Aurelia Butler

UK public satisfaction with how the Bank of England handles inflation has fallen to the lowest level on record, according to official data on Thursday.In August, one-third of people in the UK were dissatisfied with how the central bank was controlling inflation, its own survey found.This is the worst result since records began in 1999 and pushed net satisfaction to minus 7 per cent, also a record and the only other negative reading since May’s minus 3.The data come a week before the next meeting of the BoE’s Monetary Policy Committee, where it is expected that interest rates will be raised for the seventh consecutive time as the bank seeks to tame high prices.Myron Jobson, senior personal finance analyst at the investment broker Interactive Investor, said the response to the survey, was “by no means a glowing endorsement” of the BoE’s approach to interest rates. Most economists expect the BoE to lift the base rate from its current 1.75 per cent to curb inflation, which was at 9.9 per cent last month. That is the highest in the G7 group of leading economies and almost five times the bank’s 2 per cent target. Markets and economists are split between a 50 basis and 75 basis points increase.Andrew Goodwin, chief UK economist at the consultancy Oxford Economics, said the £150bn energy support package announced by the government last week, which will limit yearly domestic bills to £2,500, had lowered expectations for peak inflation. But he said that “the support to disposable incomes offered by the cap means the MPC may judge medium-term inflation will be higher”. The bank could “use looser fiscal policy as a reason to continue raising rates aggressively”, he added. While Goodwin expected a 50 basis points rise, Ellie Henderson, an economist at the investment bank Investec, said there was “certainly the risk that more MPC members will join the hawkish camp, swinging the majority to a three-quarter point move”.Respondents to the BoE survey, which occurs every three months, expected inflation over the coming year to be 4.9 per cent, on average, up from 4.6 per cent in May and the highest on record.

This is a sign the public thinks high inflation has become largely entrenched in the economy. People also think inflation will continue to remain high in the longer term. The inflation rate in five years’ time was expected to be 3.1 per cent, well above the target of price stability even if marginally down from 3.5 per cent in May. The latest inflation rate was perceived to be accelerating to 7.6 per cent, up from 6.1 per cent in May and the highest on record.A high-inflation environment is seen as detrimental to the economy and responsible for higher interest and mortgage rates. Some 75 per cent of respondents expected interest rates to rise in the year ahead, with about two-thirds expecting a negative impact on the economy from high inflation. More

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyThe stunning shift in the market mood and prices over the past week is testament to the underlying instability in the current environment for policymakers and investors. And it is an instability that will intensify in the coming months.The catalyst for what many labelled “market carnage” on Tuesday — 3 to 5 per cent single-day losses in major US equity indices — was, of course, an ugly inflation report. And the August figures for the US were disappointing in so many ways including, most importantly, a higher month-on-month increase and broadening in drivers of core inflation.Judging from the dramatic surge in the 2-year government bond yield, as well as moves elsewhere in Treasuries, markets found themselves scrambling to price in a “HFL” moment — that is, rates that are going Higher, getting there Faster, and staying there Longer.This time around, the delay in investors accepting a more rapid reversal in the highly supportive approach for markets by central banks had little to do with the prior inclination of policymaking officials to weaken the anti-inflation policy message. This tendency had previously helped keep alive the hope of an immaculate soft landing and a rapid pivot away from a tightening liquidity regime.But since the late August Jackson Hole speech of Fed chair Jay Powell, the US central bank’s officials have been unusually consistent in stating their unconditional commitment to battle unacceptably high inflation, as well as in conveying the policy implications.For policymakers and investors, there will be more bracing realities to digest in the months ahead.First, global growth fragility is increasing. Europe is yet to supplement the fiscal-driven protection of households from high prices with an orderly energy allocation approach that minimises immediate and longer term structural damage to the economy.China has yet to find a politically acceptable way out of the Covid “lives-versus-livelihoods” trap that, without progress in effective country-wide vaccination, undermines the country’s contribution to demand and supply in the global economy. Even the US, the strongest of the systemically important economies, faces internal growth headwinds. And all this at a time when inflation pressures, and the demand destruction that comes with that, will only dissipate slowly.As this develops, market inconsistencies will be become harder to sustain. With higher short-dated yields, the TINA edge (There Is No Alternative) that stocks have long possessed is being eroded. Longer dated bonds now offer better protection against a big global slowdown and financial system stress. And the economic and financial risks of such a strong dollar, both at home and more importantly internationally, are harder to sidestep.Needless to say, this is not a good environment for central banks to be playing catch-up. The risk of yet another policy mistake, already uncomfortably high, is increasing.Given the hot inflation numbers, the Fed has no choice but to front-load its policy response, including an unprecedented third, consecutive 0.75 percentage point rise next week. This will accompany a pick-up in the pace of balance sheet reduction by the Fed and, I suspect, an upward revision in forecasts for the peak of this interest rate cycle.Meanwhile, the European Central Bank has to incorporate the implications of considerable fiscal policy efforts to offset the impact of the energy crisis on households and business.The natural inclination to soften the monetary policy stance in the face of global growth fragility and unsettling financial market instability collides with the reality of persistently high inflation and the urgent need to restore policy credibility. Indeed, central bank hesitation would only serve to worsen the scale and complexities of 2023’s economic and policy challenges.This week’s market turmoil is not just about the clash between markets’ recent over-optimism and economic and policy realities. It is also a reflection of investors better coming to terms with the complex uncertainty that confronts both policymakers and their own approach to asset allocation.The good news lies in the twin prospect of economies putting behind them a long period of inefficient allocation of resources, and value being restored to markets heavily distorted by over-protracted central bank intervention. For such prospects to be realised, economies and markets still have to navigate the higher possibility of policy mistakes, market stress, and the behavioural traps that typically accompany whipsaws in investor sentiment. More

Workers in parts of Europe and South America are becoming increasingly successful in securing deals linking wages to inflation, a trend closely monitored by monetary policymakers as they seek to keep price rises under control. Linking people’s pay to inflation remains much less commonplace than during the 1970s, when it was widespread in several economies — including the US and UK. But deals that include indexation clauses never went away in some countries and there are signs of a resurgence in places such as Spain and Brazil. Claudio Borio, head of the monetary and economic department at the Bank for International Settlements, often dubbed the central bankers’ bank, said that by distorting market signals, indexation made inflation harder to shift. “Decisions are not going to be the right ones,” Borio said. “With indexation [inflation] is embedded, it’s what happens [automatically].”In Spain, where annual inflation in August was 10.5 per cent and electricity bills are up by 70 per cent over the same period, unions are winning negotiations for more of their members’ contracts to be indexed to prices. Such contracts already cover almost a third of Spanish collective wage agreements, up from less than a fifth at the end of 2021, and are expected to reach half next year, according to the country’s central bank. Bank of Spain governor Pablo Hernández de Cos warned earlier this year about the risk of a dreaded “wage-price feedback loop”, where inflation becomes harder for central banks to control and feeds through into even more pressure for higher wages. Defending the deals, the UGT, one of Spain’s biggest unions with 960,000 members, said workers should not be “once again the ones to pay the cost of a crisis.” So far, Spanish wages are rising well below inflation, like those of most workers across Europe. Spanish bank CaixaBank has built a wage tracker based on customers’ payslips, which showed they rose 2.5 per cent in the year to June, up from 2.4 per cent in May. However, figures published by Eurostat, the European Commission’s statistics bureau, on Thursday showed hourly salaries increased by 4.1 per cent in the eurozone in the second quarter of 2022, compared with the same quarter the previous year. The surge — the strongest in at least a decade — surprised economists, who had expected the pace of wage growth to fall from 3.3 per cent in the first quarter to 1.8 per cent in the three months to June. If strong wage growth and the trend towards indexation continues, it is likely to become a mounting concern for this generation’s monetary policymakers. The European Central Bank, which itself rejected calls from its staff union for inflation-linked pay rises earlier this year, discussed the signs of indexation becoming more widespread at its July meeting. In some countries — including eurozone members such as Luxembourg, Cyprus, Malta and Belgium — indexation never entirely went away. But Luxembourg this year suspended pay rises due under its indexation rule and gave workers tax credits instead. In Belgium, there is a debate brewing over rules that automatically adjust the pay of most public and private sector workers in line with a “health index” of inflation that excludes fuel, alcohol and tobacco prices. The rule means hourly wage costs in Belgium are set to rise 12 per cent in total over the next two years, the country’s central bank has forecast, 4.8 percentage points more than in France, Germany and the Netherlands, where indexation is less common. The country’s Unizo employers’ association said wage growth at that level would be “devastating for our economy and employment” and called for an “index skip” by the government to lower expected wage rises this year. That idea has been rejected by Lars Vande Keybus, economic adviser at ABVV, Belgium’s largest union with 1.5mn members. “Purchasing power is extremely important if we do not want to fall into a deeper recession next year,” he said. The practice also offers a means to protect the most vulnerable from cost of living crises — in many economies minimum wages and pensions have long been indexed to prices. But in Brazil and Argentina, economists say the practice is becoming an increasingly important reason why the recent surge in inflation is becoming entrenched. After years of having to settle for meagre wage growth, more than 70 per cent of pay rises awarded to Brazilian workers in June were at or above the rate of consumer price inflation.Alessandra Ribeiro, an economist at consultancy Tendências in São Paulo, said that until 2019 indexation accounted for 32-35 per cent of the rise in consumer prices. Today, it accounts for 40 per cent, she said, adding: “It is a huge problem. It creates enormous difficulties for the central bank to bring inflation under control.”Brazil’s minimum wage was increased 10 per cent at the end of last year to adjust for price growth. In neighbouring Argentina, where inflation is expected to reach 90 per cent this year, indexation is also becoming more entrenched, spreading to private healthcare costs this year. Surging prices have meant annual pay rounds are being replaced by semi-annual and even quarterly negotiations in Argentina. “The faster spread of shocks [encouraged by indexation] can cause a series of bad outcomes,” said Santiago Manoukian, chief economist at consultancy Ecolatina in Buenos Aires. More

Good morning. The US shale industry has warned it cannot rescue Europe with increased oil and gas supplies this winter amid fears that a plunge in Russian exports will send crude prices soaring back above $100 a barrel.Even though oil markets have softened in recent weeks, the respite could end when an EU embargo on Russian sales comes into full effect later this year. US Treasury secretary Janet Yellen this week warned the embargo “could cause a spike in oil prices”.However, US shale executives sitting on vast oil and natural gas reserves that could be used to alleviate a European energy crunch say they will be unable to step up supplies quickly enough to prevent winter shortages.“It’s not like the US can pump a bunch more. Our production is what it is,” said Wil VanLoh, head of private equity group Quantum Energy Partners, one of the shale patch’s biggest investors.“There’s no bailout coming,” VanLoh added. “Not on the oil side, not on the gas side.”Related news: Sticking with the oil and gas industry and Shell’s chief executive Ben van Beurden has announced today he is to step down after a decade in the job.Thanks for reading FirstFT Americas. Here is the rest of today’s news — GordonFive more stories in the news1. US Senate panel approves $6.5bn bill to fund weapons for Taiwan The Taiwan Policy Act was passed by a margin of 17-5 by the US Senate foreign relations committee. The bill, which still requires approval by the full Senate and the House, marks the first time the US would directly finance the provision of weapons to Taiwan.2. California sues Amazon California has sued Amazon over claims that it punishes third-party sellers who offer their products more cheaply on other websites, in the latest legal action against the $1.3tn tech giant by prosecutors and regulators in the US and Europe.3. Key moment for crypto market Ethereum, the world’s second-biggest blockchain, has completed a long-awaited upgrade to its system in a move expected to slash its energy costs and intended to prepare the ground for more use of crypto technology in mainstream finance. Vitalik Buterin, Ethereum co-founder, said the upgrade, known in the industry as “The Merge”, had been completed earlier today.4. China’s state banks cut deposit rates for first time since 2015 Some of China’s biggest state-run banks have cut deposit rates for the first time since 2015, as Beijing searches for ways to boost flagging growth in the world’s second-largest economy without risking runaway depreciation of the renminbi.5. Britain looks to scrap bank bonus cap Kwasi Kwarteng, chancellor, is seeking to scrap Britain’s cap on bankers’ bonuses, introduced after the 2008 financial crash, in a controversial move to boost the City of London’s global competitiveness. Kwarteng argues the move will make London a more attractive destination for top global talent and will be a clear signal of his new “Big Bang 2.0” approach to post-Brexit City regulation.The day aheadEconomic data US retail sales figures will be closely watched following higher than expected consumer price inflation figures this week. The US labour department releases data on new applications for unemployment aid and a series of data releases today should offer insight into the state of manufacturing, including US industrial production, the Empire State manufacturing survey and the Philadelphia Fed’s business outlook survey.Joe Biden to warn of threat to US democracy The US president will again focus on the threats to US democracy and political violence in a speech later today. The remarks are part of the United We Stand Summit at the White House and come after Biden this month called the Republican party and Donald Trump’s supporters a “threat to this country”.Shanghai Cooperation Organisation forum Chinese president Xi Jinping will travel outside China for the first time since the pandemic began to attend the forum in Kazakhstan, which starts tomorrow. Also present will be Russian counterpart Vladimir Putin, India’s prime minister Narendra Modi, Iran’s president Ebrahim Raisi and Pakistan’s prime minister Shehbaz Sharif.Northern Ireland protocol deadline It is the last day for Downing Street to submit a formal response to seven legal actions launched by the EU against Britain over breaches of the Northern Ireland protocol, as grace periods allowing lighter touch trade controls are due to expire. (Guardian, FT)What else we’re reading Scenes from the end of an Elizabethan age The state funeral for the Queen on Monday will be a solemn ceremony but in the meantime the public waits to see the body lying in state and pay their respects at Buckingham Palace. Imogen West-Knights joined mourners, lost-looking tour groups and history rubberneckers outside the royal residence. Thank you to everyone who took part in yesterday’s poll. Sixty-four per cent of respondents said they did not want King Charles III to speak up on political issues, while 27 per cent of respondents said they did.

Hundreds of thousands of people are travelling to London to mourn the Queen © Benjamin McMahon

Citi opens Málaga hub for junior bankers Málaga is better known for its sunshine and food than banking. But yesterday 27 young recruits started at Citi’s new hub for junior investment bankers. Rivals have dismissed it as a gimmick but the US bank claims it is a way of offering a “better work-life balance” for its new starters. Will it work?The Republicans are trying hard to defeat themselves Until a few weeks ago, it was taken for granted Republicans would win a clean sweep in November’s midterm elections. Three things have changed, writes Edward Luce.Axel Springer boss used Bild to campaign against Adidas Chief executive Mathias Döpfner used his best-selling tabloid to campaign against Adidas’s decision to stop paying rent during the pandemic, publishing more than 20 articles chiding the sportswear retailer for a planned rent freeze — without disclosing that he was its landlord in Berlin.Defiance in the rabbit warren of Kyiv’s presidential palace Last week, Gillian Tett took a trip down the darkened corridors of the Ukrainian presidential palace, where despite fighting off a brutal Russian invasion for seven months, President Volodymyr Zelenskyy and his team are intent on delivering the message of business as usual.More on the war: Ukraine’s president was involved in a car accident earlier today after returning to Kyiv from the eastern Kharkiv region. He sustained no serious injuries.Italians at boiling point over how to cook pasta with less gas Can you cook pasta with the gas turned off? As fuel bills surge, Rome’s advice to citizens to save energy with “virtuous actions” — including turning down the heat under saucepans — has prompted a culinary debate, Amy Kazmin writes.Go deeper: What is your inflation rate? The FT launches its personal inflation calculator to allow you to calculate the impact of rising prices on your budget.TechnologyIn the early 2000s, if you wanted a presence on the web, you had to build it, either by writing HTML code or using primitive services such as Yahoo’s GeoCities. Now, as Dave Lee explains, the “no-code” movement allows users to build powerful websites or apps without writing any code. More