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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK inflation ‘to hit 18%’ as energy bills rocket; recession fears hit markets – as it happened

Cineworld
UK inflation is on course to rise over 18.6% — the highest peak in almost half a century — due to soaring wholesale gas prices, warns Citi
UK inflation is on course to rise over 18.6% — the highest peak in almost half a century — due to soaring wholesale gas prices, warns Citi Photograph: Danny Lawson/PA

Afternoon summary

Time to wrap up – here’s some of today’s main stories:

Russian court rules local Shell joint venture to move under Moscow control

Some late energy news from Russia, via Reuters:

A Russian court has ruled that Salym Petroleum Development (SPD), a joint venture between Shell and Gazprom Neft, should be transferred to Russian jurisdiction, Interfax news agency reported, citing the verdict.

Kommersant daily reported last week that Gazprom Neft was suing to have its Salym Petroleum Development joint venture with Shell be transferred to Russian jurisdiction, and for Shell’s shareholding rights to be suspended.

In March, Shell announced plans to end operations in Russia amid Western sanctions imposed over the conflict in Ukraine. The two companies each own 50% of the venture.

European gas prices are also on track to close at record levels.

The benchmark TTF gas price in Europe has rallied more than 10% to a high of €290 per megawatt hour and is on course to notch up its highest closing price on record, the FT points out.

Updated

It is “difficult to see how many will cope” this winter, energy experts at Cornwall Insight have warned, as they publish their final predictions for Friday’s energy price cap rise.

Cornwall predicts that households will face an 80% rise in bills in October, just as they enter the winter period when energy use soars.

It predicts that the cap will rise to £3,554 from October,from £1,971 at present, and just £1,138 last winter. But it then sees another jump to £4,650 from January – even (slightly) higher than Citi’s forecast today.

Cornwal Insight says:

“While the energy price cap rise in April was already an unprecedent increase in domestic consumer energy bills, our final predictions for October are truly concerning,”

“With the cost of living spiralling and households looking at an energy bill rise of over £1,500 equivalent per year, it is difficult to see how many will cope with the coming winter.”

From April the price cap is expected to rise even further, to £5,341.

Wall Street has opened lower, as fears over aggressive interest rate hikes rear up again.

The benchmark S&P 500 index has dropped by 1.5%, or 63 points, to 4,165, as the summer rally fades.

European electricity prices at record levels

European benchmark electricity prices are hitting painful new records, reports Bloomberg’s Javier Blas:

Updated

ING economist Carsten Brzeski has warned that a European recession is inevitable.

He predicts that European GDP will shrink in the third and fourth quarter of this year, and also in Q1 2023, due to a ‘perfect storm’ of problems including high energy prices.

Markets lower amid recession fears

Recession worries are hitting European stock markets today.

Fears about tightening gas supplies from Russia, hawkish signals from the European Central Bank and a weak economic outlook – including the Bundesbank’s warning that Germany could slide into recession – are all weighing on investors’ minds.

Germany’s DAX is leading the selloff, down 2%, with Italy’s FTSE MIB off 1.9% and France’s CAC 1.6% lower.

In London, the blue-chip FTSE 100 is down 42 points, or 0.6%, with packaging firm Smurfit Kappa (-4.1%), airline group IAG (-4%), technology-focused investor Scottish Mortgage and online grocer Ocado (-3.7%) leading the fallers.

Mihir Kapadia, CEO of Sun Global Investments, says the prospect of further interest rate rises are hurting markets.

“Market sentiment has been dampened by hawkish signals from the Fed Reserve and the ECB, as the wider consensus remains for a continued hike in interest rates, despite the risk of recession across major economies.

The S&P500 has snapped out of its four week bull run, as investors now anticipate hawkish comments from the Chairman of the Fed Reserve at the end of the week.

Inflation to drive debt spiral as "Shocktober" apparoaches

Millions of people will be pushed into dire straits if UK inflation hits 18.6% in January, as Citi warned today.

And the poorest will be worst hit when energy bills soar in October, points out Sarah Coles, senior personal finance analyst at Hargreaves Lansdown:

Because these horrible price hikes are being driven by the essentials people need to stay alive – like food and heat – it’s going to hit those on lower incomes hardest, who’ve got nothing left to give.

A winter of woe is looming amid these frightening forecasts and there is little help in sight to stop a spiral of debt as Shocktober approaches.

The hikes in the energy price cap are responsible for the lion’s share of the increase. The Bank of England had forecast for inflation to peak at 13% in the autumn, but gas prices have been climbing ever since, and Citi says it’s going to get far worse,

It’s going to hit those on lower incomes harder. Using these calculations, someone in the lowest 10% of earners could spend an average of 41% of their total income on energy by April – even before they’d put a roof over their head or fed their family. Someone living entirely on the full flat rate state pension could spend 60% of their income on energy by that point. Given that the price of everything else is also soaring, it’s going to be impossible for huge numbers of people to stay on top of their bills.

Food prices are also climbing into the stratosphere, with the prices of some staples up well over 25% in a year already.

Inflation is a global problem right now. And it’s just prompted the Bank of Israel to raise borrowing costs for the fourth time in a row.

Israel’s central bank has lifted its benchmark rate to 2%, from 1.25%, after inflation hit a 14-year high of 5.2% in July.

That’s barely half the UK’s inflation rate, though, which at 10.1% is the highest in the G7.

The Bank of Israel also warned that “global economic activity continues to moderate”, due to high inflation, tighter monetary policy, the Ukraine war, the energy crisis in Europe, the slowdown in China, and production chain problems.

Households could end up paying more than £150 extra on their energy bills because of the collapse of failed energy supplier Bulb.

The price of bailing out Bulb threatens to top £4bn by next spring, adding to the burden on UK energy customers.

The cost of bailing out the UK company, which has about 1.4 million customers, has escalated because of rising wholesale gas prices since Russia’s invasion of Ukraine.

The Office for Budget Responsibility said in March that the bailout would cost £2.2bn over two years. The consultancy Auxilione forecasts that Bulb could lose a further £420m for the six months to October, when households use less energy, and £1.6bn during the colder winter months.

Here’s the full story:

Back in the UK, disability equality charity Scope is calling for government to double its cost of living support package.

Tom Marsland, policy manager at Scope, says the charity has been inundated with calls from disabled people who have been cutting back for months and have nothing left to cut back.

With Friday’s energy price cap announcement looming, Marsland says much more support is needed:

“Every week we are seeing forecasts of increasingly harrowing inflation levels and energy bills.

“In the worst cost-of-living crisis in generations, the support from government for disabled people simply isn’t enough .

“Life costs more when you’re disabled. Many disabled people have no choice but to use more energy to charge vital equipment and keep warm.

“Disabled people need much more financial support. This cannot wait – the government must double the support package now.”

German recession increasingly likely, Bundesbank says

The Bundesbank headquarters in Frankfurt, Germany.
The Bundesbank headquarters in Frankfurt, Germany. Photograph: Bloomberg/Getty Images

Germany also faces a double-whammy of double-digit inflation and a possible recession.

In its monthly report, released today, the Bundesbank warned that a recession in the euro zone’s biggest economy is increasingly likely.

Economists at Germany’s central bank also forecast that inflation will continue to accelerate and could peak at more than 10% this autumn.

The Bundesbank said Germany’s economy is likely to shrink over the winter, as fears of Russian gas supply disruption hit confidence.

“Declining economic output in the winter months has become much more likely,

“The high degree of uncertainty over gas supplies this winter and the sharp price increases are likely to weigh heavily on households and companies.”

Fears that soaring energy prices will drive Europe into recession are weighing on the euro today too.

The single currency has dropped back below parity against the US dollar, towards the 20-year low set last month. It was hit by the latest jump in gas prices as Russia prepares to suspend its Nord Stream 1 pipeline for three days, and this morning’s figures showing a fall in German exports to non-EU countries.

The pound is also weaker against the US dollar, down 0.3% at a six week low below $1.18.

Updated

Average discretionary spending power fell by 12.7% last month, wiping out £4.4bn from the economy, according to the latest Cost of Living Tracker from money management app HyperJar.

It shows that the average family was left with £145 less per month to spend on non-essential items than a year ago, due to increased costs of essentials such as food, energy and rent.

Had it not been for the government’s cost of living payment (£326 to eight million low-income households), the least affluent households would have seen a discretionary spending drop of 18%, it adds.

Labour leader Kier Starmer has called for a' ‘national mission’ to insulate UK homes, to cut demand for energy in the long term.

Labour is proposing a major programme to upgrade 19 million homes across the country over the next decade, saving households an average of £1,000 per year.

Speaking on Monday, Sir Keir said:

“We need a national mission to insulate homes, that’s a longer-term issue.

We called for that a year ago now, if the Government had done that, we’d have the best part of two million homes insulated.”

An aerial view of Liquefied Natural Gas (LNG) storage tanks at the Grain LNG import terminal near Grain, Isle of Grain.
An aerial view of Liquefied Natural Gas (LNG) storage tanks at the Grain LNG import terminal near Grain, Isle of Grain. Photograph: Daniel Leal-Olivas/AFP/Getty Images

The first Australian gas shipment to Europe in more than half a decade is set to dock in the south of England on Monday, as gas shortages bite across the continent.

The Attalos gas tanker is set to pull into the Isle of Grain terminal in Kent, by the mouth of the Thames during the day, PA Media reports.

It brings a rare cargo of liquified natural gas (LNG) from Australia to Europe, the first in six years, according to data from Bloomberg.

Some of the gas is likely to be used in the UK straight away, but much of it will probably flow to Europe through the pipelines that connect Britain to the continent.

There it might be channelled into European gas storage sites and some of it could return to Britain during winter.

Here’s some early reaction to Citi’s grim inflation forecasts:

Victoria Scholar, head of investment at interactive investor, warns that a recession is almost inevitable:

Many individuals and businesses are feeling the squeeze, struggling with inflation that feels a lot higher than the official figures suggest. The rise in gas and food prices look set to push price levels higher, as the Bank of England’s interest rate increases so far seem to be doing little to offset supply side inflationary pressures imported from abroad.

Supply chain bottlenecks, the war in Ukraine and Brexit have all contributed to the post pandemic revival in inflation with price levels on track to reach perilous heights by the start of 2023. It looks like a recession is almost an inevitability at this stage with record low consumer confidence, the latest GDP figures pointing to a contraction and now fresh eyewatering inflation forecasts.”

The Bank of England is likely to keep raising UK interest rates in an attempt to prevent inflation becoming more persistent and embedded – even though higher borrowing costs won’t bring down global gas prices.

Last week, Citi forecast that the BoE would raise interest rates by a total of 125 basis points at its next three meetings (which would take them to 3% by the end of 2022, from 1.75% at present).

In today’s inflation forecasts, Benjamin Nabarro predicts that rising unemployment could lead the Bank to then pause its rate hikes around the turn of the year.

With inflation now set to peak substantially higher than the 13% forecast in August, we expect the MPC will conclude the risks surrounding more persistent inflation have intensified. This means getting rates well into restrictive territory, and quickly. Should signs of more embedded inflation emerge, we think Bank Rate of 6-7% will be required to bring inflation dynamics under control.

For now though, we continue to think evidence for such effects are limited – with increases in unemployment still more likely to allow the MPC to pause around the turn of the year.

The last time UK inflation was higher than 18.6% was in 1976, after an oil supply shock that devastated the global economy and left the UK seeking a bailout from the International Monetary Fund, points out Bloomberg.

It last matched that level in 1980, according to Bloomberg figures.

Liz Truss’s desire to cut taxes may mean less support for ‘disinflationary measures’, Citi’s chief economist Benjamin Nabarro adds:

Nabarro predicts that the government will add to its existing support, suggesting a support package of around £40bn:

We already account for a £300 reduction in bills associated with the suspension of the Green Levy and a cut to VAT on household energy bills.

However, in reality any government response to this is likely to involve substantially more fiscal firepower (around £40bn in our view). Offsetting the energy increase in full would cost around £30bn for the coming six months (1.4% GDP).

The issue for inflation is whatever fiscal space is deployed is likely to be squeezed between weaker medium term forecasts and the desire to cut taxation. This means disinflationary measures are likely somewhat further down the pecking order.

Updated

UK inflation to hit 18% as energy bills rocket, warns Citi

Surging energy bills will drive UK inflation over 18% early next year — the highest peak in almost half a century — investment bank Citi has warned.

Citi has forecast that CPI inflation will hit 18.6% in January 2023, while the RPI inflation rate will hit 21%, due to extremely painful rises in energy bills that will push the cost of living into the “stratosphere”.

Citi predicts that the price cap on energy bills across Great Britain will rise to £3,717 in October (up from £1,971 today), and then jump to £4,567 in January and then £5,816 in April.

Benjamin Nabarro, chief UK economist at Citi, told clients:

Our latest estimate, updated for the further 25% and 7% rally in UK gas and electricity prices last week, points to a further upside shift in UK inflation.

Accounting for these developments, as well as updating our own weights for CPI/ RPI and honing our own accounting for curve backwardation, we now expect CPI inflation to peak at over 18% in January. RPI inflation, we think, will peak at over 20%.

Citi’s UK inflation forecasts
Citi’s UK inflation forecasts Photograph: Citi

CPI inflation jumped to 10.1% in July, a 40-year high.

The question now is what policy may do to offset the impact on both inflation and the real economy, Nabarro adds:

For now, we think [Liz] Truss’s comments point to only a limited offset for headline inflation. Though the risks remain skewed towards further support.

Earlier this month the Bank of England forecast that UK inflation will peak over 13% this autumn when the energy price cap is lifted.

Wholesale gas prices have continued to rise through August, as Vladimir Putin has ‘weaponised’ Russia’s energy supplies.

As flagged earlier, they’ve surged this morning as Gazprom prepares to shut down its Nord Stream 1 pipeline for three days at the end of this month.

The FT points out that if UK inflation hits 18%, that would be higher than the peak of inflation after the second Opec oil shock of 1979 when CPI reached 17.8%, according to estimates from the Office for National Statistics.

Updated

Poor households, and those in badly insulted homes, will suffer most from the looming surge in energy bills, warned Resolution Foundation in a report published this month:

Average pay for FTSE 100 chiefs jumps by 39% to £3.4m

One group of workers has managed to get an inflation-beating increase in earnings – Britain’s CEOs.

Chief executives of the UK’s 100 biggest companies have seen their pay jump by 39% to an average of £3.4m, according to research by the High Pay Centre thinktank and the Trades Union Congress (TUC).

The median average pay of CEOs of companies in the FTSE 100 index rose to £3.4m in 2021, compared with £2.5m in 2020 during the height of the coronavirus pandemic when many bosses took a voluntary pay cut as they placed millions of employees on furlough.

CEO pay has also surpassed the £3.25m median recorded in 2019, before the pandemic.

Here’s the full story, by our wealth correspondent Rupert Neate:

Updated

Bill Bullen, the chief executive of Utilita, has called for the Conservative party to end their leadership contest early so that the energy crisis can be tackled now.

Bullen warned that the crisis cannot wait until Boris Johnson’s successor has been chosen in early September. Action is needed this week, ahead of Ofgem’s price cap announcement on Friday.

Bullen told the Today programme:

“All through the summer, we’ve been hearing about customers in distress, customers who are worried that they’re not able to heat their homes over this coming winter.

“That’s why we’re saying to the Government, you’ve got to take this decision to freeze prices at their current level right now.

“This cannot wait until the 5th or 6th of September. The Conservative Party needs to sort themselves out, decide who the leader is going to be this week, so that the Ofgem announcement on the 26th doesn’t have to happen. That is such an imperative.

“Frankly, for the sake of the nation, I think the Conservative Party need to sort their leadership contest out quicker than they’re currently planning to do it. Then at least we will take away the stress of this winter coming up for tens of millions of households.”

Liz Truss, the frontrunner to become the next prime minister, signalled over the weekend she would provide assistance “across the board” for households and businesses hit by soaring energy prices.

Previously she’s opposed “giving out handouts”, but that position may be shifting as millions of households face a grim winter [the cap is likely to rise again in January].

Octopus boss: Gas price surge equivalent to £25 pint

If beer prices had risen as fast as gas prices this year, then a pint of beer would cost £25, the head of supplier Octopus Energy points out.

Greg Jackson, founder and chief executive of Octopus, told Radio 4’s Today Programme that gas prices are currently nine to 11 times higher than usual.

“Look, to put that in perspective, if this was beer, we’re talking about the wholesale price being £25 a pint.

“People don’t know what a therm is, but, underneath it, the price per therm has gone from 60p to around £5 at the moment and that’s what’s passing through to customers if we don’t do something.”

Jackson added that there are systemic issues within the energy industry, but that energy suppliers can’t be expected to pass such high wholesale costs onto consumers.

Energy regulator Ofgem is due to announce the UK’s energy price cap on Friday. Bills could soar around 80% from October, to £3,600 per year from £1,971 at present.

Jackson warned that the UK’s energy bill is rising from £15bn in a normal year to £75bn this year – the equivalent of an extra 9p on the base rate income tax.

He says the government must increase its existing support package – one option would be to create a ‘tariff deficit fund’, which would freeze the cap where it is, and repay the cost when wholesale prices return to normal levels.

UK gas prices jump on Russia supply fears

UK wholesale gas prices have surged this morning, after Russia announced it will halt supplies through its main pipeline to Europe for three days at the end of the month.

The price of gas for delivery to the UK next month has risen almost 20% to 550p per therm.

That’s its highest since early March after the Ukraine war began.

The UK month-ahead gas price
The UK month-ahead gas price Photograph: Refinitiv

The day-ahead UK gas price has jumped 27% to 460p per therm.

European gas prices have risen too, with the benchmark September contract up 5%, and the October contract jumping 10%.

The move comes after Gazprom said on Friday it would conduct unscheduled maintenance on a Nord Stream 1 turbine, which pumps gas under the Baltic Sea to Germany.

The move deepens an energy standoff between Moscow and Brussels, at a time when European countries are trying to build up stockpiles for the winter.

Analyst Nathan Piper of Investec says concerns over gas supplies are rising, pushing up prices:

Gazprom announced an unplanned maintenance of a Nordstream 1 turbine. Gas supplies via the pipeline will be shut off for at least three days starting end August.

Russian gas supplies to Europe were already down 75% year on year and this announcement has pushed UK/European gas prices to all-time highs (10x the 10-year average) for five consecutive days.

We anticipate a further surge in spot prices and the forward curve as uncertainties around gas supply increase ahead of winter, when gas demand rises for heating.

Barristers have voted to begin striking indefinitely from next month, in the latest industrial action to hit the UK.

The Criminal Bar Association, which represents advocates in England and Wales, has announced that 80% of voting members had backed escalating their industrial action in their ongoing dispute over government funding.

They will now walk out indefinitely from September 5, the day Boris Johnson’s successor as new prime minister is due to be announced.

Barristers began holding strikes earlier this summer, warning that cuts to legal aid funding were bringing the criminal justice system to its knees.

The CBA says there has been a 28% cut in criminal legal aid fees in the past decade and is demanding a 25% increase.

Updated

Germany has been hit by a drop in exports to non-European Union countries last month.

German exports beyond the EU fell by 7.6% on the month in July, the Federal Statistics Office said this morning.

That shows Europe’s largest economy made a weak start to the second half of 2022, after failing to grow in April-June, as the global economy struggled.

Reuters has more details:

The United States remained the most important trading partner for German exporters in July, with exports of goods to the U.S. market rising 14.9% on the year. Exports to China rose 6.1% on the year. Exports to Russia fell 56.0% on the year.

The German economy became more dependent on China in the first half of 2022, with direct investment and its trade deficit reaching new heights, despite political pressure on Berlin to pivot away from Beijing, according to research seen by Reuters

Over in China, the central bank has slashed mortgage lending rates for the second time this year as it battles a liquidity crisis in the property sector.

China’s five-year loan prime rate has been cut to 4.3%, from 4.45%, matching the record reduction made in May.

The moves suggests the People’s Bank of China is worried about problems in the housing market.

Last month, Chinese banks were told to bail out struggling property developers to help them complete unfinished housing projects and head off the growing mortgage strike that threatens to seriously damage the economy.

Cineworld’s debt burden has left the company on the brink of collapse, warns Victoria Scholar, head of investment at interactive investor:

The company has been destroyed by the pandemic. Covid meant that cinemas were closed for many months, Hollywood was unable to churn out hits and consumer preferences shifted towards streaming instead which has caused lasting damage for ticket demand even after movie theatres reopened.

On top of that, Sky for example now releases new blockbusters at the same time as the cinemas, again reducing the incentive to leave the house and organise a cinema trip.

Plus, Cineworld has been dealing with problems of its own with its £700m damages bill for abandoning its takeover of Cineplex, landing the embattled cinema chain with an unmanageable debt pile.

Shares have plunged from above 300p before the pandemic to around 4p a share today.

Updated

The Felixstowe port strike could add to the UK’s economic disruption, warns Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:

“The Port of Felixstowe is an essential lynchpin in the UK’s trade operations, and an eight-day strike is likely to result in interrupted supplies for supermarkets as well as exports. It’s a possibility that industrial action could march on through to Christmas, too.

This is the latest unwanted twist in our weekly food shops, with high prices already making the experience more difficult for many shoppers. From an economic standpoint, a disruption to trade is the last thing the UK needs right now. There are already far-reaching productivity problems which keep a lid on economic growth, with an avoidable blip such as port strikes adding insult to an existing injury.

The Times says the strike could disrupt £700m of trade, and have a direct impact on the likes of Asda, John Lewis, Tesco and Marks & Spencer.

Strike underway at UK's largest container port

Empty lorry parking bays at the UK’s biggest container port Felixstowe on Sunday
Empty lorry parking bays at the UK’s biggest container port Felixstowe on Sunday Photograph: Toby Melville/Reuters

The UK’s summer of industrial action is continuing as dock workers in Felixstowe hold an eight-day strike over a pay dispute.

Around 1,900 workers at the UK’s biggest container port began their first strike since 1989 on Sunday, leading shipping companies and union leaders to warn that supply chains could be disrupted.

Workers including crane drivers, machine operators and stevedores will take action after voting by more than nine to one in favour of strikes.

The Unite union said the eight-day stoppage would have a big impact on the port, which handles around 4m containers a year from 2,000 ships.

Robert Morton, Unite’s national officer has told Sky News that Felixstowe workers are seeking protection from the cost-of-living crisis.

“We are trying to keep pace with the inflation rate, yet the employer at Felixstowe has offered a 7% increase as well as a £500 lump sum payment that’s not consolidated within the pay.”

Morton pointed out that the RPI inflation rate is now 12.3%:

“Like all negotiations, you don’t always get what you want.

“However, if we can sit down and thrash this out, there will be a figure between 7% and 12.3% that’s acceptable to my membership.”

In response to the offer being much more than that offered to NHS staff, Mr Morton said:

“I think that the NHS staff should be paid more than anyone else actually, but our members are working (outside) in all kinds of weather, they’re very highly skilled people and I think they deserve more from the company who is making massive profits and is extremely.

“My message to them is ‘if you can pay it, then do so’.”

After more than halving on Friday, shares in Cineworld are hovering around 4p in early trading.

They’ve lost around 85% of their value so far this year, and were worth around £2 at the start of 2022, before the pandemic hit the sector.

Cineworld’s share price
Cineworld’s share price Photograph: Refinitiv

Updated

Cineworld has narrowly avoided bankruptcy twice in the past two years, as the Financial Times explained last week:

Cineworld also prepared a Chapter 11 filing in 2020, in case negotiations with its lenders over a debt restructuring fell through.

The company did not need to enter bankruptcy at that time, however, because lenders agreed to provide a $450mn rescue loan that gave the company the liquidity needed to survive in the short term.

But the business’s recovery has taken longer than expected. Another possible option to rescue the chain is a debt-for-equity swap that would give the company’s lenders control of the group. A clutch of lenders took control of rival Vue in a similar deal last month.

News that Cineworld could file for bankruptcy broke on Friday, sending its shares slumping.

My colleague Mark Sweney explained:

Cineworld, which faces an almost $1bn payout for pulling out of a deal to buy its Canadian rival Cineplex, reported a $493m year on year increase in net debt to $4.8bn at the end of 2021.

The group made a $708m loss last year. However, revenues more than doubled from $852m to $1.8bn, thanks to the latest James Bond and Spider-Man films. In 2020, the company reported a record $3bn loss.

“The firm will blame the lack of summer blockbusters as a reason behind its sharp downfall but in reality its aggressive acquisition plan has taken on too much debt and this was always a huge risk as interest rates rise,” said Walid Koudmani, chief market analyst at the financial brokerage XTB.

Introduction: Cineworld considering filing for US bankruptcy

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

Troubled cinema chain Cineworld has confirmed that it is considering filing for bankrupcy protection in the United States, as it looks to restructure its balance sheet and raise extra funds.

In a statement to the City this morning, Cineworld says that its Cineworld and Regal theaters globally are open for business as usual while it considers various strategic options – including a possible voluntary Chapter 11 filing in the US, and similar measures in other jurisdictions.

The world’s second-largest cinema chain is struggling with near-term liquidity following the disruption of the pandemic, and a slower-than-hoped recovery in movie-going, which has left it with debts of more than $4.8bn (£4bn).

The cost of living crunch has added to the leisure industry’s woes, as consumers are forced to cut back.

The company, which operates 751 sites in 10 countries including the Cineworld and Picturehouse chains in the UK, says there wouldn’t be any ‘significant impact’ on its staff if it filed for bankrupcy protection.

Cineworld says it is looking at options to raise “additional liquidity and potentially restructure its balance sheet through a comprehensive deleveraging transaction”.

Any such filing would be expected to allow the Group to access near-term liquidity and support the orderly implementation of a fully funded deleveraging transaction.

Cineworld would expect to maintain its operations in the ordinary course until and following any filing and ultimately to continue its business over the longer term with no significant impact upon its employees.

Cineworld employs around 45,000 peope worldwide, including more than 5,000 in the UK.

Shareholders could see their stakes heavily diluted, Cineworld adds:

As previously announced, any deleveraging transaction would, however, result in very significant dilution of existing equity interests in Cineworld.

Cineworld’s evaluation of these strategic options remains ongoing. A further announcement will be made if and when appropriate.

Also coming up today

Recession fears are knocking the oil price this morning. Brent crude has fallen over 1% to $95.45 per barrel, on concerns that aggressive US interest rate hikes will hurt an already-weak global economy, and knock demand for fuel.

European stock markets are set for a lower open, as investors await the Kansas City Fed’s two-day annual economic symposium, in Jackson Hole, Wyoming, at the end of the week.

Federal Reserve Chair Jerome Powell will deliver his keynote address on Friday, and could signal how high U.S. borrowing costs may go and how long they will need to stay there to bring down soaring inflation.

UK barristers are waiting for the results of an all-out strike ballot for industrial action next month as part of a row with the Government over jobs and pay.

Members of the Criminal Bar Association (CBA) have been walking out on alternate weeks but have been balloted on an indefinite, uninterrupted strike that would start on September 5.

The ballot closed at midnight on Sunday and the result is expected this morning.

The agenda

  • 11am BST: German Bundesbank’s monthly report

  • 1.30pm BST: Chicago Fed National Activity Index for July

Updated

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At the height of the racial reckoning, a school district in Virginia voted to rename two schools that had been previously named for Confederate generals. This month, that decision was reversed.
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