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Czech billionaire Daniel Kretinsky’s £3.57bn takeover deal for the owner of Royal Mail has been called in by the UK government under security rules.

International Distribution Services (IDS.L), the parent company of Royal Mail, agreed a takeover deal by Kretinsky’s EP Group in May.

The PA news agency understands that the Cabinet Office has now launched a review process into the bid under the National Security and Investment (NSI) act.

Kretinsky’s EP Group and the Cabinet Office declined to comment.

The process will assess whether the sale to Kretinsky, who is already IDS’s largest shareholder, could affect the UK’s economic infrastructure or pose a security risk.

The BBC reported that government officials will particularly look into links to Russia, with the billionaire investor owning stake in a major gas pipeline from Russia to Europe.

Government officials could block a deal or ask for specific commitments from the suitor if the review raises major concerns.

The review process is expected to take up to two months.

The Bank of England was quick to downplay the prospect of a flurry of rate cuts after its first reduction for more than four years, but experts said borrowing costs will likely come down further this year.

The cut from 5.25% to 5% was a very close decision, with a majority of just five of the nine members of the Monetary Policy Committee (MPC) voting for a reduction.

It also saw the Bank move ahead of its counterparts at the US Federal Reserve, which late yesterday voted to hold rates once again.

Economists said given the Bank’s cautious statement and the close vote, they are not expecting back-to-back cuts through the remainder of the year.

A no-change decision is now pencilled in for September, but many believe the next cut could come in November.

Peter Arnold, EY’s UK chief economist, said: “Given this month’s decision was such a close call for some of those who voted to cut, the EY Item Club doesn’t expect a repeat in September.

“The EY Item Club expects the next cut to come in November, leaving Bank Rate at 4.75% at the end of 2024.”

James Smith, developed market economist at ING, believes there may be room for even more cuts by the year-end.

He said: “The Bank of England is staying tight-lipped on when it expects to cut rates again.

“But we think better news on services inflation and wage growth can unlock one, or more likely two rate cuts by year-end.”

Stocks opened higher on Thursday to build on the prior session's rally after the Federal Reserve laid the groundwork for a September rate cut and social media giant Meta (META) reported better than expected results. Yahoo Finance's Ines Ferré writes:

Chancellor Rachel Reeves has welcomed the Bank’s decision to cut interest rate today.

But she also points out that mortgage rates are still much higher than two years ago, before the spike in borrowing costs after the previous government’s disastrous mini-budget.

She said:

The Bank of England has cut interest rates to 5% at its August Monetary Policy Committee (MPC) meeting, the first reduction of the UK’s base rate in four years.

In a finely balanced decision, five committee members voted in favour of cutting rates, versus four who preferred to keep them unchanged.

Bank of England governor Andrew Bailey said: “Inflationary pressures have eased enough that we’ve been able to cut interest rates today.”

Read the full story here

The UK’s manufacturing sector has seen activity jump to a two-year high in July, a sign that the economy has picked up since last month’s general election.

The S&P Global UK manufacturing PMI survey recorded a reading of 52.1 for July, up from from 50.9 in June and above the 51.8 indicated in last month’s “flash” estimate.

The sector has now remained above the 50 mark, separating growth from contraction, for the past three months.

Business confidence also rose last month, with. positive sentiment rising to its second-highest level in almost two-and-a-half years.

Production volumes rose across the consumer, intermediate and investment goods industries, according to the latest survey of purchasing managers.

Rob Dobson, director at S&P Global, said:

Annual house price growth has picked up to the fastest rate since December 2022, according to an index.

UK house prices rose 0.3% month-on-month in July, Nationwide Building Society said.

This resulted in a slight acceleration in the annual rate of house price growth from 1.5% in June, to 2.1% in July — the fastest pace since December 2022.

Across the UK, the average house price in July was £266,334.

Robert Gardner, Nationwide’s chief economist, said: “Prices are still around 2.8% below the all-time highs recorded in the summer of 2022.

“Housing market activity has been holding relatively steady in recent months with the number of mortgages approved for house purchase at around 60,000 per month.

“While this is still (around) 10% below the level prevailing before the pandemic struck, it is still a respectable pace given the higher interest rate environment.

“For example, for borrowers with a 25% deposit, the rate on a five-year fixed-rate deal has been around 4.6% in recent months, more than double the 1.9% average recorded in 2019.

“As a result, affordability is still stretched for many prospective buyers. Indeed, for an average earner buying a typical first-time buyer property, the monthly mortgage payment is equivalent to around 37% of take-home pay, well above the 28% prevailing pre-Covid and the long-run average of (around) 30%."

Shares in Rolls-Royce (RR.L) jumped more than 11% to hit an all-time high on Thursday after the company reinstated its dividend and raised its profit forecast.

The engineering group now expects to make an underlying operating profit of between £2.1bn and £2.3bn, up from previous guidance of £1.7bn-£2.0bn, as the turnaround plan implemented by chief executive Tufan Erginbilgiç gathers pace.

The company said it would resume dividends for full-year 2024, starting at a 30% pay-out ratio of underlying profit after tax.

That is expected to amount to about 5-5.5p per share based on the latest forecasts, which were upgraded on Thursday.

Erginbilgic said: “Our transformation of Rolls-Royce into a high-performing, competitive, resilient, and growing business is proceeding with pace and intensity.

“These results and our increased financial resilience give us the confidence to raise our 2024 guidance and reinstate shareholder distributions.”

Money markets are narrowly betting that the Bank of England (BoE) will cut UK interest rates this Thursday, despite recent data showing sticky services inflation.

Threadneedle Street is set to make its next decision this Thursday at noon, with odds standing at just over 58% for a 0.25% cut, and a likelihood of a cut by September at around 90%.

“The August decision is, perhaps, one of the toughest MPC decisions to forecast…in recent memory,” Michael Brown, senior research strategist at Pepperstone, said.

UK interest rates are currently at 16-year record highs of 5.25% and the move would be the BoE's first interest rate cut in over four years.

Read the full article here

Asia-Pacific markets were mixed Thursday, after comments from US Federal Reserve chair Jerome Powell indicated a rate cut in September if inflation data remained “encouraging.”

However, Japan’s Nikkei 225 (^N225) tumbled 2.5% and closed at 38,126.33 — the biggest drop since 2020 — as the yen rallied after the Bank of Japan’s second rate rise in 17 years, which hit exporters.

A stronger yen hits the competitiveness of Japanese exports, while higher borrowing costs tend to hit real estate companies.

On Wednesday, the Bank of Japan raised its benchmark interest rate to “around 0.25%,” marking its highest level since 2008.

The Hang Seng (^HSI) in Hong Kong slipped 0.1% to 17,324.96 points and the SSE Composite (000001.SS) lost 0.2% as China’s factory activity contracted in July, according to the Caixin survey done by S&P Global.

Hong Kong saw its GDP climb 3.3% year-on-year in the second quarter, beating expectations of a 2.7% rise from economists polled by Reuters.

US stocks rallied on Wednesday as investors digested the Federal Reserve's latest decision to hold interest rates steady and a tech revival sent the Nasdaq surging.

From our US team:

Next (NXT.L) has upgraded its profit targets after shrugging off wet weather at the start of summer.

Sales at the high street fashion chain grew as it was also buoyed by FatFace, which it bought for £115m last year, and Reiss, in which it now has majority ownership.

Next said its finances have been boosted by stronger-than-expected sales, particularly overseas, and increased cost savings.

The retailer said it is now on track for profits of around £980m for the current financial year, up £20m on its previous guidance.

It said this includes a roughly £11m boost from extra sales and £9m improvement from savings, mainly linked to its logistics.

Next said full price sales were 3.2% over the quarter to the end of July, surpassing expectations by £42m after predicting a slight dip.

Barclays (BARC.L) has revealed an 8% drop in half-year profits, but increased its full-year outlook for a key performance measure and unveiled more returns for shareholders.

The lender reported pre-tax profits of £4.2bn for the first six months of 2024, down from £4.6bn a year earlier, but better than expected thanks to a strong performance in its investment bank.

In the second quarter, it saw profits fall 1% to £1.9bn.

It set aside another £897m for bad debts in the first half, up from £896m a year ago, after putting by £400m in during the second quarter.

But the group raised its net interest income outlook for the full year to around £11bn, up from the previous guidance for about £10.7bn, partly on the back of a higher than expected interest rate outlook, with fewer cuts now pencilled in.

It also confirmed plans to buy back another £750m in shares in the third quarter and boosted half-year dividends.

Shell (SHEL.L) has revealed profits of $14bn (£10.9bn) for the first half of the year after a stronger-than-expected second quarter.

The oil major saw a slowdown in earnings over the three months to June after previously warning about lower fossil fuel prices, refining margins and an impairment hit linked to plants in Singapore and Rotterdam.

Nevertheless, it still delivered $6.3bn of earnings for the period, surpassing analyst guidance.

Shell told shareholders on Thursday that earning were 19% lower quarter-on-quarter due to weaker liquified natural gas (LNG) trading and refining profitability.

The company somewhat offset this through stronger profit margins and total volumes in its marketing division.

The company also confirmed plans for further returns to shareholders through an extended $3.5bn share buyback programme.