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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Inflation pressures hit consumer confidence; Moscow stock market falls back – as it happened

United Kingdom Vladimir Putin Ukraine United States EC Russia Gazprom Kremlin Moscow RollsRoyce
A Sainsbury's supermarket in Walthamstow, east London.
A Sainsbury's supermarket in Walthamstow, east London. Photograph: Tolga Akmen/AFP/Getty Images

Closing post

Time to wrap up - here are today’s main stories:

Goodnight. GW

Back on the cost of living crisis, UK farmers are warning that milk production is starting to fall as sharp rises in cost of fuel, feed, and fertiliser outstrip increases in farm-gate prices.

My colleague Zoe Wood reports:

“Something has to give and if the milk price doesn’t give, then the producers will,” says Oxfordshire dairy farmer David Christensen in a stark assessment of the peril his industry is facing as soaring costs push farm finances into the red.

Christensen, whose family business manages a herd of about 1,000 cows, says costs were already going up as a result of the upheaval caused by the pandemic and Brexit, but the war in Ukraine has “turbocharged inflation to levels the like of which I’ve never seen in 30 years of farming”.

He is a member of Arla, Britain’s largest dairy co-operative, which has sounded the alarm as the financial squeeze forces UK milk production to fall – a trend that could threaten future milk supplies.

Ash Amirahmadi, the managing director of Arla Foods UK, said producing fresh milk had for some time been delivering “little to no profitability for farmers” but the situation was now acute as the Ukraine crisis stoked farm cost inflation.

Rolls-Royce shares jumps in late trading

Shares in UK engineeering group Rolls-Royce surged in late trading in London, finishing 19% higher as the top FTSE 100 riser.

The late rally in Rolls-Royce shares came after the Betaville website, which covers deals news and gossip, reported speculation that the aerospace and defence group could soon be involved in a significant corporate transaction - such as a merger or even a takeover offer.

As Seeking Alpha explains:

Rolls-Royce spikes after a Betaville “uncooked alert” says the company may be involved in a “significant corporate transaction” that could include a merger or takeover deal.

According to the Betaville blog post, an unidentified suitor may be in the early stages of considering a combination with Rolls-Royce.

The post is billed as an ‘uncooked alert’, which is defined as “Market gossip as Betaville receives it”.

It seems to have been the catalyst for the share price jump into the close of trading.

The Rolls-Royce share price today
The Rolls-Royce share price today Photograph: Refinitiv

A Rolls-Royce spokesperson tells us: “we do not comment on rumour and speculation”.

The FTSE 100 ended 16 points higher, up 0.2% at 7483 points.

Market close

European stock markets have ended a choppy week with some modest gains.

The pan-European Stoxx 600 closed 0.1% higher, but was 0.2% lower for the week.

Germany’s DAX gained 0.2%, and Italy’s FISE MIB rose 0.6%, with the US-EU deal to cut dependency on Russian gas providing some relief.

Craig Erlam, senior market analyst at OANDA, says the markets are “broadly in consolidation” at present.

We appear to have hit a point in which the initial shock of the Ukraine invasion has passed and markets have corrected back to a point where the economic risks are deemed to be priced in. In the absence of any significant developments, equity markets have come to a relative standstill and could remain that way until we see some progress.

Volatility remains in the commodity space which is contributing to the day-to-day fluctuations in equity markets. Higher commodity prices mean a further squeeze on the global economy this year and more inflation at a time when central banks are already accelerating tightening plans after falling behind the curve.

Oil has reversed its earlier losses after an attack on one of Saudi Arabia’s state-run oil company Aramco’s storage facilities.

AP explains:

A raging fire erupted Friday at an oil depot in Jiddah ahead of a Formula One race in the Saudi city. Yemen’s Houthi rebels claimed it was an attack by the group among a barrage of others.

While Saudi Arabia and its state-run oil behemoth Saudi Aramco did not immediately acknowledge the blaze, it was centered on the same fuel depot that the Houthis had attacked in recent days.

Brent crude is now up 1% at $120 per barrel, having dipped towards $115 earlier.

Updated

Jewellery group Tiffany’s has said it will stop buying new diamonds mined in Russia.

The move follows pressure on the jewellery industry to cut ties with Russia following the Ukraine war.

But, as Bloomberg’s Jeannette Neumann, explains here, there are some caveats.

Moscow stock market slides on second day after reopening

A board with the logo of the Moscow Exchange in downtown Moscow, Russia

The Russian stock market fell back today, wiping out much of Thursday’s rally when the exchange reopened for the first time in almost a month.

The Moex share index slid by 3.66% today, with every sector in the red, having gained 4.4% yesterday.

Limited stock trading resumed yesterday with several restrictions to prop up shares, including a ban on short-selling, and on foreign investors selling stocks. That helped to spark a rally yesterday, when oil and commodity stocks jumped.

Analysts have pointed out that these curbs meant Moscow’s market wasn’t operating properly, while the US dubbed it a “Potemkin market opening”.

Russia’s MOEX stock index
Russia’s MOEX stock index this year Photograph: Refinitiv

But despite these measures, airline Aeroflot shed another 18% today, on top of Thursday’s 16% drop. Sanctions have barred its jets from EU and UK airspace.

Gas giant Gazprom fell 12%, after the US and EC agreed a deal to cut Europe’s dependency on Russian gas.

Steel giant Severstal fell 9%, with reports that sanctions were holding up a loan payment to ite creditors, putting it on the verge of default.

Before Thursday, stocks had not traded on Moscow’s exchange since February 25, the day after Putin sent thousands of troops into Ukraine.

The move prompted Western sanctions aimed at isolating Russia economically, which are driving the country into a deep recession.

The rouble-denominated Moex is now down 34% so far this year, having plunged when the invasion began in February before trading was suspended. In dollar terms, it’s almost halved.

Dmitry Polevoy, an analyst at Locko-Invest in Moscow, told Bloomberg:

“Yesterday, the main theme was hot money searching for tactical buying.

Today, we see some selling plus more activity from people who stayed aside yesterday seem to be driving the move.”

“Price-discovery will take time as it is hard to correctly assess new fair prices. The sanctions story is still open-ended.”

With the slump in the rouble driving up prices, some investors may be looking to stocks as a hedge against inflation.

Updated

Inflation worries drive US consumer confidence to 11-year low

US consumer confidence has fallen to its lowest level in 11 years, as worries about inflation and the Ukraine war mount.

The University of Michigan’s consumer sentiment report found that confidence declined in March due to falling real incomes, which recently accelerated as fuel prices rose sharply.

The index fell to 59.4 this month, down from 62.8 in February and 84.9 last March. That’s slightly worse than the preliminary estimate of 59.7 earlier this month.

The year-ahead expected inflation rate rose to its highest level since 1981 and expected gasoline prices posted their largest monthly upward surge in decades. Personal finances were expected to worsen in the year ahead by the largest proportion since the surveys started in the mid-1940s.

University of Michigan economist Richard Curtin, director of the surveys, says:

Just when difficult decisions need to be made about monetary and fiscal policies, consumers have expressed loss in confidence in government economic policies.

Moreover, most consumers are uncertain about the ultimate impact Putin’s war will have on their personal economic situation.

US home sales fell last month, as rising mortgage rates and low availability of properties hit the sector.

Pending home sales (signed contracts to buy existing homes), fell 4.1% in February, the fourth monthly drop in a row.

That suggests the market has cooled ahead of the spring sellin season, with mortgage rates have risen as the markets anticipated a flurry of interest rate rises this year.

In New York, stocks have opened a little higher with the benchmark S&P 500 gaining 0.2%, or 9 points, to 4,529.

There’s more action in the bond market, where the yield (or interest rate) on 10-year U.S. Treasury bonds have hit a fresh two-year high.

That shows investors are anticipating a more aggressive path of interest rate rises from the Federal Reserve, to try to curb inflation.

The 10-year yield has hit 2.475%, its highest level since May 2019, as traders sell the bond (yields rise when bond prices fall).

Berenberg: UK and eurozone heading for bad Q2 after Ukraine war shock

German bank Berenberg has predicted that the UK economy will stagnate over the next quarter, or worse, as the shock of the Ukraine invasion hits growth.

Berenberg have also cut their forecast for eurozone growth, pointing to the tumble in UK consumer confidence and business expectations.

Although initial measures of activity for March, such as the PMI reports, have been stronger than expected, forward-looking confidence indicators point to trouble ahead, Berenberg says:

Due to the shock of a major European war and a surge in inflation, consumer confidence and business expectations are flashing red, having plunged to levels only witnessed during the great financial and euro crises, and the early phase of the pandemic.

Amid unusually high uncertainty, we now expect UK real GDP to flatline in Q2, instead of growing by 0.1% qoq, and Eurozone GDP to expand by just 0.2% qoq, instead of 0.6%.

The risks to our new Q2 calls remain tilted to the downside.

Consumer confidence and business expectations

Berenberg predict that the shock to confidence will lessen from May, when we may have more clarity about the outcome of the Ukraine war and any further sanctions on Russia.

But inflation is expected to stay very elevated until late-2022 as rising food prices initially offset a gradual fall in oil prices – from $120 per barrel, towards $90 by early 2023.

And there is also a danger that Europe’s economy could suffer stagnation, or even a modest contraction, that lasts beyond the initial shock in Q2.

Berenberg say this scenario is unlikely, but clearly not impossible.

As any EU embargo on imports of Russian oil and gas would probably hurt more in winter when energy demand peaks, any rebound in economic activity during Q3 could be short-lived.

In a worst-case scenario (15% risk), Europe could face a period of de facto stagflation during 2022, where real GDP stagnates, or even falls modestly, and inflation surges by even more than expected.

That could delay any robust rebound until early 2023 when energy demand starts to moderate and Europe manages to secure sufficient energy supplies from non-Russian producers

Full story: Biden and EU agree landmark gas deal to break Kremlin’s hold

Joe Biden has agreed a landmark energy supply deal with the EU under which the US will increase transatlantic gas deliveries, in the hope of weakening the power the Kremlin wields thanks to its natural resources.

Speaking in Brussels after the deal was agreed on Friday, the US president said Vladimir Putin exploited Russia’s status as Europe’s main supplier of gas to “coerce and manipulate his neighbours” and that the proceeds of gas and oil sales “drive his war machine”.

He said the partnership with the EU (see earlier post) would strip Putin of that weapon by reducing Europe’s dependence on Russian energy, as well as the continent’s overall gas demand.

Under the plan, the US and other nations will increase exports of seaborne liquefied natural gas (LNG) to Europe by 15bn cubic metres this year. Even larger shipment volumes would be delivered in the future, he promised.

Reuters: Gazprom has 4 days to work out rouble payments for gas exports, Kremlin says

Russian President Vladimir Putin has ordered Gazprom to accept payment in roubles for its natural gas exports to Europe, Reuters reports.

The gas behemoth has four days left to work out how to move over billions of dollars in sales, the Kremlin said.

After the West imposed sanctions on Russia over the conflict in Ukraine, Putin on Wednesday fired the first major salvo of Moscow’s response to what the Kremlin casts as a declaration of economic war against the world’s biggest nuclear power.

Putin said that Russia, which supplies 40% of Europe’s gas, would expect payment for natural gas in roubles, one of the sharpest turns in Russian energy politics since the Soviets built gas pipelines to Europe from Siberia in the early 1970s.

It is also a potential headache for Gazprom, the world’s biggest natural gas company by reserves.

“There is an instruction to Gazprom from the president of the Russian Federation to accept payments in roubles,” Kremlin spokesperson Dmitry Peskov told reporters.

Peskov said that Gazprom, a company so powerful in Russia that it is considered to be “a state within a state”, had four days left to work out a system for rouble payment.

“This information will be brought to the purchasers of Gazprom products,” Peskov said.

Here’s the full story: Gazprom has 4 days to work out rouble payments for gas exports - Kremlin says

Yesterday, the leaders of Germany and Italy said that Russia’s demand that “unfriendly” countries use roubles to buy its oil and gas could breach supply contracts. The executive director of the IEA, Fatih Birol, called a “security threat”.

Updated

The UK car sector had a tough February, with shortages of semiconductors continuing to limit production of cars and engines.

UK engine production fell by over 30% year-on-year last month, to 117,551 units, trade body SMMT reports, taking engine output so far this year down almost a quarter.

Mike Hawes, SMMT Chief Executive, said,

“February’s engine production figures further highlight the challenging start to the year for manufacturers. With new pressures arising from soaring energy costs, as well as the continued impact of the global semiconductor shortage, the UK’s competitiveness is at risk.

We need urgent action to alleviate business costs for manufacturers and encourage the investment needed to futureproof the sector and the skilled jobs it creates as the industry transitions to new technologies.”

Overall UK car production was down 41% year-on-year, the eighth monthly fall in a row.

Output of commercial vehicles jumped 92%, but that was compared to the worst February on record last year, when supply chain shortages, new customs processes and prolonged lockdown measures all hit the sector.

Here’s a round-up of reaction to the unexpected 0.3% drop in UK retail sales last month:

Karl Thompson, Economist at CEBR:

Retail sales volumes unexpectedly fell in February, despite the easing of the Omicron wave and the lifting of all remaining restrictions at the end of the month. Non-store retailing saw the sharpest monthly fall, with a contraction also seen in food store sales volumes.

Despite some evidence of consumer activity shifting away from online shopping and toward in-person retail and non-retail environments, price rises in excess of earnings growth are now eroding consumer spending power overall. The squeeze on household budgets is set to worsen over the coming months, exerting further downward pressure on retail sales.”

Bethany Beckett of Capital Economics:

The small fall in retail sales in February probably had more to do with the shift back towards non-retail spending and the impact of Storm Eunice than it did the cost of living crisis.

But, with further rises in inflation and interest rates looking likely, we are downbeat on the outlook for overall spending this year.

Karen Johnson, Head of Retail & Wholesale at Barclays Corporate Banking:

“February saw Covid restrictions lifted and the mass return of workers to their offices. This led to notable increases in spending on clothing (as people kitted out their new wardrobes), and furniture (as customers returned to showrooms with the confidence to both try products and make purchases).

It also led to a reduction in the proportion of sales being made online versus last year, and suggests the industry has now come to the other side of its pandemic-driven ‘bounce’ in online spend.”

In the markets, European stock are ending the week with gains.

In London, the FTSE 100 is up 0.3% at 7491 points, around its levels before the Ukraine invasion began.

The blue-chip index is on track for its third weekly rise in a row, as it continued to recover from its plunge early in the war. But housebuilders are down around 3%, after JP Morgan lowered its price targets.

Germany’s DAX and France’s CAC are both up around 0.8%. Oil prices have dropped around 2%, after the EU didn’t agree any new sanctions on Russian oil this week.

European stock markets, March 25 2022
European stock markets, March 25 2022 Photograph: Refinitiv

Raffi Boyadjian, lead investment analyst at XM, explains:

With inflation rates around the world skyrocketing amid the surge in most key commodity and raw material prices, the EU’s decision not to add to its long list of sanctions against Moscow has offered some respite to the markets. There is a growing fear of recession, not just in the euro area but globally too, the longer these price spikes last and the more amplified they become.

NATO is doing everything it can to support Ukraine without getting itself entangled in a direct military confrontation with Russia. But the downside of that is a potentially long drawn-out war and subsequently, a prolonged market fallout.

Oil prices pulled back yesterday after hitting two-week highs as no new significant economic measures were announced by the US or the EU. WTI and Brent futures were extending their declines today, sliding by more than 2%.

Updated

Billionaire Sir Christopher Hohn has urged shareholders to vote against bank directors who lobby against climate action while making net-zero promises, saying this was greenwashing”

Our environment reporter Helena Horton explains:

The hedge fund manager, who once had Britain’s highest salary at £1m a day, made headlines when he donated £50,000 to climate activist group Extinction Rebellion.

Hohn, who was once Rishi Sunak’s boss at hedge fund TCI, is also one of the nation’s biggest philanthropists, and has pumped billions into his own charity, The Children’s Investment Fund Foundation.

He said: “Any bank making a net zero promise while actively lobbying against necessary climate regulation – such as mandatory disclosure of borrowers’ emissions and climate action plans – is greenwashing. Shareholders should vote against the directors of banks who are hiding their exposure to climate risk.”

AA: less than half of fuel duty cut passed on at the pumps so far

Less than half of the 5p per litre cut to fuel duty announced in Wednesday’s spring statement had been passed onto motorists yesterday.

The AA reports that petrol prices at the pumps were down just 2.71p per litre on average on Thursday, with diesel only 1.59p cheaper.

On Tuesday, petrol and diesel pump prices had jumped to new records yet again, at 167.30p and 179.72p a litre respectively. Yesterday, petrol averaged 164.59p a litre and diesel 178.13p.

The fuel duty cut (which is worth 6p/litre once you include VAT) began at 6pm on Wednesday night, just a few hours after Rishi Sunak’s statement [the chancellor then visited a Sainsbury’s petrol forecourt to fuel someone else’s car]

Luke Bosdet, the AA’s fuel price spokesman, says it’s ‘very disappointing’ that prices didn’t drop faster.

“The Chancellor rode to the rescue of drivers on Wednesday and even before the 6pm start of the fuel duty cut drivers were reporting the price cut at some Asda forecourts.

“Although we have to accept that, for many forecourts, the duty cut comes through with the next delivery of fuel, the size of the fall is very disappointing. I expect the Government will be watching very closely to see if pump prices reflect more of the fuel duty cut over the weekend.”

“The truth is that, while diesel wholesale costs have been climbing, petrol’s have fallen substantially since the peaks of 7/8 March. That should have brought a further 6p-a-litre cut in pump prices, effectively doubling the saving from the fuel duty cut.

“For now, the message to drivers is clear: head to the cheaper forecourts – you can’t miss them.”

The Petrol Retailers Association warned on Wednesday that retailers’ current petrol and diesel stocks had been purchased before the duty cut came in.

Gordon Balmer, Executive Director of the PRA, explained:

Retailers are holding duty-paid stock which will be sold before the fuel duty cuts come in. To give the motorist an immediate discount at the pumps, the Chancellor would have to backdate the fuel duty cut to 1 March,”

German business confidence tumbles as Ukraine war hits economy

Business confidence in Germany has tumbled this month, as the Ukraine war hammers the economic outlook for Europe’s largest economy.

The Ifo research institute reports that “sentiment in the German economy has collapsed” since the war in Ukraine began. Its Business Climate Index has fallen to 90.8 points in March, down from 98.5 points in February.

Ther was a record collapse in expectations of 13.3 points (even worse than the 11.8 drop in March 2020, when the pandemic hit), as companies face the economic implications of the conflict, such as high energy prices and supply chain problems.

Here’s the details:

In manufacturing, the index fell faster than ever before. Companies’ expectations also saw a record drop, flipping from optimism to pronounced pessimism. Moreover, companies now rated their business outlook as extremely uncertain. Assessments of the current situation were also lower.

In the service sector, too, the business climate worsened notably. This was due to a conspicuous drop in expectations. The outlook for the coming months is particularly bleak in the logistics industry. In contrast, service providers left their assessments of the current situation practically unchanged.

In trade, the Business Climate Index crashed. The expectations indicator saw a record collapse. Assessments of the current situation, however, were almost unchanged and remain positive.

In construction, the business climate deteriorated significantly. This, too, was driven by considerably more pessimistic expectations. Assessments of the current situation also worsened, but a majority of construction companies are still satisfied with their current business.

Carsten Brzeski of ING says:

The risk is high that the economic implications of the war are much more of a structural game-changer for the European and particularly the German economy than the pandemic has ever been.

With high energy and commodity prices for a protracted period, possibly even energy supply interruptions, and an acceleration of deglobalisation, possibly Cold War 2.0, an export-oriented economy highly dependent on energy imports will suffer.

The risk of another contraction in the first quarter of the year and hence a technical recession is high, Brzeski adds.

IFO, though, suggest Germany could avoid recession this quarter (the economy shrank in Q4 2021).

Updated

US and EC agree deal to cut dependence on Russian gas

The United States and European Commission have agreed a new partnership to cut Europe’s reliance on Russian energy.

Under the plan, the US and partners will “strive” to deliver at least 15 billion cubic metres (bcm) of liquefied natural gas (LNG) to Europe this year, the White House says.

Even larger shipments would be delivered in the future, with both sides aiming to boost deliveries from the US to 50 bcm per year over time.

The pledge is part of a new Task Force agreed by President Joe Biden and European Commission president Ursula von der Leyen, to reduce Europe’s dependence on Russian fossil fuels and strengthen European energy security.

The White House says:

It will work to ensure energy security for Ukraine and the EU in preparation for next winter and the following one while supporting the EU’s goal to end its dependence on Russian fossil fuels.

The EC is aiming to cut EU dependency on Russian gas by two-thirds this year and end its reliance on Russian supplies of the fuel “well before 2030”, following Russia’s invasion of Ukraine.

At a joint press conference in Brussels, Von der Leyen said:

“We aim to reduce this dependency on Russian fossil fuels and get rid of it. This can only be achieved through... additional gas supplies, including LNG deliveries.

“We as Europeans want to diversify away from Russia towards suppliers that we trust, that are our friends, that are reliable.

In an attempt to keep climate goals on track, the new Task Force will try to reduce the greenhouse gas intensity of all new LNG infrastructure. That will include using clean energy to power onsite operations, reducing methane leakage, and building “clean and renewable hydrogen-ready infrastructure”.

The EC will also try to ensure demand for approximately 50 bcm/year of additional U.S. LNG until 2030.

The Commission says this will happen:

...on the understanding that the price formula of LNG supplies to the EU should reflect long-term market fundamentals, and stability of the cooperation of the demand and supply side, and that this growth be consistent with our shared net zero goals.

In particular, price formula should include consideration of Henry Hub Natural Gas Spot Price and other stabilising factors.

At the same time, the partnership will also attempt to cut demand for fossil fuels and greenhouse gas emissions.

The White House says:

Immediate reductions in gas demand can be achieved through energy efficiency solutions such as ramping up demand response devices, including smart thermostats, and deployment of heat pumps.

The US and EC will also work to speed up planning and approval for renewable energy projects and strategic energy cooperation on technologies such as offshore wind.

The EC says the Task Force will also:

  • Developing a strategy to accelerate workforce development to support the rapidly deployment of clean energy technologies, including an expansion of solar and wind.
  • Collaborating to advance the production and use of clean and renewable hydrogen to displace unabated fossil fuels and cut greenhouse gas emissions, including by investing in technology development and supporting infrastructure.

Petropavlovsk blocked from bond payment and gold sales after Gazprombank sanctioned

London-listed Russian gold miner Petropavlovsk has warned that it cannot sell gold to its main lender, Gazprombank, after the bank was sanctioned in the UK on Thursday.

Petropavlovsk is also blocked from making an interest payment to Gazprombank today due to sanctions, putting the company in turmoil.

Petropavlovsk told shareholders that it has a $200m loan with Gazprombank (GPB) -- under which it agrees to sells all its gold production to GPB.

Howwever, sanctions now prohibit it from selling any more gold to GPB at present.

Petropavlovsk adds that:

...restrictions on purchasing and selling gold in Russia may make it challenging to find an alternative purchaser for the Group’s gold output.

The company operates three gold mines in the far east of Russia, at Pioneer, Malomir and Albyn.

Petropavlovsk is due to make an interest payment of $560,000 today to GPB, but warns “the Company is currently prohibited from making such payment under the Regulations.”

The company is now “urgently considering” the implications for its activities and financing arrangements with its advisers.

Shares in Petropavlovsk have tumbled 21% this morning to 1.4p, and have slumped 90% since the Ukraine invasion began.

Shapps: P&O Ferries boss should quit after ‘brazen’ mass sackings

The transport secretary, Grant Shapps, has called for the chief executive of P&O Ferries to resign over the sacking of 800 workers and pledged to force the ferry company to reverse the move and pay its crew the minimum wage.

Peter Hebblethwaite admitted to MPs on Thursday that his company broke the law by sacking the 800 workers without consultation.

Shapps said Hebblethwaite performance in front of the transport and business committee was “brazen, breathtaking, and showed incredible arrogance”.

Speaking to Sky News, Shapps said:

“I cannot believe that he can stay in that role having admitted to deliberately going out and using a loophole – well break the law – but also use a loophole.

“They flagged their ships through Cyprus avoided having to tell anybody about this, or they felt they did. And even though they know they’ve broken the law, what they’ve done is to pay people off in such a way to try and buy their silence. It’s unacceptable.”

February’s drop in retail sales is a sign of things to come for retailers, warns Martin Beck, chief economic advisor to the EY ITEM Club:

“2022 has got off to a mixed start for retailers, and things will soon get tougher. Though covid cases have been on the rise again of late, this doesn’t appear to be discouraging consumers from engaging in social consumption activities.

A normalisation of spending patterns back towards activities such as eating out and going to the cinema is likely to mean less spending in the retail sector.

“This headwind will be compounded by the intensifying cost of living squeeze. The EY ITEM Club now expects inflation to average well over 6% this year and, with this week’s Spring Statement offering limited support, there is still likely to be the biggest squeeze on household finances for more than a decade. Some households may be able to dip into savings accumulated during the pandemic, but many won’t have that luxury. So, retail demand is likely to come under increasing pressure as we move through 2022.”

“After a buoyant January, retail sales fell back a little last month,” said Heather Bovill, ONS deputy director for surveys and economic indicators.

“There was a notable decline for companies that predominantly trade online, following a strong performance over the festive and new year period.”

If you strip out fuel sales, retail sales volumes fell by 0.7% last month.

With petrol prices at record levels, the increased demand for petrol and diesel would have left less for other spending.

The retail sales report also shows the impact of inflation. Although retail sales volumes were down 0.3% month-on-month in February, the amount spent rose by 0.7%. Customers spent more, to get less.

UK retail sales
UK retail sales Photograph: ONS

Petrol sales rose in February, as the lifting of Plan B restrictions in England at the end of January 2022 increased travel.

Automotive fuel sales volumes rose by 3.6% during the month, and were above their pre-coronavirus February 2020 levels for the first time, the ONS says.

UK petrol sales
UK petrol sales Photograph: ONS

UK retail sales

British retail sales fell 0.3% in February

Just in: British retail sales fell unexpectedly in February.

Online shopping dropped back towards pre-pandemic levels, winter storms kept people away from the high street, and spending at food and drink retailers dropped as customers returned to pubs and restaurants.

The Office for National Statistics reports that sales volumes were down by 0.3% month-on-month, below the 0.6% rise expected by economists.

Internet sales fell sharply -- non-store retailing sales volumes were down 4.8% over the month.

Sales volumes at food stores fell by 0.2% in February 2022, with large falls in alcohol and tobacco stores. This “may be linked to higher spending in pubs and restaurants as confidence increased in going out”, the ONS says.

Non-food stores sales volumes rose by 0.6% in February, though, with growth at clothing (13.2%) and department stores (1.3%).

That may be due to “wider socialising and the return to the office following the lifting of Plan B restrictions at the end of January”

But sales volumes at household goods stores dropped 2.5%, and “other non-food stores” dropped by 7%, with “some retailers suggesting the stormy weather during the month had impacted footfall”, the ONS says.

The UK was buffetted by three storms in February - Dudley, Eunice and Franklin.

February’s fall follows a 1.9% rise in retail sales volumes in January.

Introduction: UK consumer confidence nosedives amid cost of living crisis

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

UK consumer confidence has plummeted for a fourth month in a row as the Ukraine war, the surging cost of living, and the pandemic leave people facing a ‘wall of worry’.

GfK’s consumer sentiment index dropped by five points to minus 31 in March, levels last seen in October and November 2020.

With inflation at a 30-year high, and heading to 8% next month, people are much gloomier about their personal finances, and the general economic situation as the war in Ukraine continues.

UK consumer confidence report to March
UK consumer confidence report to March Photograph: GfK

Joe Staton, client strategy director at GfK, warns there is an “unmistakable sense of crisis in our numbers”.

Consumers across the UK are experiencing the impact of soaring living costs with 30-year-high levels of inflation, record-high fuel and food prices, a recent interest-rate hike and the prospect of more increases to come, and higher taxation too – all against a background of stagnant pay rises that cannot compensate for the financial duress. This is the fourth month in a row that UK consumer confidence has dropped.

“With a headline score of -31, we are at a level last seen in October and November 2020 when Covid numbers were rising. Confidence in our personal financial situation and in the wider economy are severely depressed while the daily news of unimaginable suffering from a horrifying war in Europe and rising COVID numbers at home is adding to the bleak mood. The outlook for consumer confidence is not good; it’s certain there’s more bad news to come.”

The forecast for personal finances over the next 12 months fell four points to -18 -- 28 points lower than this time last year.

Expectations for the general economic situation over the next year dropped by six points to -49; 32 points lower than March 2021.

Wednesday’s spring statement brought little help for those facing the toughest squeeze, with economists at the Resolution Foundation warning 1.3 million people will fall into absolute poverty next year.

The agenda

  • 7am GMT: UK retail sales for February
  • 9am GMT: Ifo index of Germany’s business climate for March
  • 2pm GMT: University of Michigan’s US consumer sentiment report for March

Updated

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According to an autopsy report following the rocker’s November 2024 passing, the cause of death of late My Chemical Romance drummer Bob Bryar has been ruled as undetermined.
BANG Premier
BANG Premier
McDonald’s reveals celebrities’ morning-after breakfast orders following the Oscars
Some of the celebrities included in the McDonalds orders are Colman Domingo, Kieran Culkin, and Keke Palmer
The Independent UK
The Independent UK
Meghan tells of ‘learning curve’ and finding herself ahead of new Netflix series
The duchess has given an interview to People magazine in which she admits there have been ‘tons of twists and turns’ with her new venture.
Evening Standard
Evening Standard
Carnival Cruise Line makes another ban very clear
The cruise line has very strict rules for what can be brought on its ships.
The Street
The Street
Protein popularity surge among Gen Zs sparks demand for cottage cheese and chicken
A national survey of 2,200 people by Savanta for Ocado Retail found nearly half of UK adults increased their protein intake in the past year, but that rose to two-thirds of all people aged 16 to 34
The Independent UK
The Independent UK
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