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News this morning that UK inflation had hit a new 40-year high will fuel the simmering discontent among British workers suffering from a severe cost of living crisis and pile pressure on the Bank of England for a strong response.
The bigger than expected increase in the year to June of 9.4 per cent, the highest in the G7, was driven by sharp rises in the prices of food, up 9.8 per cent, and petrol prices, up 18.1 pence per litre, the biggest jump since records began in 1990.
The situation is expected to get much worse in October when recent wholesale prices for energy feed through and the government’s price cap ratchets up.
The pressure on the country’s businesses was highlighted by separate data showing factory gate prices rising at a 45-year high of 16.5 per cent.
Bank of England governor Andrew Bailey said yesterday that interest rates could rise by half a percentage point next month as part of its “absolute priority” in getting inflation back down its 2 per cent target rate.
Meanwhile, the summer of discontent among the UK workforce continued to grow as Royal Mail postal staff announced what could be the biggest strike of the summer so far.
Public sector workers have not taken kindly to the government’s offer of a below-inflation pay rise of 5 per cent. Their response has ranged from “pitiful”, “disappointing” and “wholly inadequate” to a “grave mis-step” and “a kick in the teeth”.
They gained further ammo from official data that showed private sector pay rising five times faster than in the public sector. Several businesses are also offering pay boosts and bonuses to help mitigate the surging cost of living.
Despite this, Simon Clarke, chief secretary to the Treasury, said today that the government had to hold down public sector pay to prevent a “replay of the 1970s” citing Margaret Thatcher in arguing “there is no alternative”.
Nadhim Zahawi, in his first speech as the country’s new (and possibly temporary) chancellor, yesterday signalled a continuation of the fiscal policies of his predecessor Rishi Sunak, prioritising the taming of inflation and ruling out borrowing for tax cuts.
Sunak, it was confirmed this afternoon, will face Liz Truss, the foreign secretary, in a run-off among Conservative members over the summer to become party leader and prime minister.
Are big corporate profits to blame for inflation? Listen to the new edition of our Behind the Money podcast.
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Need to know: the economy
Our Big Read lays out the “impossible situation” facing the European Central Bank as it prepares to raise interest rates tomorrow to contain inflation, just as war and the energy crisis threaten to put the eurozone into recession. Speculation is growing that the ECB could opt for a bigger than originally expected rise of 50 basis points.
Latest for the UK and Europe
UK ministers have overridden their own planning inspector to approve a new nuclear power station on the site of an existing plant at Sizewell in Suffolk as it seeks to bolster domestic energy sources. It would take up to 12 years to build and be able to power up to 6mn homes.
A parliamentary report said the UK government had made little progress in tackling PPE procurement fraud during the pandemic, leaving taxpayers on the hook for businesses’ “excessive profits”. The public accounts committee chair added that the “complete collapse of some of the most well-established civil service practices beggars belief”.
Brussels asked EU member states to cut gas use by 15 per cent as it waits to see if Russia will reduce supplies. Hopes however are rising that flows from Russia to Germany will resume tomorrow. The IMF warned yesterday that an embargo on Russian gas would lead to severe recessions in the Czech Republic, Hungary, Slovakia and Italy if countries began to hoard supplies. The Energy Source newsletter (for Premium subscribers) examines how the global energy crisis might play out.
Mario Draghi offered to stay on as Italy’s prime minister if the squabbling parties in his coalition agreed to reforms. The country’s hard-right parties are poised to step up if Draghi goes.
Ukraine and Russia are inching towards a deal to end the blockade of grain exports. Ukraine’s agriculture minister Mykola Solskyi told the FT that if the blockade remained it would mean two-thirds less wheat being planted this year, worsening the global food crisis. A group of Ukraine creditor countries backed a debt moratorium as it holds on to cash for an elongated war with Russia.
Global latest
China reported daily coronavirus infections above 1,000 for the first time since May, raising the prospect of further lockdowns. The FT editorial board said Beijing’s zero-Covid policy risks weakening already frail economic growth, not only in China but across the world.
The Democratic Republic of Congo has upped the number of oil exploration blocks it will auction next week from 16 to 27 in response to calls for increased crude production following the Ukraine war.
The two-year surge in house prices in several advanced economies is likely to come to an end as the era of low interest rates passes. Some could even experience falls in prices as their central banks plump for big rate rises, especially those with a high level of home ownership and use of adjustable rate mortgages. UK prices in the meantime continue to surge: official data showed an increase of 12.8 per cent in the year to May.
The closure of Australia’s borders during the pandemic starved the country of the backpackers and temporary workers that normally staff hotels and bars and pick fruit and vegetables. The combined effect of the slowdown in immigration and a booming economy has left almost half a million jobs unfilled. The government has launched a review of the country’s central bank for its tardiness in implementing rates rises and its “embarrassing” forecasting.
Protests over the cost of living have now reached Panama, as the traditionally stable Central American nation experiences its worst unrest since the fall of Manuel Noriega in 1989.
Need to know: business
Business confidence in the global economy continues to fall. US fund managers have reached a “dire level” of pessimism, cutting their allocations to shares to the lowest level since the financial crisis, as the outlook for company profits dims. In the UK, a survey showed 76 per cent of FTSE 350 businesses expected the global economy to deteriorate, the lowest level of confidence in a decade.
Furniture retailer Made.com joined those UK companies slashing their forecasts as consumer confidence dives. It’s only a matter of time before the same happens to non-consumer sectors, as is already on display in the US earnings season, writes Cat Rutter Pooley.
Some more signs of the times in the UK food sector. Rising costs fuelled more losses at 2 Sisters, the country’s biggest chicken producer, but better than forecast sales at Premier Foods highlighted the increase in home cooking among cash-strapped consumers.
Netflix, which prompted a sell-off in big media shares in April when it revealed its subscriber growth had ended, is optimistic that customer departures are slowing, thanks partly to the success of the new Stranger Things season. The Lex column said profitability remained a concern but Netflix’s ability to drive the social conversation should not be underestimated.
Airbus chief Guillaume Faury said the supply chain crisis would last until next year as manufacturers struggle to increase production and businesses face shortages of raw materials and components. International business editor Peggy Hollinger says the aviation sector needs to learn the lesson of the pandemic and work together to build resilience after too much cost-cutting. Read more on the challenges facing the industry in our special report: Aerospace and Defence.
Akzo Nobel, Europe’s biggest paint maker and producer of Dulux, missed its earnings forecasts after being hit by Chinese lockdowns and a drop in demand from Europe.
US pharma group Johnson & Johnson cut its full-year profit forecast again as the strong dollar hit overseas sales, highlighting the problems faced by American multinationals during turmoil in global currency markets.
Top hedge fund energy trader Bill Perkins is opening an office in London to capitalise on opportunities in the “crazy” European gas market.
The political turmoil in the UK has led to SoftBank pausing plans for the London listing of Arm, which was set to be one of the country’s biggest-ever tech flotations. A bill to provide subsidies for US semiconductor manufacturing could cause more financial woes for Chinese chipmakers, says the Lex column. Dutch manufacturer ASML has benefited from the recent global shortage.
The World of Work
Many people took up activities such as running and cycling to escape the rigours of lockdown but can thinking like a sports star improve our productivity and performance? And can we draw leadership lessons from the sports world? Isabel Berwick speaks to a former England cricketer turned consultant as well as former FT editor and keen cyclist Lionel Barber in the latest Working It podcast.
Get the latest worldwide picture with our vaccine tracker
And finally…
You can change her appearance, voice and gender, and for just over £5 a month, she can be your girlfriend, wife, sister or even mentor, explains Siddharth Venkataramakrishnan of his new virtual pal Ada. Ever more sophisticated chatbots might be less burdensome than real friendships, but should we worry they encourage a withdrawal from society, he asks.
Source: Economy - ft.com
