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The Bank of England has forecast Rachel Reeves’s first budget as chancellor will increase inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.

Announcing a widely anticipated 0.25 percentage point cut in the base rate to 4.75%, the Bank’s Monetary Policy Committee (MPC) forecast that inflation will return “sustainably” to its target of 2% in the first half of 2027, a year later than at its last meeting.

“Since the MPC’s previous meeting, the market-implied path for the Bank rate in the United Kingdom has shifted up materially,” the MPC said in its minutes.

Interest rate falls – latest updates

The Bank’s quarterly Monetary Policy Report found Ms Reeves’s £70bn package of tax and borrowing measures will place upward pressure on prices, as well as delivering a three-quarter point increase to GDP next year.

Governor Andrew Bailey stressed however that the underlying trend was “continued progress in disinflation”.

The MPC, whose members voted 8-1 in favour of the cut, with the single opponent favouring a hold at 5%, maintained its view that rates will need to fall “gradually” as it monitors the economic response to falling inflation.

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“Inflation is just below our 2% target and we have been able to cut interest rates again today,” said Mr Bailey.

“We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much. But if the economy evolves as we expect it’s likely that interest rates will continue to fall gradually from here.”

Why will inflation rise?

The Bank forecasts that the upward pressure on prices will begin in the first half of next year, with the addition of VAT to private school fees and the £1 increase in the bus fare cap to £3.

The increase in employer national insurance to 15%, the largest single measure in the budget, is “assumed to have a small upward impact on inflation,” offset by the freeze in fuel duty rates.

Together these will push inflation up by 0.3 percentage points next year, with the near-half point peak coming in 2026 only after the removal of the fuel duty-freeze, a measure the Bank is compelled to assume will happen, despite successive chancellors, including Ms Reeves, maintaining it for 11 years.

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The Bank found that the national insurance increase and the uprating in the national living wage “is likely to increase the overall costs of employment”, and will be passed on by employers through a mix of higher prices, marginal costs and wages, but the balance between those is not yet clear.

“The combined effects of the measures announced in the autumn Budget 2024 are provisionally expected to boost the level of GDP by around three-quarter per cent at their peak in a year’s time, relative to the August projections,” the minutes read.

“The budget is provisionally expected to boost CPI inflation by just under half of a percentage point at the peak, reflecting both the indirect effects of the smaller margin of excess supply and direct impacts from the budget measures.”

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Vinted boss says cost of living crisis has ‘boosted’ secondhand industry

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Vinted boss says cost of living crisis has 'boosted' secondhand industry

The cost of living crisis has “boosted” the secondhand industry, Sky News has been told, as more than £2bn is spent on pre-loved gifts this Christmas.

Adam Jay, CEO of Vinted Marketplace, said the “trend” in buying pre-loved was “happening anyway” but described rising costs elsewhere as a possible “accelerator”.

“I’m sure the cost of living crisis has been a boost,” he told Sky News, adding that it had supported “the secondhand industry and trading of secondhand”.

“But I do think this trend was happening anyway because of people’s consciousness around overconsumption, around sustainable buying and sustainable consumption.

“I think all of these have I think these are deep trends and I think they’re trends that are here to stay. I really think secondhand can become the first choice ultimately,” he said.

Screengrab from SN sit down with Adam Jay, CEO of Vinted Marketplace
FTV RUSH ADAM JAY CEO VINTED INTERVIEW CAM 1 ROBINSON LONDON 061224
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Adam Jay from Vinted told Sky News consumers want to be more sustainable

Vinted, an online marketplace for buying and selling pre-owned items, made its first annual net profit last year of €18m (£15m).

The company’s revenue also rose by 61% year on year amid a rise in demand for secondhand goods.

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The Vinted boss’s comments come as more than £2bn is expected to have been spent buying pre-loved gifts this Christmas.

A report by Vinted and Retail Economics found that secondhand shopping will account for just over 10% of all gift spending.

More than four in five people also said they might spend some of their budget on pre-loved gifts this year.

Vicky Saynor, from Hertfordshire, has bought all of her Christmas gifts secondhand, with a total budget of £150.

Vicky Saynor, from Hertfordshire, case study in charity shop who has bought all of her Christmas gifts second hand. Source: CMP Ingest 27 NM27  CR SAF XMAS PRE LOVED GIFTS ADELE ROBINSON IV ROYSTON 291124
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Vicky Saynor, from Hertfordshire, bought all her Christmas gifts secondhand

“This year I said, that’s it – it’s only secondhand or they’re not getting anything,” she said.

She has spent £20 on each of her children and believes she will have saved possibly over £1,000.

“We have so much stuff in this world we just don’t need to keep buying more of it. One person’s rubbish is another person gold,” she continued, “I love old things – they have a life, they have a history.

“And secondhand clothing – why not? When I was young I would reuse or pass on and that all changed in the 90s and 00s when it really focused on consumerism. But we have to change our ways – we have to change our habits.”

Vicky Saynor, from Hertfordshire, case study who has bought all of her Christmas gifts second hand. Source: Adele Robinson
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Vicky thinks she has possibly saved over £1,000 on presents

According to the Vinted report, shoppers are also selling their own belongings to fund Christmas gifts, with 43% selling online.

More are planning to increase how much they buy secondhand too with over a third (35%) expected to buy more in the next five years.

In his interview with Sky News, Vinted’s Adam Jay has also highlighted the “confusion” around new reporting rules on tax in the new year.

Regulations from HM Revenue and Customs (HMRC) mean that if someone sells above a certain threshold Vinted must ask the seller for their national insurance number and share it with HMRC.

Mr Jay explained, however, that it is “a relatively small proportion of the overall sellers” on the platform and most will “already know” if they have to provide details.

“Vinted is obligated to collect the national insurance number for any seller who sold more than 30 items or more than £1,700 worth of product in the previous 12 months,” he said.

“But here’s the really important thing,” he added, “the obligation to give your national insurance number does not mean there is any obligation to actually pay tax… there is no tax to pay on the private sale of secondhand items.”

He also described the new rules as “a little challenging” for Vinted, as many members already sell at least 30 items.

“Hopefully they’ll [HMRC] rethink whether those thresholds are set in exactly the right way to make sure that ultimately the right people are paying the tax.”

While “supportive” of HMRC decision to change regulations, Mr Jay added: “I wish the thresholds had been set a bit differently. They’re actually set consistently across all OECD countries.

“I would hope even across all of Vinted markets in which we operate, that the tax authorities will consider changing those thresholds or making them more appropriate for business models like Vinted.”

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Honda and Nissan announce plans to merge after the Japanese car giants struggle to match rivals in electric vehicles

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Honda and Nissan announce plans to merge after the Japanese car giants struggle to match rivals in electric vehicles

Japanese car giants, Honda and Nissan, have announced plans to merge.

That would make them the third largest car maker by sales, behind Toyota Motor Corp and Volkswagen AG.

The two companies said they had signed a memorandum of understanding, which would also include the smaller Nissan Alliance member, Mitsubishi Motors, in the talks on integration.

Japan’s car makers have struggled to match their big rivals in electric vehicles (EVs) and are trying to cut costs.

If the merger is finalised it could result in a company worth more than 50 billion dollars (£39.77bn) based on the market capitalisation of all three car makers.

Honda Chief Executive Toshihiro Mibe speaks during a joint news conference with Nissan and Mitsubishi representatives in Tokyo, Japan, Monday, Dec. 23, 2024. (AP Photo/Eugene Hoshiko)
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Honda president Toshihiro Mibe speaks during a joint news conference with Nissan and Mitsubishi. Pic: AP

Honda would initially lead the new management, which would retain the principles and brands of each company, Honda’s president, Toshihiro Mibe, said.

The aim is for the deal to be completed by August 2026, he added, but said there was a chance it would not go forward.

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Mr Mibe said there are “points that need to be studied and discussed” about the merger. “Frankly speaking, the possibility of this not being implemented is not zero.”

Read more:
UK car production falls for ninth month in a row
Electric vehicles make up one in four new cars sold

Despite the prospective deal making the new company a giant in the industry, it would still lag behind Toyota as the leading Japanese automaker.

Toyota rolled out 11.5 million vehicles in 2023, with Honda, Nissan and Mitsubishi Motors combining for around eight million.

It comes after the three companies announced in August that they would share components for EVs like batteries and jointly research software for autonomous driving.

Nissan has struggled under the weight of a scandal that began with the arrest of its former chairman Carlos Ghosn in late 2018 on charges of fraud and misuse of company assets – allegations that he denies. He eventually was released on bail and fled to Lebanon.

He said the planned merger was a “desperate move”.

Meanwhile, in Europe, car companies have been cutting jobs and shutting factories as they face pressure from growing exports from China, Sky News’ economics and data editor Ed Conway reported this month.

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Electric cargo bike firm Zedify seeks delivery of new backers

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Electric cargo bike firm Zedify seeks delivery of new backers

An electric cargo bike logistics company which counts the fashion giant Zara among its partners has launched an urgent hunt for new backers.

Sky News has learnt that Zedify, which has raised millions of pounds from investors including Barclays Sustainable Impact Capital, is working with Interpath Advisory on a review of its financing options.

Zedify claims to be the UK’s largest cargo bike logistics company.

It is said to be exploring options to secure new funding on an accelerated basis.

Read more from Sky News
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Founded in 2018, the company works with retail brands, as well as parcel carriers and independent businesses, to offer sustainable deliveries using cargo bikes.

Zedify operates from 10 logistics hubs across the UK, with the latest launched in Birmingham at the start of November.

It says it aims to be active in 50 UK cities in the next five years. The company employs about 130 people.

Rob King, Zedify’s co-founder and chief executive officer, said: “As we continue with our mission of disrupting the traditional logistics model by creating a more sustainable alternative to last-mile delivery services, we are seeking investment partners who can support us as we continue to scale our business, supporting more customers in additional cities around the UK.”

Other existing Zedify backers include Green Angel Syndicate and Prova.

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