What to Watch: BT axes dividend, £31bn O2 deal, and BoE forecasts

Tom Belger
·Finance and policy reporter
·4 min read
The BT Tower displays a coronavirus message requesting people stay home as seen from Primrose Hill in London, as London's parks remain open with the warning that they will close if people fail to observe the British government guidelines that include two metres social distancing from people that don't live in the same household, to help stop the spread of coronavirus, Saturday, April 4, 2020. The new coronavirus causes mild or moderate symptoms for most people, but for some, especially older adults and people with existing health problems, it can cause more severe illness or death. (AP Photo/Matt Dunham)
A coronavirus message on the BT Tower in London as it updates investors. (AP Photo/Matt Dunham)

Here are the top business, market, and economic stories you should be watching today in the UK, Europe, and abroad:

BT slashes dividend for only the third time in its history

Telecoms giant BT shares slid after it announced the “difficult” decision to suspend dividends until 2022, becoming the latest major firm to slash payouts to shareholders amid the coronavirus crisis.

Shares (BT-A.L) were trading 9.2% lower after the update. Philip Jansen, CEO said the move would help deal with “the potential consequences of COVID-19, allow us to invest in FTTP and 5G, and to fund the major five-year modernisation programme.”

“A third dividend cut in its history means that BT is finally finding the combination of hefty debts, big pension deficit, tight regulation and stiff competition on multiple fronts,” said Russ Mould, AJ Bell investment director.

Mould said the move would save BT around £3.3bn ($4.1bn), and leave shareholders hoping for “some long-term gain after this considerable short-term pain.”

Bank of England holds rates and warns on ‘very sharp’ GDP hit

The Bank of England (BoE) on Thursday chose to hold its benchmark interest rate at 0.1% and maintain its pace of asset purchases to lift the economy during the coronavirus crisis, but warned that the UK faced a “very sharp” fall in economic growth.

While the bank decided not to issue its traditional forecasts, the bank predicted that the country’s gross domestic product (GDP) could shrink by 14% in 2020, noting that there would be a “substantial increase” in unemployment in the first half of 2020.

It said, however, that the decline in economic growth — which would be the worst in several hundred years — should be “temporary” and that activity should pick up “relatively rapidly.”

Virgin Media and O2 confirm £31bn merger plan

One of Britain’s biggest mobile networks O2, owned by Telefonica (TEF) will merge with cable TV and broadband company Virgin Media to create a £31bn ($37.8bn) media and telecoms giant.

The parent companies of both entities confirmed on 4 May that discussions over a possible combination were underway. On Thursday, the groups confirmed the tie-up.

“We couldn’t be more excited about this combination,” said Mike Fries, chief executive officer of Virgin Media owner Liberty Global.

Coronavirus: Rolls-Royce furloughs 4,000 staff as job cuts loom

Aerospace giant Rolls-Royce (RR.L) has placed 4,000 staff on furlough as job cuts loom.

The engine maker said in a statement on Thursday it had placed 4,000 employees on the government’s job retention scheme as it looks to cut costs. The disclosure was made ahead of its annual general meeting with shareholders.

Rolls-Royce said demand for its airplane engines had plummeted since the start of the year due to the novel coronavirus pandemic. It does not expected the market to recover quickly.

European markets rise on hopes of 'rapid' recovery

European markets opened higher on Thursday, as hopes grew of a “relatively rapid” recovery after the BoE’s forecasts and Chinese export data.

The pan-European Stoxx 50 index (^STOXX50E) was trading 0.6% higher in early trading. Germany’s DAX (^GDAXI) was up 0.8%, France’s CAC 40 (^FCHI) was up 0.6% and Britain’s FTSE 100 (^FTSE) was 0.6% higher in morning trading in London.

It came after Chinese export data smashed through expectations, with overseas sales up 3.5% year-on-year in April despite the pandemic. Analysts had expected a 15.1% decline, according to Reuters.

The figures pared losses on Asian stock markets overnight, which had been knocked by resurgent US-China tensions over the coronavirus. Japan’s Nikkei index (^N225) closed 0.3% higher, while China’s Shanghai Composite index (000001.SS) closed down 0.2% and Hong Kong Hang Seng (^HSI) trimmed losses to close 0.5% lower.

What to expect in the US

US futures also pointed to a higher open.

Dow Jones Industrial Average futures (YM=F) were up 1.2%, S&P 500 futures (ES=F) were 1.3% higher and Nasdaq futures (NQ=F) were 1.4% higher at around 5.15am eastern time in the US.