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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Eurozone faces stagflation as prices surge; Russia cuts interest rates as recession looms – as it happened

Economy Ukraine United States GDP France Inflation Apple Bank of Russia Insee Supply chain
A European flag flutters in front of the European Central Bank building in Frankfurt.
A European flag flutters in front of the European Central Bank building in Frankfurt. Photograph: Andre Pain/AFP/Getty Images

Closing post

Time to wrap up... here’s today’s main stories:

Goodnight, and best wishes for the bank holiday weekend if you’re in the UK (and not working...). GW

In the push to cut carbon emissions, lorry vehicle makers are experimenting with a range of greener technologies to replace diesel engines.

Both gas-powered, and battery electric, lorries are being develoepd. And my colleague Jasper Jolly has a couple for a spin to see how manufacturers are making progress:

Here’s how it went....

“Just be careful where your back end is going,” says the instructor as this reporter nervously steers a 44-tonne articulated Volvo lorry on a roundabout. It is good advice at roundabouts, as in life. The trailer rolls past the safety barrier with a barely visible gap, to the relief of everyone involved.

It is a manoeuvre played out across the world countless times each day as lorries lug the goods required for modern life from factory to consumer. However, this truck is slightly different: instead of a diesel engine, it is running on natural gas.

It is one of the products of a series of bets by lorry manufacturers on how to reduce the carbon footprint of road transport, a key contributor to global carbon emissions. About 16% of the UK’s carbon emissions in 2019 were from heavy goods vehicles, which carried 1.4bn tonnes across 17.8bn km in the year to June 2021, according to the Department for Transport.

Manufacturers are backing a range of technologies from gas, to battery electric and various types of hydrogento try to decarbonise those journeys – but none has yet succeeded at scale.

Everyone who drives an electric car for the first time after a lifetime of petrol or diesel has had the moment of realisation: this really is the future. A similar dynamic is happening now with lorries. At the same test drive event, held this week at the Millbrook Proving Ground by the Society of Motor Manufacturers and Traders, there was also the chance to try out the LF Electric, assembled by Dutch lorrymaker DAF Trucks at its Leyland subsidiary in Lancashire.

Compared to the noise and judder of a diesel engine it is a serene experience on a sunny spring day in the rolling Bedfordshire hills. So serene, in fact, that another good-natured instructor has to intervene to prevent another roundabout mishap....

Do check out the full piece:

European markets close

European stock markets have ended the week higher, even as shares slide on Wall Street.

In London, the FTSE 100 gained 35 points, or 0.5%, to 7544, as stocks continued to recover from their plunge on Monday.

Germany’s DAX gained 0.85%, while France’s CAC rose 0.4%.

Quite a contrast with New York, where the Dow Jones is now down 1.7% or 575 points at 33,340.

David Madden, market analyst at Equiti Capital, says European shares pushed higher despite tensions around Russia have ticked up.

President Putin has threatened to hit back at countries that are assisting Ukraine. Gas supplies into the EU are being monitored as there are some worries the energy market could become weaponised.

Yesterday, Germany dropped its objection to an EU wide embargo on Russian oil. That has led to speculation about a potential ban on oil from Russia.

Even though those fears are in circulation, eurozone equities rose on the day, Germany’s DAX hit a one-week, Italian stocks are posting strong gains too. In the US, the bulls are in retreat as stocks have handed back some of the stellar gains that were recorded last night. US tech stocks have experienced a spike in volatility lately ahead of next week’s important Federal Reserve meeting, where it is widely believed that interest rates will be hiked by 0.5%.

Pound on track for worst month against resurgent dollar since 2016

The pound is on track for its worst month against the US dollar in six years, amid worries that a recession could be looming.

With only a few hours trading to go, sterling has lost 5.7 cents against the US dollar since the start of April to around $1.256, the biggest monthly drop since October 2016.

The euro has had an equally grim month, down five cents to around $1.05, its biggest fall since 2015.

The dollar has benefitted from expectations of sharp rises in US interest rates this year, as the Federal Reserve tries to rein in inflation, and hit a 20-year high agains a basket of currencies this week.

As Kit Juckes of Société Générale explains:

The war in Ukraine, Chinese efforts to offset the economic impact of the ‘Zero Covid’ policy and Japan’s attempts at defeating deflation are all helping the dollar, while the Fed’s attempt to catch up with the post-pandemic inflation spike continues.

The possibility of an end to Russian energy exports to Europe is also hitting confidence, he adds:

Meanwhile, the war created massive downside tail risk for the euro. This is obviously vastly less important than the human tragedy unfolding in Ukraine, but what happens if energy supplies cease? And with that recession risk present, who cares how hawkish the ECB is or what is priced into the rates curve?

So down went the euro and everything associated with it, including sterling, as deep cracks that were already present in the economic outlook started to become glaringly obvious.

Updated

The eurozone is heading towards a contraction as the cost of living squeeze and the Ukraine war hit the economy, warns BNP Paribas’s Markets 360 team.

They say that this morning’s slightly weaker than expected Q1 GDP figures showed some early signs that household consumption was already losing steam at the start of the year.

This foreshadows a more significant slowdown further ahead in our view as the squeeze on real incomes intensifies and sentiment is hit from the war.

We think a contraction in the coming quarters is increasingly likely. Alongside today’s inflation figures, today’s data highlight the growth-inflation trade-off that the ECB faces – we think inflation concerns will keep the Governing Council on a normalisation path, but see lift-off happening in September rather than July.

Eurozone GDP

Russia’s central bank chief has said the danger of an inflationary spiral have decreased, as she explained today’s rate cut.

Central Bank Governor Elvira Nabiullina said inflationary pressure stabilised in the second half of March, and pointed to stabilizing inflation expectations and improving savings sentiment among households.

Nabiullina said (via Interfax):

“In April, households’ inflation expectations have returned to the levels of mid-2021. According to the surveys of households, expected inflation is below the observed price growth, meaning that people believe that prices will no longer rise as quickly.

Companies’ short-term price expectations have edged down as well, though they remain higher than last year.

US consumer sentiment picked up in April.

As anxiety over the economic outlook eased -- even as the economy went into reverse -- according to the University of Michigan’s consumer sentiment index. It rose to 65.2 for April, up from 59.4 in March. but still below 88.3 in April 2021.

Most of the surge was concentrated in expectations, with gains of 21.6% in the year-ahead outlook for the economy and an 18.3% jump in personal financial expectations.

Richard Curtin, surveys of consumers chief economist, says confidence is still weak, though:

The global economy has added even more uncertainties about prospects for the U.S. economy, including the growing involvement in the military support for Ukraine, and renewed supply line disruptions from the covid crisis in China. Who would not be apprehensive about future conditions, even if on balance they anticipated a continued expansion?

Moreover, consumers have lost confidence in economic policies, with fiscal actions increasingly hampered by partisanship in the runup to the Congressional elections

The New York Stock Exchange
The New York Stock Exchange Photograph: John Minchillo/AP

Wall Street has dipped in early trading, as Amazon’s shares slide after it reported its first loss since 2015.

Amazon have fallen almost 12% to $2,547, their lowest since June 2020, after it reported a net loss of $3.8bn in the quarter.

It was dragged into the red by a fall in the value of its stake in electric vehicle maker Rivian. But revenue growth slowed to just 7%, Amazon’s slowest growth rate in nearly two decades.

Craig Erlam of OANDA says Amazon was the latest to catch Wall Street off guard, as it faced a multitude of challenges -- including the Ukraine war, the cost of living squeeze, and the end of lockdown restrictions.

There were the usual strong points to the report, like the cloud and advertising businesses - although the latter did fall a little short of expectations - but like many others, the company is struggling to adjust to post-pandemic life having scaled up massively over the last couple of years.

The tech-focused Nasdaq index is down 1.3%, as is the broader S&P 500, with Amazon leading the fallers.

Russia default fears ease as dollar payments made

The risk of Russia defaulting on its sovereign debt may be easing today, after Moscow made a number of already-overdue international debt payments in dollars.

Moscow has said that dollar payments on two foreign bonds are progressing after sanctions held them up for weeks.

It has previously used roubles to cover the payments after US restrictions prevented them being made in dollars. Missing the dollar payments breached the terms on the debt, starting a 30-day grace period that ends next week.

Russia’s finance ministry said it had managed to pay $564.8m on a 2022 Eurobond and $84.4m on a 2042 bond in dollars - the currency specified on the bonds.

The ministry said it had channeled the required funds to the London branch of Citibank, one of the so-called paying agents of the bonds whose job is to disburse them to the investors that originally lent the money to Moscow.

We now wait to see if the money reaches the bond holders before the 30-day grace period expires on 4th May.....

Britain’s cost of living crisis, and the ongoing problems in the global supply chain, continue to hammer AO World, the online electricals retailer.

AO, which sells kitchen appliances, computers, TVs and gaming consoles over the web, warned that its profits will dive this year as it faces falling sales.

AO had previously been hit by global supply chain issues and a shortage of drivers. Now, customers are cancelling warranties on its products to save money amid the cost of living crisis, as my colleague Sarah Butler explains:

It said underlying profits would be only £8m for the year to 31 March 2022, down from £64m last year, reflecting higher costs from driver shortages, extra marketing spending in Germany as well as lower sales and warranty cancellations. Sales fell 6% to £1.6bn in the year but remain 52% ahead of pre-Covid levels.

The company said it had noticed “higher warranty cancellations than average historical trends” in March as customers “responded to the escalating cost of living”.

It said the latest trading figures indicated the trend was continuing, potentially forcing a writedown of the value of its insurance contract leading to a “material impact on full-year profits”.

Shares in AO have slumped 20% to 70p, a two-year low, having soared over $4 in January 2021 as the pandemic drove a boom in web shopping.

Ao World’s share price
Ao World’s share price Photograph: Refinitiv

Eurozone facing stagflation as growth slows and prices soar

The eurozone faces stagflation after growth slowed to 0.2% in the last quarter and inflation hit a record level of 7.5%.

Russia’s war in Ukraine is driving up energy costs across the continent, just as economies emerged from Omicron disruption, while China’s Covid-19 outbreaks threaten more disruption oo.

Berenberg Bank explains:

Putin’s war means Eurozone stagflation: Russia’s brutal war against Ukraine has driven up prices for energy and foodstuffs, disrupted supply chains and dealt a serious blow to consumer confidence. As the most exposed major region globally, the Eurozone has fallen into stagflation as a result.

Tough luck: A series of unusual shocks is battering the Eurozone. In late 2021 and the beginning of 2022, the Delta and Omicron waves of the COVID-19 pandemic weighed on economic activity in the Eurozone much more than in the US and the UK. Moreover, just as the region was gearing up for a major rebound – as indicated by a February bounce in economic sentiment – Putin’s war derailed the nascent upturn. Due to its strong reliance on global trade, the Eurozone is now more at risk from Chinese lockdowns than the US.

A chart showing eurozone inflation and growth

My colleague Richard Partington says warning lights are flashing in the eurozone economy today, after France stalled and Italy shrunk in the last quarter.

Raising the spectre of stagflation as living costs soar while growth in GDP falters, France’s economy unexpectedly ground to a halt in the first three months of the year, recording zero growth as supply chain disruption and higher energy costs held back activity.

Italy’s economy shrank, Spain lost momentum, while Germany rebounded from a contraction in the fourth quarter when Omicron and supply chain problems had weighed heavily on the euro area’s largest economy.

Suggesting a weaker period ahead as the conflict continues to push up the price of energy, hitting net importers of gas across the continent, separate figures for April showed eurozone inflation hit a record high of 7.5%.

Here’s the full story:

Over in the US, the Federal Reserve’s preferred measure of consumer inflation has just hit a 40-year high.

The PCE prices index rose by 6.6% in the year to March, the highest reading since 1982, with energy prices up 33.9% and food up 9.2%

In March alone, the PCE rose by 0.9% in March, up from 0.5% in February.

Despite rising prices, Americans kept spending last month. Consumer spending grew 1.1%, faster than expected, meaning real spending was up 0.1% after inflation

Personal income rose 0.5% in March, as wages increased (but still lagged inflation), while the savings rate dipped to 6.2% from 6.8%.

Deutsche Bank has been under pressure from authorities in recent years to improve its areas such as money-laundering controls, ahead of today’s searches.

Back in 2018, Germany’s financial watchdog, Bafin, ordered Deutsche to do more to prevent money-laundering and “terrorist financing,” and appointed KPMG as an independent auditor to assess progress.

Three years later, Bafin ordered Deutsche to bring in tighter controls, and expanded KPMG’s mandate.

In 2020, Frankfurt Prosecutor’s Office fined Deutsche Bank €13.5m for being slow to report suspected money laundering in more than 600 cases related to its work with Danske Bank, but dropped a money-laundering probe against Deutsche Bank managers.

Seperately, in Janary 2021, Deutsche agreed to pay US authorities around $130m and entered into a deferred prosecution agreement to resolve allegations that it breached bribery and fraud laws.

Last month, Deutsche admitted it had breached this DPA by failing to flag a whistleblower complaint over its environment, social and governance work - meaning the DoJ has extended its monitorship.

Today’s may add to a list of legal and regulatory issues looming over Deutsche Bank’s CEO Christian Sewing, says Bloomberg:

Recent challenges include an internal probe into staff’s widespread use of private communication channels, a lawsuit alleging mis-selling of foreign-exchange derivatives, and criticism from U.S. and German regulators of the bank’s deficient controls.

German authorities search Deutsche Bank over potential money laundering

Prosecutors, federal police and other officials are conducting a search at Deutsche Bank in Frankfurt, the city’s prosecutors have said.

Germany’s largest lender said the search involved suspicious transactions it had itself reported in relation to money laundering, and that it was cooperating fully.

Reuters has the details:

Prosecutors said they had a search warrant but declined to elaborate. They said representatives of financial regulator BaFin were also taking part.

BaFin and federal police declined to comment.

Deutsche Bank, under CEO Christian Sewing, has been trying to repair its reputation after a series of embarrassing and costly regulatory failings.

This week, the bank posted a better-than-expected 17% rise in first-quarter profit as investment banking revenue climbed, but it warned that the Russia-Ukraine conflict could hurt annual earnings.

A Reuters witness said that there was no sign of authorities outside the bank’s headquarters.

Deutsche Bank’s shares are down around 2%.

Updated

Russia's economy could shrink 10% this year - central bank

Russia’s economy is expected to contract by between 8% and 10% this year, the Bank of Russia warns.

The decrease will be mainly driven by “supply-side factors”, it says -- namely the sanction imposed on Russia since the war began.

That would be the worst drop since Russia’s economy shrank for several years in the early 1990s, exceeding the 7.8% decline after the 2008 financial crisis.

Anouncing today’s rate cut, the Bank says the economy has already begun to decline

Based on Bank of Russia estimates, economic activity began to decline in March 2022.

High-frequency indicators point to a contraction in consumer and business activity. After a temporary surge, consumer demand is decreasing in real terms, accompanied by a rise in households’ propensity to save. The decline in imports due to the introduction of external trade and financial restrictions is outstripping the decline in exports.

Despite the gradual change in the country and commodity structure of exports and imports as new suppliers and sales markets emerge, businesses are experiencing considerable difficulties in production and logistics.

It predicts that the Russian economy will begin growing gradually in 2023, amid a structural transformation:

In 2023 Q4, output will be up by 4.0–5.5% on the same period in 2022.

However, the overall GDP change in 2023 will be within the range of (-3.0)—0.0% due to the base effect of 2022 Q1. In 2024, GDP will increase by 2.5–3.5%.

Russia’s central bank says that inflation in Russia could be as high as 23% this year, a sign of the economic damage caused by sanctions imposed since the Ukraine war:

Announcing today’s interest rate cut, it says:

As of 22 April, annual inflation was 17.6% (vs 16.7% in March).

In the baseline scenario, the Bank of Russia expects annual inflation to continue to increase in the coming months, due to the base effect, to total 18.0–23.0% in 2022.

Inflation is then seen at 5.0–7.0% in 2023, before returning to the Bank of Russia’s 4% target in 2024.

Russia cuts interest rates to 14%

Russia’s central bank has lowered interest rates to 14%, a bigger cut than expected.

At its regular meeting, the Bank of Russia lowered its key rate by 300 basis points to 14% from 17%.

Economists had expected a smaller cut to 15%, but this still leaves borrowing costs much higher than before the Ukraine war.

Announcing the move, the Bank of Russia says that inflationary pressures have eased after the rouble recovered from its plunge when the Ukraine invasion began in February:

The external environment for the Russian economy remains challenging and significantly constrains economic activity. With price and financial stability risks no longer on the rise, conditions have allowed for the key rate reduction.

Recent weekly data indicate a slowdown in current price growth rates on the back of a strengthening of the ruble and a cooling of consumer activity. Further inflation movements will be shaped by such impactful factors as the efficiency of import substitution processes and the scale and speed at which imports of finished goods, raw materials and components will be recovering.

The Bank of Russia’s monetary policy will take into the account the need for a structural transformation of the economy and will ensure a return of inflation to target in 2024.

In February, Russia’s central bank more than doubled interest rates from 9.5% to 20% shortly after the war began, in an attempt to support the sliding rouble.

Russia’s currency has since recovered to levels before the invasion, at around 70 to the US dollar, having hit a record high of 135 to the rouble in March.

In the City, shares in UK specialist chemicals group Johnson Matthey are up 18% after the investment arm of New York-based industrial firm Standard Industries took a 5.23% stake

Matthey’s stock jumped as much as 30% on the FTSE 250 index of mid-size firms, and are trading at their highest since November.

That was the month when the company announced it was pulling out of the fast-growing market for electric vehicle batteries, sending shares sliding and leading to Johnson Matthey exiting the FTSE 100 index.

Reuters says:

A London trader, on condition of anonymity, said the stake deal could be a prelude to “some kind of move”, referring to possible transactions.

ING: A turbulent quarter, and more high inflation to come

The eurozone slowed rapidly due to a “hodgepodge of reasons”, from Omicron to the Ukraine war, says ING senior economist Bert Colijn.

Zooming out, we see a eurozone economy undergoing a turbulent quarter though managing to eke out a small positive growth number, with the Omicron impact milder than expected and the war in Ukraine having an increasing impact from early March onwards.

Supply chain problems flared up again in March, causing production shutdowns across the eurozone, which has added to the slowing growth figure in 1Q.

Colijn also fears that core inflation across the eurozone could continue to climb this year, hurting households.

The spike in fuel, electricity and gas prices from early March at the start of the war in Ukraine was followed by cautious retreats and governments reducing taxes on energy. This has resulted in a slight moderation of energy inflation, but concerns remain for the months ahead. The recent jump in market gas prices on the back of Russia cutting off Poland and Bulgaria from gas supply illustrates that it is very possible energy prices spike once again as the war continues.

The impact on core inflation remains key and poses a concern for the ECB. Second-round effects and supply chain problems add to faster price increases in goods and services as well, which has caused core prices to jump from 2.9% in March to 3.5% in April.

With supply chain problems set to last longer and become more severe again due to Chinese lockdowns and the war, expect core inflation to trend higher for most of 2022 at least. This broadening of high inflation is a key concern for the ECB and adds to pressure to act quickly, despite the fact that this inflation continues to be rooted in supply-side issues beyond the control of the central bank.

More here:

Updated

Austria’s economy bucked the trend, with strong growth in January-March as it emerged from Covid-19 lockdowns.

Austrian GDP expanded by 2.5% in Q1, after a 1.5% contraction in Q4.

Austria lifted its “lockdown of the unvaccinated” in January, and relaxed restrictions on shops and hospitality venues in February, after imposing curbs to combat the omicron variant last winter.

Core inflation across the eurozone, which strips out energy, food, alcohol & tobacco, jumped to a record 3.5%.

That shows that inflationary pressures are broadening.

Here’s some snap reaction to the rise in the cost of living:

Euro zone inflation hits fresh record high in April

Inflation across the eurozone has hit a record high, as Europe’s cost of living crisis intensifies.

Eurozone inflation rose to 7.5% in April, statistics office Eurostat estimates, up from March’s 7.4% (which was itself a record). Prices jumped by 0.6% in April alone.

Energy was the biggest single factor driving annual inflation up, with prices jumping 38% year-on-year, down from March’s 44.4%.

But while energy costs dipped during April, other price pressures intensified.

Food, alcohol & tobacco annual inflation increased to 6.4% from 5.0% in March, while industrial goods prices rose 3.8% from 3.4%, and services inflation accelerated to 3.3%, from 2.7% in March.

This puts more pressure on the European Central Bank to raise interest rates from current record lows this summer, to bring inflation down towards its 2% target.

Updated

Eurozone growth slows to 0.2%

Just in: Growth across the eurozone slowed to a near crawl last month, as soaring energy prices and supply chain disruption intensified by the Ukraine war hit the economy.

Eurozone GDP increased by 0.2% in January-March, down from 0.3% growth in October-December.

France’s stalling economy, and the 0.2% contraction in Italy, took the shine of Germany’s return to growth.

Growth across the wider EU slowed too, to +0.4% from +0.5%

Updated

Despite returning to growth in Q1, Germany’s economy will be weak this quarter, predicts Oliver Rakau, chief German economist at Oxford Economics:

Here’s his take on this morning’s GDP report:

Updated

Italy at risk of recesion as economy shrank 0.2% in Q1

Italy’s economy, though, is on the brink of recession.

Italian GDP shrank by 0.2% in the first quarter of 2022, the first contraction since the end of 2020.

It’s a sign that pandemic disruption, high commodity prices and the Ukraine war could have hit activity, as we saw with France this morning.

Statistics body ISTAT reports that the Italian economy was 5.8% larger than a year ago, following the recovery during 2021, adding:

The quarter on quarter change is the result of an increase of value added in agriculture, forestry and fishing, a decrease in that of services and a stationarity in industry. From the demand side, there is a positive contribution by the domestic component (gross of change in inventories) and a negative one by the net export component.

Growth in Spain was weaker than expected in the last quarter.

Spanish GDP increased by 0.3% in January-March, below the 0.5% expected, and a sharp slowdown on the 2.2% growth in the last quarter of 2021.

Reuters has more details:

Spiralling inflation, exacerbated by the Ukraine crisis and a Spanish truck drivers’ strike in March, dragged down household spending by 3.7% over the quarter, the National Statistics Institute data showed.

On an annual basis output expanded by 6.4%, roughly inline with a Reuters poll for 6.5% growth as the economy rebounded from the first quarter of 2021 when Spain was buffeted by a huge snowstorm that cut transport lines with the capital.

Germany avoids recession with 0.2% growth

Germany has returned to growth, as Europe’s largest economy avoided being dragged into recession by the Ukraine war.

German GDP increased by 0.2% in the January-March quarter, lifted by an increase in investment, although net trade has a negative impact.

That follows a 0.3% contraction in the last quarter of 2021, when restrictions to combat the Omicron variant and supply chain problems hit its economy. It means Germany has avoided two quarters of falling growth in a row.

The Federal Statistics Office warns, though, that the Ukraine conflict has been hurting Germany’s economy over the last two months.

Economic performance increased slightly in the first quarter of 2022, following the recovery of the German economy last summer and the decline at the end of 2021.

This was mainly due to higher capital formation, whereas the balance of exports and imports had a downward effect on economic growth.

The economic consequences of the war in Ukraine have had a growing impact on the short-term economic development since late February.

German economists and government ministers have warned that a ban on Russian gas imports could plunge Germany into a recession this year, amid pressure to cut funds to Russia.

Updated

UK house price growth slows

UK house price growth has slowed from its highest level in 17 years.

The average house price rose by 12.1% in the year to April, building society Nationwide reports. That’s down from 14.3% in March, which was the highest since late 2004.

Prices rose by 0.3% during April, down from 1.1% in March, lifting prices on Nationwide’s index to a new record of £267,620.

Robert Gardner, Nationwide’s Chief Economist, predicted the slowdown will continue, as pressure mounts on household budgets and interest rates continue to rise.

We continue to expect the housing market to slow in the quarters ahead.

The squeeze in household incomes is set to intensify with inflation expected to rise further, perhaps reaching double digits in the quarters ahead if global energy prices remain high.

Moreover, assuming that labour market conditions remain strong, the Bank of England is likely to raise interest rates further, which will also exert a drag on the market if this feeds through to mortgage rates.”

Updated

NatWest has reported a 40% jump in first quarter profits but warned of the UK’s “uncertain” economy amid the cost of living crisis, saying it had already referred more than 2,000 customers to debt experts at Citizens Advice.

The banking group – formerly known as Royal Bank of Scotland – beat expectations after reporting a jump in pre-tax profits to £1.2bn compared with £885m a year earlier. That was compared to analyst forecasts of a 15% drop in profits to £755m.

Its strong first quarter results – the first reported since the UK government stake in the group fell below 50% last month – was supported by mortgage borrowing, higher interest rates and a rebound in consumer spending as Covid restrictions were eased.

NatWest’s chief executive, Alison Rose, warned that “The world has changed considerably during the last three months,” noting the impact the Russian invasion of Ukraine was having on the UK economy.

Rose said:

We are also very aware of the challenges and concerns the cost-of-living crisis is causing for many of our customers up and down the country. NatWest Group is focused on providing practical help and support for the people, families and businesses we serve”.

NatWest said it had identified vulnerable customers and had referred 2,100 people to Citizens Advice in the last year. Here’s the full story:

Updated

UK facing 'wave of insolvencies', with more firms in critical financial distress

Britain’s economy faces a “wave of insolvencies” after the number of UK companies at risk of collapsing jumped by nearly a fifth this year.

Insolvency firm Begbies Traynor reports that the number of firms in ‘critical financial distress’ jumped by almost a fifth in the first quarter of this year, year-on-year.

There were 1,891 firms facing a county court judgement of at least £5,000, or a winding up petition, in the quarter, led by a 51% jump in the construction sector and a 42% rise among bars and restaurants, it says.

Overall County Court Judgements – a warning sign of future insolvencies – jumped 157% to 22,552 in the quarter compared with a year ago; with March seening the highest number in a single month for five years.

Begbies Traynor fears a wave of business failures is approaching, as Covid support is cut off, inflation climbs, and firms face supply chain problems and a post-Brexit hangover.

Begbies Traynor partner Julie Palmer told the Today Programme that courts are now processing claims from creditors who couldn’t take action earlier in the pandemic.

We think they’ll be accelerated by the fact that in a day’s time, the landlords are able to start petitioning, to take legal action against companies.

We think the landlords are a very impatient lobby that will swell those figures.

Anecdotally, there is about a year’s backlog of creditors looking to take action, Palmer says:

As the backlog clears, we think the figures will really begin to swell.

Palmer says the government needs a two-pronged approach. Firms who need more support could be given leniency in repaying pandemic funding. But there are also ‘zombie companies’ who need to be allowed to fail, she adds.

French inflation surges to highest in decades

In another blow, French inflation has just hit its highest level in decades.

Consumer prices accelerated by 4.8% per year in April, INSEE estimates, the highest level since 1985.

The surge was driven by a 26.6% increase in energy prices (despite Emmanuel Macron’s government capping energy bill increases), while food prices jumped 3.8% including a 6.6% rise in fresh food

There was also a pick-up in prices for services (2.9%) and manufactured goods (+2.7%).

On an EU-harmomised basis, French inflation hit a record high of 5.4%, up from 5.1% in March - further away from the ECB’s 2% target.

Updated

ING: France faces more stagnation.

France’s unexpected slowdown in the first three months of the year does not bode well for the future, warns Charlotte de Montpellier of ING.

De Montpellie predicts that French economic gowth will remain weak, amid weak household demand, pressures on businesses, and disruption from China’s Covid-19 lockdowns.

For the coming quarters, the growth outlook is not very bright. The sharp rise in inflation, which is now spreading more and more widely throughout the economy, is weighing on household incomes.

This is compounded by household pessimism, illustrated by the sharp fall in consumer confidence in March and the fact that it did not recover in April. These two elements are likely to further dampen household demand. This drop in household demand will also start to be felt by companies, which will be less able to pass on the cost increases they are facing in their selling prices. There is therefore a risk of a deterioration in business confidence, which until now had held up rather well despite the shock of the war. In addition, the situation in China should weigh on production lines, complicating the supply of inputs and disrupting production in the coming months, but also on French exports.

French economic growth is therefore likely to remain weak. Although none of these factors is sufficient to tip the French economy completely into recession, the combination of all of them at the same time drastically increases the risk of one or two quarters of negative growth for the rest of the year.

Germany’s import price inflation has accelerated sharply in March to its highest level since the oil crisis of 1974, highlighting that inflationary pressures are intense.

The cost of inported goods surged by a jaw-dropping 31.2% in March, compared with a year ago, and by 5.7% in March alone.

The surge in costs shows the impact of the war in Ukraine, says statistics body Destatis.

Energy import prices soared 160.5% per year, with gas prices quadrupling (+304.3%) and crude oil up 81.3%.

The index of export prices was 15.9%, showing that firms have lifted their own prices in response.

Updated

France’s statistics body INSEE says that weak domestic demand hit the economy, while trade and inventory changes had a positive impact to GDP.

GDP stagnated in Q1 2022 (0.0% quarter on quarter after +0.8%) in connection with the weakness of the domestic demand: Households’ consumption expenditure sharply decreased (-1.3% after +0,6%) while gross fixed capital formation (GFCF) slightly decelerated (+0.2% after +0.3%). Finally, internal demand excluding inventory changes contributed to -0.6 points to GDP growth, after +0.5 points in the previous quarter.

Foreign trade, although slowing down, continued to progress. The increase was more marked on the export side (+1.5% after +3.5%) than on the import side (+1.1% after +3.2%). Thereby, the contribution of foreign trade to GDP growth was slightly positive this quarter: +0.1 points after +0.0 in the previous quarter.

At last, the contribution of inventory changes to GDP growth was positive again this quarter (+0.4 points after +0.3 points in Q4 2021).

Updated

French slowdown fuels stagflation fears

France’s sharp slowdown raises the spectre of stagflation in the eurozone, warns the FT:

The main drag on French growth was a fall in household spending, indicating that higher food and energy prices and the fallout from the Ukraine war are taking their toll on retail spending and consumer confidence.

Bloomberg says France unexpectedly stagnated as the Ukraine war took its toll:

France’s economy unexpectedly stagnated at the start of the year, sounding an early warning of the damage to Europe from soaring energy costs and worsening supply snarls following Russia’s invasion of Ukraine.

Europe’s near-term outlook is exceptionally uncertain. Another round of sanctions -- including a possible ban on Russian oil imports -- risks hammering industry, while record inflation and plummeting confidence are jeopardizing consumer demand.

Updated

Introduction: French economy grinds to a halt in Q1

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

France’s economy has unexpectedly ground to a halt as the energy crisis, inflation and supply chain problems exacerbated by the Ukraine war hit growth.

French GDP was unchanged in the first quarter of this year, weaker than the 0.3% growth expected by economists, official data released this morning shows.

After growing 0.8% in October-December, France’s growth fizzled out in January-March, statistics body INSEE reports.

It’s a sign of the economic damage being caused by soaring energy and commodity prices, and supply chain disruption from the Ukraine war.

Household spending contracted by 1.3%, a signal that the surge in inflation is hitting domestic budgets and confidence, despite France’s €25bn package of support for energy bills.

We find out at 10am how the wider eurozone fared in the first quarter, with growth figures from Germany, Spain and Italy all expected this morning too.

France’s slowdown will increase concerns over the health of the world economy.

Yesterday we learned America’s economy shrank unexpectedly in the first quarter of the year, contracting by -0.4% in the first quarter, or -1.4% on an annualized basis.

That was the US’s weakest quarter since the early days of the pandemic, as the widening US trade deficit pulled down GDP.

Supply chain problems, and ongoing pandemic disruption, is continuing to hit the companies. Last night, Apple warned that chip shortages and factory shutdowns in China could cost it up to $8bn of revenue this quarter.

It’s another sign that the world economy is slowing. America’s economy shrank unexpectedly in the first quarter of the year, contracting by -0.4% in the first quarter, or -1.4% on an annualized basis.

That was the US’s weakest quarter since the early days of the pandemic, as the widening US trade deficit pulled down GDP.

Supply chain problems, and ongoing pandemic disruption, is continuing to hit the companies. Last night, Apple warned that chip shortages and factory shutdowns in China could cost it up to $8bn of revenue this quarter.

We get the full eurozone growth report at 10am, along with new inflation figures.

Elsewhere, Russia’s central bank may cut interest rates today, possibly from 17% to 15%, as it continues to wind back February’s emergency doubling of borrowing costs (to 20%) to prop up the rouble after the Ukraine invasion.

The agenda

  • 10am BST: Eurozone growth report for Q1 2022
  • 10am BST: Eurozone inflation report for April
  • 11.30am BST: Bank of Russia sets interest rates
  • 1pm BST: Bank of Russia press conference
  • 1.30pm BST: US Personal Consumption Expenditures measure of inflation
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