadow tanker fleet has been sanctioned, making it more difficult for Russia and buyers to circumvent the G-7 price cap. These sanctions have the potential to take as much as 700,000 barrels per day of supply off the market, which would erase the surplus that we are expecting for this year.

The Agenda

  • 8.30am GMT: Bank of England deputy governor Sarah Breeden speaks on ‘Financial stability and too big too fail’ in Zurich

  • 2.30pm GMT: UK’s business and trade committee questions Frasers, Evri, Deliveroo and Uniqlo on the impact of gig-economy style self-employment and zero-hours contracts

  • 2.30pm GMT: US producer prices for December

  • Afternoon: Rachel Reeves gives statement on China trip

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