Aurelia Butler

A flow of key data over the past 10 days suggests that the UK economy is showing a level of resilience that was not in evidence just a few months ago.Inflation has fallen more than expected and the labour market remained robust, according to the latest data, which has left many economists anticipating the end to further interest rate rises by the Bank of England and a milder recession than previously predicted. With most measures of underlying inflation easing in January, the headline figure fell to 10.1 per cent last month. Services inflation, a better measure of domestically generated price pressures, fell more than expected, including a slowdown in price growth in labour-intensive industries, such as hotels and restaurants.There are tentative signs that inflation “may not be as persistent and stubborn as some feared,” said James Smith, economist at the Resolution Foundation, a think-tank. Those figures released last week “increase the likelihood of a milder recession,” said George Moran, economist at the bank Nomura. “Less inflationary pressure should boost real incomes, and also means less financial tightening is required from the Bank of England,” he added.

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Markets are still pricing in a 0.25 percentage point interest rate rise when the Bank of England’s monetary policy committee meets on March 23 but expectations are growing that it could be the last.Other official data published last week showed that the labour market remained resilient at the end of last year, adding more jobs than expected and the fall in real wages easing. Inactivity, which tracks people outside the workforce, also fell after rising for most of the past three years, a trend that had aggravated labour shortages and added to inflationary pressures.“Whilst we still foresee a recession this year, we think that this is likely to be shorter and less pronounced than the Bank anticipates,” said Simon Harvey at Monex Europe. The uptick in labour force participation could result in output expanding faster than the central bank has forecast, he added.

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Elsewhere, the economy is also showing unexpected signs of resilience. Analysts were surprised by data released on Friday showing a rebound in retail sales in January, up 0.5 per cent compared with a month earlier. GDP data published earlier this month showed that the economy managed to dodge a recession in the last quarter of 2022, with real household spending marginally expanding despite high inflation and rising borrowing costs. “The economy is proving to be remarkably resilient to the dual drags of higher inflation and higher interest rates, and it certainly feels as though it isn’t as weak as most had feared,” said Ruth Gregory, deputy chief UK economist at Capital Economics. She thinks that the government energy support packages have been “effective” and “that households and businesses have been spending the cash reserves they built up during the pandemic”. The likelihood and depth of any recession depends on the choices made by Jeremy Hunt, the chancellor, in the upcoming Budget on March 15, not least whether he reverses plans to cut energy bill subsidies to households, which will see the cap for a household with typical usage rise by £500 to about £3,000 a year from April, Smith said.“Putting in place that sort of measure would be an effective way to bring down inflation, help boost households and, in that way, minimise your chances of a recession,” Smith explained. He added that the sharp fall in wholesale gas prices from their peak, although “not yet in the actual economic data”, was “incredibly good news” for the economic outlook. The price of European natural gas fell to an 18-month low last week.Despite the encouraging data, the UK economy remains the only one in the G7 not to have recovered to pre-pandemic levels, while UK inflation remains higher than in the US or the eurozone. “The picture we are getting from UK data is clearly better than economists expected a couple of months ago, but far from positive,” Moran said.

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Samy Chaar, chief economist at the bank Lombard Odier, said he did not see any change in the outlook for Britain relative to its peers. “We really expect the UK economy to continue to underperform its history” and other advanced countries, he said.Economists have identified several factors dragging on growth which many attribute in part to Brexit. Business investment remains weak in comparison with historical trends and peers. UK exports have not rebounded as much as in other advanced economies from the hit of the pandemic. And, unlike in the eurozone, the labour force has yet to return to its pre-pandemic levels. “We are expecting a relatively mild recession, while inflation worries should be largely behind us later this year, but some of the underlying weaknesses are still there,” said Yael Selfin, chief economist at the consultancy KPMG. More

The China Banking and Insurance Regulatory Commission and the People’s Bank of China on Saturday jointly released amended draft rules that they said aimed to help banks “continuously improve the precision of risk measurement and guide banks to better serve the real economy.”The draft rules, which bring the banking sector closer to global standards, will divide lenders into three groups based on business scale and risk level.The rules will apply a differentiated regulatory system to banks. Lenders with a relatively large scale of assets or relatively large cross-border business will be under stricter capital requirements and will have to disclose more information to regulators.In addition, the rules will include more specific factors to measure banks’ risk exposure to mortgage lending, such as the types of property, sources of repayments and loan-to-value ratios. China’s property market, once a pillar of growth, has slowed sharply over the past year, hobbled by fragile demand and mounting debt defaults by developers.The two regulators said implementation of the new rules would leave capital adequacy ratios in the banking sector generally unchanged, though the ratios for some banks would change slightly.The commission and central bank are seeking public comment before implementing the changes on Jan. 1, 2024. More

“The Prime Minister and Vice President Harris condemned those countries who have supported Putin’s efforts politically and militarily,” his office said in a statement after their meeting at the Munich Security Conference on Saturday.”They agreed that Putin’s war in Ukraine is a global war, both in terms of its impact on food and energy security and in terms of its implications for internationally accepted norms like sovereignty,” the statement added. More

A combination of supply chain chaos, higher costs and concerns about working conditions is forcing some western fashion brands to rethink their decades-old dependence on factories in China. Dieter Holzer, the former chief executive and a board member of Marc O’Polo, said the Swedish-German fashion brand started to swap some suppliers in the country in favour of factories in Turkey and Portugal in 2021. The decision was meant to “balance and take out risk from your supply chain and make it more sustainable”, he said. “I think many companies across the industry are reviewing their exposure [to China].”The shift away from mass textile production in the country, albeit still in its early stages, marks the reversal of years of outsourcing to a region that has come to dominate the textile supply chain.Big names such as Mango and Dr Martens have recently cut or signalled their intention to shift manufacturing out of China or south-east Asia. “The big message is reducing reliance on China,” Dr Martens’ chief executive Kenny Wilson said in November. “You don’t want all of your eggs in one basket.” The bootmaker has moved 55 per cent of its total production out of the country since he took over in 2018. Just 12 per cent of its production for the 2022 autumn/winter collection was manufactured in China compared with 27 per cent in 2020 and it estimated this will drop to 5 per cent this year.“We are being deafened by the sound of clothes manufacturers [moving] away from Asia,” said Rosey Hurst, director of ethical business consultancy Impactt. The relocation was also being driven by stricter laws being introduced in the US and Europe against labour abuses, she added, following the alleged use of forced labour in the cotton-rich territory of Xinjiang in China. A cotton field in Hami, Xinjiang. According to Rosey Hurst, brand relocation has been driven by US and EU laws against labour abuses following the alleged use of forced labour in Xinjiang © Sun Jihu/VCG/Getty ImagesMango’s chief executive Toni Ruiz said in December he was considering buying less from China “but we’ll be very alert to how things evolve”.“What we’re looking at is the extent to which all this global sourcing, developed over many years, might become more local,” he said.The shift was accelerated by continued supply chain disruption since the onset of the Covid-19 pandemic, which led to a jump in freight costs, as well as significant shipping delays as factory workers at manufacturing hubs across Asia fell ill or were forced to isolate. One industry consultant said that one retail client’s ski wear, from a previous season, arrived in the summer of 2022.

“For many, gone are the days of manufacturing only in China and shipping everywhere,” said Todd Simms, vice-president at supply chain intelligence platform FourKites. “Disruptions have increased costs to deliver finished goods, making it easier to justify operations in new countries in exchange for more resilience,” he added. The financial incentives to remain in the region are diminishing as wages go up after years of cheap labour — a major draw for many household names to outsource manufacturing to far-flung places. According to statistics from China’s National Bureau of Statistics, the average factory wage doubled between 2013 and 2021, from Rmb46,000 ($6,689) per year to Rmb92,000.Jose Calamonte, chief executive of online fashion retailer Asos, told investors at the company’s full-year results presentation last year that products manufactured in China were not as competitive as they seemed relative to Europe, once shipping and transport costs were taken into account. “We try to think about the final [profit] margin once we’ve made the final sale,” he said.European clothing retailers’ efforts to cut delivery times, as fashion trends and consumer needs change quickly, is another reason behind their decision to opt for suppliers closer to home. “We’ve been taking control of our manufacturing,” said a spokesman for a British luxury brand, adding that the industry has been consolidating in Europe for years now. “This has been a trend for reasons to do with speed and efficiency.”Plans to shift production away from Asian garment hubs, however, are not that advanced owing to their complexity. Countries such as China and Vietnam represent the lion’s share of textile exports, according to 2020 data from CEPII. For example, more than half of suppliers to Inditex, the world’s largest fashion retailer, were based in Asia in 2021, only a marginal reduction on 2018.

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Turkey has been positioning itself as a winner from western brands moving their production, not least because it is part of the EU customs union, allowing frictionless trade between member states.“It is a popular destination and already used by the likes of Hugo Boss, Adidas, Nike, Zara,” said Simon Geale, executive vice-president of procurement at supply chain consultancy Proxima.An increasingly important consideration for retailers is traceability in the supply chain after years of widely reported labour abuses. “[Because of US laws against cotton from Xinjiang], brands have to have much better traceability, ” said Impactt’s Hurst.A home textile enterprise in Binzhou, China. Countries such as China and Vietnam represent the lion’s share of textile exports according to CEPII © CFOTO/Future Publishing/ Getty Images“Then we have got European laws [on forced labour] coming up. It is putting pressure on the industry to get a grip,” she said.But she warned: “There isn’t enough money in [international supply chains] to run things the way they should be done. [Given the current economic crisis], that is only going to get worse.”Maximilian Albrecht, an analyst at AlixPartners, said that many fast fashion labels were also abandoning China in order to differentiate themselves from Shein, the rapidly growing Chinese fast fashion giant.“European brands can’t match Shein on their costs of production, their network of production, their relationships,” Albrecht said.“I think you’ll see some brands say ‘well, we can’t match that so we’ll move to Europe’. You can still sell the story that they have higher quality products. Whether that’s actually true is another thing.” More

ADDIS ABABA (Reuters) – African countries are getting a raw deal from the international financial system which charges them “extortionate” interest rates, the U.N. chief said on Saturday, as he announced $250 million in crisis funding, including for famine risk on the continent.The United Nations Secretary-General Antonio Guterres wants far-reaching reforms to the structure of international finance to serve the needs of developing countries more efficiently, he told the opening ceremony of the annual African Union summit in Ethiopia. “The global financial system routinely denies (developing countries) debt relief and concessional financing while charging extortionate interest rates,” he said.The U.N. will spend $250 million from its emergency fund, the largest ever allocation, to respond to several crises around the world, including helping communities at risk of famine in Africa, Guterres later told a news briefing.The coronavirus pandemic pushed many poor countries into debt distress as they were expected to continue servicing their obligations in spite of the massive shock to their finances.Public debt ratios in sub-Saharan Africa are at their highest in more than two decades, the International Monetary Fund said last year.Governments on the continent, including Ethiopia, sought debt restructuring deals under an IMF programme to help them navigate the crisis, but conclusion of the process has been delayed.Others, which have not sought to restructure their debt, like Kenya, have seen their debt sustainability indicators worsen after the pandemic hit their finances. “African countries cannot… climb the development ladder with one hand tied behind their backs,” Guterres said.Ethiopia’s Prime Minister Abiy Ahmed echoed the call.”Nearly all of us want to put our economies back on a growth trajectory but this will not happen without sufficient restructuring to make our external debt sustainable,” he said.The summit, which brings together leaders from the 55 African nations, is also focusing on deepening food and security crises on the continent.Armed conflict from the Sahel to the Horn of Africa and the impacts of droughts and floods have driven ever more Africans from their homes. Hunger, driven by the impact of the armed conflicts and also extreme weather that scientists have linked to climate change, has also worsened in several nations.Somalia is on the verge of famine after five failed rainy seasons, with hundreds of thousands of people suffering catastrophic food shortages.”We need to critically assess why one third of the hungry people in the world are in our continent,” Abiy said. More