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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

City braces for sharp hike in UK interest rates; Roubini predicts ‘long, ugly’ recession – as it happened

Mike Ashley Kingfisher Frasers (Organization) DIY (Organization) United States Michael Murray Fuller (Organization) BQ Frasers Group Thierry Garnier
The Bank of England, in the City of London. Markets think the Bank of England will unveil the biggest hike in interest rates for over three decades when its decision makers gather for a delayed meeting
The Bank of England, in the City of London, as markets anticipate the biggest hike in interest rates for over three decades when its decision makers gather for a delayed meeting Photograph: Yui Mok/PA

Closing summary

Time for a recap

Pressure is building on the Bank of England for hike UK interest rates sharply this week, as it faces the highest inflation rate in decades and a government keen to cut taxes to stimulate the economy.

The money markets are pricing in a 75 basis-point hike on Thursday, the biggest in over 30 years, which would lift Bank Rate from 1.75% to 2.5%.

Traders are also anticipating large rate rises at the BoE’s meetings in November and December, taking Bank rate to 3.75% by Christmas.

Investors say the weak pound could force the Bank to act aggressively.

Katharine Neiss, chief European economist at PGIM Fixed Income, explains:

“With the UK economy weakening, there is a case to be made for the Bank of England (BoE) to stay focussed on the medium-term outlook for inflation and on replenishing its toolkit. This would speak to continuing with its measured pace of tightening, alongside a well-telegraphed active run-off of its balance sheet.

“But with inflation continuing to rise and the prospect of a sizable fiscal expansion on the horizon, there are many that would argue for a more aggressive rate rise at the BoE’s next policy meeting.

“Indeed, if we were to see further downwards pressure on sterling pushing inflation ever higher, we could see the BoE having to respond more aggressively – despite a deteriorating economic situation at home.”

In other news…

Economist Nouriel Roubini has predicted that a “long and ugly” recession could hit the US, and the global economy, at the end of 2022. That downturn could last all of 2023, he fears, knocking the US stock market by 40%.

Joe Biden has criticised ‘trickle-down’ economics, ahead of a meeting with Liz Truss, who is aiming to cut taxes to lift UK growth.

Jitters have hit stocks on both sides of the Atlantic, as investors await Wednesday’s interest rate decision by the US Federal Reserve. The Fed could hike its benchmark rates by 75 basis points for the third meeting in a row, after US inflation remained stubbornly high last month.

This has hit US, UK and eurozone government bonds too. The UK’s short-term borrowing costs hit their highest level since 2008, with thirty-year bond yields now the highest since 2014.

Sweden’s Riksbank has shown its hawkish side, voting to raise interest rates by a full percentage point.

German factory prices have rocketed at a record pace. Producer prices soared by 45% in the year to August, primarily driven by soaring energy costs.

Russia stock market has fallen sharply, with the Moex index down 7% as the Kremlin moved to hastily annex the regions it still occupied, following Ukraine’s sweeping counteroffensive.

UK unions have launched a legal challenge against the government’s new laws which allow firms to use agency workers to replace staff on strike.

Unions are also organising more strikes, as the summer of discontent moves into the autumn.

Workers across the rail industry will join train drivers in strikes on 1 October, targeting the start of Conservative party conference.

The number of “ultra high net worth” (UHNW) individuals around the world swelled by 46,000 last year to a record 218,200 as the world’s richest people benefited from “almost an explosion of wealth” during the recovery from the pandemic.

The chief executive of Saudi Aramco has said European governments’ efforts to tackle the energy crisis through price freezes and windfall taxes are “not helpful”.

Mike Ashley is to step down from the board of Frasers Group, which owns high street brands including Sports Direct and House of Fraser, 40 years after he opened his first sports shop in Maidenhead.

Profits at the B&Q owner Kingfisher fell by almost a third in the first half of the year as the pandemic DIY boom came to an end, but the company is benefiting from soaring demand for home insulation.

E-card seller Moonpig and mattress firm Eve Sleep also saw their shares slide today, as the cost of living crisis hits consumers.

Updated

BBC: Treasury refuses to publish UK economic forecast

In a fairly astonishing development, the Treasury is refusing to publish a forecast of the UK’s economic outlook alongside this Friday’s mini-Budget.

Independent forecaster, the Office for the Budget Responsibility (OBR), has already provided a draft to Chancellor Kwasi Kwarteng, but it appears it won’t be published.

That means there won’t be an independent assessment about whether permanent tax cuts and some one-off spending increases are consistent with the government’s Budget rules.

The BBC’s Faisal Islam explains:

The draft forecast the OBR has provided does not include the impact of the energy bill help. It has offered to provide a forecast including this impact, but that has been rejected.

The fact the offer has not been taken up is raising some concerns about whether the government’s tax and spending policy is “flying blind”, given predictions that the UK is facing a lengthy recession.

MPs on the Treasury Select Committee wrote to the chancellor on Tuesday seeking assurance that an OBR forecast would be published.

More here: Treasury refuses to publish UK economic forecast

UK housebuilders are among the biggest fallers on the FTSE 100 today, hit by worries that sharp interest rate rises will dent demand.

Persimmon are down 6.5%, with Barratt Developments dropping over 5% in late trading.

President Joe Biden has hit out at “trickle-down economics”… in what looks like an unsubtle rebuttal of Trussonomics.

The US president has tweeted that he is “sick and tired” of the theory that cutting taxes for businesses and the wealthy will see the benefits “trickle down” into the pockets of poorer workers.

His comments came ahead of a meeting with PM Liz Truss, who has flown to New York to speak at the UN.

Friday’s mini-budget on Friday is expected to include scrapping a corporation tax hike, and reversing a rise in national insurance rate, as part of Truss’s push to cut tax rates to stimulate growth.

“Dr. Doom” Roubini Expects a ‘Long, Ugly’ Recession

Economist Nouriel Roubini has predicted the US, and the wider global economy could suffer a “long and ugly” recession, sending stock prices sharply lower.

Bloomberg has the details:

Even in a plain vanilla recession, the S&P 500 can fall by 30%,” said Roubini, chairman and chief executive officer of Roubini Macro Associates, in an interview Monday. In “a real hard landing,” which he expects, it could fall 40%.

Roubini whose prescience on the housing bubble crash of 2007 to 2008 earned him the nickname Dr. Doom, said that those expecting a shallow US recession should be looking at the large debt ratios of corporations and governments. As rates rise and debt servicing costs increase, “many zombie institutions, zombie households, corporates, banks, shadow banks and zombie countries are going to die,” he said. “So we’ll see who’s swimming naked.”

More here.

Germany’s 10-year government bond yields have risen to the highest since 2014 – as concerns about inflation and interest rate hikes hit eurozone bonds.

The German 10-year yield climbed 15 basis points to as high as 1.939%, Reuters reports, above June’s high of 1.926%.

This morning’s data, showing German factories suffered their biggest price shock since records began as energy prices spiralled, has rattled markets.

Updated

The TUC has tweeted about its legal challenge against the UK government’s push to allow employers to hire agency workers to replace striking staff:

The wider US stock market has also dropped in early trading.

The S&P 500 index has shed 45 points, or 1.1%, to 3,854 points.

The tech-focused Nasdaq, and the Dow Jones industrial average of 30 large US companies, are both also down over 1%.

Oil has dropped too, with Brent crude now down over 1%.

Shares in Ford have dropped 7% at the start of trading in New York, after the carmaker warned inflation and supply chain problems will cost it an extra $1bn this quarter.

Ford said last night that supply problems have resulted in parts shortages affecting roughly 40,000 to 45,000 vehicles, primarily high-margin trucks and SUVs that haven’t been able to reach dealers.

More here.

Updated

Britain’s railway could come to an “effective standstill” on October 1 with workers from Network Rail and 14 train operating companies planning strike action over pay, job security and working conditions, a union says.

The RMT trade union said the 24-hour strike action comes after it received no further offers from the industry to arrive at a negotiated settlement.

Workers across other industries including postal and bus workers are also planning strikes on Saturday, October 1, to coincide with the Conservative Party annual conference

RMT general secretary Mick Lynch said in a statement.

“Transport workers are joining a wave of strike action on October 1st, sending a clear message to the government and employers that working people will not accept continued attacks on pay and working conditions,”

“The Summer of Solidarity we have seen will continue into the Autumn and Winter if employers and the government continue to refuse workers reasonable demands.”

UK gilt yields are climbing to fresh multi-year highs, as government bonds are hit by inflationary pressures annd the prospect of further interest rate rises.

Inflation in Canada has cooled more quickly than expected, thanks to a drop in motor fuel prices.

Consumer price inflation slowed to 7% in the year to August, down from 7.6% in July, and lower than the 7.3% expected.

This was helped by a 9,6% drop in gas prices, month-on-month – the biggest monthly drop since the start of the pandemic in April 2020.

But grocery prices kept climbing, with the cost of food purchased from stores jumpiing by 10.8%, the fastest pace since August 1981.

Economist Julian Jessop points out that German factory gate inflation is rocketing faster than in the UK (where manufacturers are also hiking prices sharply):

Another Bank of England interest rate hike this week will make taking out a new mortgage more expensive, as Ben Laidler of eToro explains:

“The Bank of England is highly likely to follow the lead of other global central banks when it meets on Thursday, by accelerating its hiking pace as it looks to get a grip on out of control inflation, currently at 9.9%. We expect a rise of 0.75%, a seventh consecutive hike, which will take the base rate up to 2.5%.

“A rate hike of this magnitude will be another hammer blow for the millions of mortgage holders who are either on variable rates or who are watching the clock as their fixed rate deal nears its end. To put this single rate rise into perspective, a 0.75% increase for a borrower with £250,000 of mortgage debt amounts to an extra £1,875 in annual interest payments.

Mortgage rates have now doubled in the last year and there is little doubt that these shockwaves will soon shake the housing market. The small silver lining is that long-suffering savers will see a further boost to savings rates, even if these still dramatically lag inflation.

Fears that Russia could move towards full mobilisation in the conflict against Ukraine could also be hitting stocks in Moscow today.

Reuters explains:

Russia’s parliament on Tuesday approved a bill to toughen punishments for a host of crimes such as desertion, damage to military property and insubordination if they are committed during military mobilisation or combat situations.

The bill, passed in its second and third readings on Tuesday by the lower house of parliament, the Duma, comes amid debate inside Russia about a possible mobilisation, a step which could significantly escalate the conflict in Ukraine.

Russia’s stock market has posted heavy losses, with the Moex index of leading stocks down over 5% so far today.

At one point the Moex was down 10%, before a partial rebound.

The slump came as Russian-installed officials in the Kherson region of Ukraine have said they have decided to hold a referendum on joining Russia.

Officials have also urged the Kremlin to give its permission as soon as possible, the separatist head of the region said on Tuesday.

That move could escalate Moscow’s conflict with the West, and comes after Ukraine conducted a successful counter-offensive in the north east of the country.

Our Ukraine war liveblog explains:

In a post on the Telegram messaging app, Volodymyr Saldo, the Russian-appointed head of Kherson, said he hoped Kherson would become “a part of Russia, a fully fledged subject of a united country”, Reuters reported.

Russian forces control around 95% of Ukraine’s Kherson territory in the south of the country. Saldo did not name a date for the proposed vote.

Updated

Reuters’ Andy Bruce has spotted that the pound is the weakest in two years against a basket of currencies:

Economists have warned that sterling may need to weaken further to address the UK’s balance of payments deficit (by making imports more expensive, and exports more competitive).

Dock workers on picket lines on the first day of a two week strike at the Port of Liverpool.
Dock workers on picket lines on the first day of a two week strike at the Port of Liverpool. Photograph: Christopher Thomond/The Guardian

Strike News 4: Hundreds of workers at the Port of Liverpool have begun a strike in a dispute over pay.

Members of the Unite union have walked out for two weeks until 3 October, after rejecting a deal.

Peel Ports Group, which operates the port, said workers had rejected a “significant pay package” which included an 8.3% rise and a one-off payment of £750.

Unite said it was a real-terms pay cut because of the rate of inflation and Peel could afford a higher increase.

The Port of Liverpool today
The Port of Liverpool today Photograph: Christopher Thomond/The Guardian

The union’s general secretary Sharon Graham said:

“Workers across the country are sick to death of being told to take a hit on their wages and living standards while employer after employer is guilty of rampant profiteering.”

Strike News 3: More than 60 workers at Quorn’s meat free paste production factory in Billingham, will strike on 30 September and 1, 2, 4, 5, 6, 7 and 8 October.

Workers have rejected a 4% pay offer plus a £1,000 bonus.

They voted to strike after the company refused to meet their demands of a nine per cent pay rise, which was the RPI inflation rate in April, when negotiations began.

Strike News 2: HGV drivers and shunters at Mullers’ Stonehouse factory in Gloucestershire are beginning a fresh round of strike action this week over imposed rota changes.

The Unite union says the walkout could disrupt deliveries of milk and other dairy products to M&S and Waitrose stores.

Nearly 70 staff at the plant have taken nine days of strike action since 25 August, over rota changes which Unite says are detrimental to their quality of life.

Further strikes are now planned for 22, 23, 24, 29 and 30 September and 1 October.

Unions launch legal challenge against UK government to protect right to strike

Strike News 1: A group of British trades unions are starting legal action against the UK government over its new law allowing employers to hire agency workers to replace striking staff.

The TUC and Unison are bringing separate cases following widespread anger over the change in the law, which was announced earlier in the summer following industrial action on the railways.

The TUC is taking action on behalf of 11 unions representing train drivers, prison officers, railway staff, civil servants, journalists, shop workers and others, representing millions of workers.

They arguing that the regulations are unlawful because the then secretary of state for business, Kwasi Kwarteng, failed to consult unions as required by the Employment Agencies Act 1973.

The TUC also says the regulations violate fundamental trade union rights protected by Article 11 of the European Convention on Human Rights.

The TUC warns the new law will worsen industrial disputes, undermine the fundamental right to strike and could endanger public safety if agency staff are required to fill safety critical roles but have not been fully trained.

TUC general secretary Frances O’Grady said:

“The right to strike is a fundamental British liberty but the Government is attacking it in broad daylight.

“Threatening this right tilts the balance of power too far towards employers. It means workers can’t stand up for decent services and safety at work or defend their jobs and pay.

“Ministers failed to consult with unions, as the law requires, and restricting the freedom to strike is a breach of international law. That’s why unions are coming together to challenge this change in the courts.

“Workers need stronger legal protections and more power in the workplace to defend their living standards - not less.”

UNISON general secretary Christina McAnea has warned the government’s changes are a risk to safety.

“The government appears hell-bent on stripping ordinary working people of their historic rights and seems prepared to do anything to achieve that.

“Employees striking for better wages during a cost-of-living crisis is not the problem. Ministers should be rolling up their sleeves and helping solve disputes, not risking everyone’s safety by allowing the use of inexperienced agency workers.

“Changing the law in such a hostile and unpleasant way makes it much harder for workers to stand up to dodgy employers. It also risks limiting the impact of any legal strike.”

Matthew Ryan, Head of Market Strategy at global financial services firm Ebury, reckons Thursday’s Bank of England decision will be a close call – between a half-point and a three-quarter point hike.

“The inevitable response to high inflation and a still very tight labour market is continued Bank of England interest rate hikes. We think that the decision between a 50bp and 75bp rate hike will be a close call among BoE members at this Thursday’s meeting, delayed by a week due to the passing of Her Majesty the Queen, although most economists are erring towards the former.

“Traders will be paying very keen attention to the MPC’s communications after the decision, particularly comments on how high rates could go in 2023. The flash PMIs of business activity for September out on Friday will round up a very busy week for sterling.”

US government bonds are also under pressure, as the markets anticipate another hefty hike in America’s interest rates on Wednesday.

The yield on 10-year Treasuries, the benchmark US sovereign debt, has hit the highest in over a decade.

That has knocked Wall Street futures lower, as investors fret that the Fed could push the US economy into recession as it tries to push down inflation.

Weak pound adds to BoE's challenges

Sterling’s tumble to its lowest level since 1985 last week has added to the pressure on the Bank of England to hike UK interest rates.

Victoria Scholar, head of investment at Interactive Investor, explains:

Central bank interest rate decisions are front and centre this week for markets,

After the pound slumped to a 37-year low the market is pricing in an aggressive 75 basis point hike from the Bank of England as it looks to get a grip in near 10% inflation.

Pressure from sharp central bank rate increases around the world are encouraging the Bank of England to keep up. The central bank may also be feeling the pressure to act more forcefully in light of the recent slump in the pound.

And here’s Bloomberg’s take:

Traders are rapidly dialing up rate-hike wagers for the UK, betting the Bank of England will deliver two outsized increases by the end of the year to quell rampant inflation stoked by surging energy prices.

Money markets have priced in 200 basis points of hikes over the next three decisions, implying the BOE will raise rates by three-quarter points at two of those meetings. The first such move could come as early as this week, with traders placing around a 60% chance of a 75 basis-point increase on Thursday. That would be the bank’s largest increase since 1989, when it jacked up borrowing costs by a full percentage point.

Shorter-dated two-year UK gilt yields, which are more sensitive to rate changes, have also hit their highest level since 2008 this morning.

That’s another sign that the markets are betting on faster interest rate rises from the Bank of England.

City braces for UK interest rate hike on Thursday

UK government bond yields have jumped this morning as the City braces for a sharp rise in interest rates on Thursday, and further hikes before the end of the year.

The money markets are indicating there is a 75% chance that the Bank of England increases Bank rate to 2.5% this week, up from 1.75% at present.

That would be the BoE’s biggest rate hike since 1989, when inflation was climbing rapidly, follwing six rises already this year:

Today, inflation is five times above its target, at 10.1%. That has led some traders to bet on an outsized rate hike by the Monetary Policy Committee meeting this week (delayed by a week due to the Queen’s death).

The markets are also predicting that rates could reach 3.75% by the end of the year. That implies we could see a second 75bp hike in December, as well as a 50bp rise at the Bank’s meeting in November.

This has pushed up the yield, or interest rate, on five-year UK gilts to 3.24% this morning.

That’s its highest level since late 2008, before the financial crisis caused a global recession, showing that investors are demanding a higher rate of return on UK debt.

UK five-year bond yields
UK five-year bond yields Photograph: Refinitiv

The surge in inflation, and prime minister Liz Truss’s pledge of tax cuts to spur growth, have both piled pressures on the Bank of England to speed up its monetary tightening…..

…as have sharp interest rate rises by the European Central Bank and the US Federal Reserve (which could raise its benchmark rates by another 75bp tomorrow).

The one percentage point increase in Sweden’s interest rates this morning has confirmed that central bankers are prepared to hike borrowing costs dramatically, even if it slows growth and hits mortage holders and those relying on credit.

Martin Beck, chief economic advisor to the EY ITEM Club, says the UK government’s move to cap energy bills has shifted the backdrop to this week’s MPC meeting:

The cap means inflation is likely to come in well below current forecasts in the near term and could dampen inflation expectations.

“The EY ITEM Club now expects CPI inflation to peak below 11% in October. Had the cap not been introduced, inflation was likely headed for 14%-15% early next year. A much lower peak – which may dampen inflation expectations among the public – could also reassure the MPC.

On the other hand, lower-than-expected energy bills would support disposable incomes and spending, implying that inflation may be higher in the medium term because of the cap. So, the net effect on the committee’s view on inflation appears ambiguous.

Updated

Kingfisher: What the experts say

City analysts are warning that a cost-of-living storm is whipping around retailers such as B&Q owner Kingfisher, knocking its profits down by a third (see opening post).

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

The number of amateur builders, painters and carpenters hanging up their tool kits is growing as homeowners scramble around for savings, intently focused on finding ways to cut their energy bills.

Although the purchase of outdoor bigger ticket items have remained resilient, it’s a far cry from the boom last year when people spent lockdown savings doing up their homes and gardens.

Adam Vettese, analyst at social investing network eToro, predicts customers will cut back on home improvement projects until the financial pressures ease.

“If Kingfisher’s results are anything to go by, the pandemic-fuelled DIY boom is well and truly over. While CEO Thierry Garnier talks about ‘resilient’ performance, the reality is that most investors will be focused on the fact that many of its key metrics are considerably lower than they were this time last year.

“The trouble for all retailers, including Kingfisher, is that they are not only getting clobbered by the higher cost of goods, but so too are their customers, meaning they are likely to spend less until the economic situation improves.

AJ Bell investment director Russ Mould says the DIY sector benefited from keeping their stores open during the pandemic, at a time when locked-down consumers were keen to improve their homes or refresh tired décor:

“Arguably both of those positive tailwinds have disappeared while at the same time the powerful headwind of a cost-of-living crisis has made it extremely difficult for Kingfisher to make any headway.

“CEO Thierry Garnier may be right when he describes the results as resilient, but the message that ‘last year was a tough ask to follow’ isn’t really one investors want to hear, no matter how reasonable an excuse it might be.”

A TUI travel centre in Stoke-on-Trent, Britain.
A TUI travel centre in Stoke-on-Trent, Britain. Photograph: Carl Recine/Reuters

Holidaymakers spent almost a fifth more for their summer break than before the pandemic.

Travel company TUI has reported that its average selling prices this summer were 18% higher than in summer 2019, as people splashed out on holidays after the pandemic disruption of the last two years.

This trend has continued into the winter – where average prices are 26% higher than in winter 2018/19. The Canaries, Mexico, Egypt and Cape Verde are all popular destinations this winter, despite the cost of living crisis.

TUI’s CEO, Fritz Joussen, and CFO, Sebastian Ebel, told shareholder that it was a “strong travel summer”, with many holidaymakers plumping for more expensive, or longer, breaks.

The trend has been towards higher value or longer holidays with a higher overall holiday budget. This is encouraging and shows the current importance of holidays and travel experiences in the post-Corona era.

Our strong brand, exclusive product portfolio with proprietary holiday experiences at hotels, clubs and cruise ships, and strong presence in destinations are competitive advantages that will continue to pay off and that we are building on.

TUI also reports that flight disruption costs remain at elevated levels but continued to improve through the current quarter (which ends on 30th September).

Updated

Investors in Eve Sleep had (another) rude awakening this morning, after the ‘sleep wellness brand’ warned it will need fresh funding next month unless it receives a takeover offer soon.

Shares have promptly halved to just 0.4p, meaning they’re down 85% so far this year.

Eve, which sells mattresses, bedframes and pillows, put itself up for sale in June, but has not yet received a firm offer.

Despite making cost savings, Eve says it require further funding in October – adding:

If further funding cannot be raised, or a firm offer for the Company is not received before the Company’s cash reserves are fully depleted, the Board will take the appropriate steps to preserve value for creditors.

Eve also reported that revenues are down 16% in the first half of the year, while pre-tax losses have doubled to £4.6m.

Cheryl Calverley, CEO of eve Sleep, says:

“We are doing everything possible to manage the business through these incredibly difficult times, whilst speaking with potential investors and strategic partners to secure fresh investment aiming to put eve on a more secure and sustainable footing.

The business has been streamlined dramatically, with cash preservation our absolute focus.

Updated

The head of Saudi state oil giant Aramco has claimed Europe’s plans to cap energy bills for consumers and tax energy companies were not long-term or helpful solutions to the crisis, Reuters reports.

Chief executive Amin Nasser told a forum in Switzerland that:

“Freezing or capping energy bills might help consumers in the short term, but it does not address the real causes and is not the long-term solution,”

“And taxing companies when you want them to increase production is clearly not helpful.”

Nasser also warned that underinvestment in the hydrocarbons sector was pushing up prices, which could worsen when demand rebounds as the global economy recovers.

More here:

Reuters: Aramco CEO says Europe’s energy crisis plans only short-term solution

Sweden surprises with 100bp interest rate rise

Gamla stan in Stockholm, Sweden.
Gamla stan in Stockholm, Sweden. Photograph: Matej Kastelic/Alamy

Sweden’s central bank has surprised the markets by raising interest rates by a full percentage point this morning.

The Riksbank has hiked its benchmark rate to 1.75%, from 0.75%, as the world’s central banks continue to lift borrowing costs sharply in an attempt to rein in inflation.

The Riksbank had been expected to raise rates by 75bp, as the European Central Bank did earlier this month.

But the jump in Swedish inflation to 9.0% in August, the highest level since 1991, prompted it to tighten even more aggressively.

The Riksbank states bluntly that “Inflation is too high”, adding:

It is undermining households’ purchasing power and making it more difficult for both companies and households to plan their finances.

Monetary policy now needs to be tightened further to bring inflation back to the target.

The Riksbank blames soaring inflation on the disruption in the energy markets due to the Ukraine war, rising commmody prices following Russia’s invasion, and the supply chain disruptions caused by the pandemic, as well as relatively strong Swedish economic activity.

The Riksbank adds that it expects to keep raising interest rates, to prevent inflation rising higher.

The jump in demand for home insulation products hasn’t protected Kingfisher’s shares this morning.

They’re down 5%, and on track for their worst day in almost two months, after the DIY chain reported sales and profits have dropped in the first half of the year.

German producer prices in record jump in August

An employee of German car manufacturer Porsche.
An employee of German car manufacturer Porsche. Photograph: Ralph Orlowski/Reuters

Over in Germany, producers have raised their prices by a record amount as the energy crisis deepens.

The prices charged by producer prices of industrial products surged by 45.8% year-on-year in August, the highest reading on record, with prices jumping 7.9% in August alone.

Both measures jumped much more than expected. This is likely to drive up consumer inflation too, as retailers pass on their higher costs.

Statistics body Destatis says rising energy costs were the main factor – with electricity costing 174.9% more than a year ago, and natural gas prices up 209.4%.

But other products jumped in price too, as factories passed on soaring raw material costs – as well as their own soaring energy bills.

Intermediate goods (used to make final products for sale) rose 17.5%, while capital goods (such as machinery and heavy-duty equipment) cost 7.8% more than in August 2021.

Durable and non-durable consumer goods jumped 10.9% and 16.9% respectively.

Prices of metallic steel and ferro-alloys increased by 20.9% year-on-year, while fertilisers and nitrogen compounds more than doubled (+108.8%).

Prices of wood pellets also doubled, with wood chips up 133.3%, while prepared feeds for farm animals increased by 37.6% and cereal flour prices rose by 46.4%.

Updated

Full story: Mike Ashley to step down from Frasers Group board

Here’s our news story on Mike Ashley’s decision to step down from the board of Frasers Group, which owns high street brands including Sports Direct and House of Fraser.

The move comes 40 years after he opened his first shop in Maidenhead, and shortly after Frasers returned to the blue-chip FTSE 100 index.

Kingfisher sees boom in insulation products

Sales of insulation products, such as loft insulation, are booming as people try to cut their energy bills this winter, Kingfisher reports.

At B&Q, there are up 110% compared with pre-pandemic levels over the last three weeks, CEO Thierry Garnier told reporters, and 82% higher than a year ago.

Overall, across the group, insulation sales are up 70% from 2019, and 32% higher than a year earlier.

Garnier has also called on the UK government to announce more support for people on lower incomes this Friday, when it unveils its ‘mini-budget’.

He also said cost pressures were easing, in particular costs of raw materials like metal and plastic, and freight costs.

A general view of Beer taps.

Fuller’s chief executive Simon Emeny also flagged the rising economic uncertainty saying:

“While sales continue to recover from the effects of the pandemic, we are conscious that consumers face increasingly challenging times ahead.

And he urges ministers to provide more clarity on its energy bill support for businesses.

“Businesses across the hospitality sector are experiencing unsustainable increases in energy costs.

Despite having proactively purchased forward contracts to limit the impact on Fuller’s, we will see significant increases this year and do urge the Government to provide much needed clarity on its proposed support package so that we can plan accordingly.

Business secretary Jacob Rees-Mogg is expected to set out government’s energy support package for businesses on Wednesday, once MPs have returned to parliament following the Queen’s State funeral yesterday.

Shares in magazine publisher Future have tumbled by 15% in early trading, following reports that its successful CEO, Zillah Byng-Thorne, is looking to step down.

Sky News reported that Byng-Thorne, who has run Future since April 2014, has told its chairman she plans to retire from the publisher of Country Life and FourFourTwo magazines in the next 18 months.

Future publishes a swathe of other titles, from Marie Claire to Metal Hammer, and also owns website such as TechRadar and comparison site GoCompare.

The company doubled its profits last year, thanks to strong revenues from magazine sales, digital advertising, and e-commerce in the boom in pandemic online shoppping.

Last year Future’s shares soared to almost £40, from £14 in early 2020 before the pandemic. But they’ve sunk back since, and are now down to £13.90 this morning.

Future’s share price over the last five years
Future’s share price over the last five years Photograph: Refinitiv

Future has also made some layoffs across its publications. Games Industry.biz says the changes affected staff on TechRadar Gaming, Android Central, Windows Central and iMore.

Pub group Fuller's warns energy bills could double

Pub chain Fuller’s has warned that its gas and energy bill could more than double this year due to the global energy crisis.

Fuller, Smith & Turner says its energy costs are on course to hit £18m this financial year, up from £8m – although the government’s promised package of support could bring the bill down.

The pub chain says:

On 8 September 2022, the Government announced a new six-month scheme that will offer support to businesses at a similar level to that offered to consumers.

As the details are yet to be published, we do not know, and are unable to quantify, the extent to which the scheme will mitigate increased costs.

Prior to realising any financial benefit from this scheme, we expect our total gas and electricity costs in the current year to be c.£18 million against a prior year figure of £8 million.

Fuller’s had purchased forward contracts to cover half of its gas and electricity needs for the year, and has added more contracts to provide some certainty over the winter months.

The company has grown total sales by 50% year-on-year in the first 25 weeks of the financial year, thanks to the easing in Covid restrictions, putting them 3% up against pre-pandemic levels.

Updated

Mike Ashley to step down from Frasers Group

Retail chief Mike Ashley
Retail chief Mike Ashley Photograph: Kirsty O’Connor/PA

Mike Ashley is to set to step down as a director at Frasers Group, signalling the end of an era for the Sports Direct founder.

Ashley, 57, will not be standing for re-election as a director at its annual general meeting and will step down from the board on October 19.

Ashley, who is also the company’s biggest shareholder through his investment vehicle, will provide Frasers with £100m of additional funding.

Frasers Group started as a small store in Maidenhead in 1982. As well as Sports Direct, it also owns House of Fraser, and retail brands including Jack Wills, Sofa.com and Evans Cycles.

Ashley had already handed the reins of his retail empire over to son-in-law Michael Murray, who became chief executive of the company in May.

“Since Michael Murray took over the leadership of Frasers Group earlier this year, the business has gone from strength to strength,” said Ashley, adding:

“It is clear that the Group has the right leadership and strategy in place and I feel very confident passing the baton to Michael and his team.”

Updated

Introduction: Kingfisher profits drop as DIY boom slows

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

Profits at DIY chain Kingfisher have dropped by almost a third as the boom in pandemic home improvements ends, and the cost of living squeeze hits budgets.

Pretax profits at Kingfisher, which owns the B&Q and Screwfix chains, fell to £474m in the six months to 31 July, the firm reported this morning, down from £677m a year earlier.

Sales dipped by 4% compared with the first half of 2021, when Covid-19 restrictions and the move to home working meant many households were improving their homes and gardens.

Profit margins dropped as the firm tried to juggle rising raw material costs and supply chain pressures.

CEO Thierry Garnier insists the company has delivered “very resilient” sales in the first half of the year, pointing out that like-for--like sales are still 16.6% above pre--pandemic levels.

Encouragingly, Kingfisher is back to ‘pre-pandemic levels for in-store product availability’, after supply chain problems led to gaps on shelves. The company says it is seeing good demand in ‘outdoor and ‘big-ticket’ category sales.

But Garnier also warns that Kingfisher – like the wider retail sector – faces economic uncertainty:

“Looking to the months ahead, although trading in the year to date has been in line with our expectations, we remain vigilant against the more uncertain economic outlook for the second half.

We are therefore focussed on delivering value to our customers at a time when they need it most.

Kingfisher’s falling profits is the latest sign that Britain’s retail sector is facing tough times.

Last week, Wickes flagged that the pandemic-fuelled DIY boom has significantly slowed, while John Lewis made a first-half loss of £99m and warned the outlook in the run-up to Christmas was “uniquely uncertain”.

Also coming up today

With the mini-budget looming on Friday, Labour are asking who will pay for Liz Truss’s tax and spending plans.

Pat McFadden, the shadow chief secretary to the Treasury, highlighted the difference between Labour’s proposals to fund an energy price freeze with a windfall tax on oil and gas companies and the Conservatives’ unfunded plans.

He said under the Tory proposals, which will probably be paid for by borrowing, “working people will be left paying the bill for years to come” and the “fundamental question which remains unanswered on this is who pays, and what do you get for it?”

Here’s the full story:

The London stock market is due to open higher, after being closed yesterday for the bank holiday to mark the funeral of Queen Elizabeth.

Investors are focused on central banks, with the US Federal Reserve expected to raise interest rates sharply again on Wednesday, and the Bank of England likely to follow suit on Thursday.

The agenda

  • 7am BST: German PPI factory prices for August

  • 8.30am BST: Sweden’s Riksbank interest rate decision

  • 1.30pm BST: US housing starts and building permits

  • 1.30pm BST: Canadian inflation for August

Updated

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