Economy

Jay Powell said a US recession is “certainly a possibility” as the Federal Reserve battles the biggest spike in prices for four decades. In testimony to the Senate banking committee yesterday, the Fed chair acknowledged it was now more challenging for the US central bank to root out soaring inflation due to factors beyond its control, such as the war in Ukraine and China’s Covid-19 policy.“It’s not our intended outcome at all, but it’s certainly a possibility,” Powell said, responding to a question about the risk the Fed’s plans to raise rates this year could lead to a recession.He added that because of the “events of the last few months around the world”, it was “now more difficult” for the central bank to achieve its goals of 2 per cent inflation and a strong labour market.Lawmakers pressed Powell several times about the burden imposed by the Fed’s recent 75 basis point rise in its main policy rate, the biggest interest rate increase since 1994.“You know what’s worse than high inflation and low unemployment? It’s high inflation and a recession with millions of people out of work,” said Elizabeth Warren, the progressive Democratic senator from Massachusetts. “I hope you will reconsider that before you drive this economy off a cliff.”Powell said in a separate exchange there would be considerable risks if the Fed did not act to restore price stability, with inflation becoming entrenched.Meanwhile, Joe Biden’s plan for the three-month suspension of federal taxes on petrol and diesel to help American families cope with surging inflation has run into early opposition from Democrats and Republicans in Congress. John Thune, the Republican senator from South Dakota, told reporters that the plan which would involve scrapping the 18.4 cent federal levy on every gallon of petrol and the 24 cent levy on diesel until September was a “gimmick”.Peter DeFazio, the Oregon Democrat and chair of the House transportation committee, said although well intentioned the plan would “achieve only minuscule relief” for American families facing the fastest rising prices in a generation.A senior Biden administration official told reporters yesterday that G7 leaders are expected to debate steps to “stabilise global energy markets” at a summit this weekend in Germany.Delve deeper: With the Democrats facing defeat in midterm elections, has the president run out of political capital?Thanks for reading FirstFT Americas. Here is the rest of the day’s news — GordonFive more stories in the news1. Inflation drives surge in UK debt interest payments UK interest debt payments rose to one of the highest levels on record last month, official data released today revealed. Interest costs hit £7.6bn in May as surging inflation lifted the government’s borrowing costs.2. Germany fears total shutdown of Russian gas pipeline The government in Berlin fears Russia could take advantage of annual maintenance on its main export pipeline to shut off gas supplies to the country completely, increasing the risk of a winter energy crisis in Europe’s largest economy.2. Emmanuel Macron calls for compromise The French president has urged his opponents to end the nation’s political deadlock by joining his minority government in voting through laws in parliament. The call for compromise made in a televised address to the nation came three days after his government lost control of the National Assembly in legislative elections.4. Quant hedge funds profit from crypto turmoil A small group of algorithm-driven hedge funds have picked up winnings from rapid declines in digital assets such as bitcoin and luna, as the turmoil that wiped trillions of dollars off the value of cryptocurrencies created a lucrative opportunity.5. PGA Tour chief blasts breakaway tournament Jay Monahan, commissioner of the PGA Tour, has said that LIV Golf, which is majority-owned by Saudi’s $620bn sovereign wealth fund, was attempting to “buy the game of golf”. Former world number one Brooks Koepka has become the latest player to defect. Read more on the business of sport by signing up to our weekly Scoreboard newsletter.The day aheadJay Powell testimony The Federal Reserve chair will testify before the House Financial Services panel in a second day of testimony on Capitol Hill. Separately, the Fed will release the results of its annual bank stress test, which assesses how a bank would respond to an economic downturn. Here’s what to look out for. Mexico interest rate decision The country’s central bank is expected to raise its benchmark policy rate for the eighth time in a row. Economists expect the cost of borrowing to increase by 0.75 percentage points, bringing it to 7.75 per cent.Earnings Logistics group FedEx, often considered a proxy of economic growth, is expected to report a profit of $6.86 a share on $24.6bn in revenues after the market closes. Firearms manufacturer Smith & Wesson will also report earnings just weeks after two high-profile mass shootings in the US. And professional services company Accenture reports results before the bell.Economic data New applications for unemployment aid in the US are expected to dip slightly to 227,000 in the week ended June 18. Applications have come in at 229,000 in each of the past two weeks, both times exceeding the expectations of economists polled by Reuters.January 6 hearing A select committee created to investigate last year’s attack on the US Capitol will hold its fifth public hearing in Washington. On Tuesday the committee heard that Donald Trump and his lawyers tried to pressure Republican state officials to overturn the 2020 election.Ukraine A summit of EU leaders in Brussels is expected to accept Ukraine as a candidate country as the war against Russia rages. Discussions with Balkan countries on their membership ambitions are likely to be overshadowed by yesterday’s ousting of Bulgaria’s pro-EU government.What else we’re readingThe time to put Donald Trump on trial is drawing near The evidence amassed by the US House of Representatives’ January 6 committee is making it much harder for US Attorney-General Merrick Garland to turn a blind eye. But any prosecution of the former president comes with acute risks, writes Edward Luce.Why New York gun violence victims may have their day in court Gun manufacturers are broadly shielded from federal lawsuits brought against them in the US, but New York is trying to find a way around that. A woman shot on the New York City subway in April has brought a lawsuit against the maker of the pistol used in the attack: Glock.Revlon has become a meme stock Revlon shares have zoomed from about $1 a share to $8 a share — less than a week after the company was placed in bankruptcy. But don’t expect a resurgence in the company’s fortunes reminiscent of car hire company Hertz, says Sujeet Indap.Food crisis bites across Africa Steep global rises in food, fuel and fertiliser prices since Russia’s invasion of Ukraine have compounded economic pain from the coronavirus pandemic and left millions of Africans facing an “unprecedented food emergency”, the World Food Programme has warned. It has also raised the risk of social unrest in poorer countries.

How ‘vice-signalling’ swallowed electoral politics Politicians around the world have always pandered. But lately political stunts, from former US president Donald Trump’s border wall to UK prime minister Boris Johnson’s Rwanda flights, have taken a darker turn, Stephen Bush writes.Putinism delays a reformist turn Change is coming to Russia. Precisely, “the Great Change” — the name of a youth movement that the Kremlin is setting up under Vladimir Putin, whose presidency has been defined by domestic repression and mind manipulation, writes Tony Barber.BooksInnovation Editor John Thornhill selects the best mid-year reads from the world of technology, including a short guide to ethics by Stephanie Hare and a book looking at the power of venture capital by Sebastian Mallaby. Our Summer Books 2022 page has a full round-up of the year’s best reads so far from FT critics and columnists. More

Interest payments on UK government debt hit one of the highest levels on record last month as rising inflation limited an expected fall in public sector borrowing.Interest costs rose to £7.6bn in May, up 70 per cent from last year and higher than the £5.1bn forecast by the independent fiscal watchdog, following a rapid rise in retail price inflation to which many debt payments are linked.The figures were released as the closely watched S&P Global/CIPS UK purchasing managers’ survey showed business sentiment falling to the lowest level in two years amid concerns over the impact of surging inflation on household spending and long-term growth prospects. The Office for National Statistics said the debt interest payments were the third-highest made by the government in any single month and the highest payment made in any May on record.Inflation lifts government borrowing costs because gilts linked to the retail price index make up 25 per cent of UK sovereign debt. Official data released on Wednesday showed that the RPI rose at an annual rate of 11.7 per cent in May, the fastest pace since December 1981.Public sector net borrowing nonetheless declined in May — but by less than expected — as inflation also aided government finances by bringing in higher tax revenues.Borrowing in May was £14bn, down £4bn from the same month last year, according to ONS data published on Thursday. But May’s borrowing was higher than the £12bn forecast by economists polled by Reuters and well above the £10.3bn expected by the Office for Budget Responsibility, the watchdog.The strong labour market and reopening of the economy boosted government income too. In May, government receipts rose by £5.7bn, including a £3.4bn annual increase in tax receipts.Samuel Tombs, economist at Pantheon Macroeconomics, noted that government receipts undershot the OBR forecasts, particularly for consumption tax revenues. This may suggest “that the economy is underperforming the OBR’s expectations”, he said.Borrowing for April was also revised up. This means that the public finances for the current fiscal year “have got off to a disappointing start”, said Martin Beck, chief economic adviser to the EY Item Club.Chancellor Rishi Sunak said: “Rising inflation and increasing debt interest costs pose a challenge for the public finances, as they do for family budgets.”The higher interest payments were also partially offset by the end of most Covid-19 government support schemes. Public sector net debt, or the borrowing accumulated over time, was 95.8 per cent of gross domestic product, the highest ratio since the early 1960s.Borrowing figures for this year do not yet include the £15bn package of government measures announced last month aimed at supporting households with soaring energy bills.Michal Stelmach, senior economist at KPMG UK, said “the pace of deficit reduction is set to slow over the coming months” as a result of the government’s latest support package and weaker economic growth. June’s PMIs indices fuelled concerns over a new economic downturn. The interim composite PMI index, a barometer of the change in private sector activity relative to the previous month, was unchanged from the 15-month low seen in the previous month at 53.1.However, the forward-looking index of business expectations registered the largest monthly decline since the start of the pandemic. The new order index also dropped to 50.8 in June from 53.8 in May, signalling the weakest rate of growth in more than one yearChris Williamson, chief business economist at S&P Global Market Intelligence, said that “business confidence has now slumped to a level which has in the past typically signalled an imminent recession”. More

Ireland’s central bank has fined AIB, the country’s second-biggest lender, €83.3mn over its failure to give customers access to cheap mortgage interest rates in a scandal stretching back more than a decade.The penalty for AIB dwarfed the €38mn Ulster Bank was fined last year for overcharging for mortgages after tens of thousands of Irish customers at major banks were denied loans whose rates tracked those of the European Central Bank.AIB had set aside €70mn for a fine.The tracker mortgage scandal further dented the reputation of Irish banks, which had to be bailed out during the financial crisis. Tracker mortgages became unprofitable for Irish banks after the ECB’s interest rates fell close to zero at the end of 2011.As a result, Irish banks switched 40,000 customers to more expensive interest rates, including fixed or variable rate loans. The central bank began an investigation in 2015.The AIB sanction brings to €174mn the amount banks have been fined over tracker mortgage failings, the central bank said in a statement. The lenders have themselves paid €737mn to customers in redress and compensation.After AIB’s sanction, Ireland’s biggest lender, Bank of Ireland, is still to receive a penalty. More

Investing.com — Federal Reserve Chair Jerome Powell heads to the House for a second day of Congressional testimony, as monetary tightening continues from the Philippines to Norway and, most likely, Egypt and Mexico. Germany sounds the alarm on natural gas supplies after Russia closes the taps, and the effects of the Ukraine war take an ever-greater toll on the French and German economies. Jobless claims are due, as are earnings from Accenture (NYSE:ACN), Darden Restaurants (NYSE:DRI), Rite Aid (NYSE:RAD) and – after the bell – FedEx (NYSE:FDX). And the government’s oil inventory data are delayed by technical problems. Here’s what you need to know in financial markets on Thursday, June 23.1. Powell heads back to Congress; rate hikes continue around the worldFederal Reserve chairman Jerome Powell heads to the House of Representatives for the second day of his regular testimony on the state of the U.S. economy. Powell told the Senate on Wednesday that the risks of a recession have risen, but that the central bank will still prioritize bringing down the highest inflation in a generation.Powell will take his seat minutes after the week’s update on jobless claims, which have been trending gently, but nonetheless, clearly upward in recent weeks. Elsewhere, the tightening of monetary policy around the world continued, with Norway’s central bank raising its key rate by 50 basis points to 1.25%, more than expected. The Philippines also raised, but only by 25 basis points, while Indonesia kept its key rate steady. The central banks of Egypt and Mexico are expected to hike by 50 and 75 basis points respectively when they meet later.2. Germany sounds the gas alarmEuropean Natural Gas Futures hit a new three-month high as Germany moved a step closer to rationing natural gas supply, activating the second stage of a three-part plan to ensure security of supplies.The move formalizes other actions already initiated by Berlin in recent days in response to a 60% cut in Russian gas supplies for reasons the government sees as politically-motivated.  However, the government won’t immediately activate a provision that would have enabled supplies to pass on price increases ahead of contractually-allowed adjustments.The news comes on a day when the European Union will formally invite Ukraine – or what’s left of it – to join the bloc. Russian artillery strikes have intensified over the last week, damaging two grain export terminals owned by Canadian and U.S. companies in the port city of Mykolaiv. Ukrainian publications also reported that Russians have dismantled and removed the largest solar power plant in Ukraine, a 50-megawatt installation called TokMak.3. Stocks set to open higher; Accenture, Darden, FedEx earnings dueU.S. stock markets are set to open moderately higher, as investors adjust to the latest commentary on the economic outlook from Powell and others.By 06:15 AM ET (1015 GMT), Dow Jones futures were up 41 points, or 0.1%, while S&P 500 futures were up 0.3% and Nasdaq 100 futures were up 0.7%.  All three had edged down by between 0.1% and 0.2% after Powell’s first day of testimony.Stocks likely to be in focus include Accenture and Darden Restaurants, which both report earnings before the open. They’ll provide an insight into current trends in business investment and consumer spending, respectively. FedEx, a bellwether of the online shopping and remote economy in general, reports after the close.4. European economy slows further; U.K. by-elections eyedBusiness activity in the eurozone slid to its lowest level in 16 months in June, as soaring inflation and rising interest rates took a bite out of demand and soured the economic outlook.S&P Global’s flash June composite purchasing managers index – which combines data from the currency bloc’s service and manufacturing sectors – slumped to 51.9 points, down from 54.8 in May, and below analyst estimates.S&P also said that the U.K. economy was “running on empty” after business expectations there weakened to their lowest level in almost a year and a half. The latest in a string of weak U.K. data come ahead of two by-elections later Thursday, which are expected to show a big swing against the ruling Conservative Party.5. Oil falls after big rise in API stockpiles, upbeat Iranian comments; EIA data delayedCrude oil prices fell on optimistic noises out of Teheran on the prospects for a deal that could see western sanctions lifted, smoothing the path to world markets for Iranian exports.By 6:25 AM ET, U.S. crude futures were down 0.8% at $105.39 a barrel, while Brent crude was down 0.7% at $110.98 a barrel.There was more bad news for European fuel suppliers earlier as TotalEnergies (EPA:TTEF) was forced to shut down its Donges refinery in France. Elsewhere, the U.S. government said the Energy Information Administration’s weekly inventory data will be delayed due to technical problems. Parallel data from the oil and gas industry body API on Wednesday had shown the biggest weekly rise in crude stocks in over two months. More

Growth in eurozone business activity suffered a sharp slowdown in June, according to a closely watched survey of companies, intensifying concerns that the fallout from Russia’s invasion of Ukraine could drag the bloc into recession.S&P Global said its flash eurozone composite purchasing managers’ index, which takes the pulse of business activity, fell to a 16-month low as manufacturers’ output and new orders both fell and companies complained of high inflation, weak demand and political uncertainty.The news pushed European share indices lower on Thursday and prompted traders to scale back their bets on how much the European Central Bank will raise interest rates this year, sending government bond prices up. The euro fell 0.7 per cent against the dollar to $1.0497.Christoph Weil, an economist at Commerzbank, said: “Today’s figures should prompt the ECB to raise interest rates rather cautiously.”Economists believe the eurozone risks falling into a recession later this year as Russia squeezes natural gas supplies to Europe, record inflation eats into consumer spending, and the ECB raises interest rates.Jens Eisenschmidt, chief Europe economics at Morgan Stanley, said the PMI data raised the prospect that an anticipated stalling of the economy could arrive sooner than expected. A recession was “rather likely” if Russia continues to significantly cut the supply of natural gas to Europe, creating potential shortages.The European Commission said on Tuesday that its flash consumer confidence indicator for the eurozone had fallen 2.4 points to minus 23.6 this month, its weakest reading since an all-time low, recorded just after the Covid-19 crisis started in April 2020.“With the price indices remaining extremely strong, the eurozone appears to have entered a period of stagflation,” said Jack Allen-Reynolds, an economist at Capital Economics, referring to a 1970s-era combination of soaring inflation and stagnant growth.The composite PMI for the eurozone in June was 51.9, down from 54.8 last month. The reading fell well below the consensus economists’ expectations of 54 to hit its lowest level since the pandemic was still restricting much of normal life in early 2021.A PMI score above 50 indicates that a majority of businesses are reporting higher activity levels than a month ago. But S&P Global said its monthly survey of purchasing managers pointed to “an imminent downturn unless demand revives”.New orders for goods and services failed to grow for the first time since March 2021, it said, adding that manufacturers’ output fell for the first time in two years. A surge in tourism and recreation activity in April and May slowed “to near a standstill” in June. Business expectations for the year ahead fell to the lowest since October 2020.Price pressures remained at near record levels for eurozone companies, despite growing at a slower rate for the third consecutive month, which S&P Global said “hinted at a peaking in the rate of inflation”. Factory output “continued to be constrained by widespread supply shortages” caused by the war in Ukraine and Covid lockdowns in China.The PMI for eurozone services fell to a five-month low of 52.8, while the reading for manufacturing hit a 22-month low of 52. Confidence among French businesses fell to its lowest level for 19 months, with some of them complaining of increased political uncertainty after President Emmanuel Macron lost control of the national assembly in last weekend’s parliamentary election. More

France hurtled into a new political era on Sunday, when voters returned a national assembly in which no party holds a majority. It was an unexpected rebuff to President Emmanuel Macron who had just won a second term in power. Having just spent a few days in Paris, here are some of my reflections on where the country finds itself — economically and politically.Like everywhere else, the big economic challenge is the cost of living crisis in a situation of slowing growth — indeed, the French economy contracted in the first quarter of this year. Some expect a recession by the end of 2022.If rising prices were behind the government’s disappointing election result, it could be forgiven for feeling undeservedly punished by voters. On some measures the French economy is doing exceedingly well: unemployment is historically low and labour market participation is at a record high. A lot of this should be credited to the labour market policies that were the great achievement of Macron’s first mandate (reforming labour law, boosting apprenticeships for the young, spending on active labour market measures). But the government is a victim of its own success; if the problem of joblessness seems largely solved, voter attention has moved elsewhere.Even the cost of living is going up less in France than in other countries — it had the lowest headline and core rates of consumer price inflation in the eurozone in May (5.8 and 3.4 per cent). This, too, is due to policies — in particular a heavy-handed cap on household energy prices below market level, at a very high cost to the public finances (there is also a fuel discount). I have written before about why a better approach would be to make direct support payments to households that need help, while letting the market price mechanism do its job. To be fair, France does this too (through its chèques énergie) and the temptation to go against the grain of the market is hardly unique to the country. And it is understandable that politicians may choose what works politically over what makes sense economically.Except that, like the success on jobs, the money spent on keeping energy prices low may not have worked politically — at least not enough to deliver a parliamentary majority. (Although it possible Macron’s parliamentary alliance would have done even worse in the election had not enough people recognised its economic achievements.)In any case, a new cost of living package is expected; the government has promised one in the campaign and was scheduled to pass one to extend current support provisions in the next few weeks. That is likely to be the first casualty of a splintered parliament (unless it is Prime Minister Élisabeth Borne, whose longevity in office is now an open question). One French economist remarked to me that you can always get politicians to agree on spending more money. But there is so much acrimony against Macron that even this seems hard.This brings us to the politics proper. It is quite a moment for the Fifth Republic and, in particular, for its majoritarian electoral system. Like the UK’s first-past-the-post, the French system of second-round run-offs has tended to favour the big traditional parties and keep challenger parties out of the legislature. This has produced consistent parliamentary majorities — even if sometimes for the party opposed to the president. The lack of a governing majority has raised the question of whether France is now ungovernable.But both French and outside commentators ought to recognise how much this outcome would be an artifice of an electoral system that generates expectations of absolute majorities — expectations that may be unrealistic in a world where voters do not congregate to two main party groupings. In countries with proportional voting systems, absolute majorities for a single party are unheard of, so coalitions or minority governments are the norm. And in such systems, a result of 38.6 per cent — which is the share Macron’s alliance achieved in the second-round vote — would be a huge victory, especially after five difficult years in power. My own sense is that France has joined the US and the UK in proving how ill-fit majoritarian electoral systems are for the 21st-century political landscape, compared with the proportional systems most of Europe uses.As the president himself said in a speech to the nation on Wednesday night, Germany and Italy routinely operate without absolute majorities. The question is which of these two examples, if any, ends up guiding him and France’s newly elected parliamentary leaders as they chart a course forward: orderly and committed coalition negotiations as in Germany, or successions of weak governments as in Italy (or indeed France’s own 1950s experience with the Fourth Republic)? The signs are not too promising: “I don’t have a German inclination,” huffed the leader of the rightwing Republicans. But at least options such as a national unity government and case-by-case coalition-building are being discussed, and an awareness is developing that winner-takes-all politics can be a liability for the country.There are echoes here of the UK’s unruly parliament between 2017 and 2019, which should make French politicians redouble their efforts at cross-party co-operation. The alternative is, as then in the UK, a snap election. Behind all the manoeuvring hovers Macron’s power to dissolve the national assembly at a time of greatest electoral convenience. That is what Boris Johnson did in December 2019. We know how well that went. France should prefer to use this opportunity to build a more collaborative political culture.Other readablesToday EU leaders are expected to make Ukraine a formal candidate for membership of the bloc. This has depended on France relaxing its resistance to enlargement, which it long saw as being in tension with its aim of making the EU more decisive and forceful. In my FT column this week, I argue that Ukraine shows these goals are not in tension. Quite the opposite: a genuine commitment to getting Ukraine ready for membership is what will most strengthen the EU’s ability to shape the world stage.Robert Armstrong and Ethan Wu have an excellent discussion (in their Unhedged newsletter, which is well worth signing up to) of how much falling stock and crypto prices may reduce US economic activity — as much as 2 per cent in their back-of-the-envelope calculation.Mike Rogers, a former member of the US Congress, calls for a digital Bretton Woods — norms to govern the digital global economy. Without this, he argues, the rules will be shaped by China, whose new electronic currency is designed to unseat the US dollar’s global dominance.The Washington Post explains why, at a time of record-high prices for petrol products, US refineries are closing down. Are there any experts among Free Lunch readers who can tell us what the situation is in the European refinery business? Numbers newsUK inflation hit 9.1 per cent in May year on year. 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European stocks fell on Thursday and regional government bonds rallied, as weaker-than-expected business activity surveys compounded investors’ worries about the pace of global economic growth.The regional Stoxx 600 share index was down 0.7 per cent by late morning, while the FTSE 100 lost 0.4 per cent and Germany’s Dax index fell 1.2 per cent, after the closely watched S&P Global purchasing managers’ indices were below forecasts.The survey on business activity for the eurozone registered a reading of 51.9 for June, lower than consensus estimates of 54 according to a Reuters poll. The S&P Global composite survey for Germany — spanning services and manufacturing — gave a reading of 51.3, against expectations of 53.1. A figure above 50 signifies an improvement on the previous month.“Excluding pandemic lockdown months, June’s slowdown [for the eurozone] was the most abrupt recorded by the survey since the height of the global financial crisis in November 2008,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.In government debt markets, Germany’s 10-year Bund yield fell 0.16 percentage points to 1.46 per cent as investors scooped up the assets typically perceived to be lower risk. The yield on the 10-year US Treasury note, which underpins pricing for debt worldwide, dropped 0.05 percentage points to 3.11 per cent. Bond yields fall as their prices rise.Those moves came as Norges Bank joined the wave of central banks raising interest rates aggressively to tackle inflation, lifting its main lending rate by 0.5 percentage points on Thursday to 1.25 per cent in its first such increase since July 2002. Norway’s rate rise followed on from the US Federal Reserve lifting borrowing costs by 0.75 percentage points last week, its biggest increase since 1994. The Bank of England and the Swiss National Bank also raised rates last week, while the European Central Bank spelt out plans for its first increase in more than a decade next month.Erica Dalstø, chief Norway strategist at Scandinavian bank SEB, said hawkish moves from other central banks had enabled Norges Bank to deviate from its guidance. “It’s obvious that Norges Bank is becoming much more worried about inflation risks to the extent that they are no longer referring to the risk on households.” On Wednesday, Federal Reserve chair Jay Powell had said on the first leg of a two-day congressional testimony that recession is “certainly a possibility”. He told US lawmakers that it was becoming more challenging for the central bank to tackle inflation while maintaining a strong job market. Despite his signals that the US economy remained strong, Powell’s comments led to a dip in US stocks on Wednesday night, with the S&P 500 ending the day down 0.1 per cent. Futures contracts tracking the S&P ticked up 0.1 per cent on Thursday.Brent crude slipped almost 2 per cent lower on Thursday to under $110, having slid as much as 6.6 per cent the previous day. Copper also fell to its lowest price in 16 months, with futures dropping 1.9 per cent to $8,611 in London. The metal is generally seen as a strong indicator of the economic outlook, due to its uses in manufacturing. In Asia, Hong Kong’s Hang Seng share index gained 1.3 per cent, after Chinese state media reports of extended tax exemptions for buyers of electric vehicles buoyed stocks in the sector. Japan’s Topix index was flat. More

Norway has become the latest central bank to surprise markets with a bigger-than-expected rate rise, increasing borrowing costs by 50 basis points as it warned of the possibility of inflation moving even higher.Norges Bank raised interest rates by a half percentage point for the first time in almost two decades on Thursday, leaving benchmark borrowing costs at 1.25 per cent. “Prospects for a more prolonged period of high inflation suggest a faster rise in the policy rate than projected earlier. A faster rate rise now will reduce the risk of inflation remaining high and the need for a sharper tightening of monetary policy further out,” said Ida Wolden Bache, governor of Norges Bank.Most economists had expected a 25 basis point move, making policymakers in Oslo the latest to confound expectations with a bigger rise in borrowing costs to tame surging inflation. The US Federal Reserve raised rates by 75 basis points for the first time since 1994 earlier this month, and had been forecast to raise it by 50 basis points until just days before the meeting. Other central banks from Iceland to India that have resorted to large increases to attempt to tame inflation that is now at multi-decade highs in many economies following sharp rises in the cost of energy and food. In mainland Europe, the Swiss National Bank raised rates unexpectedly and by 50 basis points to minus 0.25 per cent, while the Czech National Bank earlier this week increased borrowing costs by 125 basis points to 7 per cent. However, unlike in most other economies in North America and Europe, Norway’s rate rises are unlikely to raise the prospect of a recession. As western Europe’s leading petroleum producer, Norway is enjoying an economic boom, with the central bank noting that unemployment was at a “very low level” and that there was little spare capacity.That boom meant Norges Bank last year became the first big western central bank to raise rates after the start of the Covid-19 pandemic. Growth is expected to remain strong this year at 3.5 per cent, though this latest estimate from the central bank is lower than forecasts made earlier in 2022. Most economists in Norway had banked on a smaller rise as the country had started its tightening cycle early. As more than 90 per cent of mortgages have floating interest rates, the impact of higher policy rates also has a quicker and more direct impact on the economy than elsewhere.But Norges Bank sounded the alarm over the prospect of even higher inflation and argued that given Norway’s tight labour market unemployment was likely to remain low.“Underlying inflation has picked up quickly and has been higher than projected. With rising wage growth and imported goods inflation, there are prospects that inflation will remain above the target for some time,” it added.Norges Bank said it was likely to raise rates at its next meeting in August and indicated that rates could be 2.25 per cent by the end of the year and 3 per cent by next summer.Economists at Nordea, the Nordic region’s biggest lender, called the increase “somewhat surprising”, and added: “A view for higher inflation for longer is the main reason for this hawkish move from Norges Bank.”Norway is receiving record income from oil and in particular gas as other European countries seek an alternative to Russian petroleum. Its economy also benefits from regular inflows from the world’s largest sovereign wealth fund worth $1.2tn. More