Economy

British manufacturers are bringing back production to the UK in a “reshoring” push to try to address the supply-chain chaos caused by the coronavirus pandemic and Brexit.Three-quarters of companies have increased the number of their British suppliers in the past two years, according to a survey by Make UK, the manufacturers’ trade group. Almost half of companies said they intended to further boost their UK supply base in the next two years. Conversely, more than 10 per cent said they planned to reduce reliance on Asian suppliers over the same period.Make UK said successive economic shocks, including the war in Ukraine, were forcing manufacturers to reverse the decades-long move to offshore supply chains as producers were increasingly facing delays in the arrival of components and materials.The breakdown in the critical just-in-time supply-chain processes meant UK companies were turning away from sources of lower-cost production in Asia to suppliers closer to home, it said.Verity Davidge, director of policy at Make UK, said the era of globalisation might have passed its peak “with disruption and volatility for global trade fast becoming normal”. She added: “For many companies this will mean leaving just-in-time behind and embracing ‘just-in-case’.”Officials in Whitehall are increasingly concerned about the resilience of the British economy to future macroeconomic shocks, according to business leaders, with food, manufacturing and energy sectors the biggest worries.Make UK is calling for a cross-industry and government-backed task force to assess the resilience of the UK’s supply chains and draw up an action plan to protect the economy from any future significant disruptive events.The boost to domestic supply chains will also help meet the government’s levelling-up and skills agendas given the geographic spread of the UK’s biggest manufacturing centres outside London and the south-east.

Matt Lacey, sales and marketing manager at HV Wooding, a British manufacturer, said that more UK-based companies were using his company as a subcontractor as they shifted production away from Asia. “There was a race to the bottom on pricing but the perceived cost benefits of manufacturing overseas are not what they were. People are now looking more at flexibility around order volumes and lead times.”Katie Reed, marketing manager at BEC Group, a toolmaking and plastic-injection manufacturer based in the south of England, said the group had seen a “massive” increase in demand in the past month from companies seeking to reshore their operations.“People have no idea when things are coming in. They want to shore up their supply chains,” she said.Make UK’s study reveals that more than 90 per cent of manufacturers said the pandemic had disrupted supply chains, with a similar number citing Brexit as a cause.Andrew Kinder, who leads the industry team at Infor, the business cloud software firm that worked on the survey with Make UK, said: “Long-held beliefs in lean, just-in-time [processes] and offshoring are being questioned as volatility and uncertainty replaces predictability and reliability.” Manufacturers have also increased the number of different suppliers to give more options in the event of further disruption.Stephen Blythe, business manager at Jaltek, a UK contract electronics manufacturer, said companies could benefit both from shorter delivery times from domestically produced goods and materials as well as the more skilled workforce. More

Brussels is set to cut its growth forecasts further and lift its inflation outlook as the energy crisis triggered by Russia’s invasion of Ukraine exacts its toll on the EU economy. Both the EU and euro area are forecast to expand by 2.7 per cent this year, well shy of the previous expectation of 4 per cent, according to a draft of European Commission forecasts to be published on Monday. Growth is tipped to be 2.3 per cent in 2023. Inflation is expected to surge above 6 per cent in both the EU and euro area this year, with some central and eastern European countries likely to see double-digit price rises in 2022. Eurozone inflation is set to fall to 2.7 per cent in 2023. But the figure remains above the European Central Bank’s target of 2 per cent, underscoring the delicate balancing act policymakers face in an environment of tepid growth and soaring prices. Last week, central bank president Christine Lagarde signalled that she would support raising the main interest rate in July, paving the way for the first increase for more than a decade. The commission previously forecast that inflation would fall back below the ECB’s target next year. Energy costs have soared and confidence has faltered in the wake of the invasion of Ukraine. EU member states have pushed through five rounds of sanctions, and are now in the process of seeking to finalise a package targeting the oil sector. Those measures have yet to be agreed, however, given resistance from EU member states heavily reliant on Russian oil — most notably Hungary. Commission officials remain engaged in talks with Budapest, as well as the Czech Republic and Slovakia, over special terms to help them wean themselves off Russian energy.

While Europe’s economy is still set to expand this year, the commission has stressed that some of the growth is down to a statistical boost coming from momentum that built up last year. The threats to growth, meanwhile, are building. The commission’s draft analysis suggests that if there were an outright cut in gas supply from Russia, coupled with higher energy commodity prices, the economy would suffer even more damage. Growth this year would be lowered by 2.5 percentage points to just 0.2 per cent under this scenario, while a percentage point would be shaved off the 2023 growth forecast. Inflation would be 3 percentage points higher than the baseline projection in 2022 and one percentage point higher in 2023.Some economists want the European Commission to announce another suspension to its deficit and debt rules next year. Alongside energy prices, which were up 38 per cent year on year in April in the euro area, households are being hit by higher food costs, which were up more than 6 per cent in the same period. Industrial production is still being impeded by supply-chain disruptions. China’s harsh Covid-19 lockdown is further damaging global trade, while the US outlook is increasingly uncertain given the Federal Reserve’s need to clamp down on inflation without imposing too brutal a clampdown on activity. Despite the harsh outlook, the commission still expects unemployment to carry on falling following the surge induced by Covid-19. The jobless rate will drop from 7.7 per cent last year to 7.3 per cent in 2022 in the euro area, according to the draft forecasts, before slipping further to 7 per cent in 2023. Budget balances are also expected to gradually improve. The overall euro area budget gap is predicted to drop from 5.1 per cent of GDP last year to 3.7 per cent this year and 2.5 per cent in 2023. More

HONG KONG (Reuters) -Chinese developer Zhongliang Holdings is scrambling to secure bondholder approval to extend the repayment on notes worth $729 million ahead of a key deadline next week, joining peers desperate to avoid offshore debt defaults.The Shanghai-based company has struggled to sell enough houses amid a sustained property downturn in China or secure refinancing to pay investors who are due full redemption on their bonds in May and July.A bond default by Zhongliang would deepen investor worries about China’s property sector as Beijing seeks to shore up confidence in the wider economy.Even if Zhongliang gets approval to extend by another year, the developer, reeling under a cash crunch, would need to pay an additional $1.25 million on its bond coupons now due to a weaker yuan. For other cash-strapped issuers with heavier debt burdens, additional repayment costs due to the currency swing could be much larger.”The situation is definitely more severe this time,” said Zhongliang Chief Financial Officer Albert Yau, comparing current conditions to the yuan’s last major decline in 2018.Unlike the 2018 tumble, developers are now unable to refinance offshore after a series of defaults by other issuers in the troubled sector made new debt raising impossible. That means repayments would need to be transferred from onshore yuan accounts.Zhongliang asked holders of its May and July 2022 notes in late April to delay the maturities by exchanging their bonds for new issuance due next year.Bondholders have until late Monday to give their consent, a deadline extended from May 10. Failure to secure 90% approval would likely result in a default.FRESH CHALLENGESCasting a cloud over Zhongliang’s tight cashflow is a grim outlook for the property market, which is now depressed by strict COVID-19 lockdowns in many Chinese cities. Zhongliang’s sales have plunged 55% in the first four months of 2022.”We expect it will take a longer period of time for sales to recover – it’s a long-term battle,” Yau said, adding the developer’s business in 40% of the coastal cities were disrupted because of the lockdowns.A sharp slowdown in home sales in the world’s second-largest economy and a weaker yuan are set to pile pressure on property developers already struggling to repay debt and raise fresh capital.An over 6% drop in the yuan has made offshore debt maturities worth around $20 billion for rest of the year more expensive for developers, some of whom have already defaulted on their repayment obligations this year.Sunac China on Wednesday became the latest to join other developers that have failed to make dollar bond payments in the recent months, renewing investor concerns about the sector that accounts for a quarter of the country’s economy.The developers, who were hoping for the market to bottom out in the second quarter, are revising down investor expectations for full-year sales after posting a 50% plunge in the first four months, with no demand rebound seen in the near future.A developer based in the Guangdong province said city curbs not only hurt short-term sales but also affect longer-term purchasing power with potential buyers feeling insecure about their jobs.The mounting challenges for the developers come against the backdrop of repeated assurances by the Chinese policymakers and regulators to ensure healthy sector development by avoiding defaults and efforts including banks extending loans.”It is indeed a double whammy situation that they will face, not only about this weaker revenue but on the other hand it’s this weaker currency plus higher yield,” said Gary Ng, Asia Pacific senior economist of Natixis. “I think definitely there will be more concerns in terms of repayment ability as we have seen the default ratio, which is dominated by real estate developers in the offshore market, has increased.”An executive of another listed developer, who has delayed its dollar bond payments to next year, said a weaker yuan has a big long-term impact on its offshore debt restructuring under discussions because it will become much more expensive.The executive declined to be named because the restructuring discussion is private. More

Former Goldman Sachs chief executive Lloyd Blankfein has warned corporate America and US consumers to be prepared for a recession as the Federal Reserve tightens policy to combat high inflation. Speaking to CBS News on Sunday, Blankfein, who stepped down as Goldman chief in October 2018 and remains the Wall Street bank’s senior chair, said there was a “very, very high risk” that the US economy was heading towards a recession. “If I were running a big company, I would be very prepared for it. If I was a consumer, I’d be prepared for it. But it’s not baked in the cake.” Blankfein said that enormous amounts of government stimulus introduced to lessen the economic impact from the pandemic, together with supply chain issues, lockdowns in China and the war in Ukraine had contributed to the high inflation that the Fed was fighting. “The Fed has very powerful tools. It’s hard to finely tune them and it’s hard to see the effects of them quickly enough to alter it. But I think they’re responding well,” Blankfein added. Federal Reserve chair Jay Powell this week warned that bringing down inflation to the US central bank’s target of 2 per cent would cause “some pain”. The Fed this month raised its benchmark policy rate by half a percentage point for the first time since 2000 and said that further increases of the same size should be on the table at its next two meetings. David Solomon, Blankfein’s successor as Goldman chief, was less definitive about the prospect of a recession when asked about the impact of Fed rate rises on the bank at Goldman’s annual shareholder meeting last month. “Our economists think the chance of a recession here in the US over the next few years is about 30 per cent,” Solomon said. “But again, that’s a big unknown, and there’s a wide disparity of outcomes, so we’re all going to watch that very closely.” More

In March, Egypt said it was in talks with the IMF about potential funds in addition to technical support to hedge against the economic effects of the Russia-Ukraine crisis, should it be prolonged.”There have been discussions by the finance ministry and the central bank with the IMF, we are moving in great strides,” Madbouly said. “I don’t want to get ahead of events, but within a very few months the programme will be in operation.” “We are working according to procedures and official visits are expected in order to agree on the programme in a detailed manner,” he added. The Ukraine crisis cut into tourism revenue, pushed up the cost of commodity imports and prompted foreign investors to flee, but Cairo has since received billions of dollars in financial support from several Gulf Arab states. More

Hello and welcome to the working week.For the first time, in what feels like a long time, this could be a very positive week for western democracy.Firstly, Nato. One of the ironies of the Ukrainian conflict is that Russia’s invasion has not only failed to achieve the Kremlin goal of limiting Nato power, it has fuelled the expansion of the military alliance — much to the delight of small European states bordering Russia. Finland could apply for Nato membership in a matter of days, following a debate in the country’s parliament on Monday, and is likely to be followed by Sweden, which will host Finnish president Sauli Niinistö for talks on how to achieve this on Tuesday. The process of joining Nato will take longer, but the change will be significant, doubling Nato’s land border with Russia. The gathering of leaders of the Russian-led Collective Security Treaty Organisation in the Kremlin tomorrow is no doubt an attempt to show that president Vladimir Putin can organise his own military alliances, although this may also serve to illustrate the differences in scale between it and the western grouping. As if to emphasise the point, Nato commanders will meet in Brussels on Thursday.The other cause for hope in western democracy is the year of elections. Voting in Australia’s federal elections closes on Saturday with opposition Labor leader Anthony Albanese maintaining a lead in the polls over the incumbent Scott Morrison — although these indications have been wrong in the past.Friday is the deadline for candidates in the French parliamentary vote to declare their candidacy. Meanwhile, in South Korea, newly elected president Yoon Seok-youl will host his US counterpart Joe Biden during his first few days in office.Boris Johnson will visit Northern Ireland on Monday after Sinn Féin won the largest number of seats in the Stormont power-sharing executive. The UK prime minister must address the impasse in which Democratic Unionist party politicians are refusing to join the assembly while the post-Brexit UK-EU trading protocol remains in place. Johnson’s solution is expected to be legislation to override parts of the protocol, which he agreed to in 2019. Do tell me what you think about the week ahead. What are you most interested in this week? Email me at [email protected] dataThe week will start with a flurry of data from the US and China — retail sales, industrial production and housing data. Other key moments will be the inflation updates from the UK, Canada, Japan and the EU. We will get an insight into the European Central Bank’s view on monetary policy with the publication of the minutes from its April meeting and South Africa’s central bankers meet to decide their next interest rate move — expected to be a rise of 50 basis points, the first time they have done such a thing since 2016.CompaniesThe cost of living is increasing at the same time that international travel is becoming a possibility again, so this must be a good time for budget airlines, right? EasyJet and Ryanair both have investor updates this week, which will give an insight into the strength of demand for flying going into the peak summer period. However, other factors are weighing on the companies. EasyJet in particular has struggled with Covid-related staffing shortages, and investors will be watching to see if this disrupts previously announced plans to fly 90 per cent of its 2019 flight schedules in this quarter.Is a flatlining productivity and the energy crisis sending the British back to the economy of the 1970s? If so, then UK consumer goods group Premier Foods — home of Mr Kipling cakes, Oxo stock cubes and Smash instant potato mix — has the brands to remind Brits of that age of beige and austerity. Whatever the reason, Premier Foods is riding a wave. Having already upgraded its full-year forecast, investors have high hopes of sales success when the company reports its results on Wednesday.Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayCanada, manufacturing and wholesale trade figuresChina, April retail sales and industrial production dataEU, March trade figuresGreggs Q1 trading updateJapan, April producer price index (PPI) dataUK, Rightmove monthly house price figuresResults: BuzzFeed Q1, Ryanair FY, Take-Two Interactive Software Q4, Tencent Music Entertainment Q1TuesdayEU, Q1 eurozone GDP figuresFrance, Q1 unemployment rateItaly, consumer price index (CPI) dataUK, unemployment figures, April insolvency statistics plus Q1 productivity flash estimateUS, April retail sales and industrial production figures plus May housing market index dataResults: Home Depot Q1, Imperial Brands H1, JD.com Q1, Land Securities FY, Vodafone FY, Walmart Q1WednesdayAviva Q1 trading updateCanada, April CPI dataEU, Q1 trade figures plus April harmonised index of consumer prices (HICP) dataGoverning council of the European Central Bank holds a non-monetary policy meeting in FrankfurtJapan, March industrial production data and Q1 preliminary GDP figuresRussia, Q1 flash GDP figuresUK, April CPI and retail price index (RPI) dataUS, April residential construction figuresResults: ABN Amro Q1, British Land FY, Burberry FY, Cisco Systems Q3, Experian FY, Marston’s H1, Mitchells & Butlers H1, Premier Foods FY, Singapore Airlines FY, TJX Companies Q1ThursdayEU, minutes of the last European Central Bank governing council meetingJapan, April CPI figuresPhilippines, monetary policy committee meetingSouth Africa, monetary policy committee meetingUK, trade figures plus CBI monthly industrial trends surveyResults: easyJet H1, Generali Q1, Investec FY, National Grid FY, Qinetiq FY, Royal Mail FYFridayChina, monetary policy rate decisionEU, flash consumer confidence dataJapan, April CPI figuresResults: Deere & Company Q2, Nationwide FY, Richemont FYWorld eventsFinally, here is a rundown of other events and milestones this week. MondayEU foreign affairs council meets in BrusselsFinland’s parliament to debate Nato membership after the country’s president Sauli Niinistö and prime minister Sanna Marin said Finland ‘must apply’ to join the Nato military alliance within daysRussia, leaders of the Collective Security Treaty Organisation, including president Vladimir Putin and Belarus’s Alexander Lukashenko, meet in the KremlinUK, prime minister Boris Johnson visits Northern Ireland to try to persuade Democratic Unionist politicians to rejoin the power-sharing executive in StormontBank of England governor Andrew Bailey answers questions at the Treasury committee hearing, including an explanation of how the central bank plans to get inflation back to its 2 per cent targetUS, president Joe Biden hosts Greek prime minister Kyriakos Mitsotakis at the White HouseTuesdayEU, Andrea Enria, chair of the European Central Bank’s supervisory board, gives a keynote speech at the Institut Montaigne in ParisFrance, the 75th annual Cannes Film Festival beginsSweden, Finnish president Sauli Niinistö makes a state visit to Stockholm as the two countries prepare to join NatoUK, House of Commons Public Administration and Constitutional Affairs Committee holds a session on propriety of governance in light of the Greensill Capital scandalWednesdayGermany, G7 development ministers meet in BerlinSpain, Uefa Europa League final will take place at Seville’s Ramón Sánchez-Pizjuán StadiumUS, start of a trial of four men allegedly affiliated with the ‘Proud Boys’ movement on charges stemming from their participation in the January 2021 Capitol riotThursdayBelgium, Nato military commanders gather for a defence chiefs’ meeting in BrusselsUK, 67th Ivor Novello Awards takes place at the Grosvenor House in LondonECB vice-president Luis de Guindos speaks at the 20th annual symposium on ‘Building the Financial System of the 21st Century: An Agenda for Europe and the United States’FridayCambodia, Day of remembrance to commemorate the genocide of the Khmer Rouge regime that ruled the country from 1975 to 1979EU, Foreign ministers from the 46 Council of Europe member states meet in Turin to discuss their response to Russia’s invasion of Ukraine plus EU foreign affairs council (development) meets in BrusselsFrance, deadline for candidates to declare they are running for the French parliamentary electionsUS president Joe Biden begins visit of South Korea, where he will meet the new South Korean president Yoon Seok-youlUK, the Bank of England’s chief economist Huw Pill speaks at an event hosted by ACCA Cymru Wales in Cardiff, plus it is National Work From Home DaySaturdayAustralia, polls close in federal electionsThailand, trade ministers from Asia Pacific Economic Cooperation nations meet in BangkokSundaySwitzerland, 2022 World Economic Forum event begins in Davos. Topics on the agenda will include the pandemic recovery, tackling climate change and building a better future for workFrance, the Roland Garros French Open tennis tournament begins in ParisUK, Neil Campbell aims to set a new speed world record on a bikeUS president Joe Biden begins visit of Japan, including a meeting with leaders of the other Quad grouping countries, Australia, India and Japan for discussions following spate of weapons tests by North Korea More

Speaking on “Face the Nation” on CBS, Blankfein said a recession is “a very, very high risk factor.””There’s a path. It’s a narrow path,” said Blankfein, who retired from Goldman Sachs several years ago and now holds the title of senior chairman. “But I think the Fed has very powerful tools. It’s hard to finely tune them, and it’s hard to see the effects of them quickly enough to alter it, but I think they’re responding well. It’s definitely a risk.”Last week, Federal Reserve Chairman Jerome Powell acknowledged that increasing interest rates will “include some pain,” but added that a far worse outcome would be for prices to continue spiking.In March, the Fed approved a quarter-percentage-point rate increase. But some analysts say they fear policymakers have fallen too far behind to curb price increases without the sort of sharp rate hikes that might cause a recession.Blankfein told CBS he agrees with Powell’s assessment, and said some of the inflationary effects the economy is enduring now will be “sticky.””Overall for individuals, and certainly for individuals at the bottom quartile of the … pie sharing, it’s going to be quite difficult and oppressive,” he said.Blankfein served as CEO at Goldman Sachs from 2006 through 2018, a tenure that included the tumultuous financial crisis that led the U.S. government to implement a bank bailout program. More

Andrew Bailey will on Monday face the toughest parliamentary grilling of a Bank of England governor since the global financial crisis, as MPs challenge him on whether the bank has lost control of inflation.Senior Conservatives have accused the BoE of acting too slowly in raising interest rates to contain inflation, which the bank believes could exceed 10 per cent later this year.Bailey will appear before MPs on the Commons treasury committee, the forum which held former governor Lord Mervyn King to account during the financial crisis of 2008-9, ahead of the publication on Wednesday of inflation data for April, which is expected to show another sharp increase in prices.Last week, the FT reported growing criticism among senior Tories of the BoE’s handling of the inflation crisis, while cabinet ministers have also voiced their concern.The Sunday Telegraph quoted one cabinet minister as saying of the BoE: “It has one job to do — to keep inflation at around 2 per cent — and it’s hard to remember the last time it achieved that target.”In fact the BoE last hit its inflation target as recently as July 2021, but Bailey’s insistence that big price rises would be “temporary” has left him open to criticism.“The BoE persisted beyond any rational interpretation of the data to tell us that inflation was transient, then that it would peak at 5 per cent,” Liam Fox, former cabinet minister, told MPs last week.With the Conservative government coming under increasing pressure to help ease the cost of living crisis, the central bank — operationally independent since 1997 — is braced for a wave of political criticism over its recent record on inflation.But Boris Johnson’s allies said the prime minister has not been critical of the BoE and there was no discussion among senior ministers over ending its independence. “That’s sacrosanct,” said one senior government figure. “Do you really think we’d want to take back responsibility for putting up interest rates?”Kwasi Kwarteng, business secretary, told the BBC that the BoE was “a great institution” and that it had done “a good job”, arguing it was easy to criticise decisions by the monetary policy committee in hindsight. He added that Bailey was “a very capable central bank governor and he’s doing all he can on this issue.”April’s inflation figures are set to show prices rising at their fastest pace for over 40 years. With growth grinding to a halt, the UK economy has not suffered a period of stagflation like this since the late 1970s, a period the Conservatives have long used to highlight the dangers of letting Labour run the economy. In the April figures, the first to include the 54 per cent jump in the price cap on household energy bills, economists expect UK consumer price inflation to rise to 9.1 per cent, the highest level in the G7. The last time CPI inflation was 9 per cent or higher was in early 1982 at a time Margaret Thatcher’s Conservative government was deeply unpopular. When Bailey gives evidence to MPs, he will appear with deputy governor Sir Dave Ramsden and two of the external monetary policy committee members who voted for a larger half a percentage point interest rate increase earlier this month: Jonathan Haskel and Michael Saunders. Bailey has declined to comment since the MPC meeting at the start of the month, but the BoE feels that the underlying inflationary problem in the UK is less acute than in the US and price rises will slow as the economy contracts later this year.Meanwhile, Labour will force a vote on putting a windfall tax on North Sea oil and gas companies on Tuesday. Rishi Sunak, chancellor, has left the door open for a windfall tax if oil and gas companies do not urgently announce new investments. But Kwarteng said on Sunday such a levy was “a bad idea” and that it would deter investment in new energy schemes. More