Economy

Rising interest rates were widely expected to put the U.S. economy in reverse. Now things are looking rosier, but don’t pop the Champagne corks yet.The recession was supposed to have begun by now.Last year, as policymakers relentlessly raised interest rates to combat the fastest inflation in decades, forecasters began talking as though a recession — economic contraction rather than growth — was a question not of “if” but of “when.” Possibly in 2022. Probably in the first half of 2023. Surely by the end of the year. As recently as December, less than a quarter of economists expected the United States to avoid a recession, a survey found.But the year is more than half over, and the recession is nowhere to be found. Not, certainly, in the job market, as the unemployment rate, at 3.6 percent, is hovering near a five-decade low. Not in consumer spending, which continues to grow, nor in corporate profits, which remain robust. Not even in the housing market, the industry that is usually most sensitive to rising interest rates, which has shown signs of stabilizing after slumping last year.At the same time, inflation has slowed significantly, and looks set to keep cooling — offering hope that interest-rate increases are nearing an end. All of which is leading economists, after a year spent being surprised by the resilience of the recovery, to wonder whether a recession is coming at all.“The chances of a soft landing are higher — there’s no question about that,” said Diane Swonk, chief economist at KPMG US, referring to the possibility of bringing down inflation without causing an economic downturn. “I’m more optimistic than I was six months ago: That’s the good news.”The public is feeling sunnier, too, though hardly ebullient. Measures of consumer confidence have picked up recently, although surveys show that most Americans still expect a recession, or believe the country is already in one.There is still plenty that could go wrong, which Ms. Swonk noted. Inflation could, again, prove more stubborn than expected, leading the Federal Reserve to press on with interest rate increases to curb it. Or, on the flip side, the steps the Fed has already taken could hit with a delay, sharply cooling the economy in a way that has not surfaced yet. And even a slowdown short of a recession could be painful, leading to layoffs that are likely to disproportionately hit Black and Hispanic workers.“Soft is in the eye of the beholder,” said Nick Bunker, director of North American economic research at the career site Indeed.Economists are wary of declaring victory prematurely — burned, perhaps, by past episodes in which they did just that. In early 2008, for example, a string of positive economic data led some forecasters to conclude that the United States had navigated the subprime mortgage crisis without falling into a recession; researchers later concluded that one had already begun.But for now, at least, talk of worst-case scenarios — runaway inflation that the Fed struggles to tame, or “stagflation” in which prices and unemployment rise in tandem — has been ceding the conversation to cautious optimism.“We have seen a huge string of shocks, so I can’t predict what the future will hold,” Lael Brainard, a top White House economic adviser, said in an interview last week. “But so far, the data is very much consistent with moderating inflation and a still-resilient job market.”Inflation has come down.Economists have become more optimistic for two main reasons.The first is inflation itself, which has cooled rapidly in recent months. The Consumer Price Index in June was up just 3 percent from a year earlier, compared with a peak of 9 percent last summer. That is partly a result of factors that are unlikely to repeat — no one expects oil prices to keep falling 30 percent per year, for example.But measures of underlying inflation have also shown significant progress. And consumers and businesses appear to expect price increases to return to normal over the next few years, which makes it less likely that inflation will become embedded in the economy.Cooling inflation could allow the Fed to continue to slow its campaign of interest rate increases, or perhaps even to stop raising rates altogether earlier than planned. That could reduce the chances that policymakers go too far in their effort to control inflation and cause a recession by mistake.“Things have been going in the direction you would need them to go in order for you to get a soft landing,” said Louise Sheiner, a former Fed economist who is now at the Brookings Institution. “It doesn’t mean you’re guaranteed to get it, but certainly it’s more likely than if inflation was still 7 percent.”The job market has been resilient.The second reason for optimism has been the gradual cooling of the labor market from a rolling boil to a strong simmer.The rapid reopening of the economy in 2021 led to a huge imbalance between supply and demand: Restaurants, hotels, airlines and other businesses suddenly had hundreds of thousand of jobs to fill and not enough people to fill them. For workers, it was a rare moment of leverage, resulting in the fastest wage growth in decades. But economists worried that those rapid gains could make it hard to get inflation under control.In recent months, however, the frenzy has subsided. Employers are not posting as many openings. Employees are not hopping from job to job as freely in search of higher pay. At the same time, millions of workers have joined or rejoined the work force, helping to ease the labor shortage.So far, however, that easing has happened without a significant increase in unemployment. The jobless rate is roughly where it was in the strong labor market that preceded the pandemic. Some industries, such as tech and finance, have laid off employees, but most of those workers have found other jobs relatively quickly.“Labor market overheating is diminishing substantially, to levels where it’s no longer so worrisome,” said Jan Hatzius, chief economist for Goldman Sachs.Mr. Hatzius, who has long been more optimistic about the prospects for a soft landing than many of his peers on Wall Street, on Monday lowered his estimated probability of a recession to 20 percent from 25 percent. He said the recent progress in inflation and the labor market — as well as in consumer spending and other areas — suggested that the economy was gradually moving past the disruptions of the past few years.“We’re seeing the other side of the pandemic,” he said. “The pandemic created all of this enormous turbulence in economies, and now I think it’s going away, and to me that’s the overriding theme.”Risks remain.Still, many economists are less sanguine. Inflation, at least excluding volatile food and energy prices, remains well above the Fed’s 2 percent annual target, at 4.8 percent in June. And although the progress on inflation so far may have been relatively painless, there is no guarantee that will continue — employers that initially responded to higher interest rates by hiring fewer workers may soon begin cutting jobs outright.“People taking victory laps declaring a soft landing I think are premature,” said Laurence M. Ball, a Johns Hopkins economist who last year wrote an influential paper concluding that it would be difficult for the Fed to get inflation back to 2 percent without a significant increase in unemployment.Part of the problem is that the Fed has little margin for error. Act too aggressively to tame inflation, and the central bank could push the economy into a recession. Do too little, and inflation could pick back up — forcing policymakers to clamp back down.Neil Dutta, head of economic research at Renaissance Macro, said he worried that the strong labor market would fuel a new acceleration in the economy, leading to a resumption of rapid price increases — an “inflationary boom” that reverses much of the recent progress.“The next three to six months, the inflation dynamics will look pretty good — it will feel like a soft landing,” he added. “The question is, what comes after?”Then there are the factors outside policymakers’ control. Oil prices, which soared last year when Russia invaded Ukraine, could do so again. Food prices could start rising again, too — a possibility that became more real this week when Russia canceled a deal to allow Ukraine to export grain on the Black Sea.With the economy already slowing, even relatively small developments — such as the looming resumption of student loan payments, which will strain the finances of many younger adults in particular — could be enough to knock the recovery off course, said Jay Bryson, chief economist for Wells Fargo.“The student loan thing is not, in and of itself, enough to cause a recession, but if you do have a downturn, it could be a kind of death by a thousand paper cuts,” he said.Mr. Bryson still expects a recession to start this year. But he has become less certain in recent months. He recently asked the nearly 20 people on his team to write down how likely they thought a recession was in the next year. Answers ranged from 30 percent to 65 percent, with an average of exactly 50 percent — coin-flip odds for a soft landing that many people once thought impossible.“Keep the Champagne on ice,” Mr. Bryson said. “Hopefully early next year we can start popping it.” More

China’s ambassador to Washington has warned Beijing will retaliate against US national security measures targeted at the country, including a mechanism to screen inbound investment being prepared by the White House.Speaking at the Aspen Security Forum, Xie Feng said China “cannot remain silent” while the US imposes sanctions and export controls that will make it harder for China to secure advanced US technology, including cutting-end chips.“The Chinese government cannot simply sit idly by,” Xie told the security forum on Wednesday. “We will not make provocations, but we will not flinch from provocations. So, China definitely will make our response.”Xie was speaking as the US administration puts the finishing touches to an investment screening mechanism designed to cut the amount of US money invested in Chinese entities involved in areas including semiconductors, quantum computing and artificial intelligence that could help its military.The commerce department is also preparing to update sweeping export controls from last year to close some loopholes and make it more difficult for companies such as Nvidia to sell AI-related semiconductors to China.Beijing has recently taken steps that have been interpreted as retaliation by the US and its allies. Following an investigation into US chipmaker Micron that American officials saw as tit-for-tat response, China in May banned some of the country’s entities from buying the group’s semiconductors. And earlier this month, Beijing said it would require Chinese companies exporting gallium and germanium to obtain licenses, which could throttle supplies of two minerals needed to make chips.“It is not our hope to have a tit-for-tat [measures]. We don’t want a trade war [or] technological war,” Xie added. “We want to say goodbye to the Iron Curtain, the silicon curtain.”Speaking about attempts to frustrate Chinese efforts to secure the most advanced chips, he said: “This is like restricting the other side to wear outdated swimwear in a swimming contest while you yourself are wearing a speedo.”

Xie refused to be drawn on speculation about Qin Gang, his predecessor as ambassador and now foreign minister, who has not been seen in public for almost four weeks. “Thank you for your care,” he said in response to questions on the official’s whereabouts.China’s foreign ministry has said Qin is ill but has provided no details, which has sparked speculation that the top diplomat may be under investigation.Pressed on China’s relationship with Russia and its refusal to condemn Moscow’s full-scale invasion of Ukraine, he said it was “natural” for the two neighbours to maintain friendly relations.He responded to a question about what redeemable qualities he saw in Vladimir Putin by saying he had not met the Russian leader. But he joked that president George W Bush had once said that he had looked Putin in the eye and “found him to be very straightforward and trustworthy”. “President Bush Junior said that he looked into the eyes of Mr Putin, saw his soul [and thought] he’s reliable,” Xie said, before chuckling out loud.Follow Demetri Sevastopulo on Twitter More

The United Arab Emirates said it had signed agreements estimated to be worth $50bn with Turkey as President Recep Tayyip Erdoğan tours the oil-rich Gulf in a bid to attract investment from the region and bolster his country’s ailing economy. The UAE’s state news agency said the Gulf state and Turkey forged a series of provisional agreements that included the establishment of a joint economic and trade commission, commitments to develop energy and natural resources projects, and an extradition pact.ADQ, one of Abu Dhabi’s state investment funds, also said it would provide up to $8.5bn through bonds to support reconstruction efforts after February’s earthquake that devastated a vast area of southern Turkey. The fund also said it would provide $3bn in export credit financing to Turkish companies to boost bilateral trade.It was not immediately clear how the estimated $50bn value of all the agreements was calculated. But the deals mark a deepening of ties between regional powers that have spent much of the past decade at loggerheads, often backing rival sides during the turmoil that erupted across the Middle East after the 2011 popular Arab uprisings. Erdoğan, who held talks with UAE President Sheikh Mohammed bin Zayed al-Nahyan, said the agreements would “elevate our relations to the level of strategic partnership”.The Turkish leader has this week visited Saudi Arabia, Qatar and the UAE to drum up support and investment for Turkey’s economy after he appointed a new economic team following his victory in May elections. His government has returned to more orthodox economic policies after Erdoğan’s management of the economy was widely blamed for pushing the lira to record lows against the dollar, fuelling soaring inflation and scaring off foreign investors. Bankers said Erdoğan took with him on his tour of the Gulf a list of assets in which Turkey is seeking to sell stakes as Ankara looks to raise foreign currency to replenish severely depleted reserves and manage a yawning current account deficit.The UAE, the Gulf’s trade and finance hub, has also over the past two years shifted away from its more assertive foreign policy towards what officials describe as economic diplomacy as it faces increasing competition from neighbouring Saudi Arabia. A Gulf-based banker said Emirati officials sent out an “all-points bulletin” to bankers in the UAE ahead of Erdogan’s visit “to be ready and help us on ideas and be ready to execute”. The rapprochement between Abu Dhabi and Ankara began two years ago, after Sheikh Mohammed held talks with Erdoğan in the Turkish capital. At the time, ADQ committed to invest $10bn in Turkey and had previously backed Turkish start-ups Getir, a grocery delivery company, and Trendyol, the country’s largest ecommerce firm.

Sheikh Mohammed visited Turkey again in June, and bankers say there is now greater clarity for investments with the new economic team in place. Led by finance minister Mehmet Şimşek, this group has strong ties across the Gulf and has begun to reverse Erdogan’s controversial policies. Analysts say the Gulf, which is home to some of the world’s largest sovereign investment funds, was an obvious starting point for Erdoğan in his bid to rally support for the economy, as many western investors remain wary about the president’s commitment to more orthodox policies. After Erdoğan held talks with Saudi Crown Prince Mohammed bin Salman this week, Riyadh and Ankara struck an agreement for Saudi Arabia to buy Turkish drones in what was described as Turkey’s largest ever defence export deal. More

Remember the “she-cession”? What about the early-retirement wave, or America’s army of quiet quitters?For economists and other forecasters, the pandemic and postpandemic economy has been a lesson in humility. Time and again, predictions about ways in which the labor market had been permanently changed have proved temporary or even illusory.Women lost jobs early in the pandemic but have returned in record numbers, making the she-cession a short-lived phenomenon. Retirements spiked along with coronavirus deaths, but many older workers have come back to the job market. Even the person credited with provoking a national conversation by posting a TikTok video about doing the bare minimum at your job has suggested that “quiet quitting” may not be the way of the future — he’s into quitting out loud these days.That is not to say nothing has changed. In a historically strong labor market with very low unemployment, workers have a lot more power than is typical, so they are winning better wages and new perks. And a shift toward working from home for many white-collar jobs is still reshaping the economy in subtle but important ways.But the big takeaway from the pandemic recovery is simple: The U.S. labor market was not permanently worsened by the hit it suffered. It echoes the aftermath of the 2008 recession, when economists were similarly skeptical of the labor market’s ability to bounce back — and similarly proved wrong once the economy strengthened.“The profession has not fully digested the lessons of the recovery from the Great Recession,” said Adam Ozimek, the chief economist at the Economic Innovation Group, a research organization in Washington. One of those lessons, he said: “Don’t bet against the U.S. worker.”Here is a rundown of the labor market narratives that rose and fell over the course of the pandemic recovery.True but Over: The ‘She-cession’Women lost jobs heavily early in the pandemic, and people fretted that they would be left lastingly worse off in the labor market — but that has not proved to be the case.

Note: Data is as of June 2023 and is seasonally adjusted.Source: Bureau of Labor StatisticsBy The New York TimesIn the wake of the pandemic, employment has actually rebounded faster among women than among men — so much so that, as of June, the employment rate for women in their prime working years, commonly defined as 25 to 54, was the highest on record. (Employment among prime-age men is back to where it was before the pandemic, but is still shy of a record.)Gone: Early RetirementsAnother frequent narrative early in the pandemic: It would cause a wave of early retirements.Historically, when people lose jobs or leave them late in their working lives, they tend not to return to work — effectively retiring, whether or not they label it that way. So when millions of Americans in their 50s and 60s left the labor force early in the pandemic, many economists were skeptical that they would ever come back.

Notes: Percentages compare June 2023 with the 2019 average. Data is seasonally adjusted.Source: Bureau of Labor StatisticsBy The New York TimesBut the early retirement wave never really materialized. Americans between ages 55 and 64 returned to work just as fast as their younger peers and are now employed at a higher rate than before the pandemic. Some may have been forced back to work by inflation; others had always planned to return and did so as soon as it felt safe.The retirement narrative wasn’t entirely wrong. Americans who are past traditional retirement age — 65 and older — still haven’t come back to work in large numbers. That is helping to depress the size of the overall labor force, especially because the number of Americans in their 60s and 70s is growing rapidly as more baby boomers hit their retirement years.Questionable: The White-Collar RecessionTechnology layoffs at big companies have prompted discussion of a white-collar recession, or one that primarily affects well-heeled technology and information-sector workers. While those firings have undoubtedly been painful for those who experienced them, it has not shown up prominently in overall employment data.

Note: Data is seasonally adjusted.Source: Bureau of Labor StatisticsBy The New York TimesFor now, the nation’s high-skilled employees seem to be shuffling into new and different jobs pretty rapidly. Unemployment remains very low both for information and for professional and business services — hallmark white-collar industries that encompass much of the technology sector. And layoffs in tech have slowed recently.Nuanced: The Missing MenIt looked for a moment like young and middle-aged men — those between about 25 and 44 — were not coming back to the labor market the way other demographics had been. Over the past few months, though, they have finally been regaining their employment rates before the pandemic.That recovery came much later than for some other groups: For instance, 35-to-44-year-old men have yet to consistently hold on to employment rates that match their 2019 average, while last year women in that age group eclipsed their employment rate before the pandemic. But the recent progress suggests that even if men are taking longer to recover, they are slowly making gains.False (Again): The Labor Market Won’t Fully Bounce BackAll these narratives share a common thread: While some cautioned against drawing early conclusions, many labor market experts were skeptical that the job market would fully recover from the shock of the pandemic, at least in the short term. Instead, the rebound has been swift and broad, defying gloomy narratives.This isn’t the first time economists have made this mistake. It’s not even the first time this century. The crippling recession that ended in 2009 pushed millions of Americans out of the labor force, and many economists embraced so-called structural explanations for why they were slow to return. Maybe workers’ skills or professional networks had eroded during their long periods of unemployment. Maybe they were addicted to opioids, or drawing disability benefits, or trapped in parts of the country with few job opportunities.In the end, though, a much simpler explanation proved correct. People were slow to return to work because there weren’t enough jobs for them. As the economy healed and opportunities improved, employment rebounded among pretty much every demographic group.The rebound from the pandemic recession has played out much faster than the one that took place after the 2008 downturn, which was worsened by a global financial blowup and a housing market collapse that left long-lasting scars. But the basic lesson is the same. When jobs are plentiful, most people will go to work.“People want to adapt, and people want to work: Those things are generally true,” said Julia Coronado, the founder of MacroPolicy Perspectives, a research firm. She noted that the pool of available workers expanded further with time and amid solid immigration. “People are resilient. They figure things out.” More

Today’s top storiesGoldman Sachs reported its lowest quarterly profit in three years, hit by falling trading and investment banking and losses from its push into consumer banking. Net income plunged by almost two-thirds to $1.1bn. Morgan Stanley also reported a drop in profits as trading slowed.The head of MI6 appealed to Russians that are appalled by the killing in Ukraine to join forces with the UK’s foreign spy agency. Sir Richard Moore in a rare public speech likened the situation in Ukraine to the 1968 Prague Spring when the Soviet Union quashed liberalising reforms.The FT revealed that Vladimir Putin ordered the seizure of Danone and Carlsberg’s Russian operations after businessmen close to the Kremlin expressed an interest in the assets.For up-to-the-minute news updates, visit our live blogGood evening.There was a double dose of much-needed good news for British prime minister Rishi Sunak today as new data showed inflation had fallen more than expected and Tata announced plans to build a landmark $4bn battery factory in the UK.The headline CPI figure fell from 8.7 per cent to 7.9 per cent in June, driven by lower petrol costs and in line with Bank of England forecasts. It marks progress in Sunak’s promise to halve inflation to 5.4 per cent this year ahead of a general election. The news also makes the UK less of an international outlier.

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Markets firmed up expectations of a quarter point interest rate rise from the BoE next month after the data was published. Traders now expect rates to peak just below 6 per cent early next year. The data sent shares in UK property groups and housebuilders upwards.There was encouraging news too on the “core” measure — which strips out volatile items such as food and energy — which fell to 6.9 per cent from a 31-year high of 7.1 per cent. Separate industry data yesterday showed the growth in grocery prices falling for a fourth consecutive month while the head of online grocer Ocado said the UK was “over the worst” when it came to food price inflation.Other cost of living pressures remain. New data today showed property rental prices and car insurance costs hitting record levels.Ahead of today’s CPI numbers, big investors said they were steering clear of UK government bonds, fearing that the country’s inflation problem would continue to push borrowing costs higher. Their reluctance to dive into the market has pushed gilt yields well above those in other major bond markets, putting more pressure on the government’s finances as it tries to find buyers for record quantities of gilts.But back to the good news. Sunak said Tata’s battery plant would “not only create thousands of skilled jobs for Britons around the country, but it would also strengthen our lead in the global transition to electric vehicles, helping to grow our economy in clean industries of the future”. The government said the decision was the “biggest investment ever” in the UK industry and the most significant since Japanese car companies moved to Britain in the 1980s. There was a note of scepticism however from the FT’s Lex column which said the project looked expensive and hard to pull off.In any case, Sunak’s buoyant mood could be shortlived. As we’ve experienced so many times in the past few years, fresh political turmoil is always just around the corner: the PM’s party faces potential defeat in three by-elections tomorrow. The polls coincide with the end of the parliamentary term, meaning Tory MPs will have to wait until September to air their grievances in Westminster. Before then, a long hot summer of discontent awaits.Need to know: UK and Europe economyA new survey showed the UK lagging behind its G7 peers on productivity, due to a lack of investment and improvement in areas such as management and leadership, technology adoption and innovation.

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The International Energy Agency warned that Europe could face a winter gas crisis if Russia halted supplies. “Our simulations show that a cold winter, together with a full halt of Russian piped gas supplies to the European Union . . . could easily renew price volatility,” it said. Energy editor David Sheppard said the west must prepare for further disruption, including attempts to weaponise oil supplies for the first time.Armenia has become a key stop on a new “silk road” for goods heading for sanctions-hit Russia. The booming trade, especially in used cars, is infuriating the US and the EU.Need to know: Global economyZhejiang, one of China’s most populous provinces, has deleted Covid-19 mortality data that might have given an insight into death tolls after Beijing relaxed its controls at the end of last year. Cremations jumped 73 per cent in the first quarter to 171,000, well above the number of deaths reported in 2022 and 2021.Colombia’s president Gustavo Petro defended his reform agenda, including a pledge to end investment in fossil fuels. “The Colombian economy has got potential aside from just oil: the development of a productive agriculture industry . . . tourism, taking advantage of the country’s beauty, and the possible export of clean energies,” he said.Is Dubai the new Geneva? A new Big Read explains how the UAE has become the place where Russian oil gets traded, much to the frustration of the US, which fears some of this business could end up as sanctions busting. Fresh protests are expected in Kenya against new tax laws, the latest in a series of violent demonstrations that have left many dead. The protests have been organised by the opposition, led by former prime minister Raila Odinga. India’s fragmented opposition parties have created an alliance in order to unseat Narendra Modi’s party, the BJP, at next year’s election. Modi will be seeking a third term as prime minister. Previous attempts to unite against the BJP have failed.Need to know: businessMicrosoft is to charge $30 a month for generative AI features in its popular Office software, a bigger premium than expected on a technology that many in the industry hope will bring a powerful boost to revenues.The fight between Chinese fast-fashion rivals Temu and Shein will continue inside a US courthouse. The smaller Temu — started last year by ecommerce platform Pinduodou — accuses Shein of conducting anti-competitive practices to maintain its market dominance.Pret A Manger has turned an annual profit for the first time since 2018: £50.6mn in 2022 compared with losses of £226mn in the previous year, during the pandemic. Its success is due to coffee subscriptions and international expansion.Our Tech Tonic podcast series on social media continues with a discussion of how the “creator economy” is shaping the platforms’ future. The World of WorkSix years after #MeToo began, sexual harassment at work continues. This week, the Working It podcast seeks to understand why, in the wake of the FT’s recent investigations into hedge fund manager Crispin Odey and star architect David Adjaye. FT journalists and an NYU professor weigh in on why it is so difficult to report, changes in corporate culture and avoiding unwanted advances.FT Columnist Simon Kuper chronicles the creation of a perfect place for writing — in a tiny Parisian flat. Purchased two decades ago when property prices allowed a journalist to do so, it was in need of a little renovation.Some good newsDeforestation in Colombia fell by 29 per cent to its lowest level in 10 years, according to new figures released by the government. Particular gains were made in the Amazon region. Environmental protection and deforestation have been a priority for the current government. Colombian environment minister Susana Muhamad announces the lowest deforestation figures since 2013 © AFP via Getty Images More

Brazil’s president Luiz Inácio Lula da Silva has ruled out signing a trade deal with the EU unless Brussels eases requirements for Brasília to open up its manufacturing industry to foreign competition. Lula, who is in Brussels to try to speed up progress on a trade deal between Brussels and the Mercosur bloc of four South American countries, said he wanted to change rules that would prevent signatories handing government contracts to domestic companies without a competitive process that would be open to foreign firms. A proposal circulated between the Brazilian, Argentine, Uruguayan and Paraguayan officials that are working on the deal would, Lula said, allow governments to continue to award contracts to smaller domestic firms, as “every country in the world” does, and support a “sovereign industrial policy”. It would be presented in Brussels “within two to three weeks”, Lula said at a press conference, saying he believed the EU officials would bend to the Latin American countries’ demands. The remarks are a fresh obstacle to completing a process that has been beset by delays since a deal was provisionally agreed in 2019 — despite claims by the Brazilian president on Wednesday that he was “for the first time” optimistic of concluding talks before the end of this year. Brussels has also irked the Mercosur quartet by sending a letter that required the group to make binding commitments to protect the rainforest and labour rights. Lula reiterated his objections to the missive.“The Amazon is the sovereign territory of Brazil. We have a sovereign commitment to end deforestation,” he said. “The letter threatens us with sanctions and punishments if we do not fulfil certain requirements.”However, Valdis Dombrovskis, EU trade commissioner, told the Financial Times in an interview that the “sustainability instrument” was necessary to provide assurances to member states, which must ratify the deal, and civil society groups that the destruction of the rainforest under Lula’s predecessor Jaír Bolsonaro would not happen again. The trade commissioner also suggested that the EU was unlikely to support Mercosur’s attempts to loosen competition requirements, warning against reopening an agreement that took more than 20 years to negotiate. “That would distract us once and would lead us again to very long negotiations with an unpredictable outcome.” Despite the disagreements over the trade deal, Lula hailed the first summit between EU and Latin American and Caribbean leaders in eight years. “There are very few times I have seen EU countries showing so much interest in Latin America,” he said. “It is possibly because of the dispute between the US and China or possibly due to Chinese investment in Africa and the Latin American region.”China has overtaken the EU as the biggest trading partner for Latin America after the US and is investing in mines, infrastructure and other projects. Lula said if the US and the EU stepped back, there were “other countries that want to invest.”He welcomed an EU commitment to provide €45bn in development aid by 2027, but added that the region still needed to contribute to the $100bn pledge, made in 2009 by developed countries, to help poorer countries fight climate change. The leaders in attendance agreed to condemn the US economic embargo on Cuba.Europe was also “succeeding” in its bid to convince Latin American leaders “that a total alignment of their side with Russia would be a huge mistake”, an official said, adding that Lula and Argentine president Alberto Fernández had led efforts to secure a summit declaration expressing “deep concern on the ongoing war against Ukraine”.European officials said they had seen “an evolution” in Lula’s position on Russia.However, on Wednesday Lula did not call for Russia to withdraw from Ukraine and refused to cast it as the aggressor. “The world is getting tired of this conflict,” he said, but it would only end when neither side believed it could win. The leaders have committed to meeting once every two years, with the next summit due to be held in Colombia in 2025. More

Poland and four other EU member states asked Brussels on Wednesday to extend trade curbs on Ukrainian grain amid concerns that Russia’s blockage of Black Sea shipments could put further pressure on their domestic markets. Poland, Hungary, Slovakia, Bulgaria and Romania have restricted imports of Ukrainian grain since last spring in response to protests by their farmers about a grain glut that sent cereal prices crashing and which they blamed on Ukrainian imports.In May, Brussels persuaded them to drop unilateral measures, which violated EU trade law, by agreeing that Ukrainian shipments would only transit through the five countries on route to other destinations. The EU also handed out €100mn to the affected countries. Ukrainian grain has provoked an embarrassing U-turn for Poland, one of the staunchest western supporters of Kyiv’s war against Russia. Poland has led calls for solidarity with Ukraine and last year Warsaw backed the EU removing tariffs on Ukrainian foodstuffs to help its economy.But ahead of a fiercely contested national election this autumn, the rightwing government in Warsaw has grown worried about losing the support of farmers who are a cornerstone of its electorate. The demand for an extension of controls beyond mid-September is likely to meet strong resistance. Several member states whose own industries have suffered from sanctions on Russia are annoyed that Poland and others are seeking special treatment.“The initial illicit grain blockade was like the camel’s head under the tent. By giving in to the demands of these countries, it’s now become excessively hard for the commission to counter the further escalation of these issues by Poland,” said one diplomat.But Polish prime minister Mateusz Morawiecki warned Brussels against preventing what was agreed by the five countries on Wednesday. “Either the European Commission will agree to develop common regulations that will extend this ban, or we will do it ourselves,” Morawiecki told a news conference in Warsaw. “We will be tough, determined and we will certainly defend the Polish farmers.”Russia’s decision this week to end its Black Sea grain deal puts further pressure on Ukraine to find other ways to export its huge cereals output. The EU and the US have condemned Russia’s exit from the deal as a dangerous decision that threatens world food security, particularly in poorer countries in the southern hemisphere. Poland and the other EU countries close to Ukraine say that Brussels has failed to guarantee that Ukrainian food exports would be sent to Africa and the Middle East rather than flooding domestic markets. Since May, Polish farmers have continued to call on their government to extend restrictions to strawberries and other seasonal foodstuffs that are grown more cheaply in Ukraine and have also reduced prices in the EU.

The five countries also say the EU should be more flexible to allow individual member states to add items to the list of banned Ukrainian exports. They will raise their concerns at a meeting of agricultural ministers in Brussels on Tuesday and want an extension of their existing cereal restrictions until the end of this year.An EU official said the border states still had “significant stocks” of Ukraine grain but the “solidarity lane” scheme introduced in May was “easing the situation”.Several other countries told a meeting of member states last week that Ukrainian imports were “putting pressure” on their farmers, the official said. There have been significant imports of poultry and eggs, reducing prices.A European Commission spokesperson said it was “working intensively with the five frontline member states, Ukraine and Moldova to solve logistical problems and increase the capacity of the solidarity lanes”. More

The unexpected drop in UK consumer price growth last month has led to cautious predictions that the country’s inflation crisis has reached a turning point. The news that annual inflation declined to 7.9 per cent in June from 8.7 per cent in May also made the UK look less like an outlier among advanced economies. “While one swallow doesn’t make a summer, there will be real hopes that this marks a turning point for UK inflation,” said Nicholas Hyett, investment manager, at the investment service company Wealth Club.

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The figures came after months of disappointing inflation data and strong wage growth that pushed up interest rate expectations and created turbulence in the mortgage markets.While the drop was largely driven by motor fuels, which were down by an annual rate of 22.7 per cent, there were broad-based downward pressures among most goods and services. Core and services inflation, both closely watched measures of underlying and domestic price pressures, also started to ease after hitting a three-decade high in May.

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The data also prompted markets to reassess their estimates of how high the Bank of England will need to raise interest rates to stamp down on inflationary pressures and return the headline rate to its 2 per cent target.Markets are now predicting that the central bank will raise rates from the current 5 per cent to 5.25 per cent at its Monetary Policy Committee meeting next month, and expect rates to peak between 5.75 per cent and 6 per cent. The scale of the fall in headline inflation could give relief to the thousands of UK households bracing for increases in their mortgage payments in the coming year. It “will ease pressure on mortgages and wages, with the BoE less likely to keep interest rates higher for longer, and Britain’s latest 18-month pay squeeze coming to an end”, said James Smith, research director at the Resolution Foundation think-tank. While some economists warned there have been recent false dawns on interest rates, most analysts expect inflation to continue to decline in the months ahead. The ONS data revealed that producers’ price inputs — such as parts and raw materials — contracted in June for the first time since November 2020, which could lower price pressures on business. With the government’s energy price cap dropping in July, the direct contribution of electricity and natural gas prices to the headline inflation rate will also fall — and will drop further in October. Added to this are falling consumer inflation expectations, rising unemployment and declining job vacancies, and impact of the BoE’s monetary policy tightening over the past two years. “If these trends all continue, inflation should fall fast over coming months towards a 4-5 per cent rate by the end of the year and to within the 2-3 per cent range by the middle of next year,” said Kallum Pickering, economist at the investment bank Berenberg.UK price growth remains the fastest among the G7 countries and the third highest among OECD advanced countries, however. This is in part due to the UK energy regulator’s price mechanism, which slows the rate at which the decline in wholesale gas prices passes through to household energy bills.

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The UK is also experiencing a surge in job inactivity since the pandemic that has not been seen in most other advanced countries, adding to domestic price pressures. A larger reliance on food imports in the UK than in other countries is also resulting in stronger food price pressures; British food inflation slowed to 17.3 per cent in June, still nearly three times higher than in the US. But the larger-than-expected fall in inflation reduced the difference with other advanced economies and put Britain on the same disinflationary path as most other countries. “The UK still has one of the highest inflation rates of any advanced economy, but after today it merely looks bad rather than a basket case,” said Smith. More