Closing post
Our US Politics Live blog is tracking the latest developments, including the GDP report:
So here’s a reminder of today’s main stories, including the US economy shrinking for the second quarter in a row:
The threat of industrial action at the UK’s biggest container port, adding to trade problems:
Anger over the surge in profits posted by energy giants Shell and Centrica, as UK households face soaring bills and potential shortages this winter:
Plus:
The (technical) recession in the US might continue in 2022, fears Professor Costas Milas of the Management School at University of Liverpool.
He tells us that US growth might become very anaemic for the next two years or so, due to monetary policy tightening (which president Biden pointed to earlier).
Between April and July 2022, the Fed raised its main interest rate by 2 percentage points in total. Recent academic research finds that such a cumulative hike is expected to reduce GDP in the US by 1.4% within two years.
However, there are spill-over effects to the rest of the world. In fact, this very monetary tightening in the US is expected to reduce GDP in advanced economies (including the UK, of course ) by 1% within three years.
Bank of England’s MPC members should take these effects into consideration when they decide on UK interest rates in early August.
The prospect of a strike at Felixstowe port next month will alarm UK companies, and would drive up shipping costs.
So warns Simon Geale, executive vice president for procurement at consultancy Proxima:
“News of a potential strike at Felixstowe will send some British businesses into a spin. The port is not just Britain’s largest, it is the largest by quite some margin, handling twice as many Twenty Foot Equivalent (TEU) containers as Southampton in second place.
Felixstowe was one of the hardest hit ports globally during the pandemic due to the lack of alternative capacity and its “deep water” capacity suitable for large vessels. Over the last two years we have seen ships diverted to Europe and goods returned by alternative means, such as smaller vessels, road or air, none of which are looking particularly attractive at the moment.
We’re principally looking at delays, which will mean sustained pricing impact.”
Deutsche Bank: US recession "almost a slam dunk" over next 12 months
The US isn’t officially in recession yet, but you have to go back to 1947 for a time when two successive quarters of negative growth haven’t been classed as a recession by the National Bureau of Economic Research.
So points out Jim Reid of Deutsche Bank, who has deftly produced this chart:
DB's Jim Reid on todays' second consecutive negative GDP print:
— André Dragosch⚡ (@Andre_Dragosch) July 28, 2022
"However today's chart shows that since we have quarterly data from 1947, there have never been 2 successive negative quarterly prints without it being included in the official NBER recession definitions." 1/2 pic.twitter.com/GwXKykGBXu
Reid’s team have been warning that a US recession was imminent for a while, but they’re not convinced we’re in a ‘proper’ one yet:
Q1 was negative partly because of a surge in demand for imports. Final sales to private domestic purchasers (c.90% of the economy) was up a healthy 3% (q/q) in Q1 but was flat in Q2, although not quite as bad as the actual print. Of course, I’m a scratch golfer outside of my driving, approach play, short game and putting, but these are extraordinary times.
We still think a recession is almost a slam dunk over the next 12 months but want to see more evidence of employment rolling over before we would call the current US environment a recession.
However today’s chart shows that since we have quarterly data from 1947, there have never been 2 successive negative quarterly prints without it being included in the official NBER recession definitions. In fact it’s been rare to have negative GDP quarters at all outside of a recession as you can see in the graph.
The number of Americans filing new unemployment claims is running at its highest levels of the year, as rising interest rates hit the jobs market.
There were 256,000 ‘initial claims’ for jobless support last week, the Labor Department reports.
The previous week’s figures were revised up too, to 261,000 from 251,000 (which was already an eight-month high).
US Jobless Claims 256k (est 250k, last 261k from 251k)
— Mario Cavaggioni (@CavaggioniMario) July 28, 2022
US Continuing Claims 1.36m (est 1.39m, last 1.38m)
Jobless claim is up since mid March, so labor mkt is weakening..... errrrrr! pic.twitter.com/B1d4O8KDuI
#NEW Weekly jobless claims slip from 8-month high, still higher than expected@USDOL reports 256k Americans filed initial unemployment claims last week, down 5k from previous week but higher than 249k expected
— Greta Wall (@GretaLWall) July 28, 2022
Continuing claims fell by 20k to 1.36 million in week ending July 16
Biden: No surprise economy is slowing as Fed fights inflation
President Joe Biden says it isn’t a surprise that the US economy is slowing as the Federal Reserve acts to bring down inflation.
In a statement on today’s GDP report (showing the US economy has shrunk this year), Biden points out that recent rises in US interest rates have slowed growth.
But he also argues that the US is on the ‘right path’, with a strong jobs market and growing consumer spending.
#BREAKING President Biden says US economy 'on the right path' despite GDP dip pic.twitter.com/U9lwrhg1cb
— AFP News Agency (@AFP) July 28, 2022
Biden says:
Coming off of last year’s historic economic growth – and regaining all the private sector jobs lost during the pandemic crisis – it’s no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation.
But even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure. Our job market remains historically strong, with unemployment at 3.6% and more than 1 million jobs created in the second quarter alone. Consumer spending is continuing to grow.
Earlier this week, I met with the Chairman of SK Group from Korea, just one of the companies investing more than $200 billion in American manufacturing since I took office, powering a historic recovery in American manufacturing.
The president ends by urging the House to approve legislation to support the US semiconductor industry quickly:
My economic plan is focused on bringing inflation down, without giving up all the economic gains we have made. Congress has an historic chance to do that by passing the CHIPS and Science Act and Inflation Reduction Act without delay.
Wall Street has taken the US’s fall into a technical recession in its stride.
The Dow Jones industrial average, which tracks 30 major companies, is just 0.04% higher in early trading, while the broader S&P 500 index is down a very modest 0.05%.
Traders may take the view that a weaker US economy means fewer hefty interest rate rises in the months ahead.
Hugh Gimber, global market strategist at J.P. Morgan Asset Management, says:
“When is a recession not a recession? The box has been ticked for two quarters of negative GDP growth, and yet the US economy added 2.7 million jobs over the same period. While we may have to wait several months for the judgement from the National Bureau of Economic Research, it has been clear for some time that the US economy is losing momentum.
“At yesterday’s FOMC meeting, Jerome Powell emphasised that the committee is not only willing, but rather hoping to see enough cooling in the economy in order to bring inflation back down. Today’s report will not deter the Fed from feeling that it has more work to do over the course of the autumn, and I expect the additional 100 bps of tightening indicated by the Fed’s dot plot to be delivered by year end.
“Yet looking further out, both growth and inflation dynamics are likely to be signalling that a less aggressive approach from the Fed is required as we move into 2023. For markets, earnings forecast downgrades in order to better reflect the weaker macro backdrop still pose a risk over the coming months, but investors will take some comfort from the fact that the most aggressive moves from the Fed may now be behind us.”
Biggest drag in GDP is residential investment. In short, higher rates are crashing housing supply. That’s gonna out continued upward pressure on rent - causing 1) pain for the 50% of renters that already can’t afford to pay the bills and 2) fuel more inflation.
— Mark Paul (@MarkVinPaul) July 28, 2022
Full story: Dockers at UK’s largest container port vote to strike in August
Dockers at the UK’s largest container port have voted overwhelmingly to strike after they were offered a below inflation pay rise in the latest industrial dispute sparked by the cost of living crisis to bring national transport infrastructure to a halt.
Workers at the port of Felixstowe in Suffolk balloted 92% in favour of a strike next month, rejecting a 5% pay-rise offer from the Felixstowe Dock and Railway Company which their union, Unite, said would be a real-terms pay cut with retail price inflation standing at 11.8%.
Rees-Mogg: very important to keep Felixstowe Port open
Back in the UK, Cabinet Office minister Jacob Rees-Mogg has warned that a strike at the Port of Felixstowe would be very damaging
Rees-Mogg also argued that the “1970s’ approach to labour activity” being taken by unions isn’t the answer to inflation, following today’s vote for industrial action at Britain’s largest container port.
He told the BBC Radio’s The World At One programme:
“This is part of the problem with inflation, and inflation is a major problem for the economy, and it feeds through to increase wage demands and to tensions in the labour market.
Rees-Mogg added that it is very important to keep Felixstowe Port open.
“The strike would be extremely damaging to the whole UK economy and the supplies to this economy, and it would have a direct effect on people’s lives. I am concerned about the 1970s’ approach to labour activity that’s coming from the unions, with a certain degree of support from the Labour Party at the moment.
“I don’t think this will prove the answer to inflation, as it wasn’t in the 1970s.”
But back in May, a leading economist at the International Monetary Fund has insisted that wages do not have to be suppressed to avoid a wage-price spiral.
Gita Gopinath, told the World Economic Forum in Davos that it’s possible to have a situation where wages rise and prices do not, as company profits, she said, could reduce instead.
Inflation, after all, is a measure of price rises, not wage rises....
Rob Clarry, Investment Strategist at wealth manager Evelyn Partners, argues that the US is not yet in recession, although two quarters of negative growth is the ‘technical’ definition.
After the White House took the unusual step of releasing a blog on its website last week that outlined the definition of a recession, speculation that we would see US GDP fall for a second quarter in a row, resulting in a ‘technical recession’, started to increase.
Today’s release proved this speculation to be well founded, as the US economy contracted by 0.9% on a quarter-on-quarter (annualised) basis. This was driven by weak readings for investment, government spending, and inventories.
However, importantly, consumer spending held up. This is arguably the most important indicator of underlying growth, so this can be taken as a positive from a disappointing set of data. In addition, labour markets remain robust providing further support to the economy.
Despite this negative reading, we don’t think the US economy has entered a recession yet. The NBER is tasked with deciding this and the indicators it tracks include real personal income minus government transfers, employment, various forms of real consumer spending, and industrial production. None of these indicators are pointing towards a recession at this moment in time.
Larry Adam of Raymond James makes a similar point:
Back-to-back negative quarterly GDP results with today’s -0.9% 2Q results. Recession? We do not think so (nor do we believe the NBER will classify it as one), as healthy job creation and positive industrial production continue to support the economy. pic.twitter.com/Q4mQzKTftN
— Larry Adam (@LarryAdamRJ) July 28, 2022
We’ll have to wait for the National Bureau of Economic Research’s official verdict, sometime in the future....
US real #GDP fell by 0.9% in Q2, the 2nd straight quarterly decline. Is the economy in a #recession? That is determined by the NBER and the data is subject to revision. There is precedent for the economy shrinking 2 straight quarters without a recession, but last time was 1947. pic.twitter.com/zi3FU5qU9l
— Cetera Investment Management (@ceteraIM) July 28, 2022
The big picture, Allianz’s Mohamed El-Erian points out, is that the US is falling deeper into stagflation.
Message is clear from the negative US GDP print (-0.9%) and unfavorable miss on jobless claims:
— Mohamed A. El-Erian (@elerianm) July 28, 2022
The US #economy is slowing at a significant rate.
Add to that the 8.7% price change in today's data and the bottom line is clear:
Deepening stagflation and flashing red #recession risk
This is a good point about the US economy, and the impact of rising inflation generally, from Josh Boak of AP:
Inflation matters a lot when thinking about GDP—exclude it from the Q2 figures and the economy grew at a 7.8% annual rate.
— Josh Boak (@joshboak) July 28, 2022
The fact that nominal growth was wiped out entirely by inflation helps to explain why voters are so angry and unhappy.
And here’s more reaction to the contraction in the world’s largest economy, from Interactive Investor’s Victoria Scholar:
Despite many saying the US economy remains strong, GDP points to a technical recession with the second straight quarter of negative growth.
— Victoria Scholar (@VictoriaS_ii) July 28, 2022
The US economy shrank by 0.9% in Q2 2022, compared to market expectations for GROWTH of 0.5% 📉📉📉
And James Picerno of Capital Spectator:
Ouch! US GDP contracted in Q2, falling 0.9%, the govt reports -- 2nd straight decline. The news will stoke deeper worries about recession risk and the debate about whether a recession has already arrived: pic.twitter.com/Ntm6ujqHbz
— James Picerno (@jpicerno) July 28, 2022
Several factors dragged the US economy into a technical recession in the last quarter.
Business inventories fell, and firms also cut back on investment. Spending on real estate dropped, along with federal government spending, state and local government spending.
But, exports of both goods and services increased, as did personal consumption -- showing that consumer spending held up despite weakness elsewhere in the US economy.
The US economy contracted in the first half of 2022
— Heather Long (@byHeatherLong) July 28, 2022
What hurt growth:
Big drop in inventories
Drop in biz investment
Drop in Real Estate spending
Drop in spending on goods (cars, furniture, etc)
Gov't spending down
What's doing well:
Consumer spending, esp. on services
Exports pic.twitter.com/Oe3lKUsvi4
The bad news that the US economy shrank again in Q2 will be a major blow for the Biden administration as it prepares for a tough midterm election season, my colleague Dominic Rushe writes.
White House officials have tried to tamp down talk of a recession, arguing that many parts of the economy remain strong.
The 0.9% fall in activity stands in marked contrast to the robust 6.9% annual increase in GDP recorded in the final quarter of 2021 when the economy roared back from Covid shutdowns.
US falls into technical recession
The US economy has fallen into a technical recession after economic activity fell for the second quarter in a row.
US GDP shrank by just over 0.2% in April-June, or by 0.9% on an ‘annualised’ basis, government figures show.
That will intensify fears that the global economy is heading into recession, as the energy crisis and soaring inflation hits growth, and is another political headache for President Biden.
US GDP fell -0.9% SAAR QoQ in Q2 2022 after a -1.6% SAAR QoQ decline in Q1 2022. Consumption grew 1.0% with goods consumption down -4.4% and services consumption up 4.1%. Private investment crashed -13.5%. #gdp #recession (@BEA_News) https://t.co/GlldtQ0wtb pic.twitter.com/A1RIALm632
— MTS Insights (@MTSInsights) July 28, 2022
Two quarters of negative growth are seen as the technical definition of a recession by economists.
🚨 US GDP contracted 0.9% in the second quarter. This is now the second straight quarter of a decline. For many on Wall Street this would be considered a technical recession.
— annmarie hordern (@annmarie) July 28, 2022
US recessions are, however, officially declared by the National Bureau of Economic Research (NBER), a research group that uses a broad range of measures including jobs growth to decide when the US economy is shrinking.
The NBER often makes its announcement well after a recession has begun, as it assesses other economic factors.
Updated
Felixstowe’s dockworkers have joined a growing wave of employees, in a range of sectors from rail to telecoms, resorting to industrial action this summer.
Unite points out that retail price inflation has now hit 11%, with the consumer price index measure at a 40-year high of 9.4%, and heading for double-digits this autumn when energy bills jump.
Unions warned last night that UK could face a general strike this year, as the summer of industrial unrest intensifies.
A halt to operations at Felixstowe would have devastating effects on the UK supply chain, as the port handles almost half the country’s container traffic, Sky News points out.
Felixstowe struggled with a backlog of containers last autumn, due to the UK’s lorry diver shortage, which led to some ships from Asia being turned away.
Staff at Britain's biggest container port vote to strike in pay dispute
Staff at the country’s largest container port, Felixstowe, have voted to strike in a dispute over pay, which would caused significant disruption to trade flows and UK supply chains.
The Unite union says staff have rejected a below-inflation 5% pay offer, meaning Felixstowe could ‘come to a standstill’ next month.
A walkout would cause “major logistical problems” for maritime and road haulage transport entering the port, the union says.
Unite general secretary Sharon Graham said:
“The bottom line is this is an extremely wealthy company that can fully afford to give its workers a pay rise. Instead it chose to give bonanza pay outs to shareholders touching £100m.
“Unite is focused on defending the jobs, pay and conditions of its members and we will giving 100 per cent support to our members at Felixstowe.
“Workers should not be paying the price for the pandemic with a pay cut. Unite has undertaken 360 disputes in a matter of months and we will do all in our power to defend workers.”’
Unite’s members at Felixstowe voted 92% in favour of industrial action, on an 81% turnout.
Unite has not given any dates for the strike action, and is hoping that the Felixstowe Dock and Railway Company will come back with a better offer.
Unite regional officer Miles Hubbard explains:
“This dispute is of Felixstowe’s own making. Strike dates have yet to be announced but even at this late stage the dispute could be resolved by the company returning to negotiations and making a realistic offer.”
Retailers will hope they're not in for more disruption - a lot of product comes in through Felixstowe.
— George MacDonald (@GeorgeMacD) July 28, 2022
UK's largest container port faces "standstill" through strikes, union says https://t.co/NnOVv2moa3
Friends of the Earth energy campaigner Sana Yusuf argues that a tougher windfall should be imposed on energy firms, to help those struggling.
“Clearly not everyone is struggling with the energy crisis.
“These bumper profits [from Shell and Centrica] will be greeted with disbelief by the millions of people across the UK who are faced with rocketing energy prices.
“The government must impose a tougher windfall tax on energy firms.
The bulk of these profits should be used to insulate our homes and help cash-strapped households pay for their heating this winter, rather than developing more fossil fuel projects that roast the planet.”
Getting back at Centrica’s five-fold jump in earnings....Victoria Scholar, head of investment at interactive investor says the owner of British Gas saw a huge surge in its profits on the back of the war in Ukraine.
That prompted a rally for commodity prices including wholesale gas which hit record highs in Europe this year, she explains:
As a result, Centrica is able to return cash to shareholders via the initiation of a dividend, with traders buying the company’s shares this morning. European gas prices have been soaring once again this week after Russia cut flows to Germany through the key Nord Stream 1 pipeline, with concerns that President Putin will continue to weaponise gas by restricting supply, which keep prices elevated.
In an otherwise challenging year for equities, commodity players have been the standout winners with the geopolitical turmoil providing a tailwind for the sector.
Andy Bruce of Reuters has analysed today’s UK spending figures, and highlights a big shift towards motor fuel at the expense of non-essential goods:
Adjust the @ONS CHAPs card spending data for inflation, you see some big shifts in consumption.
— Andy Bruce (@BruceReuters) July 28, 2022
🚗⛽️ Work-related spending (which includes petrol) up 29% vs Feb 2020
🧥🛋️Delayables (clothing, furniture, luxury goods, cars etc) down 28% pic.twitter.com/EzqjwgvBTF
This stuff doesn't cover energy bills so much, which are mostly paid via direct debit
— Andy Bruce (@BruceReuters) July 28, 2022
The number of super-rich people who live in the UK but pay no tax on their offshore income has fallen by 11%, after the pandemic imposed severe travel restrictions, according to figures published by HMRC on Thursday.
UK-based people with non-domicile tax status – so called “non-doms” – in the 2020-21 financial year totalled 68,300, a fall of 8,200 on the previous year.
The number has been on a downward path since 2017, with tax experts also citing Brexit and tighter government controls on who can claim the tax break. More here.
Two-hour queues at Dover ahead of 'extremely busy' weekend
Holidaymakers are facing two-hour queues at the Port of Dover today amid warnings that this weekend will be “extremely busy”, PA Media reports.
Ferry operator DFDS urged passengers to “allow 120 minutes to complete the check-in process and border controls” at the Kent port.
Demand for cross-Channel sailings is expected to surge in the coming days, leading to fears of more disruption.
Tens of thousands of families saw the start of their summer holidays ruined last weekend as the roads approaching Dover were gridlocked, leading to delays of several hours.
This was blamed on a shortage of French border officers and a serious crash on the M20.
Port of Dover chief executive Doug Bannister said the way the system was “back to normal by Sunday morning” once French border controls were fully staffed showed “our collective summer plan works”.
Bannister adds:
“We, in turn, together with our ferry operators and port traffic management teams, will be equally ensuring that we are fully resourced once again to provide the best overall experience for customers and to keep Kent’s roads flowing and our community open.
“I am extremely grateful to French border colleagues for their commitment this coming weekend and the fundamental difference this should now make to customers, ferry operators, Kent partners and our community.”
#PODOVER - Please be advised that there are currently queues at the entrance to the Port of Dover. Please allow an extra 60 minutes on your journey if possible and rest assured if you miss your sailing you will be on the next available
— P&O Ferries Updates (@POferriesupdate) July 28, 2022
The port expects to welcome around 140,000 passengers, 45,000 cars and 18,000 freight vehicles between Thursday and Sunday.
National Highways, which manages England’s motorways and major A roads, said:
“Drivers travelling in and around Kent are advised to plan ahead as this weekend is likely to be extremely busy.
“Operation Brock contraflow remains in place on the M20 and is part of a series of measures to improve Kent’s resilience and ensure the smooth flow of traffic through the region in the event of disruption to services across the English Channel.”
Updated
Shell CEO Ben van Beurden goes theological when asked about ways to lower retail oil and gas prices:
— Javier Blas (@JavierBlas) July 28, 2022
"We can not perform miracles"#OOTT
TUC: Eye watering energy profits an insult
The TUC says the ‘eye-watering’ profits racked up by energy firms such as Shell and Centrica are an insult to millions of working people
TUC General Secretary Frances O’Grady said:
“These eye-watering profits are an insult to the millions of working people struggling to get by because of soaring energy bills.
“Energy bills are rising 23 times faster than wages. We need to hold down profits and boost wages. Working people are facing the longest and harshest wage squeeze in modern history.
“It’s time working people got their fair share of the wealth they create, starting with real action to bring bills down.”
Updated
Ed Miliband MP, Labour’s Shadow Climate Change and Net Zero Secretary, has responded to Shell posting record profits of over $11bn in the last quarter:
“As profits soar to record levels for oil and gas producers, we face a serious and worsening energy bills crisis, far worse even than a couple of months ago.
“Yet at the same time the government is proposing billions in new tax breaks for oil and gas - an obscene decision when families are facing a true cost of living emergency.
“Both candidates for the Tory leadership have shown themselves living on another planet when it comes to the cost of living emergency.
Rishi Sunak opposed the windfall tax tooth and nail and has introduced a multi-billion tax break for the oil and gas sector, while Liz Truss appears to believe that the cost of living crisis can be solved by abandoning renewable energy - the cheapest form of power we have.
“The Government is asleep at the wheel. They should start by getting rid of the plan to hand £4bn of public money back to the oil and gas giants making record profits in this crisis and using this money to help families.
“To bring down energy bills for good, we need Labour’s plan for a green energy sprint for home-grown power, and our 10 year warm homes plan to cut bills for 19 million cold, draughty homes.”
Eurozone economic sentiment signals a recession is near
This morning’s tumble in eurozone economic confidence (see last post) is another signal that a recession is near, says economist Peter Vanden Houte of ING.
Soaring energy prices are a major factor, as inflation hits consumer spending.
Vanden Houte writes:
It seems clear that final demand is stalling.
Consumer confidence declined again (-3.2) and the outlook for the personal financial situation over the next 12 months is now at the lowest level ever. High inflation and the soaring costs of energy are, of course, major headwinds. Unfortunately, the labour market, which had been a big support for consumption also shows signs of weakening.
The Employment Expectations Indicator, while still above its long-term average, fell for the fifth month in a row. In the consumer survey, unemployment expectations also increased. No wonder that the intention to make major purchases over the next 12 months is now close to an all-time low.
All forward-looking indicators now point to a contraction in the eurozone in the coming months, writes @PVandenHoutehttps://t.co/Ew7eR0e6nl
— ING Economics (@ING_Economics) July 28, 2022
Eurozone recession nears as confidence tumbles
Confidence among consumers and companies across the eurozone has fallen sharply, on fears of a cut in gas supplies from Russia and soaring inflation.
The European Commission’s economic sentiment indicator, which tracks business and consumer confidence, has fallen to just 99.0 this month, below its long-term average, from 103.5 in June.
Confidence among industry, services, retail trade and consumers all fell significantly, the EC says.
There were marked falls in four of the six largest European economies -- Spain, Germany, Italy and Poland.
Business managers grew gloomier as sales weakened, while households’ assessment of their past financial situation and their outlook on their future financial situation hit all-time lows.
Economic Sentiment and Employment Expectations markedly down in the #EU and the #Eurozone.
— Yannis Koutsomitis (@YanniKouts) July 28, 2022
The Economic Sentiment Indicator (ESI) plummeted in July in both the EU (-4.2 points to 97.6) and the euro
area (-4.5 points to 99.0), falling below its long-term average. pic.twitter.com/akqNTkigfv
Spanish energy group Repsol has gone even further than Shell, by quadrupling its profits in the last quarter.
Repsol reported adjusted net income of €2.12bn in the second quarter of 2022, up from €488m in April-June 2021.
Earnings were boosted by the surge in oil and gas prices, and higher profits from refining and trading.
Chief executive Josu Jon Imaz adds:
“The world is facing a very complex and volatile environment triggered by the disruptions generated by the Russian invasion of Ukraine. We have seen rising concerns about the security of supply generating higher commodity prices.
Under this environment, the efficient operation of our assets, the delivery of energy to our clients in a reliable and affordable way together with guaranteeing the security of supply are our main priorities.”
Consumer activity decreased last week, the ONS adds.
Its latest data shows that UK credit and debit card purchases fell 2 percentage points, while “park” visits decreased by 7%, following the end of the period of exceptionally warm weather across the UK.
There were falls in the number of transactions across most Pret A Manger locations, although sales rose at London airports as people set off on holiday.
Consumer behaviour indicators mostly showed decreased activity:
— Office for National Statistics (ONS) (@ONS) July 28, 2022
💳 UK credit and debit card purchases decreased by 2 percentage points
🌳 Visits to parks fell by 7%
🥪@Pret transactions decreased in all locations apart from London airports
Spending on motor fuel jumped, as drivers fuelled up to drive to UK holiday sites.
We’ve published the latest economic activity and social change data https://t.co/14BmQbE7lQ@RevolutApp data showed card spending on automotive fuel had increased by 14 percentage points from the previous week ⛽
— Office for National Statistics (ONS) (@ONS) July 28, 2022
Rising costs and soaring energy bills are the biggest worry for UK businesses.
The Office for National Statistics’s latest real-time data on the UK economy has found that: 26% of businesses reported input price inflation as their main concern, and 20% reported energy prices.
The percentage of businesses reporting no concerns was down from 24% last month to 21%, showing that inflationary pressures are broadening.
One fifth of firms with at least 10 employees were hit by global supply chain disruption last month, while 16% of companies had to change suppliers or find alternative solutions to get the materials, goods or services they needed.
Latest from the Business Insights and Conditions Survey (11 to 24 July 2022) https://t.co/52Ie6df4E5
— Office for National Statistics (ONS) (@ONS) July 28, 2022
Of businesses not permanently stopped trading :
▪️ 26% reported input price inflation
▪️ 20% reported energy prices
as their main concerns for August 2022. pic.twitter.com/tmUZrqXppO
Full story: Shell posts £10bn quarterly profits as households struggle with bills
Shell made record profits of nearly £10bn between April and June and promised to give shareholders payouts worth £6.5bn as the oil supermajor benefited from the surge in energy prices prompted by Russia’s invasion of Ukraine, my colleague Jasper Jolly reports.
The FTSE 100 company made adjusted profits of $11.5bn (£9.5bn) during the second quarter of the year, beating its previous high – set between January and March – by 26%. The profits were more than double the same period in 2021, and higher than expected by analysts.
It has been a period of roaring trade for Shell and other major oil and gas companies, in contrast to struggling households and much of the rest of the economy. Higher energy prices have caused inflation to soar to 40-year highs in the UK and elsewhere, and which threaten to tip economies into recessions across much of the world.
The scale of the oil companies’ profits prompted the UK government to eventually give in to demands for a windfall tax to redistribute some of the profits, although some senior Conservative ministers are thought to favour removing the tax, amid a leadership campaign that will lead to a new prime minister and cabinet in September.
The windfall tax – known as the energy profits levy – will not apply until 14 July, meaning the second-quarter profits and payouts to shareholders were not affected.
AA: record fuel prices force motorists to cut back
Record pump prices forced almost two-thirds of UK motorists to drive less or slash spending on other items, a survey from the AA shows.
The motoring body says that 64% of drivers cut back on car use, other consumer spending or both in early July, as they struggled to afford to keep their cars running.
That’s up from 43% last November, early in the cost of living squeeze, when petrol was around 45p a litre cheaper.
Most drivers have been cutting out short journeys, the AA estimates, as petrol soared to almost £2 per litre on average.
It says:
The AA believes that, from the disruption and trauma of three waves of fuel supply disruption between September and April, there emerged a silver lining: drivers learnt how to make their fuel go further without cutting essential journeys.
Worryingly, a quarter of younger drivers have run up debt or turned to family or friends for help coping with fuel costs, the AA adds.
FT: West London faces new homes ban as electricity grid hits capacity
The UK’s stretched electricity grid could lead to delays and bans on new housing projects in West London.
Developers in west London face a potential ban on new housing projects until 2035, the Financial Times reports today, because the electricity grid has run out of capacity to support new homes.
One issue is that data centres in the region are sucking up so much power, as they plug into transatlantic high-speed fibre lines running west from London to Slough, then across the Atlantic.
Here’s the details from the FT:
The Greater London Authority wrote to developers this week warning them that it might take more than a decade to bulk up grid capacity and get developments under way again in three west London boroughs — Hillingdon, Ealing and Hounslow.
In those boroughs, “major new applicants to the distribution network . . . including housing developments, commercial premises and industrial activities will have to wait several years to receive new electricity connections,” according to the GLA’s note, which has been seen by the Financial Times.
A recent applicant to the distribution network was told that there is not “sufficient electrical capacity for a new connection” until up to 2035, according to the note.
London is running out of electricity capacity because it's all being sucked up by data centres. Things are getting so bad that housebuilders in west London have been told they can't build new homes https://t.co/GVebb1vtaA pic.twitter.com/haBaP5breC
— Matthew Garrahan (@MattGarrahan) July 28, 2022
A ban on new housing projects could jeopardise house building targets in the capital, especially if it lasted into the 2030s.
Developers in west London boroughs — Hillingdon, Ealing & Hounslow face a potential ban on new housing projects until 2035 because the electricity grid has run out of capacity to support new homes, jeopardising house building targets in the capital @FT @GeorgeNHammond @sjhmorris pic.twitter.com/XmGPo5Dl87
— Emma Fildes (@emmafildes) July 28, 2022
Troubled French power company EDF has issued another profit warning, due to lower nuclear output.
EDF, which is being nationalised by France’s governent, made a net loss of €5.3bn in the first half of the year, compared with a €4.2bn profit a year ago.
Earnings were badly hit by a fall in EDF’s nuclear output due to stress corrosion problems at some reactors, which prevented it taking advantage of soaring energy prices.
The French goverment’s cap on energy price rises is costing EDF around €10bn, while hydropower output dropped due to low water levels.
Reuters has calculaed that EDF has now made four profit warnings this year, explaining:
Half its 56 nuclear reactors are currently offline due to planned maintenance and work to repair corrosion just as Europe faces an energy crisis.
EDF said on Thursday it now expects reduced electricity output to lower its 2022 core earnings by €24bn ($24.5bn), upping a forecast of €18.5bn made just two months ago.
Nuclear output in France fell by 15% in the first six months of the year, while drought and unusually low river levels meant hydroelectricity production declined by 23%.
The UK was a rare highlight for EDF, with earnings here more than tripling to €860m due to a rise in nuclear output.
EDF issues new profit warning after big H1 loss https://t.co/XaZORet4gw
— Reuters Commodities (@ReutersCommods) July 28, 2022
Telecoms group BT has posted a rise in revenues thanks to above-inflation price increases.
Revenues at BT rose 1% to £5.13bn in the three months to June 30th, after it raised its prices for consumers by 9.3% in April.
That lifted revenues at its consumer arm by 5%, with adjusted earnings 20% higher.
BT says its consumer division had a strong performance, including:
Revenue growth with improved fixed and mobile service revenues, now returning close to levels in the quarter before the start of the pandemic; this was helped by the annual contractual price rise in April and strong Sport revenues including the Fury-Whyte event.
But its Enterprise arm saw earnings fall 27%, due to ‘challenging’ conditions selling to large corporations.
Overall, BT’s pre-tax profits dropped 10%, although earnings were 2% higher on an adjusted basis. Shares have dropped 5.5% this morning.
The company is now bracing for tens of thousands of staff to go on strike for the first time in 35 years tomorrow.
Drinks giant Diageo is celebrating a surge in sales as hospitality firms reopened after pandemic lockdowns, and more people sampled expensive spirits.
Diageo’s net sales jumped up 21% in the year to 30 June, to almost £15.5bn.
This growth was due to continued recovery in sale to bars and restaurance, along with “resilient demand” from consumers buying drinks in shops and off-licences despite inflationary pressures.
Diageo also raised prices by “mid-single digits”, and benefitted from a shift to pricier spirits.
Diageo makes Johnnie Walker whiskey, Don Julio tequila, Smirnoff vodka and and Captain Morgan rum. It saw strong growth in “super-premium-plus brands, particularly scotch, tequila and Chinese white spirits”.
Ivan Menezes, Diageo’s chief executive, explains:
In a year of significant global supply chain disruption, our double-digit volume growth demonstrates the tremendous agility and resourcefulness of our teams. Our net sales growth was across categories.
We benefitted from the on-trade recovery, continued global premiumisation trends, with our super-premium-plus brands up 31%, and from price increases across our regions. I am particularly proud of the performance of Johnnie Walker, which delivered double-digit growth across all regions to surpass 21 million cases globally
British medical products maker Smith+Nephew has warned that inflation is eating into its profits, sending its shares sliding 10%.
Smith+Nephew makes hip and knee replacements and advanced wound treatments.
The FTSE 100-listed company told the City that annual profit margins will fall this year, due to continued surge in inflation and supply chain challenges.
We have released our second quarter and first half 2022 #results. Full details here: https://t.co/kzD60W0sro#tradingupdate #quarterlyresults pic.twitter.com/e11W8TbKdb
— Smith+Nephew (@SmithNephewPLC) July 28, 2022
In an extremely busy morning for corporate news, Barclays has revealed a 40% slump in profits after putting aside £1.5bn to cover a US trading blunder and potential customer loan defaults.
Pre-tax profits tumbled between April and June – from £2.5bn a year earlier to £1.5bn – falling short of the analysts’ consensus forecast of £1.6bn.
The lender was knocked by a jump in conduct costs, which surged to £1.3bn from £143m a year earlier, after it was forced to start the process of buying back US securities that it had not been authorised to sell.
Some of that money has been put aside to deal with the potential fine expected to be levied by US regulators over the error.
Here’s the full story:
Consumer goods giant Nestlé has joined rivals such as Unilever, Reckitt Benckiser and Heinz Kraft by hiking its prices, boosting sales despite the cost of living squeeze.
The Kit-Kat-to-pet food manufacturer raised its prices by 6.5% in the first half of this year. Sales volumes grew 1.7%, as customers continued to buy products such as Purina pet food and coffee at those higher prices.
Nestlé has now lifted its sales forecasts for the year to 7-8%, from 5%, as demand for pricier branded goods holds up.
But it also saw operating profit margins dip, due to rising input costs such as more expensive ingredients.
Updated
France’s TotalEnergies has also reported record earnings, on the back of soaring crude oil and gas prices, and soaring demand for natural gas in Europe.
Second-quarter adjusted net income rose to $9.8bnfrom $3.46bn a year earlier, beating the analysts’ estimates.
TotalEnergies, like Shell, is extending its share buyback programme into the third quarte of the year, meaning investors will continue to benefit from the energy price crunch.
British Gas owner Centrica's profits have increased five-fold to £1.34bn, as household energy bills soar.
— TalkTV (@TalkTV) July 28, 2022
Former Energy UK chief Angela Knight: "There is a big question mark over those making extraordinary profits from an extraordinary world situation."@JuliaHB1 | #TalkTV pic.twitter.com/85IsSOBOVH
The National Grid is warning today that the UK energy market faces “risks and uncertainties this winter”, due to the squeeze on Europe’s gas reserves as Russia limits supplies.
But National Grid also believes the lights will stay on, as my colleague Rob Davies explains:
Coal power plants could be paid to generate more electricity, with consumers and businesses paid to use less, as the UK hunkers down for a winter of gas shortfalls across Europe caused by the standoff with Russia over the war in Ukraine.
In its early outlook forecasting Britain’s ability to keep the lights on over winter, the National Grid admitted there could be “tight periods” in early December, which would trigger a call for power plants to ramp up generation.
While the grid expects to be able to maintain the buffer that prevents blackouts, it issued a warning about the potential impact of a shortfall in Russian gas supply into Europe.
British Gas sets aside more money for bad debts
Centrica’s British Gas division has added over 200,000 customers so far this year, as the energy crisis forced some rivals went out of business.
Residential energy customers rose to 7.464m at the end of June, from 7.26m a year ago.
That includes 158,000 new accounts from Together Energy, who were switched to British Gas in January after Together collapsed.
Another 46,000 customers moved to British Gas during the period, even though the current price cap is the cheapest deal on the market (so there’s less incentive for customers to switch).
British Gas Energy has also set aside anoter £63m to cover bad debts, recognising that more customers will struggle to pay their bills - with the price cap set to jump in October, and again in January.
Updated
Centrica profits soar in 'most challenging energy crisis in living memory'
Profits have soared at British Gas’s parent company too, thanks to higher revenues from its oil, gas and nuclear assets, and the surge in commodity prices.
Centrica has reported adjusted operating profits of $1.34bn for the first half of this year, up from £262m in January-June 2021.
The increase in adjusted operating profit was primarily driven by the Upstream businesses, reflecting strong production and generation volumes and the impact of higher commodity prices.
Additionally, Energy Marketing & Trading managed the more volatile commodity price environment well and delivered higher adjusted operating profit
Centrica has reinstated its dividend, which it suspended after the Covid-19 pandemic began in 2020.
Chief executive Chris O’Shea says we are facing the most challenging energy crisis in living memory:
We’ve made significant progress de-risking the Group and building a stronger business for the benefit of all stakeholders.
This strength has allowed us to lead the industry in measures to protect and support customers through the most challenging energy crisis in living memory and the benefit of our balanced portfolio can be seen in our first half performance. We expect this to continue into the second half, underpinning continued investment in customer service and elsewhere in our portfolio.
Centrica was also boosted by asset sales, having sold Spirit Energy’s Norwegian and Statfjord UK oil and gas assets this year ( but did make a statutory loss of £1bn due to accounting remeasurements).
Centrica insists it is “very aware” of the impact of soaring bills and wider inflationary pressures on customers, and is investing over £100m in customer service, support and pricing over 2022.
British Gas Energy is also hiring 500 more customer service staff to handle higher call volumes from customers struggling to pay their bills.
Centrica boss Chris O'Shea defends soaring half year profits to £1.34 billion and restarting dividends while its customers face terrible winter. Says profit jump not driven by consumer business and has to balance all stakeholders, incl individual pensioners that rely on dividend
— Ashley Armstrong (@AArmstrong_says) July 28, 2022
Updated
Here’s some early analysis of Shell’s results, from Stuart Lamont, investment manager at Brewin Dolphin:
“The strong oil price backdrop has helped Shell deliver a blockbuster set of results. The dividend may have remained the same, but the share buyback programme is positive news for shareholders.
Many investors questioned the well-known ‘never sell Shell’ mantra during the worst of the pandemic and the company’s subsequent dividend cut, but with a path to net zero and attractive returns Shell is in a strong position – albeit, political risk remains high as elevated energy costs hit households.”
Shares in Shell have risen almost 1% in early trading, to a three-week high, after it beat profit forecasts.
So far this year, Shell’s shares have surged over 30%.
Shell's refining profit margins triple
Shell’s refining profit margins almost tripled in the last quarter, to $28 per barrel of oil.
That’s up from a refining margin of $10 per barrel in the first three months of this year.
Shell says these higher refining margins reflect “the dislocation in product markets, particularly middle distillates”.
Middle distillates are refined from crude oil, and include heating oil, diesel and jet fuel.
Fuel retailers have blamed profiteering by refining companies for the record prices on forecourts this year. And earlier this month, the UK’s competition watchdog raised concerns over the margins made by refineries.
Here’s Reuters take on Shell’s results:
Refining profit margins tripled in the quarter to $28 per barrel.
They have weakened substantially in recent weeks amid signs of easing gasoline demand in the United States and Asia.
Shell said its refinery utilization would increase to 90-98% in the third quarter, compared with 84% in the second quarter.
Shell’s integrated gas division made adjusted earnings of $3.75bn in the last quarter, more than double the $1.6bn in Q2 2021.
That’s slightly lower than the January-March quarter, when the division - which includes liquefied natural gas (LNG) - made $4bn.
Shell says gas earnings this year were boosted by “higher realised prices and higher trading and optimisation results”.
Shell says it distributed a total of $7.4bn to its shareholders in the last quarter.
It will pay a dividend of $0.25 per share for Q2, which will be worth around $1.8bn to its investors, I think.
But it has also conducted an $8.5bn share buyback programme during 2022 (which pushes up its share price), and will conduct a new $6bn programme this quarter.
Given the current energy sector outlook, Shell says, shareholder distributions are expected to remain “in excess of 30% of cash flow from operating activities”.
Introduction: Shell reports record profit of $11.5 billion
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
Oil giant Shell has doubled its profits in the last quarter, thanks to the surge in energy prices since the Ukraine war began which are hammering households and businesses.
Shell has reported record adjusted earnings of $11.47bn (£9.4bn) for the last quarter, up from $5.5bn in April-June 2021, as it benefitted from higher realised prices, higher refining margins, and stronger gas and power trading.
That smashes Shell’s record quarterly profit of $9.1bn racked up in January-March, and above analyst forecasts.
Shell says it made a “strong performance in a turbulent economic environment”.
Shell’s chief executive officer, Ben van Beurden, says:
“With volatile energy markets and the ongoing need for action to tackle climate change, 2022 continues to present huge challenges for consumers, governments, and companies alike.
Consequently, we are using our financial strength to invest in secure energy supplies which the world needs today, taking real, bold steps to cut carbon emissions, and transforming our company for a low-carbon energy future.
But the company will also funnel more cash to investors, announcing a share buyback programme of $6bn in the third quarter.
Shell's profits hit a new all-time high of $11.5 billion in the second quarter, more than double the same period a year earlier. It's using the cash to launch a $6 billion share buyback
— Emily Gosden (@emilygosden) July 28, 2022
And with gas prices at their highest level since the Ukraine war began, the UK’s energy price cap could hit £3,850 per year in January.
Benchmark wholesale natural gas prices for Britain and the Netherlands, the ICIS NBP and ICIS TTF, have rallied as Russia’s Gazprom has cut flows via Nord Stream to 20% capacity.
— Tom Marzec-Manser (@tmarzecmanser) July 27, 2022
The Dutch price is up more than 10x the average in 2019.@ICISOfficial #NBP #TTF #natgas pic.twitter.com/aWbUEo97zk
BFY Group, a utilities consultancy, warns that more vulnerable households, on prepayment meters, could see energy bills of £500 for the month of January alone.
Consumers were also warned that annual charges of more than £3,500 a year, or £300 a month, could become the norm “well into 2024”.
This is really, really bad. Still don't think people are grasping how bad.
— Rob Davies (@ByRobDavies) July 27, 2022
£300-a-month average energy bills until "well into" 2024 is a disaster.https://t.co/lCbKfp7Lav
The grim forecasts came a day after MPs said millions of people would fall into “unmanageable debt” without more government help to pay bills, following a surge in wholesale gas prices to near-record levels.
Thursday's Guardian: “Unions issue general strike threat as rail crisis grows” #BBCPapers #TomorrowsPapersToday https://t.co/7FuHsAa3Vz pic.twitter.com/dXbts1E39M
— BBC News (UK) (@BBCNews) July 27, 2022
Thursday's front page: SHOCKING#TomorrowsPapersTodayhttps://t.co/nsA0CXJEiW pic.twitter.com/txUYNSSfE3
— The Mirror (@DailyMirror) July 27, 2022
Also coming up today
We find out today if the world’s largest economy is shrinking. when US GDP for the second quarter is released.
Some analysts predict US economic activity fell for the second quarter in a row, which would be a technical recession.
On July 27, the #GDPNow model nowcast of real GDP growth in Q22022 is -1.2%. https://t.co/T7FoDdgYos #ATLFedResearch Download our EconomyNow app or go to our website for the latest GDPNow nowcast. https://t.co/NOSwMl7Jms pic.twitter.com/oMg171agqi
— Atlanta Fed (@AtlantaFed) July 27, 2022
European stock markets are expected to rise, despite the US central bank announcing another hefty interest rate rise last night.
The Federal Reserve made its second 0.75 percentage-point rise in a row, as it rattles through its most aggressive cycle of monetary tightening since 1981, but it also suggested it could slow the pace of increases, if inflation eases.
The agenda
- 9.30am BST: Weekly UK economic and business activity data
- 10am BST: Eurozone economic, business and consumer confidence report
- 1pm BST: German inflation rate for July
- 1.30pm BST: US Q2 GDP report
- 1.30pm BST: US weekly jobless
Updated
