Economy

With the nation, or most of it, briefly united this week by the funeral of Queen Elizabeth II, the UK prime minister Liz Truss can now get on with her programme of dividing the country again by shovelling money at the well-off and deregulating everything that moves.Moving swiftly on from yesterday’s unfortunately statist energy rescue for businesses, Truss’s government has said that tomorrow’s mini-Budget will include an extension to the 2021 freeports programme. Already correctly derided by trade economists as more likely to create distortions than prosperity, the freeports — which have special planning, tax and customs privileges — will be superseded by wider “investment zones” where more inconvenient barriers to growth are removed. Intriguingly, some of the briefing has included the idea of weakening environmental protection inside those golden citadels. Together with bits of performative post-Brexit deregulation, such as lifting the cap on bankers’ bonuses, and the usual bracing rhetoric about free trade, this is presumably intended to add up to a morality play about internationally competitive high-growth global Britain.In reality, the international characters in the drama are unconvincing. The EU makes little appearance in this theatrical narrative except as a pantomime villain who insists on maintaining the Northern Ireland protocol, which the UK is legislating to override. But the elephant from across the Channel will nonetheless be galumphing around backstage constraining what the actors can do.For one, if the programme of “full-fat freeports” (Truss’s phrase) really does involve weaker environment or even labour law, which materially affects international competitiveness, the post-Brexit EU-UK Trade and Cooperation Agreement (TCA) allows Brussels to impose “rebalancing” actions and withdraw trade privileges.For another, the wellbeing of UK households and businesses in the short to medium term is going to depend heavily on the energy shock, where EU governments have a big role to play. The bailout programmes will soften the impact of rising gas costs but not remove it: since the government has not imposed on a cap on energy prices for consumers, bills will still go up in the winter and there may be outright shortages.Truss’s issuance of new drilling licences for oil and gas, together with looser rules on fracking, are not going to produce any meaningful increase in domestic fuel output for years. More imminently, the crisis has revealed what few policymakers had focused on — that having allowed its own gas storage capacity to degrade, the UK has essentially used the EU as an offshore gas depot by pumping gas there and buying it back during the winter. Britain is rushing to reopen its own “Rough” gas storage facility in the North Sea, but that will probably come too late for this year.

The wellbeing of British households in coming months is thus dependent on gas stocks in the EU, particularly the Netherlands and Germany, being sufficiently plentiful that suppliers are confident in pumping it back. Germany is making a lot more progress in increasing gas storage and LNG handling capacity than many expected, but the extent of any surplus is still unclear. In that context, it’s probably a bad idea to alienate the EU by picking a fight over Northern Ireland.The rest of the UK’s trade policy doesn’t have much to add to the growth story, and also reflects the extent to which the economy remains enmeshed with the EU. Truss this week admitted what trade folk warned years ago, that Washington’s current antipathy to any and all trade deals means there is no prospect of a US bilateral agreement in the foreseeable future. The UK is talking a good game about encouraging digital trade, having signed a deal on that subject with Singapore. But it will need to proceed cautiously if it wants to retain the EU’s adequacy finding which allows personal data to be transferred back and forth with continental Europe.The government is discovering that Brexit has given it little freedom to create a meaningful international side to its unimpressive growth strategy. Unless it decides to go for a radical unilateral reduction in trade barriers in something like agriculture, the UK’s liberation from the EU’s trade regime has given it mainly notional freedom. As the gas supply issue shows, it’s hard to spend decades in close engagement with a large neighbour economy without creating dependencies which might only become evident at times of stress. More are likely to emerge as the years progress.The buccaneering global Britain rhetoric will no doubt continue. But as this week will show, the UK has struggled to find any technically possible, politically palatable and economically meaningful way for trade policy to boost [email protected] up for Trade Secrets, the FT’s newsletter on globalisation More

OSLO (Reuters) – Norway’s central bank raised its benchmark interest rate by a widely-anticipated 50 basis points to 2.25% on Thursday, but said future hikes would be more “gradual”, weakening the country’s crown currency.Norges Bank will probably hike again in November, by 25 basis points (bps), although predictions are unusually uncertain at the moment, its governor Ida Wolden Bache said.”The rate forecast aligns with rate increases of 0.25 percentage points at the meetings in November, December and March,” Bache told Reuters after Norges Bank’s announcement.The latest rise comes as central banks across the world battle soaring inflation. The U.S. Federal Reserve lifted rates by a third-straight 75 bps on Wednesday and signalled more large increases to come. Switzerland’s central bank hiked by 75 bps on Thursday, while the Bank of England raised rates by 50 bps.Norges Bank was the first major central bank to begin hiking rates in September 2021, and could now be the first to signal that the peak is near, analysts said. GRAPHIC: Sustained hikes https://graphics.reuters.com/NORWAY-ECONOMY/RATES/lbvgnkkbwpq/chart.png The Norwegian policy rate, now at its highest since 2011, is currently set to peak at 3% next year and could start falling in 2024, Norges Bank’s forecasts showed.The policy rate was zero a year ago, and the hikes are now starting to have a tightening effect on the Norwegian economy, Norges Bank said.”This may suggest a more gradual approach to policy rate-setting ahead,” it added.The Norwegian crown fell to 10.24 against the euro just after the 0800 GMT announcement, from 10.20 just minutes earlier. By 1145 GMT it traded at 10.23 per euro.Of 30 economists polled by Reuters, 28 had predicted Norges Bank would hike by 50 basis points (bps) while one forecaster had said a 25 bps increase to 2.0% was the most likely outcome, and another predicted a rise of 75 bps to 2.50%.”Maybe we are seeing Norges Bank now being the first to turn slightly “dovish”,” Danske Bank said. “More hikes in store but peak is getting closer.”Nordea Markets said the rate path was “on the dovish side to what markets expected beforehand”.While consumer price inflation will continue to rise, a large part of the economy is headed for a contraction next year.Norges Bank raised its 2023 core inflation forecast to 4.8% from 3.3% seen in June, far exceeding its 2.0% goal.It cut next year’s forecast for Norwegian gross domestic product outside of the oil and gas sector to a fall of 0.3% from an earlier prediction of 1.1% growth.It also follows Sweden’s unexpected full percentage point hike to 1.75% on Tuesday. More

BOUVINES, France (Reuters) – Emmanuel Lefebvre produces thousands of tonnes of endives on his farm in northern France annually, but this year he may abandon his crop because of the crippling energy costs required to freeze the harvested bulbs.Across northern and western Europe, vegetable producers are contemplating halting their activities because of the financial hit from Europe’s energy crisis, further threatening food supplies.Surging power and gas prices will impact crops grown through the winter in heated greenhouses such as tomatoes, peppers and cucumbers, and those which need to be placed in cold storage, such as apples, onions and endives.Endives are particularly energy hungry. After the bulbs are harvested in the autumn, they are stored in below-freezing temperatures and then later replanted in temperature-controlled containers to allow for year-round production. “We really wonder if we’ll harvest what is in the fields this winter,” Lefebvre told Reuters at the site where his endives are packaged.European farmers are warning of shortages. The anticipated hit to production and jump in prices means supermarkets may switch to sourcing more goods from warmer countries such as Morocco, Turkey, Tunisia and Egypt.Surging gas prices are the biggest cost vegetable farmers cultivating inside greenhouses face, farmers said. Meanwhile, two French farmers renewing their electricity contracts for 2023 said they were being quoted prices more than 10 times those of 2021. “In the coming weeks I will plan the season but I don’t know what to do,” said Benjamin Simonot-De Vos, who grows cucumbers, tomatoes and strawberries south of Paris. “If it stays like this there’s no point starting another year. It’s not sustainable.”HEADING SOUTH Farmers are not just contending with spiralling energy prices. The cost of fertiliser, packaging and transport are all on the rise and jeopardising margins. “We face an overall increased production cost of around 30 percent,” said Johannes Gross, deputy sales manager at the German cooperative Reichenau-Gemüse whose greenhouses cover some 60 hectares. Energy accounted for anywhere between half and two-thirds of these extra costs, he said.”Some colleagues are thinking about leaving their greenhouses empty to keep the costs as low as possible. Nobody knows what will happen next year,” he added.Greenhouse industry group Glastuinbouw Nederland says up to 40% of its 3,000 members are in financial distress.Even in sun-flushed countries like Spain, fruit and vegetable farmers are grappling with a 25% increase in fertiliser costs.Jack Ward, chief executive of the British Growers Association, said it was inevitable production of fruit and vegetables would shift to warmer climes. “We will move production further and further south, down through Spain and into Morocco and bits of Africa,” Ward said. More

ZURICH (Reuters) – UBS Group will eliminate from Oct. 1 the fee it charged on accounts by private and corporate clients to offset negative interest rates after the Swiss National Bank raised its policy rate into positive territory on Thursday, the bank said.Credit Suisse said in an emailed statement it would keep monitoring the market situation and could soon adjust rate conditions, but had stopped charging private clients negative interest rates from July 1. More

The BoE estimates Britain’s economy will shrink 0.1% in the third quarter – partly due to the extra public holiday for Queen Elizabeth’s funeral – which, combined with a fall in output in the second quarter, meets the definition of a technical recession.Economists polled by Reuters last week had forecast a repeat of August’s half-point increase in rates, but financial markets had bet on a three-quarter-point rise, the biggest since 1989, barring a brief, failed attempt in 1992 to support sterling.The BoE move follows the U.S. Federal Reserve’s decision on Wednesday to raise its key rate by three quarters of a percentage point, as central banks worldwide grapple with post-COVID labour shortages and the impact of Russia’s invasion of Ukraine on energy prices.”Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee will respond forcefully, as necessary,” the BoE said, using a similar form of words to previous months for its policy intentions.The BoE’s Monetary Policy Committee voted 5-4 to raise rates to 2.25%, with Deputy Governor Dave Ramsden and external MPC members Jonathan Haskel and Catherine Mann voting for an increase to 2.5%, while new MPC member Swati Dhingra wanted a smaller rise to 2%.The MPC also voted unanimously to reduce the BoE’s 838 billion pounds of government bond holdings by 80 billion pounds over the coming year, by allowing bonds to mature and through active sales, which will start next month. This is in line with the goal it stated in August.The BoE now expects inflation to peak at just under 11% in October, below the 13.3% peak it forecast last month, before Liz Truss won the Conservative Party leadership and became Britain’s prime minister with a promise to cap energy tariffs and cut taxes.Inflation would remain above 10% for a few months after October, before falling, the BoE said. Consumer price inflation fell to 9.9% in July from a 40-year high of 10.1% in August, its first drop in almost a year.On Friday, new finance minister Kwasi Kwarteng will give more detail about the government’s fiscal plans, which may amount to more than 150 billion pounds of stimulus.The BoE said it would assess the implications of this for monetary policy at its November meeting.However, it noted that the energy price cap, while reducing inflation in the short term, would boost pressures further out.Before the rate decision, financial markets expected the BoE to raise rates to 3.75% by the end of the year, with a peak of 5% reached in mid-2023. Less than a year ago, BoE rates were at a record-low 0.1%.Sterling fell to its lowest since 1985 against the U.S. dollar after Wednesday’s Fed decision, though it has held up better against the euro. (The story corrects planned gilt reduction in paragraph 7 to 80 billion pounds from 100 billion pounds) More

Switzerland’s national bank raised interest rates by 75 basis points on Thursday and into positive territory for the first time in eight years, bringing to a close a more than decade-long era of negative rates in Europe. The benchmark rate in Switzerland is now 0.5 per cent.The SNB’s decision follows the third consecutive 75 basis point rate rise from the US Federal Reserve yesterday and comes amid fears of a looming European recession, as inflation surges across the continent and an energy crisis threatens households and businesses this winter. SNB president Thomas Jordan said that economic conditions “clearly indicate that there is a likelihood monetary policy will be further tightened,” adding that the SNB would do “everything” to hit its inflation target of between zero and 2 per cent. “We are very clear that we do not exclude further interest rate hikes to maintain price stability,” Jordan said. The central bank’s rate-setters plan to next set policy in December. Switzerland has so far managed to insulate itself from the worst effects of a global rise in price pressures, thanks to the strength of the franc. Inflation nevertheless hit 3.5 per cent in August, its highest level in more than 30 years, with Jordan warning that the SNB’s economists expected a “broadening” beyond energy prices. The bank said it was observing domestically driven price increases as well, indicating the power of the franc cannot solely be relied upon to return inflation to target. Following today’s increase, the SNB projects prices in Switzerland will stabilise in the fourth quarter, before dropping towards its target early next year. Despite its relatively small geographical size, lack of resources, and population of just over 8mn, Switzerland is one of the largest economies in Europe, worth $813bn annually, and has the second highest GDP per capita globally, according to IMF data.The SNB has long maintained that its zero-interest rate policy — first implemented in December 2014 — was necessary to try to curb the soaring value of the franc, and had little to do with economic stimulus. For years the SNB has also mounted huge interventions in currency markets, using money created through quantitative easing, to try to control the franc’s value.News of the SNB decision, which was in line with consensus forecasts from analysts, sent the franc slightly down against the euro, dollar and pound. By mid-morning local time on Thursday, a franc was worth €1.04 and £0.91 — a shade below all-time highs for both — and $1.03 dollars. Switzerland’s reputation for political and financial stability has long-made the franc an attractive haven currency for investors, putting its value under upward pressure in times of global uncertainty. The SNB said negative interest rates, which Switzerland maintained for longer and at a deeper level than most other European countries, had been a useful and necessary monetary tool — alongside market interventions — to control the franc. “We were always aware that negative interest can have undesirable side- effects and presents challenges for many economic agents. On the whole, however, negative interest has proved it’s worth,” Jordan said. More

Japan intervened to strengthen the yen for the first time since the late 1990s on Thursday, after the currency tumbled to a 24-year low on pledges by the central bank to stick with its ultra-loose policy.Masato Kanda, the country’s top currency official, said the government had “taken decisive action” to address what it warned was a “rapid and one-sided” move in the foreign exchange market. It was the first time Japan had sold dollars since 1998, according to government data. Shunichi Suzuki, finance minister, declined to comment on the scale of the intervention.The move, which traders said was conducted shortly after 5pm local time in Tokyo, caused the yen to surge to ¥142.39 to the dollar in the space of a few minutes. In the currency’s most volatile day since the height of the coronavirus crisis in 2020, it had previously hit a low of ¥145.89 after the Bank of Japan signalled it would not change its forward guidance about interest rates. So far this year, the yen has lost about a fifth of its value against the dollar.“It’s the next logical step of the psychological game the Japanese are trying to play here. The yen was heading very steeply to 146, and the [Japanese authorities] had to get a message out quickly. I think the idea is to plant the idea in the market that this is their line in the sand,” said one Tokyo-based trader.The move to steady the yen cascaded across global currency markets. Both the pound and the euro swung into positive territory after starting the day lower. The intervention also highlighted the powerful impact of a surging US dollar on the world’s biggest economies.Japan is now the only country in the world to retain negative interest rates as the US Federal Reserve and most other major central banks aggressively raise interest rates to fight inflation. Hours after Japanese policymakers decided to hold their main interest rate at negative levels, the Swiss National Bank lifted its own rates into positive territory.The Fed raised its main interest rate by 0.75 percentage points for the third time in a row late on Wednesday, forecasting further big rate rises — so lifting the bar for other central banks. Because investor funds generally flow to regions with higher interest rates, a widening gap between the US and countries such as Japan puts upward pressure on the dollar. But on Thursday the BoJ kept overnight interest rates on hold at minus 0.1 per cent. It said it would conduct daily purchases of 10-year bonds at a yield of 0.25 per cent — part of a programme to keep long-term borrowing costs pinned at ultra-low levels. Japan’s core consumer prices, which exclude volatile food prices, hit 2.8 per cent in August, rising at the fastest pace in nearly eight years on the back of soaring commodity prices and the weaker yen. The BoJ has long argued that the underlying demand in the Japanese economy remains weak, predicting that inflation will fall back below 2 per cent in the next fiscal year. “You can expect that there will be no change to our forward guidance for about two to three years,” Haruhiko Kuroda, BoJ governor, said at a news conference, although he added that there could be minor tweaks depending on economic and price developments.“With clear differences in economic and price situation, there is no need for Japan to remove negative rates because others have done so,” Kuroda added. He said the BoJ needed to continue supporting the economy with monetary easing measures until it fully recovered from the pandemic.The BoJ also ended a scheme to offer cheap loans to banks financing small and medium-sized companies to survive Covid disruption, but unexpectedly extended other parts of its pandemic-related funding programme.

Citigroup economist Kiichi Murashima said that, even if the BoJ were to fine-tune its policy, it would not fundamentally change the broader picture of a gap in financial conditions between Japan and the rest of the world. “It’s very questionable how far the government can actually avert the yen’s fall against the dollar.” BoJ officials last week phoned currency traders to inquire about market conditions in a so-called rate check, illustrating the government’s alarm about the yen’s sharp fall against the US dollar. Government intervention in currency markets, which is ordered by the ministry of finance and executed by the BoJ, is generally rare but especially so when it is conducted to strengthen the currency. The authorities have deployed ¥86tn on intervention since 1991, of which ¥81tn was spent on selling yen, with the last time being in the shadow of the Asian financial crisis in June 1998. More

Good morning. European and Asian stock markets fell today after the US Federal Reserve announced a third straight 0.75 percentage point rise in interest rates, and suggested it would keep borrowing costs high well into next year to tame rampant inflation.In one of his gloomiest pronouncements to date, Fed chair Jay Powell refused to rule out a recession in the world’s largest economy after the US central bank raised interest rates to a target range of between 3 per cent and 3.25 per cent.“No one knows whether this process will lead to a recession or if so, how significant that recession would be,” Powell said in response to a question at a press conference after the decision.Powell’s stark comments caught US investors off guard. An early rally faded and the S&P 500 ended the day 1.7 per cent lower, taking its losses for the year to more than 20 per cent. The tech-focused Nasdaq Composite declined 1.8 per cent. In currency markets, the dollar extended its recent strength. The yen hit a fresh 24-year low against the US currency, triggering an intervention by authorities for the first time since the late 1990s. The South Korean won hit a 14-year low, breaching Won1,400 to the dollar for the first time since the financial crisis in 2008.In Europe, sterling extended its recent declines against the greenback, falling below $1.13. The Bank of England is due to announce its latest interest decision later today, with analysts at JPMorgan saying it is too “close to call” whether the UK central bank will raise its policy lending rate by 50 or 75 percentage points.Elsewhere in Europe, central banks followed the Fed in continuing to tighten monetary policy as they try to stamp out inflation. Norway’s central bank lifted its benchmark rate by 50 basis points and the Swiss National Bank increased its key lending rate by 75bp, taking it into positive territory for the first time since 2014. Opinion: The surge in US borrowing costs is having spillover effects for the rest of the world, brewing a global backlash against the Fed, writes Claire Jones.Do you think the Fed is raising interest rates too quickly? Do you think its aggressive monetary policy will lead to a recession? Email me at [email protected] or hit reply on this email. Here is the rest of today’s news — GordonFive more stories in the news1. Donald Trump’s business empire imperilled by sweeping NY fraud lawsuit The New York state attorney-general has sued Donald Trump and three of his adult children for what she called an “astounding” fraud to falsely inflate the value of assets held by their family business.Trump DoJ investigation: A US appeals court has allowed the Department of Justice to continue investigating classified documents seized during the search of Donald Trump’s Mar-a-Lago residence.Trump campaign news: The Make America Great Again, Again! super Pac, one of the former president’s biggest political action committees, raised just $40 in August.2. Credit Suisse weighs splitting investment bank into three Credit Suisse has drawn up plans to split its investment bank into three and resurrect a “bad bank” holding pen for risky assets, as the Swiss lender attempts to emerge from three years of scandals.3. US bank chiefs warn of China exit if Taiwan is attacked The leaders of JPMorgan Chase, Bank of America and Citigroup have committed to comply with any US government demand to pull out of China if Beijing were to attack Taiwan.4. Russia releases foreign PoWs in brokered prisoner swap Russia has released a number of prisoners, including Britons and Americans, after mediation by Saudi Arabia’s Crown Prince Mohammed bin Salman. The prisoners have been flown to the Gulf kingdom, from where they will be repatriated.5. Seven dead in Iranian protests over hijab At least seven people have been killed in protests across Iran, officials said, after thousands took to the streets in recent days in anger at the death of a young woman arrested for allegedly failing to observe the Islamic dress code.Opinion: The tragic death of a 22-year-old arrested by morality police has emboldened those seeking freedom, writes Najmeh Bozorgmehr.The day aheadUS jobless claims: The US labour department will release data on new applications for unemployment assistance. Economists expect jobless claims to tick up to 218,000 from last week’s 213,000, as polled by Refinitiv.US rail unions vote: The potential for an economically devastating rail strike once again looms over the US supply chain. Rail workers are scheduled to vote on the eleventh-hour labour agreement struck last week by US president Joe Biden between rail unions and railroad companies. Bank CEOs: The chief executives of the US’s largest consumer banks will appear before the senate committee on banking, housing, and urban affairs for a second day of congressional testimony. Company earnings: FedEx may provide more insight into last week’s profit warning in which it said it anticipates business conditions to weaken as demand for package shipments has declined. Separately, retailer Costco is forecast to report revenue of $70.2bn, up from $61bn a year ago, and earnings per share of $4.16.FT Business Book of the Year: The shortlist is out for the year’s most compelling and enjoyable insight into modern business, with £30,000 awarded to the winner and £10,000 to each runner-up. Check out the longlist here.What else we’re reading The next hurdle for unions in the US Over the past year, Starbucks baristas across the US have banded together to form unions and workers at Amazon have joined forces to organise in their workplaces. In a new podcast, labour and equality correspondent Taylor Nicole Rogers explains how these and other new unions are running up against a classic problem when trying to organise in the US.Saudi Arabia and the US are drifting back on to the rocks Joe Biden’s embarrassment at fist bumping Mohammed bin Salman in July would have been worth it if it had undercut Vladimir Putin’s Russia, says Edward Luce. No such result has been visible, he says. Can the US president do anything to dissuade Saudi Arabia from being a recurring thorn in America’s side?What a far-right Italy means for Europe Polls suggest Sunday’s general election in Italy will result in a far-right government led by conservative firebrand Giorgia Meloni. It would mark Italy’s first experiment with far-right rule since fascist dictator Benito Mussolini and decision makers in Brussels, Washington and Moscow are watching closely.

Bitcoin can’t be separated from crypto Why do the “bitcoin maximalists” claim bitcoin is not a cryptocurrency? One can see why they might be keen to distance themselves from cryptoland scams. But their arguments don’t stand up, writes Jemima Kelly.Irish youth look overseas The country’s history of emigration has seen an estimated 10mn people leave since 1800. While in the past, many were forced out by famine and economic crises, young people now are drawn to jobs abroad or the freedom of living in more open societies.Food & drinkLobster thermidor, Michelin star chefs and recipes that come with non-disclosure agreements: take a look inside the test kitchens of the world’s most experimental airlines.

As airlines fight harder to turn a profit, first-class meals are getting more elaborate and more performative © Kenneth Lam More