Aurelia Butler

MADRID (Reuters) -The European Central Bank expects to continue raising interest rates “significantly” at future meetings, at a sustained pace, to ensure that inflation returns to the 2% target over the medium term, ECB policymaker Pablo Hernandez de Cos said on Wednesday.”Keeping interest rates at tight levels will reduce inflation by dampening demand and will also protect against the risk of a persistent upward shift in inflation expectations”, De Cos told a financial event in the evening.His stance was in line with the ECB’s guidance and comes after ECB policymaker Mario Centeno said on Tuesday the current process of interest rate increases was approaching its end.The ECB has delivered four successive rate hikes since July to halt a historic surge in inflation and has promised further increases to steer price growth towards its goal.The ECB sees inflation in the euro zone exceeding its 2% target through 2025 and in response has raised interest rates by a combined 2.5 percentage points since July – its fastest pace of monetary tightening on record.If these projections are taken as valid, this would indicate that achieving the inflation target over the medium term would require “an increase in interest rates above what the market expected at the time.” De Cos said that since the last meeting of the ECB’s governing council there had been an increase in the maximum level of interest rates expected by the market of around 30 basis points to around 3.4%.However, he said that those market rates incorporated a positive premium and that “the market’s genuine expectation of what the maximum level of the deposit facility rate would be is somewhat below that figure.”In any case, he said it was crucial to continue to stress the importance of taking into account the “extraordinary uncertainty we are experiencing,” adding that the institution’s future interest rate decisions would continue to be data-driven. More

The Federal Reserve Bank of Boston’s president, Susan M. Collins, stated that she was leaning toward raising interest rates by a quarter point at the central bank’s next meeting in an interview with the New York Times today.A potential quarter-point rate hike would represent a slowdown and move towards a normal pace of monetary policy, following a year of aggressive hikes to control soaring inflation.There were recently four consecutive three-quarter point adjustments, but the Federal Reserve slowed down in December with a half-point increase.In recent days, a few of the Fed’s regional presidents have suggested an even smaller adjustment could be possible when the Fed makes its next decision on February 1.Collins said in the interview with the NYT that she thinks “25 or 50 would be reasonable,” and that she would “lean at this stage to 25, but it’s very data-dependent.”She added that adjusting slowly “gives more time to assess the incoming data” before they make each decision. “Smaller changes give us more flexibility,” stated Collins.Ms. Collins is one of the Central Bank’s 12 regional presidents and one of the 19 policymakers. However, she does not have a formal vote on rate changes this year but will join in deliberations.Nevertheless, Collins said she favors raising interest rates to just above 5% this year. More

Universities on Wednesday criticised the scale of a government increase in support for student living costs in England, calling it “disappointing” as it failed to keep pace with inflation. The Department for Education announced that maintenance loans — the main source of government assistance for undergraduates and postgraduates — would in 2023-24 increase by 2.8 per cent. It also said it would provide an additional £15mn to “ease cost of living pressures” for students.But experts said the increase in maintenance loan funding did not go far enough against the backdrop of high inflation, and would add to the difficulties of students already squeezed by the cost of living crisis.Following the 2.8 per cent uplift, undergraduates living outside London will receive a maximum maintenance loan of £9,978 next academic year — for those in the capital, that rises to £13,022.They will also benefit from new hardship support money, in addition to £261mn already announced by the government. Tuition fees will remain frozen at £9,250 for the next two years, which was previously announced last spring.However, with the price of goods rising fast, the maintenance loan increase amounts to a real-terms cut. In November, inflation stood at 10.7 per cent after slipping back from the 41-year high seen in October.The Russell Group of research-intensive universities said that if maintenance loan funding had increased with inflation since 2020-21, then next year’s annual allowance would be £11,500.Tim Bradshaw, chief executive of the Russell Group, said it was “disappointing” that the government had failed to “address some of the flaws in the forecasting process to ensure they keep up with rising costs”.Tom Allingham, money expert at advice website Save the Student, said the increase was a “devastating blow to struggling students” that would intensify their “battle” with living costs. Maintenance loans are linked to inflation and partly means-tested, with those claiming the full allowance required to declare their household income. However, the rise in loan support is calculated based on projections by the Office for Budget Responsibility, a public body monitoring government finances. For the past two years, inflation has outstripped the OBR’s projections and the rise in maintenance loans. The Bank of England estimates that inflation will stand between 5.2 and 5.9 per cent in September, when students will receive their loans.Ben Waltmann, an economist at the Institute for Fiscal Studies think-tank, said the announcement meant that real-terms cuts to student hardship support since 2020-21 would become “baked-in”. Though it welcomed the £15mn boost, the National Union of Students said the maintenance loan increase was “woefully inadequate”. “If maintenance support continues to lag behind inflation, the number of students in poverty is only going to increase,” Chloe Field, NUS vice-president, said. Robert Halfon, minister for higher education, said the government recognised “students continue to face financial challenges”.“I urge anyone who is worried about their circumstances to speak to their university,” he said. More

Today’s top storiesMore than 750,000 UK households are at risk of defaulting on their mortgage payments in the next two years, the country’s top financial regulator has warned, highlighting the pressure being felt by ever more people during the cost of living crisis.Fast Retailing, Asia’s largest clothing retailer and owner of Uniqlo, is raising wages by 40 per cent in Japan, where inflation is at the highest level in decades.Goldman Sachs has begun its biggest cost-cutting exercise since the financial crisis, alongside more than 3,000 job cuts. US banks are set to report another quarter of bumper profits from lending over coming days.For up-to-the-minute news updates, visit our live blogGood evening,A $2.5bn expansion by a South Korean solar power company in the US state of Georgia is the latest sign of how President Joe Biden’s green subsidies are transforming clean energy investment and fuelling calls for similar measures in Europe.The move announced today by Hanwha Q Cells is the largest foreign direct investment in US solar manufacturing and comes as politicians try to rebuild America’s industrial base and make supply chains less reliant on imports from China.Ever since it was passed last year, the US president’s $369bn attempt at greening the economy with his (somewhat misleadingly named) Inflation Reduction Act has faced accusations that it was breaking WTO rules and “fragmenting the west” by subsidising American industries to the detriment of trading partners, particularly in Europe.The German car industry today added to calls for US-style subsidies from Brussels, describing the IRA as a “wake-up call” for European regulators and a “protectionist and discriminatory regulatory approach that is at odds with open trade”. It follows accusations from the Belgian prime minister yesterday that the US was waging an “aggressive” campaign to lure companies across the Atlantic with the promise of support.European Commission chief Ursula von der Leyen has said the EU would try to match Washington’s measures, but the situation is fraught with difficulty. For one thing, offering EU-wide credits is impossible because responsibility for tax policy lies with member states, while state aid rules say governments cannot offer help that puts competitors elsewhere in the bloc at a disadvantage.To add fuel to the fire, EU trade commissioner Valdis Dombrovskis has said the US scheme risked backfiring by driving European companies closer to China. Washington has attempted to build bridges by indicating EU companies could benefit from a tax credit scheme for commercial clean vehicles, which Brussels regards as a welcome first step while falling short of addressing all of its concerns.FT contributing editor Adam Tooze said an arms race on industrial policy would be deeply counterproductive. In any case, although the US package may appear huge, it does not pose an existential threat to Europe: it will be disbursed over 10 years and in proportional terms is half the size of what Europe has already committed in clean energy subsidies.“We are in an era of turbulent transition,” he concludes. “New modes of industrial intervention are our best means of responding to the multiple challenges ahead. These involve countless conflicts of interest. But let us not conflate those tensions with questions of sovereignty any more than we have to.”Need to know: UK and Europe economyUK prime minister Rishi Sunak said the government wanted to have a “constructive dialogue” with unions as ambulance workers staged fresh walkouts. But rail unions have said agreement in their dispute was “further away than when we started”. FT analysis shows that many key occupations have seen their pay squeezed over the past decade.The Federation of Small Businesses said its members would be hit hard by the cut in government support for energy bills. The new £5.5bn scheme will offer more generous support for energy-intensive users but will probably mean extra costs being passed on to customers. Core eurozone inflation will remain lower than in the US, according to new forecasts from the European Central Bank, despite headline inflation being higher. Meanwhile, European house prices are forecast to decline in 2023 without the prospect of a significant rebound over the next three years.

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

Sweden is planning to build new nuclear plants to boost energy security as the debate heats up on high electricity prices.Russia’s war in Ukraine is costing it more than it made from record oil and gas revenues, the country’s finance minister admitted, with its budget gap widening significantly in 2022.Austria is shifting to the right as fears grow about the cost of living and migration, propelling the Freedom party (FPÖ) to the top of the opinion polls. The country’s next general election must be held by the end of 2024.Need to know: Global economyThe World Bank warned the global economy was on the “razor’s edge” of recession as it cut growth forecasts to 1.7 per cent this year, a sharp drop from an estimated 2.9 per cent in 2022.As chief economics commentator Martin Wolf explains, the outlook is particularly dire for developing countries engulfed by debt problems after dealing with the Covid shock, followed by a sharp deterioration in their terms of trade, as food and energy prices soared.Falling inflation should be good news for investors, says markets editor Katie Martin, so why are they not dancing in the streets? Although the US Federal Reserve is expected to hit pause in its programme of policy tightening, party poopers think this could just be a short breather before it reloads and starts again. Expectations of a Fed slowdown meanwhile have boosted gold prices.Our Big Read looks at President Xi Jinping’s plans to reset China’s economy and improve its political image.Egypt’s pound hit a new low as authorities struggle with a currency crisis. The government has also vowed to cut the military’s role in its economy as part of its $3bn bailout package from the IMF.Brazil is on alert after former president Jair Bolsonaro posted a video online that questioned the result of the October election. Luiz Inácio Lula da Silva’s administration said extremist groups were planning nationwide protests on Wednesday night to overthrow the new president.Peru’s political crisis has intensified after more people were killed in clashes with police as they demanded the reinstatement of detained former president Pedro Castillo.Need to know: businessA new German law is leading the way on how Europe might curb the power of Big Tech. As our Big Read explains, the Competition Act has the potential to capture even more illegal conduct by being less prescriptive on what constitutes anti-competitive behaviour.UK commercial property deals have collapsed to their lowest level in a decade as investors face up to higher interest rates, the prospect of recession and the fallout from the infamous “mini” Budget.The crypto crisis continues as US-listed exchange Coinbase said it would cut a fifth of its workforce. The industry has been rocked by a plunge in prices of popular coins and the implosion of the FTX derivatives exchange.Rokos Capital Management, one of the world’s biggest macro hedge fund firms with around $15.5bn in client assets, reported an annual loss thanks to turmoil in the bond markets.China’s Citic bank has come up with a novel way to lure in wealthy customers: the offer of mRNA vaccines. A shot can be guaranteed with the deposit of HK$4mn ($512,200).Airbus beat its US rival Boeing to become the world’s biggest jet maker for the fourth year in a row. The private jet business is still booming, as commercial airlines show signs of bouncing back. Global flights rose by 10 per cent last year and were 14 per cent higher than before the pandemic. The World of WorkWhat happens if we look at failure in the workplace as an opportunity to grow? Listen to the new Working It podcast. Some good newsThe recovery of the earth’s ozone layer is on track, according to UN experts. In a report published every four years on the progress of the Montreal Protocol, the panel confirmed the phaseout of nearly 99 per cent of banned ozone-depleting substances.A Nasa graphic shows the hole in the Earth’s ozone layer over Antarctica © Nasa/AP More

It is not a very “happy” new year right now for many in the US. As inflation eats into take-home pay, households have had to cut back on essentials, switch off the heating, buy on credit and in some cases turn to food banks or fuel vouchers.Naturally, people feel afraid about the outlook. But for those who have lived through past crises, current levels of anxiety can feel strange. At a public Q&A last February, Charlie Munger, the 99-year-old billionaire and business partner of Warren Buffett, lamented that “people are less happy about the state of affairs than they were when things were way tougher”. In earlier eras, he noted, “life was pretty brutal, short. [There was] no printing press, no air conditioning, no modern medicine . . . If you wanted three children, you had to have six because three died in infancy. That was our ancestors.” Writers including the psychologist Steven Pinker and the late statistician Hans Rosling have similarly pointed out that most of humanity’s living standards are dramatically better today.Fair enough. But that will not stop people feeling angry or scared. One obvious reason is that what matters for economic sentiment is not whether living standards are better than for earlier generations, but how they compare with the recent past. British citizens today might know they live better than their grandparents, say, but what hurts is recent drops. The Resolution Foundation, a think-tank, says that UK households will be £2,100 worse off in 2023 compared with last year. The other key point, often ignored, is a concept that I like to call the pain-sharing index. Living in a world where economic shocks are shared in a more equitable way feels very different from living in one where some are taking the strain and others are protected by large reserves of wealth. Munger, who is firmly in the latter camp, notes that the emotional impact of inequality is profound: “The world is not driven by greed. It’s driven by envy . . . All [people] think about is somebody else has more now, and it’s not fair that he should have it and they don’t.”It’s a pity that economic debate does not focus more on this pain-sharing index. Yes, economists such as Thomas Piketty and Emmanuel Saez have used data to illustrate how wealth and income inequality have risen sharply in recent decades. But the issue of whether people feel that economic pain is being shared needs far more analysis. It is rarely covered in opinion polls, though it matters for our politics, particularly as the internet is creating once-unimaginable levels of transparency, the pursuit of luxury is everywhere and in many countries it is becoming harder for young people to find a salaried job or buy a house.

On my travels, I’ve found that different cultures vary enormously in this respect. At one end of the spectrum is Japan, where I lived during the 1990s, one of its lost decades of stagnation. Back then, the economy was ailing. But what was striking was the degree to which social norms spread that pain around. When big companies had to cut costs, say, they typically reduced everyone’s pay, rather than firing swaths of junior workers. When asset managers pondered the risk of losing money on their holdings of Japanese government bonds, I was sometimes told that such losses would be tolerable because everyone was likely to suffer future haircuts. There was an ideal of shared sacrifice and, even if this was sometimes breached in practice, it helped to maintain social cohesion. A country such as the US, with its deeply individualistic culture, sits at the other end of the spectrum.Pew Research recently noted that about one in four American parents, and two out of five black parents, struggled to pay for food or housing in the past year. Yet when progressive politicians such as Elizabeth Warren call for redistributive measures such as higher taxes for the rich, this sparks fury from the right. Shared sacrifice is not a dominant ideal. Instead, a mood of bubbling resentment and political antagonism rules.The UK sits in the middle of this pain-sharing spectrum. The concept of shared sacrifice is idealised in popular discourse, folk memories of the second world war “blitz spirit” and so on. But Britain is also a highly unequal society, and the “miserable” outlook for 2023, to use the term cited in an FT poll of economists, is making this worse. Hence the strikes by nurses, train drivers and others who have suffered real-term pay cuts thanks to inflation and government austerity.So while nobody ever likes to talk about pain, let alone spread it around, we need to grasp the nettle in 2023. Otherwise, politics will be increasingly poisonous. Which should scare us all. Follow Gillian on Twitter @gilliantett and email her at [email protected] @FTMag on Twitter to find out about our latest stories first More

More than three quarters of a million UK households are at risk of defaulting on their mortgage payments in the next two years, the country’s top financial regulator has warned.In a letter to the House of Commons Treasury select committee on Wednesday, the Financial Conduct Authority said about 200,000 households had fallen behind on their home loans by mid-2022. The watchdog said a further 570,000 households were “at risk of payment shortfall” within the next two years, because their mortgage costs will be more than 30 per cent of their income. The figures underline the pressures being felt by ever more people as a result of the cost of living crisis. If 770,000 households did default, that would mean about 9 per cent of the UK’s mortgages were overdue. The FCA made the prediction based on a 10 per cent fall in households’ real incomes, as wage growth falls behind inflation, which is running at 10.7 per cent. “Some households will experience a greater fall in real income [perhaps because of job loss] and others may experience much smaller reductions [or increases],” the FCA wrote, adding that the figures were “preliminary”. The Office for National Statistics on Tuesday said 1.4mn households face higher interest payments this year as their fixed rate mortgages expire. That will put more people into the FCA’s “at risk” category, which is defined as anyone who spends more than 30 per cent of their gross household income on mortgage payments. The FCA’s statement amplifies a warning last month from the Bank of England’s Financial Policy Committee. It said UK households were being “stretched” by rising interest rates and soaring inflation, though they were yet to show “widespread signs of financial difficulty”. The regulator noted that some households would be able to cut spending on other things, or dip into savings to pay their mortgages, and said it would further research the impact of other developments, such as unemployment, on defaults.

The FCA also called on the insurance sector to consider waiving cancellation and other contract fees to support customers struggling with the surge in living costs. Last month, some of the UK’s largest banks — including HSBC, Barclays, Lloyds Banking Group and NatWest — agreed to use a special package of crisis-era forbearance measures to protect struggling households from repossessions and penalty charges. The measures, agreed after a meeting between the banks and Chancellor Jeremy Hunt, include switching borrowers to interest-only deals or offering them competitive fixed-rate deals without putting them through another affordability test. Additional reporting by Ian Smith in London More