Aurelia Butler

Good eveningSo much for the “roaring Twenties”. We report today on how US retailers have ditched their forecasts of a post-pandemic boom as the economic outlook darkens.The strong housing market, soaring stock prices and low interest rates of last summer have been replaced by rising rates, a bear market and inflation at a 40-year high, leading to consumer sentiment at its lowest level since first tracked by the University of Michigan in 1952. Markets are increasingly contemplating the possibility of a recession.The downturn in sentiment masks a “bifurcation” of consumers, with demand for premium products holding up at the same time as budget items, whether it’s pricey charcuterie at one end and Spam at the other, or high-end beauty products and “entry-level” cosmetics.Squeezed consumer demand is also in evidence at big UK retailers.Cutbacks in spending on big-ticket items such as technology and furniture at its Argos chain dented quarterly sales at UK supermarket J Sainsbury. There was also evidence of customers trading down on groceries, with rising sales of cheap own-label products and those price-matched with discounter Aldi.“There’s a lot of pressure in the system at moment, commodity prices are higher, fuel is higher, labour, fertilisers . . . this pressure has been in the system for a while, progressively building up,” said Sainsbury’s chief Simon Roberts.Rival Tesco, the UK’s biggest supermarket chain, is embroiled in a row with Mars Petcare over the price of catfood in the latest sign of how inflation is hurting relations between retailers and producers. Tesco has also had a spat with Heinz over beans and ketchup, saying that “now more than ever we have a responsibility to ensure customers get the best possible value, and we will not pass on unjustifiable price increases”.“The pace of reversal in customer tastes in a weakening economy has been head-spinning,” says the FT’s Lex column, analysing the downward path of US homeware chain Bed, Bath and Beyond as it seemingly heads towards bankruptcy, having already disposed of its chief executive after a 25 per cent drop in sales.The world of ecommerce is also experiencing tough times. TikTok yesterday abandoned plans to expand its live shopping experience in the US and Europe after suffering from technical problems and a lack of traction with consumers. Livestream commerce, where brands and influencers broadcast live and sell products through clickable links, is seen as the future of shopping by social media platforms, and has had considerable success in China. US online sales have dropped from 17 per cent of total transactions to 14 per cent over the past year, severely denting the ambitions of ecommerce companies such as Shopify, which last year was briefly Canada’s most valuable public company but has since experienced a plunge in its share price of 80 per cent. Similar pressures are affecting UK online retailers: white goods supplier AO World today announced moves to strengthen its finances after its share price halved over the past few months.Corporate ambitions have also taken a hit from uncertainty in financial markets. Walgreens had to abandon its sale of Boots after failing to receive any adequate bids for the UK pharmacy chain. The company still has some 9,000 stores in the US but owning physical drugstores is not the cash cow it once was, the Lex column noted, as margins on prescription medicines are squeezed by cheaper generics and pressure to cut prices. Latest newsBank of England’s chief economist signals willingness to step up rate risesFrench state to take full control of power group EDFHSBC closes in on deal to sell Russian business to ExpobankFor up-to-the-minute news updates, visit our live blogNeed to know: the economyAfter a turbulent 24 hours at Westminster and a series of ministerial resignations, the UK has a new chancellor of the exchequer: Nadhim Zahawi. The MP for Stratford-upon-Avon has experienced a rapid rise since his arrival in the country with his family as an 11-year old fleeing from Iraq in 1978. Plans to raise corporation tax from 19p to 25p from next April could be in his sights.Zahawi has a tough task ahead. The Bank of England yesterday said the UK outlook had “deteriorated materially” as it published its semi-annual financial stability update. Prime minister Boris Johnson meanwhile was accused in a parliamentary report of overselling the benefits of post-Brexit trade deals.Latest for the UK and EuropeThe Church of England is selling bonds for the first time despite the current uncertainty in credit markets. The “Cranmer” programme, named after the 15th-century Archbishop of Canterbury, is being pitched as a sustainable investment opportunity.The Norwegian government intervened to end a strike by oil and gas workers that could have slashed production just as Europe is scrambling to replace Russian output. Gas supplies to the UK were at risk of being cut off by the weekend. European power prices hit the highest sustained level on record.After months of debate, the European parliament designated gas and nuclear as “sustainable” energy sources. European Commission chief Ursula von der Leyen said the move would hasten the EU transition to clean energy but campaign group Greenpeace described it as “outrageous”. Global latestFears of potential recession gripped markets yesterday as investors fled to haven assets, the euro dropped to its weakest levelagainst the dollar in 20 years and oil prices turned sharply lower on fears that the downturn would hit demand. US president Joe Biden is making a fresh attempt to tackle soaring inflation as dissatisfaction grows among American voters. China stepped up Covid restrictions after new clusters of infections, raising fears among investors that shutdowns could once again disrupt global supply chains.Inflation in South Korea hit six per cent in June, the fastest rate since the 1998 Asian financial crisis, upping the pressure on the country’s central bank to raise interest rates by 50 basis points for the first time in its history. Last August, the country became the first big Asian economy to raise interest rates since the start of the pandemic.Need to know: businessAmazon will share more data with rivals and offer consumers a wider choice of products as part of a deal with EU antitrust authorities. The move comes just ahead of new laws designed to rein in the market power of Big Tech.The head of European real estate for the Brookfield private equity fund said dealmaking was set to plummet and values fall against the backdrop of rising interest rates and the dimming economic outlook.The property sector in China meanwhile has taken an even more startling turn: developers said they would accept stocks of garlic — as well as watermelons, wheat and barley — as down payments from farmers on new apartments. The bartering highlights the desperation of a real estate industry hit by the pandemic, central government policies and slowing growth.Our new Big Read examines parallels between the crypto crash and another seminal moment in tech history: the dotcom boom and bust. Chief economics commentator Martin Wolf is not a fan, arguing cryptocurrencies are objects of speculation rather than stores of value.The summer of discontent in the UK intensified as Royal Mail managers and train drivers outlined new strike plans. UK holidaymakers can also look forward to further travel chaos as BA cancelled more flights. The airline has also appointed a new operating chief to manage the disruption. Workers at Heathrow are also set to take action. Strike action was also blamed for fuelling financial problems at Scandinavian Airlines, which has filed for bankruptcy protection. The forecast for European aviation looks gloomy, says the Lex column.The World of WorkEmployees struggling with the cost of living are at higher risk of suffering mental health problems according to new research, with productivity also affected. The link is particularly strong in the US, where healthcare bills are the largest cause of financial hardship.Swiss bank UBS, which last summer started to allow up to two-thirds of its staff to work from home, is to sublet two floors of its grand London building. It is one of a number of companies offloading “grey space” that is surplus to requirements as a result of changing working practices.Is hybrid working putting women at a disadvantage for career progression? Listen to the latest edition of our Working It podcast.Get the latest worldwide picture with our vaccine trackerAnd finally…Nostalgia, once considered a medical diagnosis, ain’t what it used to be. Tristram Hunt, director of the Victoria and Albert Museum and former politician, reviews a fascinating new history of how we remember (or misremember) significant events.Performers play cricket on a village green at the opening ceremony of the London 2012 Olympic Games © Reuters More

The writer is chief executive of New Philanthropy Capital, a think-tank and consultancyThe cost of living crisis in Britain is just as big a threat to livelihoods as Covid-19. Many more people need help, yet charities find it harder to support them as inflation increases their own costs and erodes the value of reserves and pre-pledged donations. We need the same kind of mobilisation among charitable funders as at the start of the pandemic, yet we’re not seeing anything like the required level of co-ordination or giving. Destitute people can’t wait. For philanthropists, this is the moment to get on and give.For those in financial hardship the outlook was bleak even before inflation surged. Over 9mn people in the UK live on an absolute low income (below 60 per cent of median levels in 2010/11, once you adjust for inflation).And although life is more expensive for everyone, for the poorest, for whom money was already tight, the crisis is existential. The Trussell Trust delivered 2.1mn food parcels between April 2021 and March 2022, 81 per cent more than five years ago — 832,109 went to children. The poorest households spend a larger proportion of their income on food, energy and fuel, where prices are rising fastest. Unlike their better off fellow citizens, there’s not much to cut back on. The Joseph Rowntree Foundation calculates that low-income families will spend a fifth of their budget on energy alone this year. For those living alone, it’s as high as 49 per cent. Compare that to middle-income families spending only around 7 per cent even on rising energy costs. Unemployment is not the main cause — and a job may not provide an escape. According to Rowntree data, over two-thirds of poor households had at least one adult in work: this is the worst in-work poverty since records began. Meanwhile, 54 per cent of those receiving universal credit are still in poverty even with the taxpayer’s help. With both work and benefits failing to solve the problem, philanthropists must step in.The same factors that make life harder also constrain the charities and volunteers trying to help. A rise in the price of food, energy, and petrol is a big problem if your mission is feeding, housing, or transporting people. Magic Breakfast says its supply costs are up 17 per cent this year already, while demand for its pre-class school meals has doubled. Ark Resettlement says energy bills across its accommodation sites are up £40,000 on last year. These costs are fundamental; cutting spending means cutting services just when more people need them.Of course, the government could do more and show the same courage it did with the furlough scheme. We will see. But philanthropists must step in.First, the obvious: give more and give now. Unlike businesses, a rise in demand is nothing for charities to celebrate: you need to give more to achieve any impact. Talk to your chosen charities and learn how costs and needs are changing and help them adapt. Think about how you can help build capacity. If you have a foundation or sit on a board, simplify applications so you can target money quickly. During the pandemic, 350 funders signed the London Funders pledge to be flexible on delivery, deadlines, and budgets, and to communicate openly with grantees. We need that approach now.Consider whether you need to rebalance your giving as needs change. Use data: our Local Needs Databank is a good starting point. If you give to a specific cause, co-ordinate to maximise collective impact using platforms like 360Giving. Work with local authorities and local foundations to reach those who need your help. The pandemic saw big changes in funder behaviour. We need to remember these lessons as this new crisis takes hold. More

The Bank of England would do “whatever is necessary” to contain inflation, but splits on the monetary policy committee (MPC) made it unhelpful to give guidance on the likely pace, scale and timing of interest rate rises, rate-setters at the central bank said on Wednesday.Huw Pill, the BoE’s chief economist, told an audience at King’s College London he was “in the price stability business” and that the “immediate issue for monetary policymakers is whether the pace of policy tightening now needs to change”. Although Pill voted with the majority for a 0.25 percentage point rate rise in June, he said he would be willing to step up the pace of policy tightening.The BoE expects inflation to rise from its current rate of 9.1 per cent to about 11 per cent in the autumn, and Pill said the resulting hardship for those most exposed to rising living costs showed it was “essential we bring inflation back down to target”. His comments echoed remarks by BoE deputy governor Sir Jon Cunliffe, who told BBC Radio 4’s Today programme that the central bank would ensure an inflationary shock did not leave the UK with high inflation “being the new normal”.“We will do whatever is necessary — we will act and we will act forcefully,” said Cunliffe, using language that matched wording used in the minutes of the MPC’s June meeting. Some economists read the minutes as a hint that the BoE could raise interest rates by 0.5 percentage points at its August meeting, rather than the more incremental 0.25 percentage point moves it has favoured until now.However, Pill said the UK’s situation was different from that of countries more self-sufficient in energy, such as the US, and so did not face the same medium-term weakening in gross domestic product and inflation.

The BoE might not want to raise interest rates as aggressively as the US Federal Reserve, he hinted, because it needed to balance “the immediate inflationary impact of higher energy prices” against their “potential disinflationary impact . . . through weaker incomes and demand at longer horizons”.Pill added that while he was willing to back bigger rate increases if needed, his vote in August would be determined by the flow of new economic data and analysis of it.Moreover, because of the uncertainties and the current split of opinion among policymakers, it was no longer helpful for the MPC to give guidance on the future path of policy, he argued. Three members of the MPC wanted to raise interest rates by 0.5 percentage points in June, but votes have been cast in recent meetings for leaving policy unchanged. “Using forward guidance of that form requires near-unanimity . . . As the patterns of individual votes on bank rate in recent months reveals, unanimity about the short-term interest rate outlook no longer exists,” said Pill, adding: “Such guidance is a trap: attractive at the outset but difficult to exit from gracefully.” More

Deploying the full might of the federal US military procurement apparatus to fly baby milk across the Atlantic might seem a rather heavy-handed use of force. But the global snarl-ups in value chains are opening up all sorts of exciting possibilities for government intervention, particularly in the US. Just one problem: there aren’t many signs the Biden administration has grasped the importance of international trade as well as that of shovelling out dollars when securing supplies of vital goods.In May the president invoked the Defense Production Act — legislation dating back to the Korean war — to fly infant formula from Germany to the US to deal with a sudden shortage of baby milk. It’s a serious health issue, of course, and the kind of market failure where federal government can absolutely play a role. But the use of federal procurement both in this case and when creating Covid vaccines early in the pandemic, while effective in the short term, ignored the international dimensions. Similar problems will quite likely pop up in the government’s efforts to secure other strategically important supply chains like semiconductors as well.The baby milk shortage doesn’t need more federal spending to overcome market failures in normal circumstances. As Scott Lincicome from the Cato Institute think-tank recently testified to Congress, the crisis was a result of destructive trade, regulatory and (possibly) long-term procurement policy.The US imposes tariffs on imported formula to protect its dairy producers, and the Food and Drug Administration makes it hard for foreign manufacturers, including from Europe, to get authorisation for their products. You don’t need to be a Europhile paediatrician to find it improbable that a continent as risk-averse about food regulations as Europe shoves dangerous milk into its babies. This, plus clumsy state procurement using a preferred-bidder system, has created the kind of market concentration increasingly evident in the US economy. It was a supply interruption at just one company, Abbott, which rippled out across the whole US.It provides an excellent example of how national self-sufficiency doesn’t deliver security of supply. Flexible market-orientated trade, regulation and procurement would be better than the federal government reacting ex post by chartering planes to fly infant formula round the world.Even when US federal procurement is pre-emptive and effective, as with the development of Covid vaccines, understanding the international dimension would improve it. In a detailed recent paper, Chad Bown of the Peterson Institute looked at how federal cash was used to develop vaccines in 2020 and early 2021, both by pulling (commitments to buy) and pushing (research and production subsidies). At least one thing Donald Trump did had to work, if only by the law of averages, and Operation Warp Speed, the vaccine development programme that started in early 2020 and used the DPA, did so. Unlike the EU, with its fragmented power structure and lack of centralised spending, the US federal government has both executive power and cash, and it produced hundreds of millions of vaccines by early 2021.But then something changed. By the end of 2021, Bown says the EU and India had easily overtaken, producing roughly 2.5bn and 1.6bn doses respectively to the US’s 1bn. Crudely put, DPA contracts put the government at the front of the line rather than expanding overall capacity, and they legally constrained manufacturers to produce only for the US market. US purchases of the inputs used to make vaccines also scooped up much of the international supply and led to (misguided) accusations from Indian and European manufacturers that the US was operating an export ban.The EU, as it endlessly emphasised — and with some justification — was continuing to play its traditional role as pharmacy to the world. It did actually institute a regime allowing export controls but still continued to sell abroad. If the US continues to maintain a domestically-focused mindset in its supply chain policy, problems of the baby milk and vaccine type are likely to recur. One sector to watch is semiconductors. Assuming the manoeuvring in Congress doesn’t block it, the US will spend $52bn to bring the chip supply chain on to American soil. But the massive complexity of the semiconductor ecosystem will still leave it dependent on companies abroad. For a start, however much European institutes like the Belgium-based Imec may be lured by federal dollars to create facilities in the US, there’s no way America will replicate the early-stage research that goes on there.There are plenty of market failures in these strange, fractured times for the global economy and plenty of reason for governments to intervene. But focusing heavily on centralised state spending to keep or create manufacturing at home is rarely the best way to do it. You can’t run the highly complex industries of a modern economy on an autarkic war footing, and the US will continue to make mistakes if it [email protected] More

LONDON (Reuters) – Sterling, down nearly 12% against the dollar since the start of this year, is likely to regain around half of its lost ground in 2022 over the next 12 months as the Bank of England looks set to continue raising interest rates, a Reuters poll found.The BoE was the first major central bank to increase borrowing costs to try to tame soaring inflation but has been overtaken by a hawkish United States Federal Reserve.Since December the BoE has lifted Bank Rate five times and said last month it would act “forcefully” if it saw signs of inflationary pressures becoming more persistent. However, the Bank has kept increases to 25 basis points compared to a recent 75 basis point hike by the Fed – with more expected.An escalating row over Northern Ireland’s status following Brexit that could upend British trade ties with the European Union has also hurt sterling.Adding to the currency’s woes, the economy is showing clear signs of a slowdown while Prime Minister Boris Johnson’s tenure is under threat following the resignation of ministers who said he was not fit to govern.Yet according to the July 1-6 Reuters poll of 60 foreign exchange experts the pound was expected to gain almost 7% and be worth $1.27 in a year. It was trading around a two-year low of $1.19 on Wednesday.”It’s going to be a rocky period before we turn higher. Most people, like ourselves, think cable will turn around by the end of the year because the dollar story turns,” said Chris Turner at ING.”But there is a big question mark about that … and sterling has many hoops to jump through.”When asked what sterling’s lowest point would be in the next three months the median forecast given was $1.18, with estimates ranging from $1.10 to $1.20. It touched $1.1897 on Tuesday.”While the domestic economic cycle is going to be a headwind for sterling and the political issues pose downside risks, stretched valuations and positioning levels suggest the downside potential is limited,” said Roberto Cobo Garcia at BBVA (BME:BBVA).Against the euro, sterling fared better this year, weakening only around 2%, and it was expected to trade in a narrow band over the next 12 months with 1 euro likely to get you 86-87 pence, the poll found.(For other stories from the July Reuters foreign exchange poll:) More

Shares of the company rose 4.2% in trading before the bell.So far this year, the stock lost about 35% of its value, after the company cut its production outlook by half and amid a broader market sell-off. The company, which went public late last year and counts Amazon.com Inc (NASDAQ:AMZN) as an investor and customer, has been ramping up production of its R1S sport utility vehicle and R1T pickup truck.It has also benefited from soaring demand for electric vehicles.Rivian said it produced 4,401 vehicles in the second quarter at its manufacturing facility in Normal, Illinois, up from 2,553 vehicles in the previous quarter. More