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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Bulb’s takeover by Octopus ‘faces fresh delay’; Bank of England blindsided by ‘extraordinary’ mini-budget – as it happened

China United States Bank of England Buick GM Honda
An estate agents in Royal Tunbridge Wells.
An estate agents in Royal Tunbridge Wells. Photograph: Maureen McLean/REX/Shutterstock

Summary

Time to wrap up – here’s our main stories so far:

Bailey: Bank of England didn't oust Liz Truss

Q: Did the Bank of England oust Liz Truss, as Narayana Kocherlakota, the former Federal Reserve Bank of Minneapolis claimed last month?

Kocherlakota argued that the Bank’s decision not to extend its support for the bond market contributed to Truss’s political demise.

Governor Andrew Bailey insists that Kocherlakota’s case is built on a ‘false premise’, for three reasons.

First, Bailey says the Bank’s pledge to buy UK government bonds created a “serious moral hazard problem”.

Unless the Bank could credibly end the programme quickly, it would have been stuck buying gilts for a long time, he says.

Second, the Bank was confident the problems in the gilt market would be resolved by its deadline.

Thirdly, the Bank couldn’t credibly be buying huge amounts of government debt at a time when it was trying to unwind its massive stock of bonds bought under QE.

Speaking with some passion (for a central banker, anyway), Bailey insists:

We did not bring the government down, we did a limited operation for financial stability purposes and we did exactly the right thing and ended it promptly.

Andrew Bailey is also quizzed about the near-collapse of Britain’s pensions sector, when the slump in bond prices threatened to create a ‘doom loop’.

Bailey says the scale of movement of gilt yields was “extraordinary” (it forced pension funds who used LDI schemes to sell UK government debt to cover losses).

And it uncovered the structural problem of how funds rebalance in a period of stress, he adds (which forced the BoE to launch a huge rescue package).

Q: What was the biggest surprise – the measures in the mini-budget, or the market response?

Bailey mulls this question over like a fine malt….

…before saying the many investors were concerned that the government disregarded the OBR’s forecasts, meaning they were ‘flying blind’.

He also cites the abolition of the top-rate of tax, saying the Bank had no idea /that/ was coming at this time.

As a results, investors took a ‘very negative’ judgement on the direction of UK economic and fiscal policy-making.

Andrew Bailey is making it clear that the lack of clarity over the mini-budget was most unusual, and quite astonishing.

Former governor Mervyn King points out that the Bank’s monetary policy committee got a briefing from the Treasury the day before the mini-budget (!), when they met to set interest rates.

Updated

Bailey: Mini-budget was a most extraordinary process

The committee turn to the wild 44-days of Liz Truss’s premiership,

Q: Why wasn’t there more co-ordination betwen the Bank and the Treasury before the mini-budget, to prevent the need for a massive intervention to calm the markets afterwards?

At the risk of stating the obvious, “this was a quite extraordinary time”, Andrew Bailey replies.

He’s certain that Treasury officials didn’t hold back any information from their counterparts at the Bank.

But…. there were two problems.

First, officials didn’t know what was going to be in the mini-budget, Bailey says. He cites subsequent commentary from Kwasi Kwarteng and Truss which shows even they had a “lack of clarity” over the fiscal plan.

Secondly, Kwarteng’s failure to involve the Office for Budget Responsibility removed much of the ‘substance’ which the Bank relies on – such as forecasts, and the likely impact of measures.

Bailey adds:

This was a most extraordinary process.

Q: Are you saying you had no advance warning of the £46bn of unfunded tax cuts?

Bailey insist the Bank did not know the contents of the mini-budget, although it had some warning, given Liz Truss’s comments during the Conservative leadership campaign. Plus, some elements had been leaked.

But he reiterates there was “no formal communication” between the Treasury and the Bank.

Q: How is your new quantitative tightening programme going?

Governor Andrew Bailey says the Bank has cut its gilt portfolio by around £41bn. Mostly through ‘run-off’ (where you don’t buy new bonds when they mature), plus about £4.5bn of active gilt sales.

There’s no reason to think the Bank won’t hit its target of reducing its QE portfolio by £80bn of gilts in the first year, he says.

But it’s not clear how much QT will be needed to reach the equilibrium level of reserves – the point where the banking system can meet its needs.

He cautiously flags that the gilt market is ‘not back to normal’, following the turmoil after the mini-budget.

Andrew Bailey is then asked about the £133bn bill which the Treasury faces as the Bank unwinds its QE programme, which will more than wipe out its £120bn profits.

Bailey points out that QE was never meant to make money for the government, and the question of funding the stimulus programme was settled a decade ago (when governor-turned-Lord Mervyn King was at the helm).

Q: What about the interest payments being paid to commercial banks on the money they received from QE, which goes up as interest rates rise?

Bailey denies that this is free money for the banks, pointing out that higher Bank Rate pushes up their funding costs too.

He doesn’t favour changing reserve remuneration, and suggests it’s actually a fiscal decision.

[Another option, which Huw Pill has floated, would be to simply tax the banks more].

Lord King challenges Bailey over pandemic QE

Andrew Bailey also denies that QE has blurred the difference between fiscal policy (government tax and spending) and monetary policy.

The BoE governor says fiscal and monetary policy pulled together through the pandemic crisis.

Now, the Bank is selling its stock of assets bought through QE – through Quantitative Tightening. Bailey says there’s not been any discussion with the government over the pace or timing of that.

Lord King (formerly Mervyn King – the BoE governor who started its quantitative easing in 2009 after the financial crisis) picks up the ball, and bowls Bailey a nasty bouncer:

Q: If the weakening of the economy in 2020 was due to supply side issues, not demand, shouldn’t you have tightened monetary policy, not eased it?

[King’s point is that the Bank shouldn’t have done hundreds of billions of pounds more of QE, and cut interest rates to record lows]

Bailey says he’d normally agree with this view, but points out that the tightening of the supply-side of the economy was mainly due to the government temporarily shutting the economy through lockdowns.

The Bank had to judge what the supply-side of the economy would look like once lockdowns, and the furlough scheme, were over.

And he admits that the supply side of the economy, particularly the labour market, has been ‘much more constained’ than the Bank expected, and worse than other countries.

BoE governor Andrew Bailey defends QE to Lords

The House of Lords economic affairs committee start their session with Andrew Bailey by looking at the long era of cheap money and ultra-low interest rates, which is now ending.

Q: Did the Bank properly understand the impact of QE, given its scale and duration?

[Quantitative Easing (QE) is the scheme under which the Bank buys government bonds from commercial banks with new electronic money].

Bailey insists the Bank was “very clear” about why it was doing QE. In March 2020, there was a major dislocation in financial markets, and a downturn in the economy, so the Bank needed to act – for reasons of financial stability, and also monetary policy (controlling inflation)

The BoE governor says the Bank has learned that QE “works most effectively in a crisis” – by lowering long-term rates, it can helps households and businesses.

Q: But your chief economist, Huw Pill, has suggested it may have been a mistake to keep QE running through the pandemic….

Bailey refuses to engage with hingsight-based questions – as the Bank makes policy based on what it knows at the time.

It’s hardly radical to suggests monetary policy would be different if we knew then what we know now, Bailey adds.

Updated

Bank of England governor Andrew Bailey is testifying to the House of Lords economic affairs committee shortly – it’s being streamed live here.

Updated

Credit Suisse shares hit record low

In the banking sector, meanwhile, shares in Credit Suisse have dropped to a new alltime low.

They’re down 4%, below 3 Swiss francs, as investors sell the rights to subscribe to new shares in a cash call meant to strengthen its finances.

Credit Suisse has lost two-thirds of its value this year, as the cost of insuring its debt against default hit record levels.

It’s been caught up in a series of scandals, including the collapse of the lender Greensill Capital and the US hedge fund Archegos Capital in 2021. It has also been fined over £350m for its role in the Mozambique “tuna bonds” loan scandal.

The bank is cutting 9,000 jobs, as well as looking to raise billions from investors, including through its new rights issue (which gives existing shareholders the option of buying more stock).

Last week, it said a “challenging” economic and market environment had hurt client activity, as it warned shareholders to expect a pretax loss of up to 1.5 billion Swiss francs this quarter.

Updated

Elsewhere in the energy market, Ofgem has ordered energy supplier Delta to pay £57,000 immediately after it failed to meet its renewables obligations and provide information for the regulator’s Supplier of Last Resort scheme.

Delta, which serves 1,690 business customers in the UK, failed to meet the standards set for them as a supplier, the regulator said.

Ofgem has issued two ‘Provisional Orders’ after Delta failed to pay into the Feed-in Tariff (FIT) scheme, a programme which supports investment in and uptake of renewable electricity generation and failed to provide information requested by the regulator for its Supplier of Last Resort (SoLR) scheme.

Earlier this month, Delta was warned about its finances after failing to prove it was financially resilient in the current volatile energy market.

Sale of Bulb to Octopus Energy faces further delays - Bloomberg

The sale of energy supplier Bulb to Octopus is facing further delays as rivals plan to challenge the UK government’s decision in court, Bloomberg reports.

We had been expecting a City court to approve the sale today. But lawyers for the bust supplier’s administrators say rival suppliers are pushing for a judicial review.

Bloomberg have the details:

Iberdrola’s Scottish Power, EON, and Centrica Plc’s British Gas are planning to take the deal to Judicial Review, a court process that looks at the legality of a government decision, Teneo Inc.’s lawyers said at a hearing in London on Tuesday.

“It is worth observing at the outset that the intervening energy companies each had an opportunity to participate in the sales process,” Richard Fisher, a lawyer representing Teneo who are overseeing the sale, said in court documents.

“All could have sought meetings with the administrators or government had they wished to investigate different funding options.

Bulb was the largest energy supplier to collapse as energy prices soared in 2021, and was too big to be rescued by a rival.

Instead, it entered a special administration overseen by the UK government and run by the restructuring firm Teneo.

The cost of bailing out Bulb, which has around 1.4m customers, has hit £6.5bn, according to the Office for Budget Responsibility. The cost escalated after the Ukraine war drove gas prices even higher this year.

Octopus sealed a deal to take on Bulb at the end of October. But, as we reported earlier this month, the UK’s spending watchdog is to examine the deal.

According to Bloomberg, Scottish Power objects to the deal struck as it may involve a “dowry” being paid to Octopus of at least £1bn to cover buying energy to supply customers with, its lawyers said in court documents.

More here.

Most UK business leaders say 'Brexit freedoms' not a priority

Most UK businesses have no interest in or understanding of the government’s flagship “Brexit freedoms” plan to scrap EU regulations, according to a survey of bosses.

The British Chambers of Commerce (BCC) said almost three-quarters of company directors were either unaware of the government plans or did not know the details.

Across all business areas, about half in the survey of almost 1,000 firms said deregulation was either a low priority or not a priority at all.

William Bain, the head of trade policy at the BCC, which represents thousands of firms of all sizes across the country, said:

“Businesses did not ask for this bill, and as our survey highlights, they are not clamouring for a bonfire of regulations for the sake of it.

“They don’t want to see divergence from EU regulations which makes it more difficult, costly or impossible to export their goods and services.”

Updated

Bank of England's Mann: We could pull back on rates once inflation tamed

Just in: Bank of England policymaker Catherine Mann has suggested the Bank could cut interest rates from the middle of next year

Mann has said that financial market pricing suggesting cuts in interest rates were “an accurate assessment of what the prospects for Bank rate are”

Asked on an online conference hosted by the Conference Board what the determinants would be for considering rate cuts, she said:

“One of the things about market assumption was that it did contain some drift down from the peak. A humped profile. I think that is an accurate assessment of what the prospects for Bank rate are.

That there will be a peak that will serve to temper medium-term inflation expectations, and at that point, we have the opportunity to pull back from that peak.

So we’re really managing in my view, it’s critical to manage inflation expectations, and in order to do that you might have to be a bit more aggressive in the near term so that you can then pull back once you have tempered those medium term inflation expectations.”

Mann also flagged that inflation is ‘increasingly embedded’ in UK firms, something which will concern the BoE.

The financial markets are currently pricing Bank rate hitting at least 4.5% by next summer, up from 3% at present, before then easing back.

Last week, deputy governor Sir Dave Ramsden suggested he could vote to cut interest rates if cost of living pressures eased faster than expected.

Inflationary pressures in Germany have eased, in a sign that the cost of living crunch might be easing.

Consumer prices in Europe’s largest economy rose by 10% in the year to November, down from 10.4% a month earlier. During the month, prices fell by 0.5%.

Energy and food prices were the biggest factors pushing up the cost of living.

Statistics body Destatis says:

In November 2022, food prices showed above-average growth (+21%) compared with the same month of the previous year. In contrast, energy prices have eased slightly but are still 38.4% higher than in the same month a year earlier.

On an EU-harmonised basis, Germany’s inflation rate dipped to 11.3% from 11.6%.

Although double-digit inflation is clearly Still Too High, it may indicate that the worst of Europe’s inflationary surge is over….

FT: Alibaba founder Jack Ma living in Tokyo after China’s tech crackdown

The Financial Times have a good scoop – Jack Ma, the Alibaba founder and once the richest business leader in China, has been living in central Tokyo for nearly six months.

Ma’s whereabouts have been unclear since Beijing launched a crackdown on China’s tech sector. He vanished for several months at the end of 2020, after regulators dramatically blocked Ma’s plans to float his Ant Group on the stock market, in what would have been the world’s largest share offering.

Ma had angered Beijing by criticising China’s banks, claiming they had a “pawnshop mentality”, prompting authorities to rein him in.

As the FT point out, Ma has managed to avoid the zero-Covid restrictions that have hampered China’s recovery, and angered its people.

They report:

Ma’s months-long stay in Japan with his family has included stints in hot spring and ski resorts in the countryside outside Tokyo and regular trips to the US and Israel, according to people with direct knowledge of his whereabouts….

Since his fallout with Chinese authorities, Ma has been spotted in various countries including Spain and the Netherlands.

Spending less time in his home in China means the billionaire has avoided the tough Covid-19 quarantines imposed on anyone entering the country, as well as thorny political issues arising from his previous push to build influence in the country’s halls of power.

Here’s the full story: Alibaba founder Jack Ma living in Tokyo after China’s tech crackdown

Switzerland’s economy is growing less rapidly than expected, the latest official figures show.

Swiss GDP rose by 0.2% in the third quarter of the year, slower than forecast, and was just 0.5% larger than a year ago.

Although net exports jumped, there was an unexpected slowdown in private consumption, as households cut back.

That followed downwardly revised quarterly growth of 0.1% in the second quarter.

Abrdn: Pound faces an unhappy time

Hopes that China might ease its Covid restrictions soon have cheered investors, weakening the safe-haven US dollar.

That’s pushed the pound back over the $1.20 mark – back above its levels before the mini-budget.

Sterling has also benefitted from hopes that America’s Federal Reserve may slow its interest rate rises soon.

However, the pound may suffer if the UK falls into recession.

James Athey, investment director at abrdn, fears that the recent rally may fade,

We think the easy gains have been had for now. The reality is that a recession is coming, and a Fed rescue is coming less quickly than in recent years.

We see that reality as a coming cold shower for buoyant risk markets and as ever we expect the dollar to benefit from the resultant flight to quality. With the UK economic outlook being even worse, this portends an unhappy combination for sterling.

Updated

Back in the City, banking giant HSBC is among the top FTSE 100 risers after selling its Canadian banking operations in an £8bn deal.

Royal Bank of Canada has agreed to acquire HSBC Canada for $13.5bn Canadian dollars.

The deal follows pressure from the group’s largest shareholder, Ping An, to split off its Asia-Pacific arm to boost value for shareholders.

HSBC shares are up over 4%, also benefiting from China’s push to vaccinate its elderly population faster.

Investment bank Jefferies has helpfully produced this chart, showing how new mortgage rates continued to surge upwards in October – hitting demand for home loans.

UK mortgage rates

Updated

With mortgages approvals sliding, people selling their home need to price it ‘realistically’ to get a sale, warns Jason Tebb, CEO of property search website OnTheMarket.com:

With interest rates and the cost of living continuing to rise, buyers may have less buying power but even in challenging markets, people need to move.

Sellers should take advice from experienced local agents and price realistically or may find their properties stick on the market.”

Yesterday, property website Zoople reported that demand had weakened, prompting homeowners to accept offers below the asking price.

That trend could accelerate if prices to start to correct, having risen strongly over the last two years.

Strike News 2): UK firefighters are to vote on whether to strike, in the latest industrial dispute over below-inflation pay offers.

The Fire Brigades Union (FBU) said the “historic ballot” comes after its members – firefighters and control staff – rejected a 5% increase to their wages.

The strike ballot is set to be open from Monday 5 December to Monday 30 January.

If a national strike were to take place, it would be the first national strike since pension action between 2013 and 2015 (which did not include control), and the first on pay since 2002-2003, the FBU says.

Matt Wrack, Fire Brigades Union general secretary, said staff have been left with no option but to vote on strike action:

This is an historic ballot for firefighters and control staff. We are rarely driven to these lengths.

Nobody wants to be in this position. But after years of derisory pay increases and a pay offer that is well below inflation firefighters’ and control staff’s living standards are in peril.

Wrack added it is “utterly disgraceful” to call people “key workers” and then only offer them a real terms pay cut.

Updated

Strike news 1): The UK’s Transport Secretary has made it clear his role is to “facilitate and support” a deal in the long-running rail dispute, rather than get involved in negotiations.

In a letter to the Rail, Maritime and Transport union (RMT), following a letter last week, Mark Harper said the industrial dispute on the railways was bad for workers, businesses and customers.

“We both want a long-term sustainable railway that provides both great service and rewarding jobs.

“Every day’s industrial action makes that harder to deliver.”

Following last week’s talks, RMT general secretary Mick Lynch said it wasn’t clear who had the authority to negotiate a pay settlement that would end the dispute.

Despite that, Harper is still keeping to the sidelines, saying his role is to “facilitate and support, not negotiate”.

“Negotiations will continue between trade unions and employers, but I can see scope for agreement.”

Andy Sparrow’s Politics Live blog has all the details:

People have been tapping their flexible savings accounts – perhaps to cover rising living costs – today’s statistics from the Bank of England show.

Myron Jobson, senior personal finance analyst at interactive investor, has dug into the data and explains:

There was a significant uptick in the amount of cash deposited in fixed term accounts which typically offer a more attractive savings rate with a trade-off of not being able to access your cash without penalty until the end of a specified period.

“But this is offset by outflows to the tune of £4.8 billion from ‘sight deposit’ accounts, flexible savings accounts allowing savers to make withdrawals without giving notice. This suggests that more and more people are being forced to raid easily accessible savings to help tide them over amid the cost-of-living crisis.

The drop in UK mortgage approvals last month is the prelude to a house price correction next year, predicts Sam Miley, senior economist at the CEBR thinktank:

The impacts of tighter monetary policy are also starting to show in the housing market, given that both mortgage approvals and net mortgage lending showed stark falls in October.

Cebr expects this trend to continue and to culminate in a house price correction in 2023.”

Germany's economy minister vows to defend industry

Over in Berlin, Germany’s economy minister has insisted that the government will defend its industrial sector, as it is hit by a slowing economy and soaring energy prices.

Robert Habeck told an industry conference that Germany will not abandon its status as an industrial nation, saying:

“Anyone who believes that we will let Germany as a location for industry go to ruin has not done the math with German industry.

His comments follow concerns that industrial jobs could move overseas, if Germany falls into recession.

Germany’s ambassador to the UK, meanwhile, is concerned that trade between the two countries has waned steadily since the Brexit referendum, with Britain dropping out of Germany’s top 10 trading partners.

Quilter: UK housing market is weakening

The UK housing market is on the brink of a significant dip, if not a crash, warns Karen Noye, mortgage expert at Quilter:

The latest figures reveal that mortgage approvals for house purchases fell to 59,000 in October, down from 66,000 in September.

“This latest fall suggests demand is beginning to come out of the market, and this may come at a time where more people are starting to consider putting their properties up for sale as a result of unaffordable mortgage and heating costs.

The cost of living crisis could further weaken the markest, Noye adds:

As we move further into the winter and the temperature drops, increased energy bills alongside greatly increased mortgage payments may result in more and more people being unable to afford to stay in their current homes.

If this is the case - and the level of demand continues to decrease - we will likely see a subsequent reduction in house prices and a switch from the seller’s market seen in recent years to a buyer’s market.

The Bank of England’s money and credit report also shows the impact of higher interest rates on savers and borrowers.

The “effective” interest rate — the actual interest rate paid — on new UK mortgages increased by 25 basis points to 3.09% in October, as the cost of mortgages rose.

On the other hand, the effective interest rate paid on deposits with banks and building societies rose:

Sizewell C nuclear plant confirmed with £700m public stake

EDF's Sizewell B nuclear power station.
EDF's Sizewell B nuclear power station. Photograph: Chris Radburn/AFP/Getty Images

The UK government has confirmed the new Sizewell C nuclear power plant in Suffolk will go ahead, backing the scheme with a £700m stake.

Under the plan, Britain will become a 50% shareholder in the Sizewell C nuclear project under a deal with its owner EDF.

This will allow them to buy out a Chinese backer, China General Nuclear (CGN), and (ministers hope) attract new investment to the project.

The £700m stake is the first state backing of a UK nuclear project in over 30 years

Ministers said the move, first announced in Jeremy Hunt’s autumn statement, would create 10,000 highly skilled jobs, provide reliable low-carbon power to the equivalent of 6m homes for more than 50 years and would help secure UK energy security.

The government also said it would set up an arm’s-length body, Great British Nuclear, which would develop a pipeline of nuclear projects beyond Sizewell C.

Her’s the full story:

Higher interest rates also chilled the UK housing market last month, pushing down mortgage applications.

The Bank of England’s base rate is now 3%, up from 0.1% a year ago – and expected to hit 4.5% by next summer.

Ashley Webb of Capital Economics, which expects a 12% peak-to-trough fall in house prices, predicts the slowdown will worsen:

Overall, with high inflation and further rate hikes (from 3.00% now to 4.50%) set to squeeze households’ finances further and reduce the demand for credit, we think housing market activity will fall sharply from here and real GDP will decline by 2% during a recession.

The value of mortgage lending within the UK has also fallen, to its lowest level in nearly a year.

Net borrowing of mortgage debt by individuals decreased from £5.9bn to below £4.0bn in october, the lowest reading since November 2021.

The sharp drop in UK mortgage approvals last month is the latest sign that the housing market, and the wider economy, is slowing.

Karim Haji, UK head of financial services at KPMG, says:

It’s not hugely surprising, being a combination of the higher rates attached to products on the market, which have made them less affordable for many, and caution among consumers about taking on large new financial commitments in such a gloomy environment.

Updated

UK mortgage approvals hit lowest since June 2020 as housing market cools

The number of mortgages approved by UK lenders fell by 10% last month, after Kwasi Kwarteng’s mini-budget caused turmoil in the markets.

Mortgage approvals for house purchases decreased to 59,000 in October from 66,000 in September, new data from the Bank of England shows.

That’s the lowest since June 2020, when the housing market was hit by the first wave of Covid-19, down from almost 66,000 in September.

Some lenders pulled their mortgage offers after the mini-budget, while others lifted the interest rate on their deals – which may have put some buyers off.

Simon Gammon, managing partner at Knight Frank Finance, says this lending data shows activity “slowing markedly”.

Monthly mortgage approvals for the purchase of homes are running below long run averages, which may be a sign of things to come. The mini-budget weighed heavily on sentiment and it’s now clear many buyers have opted to postpone acting at least until the other side of Christmas, but we’d expect activity to be subdued until 2023 while borrowers digest what is a “new normal” for interest rates.

Gammon adds that the market feels ‘very finely balanced’, after the mini-budget turmoil ended:

Average mortgage rates surged during October amid the chaotic days following the mini budget. It wasn’t until very recently that lenders began dropping rates following the Bank of England’s intervention and subsequent scrapping of the government’s most controversial proposals.

“Those rate cuts will come through in November’s data, but we probably won’t see much further easing until the new year. The positive news is things have settled down, but the market still feels very finely balanced.

The Bank also reports that consumers borrowed an additional £800m in consumer credit in October, as households tried to cope with surging food and energy bills.

Updated

Shares in China’s property firms and banks rallied today, after regulatorr announced they were lifting a ban curbing Chinese developers from selling additional shares

The move eased fears of a debt crisis in the world’s second-biggest economy, lifting stocks and bonds.

Why boosting elderly vaccinations could help ease China's pandemic restrictions

Increasing vaccination rates among China’s elderly population could be a significant step towards relaxing zero-Covid restrictions.

Bloomberg’s David Ingles points out that senior citizens make up a significant part of the population:

Brian Tycangco of Stansberry Research agrees that the vaccination push announced today is a big deal for a potential reopening:

An easyJet plane parked on the tarmac of Nice Cote d'Azur Airport Terminal 2.

Meanwhile in Europe, bookings at easyJet for Christmas, the ski season and other peak periods have bounced back to pre-pandemic levels.

The airline has also dramatically reduced its full-year loss to £178m.

“Peak holiday weeks this winter, such as October half-term and Christmas week in the UK, are back to normal levels of volume,” easyJet said.

However, chief executive Johan Lundgren also warned that in quieter times the airline is still struggling to get enough passengers. It expects to have fully returned to 2019 capacity levels by next summer.

Lundgren said the carrier was experiencing strong demand in peak periods. He told BBC Radio 4’s Today programme:

“We just had a half-term in October that was strong, we see strong demand for Christmas, for new year, for the ski season where easyJet is the largest airline in Europe to the ski markets.

FTSE 100 hits three-month high as hopes of China Covid easing build

European stock markets are ralling in early trading too, on hopes that China might curb some of its stringent Covid curbs.

The FTSE 100 index of blue-chip shares has hit a three-month high, gaining 64 points or 0.85% to 7538 points, the highest since mid-August.

With China now pushing to vaccinate elderly people faster, Asia-Pacific focused companies such as Prudential (+6%) and Standard Chartered (+3%) are in the top risers.

Mining giants Rio Tinto (+3.3%) and Anglo American (+3.2%) are also benefitting from hopes of further easing of constraints on activity, as is luxury goods maker Burberry.

The crackdown on demononstrators overnight in China also appears to have squashed protests at several cities, although it’s not clear for how long.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, explains:

‘’Police in China have quashed mass Covid demonstrations for now, helping stocks regain their footing on indices across Asia, setting the tone for a positive open in Europe. But with the strict Covid policy continuing there is every chance protests will bubble up again, adding another laying of complication for an economic recovery.

Worries about fresh supply chain snarl ups have been weighing on investors’ minds as fresh waves of infections hit cities across China, with stocks on Wall Street falling back. Apple is the example of how lockdowns can disrupt shipments given that iPhone production is reportedly taking another knock as its supplier’s megafactory in Zhengzhou is hit with a lockdowns and a workers’ revolt.

Beijing officials have also reported significant progress in getting Covid-19 booster shots for people “over age 80.”

The comments came as health authorities announced the new push to get its elderly population further vaccinated against Covid-19 (see earlier post).

CNBC has the details:

  • China said 65.8% of people over age 80 have received booster shots, up from 40% as of November 11.

  • When asked in English whether China was reconsidering its Covid policy after the protests, an official simply said they have been monitoring the virus’ development, without further elaboration.

Today’s press conference also heard that vaccination is still effective in preventing severe illness and death, and that the elderly are among the biggest beneficiaries.

Oil jumps

Hopes that China might ease its Covid controls have helped to drive the oil price up, after it hit its lowest level in almost a year yesterday.

Brent crude has gained almost 2% to $84.69 per barrel, also lifted by talk that the Opec+ cartel might cut production again.

Hong Kong stocks surge after China encourages elderly vaccination

After Monday’s losses, Chinese markets are rallying back today.

Hong Kong’s Hang Seng has surged more than 4% in late trading, as China announced plans to ramp up vaccinations for elderly citizens.

The Hang Seng Tech Index is up by more than 5.5%, while the Shanghai Composite rallied over 2% on hopes that Beijing would announce new measures to fight the pandemic.

Victoria Scholar, head of investment at interactive investor, tells us:

Markets were pushing higher overnight in anticipation of this morning’s Covid briefing held by China’s health authorities at 3pm local time in which they announced plans to increase vaccinations for the elderly and to reduce the time gap between basic vaccination and boosters to three months for those aged 80 and above.

The authorities insisted that people’s complaints are about extra Covid measures and a one-size-fits-all approach rather than the measures themselves.

Chinese covid vaccine company CanSino Biologics jumped more than 6% after China announced plans to ramp up its vaccination efforts. The Chinese yuan is also rallying by around 0.6% against the US dollar as the risk-on mood dampens investor appetite for the greenback.

Updated

China to ramp up Covid vaccinations for elderly

China has announced it would bolster vaccination among its senior citizens.

China’s National Health Commission has announced the push, as pressure builds to move away from its zero-Covid policies amid the worst outbreak of the virus yet in the country.

Reuters has the details:

China will step up efforts to increase the rate of vaccination for people aged above 80 and will shorten the time gap between basic vaccination and booster shots to three months for the elderly, the commission said.

People aged 60 and above who have received two doses inched up from 85.6% in August to 86.4% in November, while the booster rate rose from 67.8% to 68.2% over the same period, according to official data

This could be an important step towards reopening China’s economy.

Bloomberg says:

Authorities plan to push shots harder in places like nursing centers, while making those unwilling to get inoculated provide a reason for their refusal, according to a statement Tuesday from the National Health Commission.

Introduction: China’s covid policies upend car making again

The Buick Envision SUV assembley line at the GM Dong Yue assembly plant in Yantai, Shandong Province of China.
The Buick Envision SUV assembley line at the GM Dong Yue assembly plant in Yantai, Shandong Province of China. Photograph: VCG/Getty Images

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

Nearly three years into the Covid-19 pandemic, China’s stringent zero-covid restrictions are hurting its carmaking industry again, as infections jump at a record pace.

Production at several automakers has been disrupted, either because staff can’t get to their workplace or due to shortages of components.

Honda Motor, for example, suspended operations at three automobile plants in Wuhan on Monday –because employees were unable to go to work due to citywide shutdowns

A factory in Chongqing, which makes general-purpose engines, will be largely shut down until December 2, Honda said, while production at another auto plant in Guangzhou is being adjusted.

Honda said.

“While closely monitoring the situation, we will strive to minimize the impact.”

Production at Volkswagen’s plant in Chengdu – which it operates with local partner FAW Group – has been halted for the past week due to rising coronavirus cases.

Two of the five production lines at another plant, in Changchun, is also on hold – due to a lack of available parts.

A VW spokesperson has explained that other plants are stable but that the situation is volatile, as lockdowns and restrictions continue to inhibit growth.

BMW also fears further Covid-related lockdowns in China next year which would disrupt demand for its fully-electric models and expectations of stable global sales.

“In China, lockdowns are currently increasing, not decreasing,” Chief Executive Officer Oliver Zipse said to reporters at an event late last week:

“I am worried about how we get out of the lockdown situation in future quarters. There is no visibility that China has a solution.”

Other automakers have been scrambling to adjust their production, although others say they’ve not been hit yet, as Bloomberg reports:

Motorcycle maker Yamaha Motor Co is partially suspending production at its motorcycle plant in Chongqing, where 8,721 new Covid cases were reported on November 28.

Other Japanese carmakers including Nissan Motor Co., Mazda Motor Corp. and Mitsubishi Motors Corp. told Bloomberg their China operations haven’t been impacted yet.

Toyota Motor Corp., the world’s No. 1 carmaker, is adjusting production at parts of its Chinese factories due to multiple factors, spokeswoman Shino Yamada said, declining to elaborate.

Investors will be watching China closely, where police have been stamping out zero-Covid protests after a wave of civil disobedience last weekend.

Also coming up today

On the economic front, we find out how many UK mortgages were approved last month. Economists expect a fall, after the mini-budget rocked the markets. Germany will release its preliminary inflation report for November, while Canada will report Q3 growth figures.

EasyJet, Topps Tiles and Greenore Group are reporting financial results.

And Octopus’s takeover of collapsed energy supplier Bulb could be rubber-stamped, at a court hearing in the City of London’s Rolls Building.

The agenda

  • 8am GMT: Switzerland’s Q3 GDP report

  • 9.30am GMT: UK mortgage approvals and credit card lending data for October

  • 10am GMT: Eurozone consumer, economic and industrial confidence report

  • 12.35pm GMT: Bank of England MPC member Catherine Mann takes part in a panel discussion on “policy solutions, fiscal and monetary”

  • 1pm GMT: German inflation report for November

  • 1.30pm GMT: Canadian Q3 GDP

  • 2pm GMT: US house price index for September

  • 3pm GMT: Andrew Bailey, governor of the Bank of England, faces the House of Lords Economic Affairs Committee.

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