BUSINESS LIVE: UK financial system shrinks; Royal Mail fined for poor supply; Boohoo eyes Frasers deal

The European Central Bank (ECB) cut interest rates for the fourth time this year as the continent’s floundering economy faces political strife and possible US tariffs.

The quarter-percentage point cut from 3.25 per cent to 3 per cent takes rates to their lowest since May 2023.

Thomas Pugh, UK economist, RSM UK:

‘With the economy now having contracted for the second consecutive month, and inflation climbing back towards 3%, there is a risk that the UK is slipping back into stagflation territory.

‘However, it’s likely that at least some of the weakness in October was driven by a pre-budget ‘wait and see’ attitude by consumers and businesses and we still expect the economy to reaccelerate into 2025.

‘Overall, growth now looks likely to disappoint in Q4 and will probably significantly undershoot the Bank of England’s expectation of 0.3% growth. But we don’t think the economy is weak enough prompt the MPC into a consecutive rate cut next week.

‘And we still expect the economy to accelerate in 2025 as a sugar rush of government spending starts to make itself felt.’

Boohoo is willing to offer Frasers Group one board seat if the retail giant agrees to put forward an ‘appropriate candidate; other than current nominees Mike Ashley and Mike Lennon.

The latest development in the open spat between the two retailers comes after Frasers said on Thursday its two nominees for the board of Boohoo would sign up to all protocols to address any governance concerns, if they were to be elected.

Tim Morris, Boohoo group chair, said: ‘The Board has consistently said that due to obvious conflict points and because of their historical ties to Frasers, Mike Ashley and Mike Lennon are not appropriate candidates to join the Board in any circumstances, whatever commitments are offered.

‘Notwithstanding that, Frasers continues to refuse to agree to a number of the key protections that the Board would require should an appropriate representative be nominated.

‘These are key issues which need to be addressed for the protection of all Shareholders and it is not for Frasers to pick and chose which commitments it will give.’

Royal Mail has been slapped with a £10.5 million for missing its post delivery targets in the 2023-2024 financial year.

The fine, issued by Ofcom, is the second in two years, after the watchdog also gave Royal Mail a £5.6 illion penalty in November 2023.

Royal Mail said just under three-quarters of first class post was delivered on time during the period, well short of its 93 per cent target.

And 92.7 per cent of second class post was delivered on time, below its 98.5 per cent target, it said.

Ian Strawhorne, Ofcom director of enforcement, said: ‘With millions of letters arriving late, far too many people aren’t getting what they pay for when they buy a stamp.

‘Royal Mail’s poor service is now eroding public trust in one of the UK’s oldest institutions.

‘This is the second time we’ve fined the company since the pandemic.

‘Royal Mail has provided an improvement plan, and we’re seeing some signs of progress, but it must go further and faster to deliver the service that people expect.’

Shares in recruitment firm SThree tumbled yesterday after it warned political and economic turmoil in Europe is hitting profits.

The FTSE 250 company, which specialises in jobs for experts in science, technology, engineering and maths, now expects profits of around £25million for the 12 months to the end of November 2025.

That is less than half the £66m expected by analysts.

Shares crashed 36 per cent early on and finished the day 26.6 per cent, or 96p, down at 265p.

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

‘Having started the year with an eyewatering – and indeed eyebrow-raising – 0.7% quarterly growth figure for 1Q, momentum has slowed considerably in the second half of the year. October’s monthly GDP saw activity fall for the second consecutive month, albeit only by a marginal 0.1%. Overall fourth-quarter GDP is likely to be flat, we think.

‘In reality, the story is more nuanced than that. Much of that early 2024 strength was concentrated in sectors that are less tangible and typically not consumer-facing. Service sectors with a clear consumer focus and more intrinsically linked to underlying economic fundamentals actually performed more strongly over the summer when the broader economy appeared to be slowing – albeit we did see a sizable drop in activity in these areas during October.

‘Our conclusion from this is that the economy has probably slowed down, but neither the initial boost nor the more recent sluggishness is likely to have been as extreme as this year’s monthly GDP data indicates.

‘We still think that the UK economy is poised to outpace most of Western Europe next year, judging by our 2025 annual GDP forecasts. That perhaps says more about the health of other parts of the continent, but it also heavily reflects the recent fiscal stimulus.’

Hetal Mehta, head of economic research at St. James’s Place:

‘Today’s GDP data will be disappointing for the government especially as the decline follows a contraction in September. However monthly data are noisy and some slowdown from strong growth earlier in the year was to be expected.

‘With credit conditions loosening, interest rates moving lower and increased government spending on its way, the UK economy should experience modest growth next year.

‘ The positive signals from the housing market are a good cross-check for the economy and shows some resilience.”‘

The British economy unexpectedly shrank by 0.1 per cent in October, adding to signs of a sharper slowdown than had been forecast – and increasingly the likelihood the Bank of England will up the pace of interest rate cuts.

Sterling has fallen back from recent strength as traders react to the figures, which came in well below forecasts of 0.1 per cent growth for the month.