Heathrow is set to announce a multibillion-pound expansion plan to create extra capacity at the airport – as it prepares its proposal for a third runway.

The UK’s biggest airport has announced a “once-in-a-generation investment” beginning this year to improve existing buildings and boost passenger numbers.

The development is separate from a new runway – which the government recently announced support for – and will be funded by Heathrow shareholders with airlines and customers charged for the expanded services.

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As part of the investment, the capacity of terminals two and five will be increased and the layout of the airfield will be reconfigured in a bid to improve punctuality and to increase the number of aircraft stands.

In a speech on Wednesday, chief executive Thomas Woldbye is expected to say: “This privately-funded programme will upgrade existing infrastructure while laying the groundwork for a third runway, boosting UK investment and economic growth, with tangible benefits felt this year.”

Heathrow was last month criticised by Europe’s largest airline Ryanair for being “incredibly operationally inefficient”. Because of this, Ryanair chief executive Michael O’Leary said the airline had no interest in and would “never” fly from the airport, even if it were free.

Proposals for a third runway will be submitted to the government “by summer”, the airport said, after Chancellor Rachel Reeves backed the expansion as part of her aim of growing the economy.

The support is seen as controversial as many senior Labour politicians such as London mayor Sadiq Khan and cabinet members including Energy Secretary Ed Miliband have long opposed a third runway on environmental and health grounds.

It’s unclear how the additional carbon emissions from the extra flights would be compatible with the state’s legally binding 2050 emissions reduction targets.

A third runway?

Doubt has been cast over whether a runway could even be built during Labour’s time in power. The process would have to be planned and approved before construction could begin.

Rivers and the M25 road would have to be diverted and hundreds of homes would need to be demolished as part of construction.

Ryanair’s Mr O’Leary said the chance of it being built was “slim” but it could be 2050 even if it does get built.

A question over the third runway’s ability to boost the economy was raised by left-leaning thinktank the New Economics Foundation (NEF)

According to its analysis, growth in the number of business travellers – who may grow commercial links – has ceased and instead, passenger growth has been driven by wealthy British residents rather than foreign tourists entering the country.

The air travel industry is also one of the poorest job creators in the economy per pound of revenue, the NEF said, while the environmental downsides of more flights are “significant”.

Steel pact

As part of interim, pre-third runway expansion Heathrow signed a charter to maximise opportunities for the use of British steel, a move welcomed by steel bosses, unions and the government.

A member of the Bank of England’s rate-setting committee has made a case for a steeper cut to interest rates on expectations that an inflation “hump” ahead will be temporary.

Catherine Mann, an American economist, told an audience in Leeds that she currently did not see a repeat of an extended period of inflation in the months to come, such as that which followed Russia’s invasion of Ukraine.

She described herself as an “activist” on the Bank’s monetary policy committee, having voted last week for a half percentage point interest rate reduction.

Ms Mann said her decision aimed to “cut through the noise” about the right stance for policy given the weaker outlook for employment and the economy than had been previously expected at the end of 2024.

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But she cautioned that while her policy path differed to the majority view for “gradual” rate reductions, the Bank rate, she said, would need to remain restrictive for longer.

Ms Mann had been considered the top hawk – a policymaker leaning towards higher rates – on the Bank’s monetary policy committee (MPC) until it emerged she had backed a half-point cut.

A 0.25 percentage point reduction was passed.

Her earlier worries about rate cuts included a high pace for wage growth and budget-linked investment, stoking inflation down the line.

Last Thursday’s rate decision meeting minutes showed that she, and one other member of the MPC Swati Dhingra, had varied concerns relating to the Bank rate remaining too restrictive at a time of weak economic growth and a weakening employment outlook, with both likely to weigh on inflation naturally.

New Bank staff projections saw the economy growing by just 0.75% this year and inflation topping 3.7% – up from the current 2.5% rate.

Ms Mann told the audience at Leeds Beckett University: “In a speech last February I said, ‘Do not be seduced by the deceleration in headline inflation’. This February, I say, ‘Do not be dismayed by the hump… yet’.”

She expected much of the anticipated increase in inflation this year to come from energy and food, with contributions from other elements such as water bills, phone bills and insurance.

These are factors outside the Bank’s control.

What it wants to avoid is a price spike that forces up wage growth to counter the higher costs – as happened after the energy-led start to the cost of living crisis in 2022.

She said that elements such as budget tax rises on employment would, as Bank surveys have suggested, weigh on both wage growth and therefore inflation.

“I chose 50 basis points now, along with continued restrictiveness in the future, and a higher long-term Bank Rate
to ‘cut through the noise’,” she added.

Octopus Energy Group is wading into the battle for the future of Britain’s biggest water company as part of a consortium which includes the French infrastructure giant Suez.

Sky News has learnt that Octopus Energy – which recently overtook British Gas as Britian’s biggest household gas and electricity supplier – has struck an agreement that would see its technology arm managing Thames Water‘s 16 million customers.

The deal with Kraken would provide Covalis Capital, the infrastructure investor spearheading the consortium, with critical technology expertise as it seeks to manage one of the UK’s most complex utilities – and one with a long-standing reputation for poor customer service.

Earlier reports said that Covalis would inject about £1bn into Thames Water, with £4bn more raised from asset sales, refinancing and a stock market listing.

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Some industry sources have expressed doubts about the feasibility of such a plan.

The emergence of Octopus Energy’s involvement in the Thames Water crisis underlines the scale of Kraken’s ambitions as it further extends its reach beyond the energy sector.

Earlier this week, TalkTalk became the first major broadband provider to join the Kraken platform.

Wholly owned by Octopus Energy, Kraken now manages more than 60 million customer accounts globally, of which roughly five million are water company customers.

The consortium comprising Covalis, Suez and Octopus Energy was among fewer than a handful which tabled indicative offers to help Thames Water raise roughly £3bn in fresh equity ahead of a deadline on Monday.

CK Infrastructure Holding and Castle Water are also understood to have submitted proposals, while the private equity behemoth KKR remains interested but did not lodge an offer, according to insiders.

This week’s deadline was in any case regarded as arbitrary and meaningless because two other crucial determinants of Thames Water’s future have yet to become clear.

One is the outcome of a court battle between the water company’s class A and class B bondholders, both of which have said they want to lend a further £3bn to help Thames Water survive.

The company has backed the class A plan despite the fact that it will saddle Thames Water with higher interest payments at a time when its creaking balance sheet has left it on the brink of temporary nationalisation.

The second major uncertainty is whether Thames Water plans to appeal against an Ofwat ruling that it can increase customer bills by 35% over the next five-year regulatory period, rather than the 53% it had requested.

Thames Water must decide within days whether to formally appeal to the Competition and Markets Authority.

Prospective equity investors regard both those events as material to their investment case, with a preferred bidder not expected to be chosen by the company and its advisers at Rothschild until April.

Thames Water was plunged deeper into crisis last year when its existing shareholders – comprising a combination of sovereign wealth funds and pension funds – declared the company “uninvestible” and reneged on a commitment to provide billions of pounds in new funding.

The government has said it does not regard a special administration regime (SAR) as a desirable outcome, although an adverse outcome from the bondholders’ legal fight or inability to secure additional equity could render the company insolvent.

Laden with £19bn of debt, Thames Water has already warned that it will run out of money next month.

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The only other major example of a SAR process was that involving Bulb Energy, which collapsed in 2021.

Its 1.5 million-strong customer base was bought by Octopus Energy, with their accounts transferred onto Kraken within six months.

Kraken, which works with UK water companies including Severn Trent and Portsmouth Water, says that it reduces water leakages, and reduces costs for both companies and customers.

Octopus Energy declined to comment on Tuesday.