Aurelia Butler

Good evening,Cuts in National insurance and fuel duty were among the highlights of Rishi Sunak’s Spring Statement today, but the UK chancellor banked most of a windfall in public finances as a war chest for tax cuts ahead of the next election, with minimal help provided to households and services hit by surging inflation.Sunak hailed the raising of the National Insurance threshold by £3,000 to £12,570, bringing it into line with the point at which people start paying income tax, as “the largest single personal tax cut in a decade”. However, the promised income tax cut from 20p to 19p in 2024 brought criticism that — as recent experience has taught us — two years is a long time in economics and the state of public finances that far ahead is far from certain.There was also criticism that the cuts in National Insurance would be wiped out by the new health and social care levy that takes effect next month, with the Labour opposition hitting out at “Alice in Wonderland” economics that did little to help struggling families cope with soaring energy bills. Similar criticism came from energy and environmental groups, while lobby groups attacked the “sticking plaster” support on offer from the chancellor.Sunak’s day began with the news that UK inflation hit a 30-year high of 6.2 per cent in February. The monthly rise of 0.8 per cent was the fastest since 2009, showing the impact of surging global prices on energy, petrol, food and durable goods. An even steeper rise is due next month when new energy prices kick in.New economic projections from the Office for Budget Responsibility, unveiled by Sunak in his speech, added to the gloom. The OBR expects inflation to average 7.4 per cent this year and GDP to grow 3.8 per cent in 2022 and 1.8 per cent in 2023.The OBR also forecast that household energy bills would increase by a further £830 a year from October and living standards in 2022-23 would fall by the biggest amount in any financial year since records began in 1956-57. Economics editor Chris Giles in his dissection of the smoke and mirrors of today’s speech characterised it thus: “stealthy tax increases, stealthy real public spending cuts and very headline public tax cuts”.Key linksFull FT coverageFull text of Sunak’s speechTreasury documentsLatest newsRenewed concerns about oil outlook push Brent crude above $120European consumer confidence falls sharply amid Ukraine crisisWall Street average bonus hit record high of $257,500 last yearFor up-to-the-minute news updates, visit our live blogNeed to know: the economyThe energy crisis continues. The US and its allies will announce an escalation of sanctions on Russia during President Joe Biden’s trip to Europe which begins today, including more action against the Russian oil sector. Germany is still holding firm against a full embargo of Russian energy. Russia in the meantime is cutting back capacity on a key pipeline delivering crude to global markets and said it would switch European payments for gas supplies to roubles. Our Energy Source newsletter discusses the commodity’s weaponisation.EU leaders will discuss joint purchasing and gas storage facilities at a two-day summit starting tomorrow, our Europe Express newsletter reports. Belgium’s prime minister told the Financial Times that member states needed to avoid a fight for deals in a rush to replace Russian supplies. In the UK, Prime Minister Boris Johnson is expected to push through proposals for more onshore wind farms as part of a new energy supply strategy.Traders at the FT Commodities Global Summit warned of a looming global diesel shortage and a “broken” European gas market. Premium FT subscribers can gain free access to videos of the sessions once the summit ends by using the promo code: PREMIUM2022.Soaring oil and gas prices and the potential for shortages are stark reminders that the road to cleaner energy is far from smooth. Join us on April 7 for our Energy Source Live Summit where we will take a deep dive into the issues set to reshape the US energy industry. Register here today.Latest for the UK/EuropeThe US has agreed to ease steep Trump-era tariffs on UK steel and aluminium products from June 1. The UK in return will lift tariffs on US bourbon as well as agricultural and other goods.Andy Haldane, outgoing head of the government’s levelling up task force and former head economist at the Bank of England, told the FT the cost of living crisis would hit left-behind areas the hardest.Germany’s Ifo Institute slashed 2022 growth forecasts for Europe’s largest economy to between 3.1 and 2.2 per cent, from its earlier prediction of 3.7 per cent, citing surging commodity prices, sanctions, supply bottlenecks and increased economic uncertainty. The FT editorial board warned of the dangers to the European economy from low growth and high inflation and the importance of the ECB revising and adapting plans to adapt to changing circumstances.Global latestDespite the enormous effects of the war in Ukraine, global monetary policy must continue to focus on controlling inflation and inflationary expectations, writes chief economics commentator Martin Wolf. Countries need to apply their fiscal resources to look after refugees and help the poorest from the impact of surging food prices, he argues.Bookmark this: The FT inflation tracker shows country by country trends in inflation indices with breakdowns for energy and food costs.Given how badly the world has done in distributing vaccines equitably, the omens for how it will deal with the looming food crisis are not good, says the FT editorial board. Sanctions against Russia are entirely justified, it adds, but richer countries must cushion the blow for poorer ones caught in the crossfire. Ireland has launched a €12mn crop cultivation scheme to boost grain production. Imran Khan came to power in Pakistan as a populist, religious reformer with a promise to end corruption and fix longstanding economic problems. But as our Big Read explains, soaring inflation and deteriorating living standards threaten his political future.Need to know: businessNestlé, the world’s largest food company, is to halt sales of most of its products in Russia after criticism from Ukraine’s leaders over its presence in the country.BNP Paribas, the eurozone’s biggest bank, and Crédit Agricole have joined others in severing ties with Russia. French rival Société Générale is among the foreign banks with the biggest exposure via its Rosbank network, but has yet to clarify its intentions, warning of extreme scenarios such as an expropriation of its assets. Yesterday, Ukraine’s central bank chief urged international banks to cease all business in Russia.Companies face a huge increase in bills if ministers allow Gazprom’s UK energy supply business to go bust, industry leaders have warned. Many of its 30,000 corporate customer are on contracts negotiated long before the current spike in prices began.Chinese companies are walking a fine line between conducting normal business in Russia and bankrolling its war against Ukraine, writes our China economics reporter Sun Yu. Some have decided there is too much risk trading with their northern neighbour as sanctions tighten, but others are determined to expand their trade.International business editor Peggy Hollinger says foreign businesses in China need to learn lessons from the exodus from Russia of companies fearing sanctions or backlashes from customers. One economist described it as a “case study for how the global system can unravel”.Carnival, the world’s biggest cruise company, has warned that rising fuel prices caused by the Ukraine crisis would knock back its recovery, just as “wave season” begins and countries relax pandemic travel restrictions. Saga also warned of the hit from the Omicron variant and the Ukraine crisis on its travel business.The pandemic-fuelled boom in online shopping has been great for warehouse businesses. Prologis, the world’s largest warehouse owner, is bidding €21bn to buy Blackstone’s portfolio of 2,000 properties in what would be the biggest-ever private real estate deal. “Safe and sexy together rarely describe any investment. In today’s uncertain environment, they do apply to warehouses and logistics,” says Lex.Chief business commentator Brooke Masters says some companies are honest about passing cost increases on to customers, but others are practising “shrinkflation” by reducing the size of their products. Penny pinching is also spreading beyond consumer goods to restaurants and hotels, she adds.Cadbury owner Mondelez insists a cut to the size of multipack Wispa chocolate bars is part of a ‘proactive strategy to help tackle obesity’ © Roy Perring/AlamyThe World of WorkThe “leakiness” of modern work into evenings and weekends has left many feeling starved of time, writes employment columnist Sarah O’Connor, leading to a new push for the four-day week. Properly managed, the shift could benefit employers as well as employees, she argues.Two years of limited interactions with our office colleagues may have meant fewer opportunities for workplace relationships, but is that a good or bad thing? Our latest Working It podcast discusses the pros and cons of office romance.Get the latest worldwide picture with our vaccine trackerAnd finally . . . The organisers of the Oscars would love this weekend’s Academy Awards to be a comeback story after last year’s low-key (and low ratings) Covid-affected ceremony. Can the grand bash filled with star names and box office successes help draw back public attention?© FT montage More

Global bond markets have suffered their deepest downturn since at least 1990 as investors brace themselves for rapid rises in interest rates from central banks that are battling the highest inflation in decades.The Bloomberg global aggregate index, a broad gauge of government and corporate debt, has fallen by more than 11 per cent since its peak in January 2021, eclipsing a 10.8 per cent decline during the financial crisis in 2008 and marking the heaviest pullback in the history of the index running back to 1990. The selling has accelerated since the start of the year as central bankers signal their determination to rein in inflation, which has soared to the highest levels in decades — even if they risk choking off the economic recovery in the process. Federal Reserve chair Jay Powell on Monday hinted that the US central bank is prepared to act more aggressively if necessary to keep a lid on price rises after raising interest rates last week for the first time since 2018. Markets are now expecting at least seven further rate US rate increases this year. The Bank of England raised interest rates for a third consecutive meeting this month and is expected to lift short-term borrowing costs above 2 per cent by the end of 2022. Even the European Central Bank outlined a faster-than-expected wind-down of its bond-buying programme at its most recent meeting. Its hawkish signalling comes as policymakers focus on record inflation despite the eurozone facing a greater hit than many other global economies from the war in Ukraine.“This is a very different world for bond investors,” said Mike Riddell, a senior portfolio manager at Allianz Global Investors. “For the last 20 years we’ve lived in a world where as soon as growth starts to weaken central banks look to ease policy. Now they are determined to tighten even if that risks a recession.”The US Treasury market — which is on course for its worst month since November 2016 — has borne the brunt of the recent selling. The US 2-year note yield, which is highly sensitive to expectations of the path of short-term interest rates, climbed to a three-year high of 2.2 per cent this week, up from just 0.73 per cent at the start of the year. The two-year Treasury is on track to post its biggest quarterly rise in yield since 1984. Longer-term yields have also jumped, albeit more slowly, largely as a result of rising inflation expectations, which chip away at the allure of holding the securities that provide a fixed stream of income long into the future. The US 10-year yield hit its highest since May 2019 at 2.42 per cent on Wednesday.Bonds in Europe have followed suit, while even government bonds in Japan — where inflation is lower and the central bank is expected to buck the global hawkish trend — have recorded losses this year.Adding to the pain for investors, corporate debt has suffered even sharper losses, widening the extra yield, or spread, that it offers relative to government bonds.“For credit investors the bleakest scenario is when both interest rates and credit spreads move against you,” said Tatjana Greil Castro, co-head of public markets at Muzinich & Co. “That’s exactly what we are experiencing at the moment.”The spread on an Ice Data Indices measure of high-grade European corporate debt has grown to 1.45 percentage points from 0.98 percentage points at the end of last year. The equivalent US spread has widened to 1.31 percentage points from 0.98 percentage points. “Interest rates have moved higher across jurisdictions. You can’t just say ‘we’ll focus on Europe or we’ll focus on the UK’. Geographically there’s nowhere to hide,” said Greil CastroLosses for the safest government debt have also accompanied a pullback in equity markets. Although stocks have recovered most of the losses they made since Russia’s invasion of Ukraine major indices including the S&P 500 remain lower so far this year.For some investors, the moves renew doubts about the traditional role of bonds within a portfolio as a counterweight that tends to rally when riskier assets are suffering, such as the classic “balanced” portfolio of 60 per cent equities and 40 per cent bonds.“It’s a huge challenge to the 60-40 model,” said Eric Fine, a portfolio manager at Van Eck. “All bond funds are seeing outflows, including Treasury funds. Investors have not experienced this, analysts have not experienced this, it’s a new paradigm”. More

The writers are co-chairs of the Sovereign Debt Working Group of the Bretton Woods CommitteeSince late February, the world’s attention has been focused on Russia’s brutal invasion of Ukraine. However, some of the most damaging economic and financial impacts of this act of aggression will be felt by non oil-exporting developing economies in Africa, Asia and Latin America.Even prior to the invasion, many of these countries were experiencing debt distress, reflecting the strains of their response to the Covid-19 pandemic. Recent events in Ukraine have made the prospect of a new sovereign debt crisis both more imminent and more damaging. Adding to the potential downside risks for these countries, the mechanisms currently in place to deal with sovereign debt problems have become dysfunctional. While the need for reform had been recognised previously, the G20s’ recent effort in this direction appears to have failed. Renewed international action is needed urgently to prevent a paralysing stalemate. However, the current crisis will make finding a solution more difficult, just as it has raised the cost of failure. The added risks for low-income countries from recent events are self-evident: the economic and financial fallout from the Ukraine conflict — including the unprecedented sanctions imposed on Russia, and its expected default on its sovereign debt — has already produced substantial downward revisions to global growth forecasts, but upward revisions to expected near-term inflation. Prior to the start of the war, the impact of the pandemic on low-income countries’ public spending and revenues had produced an increase in their gross sovereign borrowing equivalent to about 25 per cent of their gross domestic product. As shown in World Bank data, this increase was somewhat larger in percentage terms than that of higher-income borrowers. However, as IMF calculations demonstrate, the increase in these countries’ debt service costs relative to government revenues was dramatically greater than for higher-income economies. Co-operative policy action after Covid struck staved off an immediate debt crisis for low-income borrowers. In addition to providing new financial support programmes, the IMF and the World Bank in May 2020 agreed on a Debt Service Suspension Initiative (DSSI) that was then endorsed by the G20 finance ministers, and eventually extended for all multilateral and bilateral official lending until the end of 2021. With the DSSI now ended, a critical challenge is to make the debt exposure of low-income countries sustainable. Undoubtedly, this will require establishing a workable mechanism for restructuring sovereign debt. However, as noted in the World Bank’s latest World Development Report, the G20’s effort to create a new system for debt renegotiation — the Common Framework for Debt Treatment — appears to have failed. According to analysis by the Bretton Woods Committee’s Sovereign Debt Working Group, a key factor sharply weakening the pre-existing arrangements for sovereign debt renegotiation has been the lack of transparency regarding the scale and terms of outstanding debt obligations. In part, this reflects the sharp shift in the sources of lending to low-income countries after the global financial crisis. China is now the largest single lender to these borrowers, but Chinese institutions often fail to provide consistent or complete data reporting on their lending. An immediate goal of reform should be to achieve real progress on transparency, while addressing the related challenge of strengthening the degree of engagement, fairness and trust in the process of sovereign restructuring. To be successful, reforms must reach beyond simple data transparency to greater clarity regarding the entire restructuring process. This won’t be easy or quick: the G20 finance ministers’ latest communiqué supported the goal of enhanced debt transparency, but in practice did no more than mention the existing — and apparently failing — effort. Nonetheless, progress is possible. The Working Group has developed a menu of concrete steps that would meaningfully reduce crisis risks. The key uncertainty is whether the principal protagonists are capable of meaningful co-operation, or whether the current spiral of great power confrontation will prevent mutually beneficial action. Global leadership is needed urgently. The potential costs of failure include a new sovereign debt crisis that would do the worst damage to the poorest and most vulnerable. More

The symbolism of Ireland’s government telling its farmers to grow more crops because of wartime shortages should be lost on no one: it recalls Irish ministers in the 1940s ordering growers to plant more grain during the second world war. This time round the programme, designed to replace imports from Russia and Ukraine, relies on cash rather than coercion. The rush across the EU to get more crops in the ground goes against the decades-long direction of European agricultural policy and subsidies. Warnings of a global food crisis are not a drill.It’s not Covid-related general interruptions to trade that are causing soaring food prices and shortages. There was a false alarm along those lines early in the pandemic, when governments worried about shortages and export restrictions similar to those on personal protective equipment. In fact, the supply chains held up quite well. The current episode looks more like the global food crisis in 2007 to 2008. Shocks didn’t emanate from the trading system but ended up there, with countries slamming on export controls to keep produce at home.Food prices have been rising sharply since the middle of last year, chased higher by energy costs — not mainly the diversion of crops to biofuels but the fossil-fuel intensity of modern agriculture, including the use of synthetic nitrogen fertiliser. The Ukraine war has disrupted output and exports of grain and fertiliser from two of the world’s biggest producers. There’s a historical irony here: Stalin’s insistence that Ukraine keep exporting grain in the early 1930s to pay for imports of machinery to industrialise the Soviet Union worsened the Holodomor famine, in which more than 3mn Ukrainians starved to death.The world has had 15 years since the previous food crisis to prepare its emergency response, including agreements to minimise export controls. It hasn’t done very well. The Global Trade Alert monitoring service reports food export curbs more or less doubling since the middle of 2021. By now there’s another story every few days of governments restricting food sales abroad. It’s a global prisoners’ dilemma: it’s in everyone’s interest to keep exports flowing, but no one wants to run short by being the only country that does.During the crisis of 2007 to 2008, India and other countries panicked and banned exports of rice despite no evidence of global shortages, resulting in huge price rises. In response, governments created the Agricultural Market Information System (Amis) to promote transparency in production. That’s fine when there are no shortfalls, but doesn’t guarantee co-operative policy reactions if there are. Despite discussions at the World Trade Organization, there are no binding agreements between governments to eschew food export restrictions. Export bans are illegal under WTO law, but cases would almost certainly fail under the exception for temporary restrictions “to prevent or relieve critical shortages of foodstuffs or other products”, a loophole you could drive a fleet of combine harvesters through.Governments can try stimulating output in the short term, as Ireland and the EU are doing. The US will do the same, though it’s already pumping out huge production-distorting handouts to compensate farmers for retaliation from Donald Trump’s absurd trade war with China, and US wheat is often already too expensive to compete globally.One-off support schemes to turn unused land back to growing basic crops are worth trying if they don’t get baked into permanent production-distorting subsidies. But they should represent only a temporary reversal of the sensible longer-term direction of encouraging farmers to go up the value chain. (The EU is actually a net exporter of food, including selling wheat abroad, but it’s disproportionately high-end stuff: Brussels could put on export restrictions to keep its food at home, but even Europeans can’t live on Gorgonzola and champagne alone.)In any case, the increase in supply is not likely to be dramatic. It’s not generally high-quality productive land that farmers have allowed to go fallow. And time is short: Ireland’s farmers had better get a move on before the barley planting season ends in a few weeks. Digging for victory isn’t a major short-term solution. More helpful would be cutting tariffs to ensure that what grain there is ends up where it’s needed, backed up with rapid aid disbursements to developing countries to give them more purchasing power. Australia, where the government is handing out export credits to wheat exporters, has surpluses to sell, as does India.For both substantive and signalling reasons, the EU should quickly push through the preferential trade deals with Australia and New Zealand once the French presidential election is done and Emmanuel Macron doesn’t have to strike agricultural protectionist poses any more. As well as Australia’s wheat, New Zealand’s fruit and vegetables, grown in the southern hemisphere summer, will be welcome when the northern winter comes.Even during food crises there’s generally enough to eat in the world as a whole, but it’s in the wrong places. You can try producing more, or you can move it to the right ones. In the short term, the second of those may be politically harder but it’s more likely to be [email protected] up for Trade Secrets, the FT’s newsletter on globalisation More