BUSINESS LIVE: MPC holds base rate; US Fed sinks markets; Thames fined over divi payout

(PA) – Up to a third of firms on London’s junior stock market are vulnerable to a takeover next year as the City is set for a ‘major and sustained’ deluge of swoops on UK stocks, an investment bank has warned.

A report by Peel Hunt on the UK takeover outlook, titled Barbarians At The Gate, said there was a ‘wave of demand’ as private and foreign buyers line up to snap up UK stocks.

It predicts that up to a third of small and mid-cap firms listed on Aim are ‘potentially vulnerable to acquisition’ in 2025 thanks in part to depressed valuations.

Michael Nicholson, head of advisory, and mergers and acquisitions, at Peel Hunt, said in the report: ‘Absent a change of events, it seems certain that 2025 will bring a major and sustained flow of UK takeovers.’

He added: ‘We observe a wave of demand approaching the shores of the UK – with strategic and private equity buyers simultaneously active – and our coastal defences feel weaker than ever.’

The 2025 predictions come after 2024 saw a raft of major UK companies fall prey to foreign and private equity takeovers, including Royal Mail owner International Distribution Services (IDS), Darktrace and Britvic.

Mr Nicholson said: ‘Approaches to UK-listed companies are now coming at an increased rate with those that become public knowledge far outweighed by those that are yet to (or may never) see the light of day.

‘We see this trend only accelerating in the New Year, absent an unexpected change in circumstances.’

James Lynch, investment manager at Aegon Asset Management:

‘It still is rather abnormal that the cutting cycle is ‘gradual’, if we interpret that meaning a 25bp cut around every 3 meetings. Cutting cycles are usually quick and meaningful. But this is how the current cycle started back in August, and we have only had 50bps of cuts so far.

‘The reason ‘gradual’ is not normal is because when Central Banks need to cut interest rates, it’s usually because there is a real problem somewhere in the economy (or in financial markets that might spill over to the economy). This time around there is clearly no sense of urgency because that is not a real clear and present danger to the economy, that at least monetary policy can affect.

‘So while the BoE wait for a problem to occur, whether that be deflation, large recession or in broader financial conditions, there is still a sense that they see policy rates as a bit too high, and in the meantime 25bps every 3 meetings seems to be enough. So we would expect the next move to 4.50% in February.’

Outsourcing giant Serco expects its pipeline of new business opportunities to close 2024 at its strongest level for more than a decade.

The Hampshire-based firm said it had enjoyed a ‘much improved’ order intake during the second half of this year, supported by new contracts from the defence industry in North America.

Francesco Pesole FX strategist at ING:

‘What slightly surprised markets was the close MPC vote split: six in favour of a hold, three for a 25bp cut. Our expectations – and probably that of the market – was that only arch-dove Swati Dhingra would have voted for a cut, but she was instead joined by Dave Ramsden and Alan Taylor. The latter is an external member whose term only started in September 2024.

‘According to the BoE’s statement, the three dissenters judged the current policy stance as too restrictive, and it “risked deviating unsustainably from the 2% inflation target and opening an unduly large output gap”.

‘Markets saw the closer vote margin as modestly dovish and the two-year GBP swap curve shifted around 5bp lower after the announcement. Markets are now pricing in over a 50% (17bp) probability of a cut at the next meeting on 6 February.

‘The apparent growing dovish front within the MPC in spite of the latest hawkish wage data potentially suggests a greater focus on slowing activity. That reinforces our dovish view on the Bank of England for next year – we expect 150bp of cuts, against market expectations for around 55bp.’

The Bank of England has opted to hold the base rate at its current level, meaning interest rates will finish the year at 4.75 per cent.

The decision will come as little surprise given that yesterday, the Office for National Statistics reported that inflation rose to 2.6 per cent – above the Bank of England target of 2 per cent.

Neil Birrell, CIO at Premier Miton Investors:

‘As expected, the Bank of England left the base rate unchanged. Clearly the spectre of inflation is its major concern rather than a stagnating economy.

‘Ongoing poor news out of the all-important consumer sector is a concern, but that has been parked until the new year, when we will have heard from the major retailers on the Christmas period.

‘It’s difficult to get enthused about the outlook for the economy at the moment and the path for interest rate cuts isn’t helping.’

Marion Amiot, head of climate economics and European economist at S&P Global Ratings:

‘As expected, the Bank of England has decided not to cut rates, even if activity contracted in October.

‘Wage growth and inflation releases over the past few days lend support to the MPC’s view that more slack is needed to get inflation back on target – what they call the second scenario.

‘Especially in light of the minimum wage hike and fiscal stimulus, wage pressures and the labour market will continue showing signs of strength in the new year. Adding to that, it is still unclear how much inflation will follow from the NIECs increases.

‘In this context, the MPC is likely to tread carefully while the impact of the fiscal impulse becomes clearer, cutting rates only once per quarter to reach 3.75% by the end of next year.’

The Bank of England’s Monetary Policy Committee’s has voted to maintain base rate at its current level of 4.75 per cent, by a margin of 6 to 3.

The three dissenters voted to cut base rate by 25 basis points to 4.5 per cent.

BT has defeated a £1.3billion lawsuit brought against the telecoms giant for allegedly overcharging millions of customers for fixed telephone lines.

The Competition Appeal Tribunal (CAT) ruled in favour of BT in a case which accused the former telecoms monopoly of excessively increasing prices.

‘Overall, we considered that, whether taken by itself or in comparison with other prices, BT´s prices were not unfair, and therefore there was no abuse of dominant position,’ the CAT said in a written summary of its ruling.

BT shares are up 0.5 per cent, outperforming the wider market.

More than 100 Rio Tinto shareholders have called for a resolution that could see the miner quit its primary London listing and unify its corporate structure.

Activist investor Palliser Capital is pushing the world’s biggest iron ore producer to abandon its primary London listing and unify its corporate structure in Australia.

John Lewis has been granted the Royal Warrant of Appointment as supplier of household goods and furnishings to King Charles.

Peter Ruis, executive director of John Lewis, said: ‘It’s a proud moment to be recognised by His Majesty with his Royal Warrant.

‘For 160 years, we’ve been focused on offering excellent customer service and the highest quality products, and the Royal Warrant is testament to the hard work of Partners across John Lewis and our suppliers.’

The postie, in his all-weather shorts, is so much-loved in one Hertfordshire village that each Christmas residents buy him a £500 gift voucher, plus champagne and chocolates.

At this festive season, love it or hate it, the Royal Mail is an enduring feature of our lives.

The City watchdog has extended the deadline for motor finance lenders to respond to complaints regarding historic commissions on car loans.

The Financial Conduct Authority (FCA) has granted motor finance companies until 4 December 2025 to offer a final response to non-DCA complaints, just as it has done with complaints concerning discretionary commission arrangements.

An activist investor is hoping to seize control of seven underperforming London-listed investment trusts after urging shareholders on Wednesday to sack their respective boards.

Saba Capital published an open letter to shareholders of the seven trusts, calling for them to vote to sack entire boards and replace them with ‘new, highly qualified candidates’ – including the hedge fund’s own executives.

Preston Caldwell, chief US economist at Morningstar:

‘The Fed is setting the stage for the possibility of few (or even zero)additional rate cuts in 2025 and 2026. Fed Chair Jerome Powell noted that the federal-funds rate is now “significantly closer to neutral”, although it likely remains still “meaningfully restrictive”.

‘There is much uncertainty about precisely where the neutral rate is located. GDP growth has remained strong despite the Fed’s high interest rates. Inflation is also not quite back to target.

‘The Fed is virtually certain to slow the pace of rate cuts in 2025, in order to better gauge the effects of monetary policy in real time.

‘The Fed didn’t noticeably increase its GDP forecast, so expectations of higher inflation can’t be attributable to expectations of a hotter economy. Instead, it is likely that the Fed is beginning to incorporate the possibility of inflation-boosting policy changes in 2025, most notably higher tariffs.

‘Although market expectations were already more hawkish than the Fed going into today’s meeting, the upward revision in the Fed’s expected federal-funds rate for end-2025 compelled an upward revision in the market’s own expectations. The market is now even incorporating a 60% probability that the federal-funds rate target range is at 4.25-4.50% or higher at the end of 2025, meaning no net rate cuts in 2025.’

Thames Water has been handed an £18.2million fine after regulator Ofwat used powers to crack down on firms paying ‘unjustified’ dividends for the first time.

The debt riddled utility, which was also given the green light to hike customer bills 35 per cent by 2030, was found to have unjustifiably paid £158.3million to shareholders.

The FCA is giving customers who struck historic finance deals to lease motor vehicles additional time to complain about commission payments.

The regulator is widening a review that could lead to Britain’s biggest financial redress scheme since mis-sold payment protection insurance (PPI).

It is is considering a sector-wide compensation scheme that analysts say could run into billions of pounds after London’s Court of Appeal ruled in October that it was unlawful for car dealers to receive commission from banks without a customer’s informed consent.

After feedback received during its consultation, the FCA said the complaint-handling extension will cover motor leasing as well as motor finance credit agreements, potentially expanding the number of affected customers even further.

‘The Court of Appeal’s judgment did not involve motor leasing agreements. However, consumers also use leasing to access motor vehicles, and it is important that consumers using similar products for similar purposes are treated in the same way,’ the regulator said.

Heathrow is in talks with the Government about controversial plans for a third runway and has announced a £2.3billion upgrade.

Europe’s busiest airport is in fresh discussions with ministers and airlines in its latest push in a long battle to expand.

Richard Hunter, head of markets at Interactive Investor:

‘UK markets followed the global lead and sagged helplessly at the open. The markdowns were almost universal, with the largest falls being felt in the mining sector, as well as those with significant US exposure such as Barclays, Entain and Ashtead Group, while Scottish Mortgage also made an unwelcome appearance given its own technology focus.

‘British American Tobacco was also lower having been marked ex-dividend, with some minimal strength in the defensive utility stocks and a weaker sterling offering virtually no resistance.

‘The losses reduce the gains for the FTSE100 in the year to date to 4.8%, undoing some of the progress previously made. The premier index has now moved to being comfortably over 4% away from the highs recorded in May, with few prospects of a positive catalyst in sight.

‘The more domestically focused FTSE250 has borne the additional burden of being seen as something of a barometer for the wider UK economy, with its gains being pared to just 3.2% so far this year following this latest bout of weakness.’

Housebuilder Henry Boot will take full ownership of Stonebridge Homes after buying the reamining 50 per cent of the premium regional specialist.

The transaction is structured to complete in three tranches over the next five years with the total purchase price linked to the performance of Stonebridge, the group said.

Boss Tim Roberts said: ‘This transaction represents an important strategic milestone for Henry Boot, allowing us to acquire full ownership of a high growth builder of premium residential homes that we already know well through our existing 50% share in the business.

‘The acquisition of Stonebridge also further cements our position in the U.K. house-building sector, a market which currently benefits from a number of supportive structural and political tailwinds, while at the same time simplifies Henry Boot’s structure.

‘The consideration is performance linked, and the phased structure is designed to generate strong returns whilst maintaining gearing within our optimum range of 10-20%. All of this gives us confidence that this transaction will help drive enhanced shareholder value over the medium term and will be a significant part of our plans for growth.’

The boss of one of Britain’s biggest investment platforms claimed the Government is ‘taxing the stock exchange out of existence’ as he called for stamp duty on share trading to be scrapped.

Richard Wilson, chief executive of Interactive Investor, said action was needed after figures showed the London market has suffered the largest exodus of companies since 2009 this year.

German sandal maker Birkenstock posted higher sales and profits as ‘ugly’ clogs prove a hit with shoppers.

Sales jumped 21 per cent to £1.5billion over the year to September 30 and profits more than doubled to £159million.

Household water bills will rise by an average of £94, or 21 per cent, over the next five years after regulator Ofwat signed off steep price hikes.

The increase in bills will pay for upgrades to pipes and reservoirs that water firms argue are sorely needed – but will also go towards paying investors.

Environment Secretary Steve Reed said this week that consumers would be ‘angry’ at the hikes to the cost of water.

Thames Water will be fined £18million for breaking dividend payment rules, as regulator Ofwat takes action against water firms that do not link payouts to performance for the first time.

Debt-saddled Thames Water, which has 16 million customers, has become a poster child for Britain’s broken water sector following accusations investors have for decades plundered companies for dividends while neglecting infrastructure and the environment.

Ofwat had tightened rules on water companies’ dividend policy in May last year, telling firms to stop the payment of dividends if they are of poor financial health.

The regulator said Thames Water made interim dividend payouts totalling £37.5million to its holding company, Thames Water Utilities Holdings Limited, in October last year and further payouts of about £158.3million in March 2024.

The regulator, which oversees the privatised water and sewerage industry in England and Wales, said it would claw back value from £131.3million of dividend payments using price control so customers do not lose out on tax benefits.

‘(This) is a clear warning to the whole sector: We will take action against companies who take money out of these businesses, where performance does not merit it,’ Ofwat’s chief David Black said in a statement.

Nissan shares clocked up their biggest gain in nearly 40 years after it entered merger talks with Japanese rival Honda.

A deal that could also include Mitsubishi Motors, in which Nissan is the top shareholder with a 24 per cent stake, and would create the world’s third-largest carmaker with 8m sales a year – behind Toyota (11.2m) and German giant Volkswagen (9.2m).

Nissan shares jumped 24 per cent but remain down 25 per cent this year. Honda fell 3 per cent.

The Bank of England will later today reveal its Monetary Policy Committee’s decision on the direction of interest rates.

Base rate is expected to be held at its current level of 4.75 per cent, amid fears of an inflationary resurgence.