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UK economy ‘running on empty’ as high inflation threatens recession, and drives up borrowing costs – as it happened

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Commuters on London Bridge heading towards the City of London.
Commuters on London Bridge heading towards the City of London. Photograph: Bloomberg/Getty Images
Commuters on London Bridge heading towards the City of London. Photograph: Bloomberg/Getty Images

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Time to wrap up, after growing signs that the UK, eurozone and US economies are slowing….

Copper and yields seem to be trying to say something pic.twitter.com/OFv5hKxUy2

— Tom Hearden (@followtheh) June 23, 2022

….and as rising inflation pushed up Britain’s debt repayment costs.

With railway workers continuing to strike, and British Airways’ Heathrow staff voting to walk out, a summer of industrial action looks increasingly likely.

And as Germany takes a step closer to rationing gas after a drastic drop in supplies from Russia, energy disruption this winter looms....

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US private sector growth hits five-month low

The US economy slowed sharply in June as companies were hit by a drop in demand, according to the latest healthcheck on American firms.

Growth across the US private sector slowed to its lowest level since January, when the Omicron variant caused a massive surge in Covid-19 infections.

S&P Global Flash US Composite PMI, which measures activity in the sector, hit a five-month low this month, while manufacturing output is now shrinking.

Companies also reported a drop in new business, for the first time in almost two years, which underlines that demand is easing.

The report says:

Although service providers continued to indicate a rise in output, it was the weakest increase for five months.

Manufacturers fared worse, with factory production slipping into decline as the respective seasonally adjusted index fell to a degree only exceeded twice in the 15-year history of the survey, at the height of the initial pandemic lockdowns in 2020 and the height of the global financial crisis in 2008.

Weaker demand conditions, often linked to the rising cost of living and falling confidence, led to the first contraction in new orders since July 2020.

🇺🇸 Latest flash #PMI data indicated a slowdown in US growth in June (51.2, May: 53.6), with the manufacturing sector signalling its first contraction in two years. Read more: https://t.co/ELJVdPgDrg pic.twitter.com/ze6yc7zPcE

— S&P Global PMI™ (@SPGlobalPMI) June 23, 2022

But athough inflationary pressures “remained marked in June”, the pace of input price inflation eased to the slowest for five months.

Traders are calculating that this means US interest rate may not rise as fast as thought -- if the economy is at greater risk of dropping into recession....

Implied US interest rates plunge after weak US PMI report.
Terminal rate down to 3.38% in Q1 next year - it was over 4% last week - and Dec 2023 implied rate falls below 3%. pic.twitter.com/aHWIO7vROW

— Jamie McGeever (@ReutersJamie) June 23, 2022

British Airways said it was ‘extremely disappointed’ after staff at London’s Heathrow airport voted in favour of strike action in a pay row today.

A spokesperson said in a statement:

“We’re extremely disappointed with the result and that the unions have chosen to take this course of action,”

“We are fully committed to work together to find a solution, because to deliver for our customers and rebuild our business we have to work as a team.”

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The dates when British Airways’ staff at Heathrow would hold industrial action will confirmed in the coming days.

It is likely to be over the busy summer holiday period, the GMB union says, unless a pay deal is reached in time.

Nadine Houghton, GMB national officer, says holidaymakers face massive disruption -- but there is still time for BA to avoid a walkout, if it reverses pay cuts made during the pandemic.

“Our members need to be reinstated the 10% they had stolen from them last year with full back pay and the 10% bonus which other colleagues have been paid.

“GMB members at Heathrow have suffered untold abuse as they deal with the travel chaos caused by staff shortages and IT failures.

“At the same time, they’ve had their pay slashed during BA’s callous fire and rehire policy.

Here’s some snap reaction:

British Airways ground staff at Heathrow have voted to strike in a pay dispute. No dates yet set. Earliest possible date would be 8 July, but it could be later.https://t.co/jVvk19Pk3h

— Simon Calder (@SimonCalder) June 23, 2022

🛬 BREAKING: Hundreds of British Airways check-in and ground staff at Heathrow vote to strike over the summer holidays, adding to the industry's woes

Workers voted 95% to strike (81% turnout)

Workers are calling for a 10% pay cut imposed during the pandemic to be reinstated

— Tom Boadle (@TomBoadle) June 23, 2022

BA workers at Heathrow vote in favour of strikes in pay dispute

British Airways staff at London’s Heathrow airport have voted in favour of a strike for better pay, trade union GMB said.

The move could bring fresh disruption to the UK’s busiest airport, after passengers have already suffered significant disruption, delays and cancellations as airlines struggled to handle the increase in demand.

Breaking: British Airways check-in and ground staff at Heathrow have voted 95% in favour of strike action, on an 81% turn out.

— Graham Hiscott (@Grahamhiscott) June 23, 2022

The dispute stems from BA using “fire and rehire” practices to cut workers’ pay during the pandemic when they could not fight back, the GMB union said.

A GMB spokesperson said earlier today that:

“All our members are asking for – and these are primarily low-paid women – is for BA to reinstate the 10% taken from them during the pandemic.”

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Wall Street’s main indexes have opened a little higher, as investors continue to weigh up the risks of a US recession.

The Dow Jones Industrial Average has gained 121 points, or 0.4% in early trading to 30,604 points.

The broader S&P 500 (which sank into a bear market last week), is also 0.4% higher, while the tech-focused Nasdaq is up 0.3%.

Raffi Boyadjian, Lead Investment Analyst at XM syas:

Shares on Wall Street closed marginally lower on Wednesday as investors were unable to shake-off worries about the US economy contracting in the upcoming quarters. But neither was there any panic.

If anything, [Fed chair Jerome] Powell’s acknowledgement of the real threat of a recession might have been taken as a sign by some traders that the Fed will adjust its policy if the data worsens.

The markets are open! 🔔

Here are some things in focus today. 👇
✧ Fed Chair Powell testimony (again)
✦ S&P Global Manufacturing PMI
✧ Initial/continuing jobless claims
✦ Fed bank stress test results
$FDX, $RAD, $SWBI, $ACN, & $BB earnings pic.twitter.com/dAfPgNXOap

— Stocktwits (@Stocktwits) June 23, 2022

The UK’s offshore oil industry have told chancellor Rishi Sunak that his new windfall tax will hit investment.

Sunak met oil and gas chiefs in Aberdeen today, a month after executing a tight u-turn and imposing a levy on the earnings of energy companies.

Deirdre Michie, chief executive of Offshore Energies UK, has thanked Sunak for coming to Aberdeen but said the new tax would undermine the industry.

OEUK also says the sudden introduction of the 25% levy on oil and gas producers also threatened the UK’s reputation for fiscal stability.

Michie said:

“The Energy Profits Levy is an unexpected new tax that changes the basis for investments. We had a candid and constructive meeting with the chancellor to discuss these issues and our industry leaders were clear about their concerns, especially the impact on investor confidence. Both sides have committed to further discussions.

“We will work constructively with the UK government and do our best to mitigate the damage this tax will cause but if energy companies reduce investment in UK waters, then they will produce less oil and gas. That means they will eventually be paying less taxes and have less money to invest in low carbon energy.”

Back in the City, shares in online drinks retailer Naked Wine have plunged over 40% today after it predicted it will only breakeven this year.

Naked, which had seen a surge in sales in the pandemic lockdown, posted a £2m adjusted profit for the last financial year, up from a £1.5m loss a year earlier.

But sales growth slowed, up just 3% in the year to the end of March, or 73% higher than two year ago before the pandemic sparked a rush of interest.

Naked predicted that total sales this year would be between 4% lower and 4% higher, pointing to the uncertain macroeconomic background. Its customers pay a monthly fee, which is then spent on wine from independent winemakers.

Nick Devlin, chief executive, says:

Looking ahead Naked Wines is well positioned to continue to grow amidst a changing consumer environment. Our enhanced scale, attractive unit economics and healthy balance sheet allow us to continue to invest for growth.

At the same time we will not pursue growth at any cost, and our guidance is that we intend to trade the business at or around breakeven this year.

Shares in Naked, which hit a record high over 850p last year, are down almost 45% today at 162p.

Naked Wine’s share price Photograph: Refinitiv

Over in the US, 229,000 people filed new unemployment claims last week, slightly more than expected.

The previous week’s total has been revised up, to 231,000, while the four-week average of claim (which are a proxy for layoffs) nudged up to its highest since late January.

Initial jobless claims were slightly above expected in the week ended June 18, when they were down 2,000 to 229,000 from an upwardly revised 231,000 the previous week. pic.twitter.com/9GSflQCcxA

— Econoday, Inc. (@Econoday) June 23, 2022

Jobless claims have been moving up, generally, over the last few weeks, but are still around their pre-pandemic levels (after hitting the lowest in over 50 years this spring)

Both initial UI claims and continuing claims remain historically low. On the initial claims, both seasonally adjusted and non-seasonally adjusted series declined, but the 4 week moving avg (nsa) has trended up over the last 2 weeks. Something to watch, but not concerning yet. pic.twitter.com/diSV0K8bJR

— AnnElizabeth Konkel (@AE_Konkel) June 23, 2022

Initial jobless claims came in at 229k for the w/o Jun 18, similar to the prior two weeks. Continuing claims also held steady at 1.315mil. The labor market is slightly weaker than earlier this year, but no signs of significant cooling yet. pic.twitter.com/28Ctn7ch7R

— Liz Young (@LizYoungStrat) June 23, 2022
Julia Kollewe
Julia Kollewe

Heathrow airport could be hit by strikes this summer, as 700 check-in and ground staff vote on whether to walk out during the peak holiday period in a dispute with British Airways over pay.

As a second day of national rail strikes is under way, 700 workers employed by BA are being balloted on industrial action by unions including GMB and Unite, with the result of the vote expected on Thursday afternoon. The Unite ballot closes on Monday.

If they vote for strike action, it would be “likely during school holidays”, a GMB spokesperson said.

The dispute stems from BA using “fire and rehire” practices to cut workers’ pay during the pandemic when they could not fight back, the GMB union said.

European gas prices for delivery later this year have jumped, after Germany raised its level of alarm over disruptions to Russian gas supplies.

Berlin warned that Moscow’s decision to weaponise its energy exports had plunged Europe’s largest economy into a “gas crisis”, as it announced the second of three energy emergency phases.

Philip Oltermann, our correspondent in Berlin, reports:

The ministry said the reason for the warning was a reduction in Russian gas deliveries since 14 June amid continued high prices on the gas market. Should Russian gas deliveries via the Nord Stream 1 pipeline continue to remain at the low level of 40%, the ministry said in a statement, “a storage target of 90% by December cannot be reached without additional measures”.

“There’s no point pretending: the throttling of gas deliveries amounts to an economic attack on us by Putin,” said Robert Habeck, the minister for economic and energy affairs. “Putin’s strategy is blatantly to stir insecurity, to drive up prices and to drive a wedge through our society.”

“Even if it doesn’t feel like it yet: we are in a gas crisis,” he added. “From now on, gas is going to be a scarce good.”

The benchmark Dutch wholesale gas contract for winter 2002 has risen 7.7%, while the UK contract for delivery in the third-quarter of the year is up 5.9%.

Turkey’s central bank has bucked the trend of interest rate hikes, by leaving borrowing costs unchanged despite soaring prices.

The Central Bank of the Republic of Turkey (CBRT) left its policy rate on hold at 14% today, even though consumer price inflation surged to 73.5% in May.

Turkish inflation has roared higher after the CBRT cut interest rates several times last year, under pressure from president Recep Tayyip Erdoğan.

That weakened the lira dramatically, driving up import costs, before Russia’s invasion of Ukraine drove energy and food prices higher.

The central bank said disinflation would begin due to measures already taken, a potential end to the Ukraine conflict and favourable base effects.

“The Committee will continue to implement the strengthened macroprudential policy set decisively and take additional measures when needed.”

🇹🇷 CBRT MPC Meeting, 23 Jun'22 - The Central Bank of the Republic of Turkey decided to keep the policy rate (1-w repo auction rate) constant at 14%.#Turkey #CBRT #mpc #policy #rate pic.twitter.com/cRD7c8PtDr

— Verimetrik (English) (@verimetrik_eng) June 23, 2022

US sportswear maker Nike making a full exit from Russia, three months after suspending its operations there, the company said in an emailed statement to Reuters today.

#BREAKING: U.S. sportswear maker #Nike is making a complete exit from Russia three months after suspending its operations there, the company said in an emailed statement. pic.twitter.com/MGAno5DRFm

— CGTN Europe (@CGTNEurope) June 23, 2022

It might be time to have a rummage through your wallet purse or piggy bank for any old paper banknotes lurking.

People have just 100 days left to use the paper £20 and £50 banknotes remaining in circulation, before they stop being legal tender status on 30 September.

The Bank of England is encouraging anyone who still has them to use them or deposit them at their bank or a post office before the end of September. More here.

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Fuel prices climb again

The entrance to the M6 northbound Burton-In-Kendal service station. Photograph: Joel Goodman/The Guardian

There is no respite from rising inflation for UK motorists.

Petrol and diesel prices hit new records on Wednesday, despite a drop in wholesale petrol prices last week, new figures show.

The average price of petrol rose half a penny to 189.84p on Wednesday while diesel jumped almost a penny to 198p a litre, data from RAC Fuel Watch shows.

That will have stung drivers who had to take the car to work this week due to train strikes.

RAC fuel spokesman Simon Williams says:

“It seems as though we are just days away from the frightening prospect of the price of diesel averaging £2 a litre across the UK taking the cost of a full tank to a staggering £110. For drivers who still think in gallons this would be £9 a gallon.

“We’re surprised and disappointed to see the price of unleaded continuing to rise as the cost on the wholesale market tells a very different story. Over the course of last week delivered wholesale petrol averaged 148p a litre which should lead to a price of around 186p after factoring in 7p-a-litre retailer margin and VAT at 20%.

We suspect if retailers fail to reduce their prices in the next few days they will find themselves playing into the hands of the Competition and Markets Authority which is currently looking into their behaviour.”

The CMA is conducting a “swift high-level review of competition in the fuel retail market” following a request by Business secretary Kwasi Kwarteng:.

Petrol retailers have denied claims of profiteering, saying they are simply passing on higher prices for fuel.

But there were hopes that price rises would have topped out, after wholesale prices finally fell earlier this month.

Williams also points out that prices vary across the sector:

“The average price of a litre at a motorway services is now 203.45p for petrol and 205.88p diesel while at the cheaper end of the market the average paid at one of the big four supermarkets is 187.83p for petrol and 196.21p diesel.

The price of supermarket diesel has rocketed by 11p a litre in the last fortnight alone.”

Full story: UK economy starting to ‘run on empty’ as order books dry up

Larry Elliott
Larry Elliott

Britain’s economy is starting to “run on empty” as post-pandemic order books dry up and the highest inflation in 40 years affects confidence, the latest snapshot of the private sector has shown.

Flash estimates of the economy’s performance in June showed business optimism at its lowest since the early months of the Covid-19 pandemic in the spring of 2020 and the sharpest drop in new order volumes for a year.

The monthly survey of purchasing managers produced by S&P and the Chartered Institute of Procurement and Supply (CIPS) said overall business activity across the services and manufacturing sectors was unchanged on the 15-month low of 53.1 reached in May.

A reading above 50 suggests private sector activity is expanding while a reading below 50 points to contraction....

Here’s the full story:

UK retail sales weaken as inflation hits consumers

The UK’s cost of living squeeze has hit spending at UK retailers this month.

British retailers have reported a year-on-year fall in sales in June, the third month in a row in which sales volumes didn’t grow.

The CBI’s latest ‘distributive trades’ survey, just released, found that sales were seen as poor for the time of year in June and are expected to remain below seasonal norms in July too.

Retail sales volumes fell slightly in the year to June, marking the third successive month in which volumes have failed to grow. Retailers expect sales volumes to be flat over the year to July #DTS pic.twitter.com/LR7EqqFHAH

— CBI Economics (@CBI_Economics) June 23, 2022

With demand softening, orders placed with suppliers fell in the year to June, while wholesalers also saw a sharp drop in sales growth.

Ben Jones, lead economist at the CBI, says inflation is eroding shoppers’ disposable income:

“Retail volumes are struggling as high inflation eats away at consumers’ budgets. The squeeze on household incomes appears to have offset any boost to activity from the extended Platinum Jubilee bank holiday earlier this month.

“There are also clearer signs that a downturn in consumer spending is beginning to ripple out across the wider distribution sector, with wholesalers seeing a 14-month period of robust sales growth come to a grinding halt this month.

“As business sentiment weakens, government action is needed urgently to prevent a deeper and more prolonged downturn. Creating a permanent investment incentive and tackling skills shortages by introducing immediate flexibility to the apprenticeship levy would be strong first steps for boosting confidence.”

Retailers also reported lower orders with suppliers—a fourth consecutive month of flat or falling orders. Orders are expected to decline at a similar pace next month #DTS pic.twitter.com/hsfkLhz5jp

— CBI Economics (@CBI_Economics) June 23, 2022
The Norwegian central bank. Photograph: Gwladys Fouche/Reuters

Rising inflation isn’t just a UK problem of course.

It’s just prompted Norway’s central bank to make its largest interest rate increase in two decades, as it joined the rush to raise borrowing costs.

The Norges Bank’s monetary policy committee has raised its benchmark interest rate by 50 basis points, from 0.75% to 1.25% - more than expected, and predicted another rate hike in August.

The hike came after Norwegian inflation hit 5.4% in April, a 13-year high (but still much lower than the UK, US or eurozone).

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