Economy

Not for decades have Britons faced the kind of agonising choices they will confront this winter. The grim confirmation of an 80 per cent increase in the cap on household energy bills from October will force many to choose between heating and eating this Christmas. For businesses, many of whom could face a fourfold rise in bills, the decision may be between cutting jobs and shutting up shop. A surge in unemployment would compound the misery for families across the country. Whatever their other ambitions, finding ways to tackle what is a national emergency will be the defining challenge for Britain’s next prime minister.First, the new leader must level with the public. Sky-high inflation is being driven by energy prices, above all gas, and it is here that consumers will experience most pain. This is a direct result of Vladimir Putin’s invasion of Ukraine and squeeze on supplies to Europe. Ukraine is fighting not just for its independence but to defend values many European countries have long taken for granted. Britain is part of the broader economic struggle with the Kremlin.Yet the government should also emphasise that the necessary but arduous adjustment of shifting from fossil fuels to solar, wind and nuclear power, and becoming far more energy efficient, will bring long-term rewards. It will help meet climate goals, and prevent Russia from ever again being able to drive up prices.This is a seismic shock, and many billions of pounds of further state support will be needed. But the national debt is mounting, and higher interest rates make it more expensive to service. The priority must be helping the most vulnerable households and businesses to weather this winter, creating time for a broader adjustment to prices that may be high for several winters to come.The poorest households spend a greater portion of their income on energy. It is harder, too, for small and medium-sized businesses — which account for three-fifths of UK jobs — to absorb soaring bills and pass on price increases to customers. Aid must be skewed above all towards them.For households, an efficient way forward is to build on Sunak’s package of support in May, which included payments to those on means tested benefits, alongside the disabled and pensioners. For small businesses, direct support could be targeted via rebates through the business rates system, together with discretionary grants administered by local authorities. Holding down energy prices across the board for long periods, as some are advocating, could prove inordinately expensive, and dull incentives to economise. Indeed, while cutting value added tax on energy may help at the margin, VAT revenues are also useful to fund support packages and the energy transition.Short-term support for cash flow should also be paired with efforts to help businesses and households contribute to long-term energy security. The government must overcome its apparent aversion to raising awareness on how enterprise and society can ration gas and electricity use. Explicit support for businesses, ideally through the tax system, to incentivise green investments — for example in insulation and solar panels — will also keep future bills down. A halfhearted focus on this in the past has exacerbated today’s energy bind.Battling Putin’s weaponisation of gas calls for shared efforts across government, business and households. Outgoing UK prime minister Boris Johnson rightly noted this week that “If we’re paying in our energy bills . . . the people of Ukraine are paying in their blood.” Liz Truss, the frontrunner to succeed him, and her team have shown little sign of grasping the scale of the problem, and the response needed. They will need to quickly come to terms with reality. More

With inflation soaring, it’s more important than ever to calculate your household budget.The government publishes an official inflation figure to give us a general picture of how quickly consumer prices are changing. On the latest data, they rose 10.1 per cent in the year to July — and it could get worse. Economists at Citigroup have forecast a peak of over 18 per cent in January. But these are averages, calculated across all kinds of consumer spending and all types of household — student and pensioner, rich and poor, single-person and family-sized.To get a better grip on how inflation is squeezing your own budget, you need to work out your own personal inflation rate — how the prices of the goods and services you buy are rising. In broad terms, energy, fuel and food prices are now seeing the highest inflation rates, so people who spend more of their money on these basics — often low-income householders — are now seeing the biggest price increases.To help FT readers, we are launching an FT personal inflation calculator in September. To demonstrate what it can do, we are asking readers to volunteer to tell us about their household budget and how it has changed. So if you are willing to talk about your spending and put your figures through our number-crunching machine, please let us know. Email [email protected] and we will get back to you. More

LONDON (Reuters) – The dollar dipped against other major currencies on Friday, ahead of U.S. Federal Reserve Chair Jerome Powell’s widely-anticipated speech at the Jackson Hole symposium.Traders are looking for clues on the U.S. central bank’s tightening plans to combat rampant inflation when Powell speaks at 1400 GMT.The dollar index – which tracks the greenback against six major currencies – has steadily gained over the past two weeks and is just shy of the two-decade peak of 109.29 it hit in mid-July. After making small gains earlier in the session, it slipped a quarter of a percent on the day to 108.210.”(Powell) is likely to focus on the short-term challenges and endeavour to leave no doubt about the Fed’s determination in the fight against inflation,” Esther Reichelt, a forex analyst at Commerzbank (ETR:CBKG), said in a note.”If he succeeds convincingly, he could support the dollar, at least in the short term.”Fed officials have been noncommittal about the potential size of interest rate increases in their addresses at the symposium so far, but have maintained that they will drive rates up to keep inflation at bay. The Fed is due to get two more key inflation reports and more jobs data before its scheduled Sept. 20-21 meeting. In Europe, soaring energy prices stemming from Russia’s invasion of Ukraine have dimmed economic prospects and weighed on the euro and sterling, pushing them both more than 10% lower against the dollar this year.Sterling was flat on the day at $1.18410, after earlier losing as much as 0.5%, as British regulators confirmed consumer energy bills would rise 80% and warned of a “crisis” needing urgent government action. The euro gained 0.4% to $1.00120, nudging back above parity against the dollar after spending much of this week below the psychologically important level.The dollar gained 0.3% on the Japanese yen, last quoted at 136.905 yen per dollar. More

BUDAPEST (Reuters) – Hungary’s central bank is expected to raise its base interest rate by 100 basis points to 11.75% next Tuesday, with more hikes to come this year as inflation keeps rising due to surging energy prices and a weak forint.The National Bank of Hungary (NBH), which became the firstcentral bank in the European Union to start raising interestrates in June 2021, has lifted its base rate by more than 1,000 basis points since then.But inflation, running at 13.7% year-on-year in July, has outpaced the bank’s forecasts and deputy Governor Barnabas Virag said earlier this month that the bank must use all tools to prevent inflation taking on a life of its own.He said inflation could peak later and at a higher level – around 18% to 19% – than previously expected, and start declining only from next year at a slow pace. Hungarian core inflation surged to an annual 16.7% in July, the highest in 25 years.The median projection of 11 economists in an Aug. 22-26Reuters poll saw the NBH raising its base rate by 100 bps nextTuesday to 11.75%.Two of the 11 economists pencilled in smaller hikes of 50 or 75 bps.”We expect the Hungarian central bank to continue its decisive tightening with another 100bp hike next week,” said Peter Virovacz, an analyst at ING in Budapest, who sees the main rate reaching 14% by the end of this year.”We expect the central bank to slow down the pace of tightening after September… With upside risks in inflation, we see upside risks to our terminal rate call as well, which means not just higher rates but a continued tightening cycle in early 2023.”The forint sank to a record low of 416.90 versus the euro last month and has been drifting back towards that low this week, trading at 410 on Friday at 0939 GMT, pressured by a strong dollar and Hungary’s lack of agreement with the European Union about the release of EU funds to support the economy.This complicates the central bank’s fight to curb inflation.The poll forecast headline inflation would average 13.8% this year. Price growth is seen easing only to 12.15% next year, still far above the NBH’s 2% to 4% target range. More

Investors were also wary ahead of the Federal Reserve’s annual Jackson Hole symposium, which could offer insights into the central bank’s future policy path.According to Refinitiv Lipper, investors disposed of a net $10.48 billion worth of global equity funds in the week, which compares with just $3.15 billion worth of purchases in the previous week. Fund flows: Global equities bonds and money market https://fingfx.thomsonreuters.com/gfx/mkt/zjpqkbrkmpx/Fund%20flows-%20Global%20equities%20bonds%20and%20money%20market.jpg Fed Chair Jerome Powell is due to deliver his keynote speech to the symposium on Friday, and investors are likely to scrutinize the comments for any indication on how steep future interest rate hikes would be.All major regions witnessed equity fund outflows with investors exiting a net $5.17 billion, $2.19 billion and $2.11 billion from Europe, the United States and Asia, respectively.Among sector funds, tech, industrials and consumer discretionary faced outflows of $2.04 billion, $735 million and $595 million, respectively. Financials sector funds obtained $1.85 billion, while utilities received $588 million. Fund flows: Global equity sector funds https://fingfx.thomsonreuters.com/gfx/mkt/xmpjomaoxvr/Fund%20flows-%20Global%20equity%20sector%20funds.jpg Bond funds also recorded withdrawals, amounting to $8.41 billion, the biggest for a week since June 29.Investors sold high yield funds of $5.98 billion, marking their biggest weekly net selling since June 15, while government and short- & medium-term funds saw outflows of $894 million and $153 million, respectively. Global bond fund flows in the week ended Aug 24 https://fingfx.thomsonreuters.com/gfx/mkt/zdpxozmomvx/Global%20bond%20fund%20flows%20in%20the%20week%20ended%20Aug%2024.jpg Meanwhile, weekly net selling in money market funds eased to a three-week low of $375 million.Commodities funds’ data showed precious metal funds suffered outflows of $354 million in a ninth straight week of net selling, while energy funds had a second weekly outgo, although a marginal $5 million.An analysis of 24,457 emerging market funds showed investors sold equity funds of $1.34 billion, posting the biggest outflow in five weeks, while also exiting bond funds to the tune of $1.05 billion, after three weeks of buying in a row. Fund flows: EM equities and bonds https://fingfx.thomsonreuters.com/gfx/mkt/mopangengva/Fund%20flows-%20EM%20equities%20and%20bonds.jpg More

It is the first time authorities have set a formal cap on the numbers of tables and a minimum income requirement, as the government looks to tighten control of casino operators who raked in $36 billion in 2019, before COVID-19 disruptions.With contracts set to expire at the end of the year, the territory’s six licensed operators, Sands China (OTC:SCHYY), Wynn Macau (OTC:WYNMF), Galaxy Entertainment, MGM China (OTC:MCHVY), SJM Holdings (OTC:SJMHF), Melco Resorts have to rebid for their spots.The highly anticipated bidding process kicked off in July, when the government said global gaming operators could submit bids for new licenses from July 29 until September 14. “The new gaming operation from early next year will … cap the total amount of all gaming tables and gaming machines to ensure orderly and healthy development,” the government said in a statement on its website.Minimum annual gross income from each gaming table is set at 7 million patacas ($866,122) while the figure for each gaming machine is 300,000 patacas ($37,120), the government said.Such figures of minimum gross revenue guarantee a minimum level of tax for the government, with the operator having to make up the gap if revenues fall short.The rules aim to spur licensed companies to make good use of approved tables and machines, the government said.A nominal cap on table games set by the government in 2012 allowed for compound annual growth of 3% on the number of tables available for all casinos. By the end of 2021, Macau had a total of 6,198 gaming tables and 11,758 machines in operation. That was down from a high of 6,739 tables in 2019, prior to the COVID-19 outbreak.The rebidding takes place amid Macau’s worst outbreak of COVID-19, which led to a 12-day closure of casinos in July. While they have re-opened, there is no business, as curbs are only being lifted slowly.At a time when other gambling centres in the world are getting busy again, Macau’s COVID-19 curbs are burning through about $600 million a month. The casinos are expected to have little to no income for months, analysts say.($1=8.0820 patacas) More

UK bus users face “significant” price rises in 2023 since operators expect to lock in fuel purchases for next year at high rates, a senior executive at one of the largest companies has warned, a move that would add to the cost of living squeeze for millions who rely on the transport.Diesel and petrol have risen close to £2 per litre since March following Russia’s invasion of Ukraine, pushing the cost of filling an average car tank to more than £100.Early signs are that bus use has increased since March, as some commuters switch away from car travel. Large bus companies have so far avoided passing on higher fuel prices because they buy diesel in advance.However, Go Ahead’s Phil Southall, a senior bus director, said that it, and other operators, typically buy fuel in bulk in advance to shelter themselves from price fluctuations.So far, only half of the company’s fuel for 2023 had been secured, meaning that it may be forced to increase fares if it locks in higher rates in the months ahead.“If things don’t stabilise there is a cliff edge where we may have to increase fares significantly,” he told the Financial Times.Go Ahead, which operates 6,000 buses in the UK, usually secures half of its supply a year in advance, a quarter three years out and the final quarter four years early.The strategy means that it will be locking in prices for 2023 fuel later this year.“That’s when it will hit us, when you come to negotiate the price, then the only option is to pass that on to customers,” he said. “It will be at least a 10 per cent increase in fares, because you have no other option.”Around two-thirds of a bus operator’s costs are drivers, while fuel typically accounts for 15 per cent of operating expenditure, making it hard for businesses to absorb high increases.“Any significant increase in that would have to be passed on to customers,” said Southall. “If you are hedged at a lower price, then you are not getting the hit this year, but when it comes to hedging fuel for next year, you might pay twice the price,” he added. “All we can say at this point is it is a risk on the horizon.”Estimates from the Transport Focus watchdog indicate that more than 1mn additional passengers have started using buses since the beginning of March, while Go Ahead said it had also seen a sharper increase in travel in the past three months.Rising transport costs are already filtering through into higher food and goods prices, as haulage companies pass on costs of refuelling. The cost of running a single long-distance lorry has increased by £20,000 a year, haulage group Freight Link Europe warned last week. More

Dry weather in southwestern China has crippled huge hydroelectric dams, forcing cities to impose rolling blackouts and driving up the country’s use of coal.HONG KONG — Car assembly plants and electronics factories in southwestern China have closed for lack of power. Owners of electric cars are waiting overnight at charging stations to recharge their vehicles. Rivers are so low there that ships can no longer carry supplies.A record-setting drought and an 11-week heat wave are causing broad disruption in a region that depends on dams for more than three-quarters of its electricity generation. The factory shutdowns and logistical delays are hindering China’s efforts to revive its economy as the country’s leader, Xi Jinping, prepares to claim a third term in power this autumn.The ruling Communist Party is already struggling to reverse a slowdown in China, the world’s second largest economy, caused by the country’s strict Covid lockdowns and a slumping real estate market. Young people are finding it hard to get jobs, while uncertainty over the economic outlook is compelling residents to save instead of spend, and to hold off on buying new homes.Now, the extreme heat is adding to frustration by snarling power supplies, threatening crops and setting off wildfires. Reduced electricity from hydroelectric dams has prompted China to burn more coal, a large contributor to air pollution and to greenhouse gas emissions that cause global warming.Many cities around the country have been forced to impose rolling blackouts or limit energy use. In Chengdu, the capital of Sichuan Province, several neighborhoods went without electricity for more than 10 hours a day.An electronic billboard shut down to save energy in Chengdu, China.Agence France-Presse — Getty ImagesVera Wang, a Chengdu resident, said that just to charge her electric car, her boyfriend waited in a long line overnight at a charging station that was only partly operating. It was 4 a.m. by the time he reached the front of the line.“The line was so long that it extended from the underground parking lot to the road outside,” she said.The heat wave has scorched China for more than two months, stretching from Sichuan in the southwest to the country’s eastern coast and sending the mercury above 104 degrees on many days. In Chongqing, a sprawling metropolis in the southwest with around 20 million people, the temperature soared to 113 degrees last week, the first time such a high reading had been recorded in a Chinese city outside the western desert region of Xinjiang.The searing heat set off wildfires in the mountains and forests on Chongqing’s outskirts, where thousands of firefighters and volunteers have worked to put out blazes. Residents said the air smelled of acrid smoke.The drought has dried up dozens of rivers and reservoirs in the region and cut Sichuan’s hydropower generation capacity by half, hurting industrial production. Volkswagen closed its sprawling, 6,000-employee factory in Chengdu for the past week and a half, and Toyota also temporarily suspended operations at its assembly plant.A villager attempting to put out a bush fire with a mop in his field during a drought in Xinyao, a village in Jiangxi Province, on Thursday.Thomas Peter/ReutersFoxconn, the giant Taiwanese electronics manufacturer, and CATL, the world’s largest maker of electric car batteries, have both curtailed production at factories in the vicinity.In Ezhou, a city in central China near Wuhan, the Yangtze River is now at its lowest level for this time of year since record-keeping began there in 1865. People’s Daily, the main newspaper of the Communist Party, reported on Aug. 19 that the Yangtze River had fallen to the same average level it normally reaches at the end of the winter dry season.Read More About Extreme WeatherRelics of the Past: As a drought starves Europe’s rivers and brings water levels down, shipwrecks, bombs and objects dating back thousands of years are turning up at the water’s surface.Preparing for Disaster: With the cost and frequency of weather-driven disasters on the rise,  taking steps to be ready financially is more crucial than ever. Here are some tips.Wildfires Out West: California and other Western states are particularly prone to increasingly catastrophic blazes. There are four key factors.Colorado River: With water levels near their lowest point ever, Arizona and Nevada faced new restrictions on the amount of water they can pump out of the river.But the disruptions from the hydropower shortfall are being felt far from the southwest, including in China’s eastern cities, which are buyers of hydropower. Some factories and commercial buildings in cities like Hangzhou and Shanghai are rationing electricity.Kevin Ni, an online marketing worker in Hangzhou, said that his office was stifling because few air-conditioners were allowed to run.“We have to eat ice pops and drink iced drinks,” he said. “I just put my hands on the ice pops, that cools me the most.”A satellite image showing the Yangtze River last August between Huanggang and Ezhou, in Hubei Province, China.Planet LabsThe same view this month, showing how much lower the water levels are than in the previous year.Planet LabsThe falling water levels in major rivers that serve the region’s main transport hubs have also led to delays elsewhere in the supply chain. The Yangtze River has receded so much that many oceangoing ships can no longer reach upstream ports. The upper Yangtze basin normally gets half its entire annual rainfall just in July and August, so the failure of this year’s rains may mean a long wait for more water.That is forcing China to divert large numbers of trucks to carry their cargo. A single ship can require 500 or more trucks to move its cargo.“We’re losing a few months of really efficient shipping,” said Even Rogers Pay, a food and agriculture analyst at Trivium, a Beijing consulting firm.The heat wave and drought are also starting to drive food prices higher in China, especially for fruit and vegetables. Farmers’ fields and orchards are wilting. Sichuan is a leading grower in China of apples, plums and other fruit, and fruit trees that die could take five years to replace. The price of bok choy, a popular cabbage, has nearly doubled in Wuhan this month.“That’s going to create more economic pain, which is the last thing the leadership wants to see,” Ms. Pay said.Ships sailing on the Yangtze River in Jiujiang, Jiangxi Province, on Tuesday. The Yangtze River has receded so low that many oceangoing ships can no longer reach upstream ports.Alex Plavevski/EPA, via ShutterstockThe Ministry of Agriculture and Rural Affairs and four other departments issued an emergency notice warning on Tuesday that the drought posed a “severe threat” to China’s autumn harvest. China’s cabinet on Wednesday approved $1.5 billion for disaster relief and assistance to rice farmers and another $1.5 billion for overall farm subsidies.The government has urged local officials to seek out more water sources and allocate more electricity to support farmers and promote the planting of leafy vegetables, which are highly perishable, in big cities. Fire trucks have been used to spray water on fields and deliver water to pig farms.The extreme weather sweeping across China also has potential implications for the world’s efforts to halt climate change. Beijing has sought to offset at least part of the lost hydropower from the drought by ramping up the use of coal-fired power plants. China’s domestic mining of coal has been at or near record levels, and customs data shows that its imports of coal from Russia reached a new high last month.But China’s reliance on the fossil fuel raises questions about its commitment to slowing the growth of its carbon emissions.“In the short term in China, the very, very painful realization is that only coal can serve as the base” for the electricity supply, said Ma Jun, the director of the Institute of Public and Environmental Affairs, a Beijing environmental group. Sichuan Province has lured energy-intensive industries like chemical manufacturing for many years with extremely low electricity prices, he said, and some of these industries have squandered power through inefficiency.A dry vegetable plot at a farm in Longquan, a village in Chongqing.Mark Schiefelbein/Associated PressMr. Ma struck an optimistic note, however, about the direction of China’s climate strategy, saying that in the medium term, “China is very committed to carbon targets and renewable energy.”The government has sought to mitigate the effects of global warming on its economy. The National Development and Reform Commission, China’s top economic planning ministry, set up a working group last winter to analyze the effects of climate change on water-related industries like hydroelectric dams.While such efforts may help China preserve the viability of renewable energy programs, they may not prompt China to limit the burning of coal this year as a quick fix, said Ed Cunningham, the director of the Asia Energy and Sustainability Initiative at the Harvard Kennedy School.“They’re much more comfortable with coal,” Mr. Cunningham said, “and the reality is that when there’s a shortage of hydro, they use coal.”Muyi Xiao More