Aurelia Butler

Britain has already launched over 30 public consultations, including on reforming insurance rules on Thursday, to keep London a globally competitive financial centre after being largely cut off from the European Union due to Brexit.”The debate has moved on from alignment with the EU in exchange for future access. Instead, the UK should focus on closer alignment and cooperation with the U.S. and with other markets around the world,” the joint report from New Financial in London and the Atlantic Council in Washington said.Britain should focus on “low-hanging fruit” such as faster tweaking of inappropriate rules inherited from the EU, but be wary of going above and beyond standards implemented internationally, the report said.The report said Britain’s capital markets have the potential to grow by up to 40% if it can close the gap with the United States, this equates to an additional $75 billion annually. More

China’s zero-Covid policy risks creating even greater economic damage, experts have warned, despite the Omicron wave receding in several regions. Covid-19 cases in six provinces, including Shanghai, Heilongjiang and Jilin, have fallen over the past seven days after many residents were prevented from leaving their homes for weeks, suggesting that the worst of the Omicron outbreak could be over for regions that were hit early. But even as cases wane in the most badly affected cities, authorities are still imposing intercity travel restrictions that are clogging up vital transport links between suppliers and manufacturers. “The supply chain impact from this lockdown will be at least as bad, if not worse, than in spring 2020,” said Lu Ting, chief China economist at Nomura. “Wuhan as an industrial base is not as important as Shanghai,” he added, explaining the city and the surrounding Yangtze River Delta area were home to the country’s automotive, semiconductor and textile industries. Lu added that the timing of this Omicron wave, which started in March, was also worse for economic growth than the first coronavirus outbreak when its manufacturing and construction sector was in a lull because of the lunar new year holiday. Logan Wright, head of China markets research at Rhodium Group, a consultancy, said that even though some authorities were beginning to ease restrictions within cities, it was not a “cause for relief” for manufacturers, which rely on the free flow of goods between metropolises. Wright estimated that inter-city road traffic in Jiangsu and Zhejiang, both of which border Shanghai, had plummeted about 70 per cent and 50 per cent respectively this week compared with 2021. The Omicron surge occurred at a delicate time for the country’s economy following a debt crisis at several large real estate companies that spread across the property sector. Beijing is targeting growth of 5.5 per cent this year, which would be the lowest annual rate in three decades. “The deterioration of the property sector has been accelerated by lockdowns. When people are unable to move around, it has a knock-on impact on the service sector and then on incomes,” said Wright. The warnings followed stinging criticism of the government from the founder of one of Asia’s biggest private equity investors. Weijian Shan, whose PAG group manages more than $50bn, said Beijing’s policies had caused “deep economic crisis” comparable to the global financial crash.China’s strict measures are also having a ripple effect beyond its borders, with manufacturers struggling to get crucial components on time. This week, General Electric said “significant supply chain constraints” had resulted in lower output in its commercial aircraft engines business. According to logistics monitoring group FourKites, ships in Shanghai are waiting on average 8.9 days for cargo to change hands, an increase of 162 per cent compared with March 12, just before the city went into a partial lockdown.“This is exacerbating global inflation, with businesses having difficulty getting components from the Chinese manufacturing sector,” said Wright.

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Large electronics makers, including Apple, HP and Dell, could face manufacturing delays with big parts of their supply chain located in badly hit regions around the Yangtze River Delta. A Nikkei Asia analysis revealed that about half of Apple’s top 200 suppliers had facilities in and around Shanghai, where lockdown restrictions have disrupted production and logistics networks. Shanghai authorities have started to allow some people in neighbourhoods with no infections to leave their homes, but much of the city’s 25mn residents remain under lockdown. The financial hub announced more than 10,600 cases on Thursday, the fifth consecutive day reported infections have fallen.

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But as cases in the worst-affected regions during the initial Omicron outbreak have plateaued or started to fall, four provinces — including Beijing and Shandong — remain on high alert as infections rise. The capital reported 50 local infections on Thursday for tests that were administered on Wednesday after the authorities ordered three rounds of citywide tests for its 20mn residents this week.Beijing hopes to avert a Shanghai-style protracted lockdown and instead clamp down on the chains of community transmission much like the manufacturing hub of Shenzhen managed to do in March. As some regions begin to ease curbs, Goldman Sachs estimated that areas that contributed 15 per cent of China’s gross domestic product were under partial or full lockdown, down from 35 per cent in late March. Additional reporting by Xueqiao Wang in Shanghai More

The European Central Bank has issued a mea culpa for persistently underestimating inflation, blaming its increasingly large forecast errors on soaring energy prices, supply chain bottlenecks and a faster economic rebound from the pandemic.The ECB said in a paper published on Thursday that it had tried to learn from its mistakes by improving its models. But it warned that the fallout from Russia’s invasion of Ukraine and the further lifting of Covid-19 restrictions meant that inflation would “remain very challenging to forecast in the near term”.Inflation has consistently risen faster than the ECB predicted for the past year, hitting a eurozone record of 7.4 per cent in March, and stirring up criticism even from members of the central bank’s own governing council, about the weakness of its forecasting models. Data published on Thursday showed German inflation increased to a new 40-year-high of 7.8 per cent in April, while Spanish inflation fell from a 37-year high owing to lower electricity and fuel prices. The ECB made its worst ever inflation forecast in December when it predicted eurozone consumer price growth would fall to 4.1 per cent in the first quarter of this year. Instead it shot up to 6.1 per cent, prompting the ECB to accelerate its plans for stopping net bond purchases and opening the door to a potential interest rate rise as early as July.The ECB’s inflation target is 2 per cent.Eurostat is on Friday due to publish its flash estimate of eurozone inflation in April, which is expected to remain close to March’s record level. Luis de Guindos, ECB vice-president, said on Thursday that the peak of eurozone inflation was “very close” and predicted it would decline in the last six months of this year.The ECB said its poor record in forecasting inflation was mostly due to “unexpected developments in energy prices, coupled with both the effects of reopening following the removal of coronavirus-related restrictions and the effects of global supply bottlenecks.”Wholesale gas increased more than six times in the year to the fourth quarter of last year, while wholesale electricity prices rose almost fivefold in the same period. “The exceptional increase in energy prices was largely unanticipated by market participants,” it said, adding that its assumptions were set “according to market-based futures”.The impact of wholesale energy prices on consumer markets had come much quicker than it expected too. “For electricity, wholesale prices were passed on to consumers almost immediately in some countries, despite this pass-through historically having taken three to twelve months,” it said.For many years, the ECB had overestimated future inflation, but Thursday’s paper said its underestimation of price growth started in the first quarter of last year and had “become more pronounced since the third quarter of 2021”.But it added that “international institutions and private forecasters have recently made similarly large errors” and its record was no worse than those of the US Federal Reserve and Bank of England. The Fed stopped insisting inflation was “transitory” last November. Unlike the ECB, both the Fed and the BoE have raised rates in response to price pressures. The ECB said “recent developments imply the need for a more detailed assessment of the energy market,” adding that it had updated its models to include separate assumptions for wholesale gas and electricity prices, to account for their recent decoupling from oil prices.

Inflation in Germany was 7.8 per cent in April, up from 7.6 per cent in March, according to an estimate published on Thursday by the federal statistical agency, which said growth in energy prices slowed to 35.3 per cent, down from 39.5 per cent in the previous month.Spain’s statistics office estimated inflation in the country fell in April to 8.3 per cent, down from 9.8 per cent in March, which was its highest level since 1985. But core inflation in Spain, excluding energy and processed food prices, continued to rise to a 27-year high of 4.4 per cent.Markus Gütschow, an economist at Morgan Stanley, said the ECB “may take some relief” from signs that inflation is nearing its peak, which “could take some pressure off to hike as early as July . . . but the fact that core pressure continues to build is clearly a worrying sign for policymakers”. More