Aurelia Butler

Brussels is preparing emergency curbs on Ukrainian grain imports to five member states close to the war-torn country, bowing to pressure from Poland and Hungary after they took unilateral action to pacify local farmers.European Commission president Ursula von der Leyen said the bloc would take “preventive measures” as EU officials tried to respond to several countries, including some of Kyiv’s staunchest allies, breaking ranks to defend their farmers from an influx of cheap grain.The steps under discussion would bar imports of those products until June into the four member states bordering Ukraine, plus Bulgaria, except for re-export to other EU member states or parts of the world, said a senior EU official. Von der Leyen said in a letter to the leaders of Poland, Hungary, Romania, Slovakia and Bulgaria that the steps would “immediately counteract” the deteriorating situation for their producers of wheat, maize, oilseeds and sunflower seeds. The highly unusual move is an attempt to regularise a spate of unilateral moves by a group of eastern European member states, which challenged the EU’s core powers over trade policy.The commission said it will only take action if governments drop their current measures, which they have yet to agree to do. It will do so by availing of a rarely used power, contained in the measure that liberalised trade with Ukraine, and limit the new safeguards to only a few member states rather than the whole bloc. Poland, Hungary, Bulgaria and Slovakia are among those that announced bans on food products from Ukraine over recent days, despite warnings from Brussels that their actions were potentially illegal. The countries will receive €100mn from EU funds to compensate farmers, who have been in uproar.After a meeting with the five countries on Wednesday night, the trade commissioner Valdis Dombrovskis and agriculture commissioner Janusz Wojciechowski said they were viewing a “swift solution”. In a joint statement they said: “We underlined the importance of rapidly following a common EU approach, rather than unilateral solutions to avoid multiple bans and solutions which put the internal market at risk.”The EU dropped tariffs and quotas on foodstuffs from Ukraine, an agricultural powerhouse, after the full-scale invasion by Russia last year. Resulting from fears that the world could go hungry, the regime was intended to last until the coming June. However, much of the Ukrainian grain entering the bloc remained in its neighbouring countries and reduced prices locally. The EU wants to extend the wartime trade regime with Ukraine when it expires, but the revised version will have stronger provisions that allow the EU to take measures to “safeguard” its own market more rapidly in future, von der Leyen’s letter said. Brussels will organise convoys of trucks, trains and barges to transport the grain to ports where it can be sent to countries in need, another official said. It would also increase the capacity of the river Danube.Many commercial traders have refused to pay for this transport because it costs more than traditional seaborne trade through the Black Sea. It remains unclear how this would be funded and organised. Spain had tried to subsidise a train to transport grain across the continent but it was much cheaper to import from Latin America, the official said. Norbert Lins, chair of the European parliament’s agriculture committee, told the FT that Brussels should buy the grain itself and ship it to third countries. “The commission has the tools and should use them,” he said. In her letter, von der Leyen said Brussels would investigate the situation for other “sensitive products,” following a request from Poland, which has also banned meat imports. The five countries originally wrote to her at the end of March. Konrad Szymański, Poland’s former European affairs minister, said Brussels had been slow to act. “Von der Leyen got what was an urgent letter [from the governments affected] and if she had responded to it in two or three days rather than now, we probably would not have such a problem,” said Szymański, who now works for the Polish Economic Institute, a Warsaw think-tank. Additional reporting by Raphael Minder in Warsaw and Marton Dunai in Budapest More

Britain needs to cut its reliance on semiconductor imports from geopolitically sensitive parts of the world such as Taiwan, the government will argue when it publishes a long-delayed review of the sector.The new strategy, which is expected within weeks will also offer hundreds of millions of pounds in long-term “targeted” financial support to the sector with a focus on the most high-tech parts of the industry, according to government officials familiar with the draft report.It will also address the need to diversify supply chains in the industry by working more closely with friendly international counterparts, they said.Ministers launched the review after the Covid-19 pandemic exposed the fragility of the global semiconductor supply chain, leading to a global shortage of chips, which had serious knock-on effects on many industries, such as carmaking. Those concerns have been compounded by China’s increasingly aggressive stance over Taiwan, which dominates the global market in high-end chip fabrication.But the political turmoil last year, which saw three different prime ministers in 10 Downing Street in less than two months, delayed the report and has left Britain lagging other countries in responding to future threats to supply chain disruptionThe response by other large economies has triggered what has been termed a chip “subsidy race”. Last year, the US government committed to injecting $52bn into its semiconductor sector. Meanwhile, the EU has set out a €43bn investment plan for the industry, which has helped attract Intel to set up a $17bn plant in Germany.The delay in publishing the review in the UK has caused frustration among executives in the sector, given the rapid pace at which other countries are moving.

Though the UK has a marginal role in the manufacture of chips, it does have a few areas of strength, relative to its size. It is home to two world-leading chip design companies, Arm and Imagination Technologies, which account for around 40 per cent of global intellectual property development in the sector.It is also home to a number of companies developing compound semiconductors, which are made from other materials instead of silicon and are seen as a promising new area of research.Other countries dominate parts of the sector, including Japan which is a leader in the manufacture of wafer-handling machinery and the US, which produces almost all the electronic design automation software used in chipmaking.A recent report by the House of Commons business select committee described a Chinese invasion of Taiwan that led to the disruption of the export of semiconductors” as “a distinct potential threat”.It added: “Such an act, coupled with the combined dominance of the Chinese and Taiwanese semiconductor markets, poses a material risk to the global economy and military and defence production capabilities.” The UK has no plants that can produce the most advanced chips, according to the report. The warning echoed one by US commerce secretary Gina Raimondo last year, who said: “Our dependence on Taiwan for chips is untenable and unsafe.”Last year, the government blocked the takeover of Newport Wafer Fab, Britain’s biggest semiconductor plant, by Nexperia, a Chinese-owned company.One government figure said the sector had been “critically under pressure” in recent years with countries competing for influence and control over semiconductor technologies.But the review will concede the UK cannot and should not meet all its semiconductor needs domestically. Instead it will recommend that the country focuses its efforts on value-added areas such as research and design, compound semiconductors and “advanced packaging”, by which several chips are combined into a single product.   More

The latest UK inflation data has cast doubt on the strategy of ministers and the Bank of England to reduce price growth.With official figures on Wednesday showing Britain’s inflation rate falling less than expected and remaining in double digits at 10.1 per cent in March, UK price growth was significantly higher than that of the eurozone, which fell sharply to 6.9 per cent, and the US, which dropped to 5 per cent in the same month. But while the details and underlying trends were not entirely reassuring, they also suggest that the UK is not the outlier that initial comparisons suggest. Prime minister Rishi Sunak and his chancellor, Jeremy Hunt, are highly likely to meet their commitment to halve inflation by the end of the year, say economists. Sunak made the pledge at the beginning of January when the headline inflation rate was 10.7 per cent. New projections on Wednesday from both Capital Economics, the consultancy, and Citigroup, the investment bank, respectively put the rate for December 2023 at 3.7 per cent and 3 per cent, easily meeting the prime minister’s target.In the Treasury’s monthly round-up of economic forecasts, also published on Wednesday, only four of 27 UK forecasters predicted that CPI inflation would exceed the government’s pledge and be above 5.4 per cent by the fourth quarter of this year. The reason behind the rapid fall in the inflation rate is that by this summer, gas and electricity prices are set to be lower than last year, with wholesale gas prices falling almost 85 per cent since their peak last August.Paul Dales, chief UK economist at Capital Economics, said that while ministers would claim credit for the drop in inflation, they would not have contributed to it. “The best target you’re going to set yourself is one you can hit without doing anything,” he said. Energy currently contributes 3.5 percentage points to the 10.1 per cent inflation figure, and this is set to disappear by the end of the year. The first big fall in inflation is expected in next month’s data, with the headline rate predicted to decrease by around 2 percentage points in a single month. Comparing inflation in the UK with rates in other countries has been complicated over the past year by different the energy subsidy regimes across Europe, by the degree to which households directly or indirectly consume natural gas for home heating and electricity generation, plus by the weight of food in national inflation indices. This has meant inflation in the eurozone has been highest in the Baltic states — Estonia, Latvia and Lithuania — and Slovakia, with rates significantly higher than in the UK. The more rapid drop in wholesale energy prices in other countries, especially Spain and Germany, has helped reduce the overall eurozone rate more quickly than that in the UK.

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However, the eurozone still does not have inflation under control and its core rate — excluding energy, food, alcohol and tobacco — was steady at 5.7 per cent in March, similar to the UK’s core rate of 6.2 per cent. The US core rate rose from 5.5 per cent in February to 5.6 per cent per cent in March. Many economists think UK and eurozone inflation are essentially similar and too high for comfort. In separate notes on Wednesday, Philip Rush, founder of consultancy Heteronomics, said there was still “excessive” underlying inflation pressures in both. But economists are more concerned about the UK labour market and wages, which continue to worry the Bank of England. Although definitions and time periods differ a little, the UK’s 6.9 per cent annual growth in private sector pay is higher than the eurozone’s business sector wage increase of 5.2 per cent and the 4.2 per cent seen in the US. Andrew Bailey, the BoE governor, has repeatedly pointed out that wages are a key concern of the bank’s rate-setting Monetary Policy Committee, and that the UK’s labour market performance is in some areas “unique”, particularly because of the number of older people who have left the labour market since the pandemic. Dales said that with labour force participation problems related to ill health and problems in the NHS, “we feel these [unique UK] problems will stick around longer”. Economists also point out that even though UK inflation will fall and its core rate is not much higher than in the eurozone or US, the BoE should be concerned because inflation falling to around 4 per cent is not the same as durably returning price increases to the BoE’s 2 per cent target. There are nearly 270 individual items included in the UK’s inflation calculation; the proportion of those with inflation rates over 5 per cent has risen in recent months from 28.6 per cent to more than 35 per cent, indicating a broadening of price pressures.

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Although most forecasts believe UK inflation will fall below 2 per cent during 2024, economists also think the central bank will need to raise interest rates above the current 4.25 per cent rate to achieve this. Financial markets have priced in a quarter-point rate rise for May and further rises to bring the rate up to 5 per cent by the end of the year. These rises, if they happen, would place a recessionary force on the UK economy, exacerbating cost of living pressures, especially for people with mortgages coming towards the end of a fixed-rate period.Set against that, most economists have been revising their UK economic growth forecasts up this year because cheaper energy prices will lift some of the stress from households and allow more non-inflationary economic growth. The BoE’s difficult job will be to balance these forces and seek to work out how far interest rates need to rise to quell price rises. Few feel confident about forecasting the path ahead when inflation has been hitting 40-year highs in many countries, but economists on Wednesday were almost united in thinking the central bank will raise rates again on May 11. Paula Bejarano Carbo, associate economist at the National Institute of Economic and Social Research, said the one thing that was clear about the UK economy now was that “inflationary pressures remain persistent”. More

Today’s top storiesMorgan Stanley’s boss warns investment banking may not recover until next year after reporting a 19 per cent drop in first-quarter profits amid a broader trading slowdown.UK inflation is stuck in double digits. The rate measured by the consumer price index fell in March, but only from 10.4 per cent to 10.1 per cent. Although petrol prices dropped over the period, food and leisure sector costs rose sharply.Credit Suisse has filed a High Court claim against SoftBank in a $440mn dispute. The legal action marks an escalation in the Swiss bank’s efforts to recover funds linked to the collapse of Greensill Capital.For up-to-the-minute news updates, visit our live blogGood evening.The world has a new top dog. India is officially set to overtake China as the most populous country. According to the UN Population Fund’s World Population Dashboard, released today, India’s population is to surpass 1.428bn by mid 2023, just overtaking China’s more than 1.425bn.Although it is a significant moment for the planet, neither of the countries involved were keen to mark the moment, a reflection of the political sensitivity of the population issue in China and India.“I want to tell you that population dividends don’t only depend on quantity but also on quality,” Chinese foreign ministry spokesman Wang Wenbin said in Beijing today in remarks quoted by news agencies. “Our population dividend has not disappeared, our dividend is forming and the impetus for development is strong.” India’s external affairs ministry spokesperson had no immediate comment.China’s birth rate has been in long-term decline in part because of the successful implementation of the one-child policy in 1980. Its population fell in 2022 for the first time in 60 years.India’s population might still be growing but the rate of increase has been declining since it peaked at 2.4 per cent in the 1980s. The population in 31 of its 36 states is now either at replacement rate or in decline, meaning that growth is being driven by high fertility in just five states, a UN official told the FT. Experts believe India’s population will peak sometime around the middle of this century.

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India increasingly has China in its sights as it aims to profit from the reorientation of supply chains away from China after the disruption of the Covid-19 pandemic and rise in geopolitical friction between Washington and Beijing over the war in Ukraine. The country last year surpassed the UK to become the world’s fifth-largest economy. However, India lags behind China in everything from the size of its economy to foreign direct investment, its own investment in infrastructure and military spending. It also struggles to create new jobs for the millions of young people entering the workforce each year.As if to underline the point, China yesterday reported that its economy rebounded more than expected after its Covid-related reopening, growing 4.5 per cent year on year in the first quarter. This was still short of the government’s full-year target of 5 per cent, although economists expect China’s expansion to gather pace as the year progresses.In India, global businesses are seeking to capitalise on the evolution of a record-breaking consumer market. Yesterday Tim Cook opened the first Indian branch of the Apple Store in Mumbai, hoping that his computer company’s sleek devices will prove more appealing to tech-loving Indians in its battle with Samsung for the luxury end of the smartphone market. At the same time, western companies are under pressure to cut their links with China due to the growing hostility between Washington and Beijing. However, this is not a simple matter. Apple, for one, finds itself unable to break its ties with China, as the FT’s Patrick McGee explains in this episode of the Behind the Money podcast.While the world focuses on demographic changes in Asia, the UN chose today to warn about a global “population anxiety”. Climate change, mass displacement and the pandemic are among the causes of a widespread fear of both overpopulation and underpopulation, according to the UN. The danger is that governments adopt ineffective and harmful fertility policies that damage human rights and gender equality, the global body warns.Need to know: UK and Europe economyCentral London house prices declined almost 5 per cent in the 12 months to March, the largest annual fall in three-and-a-half years. Property prices in prime areas of the capital dropped to £1,261 per square foot last month, down from £1,326 a year earlier. The decline was blamed on the UK’s poor economic outlook and fears of a further decline in the housing market, which stopped wealthy buyers from committing to deals.The EU is storing record levels of natural gas after a milder than anticipated winter, bolstering hopes that the bloc can wean itself off imports from Russia. The bloc’s storage totalled 55.7 per cent of capacity at the start of the month, according to the industry body Gas Infrastructure Europe — the highest level for early April since at least 2011.Corporate insolvencies in England and Wales rose 16 per cent in March compared with the same month last year, as businesses struggled with higher costs and a weakening economy.Today’s Big Read highlights how the rush to safer assets by British pension funds has left the UK listing moribund and driven companies seeking to list overseas. In the first in a series on the crisis in European equities, Harriet Agnew and Katie Martin explain Britain’s “capitalism without capital”.Need to know: Global economyUkraine will plead for urgent shipments of surface-to-air missiles at a meeting of its western allies this week, fearful that an acute shortage could allow Russia to launch widespread bombing attacks.North Korea has claimed success in building its first spy satellite. Pyongyang says the space hardware will strengthen the country’s ability to conduct a pre-emptive strike and monitor US and South Korean activity.Need to know: BusinessRupert Murdoch’s Fox has agreed to pay $787.5mn to settle a landmark defamation case in which it was accused by voting machine maker Dominion of broadcasting false accusations of election fraud in the wake of Donald Trump’s failure to retain the US presidency in 2020. The settlement is almost half of the $1.6bn in damages sought by Dominion.Payouts from a string of natural catastrophes tripled losses at US insurer Travelers in the last quarter. Hail storms and strong winds from natural catastrophes across the US helped drive a first-quarter loss of $535mn, up from $160mn a year earlier. Global insurers and reinsurers are expecting to take $15bn of such losses in the first quarter, according to a report from insurer Aon last week that highlighted Cyclone Gabrielle in New Zealand and the powerful earthquake that hit Turkey and Syria.Bank of America announced plans to cut as many as 4,000 positions before the end of June, blaming a cooling US jobs market. Chief executive Brian Moynihan revealed the plans during the bank’s earnings call after it reported first-quarter profits that beat expectations. He stressed that the cuts should not be viewed as a sign that it was bracing for a slowdown in its business.America’s dollar stores are getting a makeover for the age of inflation. The rising cost of living is driving middle-class Americans to seek bargains on food and other groceries at these no-frills discount outlets and the biggest stores are attempting to capitalise on the new-found demand by adjusting their branding. Dollar General and Dollar Tree have announced plans to remodel almost twice as many stores as they will open this year.

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Glencore has said it is willing to better its $23bn bid for Teck Resources if the Canadian miner agrees to enter discussions on a deal, raising the stakes ahead of a shareholder vote next week. The approach for Teck, which Glencore launched this month, is the latest evidence of a flurry of dealmaking as mining industry players pivot into the metals required for the green energy transition, such as copper and nickel.In other green technology news, carmaker Jaguar Land Rover is to spend £15bn over five years to build a suite of seven electronic models in an effort to catch up with larger rivals BMW and Mercedes-Benz in the race to low-carbon vehicle production.The World of WorkThe issue of toxic workplaces is back on the agenda amid the fallout from sexual misconduct and harassment allegations at the UK’s leading business lobby organisation, the CBI — ironically a body that is meant to set standards for the country’s companies to follow. The Working It podcast asks what it takes to repair an organisation after a scandal breaks?The word “migrant” is often twinned with negative words, such as “crisis” and “overcrowding”. But there is another reason for the rise in global people movements, Sarah O’Connor writes: the global competition for skilled people caused by local labour shortages and demographic pressures caused by ageing populations. A big question is whether governments can maintain public support for attracting people from abroad to help societies when there is a growing tide of anger about irregular immigration.The UK needs to set higher standards for low-paid jobs in addition to further increases in the minimum wage to match the protections extended to workers by international peers, according to an influential think-tank. Britain has one of the highest levels of minimum wage but some of the least generous systems for childcare support, sick pay and other factors that sustain a working life, the Resolution Foundation noted in a report out today.Some good newsIt is not just India that is breaking population records. Yorkshire Wildlife Park is doing so after celebrating the surprise arrival of rare giant otter triplets. Hailing primarily from the Amazon basin in South America, giant otters were listed as an endangered species in 1999. This latest litter increases the number of giant otters in YWP’s care to nine, the most of any zoo or wildlife park worldwide.

Three of a kind: The arrival of Giant Otter triplets at Yorkshire Wildlife Park is part of an award-winning conservation programme to protect endangered species © EPA More

“Every night I ask myself why all countries have to base their trade on the dollar,” asked Brazil’s president Luiz Inácio Lula da Silva last week during a state visit to China. It is a question on the mind of many national leaders, particularly as global trade fragments between US and Chinese spheres, and as countries evaluate exposures to western sanctions and the US economy. While paranoia about the greenback’s sticking power is mounting among some in Washington, it should not be keeping them up at night. The dollar’s demise is vastly exaggerated. Since the 1944 Bretton Woods agreement instilled the dollar as the de facto global currency, its dominance has been sustained by America’s status as the world’s largest economy and geopolitical powerhouse. Just under 60 per cent of official foreign exchange reserves are held in the currency. It is the currency of choice for international trade, accounting for more than four-fifths of trade finance and half of trade invoices. It also dominates foreign exchange and debt markets. This drives high demand for dollars, allowing the US to borrow at a lower cost. Usurping these network effects is not easy.It’s true that there are threats to the dollar. As Chinese trade and lending has expanded in recent years, renminbi use has risen. Its share of the trade financing market has more than doubled in a year to 4.5 per cent now — just shy of the euro’s share. Much of this is linked to increased trade with Russia as sanctions last year cut Vladimir Putin off from the west’s financial system. But, with China’s share of global goods trade now around 15 per cent, the renminbi’s reach will expand. Prior to Lula’s visit, China and Brazil agreed to settle trades in each other’s currencies, reflecting their growing mutual trade. France also recently conducted its first liquefied natural gas sale in renminbi.US Treasury secretary Janet Yellen warned on Sunday that the west’s economic sanctions on Russia could also undermine the dollar’s hegemony. More nations may be spooked into considering alternatives to dollar-based financing to mitigate their threat. Putin has already pledged to use the renminbi more. For others, diversification makes economic sense too. Many emerging markets are growing frustrated by the dollar’s hold on their economies, from recent banking turmoil to the US Federal Reserve’s historic interest rate rises — which has raised indebtedness. Asean members are exploring how to promote the use of local currencies in their bilateral trade. But these threats to dollar supremacy lack potency. While renminbi-backed trade may pick up, the currency still only accounts for about 3 per cent of central bank reserves. The greenback’s eminence is reinforced by its enormous liquidity, America’s openness to trade and investment, and trust in its supporting institutions. China’s financial system is by contrast less developed, its currency is not fully convertible due to capital controls, and it lacks the true rule of law. Global economic activity is still dominated by the US and its allies, which makes it difficult to avoid the dollar. The greatest threat may come from central bank digital currencies, which can provide more efficient ways to settle transactions. The US is finally waking up to this danger, but should accelerate efforts on digitising the dollar.Given there is no viable alternative to replace it, rumours of the dollar’s decline are exaggerated. This means the biggest risk to the currency could ultimately come from unforced errors. Bolstering confidence in the US financial system after recent banking turmoil and, above all, averting a debt ceiling crisis are vital. It is important to guard against complacency; after all, Britain’s pound sterling was the dominant currency once. More

The writer is author of ‘Seven Crashes’The operation to rescue Credit Suisse by pushing it into the arms of UBS was flawed and rashly concocted. It did not follow the cumbersomely negotiated model for the resolution of large systemically important financial institutions. It gave an uncanny echo of one of the reddest of red flags in international financial history, the story of the interwar failure of the Vienna Creditanstalt.In 1929, at the outset of the Great Depression, the Austrian government pushed the Creditanstalt, by far the country’s largest bank, to take over the failing second-largest bank, the Bodencreditanstalt. Less than two years later, the Creditanstalt itself failed, and the rippling contagion brought down the German banking system. Ensuing panic then spread to major financial centres, London and New York, and ensured that the Great Depression would be a permanently scarring economic memory. In the Lehman weekend of September 2008, then Fed Chair Ben Bernanke thought immediately of the grim warning provided by the failure of the Creditanstalt.The Creditanstalt teaches two lessons. First, it is dangerous for any financial institution to take over a problematic bank. Nobody can tell for sure what worms are in the rotten apple. It is easy for nervous depositors and creditors and shareholders to think that the rot may spread further. That is why, in the German crisis of July 1931, following the Creditanstalt collapse, Deutsche Bank refused the government’s plea to take over, or to give a guarantee to, the bankrupt Darmstädter Bank. A merged megabank would have been very vulnerable to a banking run. The second lesson is that very big banks become an impossible threat if they are in small host countries. The 1931 Creditanstalt rescue required large-scale government funds in the bailout, and the consequent fiscal hole generated a currency crisis. In 2008, small and even medium-sized countries were severely challenged by the cost of banking support. Crises in over-sized banks effectively blew up Ireland and Iceland, and required painful IMF involvement. Even in a larger economy, the HBOS saga cost the British taxpayer dear. The perception that any bailout today in a small country would be cumbersome, costly and above all uncertain makes for greater nervousness in a world in which investors and depositors are used to shunting large amounts quickly.Small economies should also reflect on what their appeal is. They can be nimble, entrepreneurial, with skills blossoming in a loosely regulated framework. That describes Switzerland — and a substantial number of other small countries — accurately when it comes to the application of smart technologies. For finance however, smartness creates vulnerability not strength — and a mega financial institution is especially fragile.The vulnerability of small countries to the perils of big banking raises an obvious asymmetry. Isn’t it unfair that the United States can get away with this sort of improvised rescue of struggling banks? In 2008, when JPMorgan bought Bear Stearns, it looked plausible that a solid bank might manage the integration of a fallen institution. But that action relied on the backstop of a big federal budget and a central bank with a large balance sheet. The painful fact for the rest of the world is that the US, and perhaps China too, can get away with operations that are too dangerous for small countries. Big finance works only for big players.There may be a case for a single large bank in any country — but then it would have to be exceedingly safe, with a transparent and boring balance sheet. However, it couldn’t be expected to make bold and innovative financial decisions. Risk taking is better left to smaller players, who are free to play the capitalist game, and to take risks without expecting rescues that undermine the basic legitimacy of a market order.   More