Today’s top stories
German chancellor Olaf Scholz vowed to boost growth by banishing the “mildew of bureaucracy” as he came under intense pressure to tackle economic problems that are fuelling support for the far-right. A new forecast predicted the economy would shrink 0.5 per cent this year.
“It is fundamentally wrong that 30 seconds of the recording of a washing machine gets paid the same as the latest single by Harry Styles.” The FT revealed a deal by Universal Music that could reshape the economics of music streaming, the first big shift in the business model since Spotify launched in 2008.
The UK aviation regulator is to review the “logic error” that led to last week’s failure of air traffic control systems.
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Good evening.
New UK and eurozone stats today have highlighted the parlous state of the housebuilding industry, hit by rising interest rates, skills shortages and high inflation.
UK housebuilding slumped in August at the second-fastest pace since the first Covid lockdown, according to the S&P Global/Cips UK Construction Purchasing Managers’ index, as concerns about the economic outlook dented demand for new building, especially in the residential sector.
Big developers such as Crest Nicholson, Taylor Wimpey and Persimmon have warned on profits under a “perfect storm” of events, including borrowing costs rising just as the government withdrew its Help to Buy scheme, which offered state-subsidised loans for first-time buyers.
Barratt Developments, the UK’s biggest housebuilder, warned today it would be at least two years before the market for new homes recovered. In the meantime, construction companies are going under at the fastest rate in a decade.
Surging mortgage rates are also contributing to the squeeze on UK living standards which is set to last some time, according to separate survey data today. Interest rates are at a 15-year high of 5.25 per cent although Bank of England governor Andrew Bailey suggested today that the UK was nearing the top of the policy-tightening cycle.
Tenants are having an equally tough time, as our Extreme Renting series illustrates. Those in London are being hit especially hard as landlords pass on higher borrowing costs, but the situation is equally bad across Europe.
In the eurozone, housing construction has fallen at the fastest rate since the start of the pandemic. The decline in overall construction was strong in France and Italy, but particularly bad in Germany, where the industry is in crisis as a wave of insolvencies claims a growing number of big developers.
“We are at the end of a 10 to 15-year property boom,” said Moritz Schularick, head of the Kiel Institute for the World Economy. “The financial cycle is now such that every day another property developer is going bust . . . The old funding models are no longer sustainable.”
The narrative is quite different across the Atlantic where big housebuilders have enjoyed large share price gains thanks to the rebound in the new homes market, despite the rise in mortgage rates. The market has even attracted an $814mn bet from Warren Buffett’s Berkshire Hathaway.
Need to know: UK and Europe economy
The crisis over UK school buildings at danger of collapse because of low-strength concrete has forced Prime Minister Rishi Sunak on to the defensive. The affair highlights a lack of spending on buildings and maintenance going back decades, says economics editor Chris Giles. The government today published the list of schools affected.
A parliamentary report said the UK had clawed back less than 2 per cent of more than £1bn in losses from fraud and error on taxpayer funds made available to businesses during the pandemic.
The European Commission appointed Belgian politician Didier Reynders as the EU’s competition chief, while incumbent Margrethe Vestager takes leave of absence to run for the top job at the European Investment Bank.
Turkish president Recep Tayyip Erdoğan abandoned his long-held hostility to rate rises, vowing to use “tight monetary policy” to cool inflation, now set to hit 65 per cent by the end of this year.
Poland’s central bank is expected to cut interest rates in spite of double-digit inflation, fuelling concerns that its decisions are being driven by politics in a crucial election year. The National Bank of Poland was among the first central banks to raise rates in autumn 2021 and is now set to lead the way in cutting them.
Need to know: Global economy
The Financial Stability Board, the world’s most powerful financial watchdog, warned of “further challenges and shocks” ahead as high interest rates threatened economic recovery.
A top Federal Reserve official signalled that US interest rates would stay on hold when it makes its next decision on September 20.
Oil prices topped $90 for the first time this year as Saudi Arabia and Russia extended production cuts. The move threatens to reignite global inflation fears as well as cause problems for US president Joe Biden ahead of next year’s election.
Transnational crime groups involved in drug trafficking, migrant smuggling and extortion have become so big they are damaging Latin America’s economic performance, the IMF said.
Taxes across the world are set to rise as countries spend big on defence, welfare and the green transition: our new series heralds the return of big government.
Central bank digital currencies could speed up the introduction of cashless societies, much to the dismay of assorted conspiracy theorists. Read more in this deep dive.
Anger over surging electricity costs has triggered protests in Pakistan that risk derailing an IMF deal. The country narrowly avoided default in June after securing the $3bn loan that came with strict conditions to reform the country’s economy, including cutting energy subsidies and imposing new taxes in the power sector.
Kenyan president William Ruto called for debt relief for African countries to help their fight against climate change. Almost half the countries in sub-Saharan Africa, including Kenya, are either in, or at high risk of, debt distress.
Need to know: Business
Europe’s tourism industry has enjoyed its best summer season since before the pandemic as an increase in American visitors helped offset the impact of extreme heat and stubborn inflation.
European carmakers believe “e-fuels” may allow them to keep selling combustion-engine vehicles despite the EU’s plan to ban them from 2035. Campaigners called the exemption on e-fuels a “Trojan horse” for fossil fuels.
More than one in eight UK bank branches that were open at the start of 2023 will have closed by December, with almost three-fifths of the network vanishing since 2015, according to FT analysis.
The UK pulled back from a clash with Big Tech over private messaging measures in its online safety bill. The sector still faces a host of fresh legal obligations from new EU laws aimed at curbing its power.
The World of Work
The UK is set to roll back sickness benefits for more people with disabilities and long-term health conditions to encourage them back into the workforce. Critics said the move would leave vulnerable people in hardship without a significant boost to the number employed.
Why is British management so bad and what can be learnt from the US experience? Listen to the new Working It podcast.
Staff shortages at accountancy firms are fuelling a movement in US states to relax education requirements for joining the profession. Regulators say state legislation could have dire consequences, unravelling a system that allows accountants to practise nationwide.
Read how business school lessons have helped victims of the war in Ukraine and more in our Masters in Management special report.
Some good news
Some of the entries for this year’s Wildlife Photographer of the Year competition organised by the UK’s Natural History Museum are now online ahead of the awards and exhibition next month. This image captures the moment a young monkey catches a ride on a passing sika stag on Japan’s Yakushima Island.
Source: Economy - ft.com
