UK recovery ‘levelling off’ as firms struggle to find workers; supply chain problems continue – business live

By Graeme Wearden
The City of London skyline and River Thames.
The City of London skyline and River Thames. Photograph: Vuk Valcic/SOPA Images/REX/Shutterstock

Closing summary

That’s all for today. Here’s our main stories:

Goodnight. GW

Full story: Bank of England governor says UK’s economic recovery is slowing

The governor of the Bank of England, Andrew Bailey, has warned Britain’s economic recovery from Covid-19 is slowing amid supply chain disruption and staff shortages.

Answering questions from MPs on the commons Treasury committee, Bailey said there was evidence of the recovery “levelling off” despite the easing of pandemic restrictions earlier in the summer.

He said the economic fallout from the disease had “attenuated a lot” over recent months, helping growth to rebound.

“But it’s still within the context of this imbalance in demand for goods and services. At the moment we’re seeing some levelling off of the recovery, the short-term indicators are suggesting that,”.

The Bank’s governor suggested that Covid disruption to global supply chains, which have upended industries from car making to hospitality, had proved more persistent than expected by Threadneedle Street earlier this year, as higher rates of coronavirus infections and heightened demand for manufactured goods put pressure on shipments.

He said there had been an expectation that consumer demand for goods would increasingly switch to services as pandemic restrictions were relaxed, but that had so far not happened as much as expected. “There’s this underlying story of imbalanced demand, which we thought would by now have been well on the way to correcting itself,” he said.

Bailey said much of the inflationary pressure caused by the pandemic would eventually fade, saying that current high levels of global commodity prices – such as steel, agricultural goods and oil – were likely to fall because market prices typically tend to revert back to average levels over time.

“We expect the bottlenecks to sort themselves out.”

However, he expressed concern about a continued shortage of workers, which could last longer than material shortages and push up inflation.

He told the committee:

“For me, others will speak for themselves, but I have a bit more concern about persistence in the labour market story,”

My colleague Richard Partington has also analysed the UK government’s plan to increase national insurance contributions for workers and companies, as well as higher taxation of dividends.

It shows, he says, that the Tories are no longer the party of business.

The Conservatives’ gradual shift away from low-tax libertarian dogma also highlights our transformed economic times. The long decade of austerity imposed by Johnson’s party after the 2008 financial crisis has fuelled public appetite for higher tax in exchange for better public services, leaving him with little choice but to respond, or face electoral punishment. The pandemic upended economic orthodoxy and is serving to turbocharge the demand for change.

Johnson is hardly alone among western leaders in soaking business to pay for the recovery. Joe Biden is pushing to raise more from companies to help fund a $3.5tn (£2.5tn) Covid recovery plan in the US, while 130 countries worldwide, including Britain and the US, plan to impose a global minimum corporation tax rate.

After the pandemic it is clear that taxes will rise. The only question is where the burden will fall. Unlike decades past, under Johnson business is in the Conservatives’ crosshairs.


Nils Pratley: Small businesses are collateral damage in social care tax hike

My colleague Nils Pratley has analysed the UK’s social care tax hike, and explains that small businesses - rather than rich savers - will suffer most from the 1.25% percentage point increase in tax on dividend income.

A wealthy individual who has been Isa-ed up to the max for a couple of decades may well now have a very valuable portfolio of shares that lies, and will continue to lie, entirely outside the reach of dividend taxes. Isa millionaires genuinely exist.

So the bulk of the £600m that the government expects to raise via the change is very likely to come from sole traders, self-employed individuals and directors of very small companies who pay themselves primarily through dividends. Should they also be regarded as a suitable target?

Maybe some should be. But the howls of protest from the likes of the Federation of Small Business “anti-small business, anti-startup” measure deserve sympathy. Many of the affected individuals will be those who got through lockdown without furlough or equivalent support. Their position seems to have been ignored by ministers because talk of taxing dividends conjures a different image.

The measure seems to have been tacked on to the main national insurance proposal at the 11th hour in a desperate attempt to deflect the criticism about the distributional unfairness of hiking national insurance rates. Small businesses and sole traders have been treated as collateral damage in the manoeuvre. If it were a Labour administration making this move, Tories would be screaming blue murder.

And in the last few minutes, MPs have voted in favour of the plan to hike national insurance contributions (NICs) to fund £12bn for the NHS and social care, with Boris Johnson spared a mass Tory rebellion.


European markets tumble on growth fears

European stock markets ended today sharply in the red, as anxiety over the recovery hit stocks.

The pan-European Stoxx 600 index shed 1%, with every major index in the red.

Germany’s DAX lost 1.5% - with Siemens Energy (-8%) and Siemens (-3.5%) leading the fallers, followed by major auto makers like Volkswagen (-3.2%) and Daimler (-2.3%).

European stock markets, the close, September 08 2021
European stock markets tonight Photograph: Refinitiv

The UK’s FTSE 100 fell to its lowest level in over two weeks, down 54 points or 0.75% at 7,095.

Housebuilders and commercial property firms were the biggest fallers, with healthcare, consumer cyclical and miners also lower.

Worries about the health of the US recovery, the global slowdown, and the impact of the supply chain disruption which Andrew Bailey touched on are all weighing on markets.

Danni Hewson, AJ Bell financial analyst, says:

“Just exactly how are investors expected to deal with the barrage of conflicting jobs data coming out of the US? On Friday markets shuddered on the news that the US economy had added far, far fewer jobs than anyone had expected in August, and today the latest JOLTS numbers job openings far outstripped the number of people looking for work.

But wait, today’s figures are a little behind the Delta curve giving the far rosier July picture than that painted in August. But markets are antsy, they feel the headwinds picking up and for the most part the expectation that the Fed’s taper won’t cause tantrums till much later down the line has now been fairly well priced in.

“In the UK housebuilders have provided a big drag on markets with Taylor Wimpey, Persimmon, Barratt and The Berkley Group all in the FTSE 100 red zone. Supply issues and labour shortages are impeding construction plans and there’s a real sense that the hot air provided by the stamp duty holiday has cooled and the market with it. People who’d managed to amass lockdown deposits thanks to a lack of anything else to spend their cash on have probably already hung curtains in their new abodes and this week’s mega office return will be watched carefully. Home working gave some workers an opportunity to move further from the office, others have been waiting to take the plunge, unsure if hybrid will be a passing fad or a long-term shift.

“And supply issues are front and centre as the Bank of England’s governor answers questions from the Treasury Committee. Consumers might have jumped right back into spending mode, but those massive global supply juggernauts are taking a little more time to power back up. It’s like a global game of Jenga with countries trying to tease blocks out from the centre of a precarious heap which keeps getting bigger. Bottlenecks are causing frustration, frustration’s leading to good old capitalistic price rises and the feeling that inflation might not have sung its last high note of this particular song.”

Andrew Bailey has also suggested the boom in ‘meme stocks’ such as Gamestop may raise questions about financial integrity, especially in the US, but don’t raise financial stability issues.

The Archegos fund collapse earlier this year continues to raise questions about risk control at big financial institutions, he adds (several, including Credit Suisse, UBS and Nomura incurred heavy losses)

Incidentally... Capital Economics’ Michael Pearce says the record level of vacancies in the US shows that the Delta variant is keeping people out of the jobs market:

The continued surge in job openings and elevated quits rate in July suggest that labour shortages are still intensifying, which will put further upward pressure on wages.

There is little evidence that the return to in-person schooling or the expiry of Federal UI benefits this week will do much to alleviate those shortages.

Instead, virus fears appear to be a bigger factor, with the surge in infections over recent months causing more potential workers to remain on the sidelines.

On the UK’s covid rescue loans, Bailey says repayments have been higher than banks expected... although it’s still early days, and repayment terms may be easier than expected.


BoE split evenly in August on whether basic conditions for rate hike met

Intriguingly, the Bank of England was split last month on whether the basic conditions for an interest rate rise had been met.

Andrew Bailey told MPs that he was among four Monetary Policy Committee members who felt the minimum conditions had been reached, but they were not yet sufficient to justify a hike.

Another four thought the recovery was not strong enough to meet this threshold.

In the event, the MPC voted unanimously to keep interest rates at an all-time low of 0.1% in August, with one member (the hawkish Michael Saunders) voting to cut the size of its bond-buying programme.

Bailey told the Treasury Committee:

“Let me condition this by the fact that it was an unusual meeting because there were only eight members of the committee - so it actually was four-all,”

That’s because the Bank experienced its own short term labour shortage - chief economist Andy Haldane left at the end of June, with his successor Huw Pill only appointed last week.

Q: So how much of the labour shortage is due to Brexit?

Bailey says it’s very hard to differentiate the impact of Brexit and Covid on migration, as they’re both disrupting the movement of people at the border.

Governor Andrew Bailey says the Bank’s agents around the country have heard seven explanations for why the UK has a shortage of lorry drivers.

In no particular order...

  • Age: men over 55 are one group which saw a large decline in labour force participation (along with young people, with many choosing to stay in education).
  • The difficulty of training new drivers during the pandemic (logistics firms are now trying to catch up)
  • Increased demand. Since the lockdown, we’ve been having more deliveries to our homes, which means the economy needs more drivers
  • Brexit, and its impact on migration
  • Covid, and its impact on migration
  • IR35: changes to how contractors are taxed, which has hit take-home pay
  • The decline in payment to drivers for inconveniences such as having to park up overnight, and that has reduced the attractiveness of the job

Bailey isn’t judging these himself, but the UK must take practical solutions where possible -- such as speeding up the pace of driving tests.

Q: Has the announcement of more tax rises yesterday affected your calculations - with taxation levels rising earlier in the recovery than other economies?

I have to confess to you, we haven’t done any calculations since yesterday afternoon jokes Andrew Bailey. But the Bank will take it into account in their next forecasts (due in early November)

Deputy governor Ben Broadbent points out that the rise in tax is matched with a rise in spending.

“This is not, on the face of it, a very significant tightening of fiscal policy”

Bailey: Pinging may have slowed rate of recovery

On the outlook for the economy....

Q: The latest retail sales and consumer borrowing data points to a slowdown in spending - are you concerned that the recovery could be faltering, because of the persistence of the Delta variant?

Governor Andrew Bailey says we are seeing “some flattening out of the rate of recovery” across a broad range of indicators -- he cites mobility data from Google and Apple, and payments data (which were flat in mid-August).

The Bank doesn’t have a “precise story” to explain it, but the rise in cases of the Delta variant of Covid-19 may have something to do with it.

Certainly over the summer, when we got into the ‘pinging’ period, that was quite possible.

Bailey then reiterates that the impact of Covid has attenuated -- compared to the early days of the pandemic, when the UK went into lockdown. That’s thanks to the vaccination programme.

The economies who have a lower rate of vaccination, and therefore resort to more of the lockdown procedures as their mitigation for the Delta variant are seeing some further weakening in activity.

That’s an issue for the UK, particularly if it hits trade with Asia-Pacific countries, he adds.

[China’s factories, for example, fell into contraction in August for the first time in nearly a year and a half].

Professor Silvana Tenreyro makes an important point -- there are over two million more workers either unemployed, furloughed or economically inactive compared to February 2020.

So there is still capacity in the labour market.

Deputy governor Ben Broadbent says there has been a big shift in demand for labour in the pandemic - which is why there are high vacancies even though UK employment is lower than before the pandemic.

In some sectors, vacancies are at record highs, but others seem to have plenty of spare capacity, and low vacancy rates.

Because of that, there are “big, big differences in the rate of wage growth”, either across sectors or geographically across the country, says Broadbent.

As these imbalances in the economy have been caused by Covid-19, they should dissipate as the pandemic fades away.

Andrew Bailey points out that the Bank’s projection that inflation will come back to target does assume will be “some increase in interest rates”, as the financial markets also expect.

Deputy governor Dave Ramsden points out that other central banks have also raised their inflation forecasts, higher, in recent months as the pandemic has evolved.

Ramsden adds that he also sees the potential for a more inflationary scenario than the Bank’s central forecast, driven by labour market tightness.

BoE governor Bailey: The recovery is levelling off amid high vacancies

BoE governor Andrew Bailey tells MPs that the overall economic impact of Covid in the UK has “attenuated” over time, but still causing imbalances in demand for goods and services.

At the moment we’re seeing some levelling off of the recovery, the short term indicators are suggesting that.

In Asia, though, the appearance of the delta variant is affecting activity, especially in places where vaccination rates are low. There, the response can be to shut activity down.

That accentuates the bottlenecks in the economy, Bailey explains to the Treasury Committee.

Q: What are the chances that these bottlenecks last longer than expected?

Bailey says the Bank believes they won’t be persistent.

In history, commodity prices tend to revert to their mean levels over time (and they’d need to keep going ever-higher to keep pushing the inflation rate up).

Transport supply chain bottlenecks ought to sort themselves out.

And world sales of semiconductors have risen, suggesting that supply is coming back after recent disruption.

But, Bailey then voices concern over the UK labour market - and the struggle to fill job openings amid the supply chain crisis.

We’ve talked before at hearings about the concerns about higher unemployment. In many ways now the concern is getting jobs filled.

We’ve got a high level of vacancies in this country, obviously it’s in the news every day.

We think the end of the furlough scheme on 30 September should lead to more supply of labour onto the jobs markets, so again we think should correct itself, Bailey says.

But Bailey says he personally has “a bit more concern” about persistence in the labour market.

Bank of England Bailey: Imbalance of goods supply and demand pushing up inflation

Over in parliament, the Treasury committee is questioning senior policymakers from the Bank of England.

And they kick off on the Bank’s latest forecast that inflation could hit 4% by the end of the year, double its target. Back in May they were forecasting CPI would reach 2.5% at the end of 2021.

Q: Could this undermine confidence in the Bank’s ability to forecast inflation?

Governor Andrew Bailey says two factors are pushing up inflation:

First, an increase in global demand for goods, pushing up commodity prices, oil, metals and some agricultural prices.

Second, there is an imbalance of goods and services due to the pandemic - particularly goods. That’s creating bottlenecks around the world, pushing up goods prices.

Bailey also points out that the pandemic continues to affect the global economy.

The persistence of Covid means we haven’t seen the rebalancing of demand between goods and services that the Bank expected to see, he says.

Instead, there is still much stronger demand for goods than supply of goods, which is pushing up goods prices.

Bailey also points to the ongoing shortage of semiconductor chips, which has hit car production in the UK to its lowest in a long time - and pushed up second-hand car prices.

The committee are also hearing from deputy governors Dave Ramsden and Ben Broadbent, Silvana Tenreyro, an external member of the Monetary Policy Committee, and Jonathan Hall, external member of the Financial Policy Committee.


In July, there were 8,702,000 unemployed Americans -- so today’s JOLTS report shows there are actually more job openings than people who could theoretically fill them.

Some people weren’t able to take up work in July due to caring responsibilities, or concerns about catching Covid019 as the delta variant spread across the US.

The stimulus program which boosted unemployment benefits in the pandemic ended earlier this week, which might encourage some workers into employment this autumn.

Stocks have taken a turn south on Wall Street.

The Nasdaq is now down 1%, dropping 150 points from yesterday’s record high to around 15,223.

The Dow’s weaker too, dropping 79 points or 0.23% to 35,020, as worries over the global recovery weigh on markets.

Here’s a good thread on the record level of US job openings, from’s Nick Bunker:

(the Quits rate measures how many people voluntarily left their job)

US job openings hit fresh record

The number of job openings in the US has raced to a fresh record high in July.

There were 10.934m positions available in the US economy in July, the Labor Department report, up from 10.2m in June.

This highlights that US companies are still struggling to fill positions -- either due to a shortage of candidates, a skills mismatch, or unattractive wages.

Job openings increased in several industries, with the largest increases in health care and social assistance (+294,000); finance and insurance (+116,000); and accommodation and food services (+115,000).

The number of job openings increased in the Northeast, South, and West regions, the JOLTS report shows.

However, this data obviously won’t catch the impact of the Delta variant on the US economy in August, when rising cases may have made employers more cautious....

Reaction to follow...

Bank of Canada: supply chain disruptions curb activity

Governor of the Bank of Canada Tiff Macklem outside the BoC building in Ottawa, Ontario.

The Bank of Canada has warned that rising cases of Covid-19, and supply chain problems, are both threatening the recovery.

After its latest policy meeting, the BoC says:

The global economic recovery continued through the second quarter, led by strong US growth, and had solid momentum heading into the third quarter.

However, supply chain disruptions are restraining activity in some sectors and rising cases of COVID-19 in many regions pose a risk to the strength of the global recovery. Financial conditions remain highly accommodative.

The BoC also left its key interest rate unchanged at 0.25%, as expected, and said it would maintain its current policy of quantitative easing.

It also stuck to its guidance that rates will remain at record lows until the second half of 2022.


Facebook Slams UK Watchdog’s Call to Sell Giphy

Facebook has pushed back against the UK competition watchdog’s call that it could be forced to sell Giphy, its GIF website, to address competition concerns.

In a punchy response to the Competition and Markets Authority, Facebook insists that its purchase of Giphy isn’t causing a substantial lessening of competition, and bluntly accuses the CMS of applying the wrong legal test, disregarding relevant considerations and considering irrelevant factors.

Facebook also claims that the CMA’s proposed remedy of complete divestiture is “grossly unreasonable and disproportionate”.

Last month, the CMA said its investigation into the Giphy takeover had concluded it could harm competition among social media companies and the digital advertising market. Its initial view was that the only effective way to address these competition issues was for Facebook to sell Giphy, in its entirety, to a suitable buyer.

Giphy is the largest supplier of animated gifs to social networks such as Snapchat, TikTok and Twitter, and was bought by Facebook for $400m last year.

Facebook argues that regulators should carefully weigh “the intrusive step of ordering the sale of a company which does not carry on business in the U.K.”, and also questioned whether a global divestment can be enforced by the British authority.

Wall Street open

Wall Street has opened cautiously, with the benchmark S&P 500 index dipping by 5 points or 0.13% to 4,514.

Energy, utilities and industrial are up, while the miners, healthcare and technology sectors are lower.

The tech-focused Nasdaq has slipped from last night’s record high, down 52 points or 0.34% at 15,322.

But the Dow Jones industrial average is slightly higher, gaining 17 points or 0.05% to 35,117.

Oil producer Chevron is among the Dow risers, up 1.1%, following the jump in oil prices today, along with fast food chain McDonald’s (+0.9%), entertainment giant Walt Disney (+1.3%) and industrial conglomerate 3M (+0.8%).

The aluminium prices has extended its gains, on fears of supply disruption of the heavily used metal.

Bloomberg’s Javier Blas reports that aluminium has hit a 13-year, having already touched a decade high this week.

The surge comes as China introduces power curbs on smelters in Guangxi, a key hub for aluminium and alumina, as part of a clampdown on emissions.

The coup attempt in Guinea, China’s top source of bauxite, has also pushed the aluminium price up, on concerns that supplies could be hurt.

The $4bn (£2.9bn) merger of controversial ticket resale websites Viagogo and StubHub can go ahead after the UK competition regulator approved a plan that will see StubHub’s international operations sold to a new entrant to the market, US investment group Digital Fuel Capital.

The Competition and Markets Authority (CMA) had ordered Viagogo to sell StubHub’s operations outside North America, after concluding that the combined entity would have handled about 90% of resold tickets for gigs, sports events and theatre in the UK.

Viagogo said Digital Fuel Capital, based in Newton, Massachusetts, had agreed to buy StubHub International for an undisclosed fee.

More here.

The oil price has risen today, as producers struggle to restart production in the Gulf of Mexico after Hurricane Ida swept through the region.

Brent crude has jumped around $1 to $72.69 per barrel, up around 1.3%, lifted by reports of a sluggish restart of operations after Ida swept through the region.

US crude had rallied 1.7% t0 $69.50 per barrel.

The Wall Street Journal says:

Nearly 80% of U.S. oil and gas production in the Gulf of Mexico remains offline, almost 10 days after Hurricane Ida tore through Louisiana, as companies struggle to restart offshore platforms.

Ida, which barreled through the heart of the Gulf as a Category 4 hurricane, is turning out to be the most damaging storm for offshore production in more than 15 years. It crippled key onshore infrastructure, which has contributed to keeping about 13% of U.S. oil production idle.

Its storm surge and maximum winds of 150 miles an hour also damaged some offshore operations, including underwater pipelines that have leaked oil into the Gulf.


Full story: Halfords hit by supply chain problems as bike sales dive 26%

Halfords has blamed “considerable disruption” in global supply chains for a 26% dive in bike sales during spring and summer.

The retailer, which has 404 stores selling cycling and motoring kit, said availability of adult bikes had been particularly low as the industry “continues to experience considerable capacity constraints”.

Those constraints include difficulties in recruiting sufficient numbers of HGV drivers and service technicians, disruption to freight transport and raw material inflation, as well as limits on factory production, with makers struggling to adapt to a global surge in demand prompted by the coronavirus pandemic.

The company said in a trading update that it expected many of the problems to continue “for some time”.

Two UK energy suppliers succumb to record surge in prices

The record energy market surge has claimed its first casualties after two UK suppliers collapsed, leaving almost 100,000 customers without an energy supplier.

PfP Energy and MoneyPlus Energy both ceased trading as the UK’s gas market reached a fresh record high on Tuesday while electricity market prices surged to levels not seen since 2008.

A string of similarly small suppliers are expected to collapse this winter as the companies shoulder the heavy costs of higher market prices before the cap on standard energy tariffs lifts from October.

On Tuesday, UK gas prices reached a record high of 136.68 pence per therm, according to commodity market experts at ICIS. Meanwhile, electricity prices climbed to £128.13 per megawatt-hour, for the first time in 13 years.

More here:

And....Bloomberg reports that the price of UK electricity for the next day has surged to a record for a second time this week.

An auction for power for Thursday cleared at 277.30 pounds ($381.55) per megawatt-hour on N2EX, up more than 100% from Wednesday’s price.

Several unplanned halts are crimping supply, including units at Drax Plc’s biomass plant, RWE AG’s Didcot B, EPUKI’s South Humber all halting unexpectedly. Electricite de France SA’s Heysham 1.1 nuclear reactor is due back on Thursday after an extended outage.


Boeing directors to face investor lawsuit over 737 Max fatal crashes

Boeing’s board of directors must face a lawsuit from the planemaker’s shareholders over two fatal crashes of its 737 Max aircraft, which killed 346 people in less than six months, a US judge has ruled.

Delaware judge vice-chancellor Morgan Zurn found that the company had ignored “red flags” about the safety of the new aircraft and its anti-stall system, which the board “should have heeded but instead ignored”, following the crash of Lion Air flight 610 in October 2018.

The first incident occurred when the plane, which has an onboard system known as MCAS (manoeuvering characteristics augmentation system), crashed into the sea shortly after takeoff from Jakarta, killing all 189 passengers and crew on board.

Less than five months later, in March 2019, all 157 people on board Ethiopian Airlines flight 302 died when it crashed minutes after taking off from Addis Ababa, triggering a global grounding of the 737 Max fleet which lasted for almost two years.

“The Lion Air crash was a red flag about MCAS that the board should have heeded but instead ignored,” Zurn wrote in his ruling.

“The board did not request any information about it from management, and did not receive any until November 5, 2018, over one week after it happened.”

More here:

UK small businesses: share your thoughts on the health and social care levy

We would like to hear from small business owners on their reaction to the new health and social care levy, and how they will be affected.

You can get in touch by filling in the form here. Your responses are secure as the form is encrypted and only the Guardian has access to your contributions.

Apple’s automotive ambitions dealt blow as car chief joins Ford

In the tech sector, Apple has lost the executive in charge of its below-the-radar car project to Ford, dealing a further blow to the iPhone maker’s automotive ambitions.

Doug Field, Apple’s vice-president of special projects, had also worked on Tesla’s Model 3 vehicle under Elon Musk. Field, who rejoined Apple in 2018 after a previous stint at the business, is the fourth senior member of the company’s car team to leave since February.

He will become Ford’s chief advanced technology and embedded systems officer with immediate effect, a critical post as the auto industry moves to adopt vehicles powered by electricity and guided by computers. This year Ford signed a six-year deal with Google that includes using Android software in the Michigan carmaker’s vehicles.

Field said:

“I’m thrilled to be joining Ford as it embraces a transition to a new, complex and fascinating period in the auto industry.

“It will be a privilege to help Ford deliver a new generation of experiences built on the shift to electrification, software and digital experiences, and autonomy.”

Field will also oversee the integration of Ford products with other pieces of technology, such as a smartphone or watch. More here.

Applications for mortgage loans in the US has dipped to its lowest since July, in a sign that the market may be subdued.

Total mortgage application volume fell 1.9% last week compared with the previous seven days, the Mortgage Bankers Association’s seasonally adjusted index shows.

Applications for new mortgages were flat, while requests to refinance a home loan fell 3%.

Mike Fratantoni, MBA’s chief economist, says a shortage of homes for sale is hitting mortgage demand [and also fuelling a surge in prices].

He suspects the Federal Reserve will slow its purchases of mortgage-backed securities later this year, which would push lending rates higher.

“Economic data has sent mixed signals, with slower job growth but a further drop in the unemployment rate in August.

We expect that further improvements will lead to a tapering of Fed MBS purchases by the end of the year, which should put some upward pressure on mortgage rates.”

Sir Martin Sorrell’s S4 Capital secured another deal this morning -- with the takeover of Los Angeles-based agency Cashmere.

Cashmere will join Media.Monks, S4’s creative digital production company, as Sorrell continues to build his global marketing services business which he launched after leaving WPP.

Web site More About Advertising explains:

Cashmere was founded in Los Angeles in 2003, by Ted Chung and Seung Chung and now has 150 staff. Clients include Google, Instagram, Facebook, BMW, WarnerMedia, adidas, Netflix, Disney, Amazon and Apple. In August, Cashmere was appointed as the first “Culture Agency of Record” by Taco Bell.

Sorrell says:

“We are delighted to welcome Ted, Seung, Ryan and their colleagues to Media.Monks. Their ability to translate contemporary culture into compelling content and reach diverse audiences is a rare talent and something we want to integrate at the heart of our content practice. It is particularly relevant, given the changes we see taking place around diversity and purpose, not only in the United States, but beyond.”

Growth worries weigh on markets

Global stock markets have dropped back from their recent record highs, on concerns that the pandemic could undermine the global recovery.

MSCI’s world equity index has dropped 0.24% after hitting record highs for seven consecutive sessions, on some caution over the pace of economic recovery.

European stock markets hit their lowest levels in over two weeks this morning, but have since recovered a little - with the Stoxx 600 down 0.7% today. Germany’s DAX is still down almost 1%, with carmakers weaker.

The FTSE 100 index is now down around 40 points, having been 80 points lower earlier, amid choppy trading. Housebuilders and commercial property firms are still among the major fallers, with healthcare, industrials and mining stocks also weaker.

Neil Wilson of says growth worries are weighing on the markets, although the US Nasdaq index hit another record high last night.

There is a slow growth feel to the stock market – things that don’t need cyclical economic growth doing well like Netflix – new all-time high – and Tesla. Cruise liners, casinos and Disney were the best performers though – signs that it’s all doom and gloom with regards Delta and vaccines.

Industrials were weak but so too some of the bond proxies like real estate and utilities as bond yields rose. The Dow fell 270pts to 35,100, while the S&P 500 declined 0.34% to 4,520. It seems like the kind of uptick in consumer spend and consumption into the back end of the year will not be as strong as thought due to delta.

The US dollar has strengthened a little, indicating that investors could be cutting their exposure to riskier assets.

Concern has been growing about the Delta variant after US payroll growth hit a seven-month low in August, with just 235,000 new hires.

St. Louis Federal Reserve Bank president James Bullard’s call for tapering to start soon may create fears that the Fed tightens too quickly, hurting growth.

Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson Investors, says Bullard’s comments may have caused investors some confusion:

Even the Federal Reserve doesn’t seem to know what link there should be between quantitative easing and interest rates. At Jackson Hole, Chair Powell tried to explicitly separate tapering and when US interest rates may start rising, but James Bullard seems to have skipped that particular slot at the conference. The St Louis Fed President again connected the end of quantitative easing to the earliest that interest rates could be hiked. Markets could be forgiven for being confused by the differing communications, but clearly there is a difference of opinion inside the world’s foremost central bank as to the implications of any policy changes.

Bullard’s comments also illustrated one of the ways that the Fed could still deliver a hawkish surprise in a couple of weeks’ time, if it announces a rapid taper plan. Bullard indicated that he would like to see asset purchases wound down by the end of the first quarter next year; that would be a quick six-month taper at presumably $20bn per month. This would probably be quicker than many investors have assumed, given the Fed’s reluctance so far to begin the process of reducing stimulus despite the surge in both realized and forecast inflation.


Bloomberg: Sales of Property and Cars Slowed in China With August Lockdowns

Bloomberg has spotted that Chinese consumers cut back on buying cars and apartments in August as stronger regulation of the property market and a broad Covid outbreak in the country further undercut the economy’s already slowing recovery.

Property sales in the four first-tier cities declined 16% in August from a year ago, according to Bloomberg calculations based on weekly data.

Total automobile sales including to companies likely dropped about 22% over the same period, the biggest decline since last March when the nation was still in lockdown to control the initial Covid cases, they say (more here).

China’s exports were stronger than expected in August, lifted by robust overseas demand, but Bloomberg’s data suggests the domestic economy took a hit from lockdowns [as last Friday’s Services PMI showed too].

Halfords bicycle supply problems could be a sign that the wider UK retail sector will struggle to meet customers’ orders this Christmas.

Russ Mould, investment director at AJ Bell says Halfords has been fighting an uphill battle for its cycling operations - although at least childrens’ bikes are faring better than adult ones.

Demand hasn’t been this strong for two-wheeled power in years, but Halfords hasn’t been able to capitalise on the trend.

“A typical experience in its stores since Covid struck has either been empty shelves as all the bikes have been sold, or a row of shiny new bikes on display which were actually customer orders waiting to be collected.

“Staff have been turning customers away, saying they would be better off placing orders via its website – which isn’t exactly good service. Store mechanics have been stressed and customers have either left disappointed or had to queue for ages.

“Supply chain problems would suggest getting hold of a new bike will continue to be tough well into 2022. Halfords says children’s bike availability is better than adult bikes, which should mean it can still capitalise on the seasonal spike in demand around Christmas. But otherwise, there isn’t a lot more the company can do apart from try and encourage people to buy electric bikes where there is some product availability. The problem here is the high price point.

“The retail sector overall faces the potential to have a wash-out Christmas trading period if it cannot get adequate stock in the next few months. Even then, getting the stock out to customers may equally be a problem if there aren’t sufficient drivers.

“Perhaps we’ll see tens of thousands of apologetic notes under the Christmas tree this December, with people saying they had ordered a certain present, but it won’t arrive until next Easter.”

B&M lifts profit guidance after strong UK trading

The B&M Home Store in Slough.
The B&M Home Store in Slough. Photograph: Maureen McLean/REX/Shutterstock

Back in retail, discount store chain B&M have lifted their profit forecasts for this year after stronger-than-expected trading in the UK.

B&M say profit margins in the UK have been higher than expected in the last six months.

The company, which sells everything from cleaning products, drinks and stationary to furniture, garden kit and DIY products, says sales of general merchandise and seasonal stocks have been “particularly encouraging”. So, it’s needed fewer discounts to shift stock at the end of the season.

B&M now expects adjusted earnings of £275m to £285m for the six months to 25th September 2021 -- up from City forecasts of approximately £235m.

B&M’s shares have jumped 5.5%, dislodging Smiths Group from the top of the FTSE 100 risers.

But B&M also strikes a cautious note:

Although the Group is well positioned for the upcoming Golden Quarter, trading patterns and strength of customer demand remain highly uncertain for the balance of FY22.

FT: Top Fed official pushes for quick ‘taper’ despite weak US jobs growth

St. Louis Federal Reserve Bank President James Bullard speaks at a public lecture in Singapore in 2018
St. Louis Federal Reserve Bank President James Bullard speaks at a public lecture in Singapore in 2018 Photograph: Edgar Su/Reuters

St. Louis Federal Reserve Bank President James Bullard has declared the Fed should move forward with a plan to taper its massive asset purchase programme despite the slowdown in job growth last month.

Bullard told the Financial Times that August’s weak payroll report shouldn’t prevent the Fed starting to slow its $120bn-per-month bond buying scheme.

The FT explains:

James Bullard, president of the St Louis Fed, dismissed concerns the labour market recovery was faltering, even after just 235,000 jobs were created in the month of August, and reiterated his call for the central bank to begin scaling back or “tapering” its massive $120bn-a-month bond-buying programme soon.

“There is plenty of demand for workers and there are more job openings than there are unemployed workers,” Bullard said in an interview with the Financial Times.

“If we can get the workers matched up and bring the pandemic under better control, it certainly looks like we’ll have a very strong labour market going into next year.”

He added: “The big picture is that the taper will get going this year and will end sometime by the first half of next year.”

Rather than taking his cue from a single strong or weak jobs report, Bullard said he was instead looking for job gains to average out around 500,000 a month this year. That is still roughly the current pace of hiring following August’s report.

When you’re in a crisis, you have to be prepared for twists and turns,” he said. “These numbers are going to bounce up and down.”

FT: Top Fed official pushes for quick ‘taper’ despite weak US jobs growth

Bullard, one of the more hawkish voices at the Fed, also warned that inflation could be more persistent than policymakers hope next year. The Delta variant could cause further global supply chain disruption and drive prices higher, he said.

Shares in home furnishings group Dunelm are also rallying this morning, up 8% as it overcomes supply chain problems to report strong sales.

Dunelm grew its total sales by 26% in the 12 months to 26 June 2021, its final results show, despite its stores being closed for a third of this financial year during the pandemic.

Pre-tax profits swelled by 44%, with digital sales more than doubling after Dunelm expanded its Click & Collect offer so it could handle online demand through the lockdown.

Back in July, Dunelm reported a jump in sales after it reopened its stores, and people flocked to buy items such as bedding, curtains, bathroom textiles and cushions, plus dining furniture and decorative accessories.

Investors will benefit, as Dunelm has decided to pay a special dividend of 65 pence per share, on top of a final dividend of 23p (and an interim payment of 12p earlier this year). It cancelled its dividends last year, as the pandemic hit the economy.

Dunelm also reports that the current financial year is going better than expected, with encouraging sales growth in the first ten weeks.

Nick Wilkinson, Chief Executive Officer, says Dunelm is experiencing some supply chain problems:

“Whilst the macro-outlook remains uncertain and we are seeing some industry-wide issues such as ongoing supply chain disruption and inflationary pressures from raw materials, freight costs and driver shortages, we feel well placed to continue managing these challenges.

UK industrial technology group Smiths is defying the selloff after agreeing to sell its medical division to US-based ICU Medical for $2.4bn.

The deal trumps an earlier $2bn sale to private equity firm TA Associates, agreed over a month ago. The TA deal hadn’t impressed the City (Smiths shares fell 10% after it was announced in early August), so investors are cheered by this higher price.

Smiths medical arm makes ventilators, syringe pumps, tracheostomy tubes, whose importance has become very clear during the pandemic.

But it isn’t core to the rest of the business, which includes divisions focused on rotating equipment, detection and screening technologies, fluid management products, and components and systems for defence, aerospace, communications and industrial customers.

Shares in Smiths Group are up 3.3%, putting it at the top of the FTSE 100 risers -- a lonely place right now, with only hotel group Whitbread (+0.2%) and gold producer Polymetal (+0.2%) for company.

The selloff is gathering speed - the FTSE 100 index is now down 82 points, or 1.15%, at 7067, with most stocks lower.

Richard Hunter, head of markets at interactive investor, says fears of faltering growth in the world’s largest economy (the US) are weighing on markets.

Expectations are being revised to incorporate the effect that the Delta variant may be having on the performance of corporates in the current third quarter.

European markets fall amid Delta worries

European stock markets have fallen 1% in early trading, on concerns that the rise in cases of the Delta variant are hitting the global recovery.

In London, the FTSE 100 index has dropped by 63 points to 7085, while Germany’s DAX has shed 1.2%, with similar losses in France, Italy and Spain.

Housebuilders are among the fallers in London, with Taylor Wimpey down 2%, Persimmon down 1.8%, while commercial property developer Land Securities is off 1.7%, and conference operator Informa has lost 1.9%.

European stock markets, September 08 2021
European stock markets in early trading Photograph: Refinitiv

This follows a weak session on Wall Street, where investors are fretting that the slowdown in hiring in August shows the Delta variant is hurting the US recovery.

Naeem Aslam of Avatrade explains:

The possibility of economic growth slowing down, as hinted by a lower labor market report and rising coronavirus cases, amid tapering discussions among central bank officials, is having a major toll on investor confidence. Moreover, isolated hindrances in combatting the spread of the delta variant may likely dampen hopes of a strong global economic rebound and contribute to higher volatility in stock markets.

Having said that, equity indices are still near all-time highs and, thanks to effective management by the Biden administration and the Federal Reserve, the repercussions of the pandemic have broadly been contained.

September can also be a choppy month for the markets, he adds:

Historically speaking, investors usually witness weaker stock market performance in September. Stock markets have been consistently strong and posting gains, with the S&P 500 up nearly 20% in 2021 without even a 5% retracement. Furthermore, there is a lot of uncertainty related to the expected economic recovery and the expected change in Fed policies. This means that investors should brace themselves for some volatility as markets go through a correction phase.

Morrisons could face takeover auction to decide its future

The future of Morrisons could be decided in a dramatic auction battle between the two private equity firms vying for the supermarket.

Morrisons has told the City it is in discussions with the stock market’s Takeover Panel to launch an auction process for the chain.

This would resolve the battle for the business between two private equity firms, Clayton Dubilier & Rice (CD&R) and Fortress, which began almost three months ago with neither firm having declared a final offer.

My colleague Joanna Partridge explains:

Last month, the board of the grocer recommended that shareholders back an offer by Clayton, Dubilier & Rice (CD&R) that would value the supermarket chain at £7bn (or £9.7bn including debt).

However, it is thought that the rival private equity firm Fortress, owned by the Japanese investment bank SoftBank and which has had its offers of £6.5bn and £6.7bn trumped by CD&R, could still come out with an improved bid.

Morrisons said in a statement that it was working on the basis that neither firm had declared its offer to be final, and “such that either offer may be further increased or otherwise revised, a competitive situation continues to exist”.

It added that it was beginning “discussions around an orderly framework for the resolution of this competitive situation” through an auction, which will take place before 18 October on a date yet to be announced by the Takeover Panel. The supermarket chain will then decide whether to recommend the CD&R or Fortress offer to its shareholders.

Such an auction process is rare. It was going to be used to decide the takeover battle for UK asthma treatment firm Vectura -- before private equity firm Carlyle stepped away for a bidding war with Philip Morris.

Halfords Autocentres business, which services and repairs cars and carries out MOTs, is also struggling to find enough trained staff.

The company says the supply of technicians to both its garages and its Mobile Expert Vans has been hit by recruitment challenges and Covid-related absences.

This had an impact on sales in the 20 weeks to 20th August, adding to the challenges at the bike side of the business [although Autocentre sales were still 26% higher than a year ago].

Halfords financial results,

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, says:

“Covid related absences and other recruitment challenges are slowing sales growth in Halfords’ important Autocentre business. The group relies on an army of technicians in its garages and mobile vans, and the dent in the workforce has held performance back. That said, progress has still been remarkable, with the group revving up their market share in the first few months of the financial year.

The core motoring business is also having a pleasant ride, largely thanks to the huge increases in staycations brought on by Covid. Sales of the basics like bulbs and blades, as well as travel accessories, have fared particularly well, as the UK geared up to hit the motorways over the summer.

Halfords’ full year profit ambitions remain on track, but there are some things to consider. Cycling is a real growth opportunity, but the group’s being held back by supply chain problems. Not being able to offer the right stock, or enough of it, is inevitably putting a lid on progress in the division. These are unlikely to be resolved soon. The other thing to keep in mind is that staycations are likely going to become less popular as and when the world gets back to normal. What this will mean for sales in the next summer season is yet to be seen.”

Fresh prepared food provider Bakkavor says it is facing “unprecedented” supply chain challenges.

Shortages of labour is a key factor, leading to supply chain disruption, while raw material inflation is also pushing up costs.

CEO Agust Gudmundsson explains:

We, and the industry, face a unique set of challenges in labour availability and this is also impacting the entire supply chain, contributing to raw material price inflation and logistics disruption.

We are continuing to mitigate the impact of these issues by working collaboratively with our customers and suppliers, accelerating operational efficiency initiatives, and taking measures to attract and retain colleagues effectively.

But despite these challenges, Bakkavor’s like-for-like revenues have risen above pre-pandemic levels, up 6.4% in the first half of this year, while operating profits have jumped 243.1%.

The company announced plans to recruit 1,500 workers back in July, after a surge in demand when lockdown restrictions were lifted.

On Halford’s supply chain problems, Freetrade’s analyst Gemma Boothroyd, says:

The first 20 weeks of the year saw its cycling revenue plummet by 26% on the back of bumper profits throughout lockdowns. Investors may be relieved to hear this isn’t necessarily Halfords’ fault.

Ongoing supply chain woes are the result global shipping delays and HGV drivers. It’s causing major fulfilment issues for Halfords, which makes it hard to tell whether demand for bikes has persisted post-Covid. One would assume demand has dwindled, now that we have other things to spend our money on asides from flashy bike baskets and reflective gear. But either way, Halfords can’t keep up right now.

Investors will be wondering how the firm plans to fix a mess Halfords claims is out of its control.

Boothroyd adds that Halfords entered the B2B software market in July, with a package called Avayler which helps companies streamline service delivery across multiple locations.

While Halfords waits on its bike parts, it’s selling Avayler, a cloud software with claims of streamlining companies’ delivery services across branches. The obvious benefit here is that software has no physical parts, so it shouldn’t present any additional inventory challenges for Halfords. It’s somewhat ironic given the retailer’s own inventory struggles.

But so far, Halfords has proven there’s some demand for Avayler across the pond. Its first customer was American Tire Distributors, boasting about 80,000 locations.


Introduction: Halfords bike sales snagged on supply chain disruption

Halfords motorists and cyclists store, The Wyvern, Derby. Cycles for sale

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

Bicycles have joined the lengthy list of products caught up in this summer’s supply chain problems.

Car-to-cycles firm Halfords has reported this morning that its bicycle operation has been dragged back in recent weeks by disruption in the global cycling supply chain, with sales sharply lower than last year.

With factories struggling to meet demand, rising commodity prices, transport disruption, and a shortage of drivers and technicians, the company was left facing low availability of some bikes, and recruitment challenges at its Autocentres business.

And it warns that the situation won’t be resolved fast.

Availability of adult mechanical bikes was particularly low over the last 20 weeks, Halford says, leading to “materially lower growth rates towards the end of the period” as it struggled to get hold of stock.

Kids and Electric bikes have fared better, though.

Halfords says it faced three challenges, which will be familiar to anyone following the supply chain problems building up in the economy:

  • Factory production constraints and raw material inflation.
  • General freight disruption, capacity constraints and cost inflation.
  • Supply and recruitment challenges in respect of service technicians and HGV drivers.

Halfords explains:

We expect many of the cycling supply chain issues referred to above to continue for some time albeit, as the UK’s largest cycling retailer, we are well positioned to navigate these challenges

Conversely, we are targeting strong growth in our Services and B2B businesses, alongside an improved Retail Motoring performance.

Like-for-like sales in cycling were down almost 23% in the 20-week period to August 20th compared with last year -- when there was a boom in cycling in the pandemic. They’re still 24% higher than two years ago.

Conversely, the motoring business has bounced back, with sales 52.1% higher than a year ago.

Bicycles join a long list of products affected by the supply chain woes -- from aluminium cans at Coca-Cola to mattresses at IKEA -- while the labour shortages have left Wagamama struggling to find chefs.

In other news...

Business groups are criticising the government’s national insurance hike and surcharge on dividend income to boost health and social care spending from next April, calling it a tax on jobs and a blow to the economic recovery.

The British Chamber of Commerce (BCC) said the extra financial burden from higher tax charges ignored the damage suffered by thousands of small businesses over the last 18 months.

In a separate attack on the tax increases, the Institute of Directors accused the government of an opportunistic ambush, “exploiting public sentiment at the expense of some of the most productive and entrepreneurial segments of the economy”.

Bitcoin is under pressure, down around 3% today after tumbling on Tuesday on the first day of El Salvador adopting Bitcoin as legal tender, and suffering some technical glitches.

European markets look subdued, after dropping yesterday as investors worried that the US economy could be slowing.

The agenda

  • Noon BST: US weekly mortgage approval figures
  • 3pm BST: Bank of Canada interest rate decision
  • 3pm BST: JOLTS survey of US vacancies
  • 4pm BST: Treasury Committee hearing with the Bank of England over its July Financial Stability Report and August Monetary Policy Report


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