UK economy grows by 0.4% in May; households face £94 water bill increase over next five years | Business

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UK environment secretary promises new customer panels to hold water company bosses to account

Ahead of his meeting with the bosses of all 16 water suppliers in England and Wales this afternoon, Steve Reed, the UK environment secretary, announced a series of “initial steps towards ending the crisis in the water sector”.

He has written to Ofwat, asking the water regulator to ensure funding for vital infrastructure investment is ringfenced and can only be spent on upgrades benefiting customers and the environment. He also wants Ofwat to ensure that when money for investment is not spent, companies refund customers, with money never allowed to be diverted for bonuses, dividends or salary increases.

He wants water companies to change their Articles of Association, the rules governing each company, to make the interests of customers and the environment the primary objective.

Consumers will gain new powers to hold water company bosses to account through “powerful new customer panels,” the government said. For the first time in history, customers will have the power to summon board members and hold water executives to account.

Steve Reed at cabinet meeting, 9 July. Photograph: Tayfun Salcı/ZUMA Press Wire/REX/Shutterstock

Strengthened protection and compensation for households and businesses when their basic water services are affected. Subject to consultation, the amount of compensation customers are legally entitled to when key standards are not met will more than double. The payments will also be triggered by a wider set of circumstances including Boil Water Notices.

Reed said:

We will never look the other way while water companies pump sewage into our rivers, lakes and seas.

This unacceptable destruction of our waterways should never have been allowed, but change has now begun so it can never happen again.

Today I have announced significant steps to clean up the water industry to cut sewage pollution, protect customers and attract investment to upgrade its crumbling infrastructure.

That change will take time. Over the coming weeks and months, this government will outline further steps to reform the water sector and restore our rivers, lakes and seas to good health.


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Water UK: Ofwat announcement ‘biggest ever cut in investment’

Water UK, the trade body for the water industry, said the Ofwat announcement amounts to the “biggest ever cut in investment” in water and sewage infrastructure . A spokesperson said:

If it doesn’t put this right Ofwat will be repeating the mistakes of the past. As a direct result, more housing will be blocked, the recovery of our rivers will be slower and we will fail to deal with the water shortages we know are coming. Water companies proposed to invest £105bn because it is the minimum needed to meet the legitimate concerns we’ve heard from the public about our environment and our economy.

Ofwat is right to want to ensure customers receive value for money and that is why protections are in place to ensure customers only pay for projects that are new, necessary and value for money. But for far too long, Ofwat has failed to be realistic about the levels of investment needed and what it will take to deliver and maintain necessary infrastructure. We cannot allow this pattern to repeat itself. Water companies are ready to invest in an unprecedented overhaul of the country’s water and sewage infrastructure. Ofwat now needs to let them get on with it.


Meanwhile, Alan Lovell, chair of the Environment Agency, hailed Ofwat’s planned 21% average rise in water bills in England and Wales as a “significant step forward in delivering the investment needed to protect rivers and seas, boost water supplies and improve resilience to flooding”.

Water companies have faced sustained criticism over leaky pipes, sewage dumping and extracted dividends in recent years. Lovell said:

It will deliver four times more investment in clean and plentiful water than the previous five-year period.

The critical issue now is delivery. We will be playing our part to make sure the industry steps up on the environment. We are taking forward our biggest ever transformation in the way we regulate, recruiting up to 500 additional staff, increasing compliance checks and quadrupling the number of water company inspections by March next year. Our job is to make sure the water companies do what they say they will do, and people begin to see a difference in their water environment.

Bills will rise for customers of all water companies in England and Wales, apart from those of Wessex Water and Sutton and East Surrey Water.

Mike Keil, chief executive of the Consumer Council for Water, a government-funded body, said:

Millions of people will feel upset and anxious at the prospect of these water bill rises and question the fairness of them given some water companies’ track record of failure and poor service.


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Ikley Clean River campaign says Ofwat has gone back on promises

Becky Malby of the Ilkley Clean River campaign in west Yorkshire, which wants to secure bathing water status for a river in England said Ofwat had gone back on its promises.

A year ago, David Black, the CEO at Ofwat wrote to the Ilkey Clean River Group saying “We are firm in our commitment to ensuring that the customer should not pay twice for a company’s shortfall.” In addition he stated that “We are determined to use all the regulatory powers as fully as possible to improve the performance of water companies for customers and the environment.

Today Ofwat announced a bill rise of £107 BEFORE inflation by 2029/30, for Yorkshire Water customers, amounting to an additional £9 per month + inflation.

Our water system is at breaking point. The additional price increase secures a basic functioning sewage system here at Ilkley and is in direct contradiction to David Black’s promise. We are, after all, being told to pay twice.

People swim in the River Wharfe near Ilkley in Yorkshire, in August 2020. Photograph: Danny Lawson/PA

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Construction output rebounded in May, today’s ONS figures showed. This week, the new chancellor, Rachel Reeves, unveiled a number of measures aimed at getting “Britain building again”.

Clive Docwra, managing director of property and construction consultancy McBains, said:

After previous statistics showed the construction sector lagging behind the modest uptick in growth witnessed in other industries, today’s figures are much better than expected.

Especially welcome is that growth was experienced across most work sectors, with new housing seeing a 2.8% increase.

Whether or not this represents the green shoots of recovery, however, is unclear. Over the three months to May output still decreased by 0.7%, showing that growth is still fragile.

Despite these returns, the sector still needs a shot in the arm, and developers will hope Labour’s announcement this week to get the country building translates into renewed confidence from investors, both in housing and commercial projects.

Every sector within the industry will also be crossing their fingers for a period of economic stability to help construction across the board get back on track.


The UK economy springs back into life – it is faring much better so far in 2024 after a technical recession last year.

James Smith, developed markets economist at ING, said:

The result is that overall second-quarter GDP is on track to rise by 0.5-0.6% after 0.7% growth in the first quarter. We’re sceptical that these sort of growth figures can be sustained into the second half of the year, but we expect growth to remain reasonable nevertheless. One important factor is that the impact of past rate hikes has largely taken its course now; we estimate that 80% of the mortgage squeeze is behind us.

Does this change the story for the Bank of England? Probably not. Policymakers are still almost exclusively focused on services inflation, and it’s the one remaining release of this data that will determine whether the Bank can cut rates in August. Bank of England chief economist Huw Pill, perhaps unsurprisingly, refused to be drawn on what he thought in comments made yesterday.

But barring any big surprises in those inflation numbers, we think the Bank’s preference will be to start cutting rates and we expect three cuts in total this year.


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Q2 growth likely to be close to Q1 strong expansion – economists

Another upside surprise for UK GDP in May means that second-quarter growth is likely to be close to the first quarter’s strong expansion, despite drags from the early Easter and strikes in the health sector. “The recovery has clearly built some strong momentum in the first half,” said the EY Item Club, which uses the Treasury’s forecasting model.

It expects GDP to continue to grow at a decent pace in the second half, with consumers central to the story. Further solid gains in household spending power look likely, and if consumers adopt a less cautious approach, in line with recent household survey results, we can expect a strong pickup in consumer spending growth.

Peter Arnold, EY UK chief economist, said:

Four days of strike action in the healthcare sector at the end of June will have weighed on output last month. But even allowing for that factor, GDP is likely to have grown by at least 0.5% quarter-on-quarter in Q2. Indeed, there’s a realistic possibility that Q2 could have matched the 0.7% growth achieved in Q1, so it’s clear that the recovery has built some strong momentum.

The EY ITEM Club’s expectation that GDP continues to grow at a decent pace in H2 is founded mostly on optimism about consumer prospects. Lower inflation and still strong pay growth should combine to deliver further solid improvements in household spending power. Thus far, strong real income growth has only translated into a tepid recovery in spending as consumers have remained cautious. But there are signs from consumer surveys that the mood is changing, and the EY Item Club is optimistic that further real income gains will translate into a more meaningful pickup in spending growth in H2.

Simon French, chief economist and head of research at Panmure Liberum, said:

Definite signs of a broadening upswing in UK GDP growth despite the very noisy monthly data (+0.4% MoM in May) with the annual growth rate now up 1.4% YoY – the (joint) highest in 17 months.

— Simon French (@Frencheconomics) July 11, 2024


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Here is our full story on water bills.


‘Growth now likely to outstrip OBR’s 2024 GDP forecast’ – Deutsche Bank

Back to the UK economy returning to growth in May, which is a boon for Keir Starmer’s government.

Sanjay Raja, chief UK economist of Deutsche Bank, noted that GDP surprised to the upside yet again, expanding by 0.4% month on month, driven by stronger services activity and construction output.

While the warmest May on record may have helped activity in the services and construction sectors, UK GDP is now undeniably picking up steam. The short-lived recession is now very much behind us. It’s now likely that Q2 growth could come close to the mark set in Q1 (our current nowcast models point to a 0.6% quarter-on-quarter reading with risks skewed to the upside). Equally, upside risks to our 2024 growth projection of 0.8% are also now crystallising.

This should be a boon for the new Labour government with growth now likely to outstrip the Office for Budget Responsibility’s 2024 GDP forecasts, partially offsetting some of the projected increase in interest rate costs. We will update our growth projections soon.


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During the general election, the Liberal Democrats called for Ofwat to be abolished and a new water regulator to be established with greater powers.

Today, the Lib Dems are calling on Ofwat use its existing powers to crack down on large water bill rises. The party is also calling on the government to implement a ban on water company executive bonuses until discharges and leaks end.

The Lib Dems’ environment spokesperson Tim Farron said:

Any insulting price hikes by water companies must be blocked.

It is a national scandal that these disgraced firms are demanding more money from families and pensioners in a cost of living crisis, all whilst dumping raw sewage into our rivers.

After years of Conservative Ministers letting these shameful polluters get away with it, we now need tough action, starting with a ban on bonuses and a block on large bill hikes.

Communities spoke loudly at the election, demanding an end to the sewage scandal and water firms stuffing their pockets with bonuses and dividends. The government and regulator must listen to the country.


In return for being able to increase their bills, water companies must invest in the following, the regulator said:

Improving the environment

  • Delivering more than 2,500 projects to reduce spills from storm overflows

  • Upgrading over 1,500 wastewater treatment works

  • Improving or protecting over 15,000km of rivers across England and Wales

  • Expanding use of nature-based solutions – with £2bn of green schemes proposed

  • Putting the sector on track to meet net zero emissions by 2050

Improving service

  • Improving drinking water quality – targeting 21% fewer contacts received by water companies

  • Stretching targets on reducing sewer flooding

  • Better customer service incentives – companies only rewarded for good customer service compared to other sectors

Protecting our water and wastewater system

  • A major expansion in new water assets, including nine new reservoirs and progressing seven large-scale water transfer projects

  • Delivering 425 million extra litres of water supply per day by 2030

  • Getting leakage down by a further 13% – to the lowest level since privatisation

  • The biggest smart meter rollout to date, with 10 million to be delivered

  • Tripling the rate of replacing water mains


The water regulator said companies should triple investment in new infrastructure and resources compared to 2020-25, to improve the environment, resilience, and service – from £11bn to £35bn. Nearly 90% of this investment is needed to meet legal requirements. Ofwat added:

Companies have proposed increased support for those struggling to pay, with an estimated 1.4 million more customers to pay reduced tariffs.


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The increases in average water bills range from £66 at Anglian Water over the next five years, £99 at Thames Water, £107 at Yorkshire Water and £199 at Southern Water.

Despite the increases, water bills bills are on average £44 per year lower than what companies proposed, Ofwat said in its draft determinations for the water industry.

This is mainly because we have challenged companies’ view of what they need to spend, and because some companies based their plans on an investor return above the level we think is fair.

Water bills. Photograph: Ofwat

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Introduction: UK economy grows by 0.4% in May; households face £94 water bill increase over next five years

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

England are through to the final in the euro men’s football tournament, and the UK economy has returned to growth.

In other news, the average water bill is set to rise by £94 over the next five years in England and Wales, the water regulator Ofwat said.

The 21% increase, or £19 a year on average, is intended to fund investment at water companies for improvements such as fixing leaking pipes and tackling the discharge of sewage into rivers and seas. Is is lower than water companies had asked for.

The UK economy grew by 0.4% in May after showing no growth in April, resuming its recovery from last year’s recession, according to official figures.

April was a very wet month, putting consumers off from spending on the high street.

The outcome is better than the 0.2% growth forecast by econommists.

GDP grew by 0.9% in the three months to May compared with the the three months to February, driven by 1.1% expansion in services output, according to the Office for National Statistics.

In May alone, services output rose by 0.3%, the same rate as in April (revised up from 0.2%), and was the biggest contributor to growth.

Production output grew by 0.2% in May following a drop of 0.9% in April, and posted zero growth in the three months to May.

Construction output grew by 1.9% in May, following a fall of 1.1% in April (revised higher from a fall of 1.4%), and declined by 0.7% in the three months to May.

The Agenda

  • 1.30pm BST: US Inflation for June (forecast: 3.1%), core inflation (forecast: 3.4%)

  • 1.30pm BST: US jobless claims


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