BUSINESS LIVE: UK GDP grows 0.1%; Petrofac debt restructuring talks; FCA motor finance probe warning

The City watchdog has told British lenders to ensure they are adequately prepared to meet the potential costs of customer complaints arising from its review into the motor finance industry.

The regulator began looking into potential overcharging in the industry in January, amid rising tensions between thousands of consumers and lenders over commission arrangements.

In a letter to bank bosses on Friday, the Financial Conduct Authority said lenders should assess their ability to meet potential future liablities resulting from any spike in customer complaints.

The watchdog said it planned to set out its next steps in September, but said that some companies were struggling to provide the data it needed and it was prepared to extend its review if necessary.

A judicial review started by Barclays against an ombudsman decision on a motor finance complaint had also created uncertainty and could affect the timing of the review, the FCA added.

Marks & Spencer won a vote of confidence as JP Morgan said ‘the ship has turned’.

It has done better than rivals in winning market share since the pandemic, a bullish bank note said.

James Smith, developed markets economist at ING:

‘Assuming we get another slight pick up in activity during March, we think the UK economy is poised to grow by 0.3% for the first quarter as a whole. That would mark the end of a very modest technical recession, albeit one where the aggregate figures masked steeper falls in per capita output.

‘We shouldn’t read too much into any given month’s worth of data and it’s worth remembering that the fourth quarter decline in overall GDP was partly down to volatility in this data.

‘October’s manufacturing data, for example, was unusually weak and weighed on overall quarterly activity, but has since by followed by a strong bounce back which includes a 1.2% increase in February alone.’

Oilfield services provider Petrofac is still facing challenges in securing new performance guarantees, and that it remains in discussions with lenders over restructuring its debt.

Petrofac told shareholders this morning : ‘The Company has engaged and remains in discussions with its lenders to restructure its debt which would result in a significant proportion of the debt being exchanged for equity in the business.

‘It also continues to be in discussion with prospective investors and certain major shareholders in relation to potential further investment in the Company and remains in negotiations with prospective purchasers regarding the sale of non-core assets, as set out in recent announcements. All options remain under consideration.

‘Management and the Board are focussed on managing the Group’s payment obligations and delivering a solution which supports the provision of guarantees required for its recent contract awards, and which ensures that Petrofac has the appropriate capital structure and liquidity to support the strength of its $8 billion backlog.

‘While the Company continues to face challenges in securing new performance guarantees, it is progressing discussions with credit providers and clients to find solutions with respect to the guarantees required for its recent contract awards.’

Thomas Pugh, UK economist at RSM UK:

‘The wettest February on record, at least in the south of the country, dampened construction activity (-1.9%), but this was offset by a strong performance from the manufacturing industry, which is continuing to rebound after contracting for much of the last two years.

‘It has been a tough start to the year for the hospitality sector, which has shrunk by almost 2.5% since the start of the year. But this was offset by the rebound of transport after strikes dampened output in that sector and another strong performance from the recreation sector as consumers continue to value activities like concerts.

‘There are good reasons to expect those weaker sectors to rebound over the next few months. Higher consumer spending and confidence will directly benefit the hospitality sector and better weather will allow construction activity to rebound.

‘Overall, today’s data reinforce our view that Q4 last year will represent the nadir of a particularly painful period of stagnation for the UK economy. But we are now at a turning point. Interest rate cuts are likely to come in the Summer and growth should gradually improve in the first half of this year and pick up further after the summer and into 2025.’