Economy

Rishi Sunak has stepped up his warnings to Britain’s oil and gas industry that unless companies announce increased investment plans for the UK “soon” they face a potential windfall tax on their profits.The UK chancellor is under pressure from his political opponents — and some prominent members of his own Conservative party — to impose a one-off levy on energy groups, which have seen profits soar thanks to the higher price of gas. On Tuesday Labour used a debate on the recent Queen’s Speech to force a Commons vote on whether to impose a windfall tax — an opposition move designed to highlight the government’s reluctance to impose one. The vote was lost by 310 to 248.Although the motion was not supported by a single Tory MP, there is disquiet on the Conservative benches that the government has not convinced the public that it is doing enough to tackle the cost of living crisis. According to a new YouGov poll, some 72 per cent of Britons think the government is handling the economy badly.

For months Sunak has resisted the idea of a windfall tax, arguing that it could deter investment in the North Sea at a time when the government wants to enhance UK’s energy security. Yet in recent weeks, as companies have smashed analysts’ profit forecasts, the chancellor has shifted his language. Now he has made clear that unless companies such as BP and Shell lift their investment targets for the UK beyond existing plans, he will hit them with a levy. The funds raised could be used to help alleviate the growing cost of living crisis. Ed Miliband, Labour’s shadow energy secretary, told the House of Commons that Sunak’s resistance to a levy did not make sense given that previous Tory governments had levied windfall taxes. Margaret Thatcher’s Conservative administration raised taxes on the oil and gas sector in the 1980s, and hit banks with a windfall levy in 1981. “However large the crisis, however huge the windfall, taxation should not change?” Miliband asked. He also cited several prominent figures who have backed the idea. They included Lord William Hague, former leader of the Conservatives, Lord John Browne, one-time chief executive of BP and John Allan, chief executive of Tesco. “The usual leftie suspects,” Miliband joked.Sunak told MPs he would take a “pragmatic” approach to the issue. “What we want to see are energy companies who have made extraordinary profits at a time of acutely elevated prices, investing those profits back into British jobs. Growth and energy security,” the chancellor said. “But as I have been clear, and as I have said repeatedly, if that doesn’t happen soon and at significant scale, then no option is off the table.”The chancellor said it was “irresponsible” to suggest he had not taken action to help people with the rising cost of living, as inflation has soared.He told MPs that the government had cut fuel duty, given a council tax rebate to millions, cut the taper rate on universal credit and increased the warm homes discount. “This government has always acted to protect this country at times of challenge,” Sunak said.

But he added that the causes of rising prices were global in nature and that “no honest chancellor” could tell the public that they would not rise further. “There is no measure any government can take, any law you can pass, that can make those global forces disappear overnight.”Household energy bills in Britain are expected to remain high, despite proposals by the regulator Ofgem to review the country’s energy price cap every three months so any decreases in wholesale prices can be passed to consumers faster. Energy consultancy Cornwall Insight said on Tuesday that it expected the price cap to rise by more than £600 when it next changes in October, to more than £2,600 a year per household on average. Mel Stride, chair of the Treasury select committee, said on Monday he believed “there is a case” for a windfall tax.Robert Halfon, chair of the education select committee, said he would abstain on Tuesday’s vote. He said the government should consider a windfall tax, arguing that oil companies “are not passing the [fuel duty] cuts to the pumps, [and] they take ages to reduce the price when the international cost falls”. Meanwhile Kwasi Kwarteng, business secretary, wrote to petrol retailers urging them to pass on the recent 5p-per-litre cut in fuel duty to customers as soon as possible.Kwarteng said in his letter that the government has asked the Competition and Markets Authority, the regulator, to ensure that the industry is not “infringing competition or consumer law”.After the Commons vote, Jenny Stanning of trade body Offshore Energies UK said the Treasury was predicted to take £5bn more from oil and gas companies than it expected last October, due to the high global price and high tax rate.“Offshore oil and gas companies are already taxed at 40 per cent, double that of the UK’s other industries,” she said.“A windfall tax risks harming investment, which would lead to less home-produced energy, a drop in investment into green energies and a big hit to jobs.”Additional reporting by Nathalie Thomas More

(Reuters) – A joint venture between Lockheed Martin Corp (NYSE:LMT) and Raytheon Technologies (NYSE:RTX) Corp has been awarded two contracts worth $309 million by the U.S. army for its Javelin missiles, the antitank weapon that has helped Ukraine fight Russia’s invasion, Lockheed said on Monday.The Javelin missiles are made jointly by Lockheed and Raytheon (NYSE:RTN)’s missile unit.Demand for Javelin missiles remains high as the war in Ukraine worsens, where they were used to stop Russian tanks from advancing on the capital, to an artillery battle in Ukraine’s east.So far, the United States has sent more then 5,500 Javelin systems to Ukraine.The defense contractor added that the contracts include more than 1,300 Javelin missiles funded from the recent Ukraine Supplemental Appropriations Act and orders for several international customers including Norway, Albania, Latvia and Thailand.Lockheed also said that it is working to increase its missile production rate beyond the current 2,100 per year. More

Growth in the range of 2.5% to 3% is “fast compared to the long run potential rate of growth for us,” which may be just below 2%, Bullard said in comments that appeared to downplay possible recession risks from tighter Fed monetary policy. “That’s where we are…U.S. labor markets are super strong…Household consumption is expected to hold through this year.”People “want to put the pandemic behind them and they have lots of plans about spending,” Bullard said in comments to an energy investor conference. Retail sales rose faster than expected in April and were revised higher for March, showing U.S. consumers sloughing off the impact of the highest inflation in 40 years, and showing no signs of cutting back in the face of rising interest rates. Bullard said Fed plans to continue raising the target federal funds rate by half a percentage point in coming meetings remained “a good plan” to bring inflation down, and said the Fed hoped that could be accomplished with “the least amount of disruption we can get.” More

Retail sales rose 0.9 percent in April, increasing for the fourth consecutive month, as consumer prices continue to escalate at their fastest pace in four decades.The increase in spending in the United States last month follows a revised 1.4 percent month-over-month gain in March, when prices for gasoline soared amid Russia’s invasion of Ukraine. Gas prices cooled down slightly in April but were still at elevated levels, while oil prices remain volatile.Consumers pulled back on spending at gas stations, where sales fell 2.7 percent in April, the Commerce Department reported on Tuesday, and the report showed that shopping at grocery stores and building material stores dropped last month.Sales at restaurants and bars were up 2 percent in April, while spending at department stores was up 0.2 percent. Spending at car dealers, which has been hampered by supply chain disruptions and a global computer chip shortage, rose 2.2 percent last month.Economists are laser-focused on upcoming reports on spending because they serve as indicators of how consumers are grappling with inflation and higher interest rates.“Despite the surge in prices weighing on their purchasing power, the U.S. consumer now appears to be single-handedly keeping the global economy afloat,” Paul Ashworth, an economist at Capital Economics, wrote in a note.The Commerce Department’s new data, which isn’t adjusted for inflation, was an early estimate of spending during a month when prices rose 0.3 percent from the prior month. The rapid pace of inflation has led companies to raise prices for their goods to cover the higher costs of commodities, labor and transportation. Companies like PepsiCo and Coca-Cola have introduced higher prices for their products, and airfares are also climbing.To combat inflation, the Federal Reserve started lifting interest rates from near zero in March. Economists are worried that if interest rates are raised too fast, the move could lead the economy into a recession by slowing down consumer demand too much.“To the extent that markets are worried about a growth slowdown, this is good news,” Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, wrote in a note, referring to Tuesday’s report. “But it is also a further catalyst for the Fed to raise rates even higher, in order to get inflation under control.” More

Not many central bankers get to be remembered as being truly great. You rarely see statues paying tribute to deft monetary policy. If the world rapidly manages to escape its current high-inflation, low-growth rut, the leaders of central banks in the UK, US and EU will certainly have earned some recognition. For now, that seems a distant prospect.There are grounds for thinking central bankers were too slow to tighten over the past year: inflation has been climbing out of the comfort zone for months. But the scale of the current surge in inflation — which stands at 8.3 per cent in the US, 7.5 per cent in the eurozone and 7 per cent in the UK (with an expectation it will hit 10 per cent by year-end) — is largely unrelated to those judgments. Monetary authorities, who think in months and years, have been hit by rapid-fire shocks from supply-chain blockages, China’s zero-Covid policy and Ukraine. Their challenge now is to bring inflation back into normal bounds in the medium term and to avoid drifting into a cycle where expectations lead to persistently higher inflation rates. It would be easier to tackle this sort of problem, and the higher policy interest rates it demands, amid robust growth. But we are where we are. This is the sort of moment for which independent central banks are built: they must be willing to tighten even as their economies dip.The US and UK have both started a rate-rising cycle. The Bank of England has set out plans for tighter policy despite also forecasting that Britain is heading into economic contraction. But rate-setting is only part of the answer to the issues central banks now face: they are fighting expectations as well as the present inflation surge — and that is a battle fought through communication. Last week, Jay Powell, chair of the Federal Reserve, was very clear: “Inflation is much too high and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.”This is a succinct statement. It is the sort of thing that news outlets pick up and communicate in clear language to business and workers that prices will not keep soaring for ever. Yes, he probably overstates his control of events — but he did better than Andrew Bailey, governor of the BoE, this week.Bailey told MPs that “We have to get [inflation] back to target. And that is clear.” But he also said: “To predict and forecast 10 per cent inflation and say there’s not a lot we can do about 80 per cent of it is extremely difficult”. He admitted that he sounded “apocalyptic” on food prices. This unthinking aside drowned out much of the rest of his messaging. And repeating a call for restraint on pay demands was not only crass, it highlighted his lack of tools.Bailey’s error is to forget that his job is not just to be an analyst; it is to manage and shape expectations. The UK faces particular inflationary danger. The BoE already expects a longer-running inflation problem than other economies. Its labour market is ultra-tight and price shocks have already spread far from food and energy. For ECB president Christine Lagarde, the mission is just as clear: keep expectations anchored. It will eventually need to stop stimulating the economy to show it is serious. Its job, though, is a little different. It is more exposed to the war in Ukraine — which will weigh on growth. And the eurozone’s underlying inflation is not as high as in the US. Monetary authorities have had a bad few months. But the job of central bankers is not just to worry about interest rates or the minutiae of asset sales. Their job is also to persuade and to lead. More

California’s statewide average for a gallon of gas has surged to a record above $6.
The national average for gas hit $4.523 on Tuesday, according to AAA, also a record.
The rapidly rising price of gas is contributing to inflationary pressures across the economy.

High gas prices at stations in Garden Grove, California, on Monday, March 7, 2022.
Jeff Gritchen | Medianews Group | Getty Images

California’s state average for a gallon of gas has surged above $6, making fuel in the Golden State the most expensive across the U.S.
The average price at the pump in California hit a record $6.021 per gallon on Tuesday, according to AAA. Prices are up 31 cents per gallon over the last month, and $1.89 higher than a year ago.

While California’s prices are the highest in the country, the national average of $4.523 is also a record, with every state now averaging more than $4, according to AAA.
The sharp jump is in part due to a rise in oil prices, which makes up more than half of the total price of gasoline.
“The high cost of oil, the key ingredient in gasoline, is driving these high pump prices for consumers,” Andrew Gross, AAA spokesperson, said Monday in a statement.
“Even the annual seasonal demand dip for gasoline during the lull between spring break and Memorial Day, which would normally help lower prices, is having no effect this year,” he added.
A lack of refining capacity is also pushing up prices. Refiners turn oil into petroleum products like gasoline and demand for such products is surging as economic activity returns. But refining capacity is lower than pre-pandemic levels, which contributes to their rapid price rise.
Retail diesel prices are rising upward, too, with the national average hitting a record $5.573 per gallon on Tuesday. Prices are up $2.40 over the last year.

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A near half-century low in unemployment would usually be good news for a central bank, but the latest fall in the UK’s jobless rate will make the Bank of England’s task of taming inflation even more difficult.With inflation expected to exceed 9 per cent for April in official data to be released on Wednesday, the BoE Monetary Policy Committee has signalled it is ready to engineer job losses and a weaker economy through interest rate rises so as to bring price increases under control.Stagflation is on the cards for much of the developed world in 2022, but the UK is especially exposed to a combination of persistently high inflation and low economic growth. Britain is contending with the same shock to energy prices as other European countries, but it also has a labour market more like that of the US, with widespread worker shortages fuelling wage pressures. Against this backdrop, those steering the UK economy are struggling to communicate clearly about the issues they face and the actions they think are necessary in response. BoE governor Andrew Bailey told the House of Commons Treasury select committee on Monday that although inflation was set to climb into double digits, there was “not a lot we can do about it”, as he also admitted sounding “apocalyptic” about food price rises that are contributing to the cost of living crisis. It earned him fresh criticism from Conservative MPs.The key problem for the BoE is not that it expects inflation to peak at over 10 per cent, but that price rises could persist in the UK for much longer than elsewhere in Europe. As Bailey and other BoE officials made clear to MPs, wages in Britain are increasing at an unsustainable pace and surveys of companies show they feel able to pass on such cost increases to customers. One of the main risks to the BoE’s ability to bring inflation back to the central bank’s target of 2 per cent, said Bailey, was “that the labour market does not cool down”.The latest official jobs data, released on Tuesday, contained little to reassure the MPC. It showed unemployment at a 47-year low of 3.7 per cent in the first quarter, although employment was still below pre-pandemic levels, because large numbers of people have chosen to leave the workforce. This has left employers competing for scarce workers, with vacancies at a record high of almost 1.3mn, and earnings growth running at 7 per cent, once bonuses were factored in.Growth in average total earnings for the single month of March was even higher, above 10 per cent. Economists said evidence that wage pressures had intensified — even as economic activity stalled — would cement the case for the MPC to raise interest rates again in June and August, and could lead it to continue tightening policy for longer.The BoE has already signalled it will take action to keep the economy weak, taking the view that higher unemployment and financial pain for households and companies are necessary to squeeze inflation out of the system.The central bank’s latest forecasts show that if it left interest rates at the 1 per cent level set at the MPC meeting in May, inflation would still be 3 per cent in two years’ time, even though gross domestic product would be growing at an annual rate of only 0.7 per cent.This would not be seen as price stability and prompted Steffan Ball, economist at Goldman Sachs, to predict that rates would have doubled by this time next year, “despite the expected GDP growth slowdown due to the war in Ukraine”. The consultancy Capital Economics went further, predicting rates would reach 3 per cent next year.The BoE has forecast unemployment will rise to 5.5 per cent if rates climb to the sort of levels predicted in the City of London. Although inflation would in this scenario fall below the central bank’s target of 2 per cent, it does not expect price pressures to be tamed without people losing their jobs. “The business world at the moment . . . does not see [the economic downturn] coming, because they are worried about how they recruit and retain,” said Bailey. Some economists think the BoE will now need to engineer an even-sharper slowdown in economic growth in order to cool the labour market. “Worker shortages are likely to remain an issue for businesses and that suggests there’s a big incentive for firms to hold on to staff even if demand falters,” said James Smith, economist at ING. “For the Bank of England’s higher unemployment rate forecast to come to pass, we would probably need to see a more severe downturn, as opposed to stagnation.”Tony Wilson, director of the Institute for Employment Studies, a research body, said the tight labour market was probably why ministers were willing to press ahead with a controversial increase in employers’ national insurance contributions, and a cull of civil service staff, because “for inflation hawks in the Treasury, this probably looks like the perfect time to destroy jobs”.Other economists think labour shortages, and the resulting wage pressures, are likely to ease of their own accord because the squeeze on household incomes will prompt some people to return to the workforce. Meanwhile the BoE faces increasing criticism for failing to be clear enough that the central bank is prepared to inflict financial pain on Britons — via higher interest rates — to bring inflation under control.Bailey in particular is accused of making fumbled comments on important issues. On Monday he used the word “apocalyptic” as he expressed concern about rising food prices because Ukraine, a big producer of wheat, is unable to export.Andrew Sentance, senior adviser at Cambridge Econometrics and a former MPC member, said the BoE’s communication difficulties stemmed from Bailey speaking “as if he is in an academic debating society”. “I don’t think [BoE officials] have really grasped the challenge they face,” he added. “They say ‘We’ve investigated this’, ‘We’ve investigated that’ and they form an intellectual opinion rather than doing something.”  More

China’s top economic official met dozens of executives and industry experts on Tuesday, pledging “support” for technology companies amid a deepening economic slump. Liu He, a vice-premier and President Xi Jinping’s closest economic adviser, said China “must support the platform economy, and sustain the healthy development of the private economy”.He added that China should better “balance the relationship between the government and the market, and support digital companies to list on domestic and foreign exchanges”, according to state media.Video footage from state broadcaster CCTV showed Baidu founder Robin Li and Qihoo 360 founder Zhou Hongyi at the meeting.Markets were closely watching news of the meeting put on by China’s top political consultative body in the hope it could signal an end to Beijing’s regulatory crackdown on internet companies.But in remarks aired by the state broadcaster on Tuesday evening, Liu made pledges similar to those he had made two months ago, when he first intervened to urge a quick conclusion of China’s tech crackdown and pledged to boost the ailing economy.Shares of Chinese companies such as Alibaba and Pinduoduo were up more than 5 per cent in early trading in New York. Since Liu’s March 16 remarks, little public progress has been made on resolving the national security investigation into ride-hailing giant Didi or the restructuring of Jack Ma’s fintech company Ant Group. Didi’s apps have been stripped from online stores for nearly 11 months. The company will next week hold a vote on delisting from the New York Stock Exchange, a step the company said was necessary to wrap up the government probe, while its Hong Kong IPO is also on hold.China’s top political consultative body, the Chinese People’s Political Consultative Conference, routinely holds meetings to bring together leaders in the private sector, religious and academic spheres who serve on the ceremonial body. Tuesday’s meeting focused on China’s digital economy, a reference to the tech sector. Amid the economic downturn caused by Xi’s zero-Covid policy and regulatory tightening, China’s state media and leaders have used pledges of support for the economy to boost market confidence. “It’s not accurate to say the crackdown is going to ‘end’, how can it end?” said an investment manager at a leading Chinese tech company, adding that Liu’s remarks served only to stabilise market expectations.Larry Hu, chief China economist at Macquarie, said that “what’s more important is the meeting itself as a gesture, in order to boost the confidence among investors and corporate”.Wang Yang, a member of the politburo standing committee, told the conference the tech sector should study Xi’s words on the digital economy and balance the need for “development and security”.  More