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Pound sinks as UK economic uncertainty rises

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The pound fell against the dollar on Friday as new figures showed a gloomy picture for the UK economy.

Sterling slipped to $1.11, after rallying on Thursday as Prime Minister Liz Truss resigned.

However, it clawed back losses on Friday evening and was back up to around $1.12 against the dollar.

The volatility in the pound came after official figures showed government borrowing rose to its second highest September on record.

Meanwhile, people are shopping less than they did before the coronavirus pandemic, according to figures from the Office For National Statistics (ONS).

Retail sales fell by more than expected last month, dropping 1.4% and continuing their slide from August, the official figures showed.

The pound’s latest slide comes after a period of volatile trading for the currency.

It plunged to a record low against the dollar last month, while government borrowing costs rose sharply in the aftermath of the mini-budget. Investors were spooked after the government promised huge tax cuts without saying how it would pay for them.

Government borrowing costs also rose slightly on Friday.

A fall in the US dollar against a number of currencies late Friday helped the pound regain some ground.

But Jane Foley, a currency strategist at Rabobank, said much of the pound’s moves are being driven by investors reacting to political and economic uncertainty in the UK as well as the negative economic data.

“While sterling rallied yesterday on Truss’s resignation, I think investors have realised today that it’s not a guarantee that we’ll get a market-friendly outcome from the Conservative leadership contest,” she said.

The Chancellor, Jeremy Hunt is due to announce plans for spending and tax on 31 October in his economic plan, which the Treasury confirmed was set to go ahead, although there are reports it could be delayed due to the leadership race.

Ms Foley said this uncertainty was also weighing on the pound.

“The longer the uncertainty continues, the worse it’s going to be for the markets.”

Why does a falling pound matter?

A fall in the value of the pound increases the price of goods and services imported into the UK from overseas – because when the pound is weak against the dollar or euro, for example, it costs more for companies in the UK to buy things such as food, raw materials or parts from abroad.

A weaker pound can push rising costs higher as well if companies choose to pass on higher prices to customers. For people planning a trip overseas, changes in the pound affect how far their money will go abroad.

Pound vs dollar chart

Shoppers buying less

“Consumers are now buying less than before the pandemic,” said Darren Morgan, from the Office for National Statistics (ONS) which released the figures, said.

He added: “Retailers told us that the fall in September was partly because many stores were closed for the Queen’s funeral, but also because of continued price pressures leading consumers to be careful about spending.”

The cost of living crisis continues to squeeze household budgets, with prices rising faster than average wages.

Inflation – the rate at which UK prices rise – surged to 10.1% last month and is expected to climb further.

Mr Morgan, director of economic statistics at the ONS, said all types of shops saw sales drop with food stores particularly hard hit.

Energy bills

The UK is borrowing billions of pounds to limit energy bill rises for households and businesses.

Borrowing – the difference between spending and tax income – was £20bn last month, up £2.2bn from a year earlier, the Office for National Statistics (ONS) said.

It is the second highest September borrowing since monthly records began in 1993, the ONS said.

The figure is lower than in September 2020, at the height of the coronavirus pandemic, when the government was borrowing to fund schemes such as furlough, it said.

Borrowing set to rise

But economists warned that government borrowing is set to rise further in the coming months.

The Office For Budget Responsibility (OBR) makes independent forecasts on what impact government decisions on things like tax and spending will have on borrowing and growth.

It is due to issue its latest forecast on 31 October when the chancellor is due to deliver his economic plan detailing its spending plans.

Carl Emmerson, Deputy Director of think tank the Institute for Fiscal Studies (IFS), said so far for the first half of the year government borrowing was almost as expected but warned it was likely to rise much higher.

“But this is little guide to how much borrowing will be over the whole of this financial year, as the huge cost of government support for household and business energy use only began in earnest this month.”

The IFS predicts borrowing this year could reach almost £200bn, “nearly £100bn more than the OBR forecast,” he added.

Michal Stelmach, senior economist at KPMG UK, also warned that government borrowing was expected to “only worsen from October onwards”.

This was to due the government’s energy price guarantee for households and businesses, on top of the second cost of living instalment and the support for pensioners, he said.

The Chancellor, Jeremy Hunt, said: “To stabilise markets, I’ve been clear that protecting our public finances means difficult decisions lie ahead.

“We will do whatever is necessary to drive down debt in the medium term and to ensure that taxpayers’ money is well spent, putting the public finances on a sustainable path as we grow the economy.”

Reports /TrainViral/

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Six tonnes of cocaine found in banana shipment

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Sniffer dogs in Ecuador have found 6.23 tonnes of cocaine hidden in a banana shipment, police say.

The dogs alerted their handlers, who seized 5,630 parcels filled with a white substance that later tested positive for cocaine.

The shipment was destined for Germany, officials said, and would have been worth $224m (£173m) had it reached its destination.

Five people had been arrested following the discovery, according to the prosecutor-general’s office.

Police said they had found the massive cocaine haul during a routine inspection of container stored at Posorja deepwater port south-west of Ecuador’s largest city, Guayaquil.

The cocaine parcels had been hidden beneath crates of bananas destined for export.

One of those arrested in connection to the drug discovery was a representative of the export company responsible for the shipment, whom prosecutors said had been present at the inspection and gave officials the names of the four other suspects.

They include the managers of the banana plantation where the cocaine is suspected to have been added to the fruit shipment, as well as the driver who took the container to the port.

Ecuador has become a major transit country for cocaine produced in neighbouring Peru and Colombia, with transnational criminal gangs using Ecuador’s ports to ship the drug to Europe and the US.

Last year, Ecuadorean security forces seized more than 200 tonnes of drugs, most of it cocaine. Only the US and Colombia seized more drugs in 2023.

Gangs have caused a wave of violent crime in Ecuador, leading President Daniel Noboa to declare a state of emergency and deploy tens of thousands of police officers and soldiers in an effort to combat them.

These security forces have stopped large amounts of cocaine from being shipped to Europe.

In January, officers found the largest stash ever to be seized in Ecuador – 22 tonnes of cocaine – buried in a pig farm.

However, extortion, kidnappings and murders remain high in the Andean country.

Reports /Trainviral/

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Thailand expands v-free entry to 93 countries

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Thailand has expanded its visa-free entry scheme to 93 countries and territories as it seeks to revitalize its tourism industry.

Visitors can stay in the South-East Asian nation for up to 60 days under the new scheme that took effect on Monday,

Previously, passport holders from 57 countries were allowed to enter without a visa.

Tourism is a key pillar of the Thai economy, but it has not fully recovered from the pandemic.

Thailand recorded 17.5 million foreign tourists arrivals in the first six months of 2024, up 35% from the same period last year, according to official data. However, the numbers pale in comparison to pre-pandemic levels.

Most of the visitors were from China, Malaysia and India.

Tourism revenue during the same period came in at 858 billion baht ($23.6bn; £18.3bn), less than a quarter of the government’s target.

Millions of tourists flock to Thailand every year for its golden temples, white sand beaches, picturesque mountains and vibrant night life.

The revised visa-free rules are part of a broader plan to boost tourism.

Also on Monday, Thailand introduced a new five-year visa for remote workers, that allows holders to stay for up to 180 days each year.

The country will also allow visiting students, who earn a bachelor’s degree or higher in Thailand, to stay for one year after graduation to find a job or travel.

In June, authorities announced an extension of a waiver on hoteliers’ operating fees for two more years. They also scrapped a proposed tourism fee for visitors flying into the country.

However some stakeholders are concerned that the country’s infrastructure may not be able to keep up with travellers’ demands.

“If more people are coming, it means the country as a whole… has to prepare our resources to welcome them,” said Kantapong Thananuangroj, president of the Thai Tourism Promotion Association.

“If not, [the tourists] may not be impressed with the experience they have in Thailand and we may not get a second chance,” he said.

Chamnan Srisawat, president of the Tourism Council of Thailand, said he foresees a “bottleneck in air traffic as the incoming flights may not increase in time to catch up with the demands of the travellers”.

Some people have also raised safety concerns after rumours that tourists have been kidnapped and sent across the border to work in scam centres in Myanmar or Cambodia.

fatal shooting in Bangkok’s most famous shopping mall last year has also caused concern among visitors.

Reports /Trainviral/

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Royal Mail will deliver letters forever

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The prospective new owner of Royal Mail has said he will not walk away from the requirement to deliver letters throughout the UK six days a week, as long as he is running the service.

“As long as I’m alive, I completely exclude this,” Czech billionaire Daniel Kretinsky told the BBC.

Mr Kretinsky has had a £3.6bn offer for Royal Mail accepted by its board.

Shareholders are expected to approve the deal in the coming months, but the government also has a say over whether it goes ahead.

Currently the Universal Service Obligation (USO) requires Royal Mail to deliver letters six days a week throughout the country for the same price. But questions have been raised over whether the service could be reduced in the future.

In an exclusive interview with the BBC, Mr Kretinsky also said he would be willing to share profits with employees, if given the go-ahead to buy the group.

However, he appeared to reject the idea of employees having a stake in Royal Mail, which unions have called for in exchange for their support.

The Royal Mail board agreed a £3.6bn takeover offer from Mr Kretinsky in May for the 500-year-old organisation, which employs more than 150,000 people. Including assumed debts, the offer is worth £5bn.

But because Royal Mail is a nationally important company, the government has the power to scrutinise and potentially block the deal.

As well as keeping the new government on side, Mr Kretinsky also faces the task of convincing postal unions that the proposed deal will benefit employees.

The USO is a potential sticking point for both the government and unions.

Royal Mail is required by law to deliver letters six days a week and parcels five days a week to every address in the UK for a fixed price.

How well this has actually been working in practice is a different matter. Ten years ago, 92% of first class post arrived on time. By the end of last year it was down to 74%, according to the regulator Ofcom.

Last year the regulator fined Royal Mail £5.6m for failing to meet its delivery targets.

Royal Mail has been pushing for this obligation to be watered down. It wants to cut second class letter deliveries to every other weekday, saying this will save £300m, and lead to “fewer than 1,000” voluntary redundancies.

‘Unconditional commitment’

Mr Kretinsky has committed in writing to honouring the USO, but only for five years.

And after that, in theory, the new owners could just walk away from it.

However, Mr Kretinsky told the BBC: “As long as I’m alive, I completely exclude this, and I’m sure that anybody that would be my successor would absolutely understand this.

“I say this as an absolutely clear, unconditional commitment: Royal Mail is going to be the provider of Universal Service Obligation in the UK, I would say forever, as long as the service is going to be needed, and as long as we are going to be around.”

Mr Kretinsky added that the written five-year commitment was “the longest commitment that has ever been offered in a situation like this”.

Woman's hand posting a letter into a red post box

Another potential stumbling block for the deal, however, is how the company will be structured.

Unions would like to see the company renationalised, but Dave Ward, general secretary of the Communication Workers Union (CWU), told the BBC that would be “difficult in the current political and economic environment”.

Instead, what the CWU is pushing for is “a different model of ownership” – that is, where the employees part-own the business.

To get its support for the takeover, the union wants employees to share ownership of the company, along with other concessions including board representation for workers.

It says profit sharing is “not going to be enough to deliver our support and the support of the workforce”.

If the union doesn’t get what it wants, it won’t rule out industrial action, Mr Ward said. Its members went on strike in 2022 and 2023.

Although Mr Kretinsky said he is “very open” to profit sharing, he is not in favour of shared ownership.

“I don’t think the ownership stake is the right model,” he said. “The logic is: share of profit, yes, [but an] ownership structure creates a lot of complexity.

“For instance, what happens if the employee leaves? He has shares, he is leaving, he is not working for the company, he [still] needs remunerating.”

Mr Kretinsky said he didn’t want to create “some anonymous structure” but instead “remunerate the people who are working for the company, and creating value for the company”.

The union is also concerned about job losses and changes to the terms and conditions of postal workers’ contracts.

Mr Kretinsky has guaranteed no compulsory redundancies or changes in terms and conditions but only until 2025.

“If we are more successful, and we have more parcels to be delivered, we need not less people, but we need more people,” he said. “So really, job cuts are not part of our plan at all.”

He said if the management, union and employees work together, “we will be successful”.

Another concern is the potential break-up of the business.

The profit for Royal Mail’s parent company last year was entirely generated by its German and Canadian logistics and parcels business, GLS. Royal Mail itself made a loss.

Mr Kretinsky has promised not to split off GLS or load the parent company with excessive debt, although borrowings will rise if the deal goes through.

But he has a way to go to convince the CWU.

“I can’t think of any other country in the world that would just just hand over its entire postal service to an overseas equity investor,” Mr Ward of the CWU said.

However, Mr Kretinsky said that the postal unions “do understand that we are on the same ship, and that we need this ship to be successful, and that if we are there, we don’t have any real problems to deal with, because the sky is blue, and it’s blue for everybody.”

The union cannot stop this deal but the government can block it under the National Security and Investment Act.

Business Secretary Jonathan Reynolds has said he will scrutinise the assurances and guarantees given and called on Mr Kretinsky to work constructively with the unions.

Mr Kretinsky may say that he and the unions are ultimately on the same ship but, as things stand, they are not on the same page.

Who is Daniel Kretinsky?

Daniel Kretinsky started his career as a lawyer in his hometown of Brno, before moving to Prague.

He then made serious money in Central and Eastern European energy interests.

This includes Eustream, which transports Russian gas via pipelines that run through Ukraine, the Czech Republic and Slovakia.

He then diversified into other investments, including an almost 10% stake in UK supermarket chain Sainsbury’s and a 27% share in Premier League club West Ham United.

The Czech businessman is worth about £6bn, according to reports.

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