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Morgan Stanley has cut its forecast for UK growth this year to 0.9% from 1.3%, mirroring estimates from Wall Street rivals Goldman Sachs and JP Morgan.
The US investment bank cited a slowdown in the economy and signs of labour market weakness.
The Bank of England has predicted growth of 1.5% this year, partly due to a short-tem boost from an increase in public spending announced by Rachel Reeves, the chancellor.
The UK government is under growing pressure to get momentum back into the economy amid warnings that businesses plan to cut jobs and raise prices, while millions of families believe their finances will worsen this year.
Before a major speech this week by Reeves, designed to restate Labour’s commitment to improving the economy, the CBI said private sector firms were urgently assessing their budgets to offset measures announced in last October’s budget.
The lobby group said it expected another “significant fall” in business activity over the next three months. This measure has now been flat or falling since mid-2022, when Liz Truss was briefly prime minister.
Alpesh Paleja, the interim deputy chief economist at the CBI, said:
After a grim lead-up to Christmas, the new year hasn’t brought any sense of renewal, with businesses still expecting a significant fall in activity.
Good Energy agrees to takeover by Dubai firm
Jasper Jolly
Britain’s Good Energy has struck a near £100m takeover by a company controlled by a member of Abu Dhabi’s ruling family.
The retail energy company said it had agreed a deal with Dubai-headquartered Esyasoft for a cash offer of £4.90 per share, valuing it at £99.4m.
The share price of Good Energy, listed on London’s junior Alternative Investment Market, rose by a fifth this morning to £4.75. The offer was two-thirds higher than Good Energy’s share price on the day before Esyasoft’s interest was first revealed in October.
Esyasoft is ultimately controlled by the Abu Dhabi International Holding Company (IHC), the investment company chaired by Sheikh Tahnoun bin Zayed Al Nahyan, the son of the United Arab Emirates’ founder, and part of the Abu Dhabi ruling family.
IHC owns companies involved in oil and gas drilling, including servicing the huge growth of the US shale gas industry. However, IHC also counts solar power among its investments, and Esyasoft focuses on power distribution.
Good Energy serves about 245,000 customers in the UK, providing 100% renewable electricity as well as specialising in letting customers sell solar power back to the grid. It was founded in 1999 by Juliet Davenport, who left the company in 2021.
The takeover would give a windfall to energy entrepreneur Dale Vince, whose holding company Green Britain Group is the largest shareholder in Good Energy, with a 26% stake.
Nigel Pocklington, chief executive of Good Energy, said:
Today we have an opportunity with a partner that shares our sustainable energy vision and has the resources to accelerate our purpose substantially. Whilst the board remains confident in Good Energy’s strategic delivery as a publicly listed company, Esyasoft’s financial resources, in addition to its presence in new markets, present a significant increase in our potential. The offer values the company at a significant premium, offering shareholders a good return for their support for the company.
Davenport offered her backing for the deal. The investment would give the “opportunity to scale the Good Energy propositions” and “make a real difference to climate change”, she said.
I founded Good Energy 25 years ago to be a pioneer in the provision of clean power to all customers in the UK.
The energy industry back then was very different, founded around fossil fuels and designed to be a centralised system.
Carsten Brzeski, global head of macro at ING, has looked at the German Ifo numbers.
The slight increase in Germany’s most prominent leading indicator does not yet signal an imminent economic rebound. Instead, the economy remains stuck in stagnation with more downside than upside risks in the short term.
As Lola Young, one of Britain’s new musical talents, sang last year, “There’s a flicker of light; without the dark, the stars can’t shine bright”. Today’s Ifo index is such a flicker of light for the German economy, admittedly a very vague one.
Germany’s most prominent leading indicator came in at 85.1 in January from 84.7 in December, but still below its 85.6 in November. While the current assessment component increased to the highest level since late summer, expectations dropped once again to the lowest level in a year.
It’s obvious that the results of the US elections and policy uncertainty in Germany ahead of the upcoming elections are still weighing on sentiment.
Looking ahead, it will take at least until the German elections on 23 February and the following coalition negotiations before the economy can get a new, hopefully positive, impulse. Until then, the downside risks will dominate with the potential economic policies from the new US administration.
Some 10% of German exports go to the US (of which the largest part is automotive) and any US tariffs would hit an already beleaguered sector. However, even more important is the impact that tax cuts and deregulation in the US – combined with already low energy prices – would have on German competitiveness, which is clearly negative. German companies might step up investments in the US at the cost of investments in Germany.
As reported earlier, GSK will spend up to £50m on a project with the University of Oxford to investigate whether vaccines could be used to prevent some cancers.
Scientists are increasingly optimistic about the potential for cancer vaccines, which aim to help the patient’s own immune system fight against cancers. Some of the vaccines already undergoing tests on patients, including in the UK, and interventions are tailored to the individual’s tumours.
“Cancer does not come from nowhere,” said Sarah Blagden, the professor of experimental oncology at Oxford, in an interview with BBC Radio 4’s Today programme.
Cancers can take up to 20 years, sometimes even more, to develop. The normal cell transitions to become cancerous. At that point most cancers are invisible.
The purpose of the vaccine is not to vaccinate against established cancer, but to actually vaccinate against that pre-cancer stage.
Blagden will lead the research programme alongside Timothy Clay and Ramon Kemp of GSK.
German business sentiment improves unexpectedly
In Germany, Europe’s largest economy, business sentiment unexpectedly improved this month.
The Ifo institute said its business climate index increased to 85.1 in January, from 84.7 in December, mainly due to a more positive assessment of the current situation.
However, expectations for the future worsened again, as companies continue to be pessimistic.
In manufacturing, business sentiment worsened further, as companies were even more skeptical about the coming months while saying the current business situation had improved. Incoming orders continue to decline. Capacity utilisation remained little unchanged at 76.5%, well below the long-term average of 83.4%.
In the service sector, the index rose significantly, as companies assessed their current business situation as considerably better, while expectations also improved. In particular, IT service providers viewed their outlook as less negative.
In trade, business sentiment was unchanged, as wholesale traders assessed their current situation as more positive. However, expectations were slightly more pessimistic, driven by retailers.
In construction, confidence worsened again due to companies’ poorer expectations, while the current situation was viewed as slightly better.
European tech stocks rattled by China’s AI push
The pan-European Stoxx 600 has lost 0.75% this morning, with technology stocks down by 4.5%.
The Dutch chipmaker ASML slid by 8.2% while Germany’s Siemens Energy, which provides hardware for AI infrastructure, lost 4.1% and France’s digital automation firm Schneider Electric fell by 6.8%.
Frankfurt-listed shares of Nvidia dropped by 7%, while Tesla , Amazon and Meta fell by more than 2% in early European trading.
Last week, the Chinese lab DeepSeek has rolled out a free AI assistant that it says uses lower-cost chips and less data, kicking off a global AI race. It threatens to challenge the assumption in financial markets that AI will drive demand along a supply chain from chipmakers to data centres.
DeepSeek unveiled R1, an AI that analysts say rivals OpenAI’s top reasoning model, o1. Astonishingly, it matches o1’s capabilities while using a fraction of the computing power – and at a tenth of the cost.
Wong Kok Hoong, head of equity sales trading at Maybank, told Reuters:
It’s a case of a crowded trade, and now DeepSeek is giving a reason for investors and traders to unwind.
Shares in AI-focused startup investor SoftBank slid by 8.3%. Last week the Japanese firm announced a $19bn commitment to fund Stargate, a data-centre joint venture with OpenAI.
Richard Hunter, head of markets at the investment platform interactive investor, has looked at the Chinese startup DeepSeek.
Its new AI app comes ahead of corporate results from the big US tech companies.
There appears to be a new kid on the tech block and the early signs are that the last week of January will provide the first sustained bout of volatility in the New Year.
Chinese AI company DeepSeek has released a new product which has a fraction of the development costs seen in the US and which could also provide some defence against any restrictions placed on China by the US as this particular battle intensifies. Japanese chip-related stocks dropped sharply overnight and although it is too early to say with total certainty, US futures are currently looking weak ahead of the opening bell today.
It is far too early to describe DeepSeek as an existential threat to US-based AI solutions. By the same token, it will almost certainly put the cat among the pigeons as investors scramble to assess the potential damage it could have on a burgeoning industry which has powered much of the gain seen in the main indices over the last couple of years. The emerging news over the weekend of an emerging threat to the US dominance seen thus far comes ahead of a week which sees four of the “Magnificent Seven” report earnings, namely Meta Platforms, Microsoft, Tesla and Apple. Quite apart from the results they provide, the larger question has suddenly become whether the hundreds of billions of dollar investment in AI needs re-evaluation.
The news comes after a weaker close on Friday for the US market, when the benchmark S&P 500 gave up gains which saw it briefly break new highs, and ended the week 0.3% lower. Hunter added:
The new president’s pro-business rhetoric has been positive for the markets to date, while his promised severe actions on tariffs have yet to materialise, at least for the moment. Despite the weakness and leading into the end of January, the Dow Jones has added 4.4% so far this year, with gains of 3.7% and 3.3% for the S&P500 and Nasdaq respectively.
Quite apart from any AI considerations, investors will need to spin several plates this week. Corporate updates switch into top gear, with releases from the likes of Boeing, Starbucks, Intel, IBM, Chevron and Exxon Mobil after what has been a promising start to the season.
The core Personal Consumption Expenditures report will also be released on Friday and, while the Federal Reserve’s preferred measure of inflation will give the latest view on rising prices, it will also come after the Fed has announced its latest interest decision, where the market has overwhelmingly priced in a no-change decision.
Shares in WHSmith jumped as much as 8% after it put its 500 UK high street stores up for sale.
The surprise move to hoist the “for sale” sign over its over its legacy retail business creates uncertainty for its 5,000 staff, but was welcomed by investors.
The 232-year-old chain is in talks with a handful of potential bidders, having kicked off the prospective sale process at the end of last year.
While negotiations are focused on its 500 shops – which sell newspapers, books, stationery, cards and gifts – it is understood that the use of the brand itself will be up for negotiation with any prospective buyer.
Introduction: GSK strikes £50m deal with Oxford University on cancer vaccines; dollar rises after Trump U-turn on Colombia tariffs
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Britain’s second-biggest drugmaker GSK has struck a deal with the University of Oxford under which it will pump up to £50m into early cancer research to develop new treatments.
The partnership lasts at least three years, and will focus on how cancer develops that could inform future development of cancer vaccines.
Most cancers take years or even decades to develop from normal cells to precancerous cells to cancer. Oxford University specialises in the study of precancer biology including the identification and sequencing of neoantigens, or tumour-specific proteins that prompt the immune system to recognise cancer. An active intervention like a vaccine or targeted medicine could prevent them from progressing to cancer.
Professor Irene Tracey, vice-chancellor of the University of Oxford, hailed the partnership as “a step forward in cancer research”.
Tony Wood, GSK’s chief scientific officer, said:
We’re pleased to further strengthen our relationship with Oxford University and to combine the deep knowledge of Oxford and GSK scientists. By exploring precancer biology and building on GSK’s expertise in the science of the immune system, we aim to generate key insights for people at risk of developing cancer.
GSK already has a partnership with the Institute of Molecular and Computational Medicine in Oxford, which focuses on neurological diseases, as well as other collaborations including one with the University of Cambridge announced in October, which focuses on hard-to-treat kidney and respiratory diseases.
The US dollar rose after Donald Trump threatened tariffs and sanctions on Colombia for turning away military aircraft carrying deported migrants, before a last-minute deal was agreed.
The dollar is up by 0.3% against a basket of major currencies.
The US and Colombia pulled back from the brink of a trade war on Sunday after the White House said the Colombians had agreed to accept military aircraft carrying deported migrants.
In a statement late on Sunday, the White House said Colombia had agreed to accept the migrants and Washington would not impose its threatened penalties.
European stock markets have opened lower, and US stock futures and several Asian markets have also fallen after the Chinese startup DeepSeek launched a free open-source AI model to rival OpenAI’s ChatGPT.
Traders are worried about the impact of the low-cost Chinese app on Western tech stocks.
The UK’s FTSE 100 index dropped by 0.3% or 31 points, to 8,470, while Germany’s Dax lost 0.9%, France’s CAC was flat and Spain’s Ibex and Italy’s FTSE MIB both fell by around 0.3%.
In Asia, Japan’s Nikkei fell by 0.9% with tech stocks down, while Hong Kong’s Hang Seng rose by 0.6% and South Korea’s Kospi gained by 0.85%. In mainland China, the Shanghai Composite slipped by 0.06% while the Shenzhen Composite fell by 1.3%.
The Agenda
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9am GMT: Germany Ifo Business confidence for January
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3pm GMT: US New home sales for December
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3.35pm GMT: ECB President Christine Lagarde speaks
