Aurelia Butler

In an annual report to parliament, Broadbent said there was no guarantee that the inflationary impact of rising import prices would fade quickly, adding that rate-setters would monitor domestic cost pressures carefully.He said it remained to be seen what that meant for policy decisions.”This is the most challenging period for monetary policy since inflation targeting began in 1992,” he wrote. More

The Ukrainian military said one soldier had been killed and six wounded in increased shelling by pro-Russian separatists using heavy artillery, mortar bombs and Grad rocket systems in the two breakaway regions over the previous 24 hours.Russian President Vladimir Putin has massed more than 150,000 troops near Ukraine’s borders, according to U.S. estimates, and signed a decree on the deployment of troops in the breakaway Donetsk and Luhansk enclaves to “keep the peace” – a justification the United States says is “nonsense”.Putin on Monday recognised the separatist enclaves in the Donbass region of eastern Ukraine which adjoin Russia, deepening Western fears of a major war in Europe by raising the prospect of a full-scale invasion beyond the breakaway areas.The United States, the European Union, Britain, Australia, Canada and Japan responded with plans to target banks and elites while Germany froze a major gas pipeline project from Russia.British Foreign Secretary Liz Truss, announcing more measures on Wednesday, said Britain would stop Russia selling sovereign debt in London.”We’ve been very clear that we’re going to limit Russian access to British markets,” Truss told Sky. “We’re going to stop the Russian government with raising sovereign debt in the United Kingdom.”Britain on Tuesday announced sanctions on three billionaires with close links to Putin, and five small lenders including Promsvyazbank. But, like other U.S. allies, it has said more sanctions would come if Russia launched a full invasion of its neighbour.”There will be even more tough sanctions on key oligarchs, on key organisations in Russia, limiting Russia’s access to the financial markets, if there is a full scale invasion of Ukraine,” Truss said.Russian Foreign Minister Sergei Lavrov brushed off the threat of sanctions no Tuesday.”Our European, American, British colleagues will not stop and will not calm down until they have exhausted all their possibilities for the so-called punishment of Russia,” he said.China said it never thought sanctions were the best way to solve problems, a foreign ministry spokeswoman said. She called for “dialogue and consultation”.Moscow is calling for security guarantees, including a promise that Ukraine will never join NATO, while the United States and its allies offer Putin confidence-building and arms control steps to defuse the stand-off. Satellite imagery over the past 24 hours shows several new troop and equipment deployments in western Russia and more than 100 vehicles at a small airfield in southern Belarus, which borders Ukraine, according to U.S. firm Maxar. Ukraine has started conscripting reservists aged 18-60 following a decree by President Volodymyr Zelenskiy, the armed forces said.BOLSTERING NATO FLANKU.S. Secretary of State Antony Blinken and French Foreign Minister Jean-Yves Le Drian cancelled separate scheduled meetings with Lavrov on Tuesday as weeks of frantic diplomacy failed to end the crisis.Plans announced by U.S. President Joe Biden to bolster Estonia, Latvia and Lithuania include sending 800 infantry soldiers and up to eight F-35 fighter jets to locations along NATO’s eastern flank, a U.S. official said, but are a redistribution, not additions. Putin did not watch Biden’s speech and Russia will first look at what the United States has outlined before responding, according to Kremlin spokesperson Dmitry Peskov, cited by Russian news agencies.Putin said he was always open to finding diplomatic solutions but that “the interests of Russia and the security of our citizens are unconditional for us.” Germany said on Tuesday it was halting the $11 billion Nord Stream 2 pipeline owned by Russian state-owned gas giant Gazprom (MCX:GAZP), a move likely to raise gas prices in Europe. Built and awaiting German approval, the pipeline had been set to ease the pressure on European consumers facing record energy prices but critics including the United States have long argued it would increase Europe’s energy dependence on Russia.German Economy Minister Robert Habeck warned that gas prices in Europe were likely to rise in the short term. Dmitry Medvedev, Russia’s former president and now deputy chairman of its Security Council, suggested prices could double.The Kremlin said it hoped the Nord Stream delay was temporary and Putin said Russia “aims to continue uninterrupted supplies” of energy to the world.U.S. sanctions target Russian elites and two state-owned banks, excluding them from the U.S. banking system, banning them from trading with Americans, and freezing their U.S. assets. They also seek to deny the Russian government access to Western financing. More

They added that the new measures, which introduce restrictions on ‘secondary market’ trading of rouble and non-rouble-denominated debt issued after March 1, were unlikely to see bonds ejected from key debt indexes as the curbs did not apply to bonds already issued and in circulation. “We see limited implications for existing non-resident Eurobond holders,” JPMorgan’s analysts said in a note to clients. “As existing bonds can still be traded in the secondary market, index exclusion considerations are immaterial at this point, in our view, as eligibility continues to be subject to liquidity and accessibility assessments,” they added.JPMorgan also said that its emerging market client survey had shown non-resident positioning in Russian Eurobonds looked light. “Investors have maintained a firm UW stance since 2018 with our latest results standing out at the most UW level in the survey’s history which began in 2001.” More

The Ukraine crisis poses a severe threat to global optimism about the recovery from the pandemic after Russia ordered troops to enter Ukraine’s separatist regions, triggering a round of sanctions and higher energy prices.Even before the Ukraine crisis had escalated, central banks were sounding the alarm over the threat of a prolonged period of high inflation. Now the tensions are forecast to push oil and gas prices higher, and further slow the economic recovery, especially in Europe, increasing concerns over the course of inflation and amplifying the dilemma of when to tighten monetary policy. Most economists think advanced economies have the resilience to emerge without deep scars despite the difficulties. Daniela Ordonez at Oxford Economics noted that, although the “Russia crisis will put economic optimism to the test”, confidence was high after strong business surveys. But an escalation of tensions could quickly sour the mood in advanced economies, warned Nathan Sheets, global chief economist at Citi. A conflict across Ukraine would undermine his base case of a relatively smooth economic path ahead as inflationary pressures squeezed household incomes. “In the face of these mounting pressures, recession is no longer seen as just a tail risk,” he said. The immediate threat to the global economy from escalating sanctions will be limited, economists believe. Although some sectors and commodity users are dependent on trade with Russia, overall exports have fallen back sharply since Moscow annexed Crimea in 2014. Russia’s share of German exports has fallen from 3.5 per cent in 2014 to under 2 per cent and its share of US exports is less than 0.5 per cent. But the indirect effect of Russia’s actions on global oil and gas prices threatens to be much more significant. Brent crude prices rose sharply on Tuesday to levels just below $100 a barrel, with wholesale gas prices also up sharply. Bethany Beckett, economist at Capital Economics, said that “clearly, a Russia-Ukraine conflict raises the risk that inflation stays higher for longer”, hitting energy consumers among both companies and households. But if supplies of gas from Russia were to be disrupted, a European Central Bank simulation exercise showed the effects could be painful. It estimated a 10 per cent shortage in gas could knock 0.7 per cent off eurozone gross domestic product, with the effects most pronounced among countries with large gas and electricity sectors and industries most dependent on gas. Qatar’s energy ministry stressed on Tuesday that neither it nor others could fully replace Russian gas supplies to Europe if they were cut. The ECB was a little more reassuring about real-world effects, however. It stressed that while energy price rises at the end of last year will probably reduce eurozone output by 0.2 per cent by end-2022, a “significant negative” effect the ECB said, this was a smaller impact than its simulation of gas shortages. Most economists think this scale of impact would not be that serious in countries that have suffered much larger contractions during the pandemic and which could adapt to reduced gas supplies from Russia. Immediate actions such as Germany’s decision on Tuesday to halt the approval of the Nord Stream 2 gas pipeline would have “strong symbolic value” and “limited practical implications”, said Elina Ribakova, deputy chief economist at the Institute of International Finance, because it is yet to be operational.Holger Schmieding, chief economist at Berenberg Bank, believes Russia would feel the pinch of tit-for-tat sanctions before western countries. He argued that if the crisis did not amplify significantly, sanctions “would weaken the Russian economy over time with very limited impact on the advanced world”. Financial markets would return to normal after a while, he predicted, and after a few months of setbacks to business and consumer confidence, “economic growth in Europe [would be] back on track for a strong post-Omicron rebound amid easing supply shortages”.

Central banks, however, would be faced with a more acute dilemma if there were further rises in energy prices and inflation. They would need to demonstrate they were serious about controlling price rises but also recognise that the squeeze in incomes would also be more powerful in bringing inflation down than tightening monetary policy. “Should food or energy prices rise further and add to near-term inflation pressures, the ECB and Bank of England will need to ask searching questions as to whether that will have a larger upward effect on inflation expectations and pay, or a downward effect on real incomes, confidence, spending and thereby medium-term inflation,” said George Buckley, chief European economist at Nomura.Having signalled that they are increasingly keen to tighten policy, central bankers are now making noises suggesting they would worry as much about the potential for lower growth as higher inflation. Isabel Schnabel, a member of the ECB’s executive board, told the Financial Times last week that if tensions in Ukraine escalated, “it is in my view unlikely that we would accelerate policy normalisation in such circumstances”.

Noting uncertainties over Ukraine and market expectations for a sharp rise in UK interest rates, Sir Dave Ramsden, deputy governor of the BoE, said “there are also risks from tightening monetary policy too much”.Financial market expectations of a 0.5 percentage point increase in US rates in March have also been scaled back over the past week, with most expecting a tightening of half the size. Views are changing rapidly in response to events on the ground in Ukraine. Erik Nielsen, adviser to UniCredit, said the main thing economists knew was how little they knew. There were now “unprecedented uncertainties across the entire economic and geopolitical waterfront”, he said. More

Young people have been vocal in calling for more action to fight climate change. Now they have the chance to quiz top FT writers and experts about this important topic at a free online event. Hosted by FT Schools, the event will be live streamed on Tuesday March 1 between 12 noon and 2pm UK time. Clive Cookson, the FT’s science editor, will explore what the climate could be like when today’s 18-year-olds enter old age. Tim Harford, the FT columnist better known as the Undercover Economist, will consider how economics could solve the climate crisis. Claer Barrett, the FT’s consumer editor, and Mary McDougall of the Investors’ Chronicle will question what ESG really means, and if it’s possible to invest in saving the planet. And Gideon Rachman, the FT columnist, will explore the links between climate change and geopolitics. The event can be watched live or on demand, just visit FT.com/climateevent to register your free place. You can also send questions to the experts ahead of time by clicking here.Through the FT Schools initiative, the Financial Times offers free online subscriptions to students aged 16-19, their teachers and schools around the world, and to colleges of further education in the UK. We believe reading the FT will help in study, essay writing, exams and broadening knowledge to improve performance in interviews for further study and provide guidance on employment. More