A shellfish act

Some 111 projects across the UK have recently won a share from the £2.1bn second round of the government’s Levelling Up Fund.

Combined with first round results, announced in October 2021, the Levelling Up Fund has awarded £3.8 billion to 216 projects!

This comes at a time when the government has been facing a major challenge to one of its key levelling up projects in the North East – the creation of a freeport offering tax breaks to lure businesses to Teesside. In March 2021, The Tees Valley was announced as one of the first places in the UK to receive freeport status. This is a 4,500 acre site which is expected to create more than 18,000 jobs and boost the local economy by over £3billion. The Teesside freeport will be the largest in the UK, and the close proximity to the majority of the UK’s offshore wind farms is one of site’s major attractions.

With Teesside a crucial battleground in the next general election, the development of the freeport will be key. Not surprisingly, a political fight has developed following a mass die-off of crabs, lobster and shellfish along the nearby shoreline during 2021. Latterly, after the initial event there appears to be a continued ecological impact affecting more than 30 miles of coastline – from Hartlepool to Whitby and beyond.

An investigation by the Department of Environment, Food and Rural Affairs (Defra) said the most likely cause of the 2021 die-off was a naturally-occurring algae, known as algal bloom. Local fishermen suspected that the die-off was caused by industrial toxins released during the dredging of the river Tees. They commissioned their own report which concluded the crabs were more likely poisoned by pyridine, an industrial chemical that is present in the river’s mud. However, last week Defra published a new analysis which suggest an as-yet unknown ‘parasite or pathogen’ had caused the crab deaths and that a ‘toxic pollutant’ was ‘very unlikely’ to have been the cause.

Have poisons been stirred up by the maintenance dredging of the Tees? This is going to be a vital question for the development of The Tees Valley freeport. Dredging has been carried out for decades to keep the Tees navigable for ships. However, more significant dredging may be required in future to allow the construction of a new quay for a factory that will build giant offshore wind turbine piles.

Levelling up will be one of the key factors in the next general election. The government appears on the back-foot once again with the latest speculation about the ‘flagship’ HS2 project and its central London station destination.

 

What have we been watching?

 

Markets received support from the Federal Reserve (Fed) interest rate decision last week with the peak seemingly in sight and US inflation clouds starting to clear. The Fed led the central bank pack last year with its aggressive interest rate hikes, and is the first in 2023 to slow the pace of increase with a 0.25% hike in 2023. By comparison, both the Bank of England (BoE) and European Central Bank hiked by 0.5%, although the BoE indicated it was fast approaching the end of its tightening cycle. The IMF got in the mood by tweaking up its global economic growth forecast while even the Bank of England was less pessimistic in forecasting a shorter UK recession! The re-opening of the Chinese economy also continued to be supportive, with global miners helping the value of the top 100 UK companies hit a record high.   

The IMF is forecasting global economic growth to fall from 3.4% in 2022 to 2.9% in 2023 before improving to 3.1% in 2024. This is slightly ahead of its previous forecast guidance and reflects the recent re-opening of the Chinese economy that has paved the way for a faster-than-expected recovery. The rise in central bank interest rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity. Global inflation is expected to fall from 8.8% in 2022 to 6.6% in 2023 and 4.3% in 2024. The IMF expects the UK will have the weakest performance amongst the world’s leading economies with a contraction of 0.6% in 2023 and growth of 0.9% in 2024. The US economy is projected to grow by 1.4% in 2023 and 1% in 2024. China is forecast to grow by 5.2% in 2023 and by 4.5% in 2024. The IMF also appears nervous about central banks signalling peak interest rates. ‘They should communicate the likely need to keep interest rates higher for longer, until there is evidence that inflation has sustainably returned to target.’

US President Joe Biden, has ruled out sending F-16 fighter jets to Ukraine, despite renewed calls from Ukrainian officials for urgent air support. However, the US is expected to send a new rocket with a range of 150 miles – twice the distance of its HIMARS system. Ukraine is still expecting a renewed Russian offensive before the end of February.

The incident of the Chinese ‘weather balloon’ that just happened to fly over an American nuclear missile base in Montana over the weekend, was another reminder of the tensions that continue to fester between the two biggest economies in the world. China said the shooting down of the balloon has ‘seriously impacted and damaged’ relations between the two countries. US Secretary of State Antony Blinken cancelled his meeting with Chinese President Xi Jinping.

---

 

In the UK, market research firm Kantar estimated that food prices were up a record 16.7% compared with a year ago. The Bank of England voted 7-2 to increase interest rates by 0.5% to 4% and said the UK is set to enter recession this year, but that this will be shorter than previously thought. In addition, the BoE indicated that the final hike in its current tightening cycle could arrive in March, depending upon economic data over the next six weeks. Markets are expecting a final 0.25% interest rate increase in March to 4.25%.

---

 

The European Central Bank (ECB) increased interest rates by 0.5% in line with market expectations and stated its intention to hike by a further 0.5% in March when it will then evaluate the ‘subsequent path to its monetary policy.’

---

 

The US Federal Reserve (Fed) announced a 0.25% interest rate hike, down from the 0.5% increase in December. This represented a marked slowing down from the four consecutive 0.75% hikes seen in 2022. The target range for federal funds rate has been increased to 4.5%-4.75% from 4.25%-4.5%. More significantly, the ‘hawkishness’ of the Fed’s December meeting has been replaced with a more encouraging tone on inflation. There also appears to be an air of flexibility towards future interest rate hikes and it is increasingly clear that the Fed is nearing the end of its tightening cycle and the point at which it stops is now a debating point. However, market optimism was dampened at the end of last week by strong US jobs data with unemployment at a 53-year low.

---

 

Chinese health officials say the country’s current wave of Covid-19 infections is ‘coming to an end.’ The Centre for Disease Control and Prevention said deaths were trending down and that there was ‘no obvious rebound’ during the recent Lunar New Year holidays. China’s business activity PMIs suggested that the economy returned to growth in January with the manufacturing sector indicator climbing to 50.1 while the services sector jumped to 54.4.

---

 

Brent oil drifted to $80 despite the re-opening of the Chinese economy.

---

Finally, following last week’s Alpha Bites comes news that British Steel’s Chinese owner is considering 800 job cuts at its Scunthorpe plant. A representative of Chinese owner Jingye described discussions over a £300m UK government support package as ‘unsatisfactory.’ As we said, this is always the challenge when a key strategic industrial asset ends up under foreign control. No wonder the government is removing red tape to allow UK pension funds to invest in renewable technology such as nuclear. All well and good, but is nuclear too high risk for them given the scale of investment required, lengthy timescales and risk of cost over-run?

 

Read Last Week’s Alpha Bites – Green with envy

 

Further information about Alpha Portfolio Management, our products and services, please visit www.alpha-pm.co.uk or email info@alpha-pm.co.uk. Alternatively, you can call us on 0117 203 3460.

This publication is for informational purposes only and should not be relied upon. The opinions expressed here represent analysis by an Alpha Portfolio Management representative at the time of preparation and should not be interpreted as investment advice.

You should seek professional advice before making any investment decisions. The past is not necessarily a guide to future performance. The value of shares and the income from them can fall as well as rise and investors may get back less than they originally invested. The sender does not accept legal responsibility for any errors or omissions, in the context of this message, which arise as a result of internet transmission or as a result of changes made to this document after it was sent.

Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the FCA.
Registered Office: 1 The Square, Temple Quay, Bristol, BS1 6DG. Registered in England No. 2489639
Copyright © 2021 Alpha Portfolio Management, All rights reserved

Trading name text

Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.