Closing summary
European stock markets are sliding, as investors digest the prospects of more aggressive rate hikes in the US and Europe, following comments from US Fed chair Jerome Powell and European Central Bank officials yesterday. Eurozone growth unexpectedly picked up in April while prices rose at a record rate, according to business surveys from S&P Global published today.
In London, the FTSE 100 index is down nearly 0.9% at 7,560, a 67 point loss, while the German, French and Italian markets have lost between 1.7% (Italy) and 1.9% (German). On Wall Street, the Dow Jones fell 350 points, or 1%, at the open, while the Nasdaq slipped 0.16% and the S&P 500 fell 0.75%.
The pound has tumbled to an 18-month low of 1.14% to $1.2878 against the dollar, and is down 1.06% to €1.1891 versus the euro. A sharp drop in British retail sales showed the impact of the cost of living crisis, driven by surging fuel and food prices.
Coupled with weaker PMI data for April and a slump in UK consumer confidence, the figures have led to expectations that the Bank of England will raise interest rates less aggressively.
Oil prices have fallen again, amid expectations of lower demand as the IMF slashed growth forecasts this week. Brent crude is down 1.4% to $106.73 a barrel while US light crude fell 1.7% to $102.08 a barrel.
The European Commission has urged citizens to drive less, turn their heating and air conditioning down and work from home three days a week, to reduce reliance on Russian oil and gas – and save households close to €500 on average.
Our other main stories today:
Thank you for reading. Have a lovely weekend! We’ll be back next week. – JK
Chris Williamson, chief business economist at S&P Global said:
Although still indicative of annualised GDP growth of approximately 3%, the April PMI surveys point to the upturn losing some momentum compared to the strong rebound seen in March, when services activity in particular had been buoyed by loosened pandemic restrictions in the US and abroad.
Many businesses continue to report a tailwind of pent up demand from the pandemic, but companies are also facing mounting challenges from rising inflation and the cost of living squeeze, as well as persistent supply chain delays and labor constraints.
These headwinds, plus increased concerns over the economic outlook and tightening monetary policy, meant business confidence about the outlook slipped sharply lower in April. However, with the overall pace of economic growth and hiring remaining relatively solid, for now the focus from a policy perspective is likely to remain firmly on the need to rein in the record high inflationary pressures signalled by the survey.
US business activity eases in April amid record inflation
The American economic recovery eased this month amid record inflationary pressures, according to the flash PMI data from S&P Global.
Although still faster than January’s Omicron-induced slowdown, overall growth was dampened by a softer rise in service sector output following pressure on customer spending as prices continued to increase markedly.
Manufacturers, on the other hand, indicated a stronger expansion in production on the back of rising demand. The headline flash US PMI Composite Output Index fell to 55.1 in April, from 57.7 in March. While service providers recorded a softer upturn in activity, manufacturing firms noted the quickest rise in production since last July.
Key findings:
- Flash US PMI Composite Output Index at 55.1 (Mar: 57.7). 3-month low.
- Flash US Services Business Activity Index at 54.7 (Mar: 58.0). 3-month low.
- Flash US Manufacturing Output Index at 57.4 (Mar: 56.1). 9-month high.
- Flash US Manufacturing PMI at 59.7 (Mar: 58.8). 7-month high.
The IMF press conference has finished.
All major European economies except Spain are forecast to show around zero growth in the middle of this year, with some falling into recession – defined as two consecutive quarters of economic decline. Germany, France and the UK are are at particular risk of recession, said the IMF’s Kammer.
During a press conference in Washington, Alfred Kammer, director of the IMF’s European department, said its recommendation to the European Central Bank is to “stay on the path of normalisation” of interest rates, i.e. raise rates to fight high inflation, fuelled by soaring energy costs.
He warned against a potential wage price spiral, but also said policymakers need to be guided by the economic data, and should go slower on rate hikes if necessary.
It noted that:
Germany and many EU countries have effectively begun to wean their economies off Russian energy sources. This means that some 60–70% of current Russian oil and natural gas demand may disappear within the next few years, which will require Russia to diversify its exports to other regions.
Turning to post-war reconstruction in Ukraine, the IMF said:
Post-war Ukraine will face large reconstruction needs. Social and economic infrastructure destroyed by the war will need to be rebuilt, a task that will require wide-reaching financing with a significant grant element. Reconstruction and policy support for resettlement will help refugees return and economic growth resume. The implementation of reforms to strengthen institutions and public policy will maximize the growth dividend of reconstruction
The IMF’s report said the war will set back the European recovery and further fuel inflation.
Some of the largest European economies, like France, Germany, and Italy, are projecting very weak or negative quarterly growth in mid-2022.
While higher prices of energy and food will affect vulnerable households everywhere, high natural gas prices in Europe will disproportionately affect countries with higher dependence on Russian imports (the Czech Republic, Germany, Hungary, Italy, and the Slovak Republic), given regional fragmentation in the natural gas market.
High metal prices will depress growth in countries with sectors that are strongly integrated into global value chains, like the automobile industry (the Czech Republic and the Slovak Republic). Non-energy trade disruptions will weigh on countries with stronger linkages with Russia and Ukraine, including the Baltic states, Belarus, Moldova, and Turkey. For most other European countries, non-energy trade links with Russia and Ukraine are limited but they will see declining demand from their affected European partners.
Updated
IMF slashes European growth forecasts
The International Monetary Fund warns of “severe economic consequences for Europe” from the Russia-Ukraine war, and has slashed its economic growth estimates.
The Russian invasion of Ukraine created a “humanitarian catastrophe,” the Washington-based institution said in a report on Europe. In the two months since the outbreak, about 5 million people (mostly women and children) have fled Ukraine, and a further 7 million are estimated to be displaced internally, while thousands have been killed or wounded.
The IMF is now forecasting growth of 3% for advanced European economies this year, down from 4% in January, and 3.2% growth in emerging European economies (excluding Belarus, Russia, Turkey, and Ukraine), down from 4.7% in January. Output losses will be far larger in Russia and, especially, in Ukraine – Russia is forecast to shrink by 8.5% while war-ravaged Ukraine is set to decline by 35% in 2022 and will feel the impact for years to come.
Earlier this week, the IMF downgraded its global growth forecast from 4.4% to 3.6% and also cut estimates for individual countries.
It said today:
The war will have severe economic consequences for Europe, having struck when the recovery from the pandemic was still incomplete. Before the war, while advanced and emerging European economies had regained a large part of the 2020 GDP losses, private consumption and investment still remained far below pre-pandemic trends.
The war has led to large increases in commodity prices and compounded supply-side disruptions, which will further fuel inflation and cut into households’ incomes and firms’ profits.
New risks have emerged from the war. A protracted war would increase the number of refugees fleeing to Europe, compound supply-chain bottlenecks, add pressures to inflation, and deepen output losses. The most concerning risk is a sudden stop of energy flows from Russia, which would lead to significant output losses, for many economies in central and eastern Europe in particular.
Updated
UK company insolvencies jump to five-year high
Some 2,114 UK businesses became insolvent in March, more than double the figure in March 2021 (999), and 34% higher than the pre-pandemic figure of 1,582 in March 2019.
Official figures from the Insolvency Service also show that the first quarter of this year has seen the highest number of company insolvencies – 5,197 – since the third quarter of 2017.
Mazars, the UK audit, tax and advisory firm, said rises in interest rates have made businesses’ debts more expensive to service and this is likely to have pushed some heavily indebted businesses into the red.
Businesses have also had to deal with spiralling inflation, especially soaring energy costs. These costs, combined with HMRC’s move to recover outstanding arrears from companies that failed to agree a Time to Pay arrangement, mean that companies are being left with few options.
Rebecca Dacre, partner at Mazars, said:
Businesses that were just hanging on before the recent interest rate rises have seen the rise in borrowing costs push them over the edge.
Between interest rates and inflation, this is the most difficult period for businesses since the height of the pandemic. This time they are having to manage without government support.
UK businesses will be hit by the ‘cost of living crisis’, just as consumers will be.
The moratorium on winding up petitions ended on 31 March. This prevented creditors from applying to make a business insolvent because of unpaid debts during the pandemic period.
Dacre added:
With no more government protection from their creditors, even more businesses can be expected to fail.
Updated
Bundesbank warns Russian gas embargo would lead to deep recession
It’s not just the UK that is struggling.
The German economy showed some signs of slowing because of a downturn across manufacturing in April, while its service sector held up better, according to the latest PMI data.
The Bundesbank, the German central bank, has warned that an immediate EU ban on Russian gas imports would cost Germany €180bn in lost output this year.
It said in its latest monthly bulletin that an EU embargo on Russian gas (which is still being debated) would reduce GDP by 5% this year, triggering a further surge in energy prices and a deep recession.
This is far more gloomy than what academic economists estimate. Last month, a group of nine university economists said the fallout of a full energy embargo was “manageable,” calculating that it would reduce Germany’s GDP by 0.3% to 3%.
Industry executives have been more outspoken, as might be expected. Martin Brudermüller, chief executive of the chemical group BASF, has warned that a sudden stop of Russian gas supplies could “destroy our entire economy” and trigger the worst crisis since the end of the Second World War.
Germany faces recession if war in Ukraine leads to energy ban https://t.co/eqmfB266F5 via @jrandow pic.twitter.com/GuZdvXlbpp
— Zoe Schneeweiss (@ZSchneeweiss) April 22, 2022
Updated
Pound tumbles 1.1% to 18-month low
The pound has tumbled more than 1% to its weakest level since late 2020, after the sharp drop in British retail sales showed the impact of the cost of living crisis, driven by surging fuel and food prices.
Coupled with weaker business survey data from S&P Global and a slump in consumer confidence charted by Gfk, the figures have led to expectations that the Bank of England will raise interest rates less aggressively.
Meanwhile, US Fed chair Jerome Powell has all but sealed a 50 basis point rate hike in May, saying that it is “absolutely essential” to tame inflation. And money markets are pricing in more aggressive rate rises from the European Central Bank, after hawkish comments from central bank officials on Thursday, and better-than-expected PMI data for the eurozone today.
Sterling is trading 1.1% lower against the dollar at $1.2887, and 0.77% lower against the euro at €1.1925.
Nick Cawley, strategist a Daily FX, tweeted:
GBP/USD getting battered on a combination of dismal UK retail sales data and a runaway US dollar. #gbpusd #sterling #usd @DailyFXTeam Chart via @IGcom pic.twitter.com/fFrtTiZLkv
— Nick Cawley 💙 (@nickcawley1) April 22, 2022
Updated
UK consumer confidence crisis: the first sign of trouble, said Kallum Pickering, senior economist at Berenberg Bank.
Confidence surveys, which are published well ahead of official economic statistics, often provide the first indication when something shifts in the underlying economy. For this reason, we should not ignore the recent batch of consumer confidence data for the UK. Across a range of measures for current sentiment and expectations, the data in April are close to or exceed their survey lows.
As our chart shows, the signal that the current level of confidence is sending is not ambiguous: real consumption is probably declining at present as the UK gets battered by rising inflation and global supply challenges, which have been amplified by Putin’s war and lockdowns in China. The key question is whether the shock will persist for long enough to cause a recession. With an unusually uncertain near-term outlook, this is not easy to answer. At a minimum, the data suggest investors should be prepared for a bad outcome.
He added:
The Bank of England is in a serious bind: After reacting late to surging prices, the BoE (along with the US Federal Reserve) is now chasing rising inflation with a succession of interest rate hikes. The fourth such hike looks likely at the upcoming 5 May meeting – when policymakers will lift the bank rate by a further 25bp to 1.0%. While the BoE has little choice but to react to the inflation surge, it is clearly running the risk of a policy error by continuing to tighten as the recession risk rises.
If consumers demand fewer products amid the confidence plunge, that will dampen prices and lower the risk of persistent excess inflation. If workers fear recession, they may just be happy to keep their jobs and not push any erstwhile advantage in wage negotiations. Inflation will be higher than expected in the near term due to Putin’s war, but the surge may be followed by a period of disinflation at rates below 2% for a while thereafter.
In a worst-case scenario, the BoE may be unwittingly tightening into a recession that is already underway, as well as reacting to an inflation problem that may go away mostly on its own.
India and the UK will press ahead with talks on a bilateral free trade agreement, Boris Johnson and the Indian premier, Narendra Modi, have said, after the UK made clear it was willing to make immigration part of any deal, reports our political editor Heather Stewart from Delhi.
The pair appeared to differ on how rapidly an agreement could be made – Johnson suggested it could be ready by the festival of Diwali in late October, but Modi pointed to the end of the year.
Johnson said: “As the next round of talks begin here next week, we are telling our negotiators, get it done by Diwali in October.”
Modi said there had been “good progress and we have decided to make all efforts to conclude the FTA [free trade agreement] by the end of this year”. Three rounds of talks had already been held.
European stocks are sliding, as traders are bracing for further interest rate hikes following hawkish comments from central bank officials.
The FTSE 100 index in London is down about 0.6% at 7,583 while European indices have slid more than 1%. The pan-European Stoxx 600 has fallen 1%.
US Federal Reserve chairman Jerome Powell said yesterday that a half-point (50 basis point) rate increase “will be on the table” when the bank meets on 3-4 May. The comments came after the European Central Bank’s vice president Luis de Guindos backed an end to the central bank’s bond purchasing programme in July and said it could raise rates that month, in September or later.
Money markets are now pricing in nearly 85 basis points of ECB rate hikes this year, rather than 70 bps early on Thursday, before ECB officials spoke. They are pricing in a 25 bps move by July. The latest eurozone PMI data was better than expected and showed a pick-up in growth, and inflationary pressures, in April.
Meanwhile, the Bank of England governor Andrew Bailey was more cautious, and the latest gloomy retail sales and business survey data on the impact of high inflation and the cost of living crisis suggest that the Bank may hike by a quarter point, rather than a half point, at its May meeting.
Here is our full story on the March decline in retail sales in Britain:
Updated
Dean Turner, economist at UBS Global Wealth Management, said:
A disappointing set of PMIs, coming on the back of a very weak retail sales release, highlights that the cost-of-living squeeze is hitting economic activity hard. Meanwhile, price pressures continue, but there is some evidence that firms passing these on to consumers is starting to negatively impact demand, offsetting the boost from the end of covid restrictions.
Growth in the second quarter was likely to be weaker than in the first three months of the year as the covid reopening boost faded. And, to be clear, in level terms the PMIs show an economy that is still growing. However, the loss of momentum here and in the data more generally highlights the risk of the economy stalling in current quarter. Nevertheless, we still think that the Bank of England will press on and hike rates next month, but they are likely to pause earlier than markets currently expect.
Sterling sold off on this morning’s data, falling to a 17-month low against the dollar. We still see the pound higher this year, as a lot of bad news is already in the price. However, it is likely to be a tricky period for the pound in the short term.
The UK services PMI dropped materially from March’s 10-month high, while the new orders index plunged to 54.6, from 60.4 in February. The slowdown also caused firms to slow their pace of hiring; the employment index fell to 55.8—its lowest level since April 2021—from 58.4 in March.
The manufacturing PMI remains broadly unchanged following the sharp drop in March but while the output index improved, the new orders index fell to just 51.2, its lowest level since June 2020, while growth in employment slowed too, noted Gabriella Dickens, senior UK economist at Pantheon Macroeconomics. She said:
April’s PMI figures add to evidence that the sharp decline in households’ real disposable income is starting to put the brakes on the economic recovery.
UK exporters are starting to be hit by a drop in demand in key trading partners; the new export orders balance dropped to 47.3, from 49.4, and remained below its eurozone counterpart for the sixteenth consecutive month.
Meanwhile, both manufacturing and services firms are becoming increasingly worried about the outlook for demand amid the intensifying squeeze on real incomes; the future output index of the composite PMI fell to an 18-month low of 68.0, from 72.2.
April flash data for the UK pointed to the slowest expansion in 3 months with the #PMI at 57.6 (Mar: 60.9). Record inflationary pressures and the war in Ukraine weighed on client demand in both the manufacturing and services sectors. Read more: https://t.co/6QMPBAAkvF pic.twitter.com/eHJUd1Zhad
— IHS Markit PMI™ (@IHSMarkitPMI) April 22, 2022
Record inflation and war in Ukraine hit UK demand
Record inflationary pressures and war in Ukraine hit demand in the UK private sector in April, with a closely-watched survey recording the slowest rise in new orders so far in 2022.
April data pointed to a much weaker speed of recovery across the UK economy, according to the flash business surveys from S&P Global. Firms mainly noted that the cost of living crisis and economic uncertainty arising from the war in Ukraine had impacted client demand.
Service providers experienced a considerable loss of momentum as the pass-through of escalating costs offset the boost to consumer spending from the ending of Covid-19 restrictions. Manufacturers also struggled to increase orders as their output charges rose, with the latest increase in factory gate prices by far the fastest on record.
Key findings:
- Flash UK PMI Composite Output Index at 57.6 (Mar: 60.9). 3-month low.
- Flash UK Services PMI Business Activity Index at 58.3 (Mar: 62.6). 3-month low.
- Flash UK Manufacturing Output Index at 53.8 (Mar: 51.8). 2-month high.
- Flash UK Manufacturing PMI at 55.3 (Mar: 55.2). 2-month high.
Updated
Bert Colijn, senior eurozone economist at ING, has looked at the PMI data.
Consumers are ignoring the purchasing power squeeze for now as reopening effects boost service sector growth while manufacturing cools. We now expect the European Central Bank’s first rate hike to be in the third quarter.
The eurozone economy continues to face challenges ahead. Prolonged high inflation will start to weigh more on household consumption over time with weaker demand for goods spilling over into services demand when catch-up demand fades. Also, investment will be weighed down by higher interest rates and weakening credit conditions in the coming months. Supply chain problems are already an issue now and are set to remain problematic given the build-up of containers in Shanghai and continued disruptions related to the war.
Nevertheless, this is a clear hawkish signal to the ECB. With this PMI signalling continued economic recovery, risks to the inflation outlook remain skewed to the upside and that is likely to be another argument for the ECB to move faster than initially expected. We now expect a first hike to happen in the third quarter and another one in the fourth but keep a close eye on the growth environment as outperformance of expectations could mean more hawkish surprises are in store.
The Co-op is removing use-by dates from its own-brand yoghurt in an attempt to address the problem of millions of pots that are still safe to eat being wasted each year, reports our consumer affairs correspondent Zoe Wood.
Instead, starting next month, the Co-op’s own yoghurts will carry a best-before date, with shoppers encouraged to “use their judgment” to gauge if they are edible. About 42,000 tonnes of yoghurt – £100m worth – is thrown away in British homes each year because it is out of date, according to the food waste charity Wrap. Half are dumped in unopened packs.
Nick Cornwell, the Co-op’s head of food technical, said the “acidity of yoghurt acts as a natural defence. We’d encourage shoppers to use their judgment on the quality of their yoghurt if it is past the best-before date,” he said. “Yoghurt can be safe to eat if stored unopened in a fridge after the date mark shown, so we have made the move to best-before dates to help reduce food waste.”
France issues international arrest warrant for Carlos Ghosn
In other news, France has issued an international arrest warrant for Carlos Ghosn, the disgraced former Nissan executive who jumped bail in Japan and fled to Lebanon, prosecutors have said.
The warrant was issued over €15m in suspect payments between the Renault-Nissan alliance that Ghosn once headed and an Omani company, Suhail Bahwan Automobiles (SBA), said prosecutors in the Paris suburb of Nanterre.
Ghosn, then chief of Nissan and head of an alliance between Renault, Nissan and Mitsubishi Motors, was detained in Japan in November 2018 on suspicion of financial misconduct, along with his top aide, Greg Kelly. They both denied wrongdoing.
In December 2019, as he awaited trial, Ghosn staged an audacious getaway, being smuggled out of Japan in an audio-equipment case on a private jet.
Ghosn, who holds French, Lebanese and Brazilian passports, landed in Beirut, which has no extradition treaty with Japan.
Chris Williamson, chief business economist at S&P Global said:
April saw a two-speed eurozone economy. Manufacturing came close to stalling due to ongoing supply constraints, rising prices and signs of spending being hit by risk aversion due to the war. However, April also saw manufacturers suffer due to a shift in demand from goods to services amid looser pandemic restrictions, most notably via a record surge in spending on activities such as travel and recreation.
Common across both sectors, however, was a further surge in cost pressures, driven by soaring energy and raw material costs, as well as rising wages. Average prices charged for goods and services rose at an unprecedented rate in April as these higher costs were passed on to customers, sending a worrying signal that inflationary pressures continue to build.
The eurozone has therefore started the second quarter on a stronger than anticipated footing, confounding consensus expectations of a slowdown. However, the weakness of the manufacturing sector is a major concern as it points to an economy that is not firing on all cylinders. Similarly, the ever-rising cost of living suggests that service sector growth could cool sharply once the initial rebound from the opening up of the economy fades.
Policymakers may nevertheless tilt to a more hawkish stance, reflecting the persistence of unprecedented inflationary pressures at a time of encouragingly robust economic growth.
Eurozone growth picks up in April, prices rise at record rate
Eurozone growth picked up in April, as a rebounding service sector, benefiting from relaxed Covid restrictions, made up for a near-stagnation of manufacturing output.
Hiring also picked up and business expectations for the year ahead lifted from March’s 17-month low, according to the latest flash surveys from S&P Global. However, confidence remained subdued as concerns over the Ukraine war, rising prices and the lingering effects of the pandemic continued to dampen optimism, especially in manufacturing.
Prices charged for goods and services meanwhile rose at an unprecedented rate in April amid another near-record rise in firms’ costs, hinting that inflation has further to rise.
Key findings:
- Flash Eurozone PMI Composite Output Index at 55.8 (Mar: 54.9). 7-month high.
- Flash Eurozone Services PMI Activity Index at 57.7 (Mar: 55.6). 8-month high.
- Flash Eurozone Manufacturing Output Index at 50.4 (Mar: 53.1). 22-month low.
- Flash Eurozone Manufacturing PMI at 55.3 (Mar: 56.5). 15-month low
Flash #PMI data pointed to a pick up in #eurozone growth in April (55.8; Mar: 54.9), but one that was widely driven by the service sector. By contrast, manufacturing growth slid to a 22-month low amid record inflationary pressures. Read more: https://t.co/LjgNeQJDHJ pic.twitter.com/xIaheTKUGf
— IHS Markit PMI™ (@IHSMarkitPMI) April 22, 2022
Updated
The French economy enjoyed a strong start to the second quarter, the latest PMI flash data show, as private sector business activity grew at its sharpest pace in just over four years.
The service sector was once again the main driving force as fewer Covid-19 restrictions continued to support demand. This compared with only a slight increase in manufacturing output during April as shortages of raw materials and components hindered production capabilities.
Similar to Germany, output charges rose at the fastest rate on record for the second month running. A number of firms voiced their concerns about the impact of rising prices on demand, with business confidence remaining beneath its 2021 average amid rising geopolitical and inflationary fears.
Key findings:
- Flash France PMI Composite Output Index at 57.5 (Mar: 56.3). 51-month high.
- Flash France Services PMI Activity Index at 58.8 (Mar: 57.4). 51-month high.
- Flash France Manufacturing Output Index at 51.2 (Mar: 51.0). 2-month high.
- Flash France Manufacturing PMI at 55.4 (Mar: 54.7). 2-month high.
🇫🇷 France Flash #PMI up to 57.5 in April (Mar: 56.3) to signal the fastest rise in private sector activity since January 2018. Services growth (58.8) vastly exceeded that seen in manufacturing (51.2) as supply shortages hindered production levels. More: https://t.co/Zpno0HXPnC pic.twitter.com/sTMwFCuA5z
— IHS Markit PMI™ (@IHSMarkitPMI) April 22, 2022
Updated
The latest flash PMI data from S&P Global for Germany is out.
The snapshot of economic activity shows a downturn in manufacturing production across the country in April, amid reports of severe supply disruption and a drop in demand for goods. Overall economic activity in the country was supported by a sustained rebound in the service sector, which benefited from the reopening of bars and restaurants.
The survey pointed to a further surge in inflationary pressures, with April seeing record increases in both goods and services output prices. Concerns about rising prices and supply shortages, as well as the general economic uncertainty caused by the war in Ukraine saw business expectations fall to their lowest in almost two years.
Key findings:
- Flash Germany PMI Composite Output Index at 54.5 (Mar: 55.1). 3-month low.
- Flash Germany Services PMI Activity Index at 57.9 (Mar: 56.1). 8-month high.
- Flash Germany Manufacturing Output Index at 47.4 (Mar: 53.0). 22-month low.
- Flash Germany Manufacturing PMI at 54.1 (Mar: 56.9). 20-month low.
Meanwhile price indices from the April flash PMI survey for #Germany have risen to all time highs, signalling record rates of #inflation for goods and services. pic.twitter.com/vIKcHvErvZ
— Chris Williamson (@WilliamsonChris) April 22, 2022
Updated
European stock markets are sliding, following in the footsteps of Asia and Wall Street.
The FTSE 100 in London is down 35 points, or 0.48%, at 7,590, while the German, French and Italian bourses have lost more than 1%.
Oil prices are also falling this morning, with Brent crude, the global benchmark, down 0.6% at $107.66 a barrel, while US light crude is trading at $103.16 a barrel.
EU urges people to drive less and work from home
The EU is urging people to drive less, turn down their heating and air conditioning, and work from home three days a week, to reduce reliance on Russian oil and gas.
The European Commission says the measures, drawn up with the International Energy Agency, would save households close to €500 a year on average.
If all EU citizens followed the nine-point plan, entitled “Playing My Part,” this would save enough oil to fill 120 super tankers and enough natural gas to heat almost 20 million homes.
The EU and IEA said:
People across Europe have helped Ukraine by making donations or aiding refugees directly, and many would like to do more. Most households are also experiencing higher energy bills because of the energy crisis exacerbated by the war. Using less energy is not only an immediate way for Europeans to reduce their bills, it also supports Ukraine by reducing the need for Russian oil and gas, thereby helping to reduce the revenue streams funding the invasion.
- turn down the heating in the winter and use less air conditioning in the summer
- adjust the boiler’s settings
- use their car more economically
- reduce their speed on highways, with the car air conditioning turned down
- leave their car at home on Sundays in large cities
- walk or cycle short journeys instead of driving
- use public transport
- use the train instead of flying
According to the plan, turning down the thermostat by just 1 °C would save around 7% of the energy used for heating, while setting an air conditioner 1 °C warmer could reduce the amount of electricity used by up to 10%.
With an average one-way car commute in the EU of 15 kilometres, working at home three days a week could reduce household fuel bills by around €35 a month, even after taking increased energy use at home into account. And as the average car in the EU clocks up about 13 000 kilometres a year, reducing cruising speed on motorways by 10 kilometres an hour could cut fuel bills by an average of around €60 a year.
Updated
With energy prices soaring, energy criteria are high on UK homebuyer checklists, and houses with heat pumps sell at a premium, research from Savillls has founded.
Homebuyers are paying more for properties with heat pumps or other low-carbon technology installed, and are looking closely at energy ratings, according to analysis by the estate agents Savills, reports my colleague Joanna Partridge.
Fears that Britain is heading for a marked slowdown in consumer spending have intensified as it emerged that the public is gloomier about the economy than when banks were on the brink of collapse during the financial crisis of 2008.
Our economics editor Larry Elliott has looked at the slump in UK consumer confidence recorded by analysts Gfk. He writes:
A combination of rocketing energy prices, higher taxes and a surge in the annual inflation rate to its highest level in three decades meant confidence was in freefall, according to the latest monthly snapshot of sentiment.
Labour called on Rishi Sunak to do more to address the cost of living crisis after all five measures of consumer confidence tracked by the polling firm GfK recorded sharp falls in April – a month that saw the raising of the energy price cap and an increase in national insurance contributions.
Abena Oppong-Asare, shadow exchequer secretary to the Treasury, said: “These concerning figures sadly come as no surprise, given families are seeing the double whammy of an enormous Tory tax hike and soaring energy bills.
“Collapsing consumer confidence shows how the cost of living crisis is weighing down growth. How many warnings like this does the chancellor need to grasp the seriousness of the cost of living crisis?”
Updated
Our retail correspondent Sarah Butler has dug into soaring supermarket prices in this piece on “shelf shock”. From dog food to coffee, readers are reporting some basic goods’ prices are rising by far more than inflation. She writes:
Inflation is rampant, and supermarket prices are no exception. Shoppers are returning to stores to find old favourites have leapt in price from one week to the next. The cost of consumer goods is spiralling at such a rate that retail analysts have coined a new term, shelf shock.
Nestlé, the owner of KitKat, Häagen-Dazs and Felix cat food, became the latest consumer goods group to warn of more pain to come on Thursday, saying it had raised prices by 5.2% in the first three months of this year and that rising production costs would force another increase soon.
Retailers and manufacturers are passing on increases from energy and fuel bills, packaging and raw materials to shoppers.
Across the board, the cost of a basket of basic commodities in the UK has risen by more than 11% compared with last March, according to research from the market analysts Assosia. Basic pasta, milk and instant coffee have all had double-digit increases.
Updated
Bank of England monetary policymaker Cathy Mann said yesterday that in some ways we already have stagflation, and pointed to struggling retail sales and high inflation.
Bethany Beckett, UK economist at Capital Economics, said the “hefty” drop in retail sales
adds to growing signs that the squeeze on real incomes is hitting household spending. With CPI inflation already at a 30-year high of 7.0% and set to keep rising, there’s a real risk of an outright fall in consumer spending in the coming quarters.
The sharp decline in sales in March suggests that households are already paring back spending to cope with higher costs for food and fuel. That is only likely to worsen in the coming months as the cost of living crisis intensifies. After all, the March data predated April’s huge 54% rise in utility bills which will have hit household budgets hard. Indeed, the GfK survey of consumer confidence in April crashed to its lowest level since 2008.
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Introduction: Retail sales fall as consumers cut back on fuel and food spending in UK cost of living crisis
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
In Britain, retail sales fell 1.4% in March, following a 0.5% drop in February, as people cut back on fuel and food spending amid soaring prices.
Overall sales volumes were 2.2% above their pre-pandemic levels in February 2020, the Office for National Statistics said.
Non-store retailing, such as online sales, posted the biggest decline, of 7.9% following a 6.9% drop in February.
Food sales were down 1.1% and have fallen every month since November. The ONS said this is because people are eating out more but also pointed to the impact of rising food prices on the cost of living. Petrol and diesel sales fell 3.8%, as people drove less because of record high fuel prices, which jumped 9.9% in March.
The proportion of retail sales online continued to fall, to to 26%, its lowest proportion since February 2020 when it was 22.7%.
UK inflation hit a 30-year high of 7% last month, while the war in Ukraine has driven oil prices well above $100 a barrel, amid supply disruption.
Retail sales volumes fell 1.4% in March, with the biggest driver coming from ‘non-store retailing’ (including online shops), which fell 7.9%.
— Office for National Statistics (ONS) (@ONS) April 22, 2022
However, retail remains 2.2% above its pre-pandemic level https://t.co/q4w0Tx8mQk pic.twitter.com/fyBUF1mnmI
Lynda Petherick, head of retail for Accenture in the UK and Ireland, said:
Good weather usually means sunnier times for retail, and firms will hope that the summer months can play a small part in stimulating waning confidence among a general public coping with the harsh realities of rising prices everywhere they turn. In reality, each day brings fresh warnings from business leaders that prices will likely continue to climb, driving consumer confidence in the wrong direction for retailers.
US stock markets slumped after the European close yesterday, after US Federal Reserve chair Jerome Powell laid out the case for a possible half-point rate hike at next month’s May meeting of the US central bank.
Michael Hewson, chief market analyst at CMC Markets UK, said:
This seems a rather strange reaction given that nothing he said yesterday was in any way surprising. A 50 basis point rate hike is already priced in, as well as the prospect that we could well see another one soon afterwards.
We also heard from European Central Bank president Christine Lagarde yesterday as she capped off a couple of days of some rather hawkish comments from the likes of Belgium’s Pierre Wunsch, and ECB vice president Luis De Guindos who followed on from Latvia’s Martin Kazaks by arguing that a July rate rise was on the table. She didn’t come across as anywhere near as hawkish as her colleagues, pointing to the June meeting as the moment to decide on next steps, and lightly pushing back on the idea of a fixed point.
Bank of England governor Andrew Bailey also played a straight bat, but he did give the impression that another rate rise was coming in May, given concerns about how inflation was starting to bed in, however he didn’t have the air of a man ready to give a strong steer on a 50bps move, although he did acknowledge the tightness of the labour market, where we are quite likely to see further welcome upward pressure on wages in the months ahead.
Asian shares are sliding as investors worried about the aggressive rate hike outlook in the United States, as well as the impact of Covid lockdowns in China.
Japan’s Nikkei lost 1.6%, Hong Kong’s Hang Seng slipped 0.2% and the Australian market fell 1.5%. The Shanghai composite bucked the trend with a 0.6% rise while the Singapore exchange was up 0.1%. European shares are also expected to open lower, after a broadly positive session yesterday.
The Agenda
- 8.15am BST: France flash PMIs for April: manufacturing, services, composite
- 8.30am BST: Germany flash PMIs for April
- 9am BST: Eurozone flash PMIs for April
- 9.30am BST: UK flash PMIs for April
- 2ppm BST: ECB president Christine Lagarde speech
- 2.45pm BST: US flash PMIs for April
- 3.30pm BST: Bank of England governor Andrew Bailey speaks on IMF panel on inflation
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