BUSINESS LIVE: Inflation hits 3%; HSBC to slash costs; BAE Systems profits soar

(PA) – Buying and selling shares will be settled more quickly in the UK from late 2027 as part of changes to attract more investment and compete with international financial markets.

Chancellor Rachel Reeves met senior City bankers on Wednesday morning to garner support for the plans.

The changes will see the time it takes to settle securities trades reduced from two days to one, coming into force from October 2027.

During the settlement period, cash and financial assets, known as securities, are exchanged between the buyer and seller.

Shortening the transfer time will speed up trading in UK financial markets, such as buying and selling shares, which experts say could reduce risks for investors.

It will also align the UK with other international markets, namely the US, which introduced the quicker settlement period last year after some investors said the two-day window held up trading.

Ms Reeves outlined the plans to bosses from investment banks and asset management firms including JP Morgan, Morgan Stanley, Goldman Sachs and Citi on Wednesday.

“Speeding up the settlement of trades makes our financial markets more efficient and internationally competitive,” the Chancellor said.

The news that Alasdair Haynes is stepping down as chief executive of Aquis Exchange was met with a mixture of surprise, disappointment and understanding.

Health issues forced Alasdair to vacate the chief executive’s responsibilities and slide into the President’s chair, where access to his experience and knowledge will be readily on tap.

His name will always be synonymous with Aquis Exchange, no matter if David Stevens, the new chief executive, takes the company forward to a greater level of achievement, and whatever influence SIX Swiss Exchange, its new owner, brings to the table.

Manchester United has reported an adjusted net loss of £6.2million for its second quarter, hurt by lower revenue as the club played the less lucrative Europa instead of the Champions League competition this season.

‘We recognise the challenges in improving our men’s team’s league position and we are all working hard, collectively, to achieve that,’ CEO Omar Berrada said in a statement on Wednesday.

The club currently sits 15th in the Premier League, only three places away from the relegation zone.

The company’s revenue in the fianly three months of 2024 fell 12 per cent to £198.7million, resulting in an adjusted net loss, compared with a profit of £19.3million a year ago.

Utd, however, forecast an annual adjusted core profit at the top end of the club’s previous range of £145million to £160million, while keeping its full-year revenue forecast unchanged

Monica George Michail, associate economist at the National Institute of Economic and Social Research:

‘While today’s figures show annual CPI inflation rising to 3.0 per cent in January 2025, its highest level in 10 months, this elevated figure is only transitory – due to base effects – and is expected to fall again in the coming months.

‘We think CPI inflation will average 2.5 per cent in 2025, before falling to the Bank’s 2 per cent target from 2026 onwards.

‘We therefore anticipate only one more rate cut in the second half of this year, given inflationary pressures from the government stimulus, persistently strong wage growth, and heightened global uncertainties.’

Mining giant Glencore is considering a transfer of its primary stock market listing out of the UK, potentially dealing yet another major blow to London markets.

Chief executive Gary Nagle told journalists on Wednesday that the company wanted its shares traded on an exchange ‘where we can get the right and optimal valuation’, though he refrained from revealing a preferred market.

Sainsbury’s has joined supermarket rival Tesco in cutting the number of products in its Aldi Price Match scheme.

In another blow to hard-pressed consumers, the move comes as as official data showed food inflation grew by 3.3 per cent in January and industry experts warned of even higher prices in the year ahead.

HSBC has abandoned its target of achieving net-zero carbon emissions across the business by 2030.

The lender told shareholders it now expects a 40 per cent drop in emissions across its operations, business travel and supply chain by 2030, with the more more ambitious net-zero target now pencilled in for 2050.

HSBC highlighted its limited influence on companies over issues including technological advancements, market demand and effective policy influencing the pace of change.

The lender also said its original target was based on an ability to use carbon credits to offset some of its supply chain emissions, which would not align with recent guidance from the Science Based Targets Initiative, which assesses and approves corporate climate targets.

It follows the departure of HSBC’s chief sustainability officer late in 2024 after chief executive Georges Elhedery removed the role from its executive committee in a management reshuffle.

President Donald Trump has ramped up trade war fears after revealing he plans to impose 25 per cent tariffs on imported cars, pharmaceuticals and semiconductor chips.

Trump has long railed against what he calls the unfair treatment of US automotive exports in foreign markets and last Friday vowed to impose levies ‘in the neighborhood of 25 per cent’ on imported vehicles.

BAE Systems’ profits exceeded £3billion last year as countries around the world continued to ramp up military spending amid elevated geopolitical tensions.

Europe’s largest defence contractor revealed its underlying earnings before tax and interest increased by 14 per cent at constant currency levels in 2024.

The FTSE 100 group’s revenue jumped by more than £3billion to £28.3billion on the back of growth across all divisions.

Luke Bartholomew, deputy chief economist at Abrdn:

‘Inflation was always going to jump higher today, but the size of the increase is a bit of disappointment.

‘However, measures of underlying inflation were actually a bit more encouraging, with services inflation coming in slightly weaker than expected.

‘While key Bank of England policymakers recently sounded more concerned about the growth rather than inflation outlook, there is probably not enough in this report to materially move the dial on the near term outlook for policy.

‘Another rate cut in March looks pretty unlikely, with the Bank continuing with its gradual pace of easing for now. But any speeding up of the pace of rate cuts in the second half of the year will depend on inflation pressures heading back towards 2%’

Mark Crouch, market analyst at eToro:

‘BAE Systems expects sales to surpass £30bn this year, as substantial contract wins in 2024 have seen the defense giant’s order book grow to record levels. Demand for military equipment—ranging from submarines and combat vehicles to fighter jets and naval frigates—continues to rise as nations worldwide look to bolster their defense capabilities.

‘BAE shares received a further boost this week following remarks by US Vice President JD Vance at the Munich Security Conference. In a speech that rocked a few boats, Vance seemed to question European countries’ commitment to defense, asserting that they will need to invest more, with the United States seemingly unwilling to bear the lion’s share of Europe’s defense burden moving forward.

‘With the UK and other European nations now in the precarious position of needing to rapidly resupply their military forces, defense contractors like BAE—Europe’s largest defense company—will play a key role in filling that gap. And in countries like the UK, where armed forces are now roughly 20% smaller than they were a decade ago, this gap presents a significant opportunity for defense giants like BAE to step in.’

HSBC is set to shed even more jobs as part of sweeping cost-cutting plans, as the lender undergoes a transformation guided by new boss Georges Elhedery.

Britain’s biggest bank told shareholders on Wednesday it expects to incur around £1.4billion in severance and other up-front costs over the next two years.

HSBC has not detailed how many employees will be affected by its new targets, but said it was expecting to reduce staff expenses by 8 per cent as a result its cost-cutting drive.

Richard Hunter, head of markets at Interactive Investor:

‘Overall, these are comforting numbers which leave HSBC a strong springboard on which to build as the business is reorganised.

‘The longer-term potential for the Asian markets has been something of a blessing and a curse of late, with a faltering Chinese economy being something of a headwind more recently.

‘HSBC shares have nonetheless risen by 41% over the last year, as compared to a gain of 13% for the wider FTSE100 and over the last three years the signals have been strong, with a 65% increase in the price.

‘The likes of HSBC already have an established and trusted brand in the Asian region which by definition provides an advantage, and the reorganisation should open the door to further growth.

‘In the meantime, the group will need to work even harder to justify its premium rating among the banks, especially given its eye on the future, which is reflected by a current market consensus of the shares as a hold, albeit a strong one.’

Shares in the US-based owner of Boots soared on talks of a takeover by private equity –raising fresh questions over the High Street pharmacy’s future.

New York-listed Walgreens Boots Alliance, which owns the chain, as well as US group Walgreens, surged 11 per cent following a report that discussions were ‘alive’ with buyout group Sycamore Partners.

The two firms have reportedly been discussing a takeover deal which could be completed early this year.

James Smith, developed markets economist, UK, at ING:

‘Energy and food are of little relevance to the BoE’s decision-making. What really matters is service sector inflation, and here the news is getting better. Admittedly services CPI did rebound up to 5%, though that was lower than expected and followed an artificially low reading in December. Airfares didn’t properly account for the usual surge in prices around Christmas.

‘Again though, airfares don’t matter for monetary policy. And once you strip out the volatile items as well as rents, ‘core services’ inflation is falling. There isn’t a single official measure of this, but when we calculate it, we tend to strip out things like airfares, package holidays, and also rents. Rental growth has been relentless, but the Bank of England doesn’t seem to put much weight on it.

‘By our calculations, that measure of ‘core services’ inflation now sits at 4.2%, down from 4.7% two months ago.

‘We expect this trend to continue. We think the measure of ‘core services’ can dip below 4% within the next couple of months, while overall services inflation could be there by the summer. Crucially, that’s a faster fall the Bank of England is currently forecasting. Huge chunks of the services basket are subject to annual price hikes in April, which owing to lower headline inflation, should be less aggressive than they were in April 2024.

‘If we’re right, that wouldn’t necessarily speed up the pace of rate cuts, but it would help cement a total of four cuts this year. We also expect rates to fall to 3.25% in 2026, which is a fair bit lower than markets are currently pricing.’

Jet2 expects annual profits to rise by 8 to 10 per cent this year after the travel group told 8.5 per cent more seats during the crucial summer season.

But Jet2, which offers scheduled flights and package holidays, warned its margins may be pressured due to economic uncertainty and lower spending by holidaymakers.

‘The current macro-economic conditions and the many demands placed on consumer discretionary incomes, which combined with the later booking profile and cost headwinds detailed, may mean may mean profit margins in the year ahead come under some pressure,’ CEO Steve Heapy said.

Thomas Pugh, economist at RSM UK:

‘January’s jump in inflation to 3.0% is another step on an upward path that will take inflation to 3.5% or even higher by the middle of this year. The rebound in inflation won’t rule out further rate cuts, the economy is too weak for that, but it will keep the MPC firmly on its “careful and gradual” rate cutting path.

‘We still expect one cut a quarter this year, but evidence that the labour market is holding up and inflation is rising faster than expected means the risks of just two cuts are growing.

‘The MPC is, once again, facing the dreaded trade-off between weak growth and higher inflation as the economy stagnates.

‘Inflation now looks likely to reach 3.5% or even higher by the middle of this year, while growth has been disappointingly stagnant. That won’t stop the MPC from cutting interest rates this year, especially because the rise in inflation will be primarily driven by higher energy prices, but it will make it more cautious.’

BAE Systems secured £33.7billion of orders last year, taking its backlog to a record high and reflecting strong demand for combat vehicles and advancements in fighter jet, submarine and frigate programmes.

Britain’s biggest defence company said an increase in government military spending meant it was confident for the year ahead after it met forecasts with a 14 per cent rise in both 2024 operating profit and revenue.

Chief executive Charles Woodburn said on Wednesday the company had an ‘exceptional visibility’ of its record order backlog, which now stands at £77.8billion, underpinning its confidence for the future.

‘Today, nations are facing increasingly varied and complex threats to security,’ the company said.

‘These growing threats have reinforced the essential nature of our work and highlighted the need for continued global investment in defence.’

The group, which has benefited from increased defence budgets in the wake of the Ukraine war, said it expected its earnings to rise 8 to 10 per cent this year on sales up as much as 9 per cent.

HSBC is targeting savings of $1.5billion (£1.2 billion) by the end of 2026 as part of ongoing changes under boss Georges Elhedery, who has spearheaded an overhaul of the bank’s global structure to drastically reduce costs and focus on more profitable parts of the business.

The UK’s largest bank confirmed the plans as it revealed a pre-tax profit of around £25.6billlion for 2024, up from £23.1billion the prior year.

HSBC’s reorganisation aims to generate cost reductions of $300million this year, with the commitment to the $1.5billion annualised reduction in the cost base expected by the end of 2026.

The lender planned to incur $1.8billion in severance and other up-front costs over the next two years, as well as redeploying around $1.5billion from ‘non-strategic activities” to areas where it has “a clear competitive advantage’.

Elhedery said: ‘I have focused on simplifying how we operate and injected energy and intent into the way we deliver our strategy. We are creating a simple, more agile, focused bank built on our core strengths.”

‘I have put in place a smaller, core team of exceptionally talented leaders driven by a growth orientated mindset and a firm focus on dynamically managing our costs and capital.

‘We are embedding this approach across the organisation to ensure we are continually focused on these two important principles.’

AstraZeneca’s boss was handed another £14.7million last year – taking his total earnings at the drugs giant to more than £150million.

Pascal Soriot, 65, topped up his basic salary of £1.8million with extras that included a bonus of £3.5million and share awards totalling £9.4million in 2024.

The award took Frenchman’s total pay at the pharmaceutical group to around £150.3million since he became chief executive in October 2012.

Sarah Coles, head of personal finance, Hargreaves Lansdown:

‘Private school fees have played their part. January saw the VAT exemption on the fees disappear, and while schools weren’t required to pass the cost on, it seems as though parents have borne the brunt of the change. The annual inflation rate for education was 7.5% – up from 5.0% in December. This was entirely driven by a 12.7% rise in private school fees during the month.

‘Petrol prices helped push inflation up, with the average price of petrol up 0.8 pence per litre between December 2024 and January 2025, and diesel prices up 1.5 pence per litre. Petrol prices are still down over the year, but less so than a year earlier.

‘Airfares also took a toll. They tend to rise in December and then fall back in January, but the movements were more muted this year – which meant the January figure fell less than it usually does. This may not reflect any major change in the market, because the December figures were drawn on days that are typically cheaper anyway – Christmas Eve and New Year’s Eve.

‘Food and drink prices also fed inflation – up 3%. Poor harvests in a number of areas have pushed up the prices of trolley favourites, including olive oil at 16.6% and chocolate at 14.4%. Butter is also up 18.3% thanks to bad weather reducing milk supplies.

‘This is partially offset by price falls elsewhere – with annual drops in the price of everything from rice and pasta to margarine. However, with the threat of higher wage costs for supermarkets and producers, there’s every chance this isn’t the last we’ve seen of food inflation in 2025.

‘There are additional costs waiting in the wings that bode badly for inflation too. In April, the energy price cap is forecast to go up by £85 to £1,823 – which would be its highest level since the beginning of last year. This is on top of rises in everything from water bills and council tax– which is why it has become known as Awful April. The Bank of England is expecting inflation to peak at 3.7% later this year.’

Robinhood lead analyst Dan Lane:

‘February’s confident cut may have given us too much hope for a steepening downward rate path. We shouldn’t get ahead of ourselves and today is a sign to remember the careful and gradual approach the MPC has signposted.

‘December’s CPI dip gave a slight reprieve but it’s worth keeping in mind the bigger picture – the BoE sees inflation hitting 3.7% by the midpoint of 2025.

‘To get quarterly cut hopes back on track we really need to see a sustained softening in services inflation but, given how much staff costs weigh on UK services businesses, the upcoming rise in employer NI contributions could put a spanner in the works.

‘Today’s print will likely reinforce caution among policy setters rather than allow them the freedom to look through the current ‘hump’ and still plan rate cuts. With so many moving parts, a gradual easing path will likely bypass a cut on 20 March.’

Michael Field, chief equity strategist at Morningstar:

‘After a lower than expected reading in December, UK inflation rose to unexpected highs of 3 per cent.

‘Markets had expected a 30 basis point rise, but today’s number brings us back to levels not seen in almost a year. This may give the Bank of England pause for thought on future interest rate cuts, with the current level far in excess of its 2 per cent targeted level.

‘Core inflation, the measure that strips out volatile components such as food and energy, saw an equally large rise, increasing to 3.7 from 3.2 per per cent last month, moving even further away from that magic 2 per cent target.

‘Falling interest rates are obviously a boon to equities, and any slowdown in the pace of cuts will frustrate investors. But ultimately today’s reading vindicates the Bank of England’s slow and steady approach to rate cutting.’

UK inflation accelerated faster than expected in January on the back of higher transport and education costs, with fresh data further complicating the path for Bank of England interest rate cuts.

The consumer price index jumped to 3 per cent last month, up from 2.5 per cent in December and ahead of forecasts of 2.8 per cent, according to the Office for National Statistics.