Oil prices are rising again, and Brent crude isn’t far off yesterday’s three-year high of $86.50 a barrel, at $86.13. US light crude is trading 0.4% higher at $84.08. BlackRock has talked of a “high probability” of oil hitting $100 a barrel.
UK retail sales picked up in October, according to a CBI survey, while supply shortages worsened to the worst since 1985 when the survey began.
VAT on household energy bills will not be cut in tomorrow’s budget, despite calls to support families hit with record high energy costs, according to reports.
Here are our other main stories today:
A majority of Americans want to see oil and gas companies held to account for lying about the climate crisis and contributing to global heating, according to a new YouGov poll commissioned by the Guardian, Vice News, and Covering Climate Now.
The Premier Inn hotel chain is making a quicker than expected recovery and could return to pre-pandemic profits by next year, as it boosts wages and offers one-off bonuses to tackle staff shortages in the hospitality industry.
The owner of Ikea has bought Topshop’s former flagship store on Oxford Street, once the jewel in Sir Philip Green’s retail empire, for an estimated £378m, creating a new central London home for the Swedish furniture brand.
Heathrow airport has warned that air travel may not recover to pre-Covid levels until 2026 despite improving passenger numbers in the past three months, as it reported that losses since the start of the pandemic have reached £3.4bn.
Treasury documents have suggested that a return to home working, a key plank of Boris Johnson’s “plan B” proposal to deal with rising Covid-19 cases, would cause up to £18bn of damage to the UK economy over five months.
UK shoppers have racked up more than £4bn in outstanding debt so far this year after taking advantage of “buy now, pay later” deals during the pandemic, according to a new study.
Thank you for reading and commenting. We’ll be back tomorrow. Bye! – JK
US consumer confidence improves
And consumer confidence in the US has improved, according to the Conference Board.
Its consumer confidence index increased in October, following declines in the previous three months. The index rose to 113.8 (1985=100), from 109.8 in September.
The Present Situation Index — based on consumers’ assessment of current business and labor market conditions — rose to 147.4 from 144.3 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions — improved to 91.3 from 86.7.
Lynn Franco, senior director of economic indicators at the Conference Board, said:
Consumer confidence improved in October, reversing a three-month downward trend as concerns about the spread of the Delta variant eased.
While short-term inflation concerns rose to a 13-year high, the impact on confidence was muted. The proportion of consumers planning to purchase homes, automobiles, and major appliances all increased in October — a sign that consumer spending will continue to support economic growth through the final months of 2021.
Likewise, nearly half of respondents (47.6%) said they intend to take a vacation within the next six months—the highest level since February 2020, a reflection of the ongoing resurgence in consumers’ willingness to travel and spend on in-person services.
US Conference Board Consumer Confidence October - Reporthttps://t.co/Z9JGDmrEGX pic.twitter.com/G9iryhTwDa
— LiveSquawk (@LiveSquawk) October 26, 2021
Meanwhile, US annual house price inflation has eased somewhat, according to the latest official figures.
BREAKING! US house prices rose by 19.66% YoY in August. This marks the first decline in the year-on-year price increase since May 2020. pic.twitter.com/5NWbFSYEhu
— jeroen blokland (@jsblokland) October 26, 2021
Natural gas prices have also soared to all-time highs.
The collapse of more than a dozen energy suppliers, crippled by surging wholesale costs, will add £100 to the bill of every home in the country, the boss of British Gas owner Centrica has warned, according to the Telegraph’s live blog.
Centrica chief executive Chris O’Shea told a Lords committee that the cost of transferring customers to other suppliers would pile further pressure on prices, which are already rising sharply.
Households face a “plain grim” outlook as higher energy bills and petrol prices force them to find at least £442 extra to get through the winter, experts estimated earlier this month.
BlackRock: 'high probability' of $100 oil
BlackRock, the fund management giant, has warned that there is a “high probability” of oil hitting $100 a barrel.
Brent crude climbed as high as $86.50 a barrel yesterday, a three-year high, and is currently trading at $85.77 a barrel, while US light crude is at $83.38 a barrel. Higher crude prices have pushed UK petrol prices to record levels – bad news for motorists.
Larry Fink, chairman and chief executive of BlackRock, said at an investment conference in Riyadh, Saudi Arabia:
We’re looking at a high probability of $100 oil.
His comments came after Goldman Sachs, the US investment bank, predicted that a strong rebound in global demand, as economies recover from the Covid crisis, could push Brent crude above $90 a barrel.
Speaking at the same conference, John Studzinski, vice chairman of the investment firm PIMCO said inflationary pressures were likely to persist in coming years – contrary to the US Federal Reserve’s expectation that high inflation is likely to ease next year as pressures from the pandemic fade.
Studzinski said:
Fewer and fewer people think it’s transitory.
Oil prices are rising again and are close to the multi-year highs hit yesterday, amid rising demand and tight supply.
Brent crude is up 23 cents or 0.27% at $86.22 a barrel, after rising as high as $86.50 yesterday, which was the highest in three years. US light crude is 39 cents higher at $84.15, up 0.47% on the day.
UK shoppers rack up £4bn in 'buy now, pay later' deals
UK shoppers have racked up more than £4bn in outstanding debt so far this year after taking advantage of “buy now, pay later” deals during the pandemic, according to a new study, reports Rupert Jones, deputy editor of the Guardian’s Money section.
An estimated 7.7 million Britons have accumulated “significant” outstanding balances with buy now, pay later (BNPL) companies averaging £538 for each user, according to Credit Karma, a financial website that offers people access to their credit score and credit report.
Britishvolt, a start-up build a £2.6bn electric car battery factory in Blyth, Northumberland, is close to securing at least £200m in government funding, reports the Financial Times.
The battery manufacturer, which is backed by FTSE 100 mining group Glencore, is in advanced talks to finalise the government financial support “within weeks”, according to three people with knowledge of the discussions.
The government has set aside £850m for attracting electric vehicle battery production to the UK, laying the foundation for electric automotive investments as the ban on the sale of new petrol and diesel cars looms in 2030.
Currently the only other ‘gigafactory’ in the country is a plant in Sunderland that supplies Nissan. Its Chinese owner Envision plans to expand the factory significantly and become one of the biggest electric vehicle facilities in Europe, reported the Guardian’s Jasper Jolly.
🚨SCOOP: Britishvolt in talks for more than £200m gov support for Blythe plant🚨
— Peter Campbell (@Petercampbell1) October 26, 2021
⚡Deal possible in weeks
⚡BV in talks with Stellantis to supply batteries for UK & Europe
⚡Other customer talks include Arrival, Tevva Motors & Lion Electric
Full story: https://t.co/EVbZaYQqzN
Britishvolt is also in advanced talks with several potential customers, including Vauxhall owner Stellantis, to provide batteries, the FT reports.
Updated
No VAT cut on household energy bills in the Budget
VAT on household energy bills will not be cut in the Budget on Wednesday, despite calls to support families hit with record high energy costs.
Labour had urged for the rate to be slashed from 5% to zero over the next six months to ease pressure on the public amid rises in the cost of living.
But Whitehall sources told the BBC such a move would be poorly targeted and other schemes would be better placed to help lower income households through the winter. Scrapping VAT on domestic energy bills would also deplete the Treasury’s revenue by about £1.5bn.
The cut to VAT would have allowed Boris Johnson to claim he has delivered a Brexit benefit, as VAT rates are set centrally within the EU. One of Vote Leave’s promises was that “fuel bills will be lower for everyone”.
The cap on energy prices, which increased earlier this month for households in England, Scotland and Wales, is due to be reviewed again by the energy regulator Ofgem next April. Analysts have predicted the cap could jump by as much as 30% in 2022 if gas and electricity prices continue to soar.
Updated
Expectations for inflation jump to the highest since 2008 ahead of BoE rate decision
The British public’s inflation expectations over the next year have reached the highest since 2008, according to a YouGov poll commissioned by the bank Citi.
Expectations for inflation over the next 12 months rose to 4.4% in October from 4.1% in September, according to a gauge watched closely by the Bank of England, which will decide on whether to raise interest rates next Thursday.
Last month inflation dipped to 3.1% from 3.2% in August, but the Bank’s chief economist, Huw Pill, said the fall will soon reverse and by the end of the year, it will be heading back towards 5% – more than double the Bank’s 2% target.
Rising energy prices and household costs have contributed to record inflation growth, leading to warnings that the Bank will need to act imminently.
But the Bank’s policymaker Silvana Tenreyro said an interest rate rise before Christmas is unlikely, reported my colleague Phillip Inman. Tenreyro predicted a spike in prices over the next few months was likely to prove short-lived.
Economists at Citi said the Bank review a range of indicators when assessing inflation expectation risks and today’s survey reading on its own was unlikely to increase the pressure for a rate hike.
Updated
The owner of Ikea has bought Topshop’s former flagship store on Oxford Street, once the jewel in Sir Philip Green’s retail empire, for an estimated £378m, creating a new central London home for the Swedish furniture brand, reports our retail correspondent Sarah Butler.
The deal to buy the long leasehold on the building, which includes the now vacant 9,290 sq metre (100,000 sq ft) Topshop outlet as well as a Nike Town store and a shop used by footwear brand Vans, will complete in January after a conditional purchase contract was signed.
It completes the sell-off of the assets of Green’s Arcadia Group empire, which collapsed into administration in November last year.
Looking ahead to tomorrow’s budget from the chancellor: Rishi Sunak will end the public sector pay freeze for millions of workers and increase the national minimum wage in the budget on Wednesday, though economists warned the measures would not compensate for inflation rises and cuts to universal credit, as Jessica Elgot and Rowena Mason report.
You can follow the latest on our politics live blog with Andrew Sparrow here:
At the same time, supply bottlenecks hit a new all-time high and, coupled with staff shortages, make it hard for retailers to plan for the winter ahead, the CBI said.
Global supply chain problems reduced retailers’ stock levels to the lowest level since records began in 1985.
CBI economist Ben Jones said:
The UK’s economic recovery has been pretty bumpy lately and the same seems true of the retail sector. Sales performance has jumped around in recent months, while stock shortages continue to bite.
Disruption to supply chains, combined with staff shortages and uncertain public health conditions mean retailers are finding it difficult to plan for the winter ahead.
It’s therefore crucial the government remains agile to support the sector. The chancellor has the opportunity at his upcoming budget [tomorrow] to signal the government’s intent to reform the outdated business rates system, starting with more frequent revaluations and removing any disincentives for investment in energy efficiency and decarbonisation.
Updated
CBI: UK retail sales rose strongly in October
Retail sales growth in the UK picked up in October, according to a closely-watched survey from the CBI.
Its retail sales balance rose to 30% from 11% in September. It measures the proportion of retailers saying sales increased, minus those reporting a fall in sales.
The expectations balance for November also improved, to 35% from 29% in October.
Updated
And here is our full story on Whitbread:
FTSE lifted by Reckitt after cold and flu medicine boost
The FTSE 100 index in London is now 41 points ahead at 7,26, a gain of nearly 0.6%, lifted by Reckitt Benckiser and Premier Inn owner Whitbread.
The consumer goods group Reckitt, which makes a host of household brands such as Strepsils, Mucinex and Nurofen along with disinfectants Dettol and Lysol, has reported bumper sales, thanks to strong demand for cold and flu medicines.
Like-for-like net revenue growth was 3.3% in the three months to September, beating analysts’ forecast of a 0.7% drop. This catapulted Reckitt’s share price 6% higher.
Reckitt upped its full-year guidance to 1%-3% revenue growth, from an earlier estimate of 0-2%, though this is still far below the 11.8% sales boom last year when the pandemic led to a surge in demand for hygiene products.
Demand for cleaning products such as Dettol and Lysol has fallen back, after soaring last year when the Covid pandemic first struck.
Updated
My colleague Rob Davies has looked at ‘Conditioning an entire society’: the rise of biometric data technology. He writes:
In a school canteen in Gateshead, cameras scan the faces of children, taking payment automatically after identifying them with facial recognition. More than 200 miles away in North London, staff at a care home recently took part in a trial that used facial data to verify their Covid-19 vaccine status. And in convenience stores around the country, staff are alerted to potential shoplifters by a smart CCTV system that taps into a database of individuals deemed suspect.
In each case, biometric data has been harnessed to try to save time and money. But the growing use of our bodies to unlock areas of the public and private sphere has raised questions about everything from privacy to data security and racial bias.
Updated
In other news today, potato milk is set to be the next big thing in consumer trends.
Britons already eat potatoes boiled, baked, roasted and mashed but now the humble spud is being milked for all its worth, reports our consumer affairs correspondent Zoe Wood.
It is tipped as a challenger to big selling alt-milks made from oats, almonds and soy, with the supermarket Waitrose predicting consumers will soon be adding it to their shopping trolley or ordering potato milk lattes in coffee shops.
Sales of plant milk are booming in the UK with the market now worth about £400m a year as Britons reduce their consumption of animal products. In recent years the buzz has been around oat milk, thanks to the success of the fashionable Swedish brand Oatly, but in its annual food and drink report Waitrose predicts that “now it is the turn of the potato”.
Updated
Here is our full story on Heathrow airport, which warned today that air travel may not recover to pre-Covid levels until 2026:
Whitbread shares rose 2.8% after the results. Richard Hunter, head of markets at the trading platform interactive investor, said:
The company is showing no signs of slowing down strategically, with an aim for 110,000 rooms in the UK from the current 80,000, and with investment in its other major market of Germany continuing apace. For the latter, the investment is also bearing fruit, with revenues ahead of pre-pandemic levels by 197%.
In the meantime, there are some encouraging signs. The occupancy rate in the UK presently stands at 81%, as compared to the 55% level which the company previously identified as being the breakeven point, while in Germany the rate has exceeded 60% in August and September. Although some seasonal slowdown is expected in the run-up to Christmas, Whitbread is confident of a return to pre-pandemic profit margins despite the current challenges.
Clearly, this will not be an overnight fix for Whitbread but on balance the group is at least in the position of being able to ratchet up the growth in the areas within its control. The share price has also reflected some of the recent optimism, having risen by 32% over the last year as compared to a jump of 25% for the wider FTSE100 and with an immediate outlook which is significantly more promising than has been the case for some considerable time, the market consensus of the shares as a strong buy also remains intact.
The former financial analyst and City veteran David Buik has tweeted:
At 8.15am - FTSE 100 - 7,245.83 +23.01 (+0.32%) - Whitbread +2.38%, Reckitt Benckiser +5.85% - Cautious optimism prevails as the global earnings season contunues to act as a shock absorbers to frothy valuations!
— David Buik (@truemagic68) October 26, 2021
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said:
It’s taken a while for Premier Inn owner Whitbread to regain momentum, but with trading ahead of pre-pandemic levels over the summer holidays and well ahead of the wider market the group looks well placed going into 2022. Management have gone so far as to say they think revenues may fully recover this financial year.
The pandemic has likely seen smaller operators forced to close, creating a gap into which Whitbread can expand in the UK. Meanwhile expansion in Germany is gathering speed with a pipeline that has the potential to more than double the current active estate. However current bookings in Germany remain low and the group has work to do in improving its brand visibility.
There are more general short term challenges too. Labour shortages have the potential to push up costs, while the course of recovery is unpredictable – with new restrictions a very real possibility. However, thanks to support from lenders, Whitbread has the balance sheet to weather disruption. That might have cost investors access to a dividend in the medium term, but the longer term opportunity is well worth it.
Whitbread: 'full recovery' at Premier Inn hotels in 2022
Premier Inn owner Whitbread has reported a much smaller half-year loss and said there is potential for a full recovery at its UK hotels “at some point” next year.
But it also warned about staff shortages, which are affecting the entire hospitality sector, and said “a material number of vacancies still remain unfilled”. It is raising staff wages to remain competitive, at an additional cost of £12m to £13m this year, and will also pay £10m in one-off summer retention bonuses for hotel and restaurant staff.
The company, which owns the UK’s biggest hotel chain along with the Beefeater and Brewers Fayre restaurant chains (but sold Costa Coffee to Coca-Cola two years ago), posted an adjusted pre-tax loss of £56.6m for the six months to 26 August, a big improvement on the year-earlier loss of £367.4m.
Alison Brittain, the chief executive, said:
Sales recovery is ahead of expectations, and while a number of uncertainties remain, UK like-for-like revenues revenue per available room run rate has the potential to reach full recovery at some point in 2022.
Hospitality wide-labour shortages also persist, particularly in tourist locations and in London. Whitbread is in a better position than most due to the action taken last year that resulted in the retention of a greater number of employees than initially anticipated. Despite this, a material number of vacancies still remain unfilled.
She said it “may well take time” to tackle this shortfall.
We will continue to monitor the market to ensure our pay rates remain competitive.
Updated
Heathrow: sees 'a long road ahead' after £1bn loss
Heathrow Airport warned this morning that it faces “a long road ahead” after it ran up losses of more than £1bn in the first nine months of the year. It said that it could be “on the cusp of a recovery” as travel returns, but does not expect traffic to fully recover until at least 2026.
The airport has racked up total losses of £3.4bn since the start of the Covid-19 pandemic, when economies locked down and brought travel to an abrupt halt.
Heathrow, the UK’s biggest airport, reported its first quarter of passenger growth since the start of the Covid-19 pandemic as the UK government relaxed travel restrictions, encouraging more people to fly abroad.
Passenger numbers in the three months to the end of September recovered to 28% of pre-pandemic levels while cargo climbed to 90% of its levels in 2019 over the last quarter, it said.
Heathrow, which last year lost its crown as Europe’s busiest hub to Paris, has tried to claw back losses by raising its passenger charges but last week the UK aviation regulator capped charges below the levels desired by the airport.
Charges will still rise by up to 56% by 2023. The Civil Aviation Authority has proposed an increase from £22 a passenger in 2020 to a range of £24.50 to £34.40, which has angered airlines.
John Holland-Kaye, the chief executive, said:
We are on the cusp of a recovery which will unleash pent-up demand, create new quality jobs and see Britain’s trade roar back to life - but it risks a hard landing unless secured for the long-haul.
To do that, we need continued focus on the global vaccination programme so that borders can reopen without testing; we need a fair financial settlement from the CAA to sustain service and resilience after 15 years of negative real returns for investors; and we need a progressively increasing global mandate for sustainable aviation fuels so that we can protect the benefits of aviation in a world without carbon.
Last night, Facebook reported a profit of more than $9bn in the third quarter, meeting investor predictions, as the company faces an onslaught of negative publicity over a major release of whistleblower documents.
The company revealed in its Monday earnings report that it saw a 6% year-on-year increase in daily active users, reaching an average of 1.93 billion for September 2021. Its revenue grew 35% to $29.01bn, thanks to a boom in online advertising.
Facebook’s financial wins came amid intense scrutiny, after a consortium of news organizations published stories on Monday based on documents leaked by the whistleblower Frances Haugen. Haugen testified on Monday in front of British MPs calling for external regulation of Facebook.
My colleague Kalyeena Makortoff, our banking correspondent, has taken a look at why UK banks – led by HSBC and Barclays – have so far reported bumper profit rises for the third quarter, which they say reflects improving economic forecasts. Wall Street firms have also beaten forecasts.
Other sectors do not seem to be reaping the same benefits, particularly in light of the uncertainty linked to the Covid-19 crisis.
And we’re off. The FTSE 100 index in London, which briefly touched a new 18-month high yesterday, is up again, rising 13 points, or 0.2%, to 7,238.
Italy’s FTSE MiB is also 0.2% higher in early trading at 26,872, while Germany’s Dax has gained 0.5%, France’s CAC is up 0.1% and Spain’s Ibex is flat.
Introduction: German exports hit by shortages
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Sentiment among German exporters has taken a big hit, according to a survey. In October, the Ifo institute’s export expectations index fell to 13.0 points from 20.5 points in September, the lowest value since February. The institute said supply problems of materials used to make German goods (such as chips) are affecting exports.
Expectations have slipped in the electrical and electronics sector, though they remain high, but the mood is bleaker in the chemical, car, and textile and leather industries.
South Korean carmaker Hyundai missed analysts’ forecasts as the global chip crisis took its toll on car exports. It warned that it would take a long time for chip supplies to get back to normal levels.
The French car parts maker Faurecia has also been hit by the semiconductor shortage which has prompted its customers to scale back production, and posted a more than 10% drop in third-quarter sales.
In China, another property developer has defaulted, adding to worries about the sector caused by the debt crisis at Evergrande Group. Modern Land said it missed a debt payment due to “unexpected liquidity issues,” after Fantasia Holdings Group defaulted on maturing dollar bond in early October.
Evergrande, China’s second-biggest property developer which has a debt mountain of about $305bn, managed to avoid a costly default last week as it stumped up the money to pay a bond interest payment at the last minute.
An investor told Reuters that developers are defaulting “one by by one”.
The question is always, who’s next?
Oil prices remain high after Brent crude hit a three-year high of $86.50 a barrel yesterday. Prices have more than doubled from about $40 a barrel a year ago because of a sudden rise in post-pandemic energy demand, while supply remains tight. Brent has slipped to $85.95 a barrel this morning while US crude is at $83.63 a barrel, down 0.16%.
Higher crude has pushed up UK petrol prices to their highest level on record, in a blow to hard-hit households and small businesses. The average daily price for a litre reached 142.94p on Sunday, and could rise further in the coming weeks.
EU energy ministers are holding an emergency meeting in Luxembourg today to discuss their response to the spike in energy prices.
On Wall Street, the Dow Jones and S&P 500 set new all-time highs yesterday, as Tesla broke through the $1trn valuation for the first time, after the US electric car pioneer received an order for 100,000 of its vehicles from the rental company Hertz.
Asian markets were mixed with Hong Hong’s Hang Seng index losing 0.76% and China’s CSI 300 down 0.36% while Japan’s Nikkei advanced nearly 1.8%. European stock markets are set to open higher today.
The Agenda
- 11am BST: CBI retail sales survey for October (forecast: 13)
- 2pm BST: US house price index for August
- 3pm BST: US Conference Board Consumer confidence for October
- 3pm BST: US New home sales for September
Updated
