Charlie Nunn: Yeah. Thanks, Ed. Perhaps I’ll take that question. The — on the wage inflation that we’re seeing, as I said, that has been benefiting the PCA balances. It’s also composed not just of regular wage inflation, but also back payments, don’t forget. There’s a lot of that going on right now and that clearly overall benefits balances. Your question was about how that feeds into our cost base going forward. As you know, we have two cost targets out there right now, GBP9.1 billion in respect to 2023, which as I said in my comments, we expect to achieve and GBP9.2 billion in respect to 2024, which, of course, stands. When we look at inflation in the costs over the plan period, we obviously took a look at this at the close of 2022 before coming to the market to present at the full year results.
We see cost inflation in a variety of areas. We certainly see it in wages and that is a big part of our overall OpEx around 40%. We also see it in terms of technology suppliers, in terms of utilities, in terms of third-party services provided to us, including consultants. So there is a wide spread of cost inflation sources. It comes from, if you like, a number of different places in addition to our overall wages bill. We also have a number of tools to try to offset wage, sorry, cost inflation as a general matter, and you’ll be familiar with these, whether it’s the regular matrix cost management structure that we deploy, whether it’s forward hedging of things like commodity prices and utilities expenses, whether it’s some of the strategic initiatives.
As you know, we’ve had a target of GBP1 billion out there. We’ve now increased that target to GBP1.2 billion. These are all ways in which we try to tackle cost inflation is. Let’s be clear, it is tough, it is demanding, but the organization has a good track record of doing it. And as I said, that’s what allows us to give the cost targets that we have given and that’s what allows us to continue to be committed to them in the environment that we’re in.
Edward Firth: Great. Thanks so much.
Operator: Thank you. Our next call is Jonathan Pierce from Numis. Your line is unmuted. Please go ahead.
Jonathan Pierce: Yeah. Good morning, guys. A couple of questions, please. The first, just coming back to the structural hedge. I mean there’s a lot of focus on the size of the hedge notional. Just so I ensure I understand this properly, if you decide in the second half not to reinvest single-digit amount on the maturities that are coming through, but the deposit base itself remains pretty stable. You’re simply going to be essentially reinvesting those maturing hedges into closing rate assets rather than fixed rate assets. So the notional hedge size drops, but the income effect, not a slight positive, I thought the overnight rate is currently above the five-year swap rate. So I just want to check that thinking is correct.
The second question is on the TNAV. I mean, obviously, the cash flow hedge reserve weighed down appreciably in the second quarter. But it looks like and we don’t have detailed enough disclosure to be sure of this, but it looks like the pension re-measurement was pretty big in Q2 as well, a big negative. Can you help us think about movements in TNAV going forward? What’s the big driver of the pension re-measurement, is it simply rates as well? So as we see rates start to come off in the third quarter, TNAV will get a bit of a kicker. And maybe just a supplementary to this, how much of the TNAV drop in Q2 is behind the RoTE improvements or would you have been improving the RoTE to circa 14% today even if that TNAV hasn’t come off so much in Q2?
