Economy

Truss defeated rival Rishi Sunak in a vote of Conservative Party members for the party’s leadership, promising to deliver tax cuts and to help people with their energy bills and Britain faces a mounting energy crisis.”Thank you for putting your trust in me to lead and deliver for our great country,” Truss said.”I will take bold action to get all of us through these tough times, grow our economy, and unleash the United Kingdom’s potential.”She will succeed Boris Johnson, who was forced to announce his resignation in July after months of scandals saw support for his administration drain away and ministers quit to force him out.Johnson will give a speech outside Downing Street, then travel to Scotland to meet Queen Elizabeth at her Balmoral Castle residence to officially tender his resignation. Truss will follow him and be asked to form a government by the monarch, before addressing the country herself and then starting appointments to her top team of ministers.Long the front-runner to replace him, Truss will become the Conservatives’ fourth prime minister in seven years. Since then Britain has stumbled from crisis to crisis. Now there is the prospect of a long recession, and further increases in inflation, which hit double digits in July.Although Britain is well-versed in choosing – and replacing – prime ministers, the choreography of the day will have an unfamiliar feel, with Queen Elizabeth meeting Johnson and Truss in Balmoral rather than Buckingham Palace.The palace announced last week that the queen would appoint the new prime minister in Balmoral, where she spends her summers, due to mobility issues.Queen Elizabeth, under whose reign there have been 14 prime ministers before Truss, has had to scale back her public appearances in recent months due to such issues, and also spent a night in hospital last October for an unspecified illness. Truss therefore must travel to Balmoral to become prime minister, a round-trip of around a thousand miles, rather than the two-mile round-trip that prime ministers usually enjoy. More

LONDON (Reuters) – British shoppers are cutting back on purchases of clothes and other non-essential items as they try to cover their sky-rocketing utility bills and higher food prices, surveys showed on Tuesday.With the country’s next prime minister Liz Truss promising help to tackle the cost-of-living crisis, the British Retail Consortium said the value of total sales at its members – mostly large chains and major supermarkets – rose by 1.0% last month compared to August 2021, weaker than July’s 2.3% increase. On a like-for-like basis, ironing out changes in shop floor space, sales rose by 0.5%, slowing from July’s 1.6% rise. The figures are not adjusted for inflation, meaning the small rise in sales masked a much larger drop in volumes.”Worryingly, August data revealed a significant fall in clothing sales, the category which has been the most robust performer this year which could signal the start of shoppers pulling back from non-essential spending,” Don Williams, a retail partner at KPMG which co-produces the data, said. The belt-tightening by British households could be an early sign of a recession to come. The Bank of England has forecast Britain’s economy will go into recession at the end of the year and will only emerge from it in early 2024.Separate data from Barclaycard showed spending on consumer payment cards grew by an annual 4.7% in August, the smallest increase since March 2021, with outlays on essential items such as food up by 7.2%, the highest increase since December 2021.At the same time, average utility bills per customer climbed by 45.2%.Clothing retailers saw an almost 2% fall in sales compared to August 2021, while department store sales were down by 4.3% and overseas travel also dropped.But the domestic travel and hospitality sectors benefited from the warm weather and rise in staycations, as local hotels, resorts, pubs, and clubs all saw growing sales.Britons are contending with inflation that surpassed 10% in July, driven mostly by the surge in energy prices. Goldman Sachs (NYSE:GS) says it could hit 22% in early 2023 if gas prices stay high.  Barclaycard said a survey it conducted showed that 60% of consumers were feeling confident in their ability to get through the cost-of-living storm, down from 66% in July.”Many Brits plan to continue cutting back on their discretionary spending during the autumn and winter, while adopting a resourceful approach to saving money in order to weather a challenging period ahead,” said Jose Carvalho, head of consumer products at Barclaycard. More

The move is intended to enhance liquidity and capital efficiency for users, the company said in a statement. Binance said it will remove and cease any trading on spot pairs that include USDC, USDP and TUSD; it will start the conversion on Sept. 29. USDC, which is principally operated by Circle Internet Financial and is the second largest stablecoin, has a nearly $51.9 billion market capitalization. Binance’s stablecoin, BUSD, is valued at about $19.4 billion, according to crypto data provider CoinGecko.USDC products affected include saving accounts, DeFi staking subscriptions and crypto loans, which will be closed and liquidated on Sept. 23. More

Liz Truss is set to enter Downing Street after a bruising battle to become the UK’s next prime minister and will immediately start work on a two-year package of energy relief that could cost up to £100bn.The foreign secretary beat rival and former chancellor Rishi Sunak in a ballot of Conservative party members by 81,326 votes to 60,399 — a 57-43 margin — after a seven-week contest to succeed Boris Johnson. Truss will meet the Queen today at Balmoral, the monarch’s country estate, and will immediately return to London to announce her cabinet and address the economic crisis facing the country. She will become Britain’s 56th prime minister and the fourth Tory occupant of Number 10 in just over six years. She will also become the country’s third female premier after Margaret Thatcher and Theresa May.Read more: Analysis: Stephen Bush explains why Truss emerged as the victorious rightwinger among the Conservatives.FT View: A guiding principle for the incoming premier must be to restore the integrity of her office, writes the FT editorial board. Explainer: Liz Truss pledged to prioritise soaring energy bills. Here’s a look at her options.Do you think Truss will be successful in her pledge to help households with soaring energy bills? Tell me what you think at [email protected]. Thank you for reading FirstFT Asia. — EmilyFive more stories in the news1. KPMG sued for $830mn over Chinese audit KPMG has been accused of “appalling” audit work that allowed a US-listed Chinese biotechnology company to carry out a “brazen” $400mn accounting fraud, the Hong Kong High Court heard on Monday.2. Xi to travel to central Asia ahead of party congress China’s president Xi Jinping will travel to Kazakhstan and Uzbekistan this month to attend the annual meeting of the Shanghai Cooperation Organisation, a Eurasian political and security forum. As part of Xi’s first foreign trip since the pandemic, he is also expected to meet Russia’s president Vladimir Putin on the sidelines of the forum. (FT, Reuters) 3. Iran nuclear deal ‘in danger’, says EU chief negotiator Josep Borrell, who chairs the indirect negotiations between Washington and Tehran on reviving the 2015 Joint Comprehensive Plan of Action (JCPOA), said yesterday that he was losing confidence in finding a deal.4. Israel admits military may have killed Abu Akleh Israel’s military has admitted that there is a “high possibility” that one of its soldiers unintentionally killed the veteran Palestinian-American journalist Shireen Abu Akleh.5. China extends Covid lockdowns Chinese authorities have extended the Covid-19 lockdowns in Chengdu and Shenzhen, backtracking on promises of freedom for tens of millions of people in the southern megacities following mass testing campaigns. At least 68 cities are currently in partial or full lockdown in China, according to data from the country’s National Health Commission.

Chengdu, a city of 21mn, will reman under lockdown until at least Wednesday, officials said © AFP/Getty Images

The day aheadAustralia monetary policy committee meeting The central bank is largely expected to raise the cash rate by another 50 basis points. (FX Street) Booker Prize shortlist announced The Booker Prize shortlist will be announced today. You can find the longlist here. What else we’re readingMan of the people or agent of chaos? The political rebirth of former Pakistan prime minister Imran Khan has put pressure on the government as the economy teeters. At a time of rampant inflation and IMF-induced austerity, Khan’s message has struck a chord, writes Benjamin Parkin and Farhan Bokhar.‘A deglobalising world will be an inflationary one’ The war in Ukraine, the global carbon neutrality push, US-China decoupling, Federal Reserve rate rises putting a cap on easy money — there is no getting around the fact that a deglobalising world will also be a more inflationary one, at least in the short term, writes Rana Foroohar.One-third of Pakistan submerged by flooding Deadly flooding in Pakistan destroyed homes and decimated crops in what the country’s officials say is an unprecedented climate disaster, affecting an estimated 30mn people or about 15 per cent of the population. Click here to sign up to our Climate Graphic: Explained newsletter.

Crypto real estate: the property market built on digital assets There are tens of thousands of bitcoin acolytes with the equivalent of more than $1mn in their digital wallets. A survey of US housebuyers found that 12 per cent of first-time buyers planned to liquidate digital assets for a downpayment. Agents are aiming to tap that pool of buyers and convert cryptocurrency into bricks and mortar. ‘I got mooed at for expressing milk at Goldman Sachs’ Bully Market is a sensational account of sexual discrimination and harassment at Wall Street powerhouse Goldman Sachs. Jamie Fiore Higgins worked at the bank for 17 years and left in 2016 but her book has lessons for any powerful organisation. Three ideas stand out, writes Pilita Clark. Travel The interior designer Joyce Want picks out traditional shops, rooftop picnics, boat trips to beautiful beaches to give FT Globetrotter a guide the award-winning designer’s very own HK.

Ling Kok Shan hill on Lamma Island, where Wang and her family like to spend a day out © Tuomas Lehtinen/Alamy More

An expected interest rate hike in Australia is the main macro and market event in Asia on Tuesday, but any investor not paying full heed to the energy and economic crisis unfolding in Europe by now is, frankly, guilty of gross negligence.With U.S. markets closed on Monday for Labor Day, events in Europe took center stage. The euro fell below $0.99 for the first time in 20 years, stocks slumped, bond yields rose, and gas prices surged after Russia said its main gas supply pipeline to Europe would stay shut.Britain’s next prime minister, Liz Truss, meanwhile, has a job on her hands – the energy crisis is snowballing, recession is close at hand, inflation could top 20% next year according to Goldman Sachs (NYSE:GS), and sterling is half a cent away from a fresh 37-year low against the dollar. Deutsche Bank (ETR:DBKGn) on Monday warned that the risk of a UK balance of payment crisis “should not be underestimated”.It’s difficult to imagine Asian or U.S. markets escaping a looming winter of severe discontent across Europe unscathed. How much of that risk is priced into global markets right now remains to be seen. Any relief from the 25% fall in global oil prices since June will have been punctured by OPEC+ members’ decision on Monday to cut production by 100,000 barrels per day to bolster prices. Brent rose about 2.5% back above $95/bbl.Asia’s local focus on Monday will be Australia’s rate decision. Economists expect the RBA to raise the cash rate another 50 basis points to 2.35%. The RBA was a late entrant into the global tightening race, and has raised rates by 175 bps since May. GRAPHIC: RBA cash rate & inflation ( https://fingfx.thomsonreuters.com/gfx/mkt/zdvxomrndpx/RBA.jpg) Key developments that should provide more direction to markets on Tuesday: Reserve Bank of Australia rate decision Australia current account (Q2)Japan household spending (July)UK, Germany, France, euro zone PMIs (August) More

Liz Truss pledged to prioritise soaring energy bills for households and businesses in her acceptance speech as Conservative party leader before she is installed as the UK’s new prime minister on Tuesday. “I will deliver on the energy crisis dealing with people’s energy bills, but also dealing with the long term issues we have on energy supply,” she said.Truss is expected to act quickly ahead of the impending 80 per cent increase in the average annual domestic energy bill from the start of October. Her team has indicated that she will outline her plans on Thursday with a support package that could reach £100bn.What are the options for Truss? Energy suppliers, including ScottishPower and Ovo, have called for a loan scheme to freeze or significantly reduce bills for households. This could take many different forms but the common element in the various options is for the government to provide loans or loan guarantees to suppliers so they could hold the cost of energy for a household with a typical level of consumption at the existing domestic price cap of £1,971.Broadly, Truss will have to choose between a simple freeze on all bills or a more targeted scheme aimed at poorer families, by for example limiting the number of subsidised units of energy each household would receive.What is most likely to happen? Up to now, the UK government has opted for a blend of blanket and targeted support. This includes a £400 rebate on energy bills this winter for all households and additional means-tested payments through social security benefits such as universal and pension credit. The support offered so far, which also includes fuel duty and council tax rebates, will cost £37bn, according to the Treasury. The imminent rise in bills and the difficulty in assessing the situation of households with high energy use has led the Labour party and the Liberal Democrats to propose a freeze on all bills. This has become increasingly attractive to the Truss team rather than the complexities of a more targeted approach not least as the average bill in January is forecast to exceed £5,000, according to the Resolution Foundation. There is also an urgent need to help businesses, which are not covered by the price cap and are facing even bigger increases in their bills. Kwasi Kwarteng, the favourite to be Truss’s chancellor, hinted in the Financial Times that companies would not be forgotten, promising help to “get families and businesses through this winter and the next”.Gerard Lyons, an economist advising Truss, has proposed an effective cap on the price of wholesale gas which would benefit both companies and households.Who will it help?The winners and losers will depend on the design of government aid. If the new plan is to freeze bills, this will offer the broadest support but will benefit the biggest energy users most and come with the highest price tag. Universal payments, such as the £400 rebate already offered, are of most value to richer families with low energy bills and of least help to more vulnerable customers in old and draughty homes.Targeted payments such as the £650 for those on means-tested benefits help only the poorest and cost much less. But they offer no help to families who are struggling financially but fall just outside the benefit safety net.Will it be inflationary? Additional government borrowing or state guarantees on private sector loans would increase spending in the economy at a time the Bank of England thinks there is excess demand. As a result, the central bank would probably respond to these inflationary pressure by raising interest rates, with Goldman Sachs on Monday forecasting they would reach 3.25 per cent by the end of the year.Paradoxically, a support scheme that resulted in freezing energy bills would lower measured inflation and as a result hold back the forecast rapid rise in the headline rate from 10.1 per cent in July to around 15 per cent or higher at the start of next year. Jens Larsen, a director at Eurasia Group, the consultancy, said a lower official measure would help stem inflation expectations that could in turn create a wage-price spiral, but added: “The MPC will still want to raise rates in response to a fiscal package that is likely to be very expansionary.”Another potential problem is the effect any plan would have on the global markets’ view of UK assets. Whichever way the subsidy is applied, borrowing to pay for imported gas would worsen the trade deficit, leading to concerns that the country could be living beyond its means. Deutsche Bank on Monday warned of the dangers of “a self-fulfilling balance of payments crisis whereby foreigners would refuse to fund the UK external deficit”.What will it cost? ScottishPower suggested that if the new prime minister wanted to freeze bills at £1,971 for all households for two years, such a “deficit fund” would cost more than £100bn. The scale of the support would depend significantly on how the government decides to help business, because industrial and service sector companies use two-thirds of the amount consumed by households. Ultimately, it will depend on the exact scheme chosen by Truss. But even then even the government cannot be certain of the level of support it would need to provide as it would depend on the price of wholesale gas, which has been extremely volatile.There are some measures that would offset the overall cost, including the £5bn windfall tax on North Sea oil and gas producers announced by the government earlier this year. Kwarteng has also been working on a scheme that would cut the cost of electricity by limiting how much renewable and nuclear power producers are paid for their output, a move Energy UK, a trade body, estimates would save up to £18bn annually from next year.How would any scheme be funded?The government would prefer a loan guarantee scheme so that the private sector could take on the debt so it does not show up in the public finances. This would allow Truss to argue she is not borrowing and spending, as the ONS would be likely to classify such a scheme as a contingent liability. That is as long as the transaction was genuinely in the private sector and would not ultimately require a state bailout.The downside is that it would be more expensive for the private sector to borrow than the government, leaving a bigger bill for households to pay in future either through general taxation or via levies on energy bills. More

BUENOS AIRES (Reuters) – Argentina’s central bank is set to hike the country’s interest rate as early as this week, a source said, after the economy ministry rolled out a preferential exchange rate for soybean farmers dubbed the “soy dollar” in a bid to promote exports.The government announced the FX incentive on Sunday to speed up stalled sales of the grain, allowing soy farmers to convert their earnings to local currency at 200 pesos per dollar, far higher than the official rate of 140 pesos.Argentina is the world’s top exporter of processed soy oil and soymeal and the No. 3 exporter of raw soybeans.A source with direct knowledge of central bank decision making said that the entity would raise rates this week, already hiked sharply in recent months, to tighten liquidity given the expected inflow of funds from the new FX measure.”The ‘soybean dollar’ is an exceptional measure that was agreed upon with exporters, the central bank and the Ministry of Economy, but the need to have pesos to buy those dollars makes it necessary to absorb more liquidity urgently,” an adviser to the central bank, who asked not to be named, told Reuters.The central bank declined to comment. Its board normally meets on Thursdays to make policy decisions, though it had been expected to wait until later this month, when August inflation data is due to be released, before increasing the benchmark rate.”This (latest move on FX) would make the central bank’s board not wait for August inflation to be released and move instead ahead of the data, raising the ‘Leliq’ (bill) rate,” the source added.Reuters reported last week, citing a source and analysts, that the central bank would likely hike the benchmark interest rate to around 75% this month, up from 69.5% now. Inflation is running at over 70% on an annual basis and expected to climb.Under the new FX measure, Argentina soy farmers will be offered a favorable exchange rate for the month of September, a move intended to spur export sales and bring in much-needed foreign currency.”The difference in pesos that the central bank must have to buy agricultural dollars will come from somewhere, which suggests that this week we will have a new rise in the reference interest rate,” analyst Marcelo Rojas said. More

Good eveningYou might be thinking: “Surely the energy crisis couldn’t get any worse?” Vladimir Putin’s response: “Hold my beer.” The Russian president confirmed today that gas flows through the Nord Stream 1 pipeline would not resume until western sanctions over Ukraine were lifted, downplaying Gazprom’s earlier explanation of technical faults. The euro hit a 20-year low in response while gas prices surged again, as fears grew that the situation could tip the continent into recession.The energy crisis is even more acute this side of the Channel — where household bills are rising much faster than in the rest of Europe — presenting an immediate challenge for Liz Truss, who takes over as UK prime minister tomorrow after winning a bruising Tory party battle to succeed Boris Johnson.Truss is thought to be considering freezing energy bills for at least the most vulnerable households but is holding off any further details until later this week. Kwasi Kwarteng, her likely new chancellor, laid out some principles of Trussenomics in the FT today (TLDR: it’s all about growth), but said little about the issue dominating domestic politics, other than that “decisive action” was needed to get families and businesses through this winter and the next, with the help of some “fiscal loosening”.UK businesses are calling for Covid-style support, while civil servants are drawing up plans to deal with blackouts (carbon paper copies, anyone?). In the meantime, chief economics commentator Martin Wolf offers the new premier some advice: be bold and target the vulnerable first. EU member states are already taking action. Germany has followed advice from Brussels and imposed a new windfall tax on energy groups to pay for a €65bn aid package, while Sweden and Finland are providing emergency support to electricity producers as strains mount in power markets.Russia has made little secret of its desire to see the energy crisis weaken Europe’s support for Ukraine. “Obviously life is getting worse for people, businessmen, and companies in Europe,” said Putin’s spokesman. “Of course, ordinary people in these countries will have more and more questions for their leaders.”The latest twist and its implications for inflation raise the stakes for European Central Bank policymakers ahead of their meeting on Thursday. Markets are expecting an interest rate rise of 0.75 percentage points, the biggest increase since 1999. Latest newsOpec+ oil producers to cut crude supply in bid to lift prices UK labour market at its tightest for at least 15 yearsOccupation forces in Ukraine’s Kherson region delay vote to join RussiaFor up-to-the-minute news updates, visit our live blogNeed to know: the economyUK private sector business activity shrank in August, according to the final reading of the S&P Global/Cips purchasing managers’ index. The PMI score of 49.6 is the first reading below 50, which marks the divide between contraction and expansion, since the lockdown period of January 2021.Latest for the UK and EuropeEU capitals are waiting to see if Liz Truss goes ahead with her plan to rip up post-Brexit trading rules concerning Northern Ireland. “Her proposals to breach international law . . . at the very moment western allies were rallying behind Ukraine — precisely to defend a liberal, rules-based world order — are proof of a stunning geopolitical shortsightedness,” said one diplomat.Deutsche Bank marked Truss’s ascension with a note arguing that the Northern Ireland situation and other factors meant the UK was at risk of a balance of payments crisis as investor confidence melts away. “Aggressive fiscal spending, a big energy shock and a sterling slide sent the UK into the IMF’s arms back in the 1970s,” says FT Alphaville. “Today’s environment looks eerily similar.” Britain’s long-term borrowing costs today jumped to the highest level in eight years while sterling fell below $1.15.The IMF said the EU needed to reform its borrowing powers and debt rules to help member states manage downturns and help pay for green investments. Inflation in Turkey passed 80 per cent for the first time since 1998. In what some economists have termed a giant experiment, president Recep Tayyip Erdoğan has insisted on keeping interest rates at the lowest level in the world, even as prices soar.European comment editor Tony Barber, in our Europe Express newsletter, discusses how German defence, energy and economic policies have been reshaped by the war in Ukraine. Global latestChina extended pandemic restrictions in Chengdu and Shenzhen, the country’s manufacturing and technology hub. At least 68 cities are now in partial or full lockdown.South Africa could become the second G20 country after Turkey to appear on a global financial watchdog’s “grey list” unless it urgently improves law enforcement. Other countries on the list include Panama, Syria and Yemen. The peaceful and democratic rejection of populist constitutional changes by Chilean voters is an example to the world, writes Latin America editor Michael Stott. A deglobalising world will be an inflationary one, writes columnist Rana Foroohar, as climate change and conflict challenge the Federal Reserve’s efforts to contain rising prices. Need to know: businessThe EU is considering wide-ranging powers to make businesses stockpile supplies in the event of another crisis such as the coronavirus pandemic. The draft proposals seen by the FT would enable Brussels to declare an emergency, triggering interventionist measures to prevent shortages in critical industries. The global events industry is back after a difficult two years, but concerns remain over the lack of all-important Chinese participants. Convention centres and organisers are still gauging whether demand for face-to-face meetings will return to pre-pandemic levels.The Lex column wonders how far the US clampdown on Big Tech will go, given its status as the country’s most successful homegrown sector.Struggling cinema chains are hoping to persuade streamers such as Netflix and Apple to release more blockbusters on the big screen.The World of WorkAfter two years of remote and hybrid working arrangements, US and European companies are making a renewed push to get people back into the office. Our Big Read assesses their chances of success.HTSI magazine editor Jo Ellison takes issue with the “quiet quitting” trend that’s getting so much traction on social media. “While it’s probably stinkingly old-fashioned, I want to believe that we should take some pride in doing things well,” she says.Another of our Big Reads examines the trade union revival brewing at Starbucks in the US. Could it re-energise the labour movement?Get the latest worldwide picture with our vaccine trackerSome good news…Fancy helping out on a desert island while staying at home? One unexpected bonus of the work-from-anywhere era is the increasing possibility of volunteering abroad, while still keeping your day job. More