Aurelia Butler

LONDON (Reuters) -British businesses should consider official forecasts showing inflation will fall this year when setting their prices, Bank of England Governor Andrew Bailey said on Friday.”When companies set prices, I understand that they have to reflect the costs that they face,” Bailey told the BBC.”But what I would say, please, is that when we are setting prices in the economy and people are looking forwards, we do expect inflation to come down sharply this year. And I would just say, please bear that in mind,” he said.Bailey went on to say he did not have any evidence that companies were putting prices up more than necessary.Britain’s central bank raised its main interest rate to 4.25% on Thursday from 4%, a day after official figures showed an unexpected rise in the annual rate of consumer price inflation to 10.4% in February.Bailey repeated that the central bank expected inflation to fall sharply this year as the impact of last year’s steep rise in energy prices fell out of year-on-year price comparisons, and said he was “very relieved” that inflation had stabilised.”Now I do see encouraging signs. There is evidence of encouraging progress. But we have to be extremely vigilant on that front,” he said.”And I would say to people who are setting prices, please understand that if we get inflation embedded, interest rates will have to go up further.”Financial markets on Friday priced in one more BoE interest rate rise this year, taking rates to a peak of 4.5%.Last year Bailey faced criticism from trade unions after he said that attempts to ensure pay growth matched inflation would delay the return of inflation to its 2% target, and shift the costs of higher inflation to those with weaker bargaining power.On Thursday, BoE staff revised up their short-term forecast for the economy to predict modest growth in the three months to the end of June, rather than a contraction.Bailey said Britain’s economy now had a good chance of avoiding recession. “The prospects for the economy in terms of growth are now better, considerably better. And I think it is reasonable to say that there’s a pretty strong likelihood that we will avoid a recession this year,” he said.In November the BoE forecast the longest recession since modern records began, though it did say the predicted fall in each quarter was small and a modest upward revision would be enough to break the string of quarter-on-quarter declines. More

China’s economic rebound is weaker than expected as consumers emerge “stunned” from pandemic-led disruptions and a real estate meltdown last year, according to the head of AP Møller-Maersk. Vincent Clerc, the new chief executive of the world’s second-largest container shipping group, said, however, that trading volumes associated with the Chinese economy remained resilient with little sign of negative impact from US-led efforts to “decouple” from China.“When we started the year, there was this hope that as China reopens after Covid we would see a really strong rebound,” Clerc said in an interview in Beijing. “I think we’ve not seen it yet . . . The Chinese consumer is a bit more stunned by what’s happened and is not in a splurging mood right now.”China has set a growth target of 5 per cent this year — its lowest in decades — after the world’s second-largest economy undershot expectations in 2022 as a result of President Xi Jinping’s strict zero-Covid strategy.But many economists are hoping for a stronger performance after China abruptly abandoned its Covid-19 controls in December. The IMF is predicting growth of 5.2 per cent in China this year.However, Clerc said some of Maersk’s customers were drawing parallels with the outbreak of severe acute respiratory syndrome, or Sars, in 2003, when consumers in the hardest-hit areas took time to recover their confidence.“This is not quite the ‘roaring ’20s’-type mood that one could have expected after this long interruption,” said Clerc, who was among global chief executives gathered in Beijing at the weekend for the country’s annual China Development Forum investor conference.Maersk chief Vincent Clerc: ‘There may be a bit of a delayed effect as people get back into their [spending] routines’ © Angel Garcia/BloombergHe said 70 per cent of Chinese savings were in real estate, which has been hit hard by a government crackdown on leverage, while Chinese stocks were also underperforming. The negative mood has been compounded by geopolitical tensions between the US and China.“It’s not like you get a lot of optimism around when you follow the news and so on, so there may be a bit of a delayed effect as people get back into their [spending] routines,” said Clerc.Maersk has gained greater exposure to China’s domestic consumer market through its $3.6bn acquisition in 2021 of Hong Kong-based LF Logistics, which has extensive logistics operations on the mainland. The Danish group is seeking to go beyond its core shipping line business into markets ranging from ecommerce to road and air freight. Global trade was expected to return to more “normal” levels this year as European and US importers ran down excess inventories that were built up last year to counter supply chain disruptions, said Clerc. Clerc added that there was no sign of decoupling beyond the high-tech sector, which accounted for a fraction of the volume of China’s exports and imports. “In a way, China has never traded as much with the rest of the world as it did last year, and at the same time we are talking about decoupling so I think it’s a really interesting contrast,” he said. Maersk has forecast that underlying profits will plunge this year to between $2bn and $5bn, down from the record $31bn it made last year during the pandemic-led boom. More

LONDON (Reuters) – The next leader of Scotland will be announced on Monday with the victor facing the challenge of uniting a country divided over its future and revitalising an independence movement that dreams of ending its three-centuries-long union with England. The Scottish National Party (SNP), which runs Scotland’s semi-autonomous government, has been plunged into crisis since Nicola Sturgeon, the country’s longest-serving leader, announced last month she was standing down after eight years, saying she had become too divisive to lead the nation to independence. The two main candidates to replace her have traded personal attacks while Sturgeon’s husband, the chair of the party, was forced to resign after accepting the blame for misleading the public over a fall in party membership. The SNP’s unity, which had been one of its strengths, has broken down because of arguments over how to achieve a second independence referendum and the best way to introduce social reforms, such as transgender rights.The bookmakers’ frontrunner to become the next SNP leader is Humza Yousaf, a Sturgeon loyalist who has been criticised for his record in government including his handling of a health service struggling to recover from the COVID-19 pandemic.Up against him are Kate Forbes, 32, the country’s finance minister and a rising star whose views opposing same-sex marriage have lost her supporters, and Ash Regan, who quit the government in opposition to proposed changes to gender recognition. The results of the leadership contest will be announced on Monday after 1300 GMT.The political turmoil in Scotland relieves some pressure on British Prime Minister Rishi Sunak, who is dealing with waves of industrial action, high levels of inflation, and whose predecessors had to deal with repeated and angry demands by the SNP for a new independence referendum.While about four in 10 Scots still support independence, the departure of Sturgeon – a charismatic and commanding leader – may slow some of the momentum behind a break up of the United Kingdom. There is no agreed strategy for how to force a new referendum – one of the reasons Sturgeon resigned.INFIGHTINGScotland voted against independence by 55% to 45% in 2014. Britain’s vote to leave the European Union two years later when a majority of Scots wanted to stay, and Scotland’s handling of the coronavirus pandemic brought new support for independence.However, an opinion poll showed the backing for independence dropped to 39% this month after touching a record 58% in 2020.Michael Russell, the president of the SNP, said a week ago the party was in a “tremendous mess”.In a series of personal attacks unprecedented in the party’s recent history, Forbes clashed with Yousaf over his record in government, claiming the trains were never on time when he was transport minister, the police were at “breaking point” when he was justice minister and now, as health minister, patients have the longest ever waiting lists.Yousaf responded by saying Forbes did not have the strength to fight for independence and claimed the LGBTQ community did not trust her because of her religious views. One SNP member of parliament in London said the infighting had set the independence back a decade and the party had blown a favourable political environment to achieve their dream. But he predicted Scotland would still gain independence from England in the long term, driven by support from a younger generation who are more supportive of it after they have grown up with more autonomy from a deal in 1998 to share power between London and Edinburgh. More

WASHINGTON/FRANKFURT (Reuters) -Stress in the banking sector is being closely monitored for its potential to trigger a credit crunch, a U.S. Federal Reserve policymaker said on Sunday, as a European Central Bank official also flagged a possible tightening in lending.Authorities around the world are on high alert for the fallout from recent turmoil at banks following the collapse in the United States of Silicon Valley Bank (SVB) and Signature Bank (NASDAQ:SBNY) and the rescue takeover a week ago of Credit Suisse.Last week ended with indicators of financial market stress flashing. The euro fell against the dollar, euro zone government bond yields sank and the costs of insuring against bank defaults surged despite assurances from policymakers.In the latest effort to calm investors, the U.S. Treasury said on Friday that the Financial Stability Oversight Council agreed that the U.S. banking system is “sound and resilient”.”What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. That credit crunch … would then slow down the economy. This is something we are monitoring very, very closely,” Minneapolis Fed President Neel Kashkari said Sunday on CBS show “Face the Nation.””It definitely brings us closer,” said Kashkari, who has been among the most hawkish Fed policymakers in advocating higher interest rates to fight inflation.He said it remained too soon to gauge the “imprint” bank stress would have on the economy and therefore too soon to know how it might influence the next interest rate decision of the Federal Open Market Committee (FOMC).Meanwhile in Europe, the ECB believes that recent banking sector turmoil may result in lower growth and inflation rates, its vice president Luis de Guindos said.”Our impression is that they will lead to an additional tightening of credit standards in the euro area. And perhaps this will feed through to the economy in terms of lower growth and lower inflation,” he told Business Post.’CONCERNING SIGNS’After the Swiss government engineered the rescue takeover of Credit Suisse by Zurich-based rival UBS, Germany’s Deutsche Bank (ETR:DBKGn) moved into the investor spotlight.Shares in Germany’s largest bank fell 8.5% on Friday and the cost of insuring its bonds against the risk of default jumped sharply and the index of top European bank shares fell.The sudden spike in tensions for banks has raised questions about whether major central banks will continue to pursue aggressive interest rate hikes to try to bring down inflation, and prompted some to speculate on when rates will start to fall.Erik Nielsen, group chief economics advisor at UniCredit in London, said central banks should not separate monetary policy from financial stability at a time of heightened fears that banking woes could lead to a widespread financial crisis.”Major central banks, including the Fed and the ECB, should make a joint statement that any further rate hike is off the table at least until stability has returned to the financial markets,” Nielsen said in a note on Sunday.The Fed raised interest rates a quarter of a point this week but opened the door to pause further increases until it is clear how bank lending practices may change after the recent collapse of SVB and New York-based Signature Bank.”There are some concerning signs. On the positive side is deposit outflows seem to have slowed down. Some confidence is being restored among smaller and regional banks,” Kashkari said.Turbulence among banking stocks on both sides of the Atlantic continued into the end of the week, despite efforts by politicians, central banks and regulators to dispel concerns.”We’ve seen that capital markets have largely been closed for the past two weeks. If those capital markets remain closed because borrowers and lenders remain nervous, then that would tell me, okay, this is probably going to have a bigger impact on the economy,” Kashkari said, adding: “So it’s too soon to make any forecasts about the next FOMC meeting.”The Fed has rolled out an emergency lending program meant to keep other regional lenders out of trouble. Recent data showed money moving from smaller to larger banks in the days after SVB’s March 10 collapse, though Fed chair Jerome Powell said last week he thought the situation had “stabilized”. More

The central bank has raised rates to 3% from 0% a year ago and has yet to curb 9.4% inflation, well above the 2% target. It hiked the benchmark rate by 50 basis points in February and has indicated another hike by 25 or 50 basis points in April. “It could be that the inflation process is worse than we thought,” Erik Thedeen told SVT television. Swedish inflation soared in February. While headline inflation at 9.4% was in line with the Riksbank’s forecast, underlying price pressures – stripping out volatile energy prices – jumped to 9.3% year-on-year, up from 8.7% in the previous month and above the Riksbank forecast of 8.0%.Some economists urge the Riksbank to pause the cycle of hikes, arguing that higher rates could derail the interest-rate sensitive Swedish economy and, in a worst-case scenario, trigger a financial crisis. However, Thedeen said the main scenario remained a hike of 25 or 50 basis points in April and added that inflation outcomes since the monetary policy decision in February had been worse than expected.”It is in our forecasts that inflation will come down quite quickly. The problem is that it has been in our forecasts all through 2022 and it has yet to happen,” Thedeen said. The Riksbank will announce its next monetary policy decision on April 26. More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.Asia’s economic data and policy calendar this week is light, which is perhaps just as well because investors’ focus is firmly fixed elsewhere – the global banking crisis and what it means for growth, markets, and policy.Some may balk at recent events being termed a ‘crisis’, but consider: two of America’s top 25 banks have collapsed; a global giant, Credit Suisse, has been swallowed up; worries over another, Deutsche Bank (ETR:DBKGn), are mounting; the Fed has taken emergency steps and provided backstops worth hundreds of billions of dollars.Fears over deteriorating credit conditions are rising, despite the swift and bold action from U.S. and Swiss authorities. Fed and European Central Bank officials raised the warning flags on Sunday, echoing soundings from across the private sector last week.This is the precarious backdrop to the final week of the quarter. The turmoil and volatility across interest rates and fixed-income markets since Silicon Valley Bank was shuttered by California regulators on March 10 has been severe.Asia will not be immune. If safe-haven buying and rising demand for dollar liquidity and collateral pushes up the dollar, economies in the region will be under pressure.Weakening domestic exchange rates push up price pressures, forcing central banks into a corner – tighten policy when growth is slowing, or allow inflation to rise? A stronger dollar also, all else equal, tightens financial conditions. Currency market volatility has been surprisingly subdued since the banking crisis flared up. Maybe that is about to change.Bank stocks have tumbled but stocks in general, and particularly the interest rate-sensitive tech sector, have held up better. More speculative corners of the investment universe, like Bitcoin and cryptocurrencies, have significantly outperformed. The Nasdaq is up two weeks in a row, and still up 3% for the month, while Bitcoin is up 35% since SVB collapsed. How much longer can they defy gravity? If bond yields and implied rates are plunging because a looming credit crunch makes recession far more likely, risk appetite is likely to change accordingly. Perhaps the Fed and other central banks can achieve the holy grail of a soft landing, and take the seemingly contradictory policy steps of promoting financial stability and tackling inflation without any further ructions in the financial system.Perhaps.Trade figures from Hong Kong and Thailand are the main Asian data points on Monday. Later in the week Vietnamese GDP, a Thai interest rate decision, Japanese retail sales and unemployment are on the docket, while the preliminary PMIs for March across the continent – including China – start filtering in.Here are three key developments that could provide more direction to markets on Monday:- Germany Ifo index (March)- ECB’s Schnabel speaks – BoE Governor Andrew Bailey peaks (By Jamie McGeever; Editing by Diane Craft) More

Money market funds are swelling in March as investors pull deposits from banks, according to data provider EPFR. In total, more than $286bn has flooded into money market funds so far in March, making it the biggest month of inflows since the Covid-19 crisis, EPFR data found.The biggest winners are Goldman Sachs, JPMorgan Chase and Fidelity, with investors pouring cash into US money market funds over the past two weeks as the collapse of two regional US banks and the rescue deal for Credit Suisse raised concerns about the safety of bank deposits. Here’s a quick breakdown: Goldman’s US money funds have taken in nearly $52bn, a 13 per cent increase, since March 9, the day before Silicon Valley Bank was taken over by US authorities; JPMorgan’s funds received nearly $46bn; and Fidelity recorded inflows of almost $37bn, according to iMoneyNet data as of Friday morning.The surge in flows this month helped push overall assets in money funds to a record $5.1tn on Wednesday, according to research from Bank of America.Here’s what else I’m keeping tabs on today:Taiwan-China visit: Former Taiwan president Ma Ying-jeou begins a historic 10-day visit to China today, marking the first visit by a sitting or former Taiwanese president to China.Finland and Nato: Hungary’s parliament will vote on whether to ratify Finland’s bid to join Nato today.Kamala Harris: US vice-president Kamala Harris is in Ghana for her first stop of a three-nation tour of Africa to deepen ties with the continent amid competition from China and Russia. What did you think of today’s FirstFT? Let us know at [email protected]. Thanks for reading.Five more top stories

Russian defence minister Sergei Shoigu at a tactical missile facility in Russia. Under the plans, storage in Belarus could be in place by July © AP

1. Vladimir Putin plans to deploy tactical nuclear weapons in Belarus, marking Moscow’s latest attempt to use the threat of a nuclear war to ramp up tensions with the US and Nato over the invasion of Ukraine.2. Netanyahu sacks defence minister over refusal to back judicial reform. The fight over the bitterly contested proposals, which would significantly weaken the powers of the judiciary, has sparked the biggest wave of protests in Israel for more than a decade and plunged the country into a deep political crisis.3. European ammunition maker says plant expansion is facing a roadblock to the planned expansion of its largest factory because a new data centre for TikTok is using up all the spare electricity in the area.4. Air India boss Campbell Wilson hails biggest turnround effort in the airline’s history, as he outlined ambitions to turn India into the next major aviation hub following a huge order for new planes.5. China’s richest county suffers an export slump as US tension hits factories. Taiwanese manufacturers in Kunshan are cutting staff and wages and pushing orders abroad in response to falling exports, which had driven China’s economic growth through the pandemic.News in depth

Jasmine Hirsch of Hirsch Vineyards in Sonoma said she found out about problems at Silicon Valley Bank second hand a day before the lender was taken over by regulators © Hirsch Vineyards

What does SVB’s collapse have to do with wine growers? A lot, actually. SVB’s wine division has been a critical pillar to the wine sector, loaning out more than $4bn to wineries since 1990 and publishing an annual State of the Wine Industry report. When it collapsed, SVB was sitting on $1.2bn of winery loans. Now its clients worry about where their funding will come from as they grapple with higher costs of doing business and the worsening impacts of climate change.We’re also reading and listening to . . . Russia embraces renminbi: Russia has adopted the renminbi as one of the main currencies for its international reserves, in a rare example of a country adopting the renminbi over the US dollar or euro. But it poses risks for Moscow given Beijing’s history of abrupt currency devaluations.Opinion: “The Tip Project definitely discovered that it is un-Japanese,” writes FT Asia Business Editor Leo Lewis about the failed business venture aimed at starting tipping culture in Japan. The celebrity interview 🎧: This week, Lilah of the FT Weekend podcast compares notes on interviewing with podcaster Sam Fragoso, whose show Talk Easy features in-depth conversations with some of the biggest names in culture like Cate Blanchett, Judd Apatow, and Noam Chomsky.Chart of the day

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Suicide among those aged between 10 and 19 years old in the US surged by 45.5 per cent between 2010 and 2020, according to the Centers for Disease Control and Prevention. While the jury is still out on an exact reason why mental health has declined among teenagers, some academics point to a growing body of research that they say is hard to ignore: that the proliferation of smartphones, high-speed internet and social media apps are rewiring children’s brains and driving an increase in eating disorders, depression and anxiety.Take a break from the newsHow did a hard-hitting version of Scotland’s default lager find a glamorous second life abroad? Tamlin Magee undertakes a liquid investigation into Italy’s love affair with Tennent’s Extra for FT Magazine’s Italy food and drink special.

Tennent’s Pub in Rome is decorated with vintage wall hangings © Stephanie Gengotti/Institute Artist

Additional contributions by Tee Zhuo and Emily Goldberg More