Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.More than 140 countries struck a deal on a strategy to raise and distribute billions of dollars to protect nature at a UN biodiversity summit that provided a “light of hope” amid rising geopolitical tensions and cuts to climate and science programmes by the US.The agreement about how they would contribute $200bn a year by 2030 that was committed in principle at a meeting in Montreal was met with applause and tears in the final moments of UN COP16 on Thursday at the UN Food and Agriculture Organization headquarters in Rome. It followed the collapse of a previous summit in Cali, Colombia, in November, when countries failed to agree a funding strategy.But a decision on the creation of a dedicated nature fund — one of the central issues of the negotiations — was postponed until 2028.Instead, delegates settled on a framework for financing conservation efforts through to the end of the decade, building on the commitment in Montreal in 2022 to halt biodiversity loss by 2030, including protection of 30 per cent of the planet’s land and seas. The next summit will take place in Armenia.“We have sent a light of hope that still the common good, the environment, the protection of life and the capacity to come together for something bigger than each national interest is possible,” said outgoing Colombian environment minister and COP16 president Susana Muhamad.“I find that remarkable in a year, 2025, when we are seeing so much political change globally, where actually fragmentation — conflict — is increasing,” added Muhamad, who has announced her resignation as Colombia’s environment minister but stayed in the post to oversee COP16. “The results of this meeting show that multilateralism works and is the vehicle to build the partnerships needed to protect biodiversity and move us towards peace with nature” said Astrid Schomaker, executive secretary of the Convention on Biological Diversity. A sticking point remained about which institutions should manage and distribute any funds raised, with developing countries arguing for the creation of a new dedicated biodiversity fund against the pushback from rich nations, in what national representatives and non-profit organisations described as a symbolic tussle over the imbalance of power and resources. Susana Muhamad had announced her resignation as Colombia’s environment minister but stayed in the post to oversee COP16 More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Thames Water customers have expressed shock at higher than expected annual increases to April’s bills as the struggling water group “front-loads” the impact of permitted regulatory increases. The utility, which supplies about a quarter of the UK population, was allowed by water regulator Ofwat to raise bills by 35 per cent by 2030. However, some customers have been flummoxed to receive bills that are 47 per cent higher than a year ago, as demands for payment landed on doormats and in email inboxes this week. Thames Water says the discrepancy arises because Ofwat’s stated increases apply to the total sum billed over the five-year period, and have been front-loaded this year to fund vital infrastructure improvements. Percentage increases should be flatter in the years to 2030, though water companies are permitted to adjust Ofwat’s figures in line with inflation.“It’s beyond scandalous for Thames Water to implement such huge financial increases,” said Ruth Hawkins, who was not prepared for the annual bill for her two-bed flat in Hackney to increase by 47 per cent from £432 to £639 this year. Difficulties fitting water meters in blocks of flats means Thames Water estimates her water consumption using the “assessed household charge”. This year, it has increased estimates of the volumes of water used by unmetered customers on this tariff. In addition, fixed annual standing charges for all water customers have increased to £191.71, making up a bigger proportion of bills for customers in smaller properties. Customers with water meters have also been surprised by the size of increases, although they have the option of cutting their consumption to reduce bills. Michael Martin, a financial adviser, said the annual bill for his home in Wimbledon had increased by 45 per cent this year to £1,186. “Since 2018, the total increase in my water bill is not far off the performance of the S&P 500 index,” he said.Rival bidders are currently circling the UK’s largest water utility as it struggles with a debt mountain of nearly £20bn and attempts to head off the threat of temporary renationalisation. Ofwat’s permitted 35 per cent increase to bills was much lower than the 53 per cent increase Thames Water had asked for. This month, it lodged an appeal with the UK competition regulator, meaning customer bills could yet surge even higher, though a decision is not expected until later this year.“For us to continue to deliver billions of litres of clean water and take wastewater away from millions of homes, it’s vital that we invest in our network and infrastructure over the next five years,” Thames Water said. “We’re already helping around 450,000 customers pay their bills, and by 2030, one in 10 households could be in receipt of support.”Thames offers a 50 per cent discount on bills for customers on low incomes who can prove their bill is more than 5 per cent of their net annual income.It also offers a single occupier tariff for customers without water meters who can prove they live alone, which could reduce annual bills by about 10-20 per cent depending on the number of bedrooms. However, this discount is not extended to single parents. “We would encourage any customer that is concerned about their ability to pay to reach out to us so we can assess the right package of support for their circumstances,” Thames Water added. Almost half of households in England and Wales struggled to pay for their water over the past 12 months, while more than 8 per cent of households — or 2.5mn people — were in payment arrears, according to research published by Ofwat in January.Ofwat said: “It is essential that all companies clearly communicate changes to bills so that customers fully understand how much they are expected to pay, and why this is the case.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.India and the EU have agreed to push for a trade agreement this year, European Commission president Ursula von der Leyen has said, renewing efforts to shore up ties in the shadow of tariff threats from US President Donald Trump.The commission chief is leading a delegation of senior officials to New Delhi this week aimed at bolstering the bloc’s relations with India. She added that the EU was “exploring a future security and defence partnership with India” along the lines of pacts with Japan and South Korea, which would cover areas including terrorism, maritime security, cyber security and attacks on critical infrastructure.While years of trade negotiations between the EU and India have failed to produce an agreement, Trump’s return to the US presidency has spurred impetus from Brussels to close trade deals.In a speech on Friday, von der Leyen said an EU-India pact would be “the largest deal of its kind anywhere in the world” and vowed talks would move ahead quickly.“I am very well aware it will not be easy, but I also know that timing and determination counts and that this partnership counts at the right moment,” she said.“This is why we have agreed with Prime Minister [Narendra] Modi to push to get it done during this year, and you can count on my full commitment to make sure we can deliver.”Since November, the bloc has signed a long-awaited agreement with the South American Mercosur bloc, refreshed one with Mexico and reopened moribund negotiations with Malaysia.Trump has attacked India, which has some of the highest import duties of any major economy, as a “tariff king” and has announced plans to impose 25 per cent tariffs on all imports from the EU.Von der Leyen said the potential of an India-EU trade agreement was “immense”.“Europe is already India’s biggest trading partner,” she told reporters. “Last year alone we exchanged €120bn worth of goods and over the past two decades our trade has tripled.”“Now more than ever the geopolitical context asks for decisive action,” she added.India and the EU began trade negotiations in 2007, but the effort foundered in 2013. Talks were dormant for almost a decade before restarting in 2022, but large differences remained on issues including access to the Indian market for European cars and spirits.India has also accused Brussels of over-reach in areas including environmental practices and labour rights.Tanmaya Lal, a senior official with India’s external affairs ministry, told a news briefing on Friday that leaders on both sides had decided the trade agreement had to be “finalised within the year”. “There is a clear direction now, which is always helpful when the negotiators meet,” he said. Modi’s government has been a tough trade negotiator, including with the UK and the European Free Trade Association, the bloc whose members include Switzerland, with which it signed an agreement last year.“The commission will be driving a hard bargain to make sure that we have an ambitious as well as a commercially meaningful free trade agreement that covers tariffs and non-tariff barriers,” said a senior EU official this week. “Of course, we are ready to respond to India’s requests as well.”During a visit by Modi to Washington this month, India and the US agreed to negotiate the first tranche of a “mutually beneficial, multi-sector” bilateral trade agreement by autumn.This came after Trump criticised India’s “unfair, very strong tariffs” and threatened to levy reciprocal measures if New Delhi did not lower theirs.This week, India and the UK also relaunched long-running talks on a trade deal, which began in 2022 but were put on hold last year as the two countries held parliamentary elections. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe pound has rebounded strongly against the dollar and the euro in recent weeks, as a reversal of so-called Trump trades hits the US currency and investors bet that the UK economy may be faring better than previously feared. Sterling has climbed 1.7 per cent against the dollar in February, its best month since September. It was flat on Friday, having risen from below $1.21 last month to as high as $1.2715 this week. While inflation remains above target, better than expected retail sales and GDP data have provided a lift for investors worried about the UK’s anaemic growth.“People were worried about stagflation but the growth side of that narrative doesn’t seem to be borne out by the recent data . . . there seems to be some feel-good forces at play,” said Kamal Sharma, an FX strategist at Bank of America. The pound has also strengthened 1.3 per cent against the euro so far this month, and many analysts also believe the pound is better placed than other G10 currencies to ride the fallout from sweeping US trade tariffs, given the eurozone’s greater reliance on exports such as cars, which have been targeted by the new president.That view was further bolstered on Thursday, when US President Donald Trump said he is working on a trade deal with the UK and suggested that Britain could escape tariffs if the countries secure one.“We could very well end up with a real trade deal where the tariffs wouldn’t be necessary. We’ll see,” Trump said at a joint press conference with his UK counterpart Sir Keir Starmer at the White House. The pound’s rally has also been driven by “cooling Trump trades” — the unwinding of bets that Trump’s election victory would fuel inflation and push up the dollar and other assets — and “surprisingly positive” UK economic data, said Brad Bechtel, global head of FX at Jefferies.UK inflation rose to a 10-month high of 3 per cent in January, raising the prospect of slower interest rate cuts from the Bank of England, which has helped support sterling. Foreign purchases of gilts, which are yielding more than US Treasuries, were providing a further tailwind for the pound, analysts said. Last year, foreign purchases rose to roughly £102bn, the highest level ever, according to BoE data. Sterling had been lifted by the “hotter” inflation data and a perception that the UK had lower exposure to the US tariff threats, said Francesco Pesole, an FX strategist at ING. But he added that “a calm gilt market remains necessary” for the strengthening to continue, alluding to recent sell-offs in UK government bonds that have also weighed on the currency.Meanwhile, other economists warned it was too early to call a significant improvement of the flagging UK economy. Public finances swung to a smaller than expected surplus in January.“Things are a bit better on the back of very, very weak expectations,” said Hetal Mehta, head of economic research at St James’s Place. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK inflation risks have increased because of stronger than expected pay growth, a senior Bank of England rate-setter said, as he emphasised the need to proceed with “gradual” monetary policy easing. Dave Ramsden, a deputy governor at the BoE and one of the more dovish members of its rates committee, said he now saw more “two-sided” risks to the inflation outlook, adding that he had become less certain about the outlook for the UK’s labour market. Pay growth has overshot BoE expectations and the central bank predicts consumer price inflation will accelerate to 3.7 per cent later this year, complicating its plans for lower interest rates. The BoE trimmed rates by a quarter-point in February while predicting a combination of sluggish growth and a pick-up in inflation. Ramsden dissented from the majority of the Monetary Policy Committee at its December meeting, when rates were held, by advocating a quarter-point rate reduction. At the latest meeting he voted with the majority for rates to be lowered to 4.5 per cent. “Compared with my position throughout last year I am now less certain than I was about the outlook for the UK labour market, and its implications for future inflation persistence and growth,” Ramsden said in a speech in South Africa on Friday. “Because of the evidence of recent months I no longer think that risks to hitting the 2 per cent inflation target sustainably in the medium term are to the downside. Instead, I think they are two-sided, reflecting the potential for more inflationary as well as disinflationary scenarios.”Ramsden said he had seen some “concerning developments” in short-term indicators, particularly on wages. Fourth-quarter annual growth in private sector earnings rose to 6.2 per cent from 4.9 per cent in the three months to December. Ramsden said pay growth should stay at that level in the current quarter, a full 2 percentage points higher than expected a year ago. At the same time, however, with falling vacancies and slowing job growth, Ramsden said labour demand could continue to ease “much more materially in the near future”.He added that his central view was that the disinflationary process remained intact. “Given the increased uncertainty and risks to inflation on both sides — from the near-term outlook to inflation, and from developments in the global economy — I am even more certain than I was that taking a gradual and careful approach to the withdrawal of monetary restraint is appropriate,” said Ramsden. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldDonald Trump said on Thursday he would impose an additional 10 per cent tariff on imports from China and press ahead with levies on Mexico and Canada from next week, raising the spectre of a global trade war.The president had halted his proposed tariffs on Mexico and Canada earlier this month, just hours before they were due to begin, giving the US’s two biggest trading partners a month-long reprieve.But in a post on Truth Social on Thursday, Trump wrote: “The proposed TARIFFS scheduled to go into effect on MARCH FOURTH will, indeed, go into effect, as scheduled.”The president added that he also planned to hit China with an additional 10 per cent levy on March 4, on top of 10 per cent tariffs that he imposed this month. Trump said that his plan for sweeping “reciprocal” tariffs, unveiled this month and affecting countries and products around the world, would go ahead as planned on April 2.Following Trump’s latest threat, China’s offshore renminbi weakened 0.3 per cent to Rmb7.289 versus the dollar. The dollar climbed 0.6 per cent higher against a basket of other major currencies.Trump’s remarks are the latest salvo in the aggressive trade policy his administration has pursued since re-entering the White House in January. They increase the danger of a wider trade war that risks inflicting significant damage on the global economy.The Chinese embassy in Washington criticised the new tariffs, saying there were “no winners” in a trade war.“The unilateral tariffs imposed by the US will not solve its own problems, nor will it benefit the two sides or the world,” said Liu Pengyu, spokesperson for the Chinese embassy in the US. “China calls on the US to correct its wrongdoings.”Later on Friday, China’s commerce ministry said the country would “take all necessary countermeasures to defend its legitimate rights and interests”.China’s ministry of public security also released its annual security report, in which it said it had tightened controls on “new drugs and fentanyl-like substances” and imposed export controls on 24 additional precursor chemicals to “specific countries”.The new tariff on China marks an escalation from the 10 per cent levy Trump announced last month, which was intended to pressure Beijing to crack down on groups that export chemicals used to make fentanyl, an opioid that has been a leading cause of death in the US.Trump’s comments on Thursday marked an apparent reversal from remarks he made on Wednesday, when he said that the levies on Canada and Mexico would take effect on April 2, suggesting a possible delay. His latest push for tariffs to take effect on March 4 — the day he is scheduled to address a joint session of Congress — is likely to trigger a diplomatic rush to try to stop the measures over the next few days.Canadian Prime Minister Justin Trudeau said his country would respond to any “unjustified tariffs” with a “strong, immediate and certain answer”. He added that Canada would in response immediately impose levies on $30bn worth of goods imported from the US. A high-level delegation of Mexican officials will visit Washington on Thursday to meet US secretary of state Marco Rubio to discuss security co-operation. Over the past month, Beijing has been trying to ascertain whether Trump wants to negotiate a narrow trade deal or a more comprehensive agreement.Chinese officials and government advisers have informally signalled that Beijing would be willing to purchase more US products to cut the trade deficit between the two countries. They have also said Chinese companies could invest in the US to create as many as 500,000 jobs, according to people familiar with the matter. But the two sides have not held any substantial talks on trade. The announcement of the additional tariffs on China came the day after the Senate confirmed Jamieson Greer to serve as the US trade representative. The Chinese embassy in the US has been contacted for comment.Additional reporting by Christine Murray in Mexico City and Joe Leahy in Beijing More

This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. President Donald Trump revved up the tariff rhetoric again yesterday, promising that his 25 per cent tariffs on imports from Mexico and Canada would go into effect next Tuesday, and that another 10 per cent would be added to existing China tariffs. All this on top of Wednesday’s promise of 25 per cent tariffs on Europe “very soon”. The market has again been left to wonder if the president was bluffing again. European stocks fell a per cent or so, with carmakers down a couple of points more. The key currencies moved, too, but not much. They remain in their 2025 trading range:Does Trump mean it this time? Let us know what you think: robert.armstrong@ft.com and aiden.reiter@ft.com. The economic outlookEarlier this week we presented an economic prediction matrix for year-end 2025, with employment and inflation as the variables. It looked like this:What is the probability distribution across the boxes? As a reminder, we don’t think that the predictions rendered by this sort of exercise are particularly useful. Economic forecasting, to any useful degree of precision, is near impossible. The process of predicting, however, is very useful. Attempts at prescience force clarity about the present. Readers were very evenly split. On average, most thought that B — too hot — was the most likely outcome, but gave it a probability of only 1 in 3, with “stagflation” close behind.The arguments for each the four outcomes, as we see them, are as follows: A: Just rightThe hard economic data is strong. Yesterday we got an upward revision to Q4 GDP. Manufacturing has started to expand after years of contraction. Unemployment is low, and jobless claims barely moved last week. Monetary policy is restrictive and inflation will come down. Inflation is still elevated, and the last few reports have not been encouraging. But a similar thing happened early last year, before disinflation reasserted itself. This stuff takes time. Trump is bluffing about tariffs and mass deportations. Despite a lot of noise, only China and steel/aluminium tariffs have been put in place. It’s possible that the other threats never come to pass. The same could be true for immigration; the huge wave of deportations is yet to crashTax cuts and deregulation help just enough. Businesses get just enough of a leg up to keep nominal growth humming.B: Too hotThe hard data remains strong. See above.Trump’s tariffs result in higher prices. In last week’s ISM surveys and the University of Michigan consumer sentiment report, business owners and households said they already saw evidence of tariff-related price rises and expected more to come. Maybe this will be a one-time price shock and imports will be replaced quickly by substitute goods — but maybe not. Deportations increase prices and hold unemployment down. Trump’s efforts to round up undocumented migrants raises prices, including wages, in sectors such as agriculture and construction.  Doge doesn’t matter. It is possible that Elon Musk, for political or logistical reasons, loses his war on the deep state and its effect on employment is limited. Tax cuts help too much. At this point no one needs reminding what very loose fiscal policy can do to prices. C: Too coldThere are cracks in the economic data. Recent consumer sentiment reports didn’t come from nowhere. Walmart recently projected sales growth for this year barely above the current rate of inflation. While unemployment is low, low hires and quits imply economic uncertainty. The ISM services survey has slipped into contraction, and there is reason to think that the uptick in the ISM manufacturing is because of manufacturers trying to front-run tariffs and an inventory restocking cycle, rather than strong end demand. Uncertainty kills demand and investment. Ambiguity is a good negotiating tactic and a bad economic strategy. Lower fiscal spending puts pressure on profits. Government deficits have a way of showing up as corporate surpluses. If Doge does meaningfully shrink the budget, profit margins are likely to decline, and then . . . Falling asset prices create a negative wealth effect. Everything is expensive. If that reverses, it will reinforce the slowdown. Deregulation never comes: So far, the Trump administration has looked more like the Biden administration on corporate regulation than the market expected. Recently, his regulators endorsed FTC chair Lina Khan’s merger guidelines from 2023, much to Wall Street’s dismay.D: StagflationThere are cracks in the economic data (see above).Tariffs raise prices and slow demand. Deportations increase prices and hurt growth: Immigration crackdowns could reduce real growth by as much as 0.4 per cent in 2025, according to Brookings. And the lack of cheap labour could bump up prices, particularly for food and construction.Federal lay-offs hurt. Torsten Slok of Apollo estimates that as many as 1mn government employees and contractors could lose their jobs — a 15 per cent increase to the current level of unemployment. Unhedged is split on which scenario is the most likely. Rob leans towards too hot: the recent bad economic data feels like a blip and inflation really looks sticky, especially with tax cuts coming. Aiden leans more towards stagflation: inflation is sticky and tariffs will make it stickier, meanwhile, the economy is already slowing, with more headwinds to come. Let us know what you think.One good readA Russian quandary.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youDue Diligence — Top stories from the world of corporate finance. Sign up hereFree Lunch — Your guide to the global economic policy debate. Sign up here More