Markets have delivered an ominous sign that recession may be on the way while Germany’s economy shrank and Chinese industrial output slumped to a seventeen-year low amid deepening fears about the worldwide fallout from Donald Trump’s trade war.
Yield curves inverted on UK and US government debt on Wednesday, signalling deepening pessimism about both countries’ economic futures.
America has fallen into recession after the last seven times yield curves have inverted. An inversion means long-dated government debt is delivers a lower return than short-dated government debt.
Meanwhile, a poll this week found that the number of fund managers predicting the global economy could enter contraction in the next year jumped to its highest since 2011.
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Germany's economyshrank by 0.1 per cent in the second quarter as global trade conflicts, falling exports and troubles in the car industry dragged growth downwards.
German car makers, a crucial pillar of the economy, face tougher emissions standards in Europe and China and a switch to electric cars, while Brexit uncertainty has weighed on confidence.
Oil prices fell on Wednesday on disappointing economic data from China and a rise in US crude inventories, erasing some of the sharp gains in the previous session after the US said it would delay tariffs on some Chinese products, easing trade tensions.
Brent crude was down 46 cents, or 0.8 per cent, at $60.84 a barrel after rising 4.7 per cent on Tuesday, the biggest percentage gain since December.
Reuters
The number of fund managers predicting a global recession has jumped to an eight-year high according to a poll by Bank of America Merrill Lynch.
It found that 34 per cent of respondents think it is likely the world economy will begin to contract, up from just 6 per cent in April.
Concerns about the impact of a trade war topped the list of concerns, cited by more than half of investors.
The IMF forecasts 3.2 per cent growth this year, down from 3.6 per cent last year.
Philip Hammond has launched a blistering attack on Boris Johnson, saying the new prime minister is allowing "unelected people" to "pull the strings" in Downing Street.
The former chancellor attacked "absurd" claims from "hardliners" about a no-deal Brexit and said the first weeks of the new government were "not encouraging".
The comments will be seen as an attack on Dominic Cummings, Mr Johnson's top policy adviser.
Full story from political correspondent Ben Kentish here:
BREAKING: inflation unexpectedly rose to 2.1 per cent in July, the Office for National Statistics says.
Chris Jenkins, assistant head of inflation at ONS, says: "The inflation rate increased slightly, with computer games, consoles and hotel prices rising more than they did last year.
"Conversely, air, international rail and sea fares did not rise by as much as 12 months ago."
Brexiteer Ian Duncan-Smith has hit back at Philip Hammond over his no-deal comments.
Duncan-Smith accuses the former chancellor of doing "nothing to prepare us for leaving with no deal".
The former Conservative Party leader told the BBC: "By not preparing to leave with no deal, they made it certain that we'd have to swallow everything that the European Union gave us.
"So the crime that has been committed in political terms was committed by him and those who did not prepare us to leave."
Boris Johnson's generous business donors have been revealed in the latest register of MP's interests.
Brown's, a posh hotel in Mayfair, threw the new prime minister a £12,000 victory bash on 23 July.
London hotels have been boosted by the weak pound which has fallen sharply since the Brexit vote and is predicted to plummet further if the UK leaves the EU without a deal.
Private equity firm boss Hazem Ben-Gacem donated £25,000 while Carphone Warehouse co-founder David Ross stumped up £10,000.
Rising inflation is not good news for consumers who have seen the spending power of their wages eroded.
Today inflation came in at 2.1 per cent while yesterday we heard that wages jumped 3.9 per cent, implying a real-terms average pay increase of 1.8 per cent.
One thing that is definitely set to cost more is regulated train fares - which includes season tickets in southeast England and many off-peak return tickets and peak-time fares around major cities.
The fares are set to rise by 2.8 per cent next year, in line with the July rate of RPI inflation.
Commuters from the new transport secretary’s constituency will pay an extra £84 a year to get to work in London from the start of 2020.
Grant Shapps is MP for Welwyn Hatfield. From January next year, the price of an annual season ticket from Welwyn Garden City to London will rise from £3,016 to £3,100.
Everthing you need to know from Simon Calder, our travel correspondent, is here:
UK house prices grew 0.9 per cent in the year to June, the same increase as in May, official figures show.
The lowest annual growth was in London, where prices fell by 2.7 per cent over the year to June 2019, less than the 3.1 per cent fall in May 2019. Average house prices in London have now been falling over the year each month since March 2018.
Across the UK, the average house cost £230,292, down from a peak of £232,000 in August 2018.
A slowdown in China appears to be worsening, which is beginning to have knock-on effects beyond China's borders.
Today's figures showing industrial production dropping back to just 4.8 per cent were driven by manufacturing with construction also appearing to be on shaky ground, writes Freya Beamish, chief Asia economist at Pantheon Macroeconomics.
Beamish says: "The July rate is weaker than the financial crisis lows, crushing hopes of a swift economic recovery sown with the bounce in June.
"These data cast doubt on theories that the Chinese authorities will see any appeal in waiting out Mr. Trump in the trade negotiations."
Economists are issuing increasingly dire warnings about the health of the world economy.
Germany's government has plenty of fiscal room to turn on the spending taps and pull the country out of contraction but, as ever, will be reluctant to do so, says Steen Jakobsen, chief economist at Saxo Bank.
That means Europe's biggest economy will "take France and Italy with it into a deep European recession" he says.
More on today's data showing an unexpectedly sharp rise in inflation:
Stock markets are tumbling across Europe after the news that Germany's economy is in reverse.
Germany's Dax is down 0.76 per cent to 11,660.62
France's CAC 40 down 0.71 per cent to 5,324.75
UK's FTSE100 down 0.31 per cent to 7,227.48
Donald Trump's decision yesterday to delay tariffs on a host of Chinese imports has not been enough to temper the concerns about a trade war and economic slowdown.
Britain could face a Brussels sprouts shortage at Christmas after a week of heavy rain damaged crops in Lincolnshire.
The situation is "very concerning" according to the British Growers Association.
Shoppers are already facing a shortage of cauliflowers, cabbages and broccoli after Lincolnshire, a key UK farming region, was deluged with six inches of rain in a week in June.
British Growers chief executive Jack Ward says:
"For some, a year's work was destroyed in one week of rains."
"Crops come in waves but we're looking at the shortage going on for another two to three weeks, possibly extending to broccoli.
"The rain also affected a lot of young plants so there are likely to be problems into winter across the board with brassicas.
"There's some way to go but crops that have been waterlogged, like Brussels spouts, it's not getting them off to the start they need to produce the quantities we would want to see."
Inflation has increased across all UK regions:
The pound has risen on the back of higher-than-expected inflation.
Sterling is up 0.3 per cent against the dollar to $1.2094 and 0.2 per cent against the euro at €1.08.
A potentially worrying signal from UK bond markets that recession could be on the way: The yield curve on UK government debt has inverted.
What does this mean?
Ten-year government debt now offers a lower interest rate than two-year debt. Basically, bond market traders are pessimistic about the future of the UK economy.
They think growth will tank and central banks will have to slash interest rates in future to support the economy.
This is unusual and, in some circumstances, particularly in the US, has happened ahead of a recession.
What exactly is an "inverted yield curve" and does it signal a recession is on the way?
The general argument is that traders expect the economy to be weaker further out than it is today and for the central bank to be compelled to cut interest rates at some point to support growth.
So traders bid the yields on longer-term bonds lower than shorter ones in anticipation of that monetary policy shift (rate cuts mean higher bond prices which, in turn, mean lower bond yields).
Yet, if this is what’s going on, there’s no clear reason why this cooling should mean an outright recession rather than simply a growth slowdown.
The fact that a recession has tended to follow inversions has merely been the historical pattern.
More answers can be found here:
Yield curves briefly inverted in the US too as fears about the impact of a trade war grew, but are now back to normal. Just.
10-year US Treasuries are now back at 1.654 per cent, a very slightly higher yield than two-year US Treasuries at 1.642 per cent.
The last few times the curve has inverted, a US recession has followed...
But the lag has been anything between 10 months and three years.
