Aurelia Butler

UK public sector borrowing fell unexpectedly in June while retail sales grew much more than anticipated, providing welcome news on the health of the economy and public finances. Net public sector borrowing hit £18.5bn last month, £0.4bn lower than in the same month in 2022 and below analyst expectations of £22bn, according to data published by the Office for National Statistics on Friday. The ONS put the fall down to higher tax receipts and a substantial drop in the interest payable on government debt.A separate ONS release showed that the volume of British retail sales grew by 0.7 per cent between May and June, far more than the 0.2 per cent forecast by economists polled by Reuters, and came after increased sales in the previous two months.In the three months to June, public sector borrowing was £54.4bn — £7.5bn less than forecast by the Office for Budget Responsibility, the fiscal watchdog. The undershoot was helped by large downward revisions to the April-to-May figures thanks to higher tax receipts. Martin Beck, chief economic adviser to consultancy EY Item Club, said substantial historical revisions and the surprise drop in borrowing in June “have left the public finances looking in a healthier position than previously thought”. The figures will bring “some cheer for the government on a day when it has lost two by-elections”, said Ruth Gregory, economist at Capital Economics. Despite the positive news, chancellor Jeremy Hunt said: “Now more than ever we need to maintain discipline with the public finances. We are at a crucial juncture and need to avoid reckless spending.”The chancellor ruled out big pre-election tax cuts in a recent interview with the Financial Times.Even with the fall in borrowing, government expenditure rose by £5.2bn to £96.7bn in June compared with the same month last year. This was £2.3bn higher than forecast by the OBR, and was fuelled by the cost of energy support schemes and increased benefit payments. However, tax receipts for the month rose to £57.3bn — £4.6bn more than in the same month last year, driven by increases in income tax, corporation tax and VAT receipts. The strong tax receipts reflected “brisk growth in nominal GDP and wages”, explained Samuel Tombs, economist at Pantheon Macroeconomics. The finances were also boosted by a drop in the interest payable on central government debt, which was £12.5bn in June, £7.5bn lower than the record £20bn in June 2022. This reflected slower increases in the retail price index to which a large proportion of gilts are linked.Despite the improvement, most economists warned that there was limited room for tax cuts ahead of the general election expected next year as public debt, or borrowing accumulated over time, was estimated to be 101 per cent of GDP — the highest since the early 1960s.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

With interest rates still rising and a recession on its way, “hopes that the chancellor will have room to fund a big package of net tax cuts in the Autumn Statement without breaking his fiscal rules will probably be disappointed”, said Gregory. Meanwhile, the strong uplift in retail sales was helped by the warm weather and the rebound in food spending after consumers shifted to takeaway and dining out for the extra bank holiday in May.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

ONS chief economist Grant Fitzner said: “Retail sales grew strongly, with food sales bouncing back from the effects of the extra bank holiday, partly helped by good weather and department stores and furniture shops also having a strong month.”The volume of sales at food retailers was up 0.7 per cent, bouncing back after a 0.4 per cent fall in May, with some supermarkets attributing the boost to good weather and promotions. Sales at department stores were up 1.9 per cent over the month. Retailers put the increase down to summer sales and higher footfall due to the weather.The impact of high inflation was still visible, however; consumers spent about 18 per cent more in June than in February 2020, before the pandemic, but bought 0.2 per cent less by volume.Separate data by the research company GfK reported a sharp fall in consumer confidence in July. However, Beck said that retailers’ better performance “increases the likelihood that the economy managed to grow in the quarter”. More

Headline inflation in Japan rose to 3.3 per cent in June, outpacing the US figure for the first time in eight years and underscoring how Asia’s most advanced economy is no longer an outlier in global inflation.Price pressures in Japan, which has battled deflation for most of the past three decades, have proven to be broader and stickier than expected. This increases the pressure on the Bank of Japan, which meets next week and faces calls from investors to unwind its ultra-loose monetary policy.Japan remains the world’s only central bank with negative interest rates, and any reversal of this strategy would have massive implications for global financial markets.Annual inflation of the consumer price index and core CPI, which excludes fresh food, rose from 3.2 per cent in May to 3.3 per cent in June, according to data released on Friday. The rise, mainly due to higher utility bills, was in line with market expectations.That compares with 3 per cent inflation in the US, where the Federal Reserve has raised its benchmark interest rate to between 5 and 5.25 per cent from close to zero at the start of 2022. Friday’s figures represent the first time Japan’s headline inflation has been higher than the US’s since October 2015.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

The BoJ has argued that easing measures are needed to support the economy since the country’s inflation is not driven by strong underlying consumer demand and will slow as the cost of imported commodities falls.In a sign of that scenario playing out, the so-called core-core CPI, which strips out energy and food prices and is the most similar to core CPI measures used in other countries, fell from 4.3 per cent to 4.2 per cent in the June data.But Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, said there was uncertainty about the pace of the decline, with companies more willing to pass on higher costs to consumers and with big businesses raising wages.“If it’s a typical cost-push inflation, prices are likely to fall dramatically once time passes, but the price trend could last for much longer than expected,” Shinke said. “With levels of 3 or 4 per cent, inflation in Japan is clearly no longer low.”

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

This week, BoJ governor Kazuo Ueda signalled that the central bank would maintain its easing measures at its policy meeting next week. “There is still a distance to sustainably and stably achieving our 2 per cent inflation target,” he said.The comments sent the yen falling against the dollar as markets lowered expectations that the central bank would adjust its yield curve controls, a policy it pioneered in 2016 to cap rates on the benchmark 10-year Japanese government bonds at about zero per cent.Still, UBS economist Masamichi Adachi said he expected the BoJ to widen the trading band on government bonds and raise its inflation outlook next week. He noted that underlying inflation had risen even if it had not hit the bank’s 2 per cent target on an ongoing basis.In December, the BoJ said it would allow 10-year bond yields to fluctuate by 0.5 percentage points above or below its target of zero, widening from the previous band of 0.25 percentage points. More

The shelves of Aldi in Germany are stocking locally-grown asparagus and strawberries after heat and drought in Spain pushed the buyers for the supermarket group to make a very deliberate change last year.The retail group founded by the Albrecht brothers in postwar Germany has introduced climate change-related factors to help its buyers choose the goods for its thousands of stores across Europe and in the US.Several extreme weather events in South and Latin America have also led to difficulties in sourcing fresh produce, and higher prices for coffee and nuts — among the big sellers at Aldi.In France, customers were shocked not to find Dijon mustard in stores last summer, after high temperatures in Burgundy and a “heat dome” in Canada, the second-largest mustard seed producer in the world, dried crops.

French customers were shocked not to find Dijon mustard in stores last summer after mustard seed crops dried up in the heat © Bloomberg

But the consequences of the business disruption induced by climate change are stronger than mustard. Extreme flooding in Germany last year not only destroyed crops, but also damaged stores. In parts of California, it is so hot that workers and machines cannot cope and harvesting for products destined for Aldi stores has to happen at night.In the longer term, the retailer expects falling crop yields to result in migration, particularly in the world’s most food-insecure regions. The ability to harvest and manufacture the products consumers want will become harder. Climate change is a “very clear and present danger”, says Anke Ehlers, managing director of international sustainability at Aldi Sud, which operates more than 7,000 stores across 11 countries. For the retailer, the change of tack in its sourcing policy was a case of “making our buying teams aware about resilience and supply chain resilience overall, as an element to be considered in every buying decision, and establishing scorecards, incentivising and creating awareness internally,” she told a recent FT event.Aldi is not isolated. Many companies have been forced to sharpen their focus on supply chains — first because of the disruptions brought by the Covid-19 pandemic, then because of the energy supply crisis that followed Russia’s invasion of Ukraine, and now, even more permanently, because of the ever increasing impact of climate change.Building business resilience means anticipating the risks, instead of being in “crisis response” mode, notes LSE Grantham Institute professor Swenja Surminski, who is also managing director of climate and sustainability at the world’s biggest insurance broker Marsh McLennan and a member of the UK Committee on Climate Change. An LSE study showed the companies surveyed spent 85 per cent in mitigation after a disaster, and only 15 per cent ahead of the event.The issue is very slowly but surely rising up the boardroom agenda, Surminski says, as the workforce and physical structures also come under threat.

A cashew warehouse in Bouake in the Ivory Coast. Now, cashews will remain in West Africa for processing, rather than being shipped to Vietnam and back across the world again © REUTERS

Regulation is another incentive. New carbon-related taxes in the EU, to be implemented over the next four years, will force companies to account for the entire carbon footprint of their businesses. For example, Aldi has assessed that 99 per cent of its emissions are generated by its suppliers. It is therefore working with strategic suppliers responsible for three quarters of its product-related emissions to help them cut back. Building a transport network that is powered by electricity or sustainable fuels is one of the simplest ways to help cut emissions, although availability of cleaner energy powered vehicles remains difficult in some countries.That means those best-selling packets of cashew nuts will no longer be shipped from West Africa to Vietnam for shelling and roasting, and then back to Europe for packaging, but will stay in West Africa for processing. It also means fewer climate costs. Expect the most global brands to take up the “be local, buy local” slogan.The writer is the FT’s Climate Editor More

TOKYO (Reuters) -Japan’s core consumer inflation re-accelerated in June and stayed above the central bank’s 2% target for the 15th straight month, data showed on Friday, adding to recent signs of broadening price pressures.The data heightens the chance the Bank of Japan (BOJ) will revise up this year’s inflation forecast in fresh projections due next week, when the board debates whether conditions are falling into place to begin phasing out its massive stimulus.The nationwide core consumer price index (CPI), which excludes fresh food costs, rose 3.3% in June from a year earlier, matching a median market forecast. It followed a 3.2% gain in May.A hike in utility bills added to a steady increase in food and daily necessity prices, adding to the burden of households.Services prices, closely watched by policymakers on whether inflation is becoming driven more by higher labour costs, rose 1.6% in June from a year earlier after a 1.7% gain in May.But so-called “core core” inflation, which strips away both fresh food and fuel costs, slowed 4.2% in June from a 4.3% rise in May, a sign the rapid pace of increase seen in the past few months was moderating.As inflation perks up, markets are simmering with speculation the BOJ could soon phase out its controversial yield curve control (YCC) policy that is criticised for distorting market pricing and narrowing margins for financial institution.BOJ Governor Kazuo Ueda’s remarks on Tuesday that Japan was still distant from sustainably achieving the bank’s 2% target have pushed down the yen and boosted Japanese shares, as investors scaled back bets of a near-term tweak to YCC.Under YCC, the BOJ guides short-term interest rates at -0.1% and buys huge amounts of government bonds to cap the 10-year bond yield around 0% as part of efforts to fire up inflation to its 2% target. More

BENGALURU (Reuters) – South Korea’s economic growth likely slowed a bit last quarter as languishing exports and high interest rates hurt private consumption that accounts for about half of the economy, a Reuters poll of economists found.While exports from Asia’s fourth-largest economy declined in June, imports also fell, indicating a lack of vitality in domestic and foreign demand, especially from China, the country’s largest trade partner.On a year-on-year basis, gross domestic product (GDP) was expected to have expanded 0.8% in the April-June period, according to the median forecast of 22 economists, slightly slower compared to a revised 0.9% growth in January-March.However, on a quarterly basis, the export-led economy grew a seasonally adjusted 0.5%, a tad higher than 0.3% growth in the preceding quarter, underscoring a lacklustre recovery after it narrowly avoided a technical recession in Q1.”GDP growth…is expected to be at a similar pace to the first quarter, due to sluggish exports and manufacturing sector, weak investment as well as smaller government spending,” said Park Sang-hyun, economist at HI Investment and Securities.”Economic growth is expected to rebound in the second half of this year…but it will depend on the pace of economic recovery in China.”Initial hopes for an economic boom in China, buoyed by the ending of COVID pandemic-led lockdowns, have been dashed as the world’s second-biggest economy is now projected to grow just 5.5% this year and 4.8% next. [ECILT/CN]Underwhelming growth figures have sent shockwaves through the global economy, impacting not only South Korea but also other Asian economies that heavily rely on Chinese demand, raising concerns about the broader economic outlook.South Korea’s economic growth was forecast to average 1.2% this year, a sharp fall from 2.6% seen last year, a separate Reuters poll showed.”The economy is set to struggle…as domestic demand remains suppressed by tight monetary policy while exports are likely to weaken as demand from advanced economies weakens and the boost from automotive production fades,” wrote Shivaan Tandon, emerging Asia economist at Capital Economics. More

“In a time of war like this the maximum amount of state attention and therefore state resources should go to defence,” Zelenskiy said in his nightly video address, referring to a conversation he had earlier with Prime Minister Denys Shmyhal.He told Shmyhal to find alternative funding for projects “that are really necessary. This applies to various areas, including culture. Museums, cultural centres, symbols, television series are important, but we have other priorities.”Zelenskiy, who was a television comedy star before entering politics, said he had appealed to local councils to show restraint so that “people feel that budget resources are used fairly and correctly…Cobblestones, city decorations, fountains will have to wait. Victory first.”And he asked Shmyhal to “consider replacing” Culture and Information Policy Minister Olexander Tkachenko.Within an hour, Tkachenko said he had tendered his resignation, while remaining unapologetic about his projects.”Culture in wartime is important as this war is not just about territory but also people – our memory, history, language and creativity despite the war,” Tkachenko, who headed a television channel before entering politics, wrote on Telegram.”Private and state funding for culture in wartime is no less important than for drones. Culture is the shield for our identity and our borders.”There was no word on whether his resignation had been accepted.A high-profile public figure, Tkachenko had earlier in the day defended the allocation of the equivalent of $13.5 million to complete a museum devoted to Ukraine’s man-made 1930s famine linked to Soviet dictator Josef Stalin’s collectivisation drive.He had also promoted a project, which he said was privately funded, to replace the Soviet-era coat of arms emblazoned on the shield of the 102-metre (335-foot) tall “Motherland” statue of a woman standing just outside the city’s World War Two museum.Tkachenko had also promoted films and television programmes linked to the war against Russia. More

LONDON (Reuters) – British consumers have turned more pessimistic in the face of rising interest rates and high inflation, according to a survey published on Friday which ended a five-month streak of growing confidence levels.Market research firm GfK’s headline gauge of consumer confidence fell to -30 this month from -24 in June, the first decline since January, and below the -26 forecast in a Reuters poll of economists.”Reality has started to bite and, as people continue to struggle to make ends meet, consumers will pull back from spending,” Joe Staton, GfK’s client strategy director said.The fall was the biggest month-on-month drop in GfK’s confidence measure since March to April 2022 when inflation accelerated after Russia’s invasion of Ukraine. British inflation eased by more than expected in June, falling to 7.9% from 8.7% in May, but households are still contending with the fastest pace of price growth among the world’s big, rich economies.Staton said the recent slowdown in inflation will do little to improve consumer confidence. “Consumers need to see falling prices and interest rates before that happens,” Staton said. GfK’s monthly survey showed a decline in all measures of consumer sentiment compared to the previous month.The Bank of England has increased interest rates at 13 meetings in a row since the end of 2021, raising its Bank Rate to 5% in June. Financial markets see an even split in the chances of a 5.75% or 6% peak in rates. Britain’s economy has so far avoided forecasts of a recession this year. But GfK’s gauge of how consumers view the economy in the coming 12 months fell sharply to -33 from -25 this month while feelings about their personal finances over the same period fell by six points to -7.Its sub-index of shoppers’ willingness to make expensive purchases declined seven points.The resilience of consumer confidence in the first half of this year was helped by low levels of unemployment and separate data published on Friday showed employers still seeking to hire.The Recruitment and Employment Confederation said demand for staff was significantly higher than a year ago despite the cost-of-living headwinds facing the economy. Active job adverts were up by more than 50% as firms struggled to fill roles, Neil Carberry, Chief Executive of the REC, said. More

UK consumer confidence plummeted in July as the rising cost of borrowing and high prices hit people’s morale, according to data that recorded the largest drop in sentiment for more than one year.The consumer confidence index, a measure of how Britons view their personal finances and wider economic prospects, fell six points to minus 30 in July compared with the previous month, research group GfK said on Friday.The latest reading marked the first fall in expectations since January and the largest drop since April last year.Joe Staton, client strategy director at GfK, said that for the first six months of 2023 expectations had improved despite the continuing cost of living crisis, with double-digit inflation outpacing income growth and rising interest rates affecting homeowners and renters alike. However, “suddenly, this resilience has collapsed”, he said, referring to the July data.The survey was conducted in the first two weeks of July before news that inflation fell more than expected to 7.9 per cent in June led investors to trim their expectations of an interest rate rise at the next Bank of England meeting in August.Markets are now pricing in an interest rate peak of 5.75 per cent to 6 per cent, which could ease pressure on mortgage-holders. On Wednesday, data provider Moneyfacts reported that the average two-year fixed residential mortgage rate fell to 6.79 per cent, down from an average rate of 6.81 per cent on the previous day. Despite the fall, the figure was still more than double the rate offered at the start of last year. Britons’ expectations for the general economy and their personal finances fell, dropping eight points and six points, respectively.

Linda Ellett, UK head of consumer markets, leisure and retail for KPMG, said that “despite efforts of householders to reduce costs where they can, for some those efforts are simply dwarfed by the sizeable jumps in mortgage or rent they are facing”.The GfK index tracking whether consumers thought it was a good time to make big purchases, an indicator of spending intentions, dropped 7 points to minus 32.Staton said he expected consumer confidence would not substantially improve until prices and interest rates fell. “Reality has started to bite and, as people continue to struggle to make ends meet, consumers will pull back from spending,” he added. More