Economy

With OPEC Plus members in disarray over production levels, oil prices have fallen nearly 20 percent in three months.U.S. gasoline prices are plunging just in time for Thanksgiving, and with the OPEC Plus oil cartel in apparent disarray, they could be heading lower for Christmas.Lower prices at the pump have helped ease the inflation rate most of this year. But this week, they fell to levels not seen at this time of year since 2021, according to the AAA motor club, before the Russian invasion of Ukraine sent energy prices higher.“For consumers it’s a terrific tailwind,” said Tom Kloza, global head of energy analysis at Oil Price Information Service. “They are not going to have to spend an awful lot on travel in the next few months, and that should persist into the middle of the winter.”The national average price for a gallon of regular gasoline on Wednesday was $3.28, about 6 cents less than a week earlier and 27 cents less than a month ago. The price for a gallon of gas was $3.64 at the same time last year. Prices have dropped below $3 a gallon in more than a dozen states and are falling with particular speed in Montana, Florida and Colorado.The primary reason for lower gasoline prices is the recent weakness of oil prices, which have fallen by more than $15 a barrel, or nearly 20 percent, since early September. Demand for fuel has been weak in China and parts of Europe, while production has been strong in Brazil, Canada and the United States. Gasoline production at American refineries is running above demand in some parts of the country.Diesel prices have also eased, by about 23 cents a gallon over the last month and more than $1 a gallon in the last year. That should help reduce food prices because diesel is the primary fuel for agriculture and heavy transport.The drop in oil prices accelerated on Wednesday as reports emerged that the planned meeting of OPEC Plus, a group of 23 oil-producing countries led by Saudi Arabia, had been postponed from the weekend until next Thursday. Saudi Arabia had been expected to extend its cuts in production, while cajoling other countries to show restraint as well to bolster prices. But Nigeria and Angola are resisting, and lobbying for higher production quotas.“Reaching a new agreement to cut production will prove to be challenging,” said Jorge León, a senior vice president at Rystad Energy, a consulting firm.He said that although Russia and eight other members of the cartel agreed to cuts in June, “it would be difficult for these countries to accept even lower production quotas.”Energy experts say there could still be an agreement, especially if the United Arab Emirates, Kuwait and Iraq agree to voluntary cuts. Saudi Arabia might also be willing to go it alone with cuts because its government budget and ambitious economic plans depend on high prices.The uncertainty has served as a signal to traders to bail out of crude. “Savvy drivers will find savings on their way to a turkey dinner this year,” said Andrew Gross, a spokesman for AAA.AAA has predicted that more than 49 million Americans will drive to holiday destinations in the coming days, an increase of 1.7 percent from last year. Another 4.7 million will fly, a 6.6 percent increase from the last year and the highest number since 2005, according to the motor club.Airfares will be slightly more expensive than last year, the motor club said, but otherwise holiday travel should be cheaper. It said the average price for a domestic hotel stay is down 12 percent from last year, while rental car costs are 20 percent lower. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The UK must adopt the strategic state-backed approach of the US and European governments in wooing foreign investors, according to a plan accepted by chancellor Jeremy Hunt in his Autumn Statement on Wednesday.Tory peer Lord Richard Harrington, head of a government review into the UK’s approach to attracting foreign investment, said Britain could no longer afford to ignore schemes such as the US’s $2tn Inflation Reduction Act as he laid out a new blueprint for boosting FDI.“I have formed the view during this process that capitalism has changed,” he wrote in the foreword to a 123-page review of UK FDI performance, the findings of which were announced by Hunt.“The reality is that many of our competitors chase investments via their industrial strategies backed by substantial government support,” Harrington added. “The UK needs to respond.”Prime Minister Rishi Sunak’s government has repeatedly rejected calls for a UK industrial plan despite calls from industry to create a road map. Harrington on Wednesday set out a new “business investment strategy” and suggested picking targets in the five sectors identified by Hunt as growth areas: green industries, digital, life sciences, creative industries and advanced manufacturing.The recommendations include appointing a cabinet-level minister to co-ordinate across Whitehall, which Harrington said was too often “disorganised, risk-averse, siloed and inflexible”.He said only a minister with a role straddling the Cabinet Office, HM Treasury and the Department for Business and Trade, with regular input to Number 10, would have the power to offer investors a “single front door” to the UK.Prospective investors should expect an “account management” approach, including assistance with “planning, visas [and] financing” and other “delivery-critical factors”, such as jumping the queue for grid connections and fast-track planning approvals.The report said business had concerns that “supply chains are weak and that clusters are failing to form around big-ticket investments”, leaving the UK’s level of foreign investment as a percentage of gross domestic product “persistently lower than its peers”.“The prize is a big one: most of our competitors have about 12 per cent of GDP in business investment [domestic and foreign], our equivalent is 10 per cent. The difference is about £50bn per year,” Harrington wrote.Make UK, the manufacturers’ umbrella group, and the British Chambers of Commerce welcomed the blueprint, including plans to amend national planning rules to enable high-value investments to be prioritised. Both groups have long called for an industrial strategy. Stephen Phipson, chief executive of Make UK, said “outmoded beliefs” about the international investment arena had led the UK to miss out on valuable investments from overseas, adding that Harrington’s report was a “vital first step” in catching up.However, some MPs and regional business groups warned that without changes to planning rules and more resources for local development the review risked disappointing.Robert Buckland, Conservative MP for Swindon, an area seeking to revive its fortunes by attracting more FDI, said planning reforms were needed “as quickly as possible” if the town was to be able to make an attractive offer to investors.Matt Griffith, director of policy at Business West, welcomed Harrington’s vision but warned that delivering the plan would still require overcoming a chronic lack of investment-ready sites.“The Harrington blueprint risks running into under-resourced local government and a planning system which incentivises housing over investment sites,” he added. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Ministers have frozen alcohol duty until next summer in a bid to encourage patrons to spend in Britain’s pubs, which have been facing closures because of rising costs.Rates on alcohol duty on beer, cider, wine and spirits would be held steady until next August at a cost of £310mn in lost tax income, chancellor Jeremy Hunt announced on Wednesday as part of his Autumn Statement.Hunt told MPs that he had “listened to defenders of the great British pint” and decided to freeze the tax, in a move that would stop a further 3p rise in the duty cost of an average pint of beer. “This is now one less additional cost venues have to worry about,” said Kate Nicholls, chief executive of trade body UKHospitality.David McDowall, chief executive of Stonegate, the UK’s biggest pub group, welcomed the freeze, saying the move would “provide some respite and comfort to the hospitality sector”.The sector had battled against a “triple threat” of soaring energy costs, rampant inflation and cost of living pressures over the past year, McDowall added.However, smaller, independent pub operators warned that the depressing effect on profits of increased minimum wages might outweigh the combined effect of the alcohol duty freeze and the extension of 75 per cent business rates relief for single-site operators. Minimum wage rises would “hugely impact” the profitability of venues, said Steven Alton, chief executive of the British Institute of Innkeeping, an industry body representing independent pubs. “While we welcome measures that protect workers, there must be recognition of the impact this mandated increase will have on our small pub businesses,” Alton added.High inflation and fears over an economic slowdown have deterred customers and led to a wave of pub closures. A total of 383 pubs shut in the first six months of the year, according to real estate adviser Altus Group. The figure nearly matched the total for the whole of 2022. In September, the number of licensed premises across the UK dipped below 100,000 for the first time, according to UKHospitality.The government said it had extended the freeze to give businesses time to adapt to a new alcohol duty regime, which was introduced in August this year. An inflation-linked rise in alcohol duty during March’s budget was largely offset for draught beer and cider by an increase in draught relief, for drinks served in pubs. However, duty on bottled wines and spirits rose steeply. The Wine and Spirit Trade Association said the alcohol duty freeze came as a “huge relief” to drink makers which had “taken a battering” over the past few years. Miles Beale, the WSTA’s chief executive, said the latest sales data showed “worrying” declines following the introduction of the higher duty rates for still wines and spirits. Wines and spirits had experienced soaring supply chain costs and glass recycling fees, the trade body said.According to Office for National Statistics data for September, the average price of a bottle of gin was up 14 per cent compared with a year earlier, while fortified wines such as port were up by 17 per cent. The chancellor also announced a 10 per cent hike on duty on hand-rolling tobacco. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Councils and charities have welcomed the chancellor’s decision to raise the cap on housing benefits in the Autumn Statement but said this alone would be insufficient to tackle a nationwide resurgence of homelessness and relieve pressure on local authority finances.Jeremy Hunt announced on Wednesday that he would raise the cap on the local housing allowance, which is provided to people on low incomes, to reflect huge increases in the cost of renting privately.By raising the allowance to cover the cheapest 30 per cent of properties on the market, the government would be giving 1.6mn households an average of £800 of extra support a year, he said.He added that “because rent can constitute more than half the living costs of private renters on the lowest incomes”, unfreezing the local housing allowance was an “urgent priority”. Recent research by homelessness charity Crisis and real estate website Zoopla found that the rental costs of only 4 per cent of properties in England were covered by the existing housing allowance, which has been frozen since 2020. This figure drops to just 2 per cent in London.The decision to raise the cap meets one of the demands made by 119 councils who wrote to Hunt earlier this month warning him that a chronic shortage of social housing coupled with rising demand for temporary accommodation was threatening to bankrupt many local authorities.Stephen Holt, leader of Eastbourne Borough Council, who co-ordinated the letter welcomed the unfreezing of the housing allowance but said the chancellor had failed to address other demands from struggling local councils.“We warned the chancellor that frontline services are at real risk of failing and regrettably there is little in the Autumn Statement to now stop that from becoming a reality,” he said.The housing advocacy group Shelter said that increasing the allowance would help the 1.7mn private renters in England who rely on it for their rent. But the charity criticised the chancellor for deferring the uplift.Polly Neate, chief executive of Shelter, said: “Unfreezing housing benefit to cover the bottom third of local rents is an essential lifeline to keep people in their homes. However, pushing this to April 2024 will leave many families facing an uncertain winter.”The Autumn Statement also included an additional £450mn of funding for local authorities towards the building of 2,400 homes, including new temporary accommodation and housing for Afghan refugees. Separately the government is extending its affordable homes guarantee scheme — a state-backed lending programme to support the building of affordable housing — with an additional £3bn to help deliver 20,000 homes.For local authorities facing a wider crisis in financing with demands on services including housing and social care outstripping their financial means, the statement gave little comfort.Jonathan Carr-West, head of the Local Government Information Unit think-tank, said councils have been pulling every lever available to them to balance their books including raising council tax, cutting services and spending finite reserves. Measures aimed at the sector announced on Wednesday amounted to “tinkering round the edges”, he said.  “Each year citizens are paying more and getting less from their councils, and without significant structural changes to the way funding is allocated it is difficult to imagine these dire straits ending.” More

(Reuters) – Ahead of international climate talks in Dubai this month, economists are updating estimates of the impact of global warming on the world economy, sometimes calculating down to a decimal place the hit to output in decades to come.    But detractors say those numbers are the product of economic models that are not fit to capture the full extent of climate damage. As such, they can provide an alibi for policy inaction.Record temperatures, droughts, floods and wildfires this year have caused billions of dollars of damage, even before emissions take warming beyond the 2015 Paris Agreement cap of 2 degrees Celsius (3.6 Fahrenheit) above pre-industrial levels.Still, some economist models conclude – implausibly, say the critics – that by the turn of the century, warming will cause less harm to the world economy than COVID-19 has, or hit global shares by less than in the 2007-2009 financial crisis.Nobel-winning U.S. economist William Nordhaus sparked controversy in 2018 with a model that found the climate policies that best balanced the costs and benefits from an economic point of view would result in warming of more than 3C by 2100.A year earlier, the Trump administration cited similar models to justify replacing the Obama-era Clean Power Plan with one allowing higher emissions from coal-burning plants.Many policymakers acknowledge the modelling’s limitations: European Central Bank executive board member Isabel Schnabel said in September it could understate the impact. Others go further, saying the whole approach is flawed.At issue are the “integrated assessment models” (IAMs) economists use to draw conclusions on anything from output losses to financial risk or the pricing of carbon markets.They rely on a theory of how demand, supply and prices interact throughout an economy to find a new balance after an outside shock – the so-called “general equilibrium” model developed by 19th century French economist Leon Walras.”But climate change is fundamentally different to other shocks because once it has hit, it doesn’t go away,” said Thierry Philipponnat, author of a report by Finance Watch, a Brussels-based public interest NGO on financial issues.”And if the fundamental assumption is flawed, all the rest makes little sense – if any,” he told Reuters.Another issue is that IAMs have for years used a “quadratic function” to calculate GDP losses that involves squaring the temperature change – while ignoring other methods such as the exponential function better suited for rapid change.Critics say this choice is doomed to underplay the likely impact – particularly if the planet hits environmental tipping points in which damage is not only irreversible but happens at an ever-accelerating rate.THE SMELL TESTAdding to the confusion, IAMs produce sharply different results according to their specific design and the variables they choose to include, making interpretation difficult.The 2023 update of Nordhaus’ model, described on his website as the “most widely used climate-change IAM”, estimates damages of 3.1% of global GDP when 3C warming is reached.By contrast, the latest run of the model used by the Network for Greening the Financial System (NGFS) – a grouping of central banks – calculates the path to 2.9C of warming in its “current policies” scenario would by 2050 have caused 8% of lost output from hazards such as drought, heatwaves, floods and cyclones.Finance Watch also pointed to a 2020 study by the G20-backed Financial Stability Board (FSB) that cited economist estimates that 4C of warming could shave as little as 2.9% off the average value of global financial assets by the year 2105.”None of the assumptions that this relatively small group of economists have made about global warming ‘pass the smell test’,” University College of London professor Steve Keen wrote in a paper this year of the need for economists to check their results against common sense and prevailing climate science.Nordhaus did not reply to an emailed request for comment. The FSB said its 2020 paper highlighted how much estimates of the hit to financial assets varied and that it was working with others to help authorities better understand the risks.”To that end, the FSB has been working on the development of conceptual frameworks and metrics for monitoring climate-related vulnerabilities,” FSB Deputy Secretary General Rupert Thorne said in an emailed statement.Livio Stracca, the ECB official who chairs the NGFS work on climate scenarios said by email that it openly accepted that, like any model, they had “certain limitations”. NGFS Secretary General Jean Boissinot said the body was keen to work with the academic community to resolve the issues.But while advocates of IAMs say they are getting better all the time, others such as Nicholas Stern of the LSE/Grantham Research Institute said their focus was inherently too narrow to make sense of the extreme risks posed by climate change.”They misrepresent the problem in terms of risk and in terms of what we need to know and do,” Stern told Reuters.”We’ll need to look at energy models, cities, natural capital – and that is serious, deep economics around structural change,” he said, adding this method would better guide the investment decisions needed to address climate change.Finance Watch’s Philipponnat said the European Union, which sees itself as a leader on climate issues, would have a chance to embrace a broader approach with a major study on climate risks it has scheduled for early 2025.”Our main message is: ‘Economists, speak to climate scientists and come up with results that make sense’,” he said.(This story has been corrected to fix the attribution in the graphic) (Writing and reporting by Mark John; editing by Barbara Lewis) More

Sales fell 0.2% in September from August, data from national statistics agency INEGI showed on Wednesday, well below the median forecast of a 0.3% increase in a Reuters poll of economists.That marked the second consecutive month of negative, below-consensus performance of retail sales in the country, with analysts pointing to major drops in sales of household goods, clothing and stationery items as the main drags.”Rising real interest rates and an appreciating currency have dampened the sector’s performance,” Pantheon Macroeconomics’ chief Latin America economist Andres Abadia said, “partially offsetting the support from a still-resilient labor market, falling inflation and decent remittance inflows.”Mexico’s central bank has kept its benchmark interest rate at 11.25% since March as part of its bid to tame high inflation. Consumer prices have been slowing, but rate cuts are not expected until next year.”We think sales will continue to lose momentum next year as the lagged effect of monetary tightening becomes more evident,” Abadia said, noting gains in the third quarter as a whole were linked to a favorable base effect.According to INEGI, retail sales increased 2.3% in September compared to the same month a year earlier. That was also well below the 3.6% jump projected in a Reuters poll. More

The Office for Budget Responsibility (OBR) has forecasted that these efforts will help bring inflation down to the target rate of 2% by 2025 while also contributing to GDP growth. In support of these goals, the government has affirmed its commitment to assist the Bank of England in achieving the inflation target.Further bolstering financial security for retirees, Hunt announced that pensions would rise by 8.5% in April 2024, honoring the triple lock scheme. This scheme ensures that pensions grow by whichever is highest: average earnings, inflation, or 2.5%.In addition to these measures, Hunt confirmed that alcohol duty rates would remain frozen until August next year. The government is also set to enhance support through local housing allowances.Despite these significant economic announcements, the GBP/USD exchange rate remained relatively unaffected, holding steady at 1.2535. This suggests that markets had anticipated the government’s moves or that other global factors are currently playing a more dominant role in influencing currency valuations.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More