Closing summary: How fast will inflation fall in 2023?
We know that 2022 was a difficult year for the global economy: Russia’s invasion of Ukraine pushed up energy prices, driving a jump in inflation which has made households around the world poorer in real terms.
Inflation is here to stay in Europe and Latin America, according a unanimous consensus of 22 senior economists surveyed by the World Economic Forum, which runs this week’s shindig for the great and the good – or rather a load of politicians and businesspeople – in Davos, Switzerland. The proportion of respondents expecting high inflation in Europe has increased from 47% to 57% since September, while for the US, it has declined sharply from 43% to 24%.
The pace of disinflation (a slowing rate of inflation) will be crucial this year in proving whether the same economists are correct that a global recession is inbound. Two-thirds of the 22 said they thought it was likely to be the case.
For investors easing inflationary pressure could mean rising asset prices, with central banks less likely to raise interest rates as fast or as far.
But it is looking like it will be another day on which the FTSE 100 hits a new record high – barring a move after publication of this post. It gained 0.1% on Monday to reach 7,852 points with less than 90 minutes of trading remaining. Another 50 points and it will be there.
Craig Erlam, a market analyst at Oanda, a currency trading website, said:
It’s been quite a frantic start to the year so investors may be capitalizing on the opportunity to catch their breath. They won’t have long given the flurry of central bank speak as policymakers gather in Davos this week and as earnings season heats up in the US.
There’s certainly an increasing sense of optimism about 2023 as we make our way through the opening month of the year. The economic data has been kind, to say the least, which is not something we were afforded for the vast majority of the year just gone.
The question now is whether earnings season will enhance that new sense of hope or spoil the party before it really gets going.
Here are some other developments from the world of business and economics on Monday.
Marks & Spencer is to open 20 large stores and create 3,400 jobs as part of a £500m plan to rejuvenate its presence on the high street after bumper Christmas trading.
Britain’s most valuable fintech company, Revolut, is assembling a team to track whether staff are being “approachable” and “respectful”, as it tries to address criticism about an aggressive corporate culture and secure a UK banking licence.
The Olympics will remain on the BBC until at least 2032 after a new deal with rights holders that guarantees wider free-to-air coverage by broadcasters across Europe.
The UK foreign secretary, James Cleverly, and the European Commission’s vice-president, Maroš Šefčovič, have committed to more talks to resolve the dispute over Brexit trading arrangements in Northern Ireland.
Residents of flats with communal heating systems could mount a legal claim against their network operators after experiencing rises of up to 700% in their bills.
You can continue to follow the Guardian’s live coverage from around the world:
In the UK, Nicola Sturgeon says it would be ‘outrage’ for UK government to block Scotland’s gender recognition reform bill
In our coverage of the Russian invasion of Ukraine, the Dnipro death toll rises after a missile attack, reports say; Kremlin claims UK tanks for Ukraine ‘will burn’
Thanks for reading today, and please do join us tomorrow for more live coverage of business, economics and financial markets – live from Graeme Wearden in Davos. JJ
Something from earlier: Sainsbury’s has joined the rush to provide almost-instant home shopping by signing a deal with the food delivery app Just Eat to offer the rapid distribution of groceries from 175 stores.
Under the deal, outlets in London, Edinburgh and Bristol will provide the service from the end of February offering a choice of 3,000 items delivered in less than 30 minutes. Sainsbury’s already offers its own Chop Chop fast delivery service and has partnerships with Deliveroo and Uber Eats.
The partnership follows Just Eat’s earlier tie-ins with Asda and the Co-op to deliver groceries, while all three grocery chains are already working with Deliveroo alongside Morrisons and Waitrose.
You can read the full story here:
That FTSE 100 record is looking like it will be set another day – barring a post-lunchtime wake-up jolt.
The index is still up only eight points for the day, a 0.1% gain, at 7,853. It needs another 50 points to match the all-time record of 7,903 points set in May 2018.
There are a lot of big companies pinning their hopes on green hydrogen as a net zero fuel of the future. That should be good for the companies with the technology to actually make zero-emissions hydrogen, but it’s not quite panning out that way at the moment for ITM Power.
The company (which is listed on London’s Alternative Investment Market) makes electrolysers, the devices that take split water into hydrogen and oxygen using electricity. Use green energy – renewables like solar and wind power – and you have green hydrogen, created with no world-heating carbon emissions.
Despite the prospect of big demand, ITM has struggled to follow through with machines. Delays and extra costs prompted the resignation of chief executive Graham Cooley in September.
Dennis Schulz, Cooley’s replacement as chief executive, launched a review of the company’s operations in December, but he published a trading update on Monday warning of “lower revenue and a higher EBITDA loss”. (EBITDA is a measure of profitability.)
Schulz is planning to cut costs and focus on its core products – the electrolysers – in the hopes that there will be strong demand for well made electrolyers at a low cost.
Schulz said:
This is the challenge I was expecting when I joined ITM. For the Company to develop from an R&D and prototyping entity, to a mature delivery organisation, we require firmer foundations. Our 12-month plan will make ITM a stronger, more focused and highly capable company. The large-scale opportunities in the market are yet to come, and by putting these foundations in place ITM will be ready for the significant market demand ahead of us.
ITM’s share price is down by 86% since its peak in January 2021, when the post-lockdown investment frenzy picked up stocks involved in the green energy transition.
A charity set up by the UK’s richest person, Sir Jim Ratcliffe, is being investigated by the Charity Commission after helping fund a £16m luxury clubhouse for an exclusive French Alps club where he and his daughter have skied for years.
The Guardian can reveal that the charities watchdog has opened a “regulatory compliance case” to investigate “concerns about the governance and management of the Jim Ratcliffe Foundation”.
Ratcliffe, 70, a multibillionaire tax exile who controls the petrochemicals and fracking company Ineos and is in the running to buy Manchester United, says he founded the charity to help build a new ski clubhouse in the exclusive resort of Courchevel to help underprivileged children learn to ski, and support other charitable endeavours.
However, the Guardian has found that the ski club boasts that its new clubhouse is “dedicated solely to its members”. When a reporter attempted to join the club they were told “admission requirements” include being approved by two current members, and paying a £25,000 joining fee followed by annual membership fees of £6,000.
A spokesperson for Ratcliffe said any suggestion that the Jim Ratcliffe Foundation was acting improperly or that the clubhouse was not operating in the benefit of the public was “both defamatory and wrong”.
You can read the full report here:
Here is an evergreen line from the UK prime minister’s spokesperson this morning: there are still gaps between the UK and EU on Brexit talks.
But this time may be somewhat different. For a few days now there have been hints that Rishi Sunak’s government is approaching a deal on the Northern Ireland protocol, the rules govering post-Brexit trade with the nation. Reuters reported that the spokesperson at the daily briefing was managing expectations on progress:
Significant differences remain between Britain and the European Union in talks over how to resolve the post-Brexit trade row relating to Northern Ireland, Prime Minister Rishi Sunak’s spokesman said on Monday.
The spokesman said he would guide reporters away from media speculation that the negotiations were about to enter the final so-called ‘tunnel’ phase.
Sterling fell 0.2% on Monday against the dollar to $1.2199, and it dipped 0.1% against the euro to €1.1266.
Lenders for Matalan have agreed to take ownership of the fashion chain in a recapitalisation process which will end founder John Hargreaves’ control of the retailer.
A group of lenders, led by Invesco, Man GLG, Napier Park and Tresidor, have sealed the deal after Matalan launched a sales process in September, writes the Press Association.
The transaction is due to complete on 26 January.
The lenders have cut the group gross debt by £257m to £336m and agreed up to £100m in new growth funding as part of the deal.
In a statement Stephen Hill, Matalan’s chief financial officer, thanked Hargreaves and said:
Matalan is a fantastic business and I am pleased that with the support of our first lien noteholders, its ongoing future has been secured via a materially lower level of debt and a reset balance sheet.
It is clear in our third quarter and recent trading performance that whilst the market remains challenging, customers have demonstrated a strong affinity to our brand and proposition, evidenced from our robust and ongoing sales growth. However, the business must continue to adapt its approach to such market conditions, increasing its level of agility and margin resilience.
Nobody has never really explained why World Economic Forum has to set up in a posh Swiss ski resort each year, but there is no denying that it business leaders and politicians see it as an important part of the calendar (or at least an important opportunity to wax lyrical about more than just shareholder concerns).
Davos has been cancelled for a couple of years (glorified video conferences don’t really count), so the global elite certainly have a lot of meaty items on the agenda. The Guardian’s economics editor Larry Elliott writes:
The war in Ukraine. A rapidly slowing economy, fragmentation and de-globalisation. The rising cost of living. Climate change.
In the past, the mood at Davos has oscillated between extreme optimism and unbridled gloom, depending on the state of the world economy. This year it looks certain to be the latter. As Klaus Schwab, founder and executive chair of the WEF put it last week, “economic, environmental, social and geopolitical crises are converging and conflating”. The aim of this year’s Davos, he added, was to get rid of the “crisis mindset”.
That will be easier said than done. Before there existed a “crisis mindset” there was a “Davos mindset”, in which the annual get-togethers fostered an inclusive form of globalisation, and attendees from around the world worked collaboratively to tackle cross-border problems such as climate change.
But as the risks to peace, prosperity and the future of the planet have increased so the willingness to cooperate – the spirit of Davos, as Schwab likes to put it – has ebbed.
You can read the full piece here:
Updated
There are some positive sentiments from the economists surveyed by the World Economic Forum. For a start, the cost of living crisis – caused by inflation of energy prices in particular – may be approaching its peak.
Two-thirds of the 22 senior economists surveyed expect the crisis to be less severe by the end of 2023.
Of course, the problem with inflation being past its peak is that it can still be quite high. The pace of the inflation slowdown will be an important factor in how far living standards fall during 2023.
Central bankers have a tricky task on their hands. Do they raise interest rates rapidly to make sure that inflation comes down – but at the cost of slower growth? Or do they hold off on increases in the hope that inflation will fall back as energy prices drop?
There is further tightening to come in the US and Europe, where the Federal Reserve, the European Central Bank and the Bank of England (BoE) have all recently raised rates sharply. The BoE’s dilemma is illustrative: in November it warned of a “prolonged recession” while also raising rates.
China is the only part of the world where most of the economists believe that monetary policy will be looser rather than tighter. That monetary policy support might well be necessary to sustain the Chinese economy as it abandons Xi Jinping’s “zero Covid” strategy and reopens with tens of millions of coronavirus infections.
Senior economists expect global recession in 2023 - Davos survey
The global economy is likely to fall into recession in 2023, according to a poll of senior economists ahead of the World Economic Forum at Davos, Switzerland.
The World Economic Forum (WEF) is due to start in earnest later today, the first time the winter gathering of politicians and business leaders has taken place since coronavirus pandemic lockdowns began.
The majority of 22 chief economists surveyed by the WEF believe a global recession is likely in 2023. All of the chief economists surveyed expect weak or very weak growth in 2023 in Europe, while 20 said they expected weak or very weak growth in the US.
There are several definitions of what constitutes a “global recession”. The most obvious is a decline in global economic output. But the International Monetary Fund (IMF) used to say that 3% growth was equivalent to a recession (while taking into account other factors such as demographic change and business investment). The IMF has forecast that around a third of the global economy will enter a recession in 2023, and its outlook for global GDP is growth of 2.7%.
The economists came from a panel that includes the chief economists of companies such as Bank of America, Barclays, Google and Unilever, and non-governmental organisations like the International Monetary Fund and the United Nations Development Programme.
Saadia Zahidi, WEF’s managing director, said:
The global economy is in a precarious position. The current high inflation, low growth, high debt and high fragmentation environment reduces incentives for the investments needed to get back to growth and raise living standards for the world’s most vulnerable.
Leaders must look beyond today’s crises to invest in food and energy innovation, education and skills development, and in job-creating, high-potential markets of tomorrow. There is no time to lose.
Amigo Holdings has been in a rolling state of crisis since 2019 when regulators promised to crack down on unaffordable lending. The lender has now said it has been unable to find a big investor willing to back it.
Shares have plunged by 20% on Monday after the warning. Amigo said it would have to wind down the business if it could not find an investor by 26 May. Possible investors are wary because of the cost of living crisis.
Amigo specialises in guarantor loans – where a family member or friend is on the hook if the borrower defaults. The loans, which are aimed at “sub-prime” people who would probably not be able to borrow otherwise, often have very high interest rates.
On Monday it said:
To date it has been unable to secure a commitment from a cornerstone investor to underwrite the whole of the capital raise. A number of investors have expressed possible interest in making a minority investment. Amigo is therefore assessing whether there is sufficient interest for a syndicate of such investors to be formed in order to support a £45m capital raise.
Amigo has been running a pilot scheme since October which has allowed it to lend again under close scrutiny from the Financial Conduct Authority, the City regulator. The cost of living crisis has made that more difficult because it has made loans less affordable, the company said.
Danny Malone, Amigo’s chief executive, said it was “disappointing that we have so far been unable to identify the requisite equity backers for the business”.
We realise that the economic backdrop since we announced the scheme has changed substantially. This has made the process of raising equity capital to support the scheme conditions significantly more challenging than expected.
The FTSE 100’s three-year high was on Friday, at 7,864.95 points.
Today’s trading has already come within a whisker of that, at 7,863.51 points.
What would it take to propel the FTSE 100 to a record high today? One possibility is higher oil prices, which would buoy BP and Shell, the index’s two big fossil fuel companies.
But oil prices are down today. Futures prices for Brent crude oil, the North Sea benchmark, are down by 1.3% to $84.10 a barrel, while West Texas Intermediate, the North American benchmark, is down 1.2% at $78.83 a barrel.
Those are still historically very high prices, but notably they are still below the levels of late February 2022, when Vladimir Putin launched the full-on assault on Kyiv that caused prices to surge well over $100 a barrel.
The FTSE 100 has edged up this morning by 0.2% – or about 15 points.
It has been a strong start to the year for London’s benchmark index. It has gained 5.5% in 2023 so far.
At 7,858 points on Monday morning it is within touching distance of its record intraday high. That was 7,903 points set in May 2018, before it closed at 7844.07.
It isn’t all a cheery message: the FTSE 100 has benefited from a weaker pound. But the index has been helped by slowing inflation, which could mean central banks do not need to raise interest rates quite so quickly.
Updated
Marks & Spencer to open 20 new stores
Marks & Spencer has said its plan to open 20 new shops across the UK will create 3,400 jobs.
The food and clothing retailer is one of the UK’s most prominent household names – even if it is only a member of the FTSE 250 index of mid-sized businesses. It wants to open eight full-line stores in shopping centres such as the Bullring in Birmingham and the Trafford Centre in Manchester, as well in as retail parks and high streets across key cities.
It also will open 12 new food halls, including in Stockport, Barnsley and the seaside town of Largs in North Ayrshire, Scotland.
The new openings will bring investment in new stores to £480m, M&S said, according to the Press Association.
The company is in the middle of cutting back its larger full-line store numbers by 67 to 180 over the next five financial years. However, it is also looking at targeting more prominent urban areas for its bigger shops as part of a strategy of combining online sales with the in-built marketing boost from having shops in busy locations.
M&S chief executive Stuart Machin said:
Stores are a core part of M&S’s omni-channel future and serve as a competitive advantage for how customers want to shop today.
Our store rotation programme is about making sure we have the right stores, in the right place, with the right space and we’re aiming to rotate from the 247 stores we have today to 180 higher-quality, higher-productivity full-line stores that sell our full clothing, home and food offer whilst also opening over 100 bigger, better food sites.
The outperformance of our recently relocated and renewed stores give us the confidence to go faster in our plan.
Updated
Household energy bills to remain above pre-Ukraine invasion levels - oil boss
Good morning, and welcome to our rolling, live coverage of business, economics and financial markets.
Household energy prices may remain higher than the levels seen before Russia’s invasion of Ukraine as countries pay for the costs of the green transition, according to the boss of Equinor, one of the world’s biggest energy companies.
Anders Opedal, Equinor’s chief executive, said there will be “more and more normal prices in a couple of years’ time”.
Russia’s full-scale invasion of Ukraine in early 2022 roiled global energy markets, causing wholesale energy prices to surge. Those higher prices were quickly passed on to consumers across the world, causing inflation to accelerate and cutting the amount households have available to spend. However, analysts are hoping prices will fall back.
Yet Europe is going through a “rewiring” of its energy system, with a need for massively increased renewable energy investment, Opedal said in an interview on Monday with BBC Radio 4’s Today programme. The Norwegian state-owned oil and gas company is one of the dominant players in extracting polluting fossil fuels from the North Sea, but it has also invested a relatively small amount in renewable energy.
Opedal said:
We need to do the industry in a totally different way, maybe using hydrogen and so on. This will require a lot of investment and these investments need to be paid for, so I would assume that the energy bills may slightly be higher than in the past, but not as volatile and high as we have today.
We need to treat energy as something that is not abundant. It is actually something that has a lot of value, and we have had a lot of cheap energy in the past. We probably wasted some of it.
It’s a fairly quiet day on the economic data front, but we will bring you more shortly on Marks & Spencer’s plans to hire 3,400 more workers, and controversial sub-prime lender Amigo Holdings’ struggles to raise new investment.
