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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Goldman Sachs warns UK inflation could hit 22% in January; German inflation at near 50-year high – as it happened

United States United Kingdom Recession Goldman Sachs Electricity Bank of England JOLTS
A view of the London skyline showing the City of London financial district.
A view of the London skyline showing the City of London financial district. Photograph: Neil Hall/Reuters

Closing summary

A quick recap:

UK inflation could jump above 20% next year if natural gas prices remain elevated in the coming months, Goldman Sachs economists have warned.

The investment bank warned that high inflation will push the UK economy into recession.

Goldman economists, led by Sven Jari Stehn, told clients:

Concerns around cost-of-living pressures in the UK have continued to intensify on the back of the worsening energy crisis, with Ofgem raising the energy price cap for households by 80% from October.

GS has downgraded its growth outlook sharply and now expect the UK to enter into a recession starting in October-December.

Goldman’s base case is that inflation jumps to almost 15% in January when the price cap is next lifted, and that the UK suffers a relatively shallow recession.

Goldman warned that “persistently higher gas prices” are an upside risk to its forecast. If gas prices remain at their current extremely high levels, inflation could surge to 22%.

In that scenario, Goldman estimates that real GDP would likely shrink by around 3.4%, as inflation would have such a large hit to real disposable incomes.

That would be a severe blow to households and businesses, with millions of families already struggling to cope with rising bills, and firms warning they may be forced to close.

Thousands of pubs face closure without urgent government support to soften the blow from soaring energy bills, the beer industry warned, putting jobs at risk across the sector.

Russia’s Gazprom tightened the squeeze on Europe, by cutting supplies to France’s Engie utility.

France’s energy transition minister Agnes Pannier-Runacher said Russia was “using gas as a weapon of war”, meaning the country must prepare for the worst case scenario of a complete interruption of supplies.

But there is good news today – UK and European gas prices have dropped, on optimism that Europe has filled more of its winter gas storage than expected. The day-ahead UK gas price is down over 20%, although still at very high levels compared to normal times.

Europe is also pledging to intervene in the energy market, reforming the market and breaking the link between electricity and gas prices.

Outgoing prime minister Boris Johnson warned that people face a “tough” time as the cost of living rises.

His likely successor, Liz Truss, is expected to approve more oil drilling in the North Sea if she wins the Conservative leadership election, drawing criticism from environmental campaigners.

Concerns that the UK economy is heading to recession have pushed the pound to its lowest since March 2020.

Some struggling families have been borrowing more to pay their bills – credit card borrowing jumped at the fastest rate since 2005 last month.

Germany’s inflation rate has hit its highest level in almost 50 years. Harmonised CPI jumped to 8.8% this month, statistics body Destatis estimates, with energy prices up over a third and food prices rising by around 16%.

In other news…

Journalists at newspapers including the Daily Mirror and Daily Express could go on strike this Wednesday, after talks with the publisher, Reach, over the weekend failed to resolve a stalemate over pay.

The Indian tycoon Gautam Adani has been named the world’s third richest person with an estimated $137bn (£117bn) fortune, partly thanks to the jump in energy prices.

And the number of job openings in the US has risen back towards a record, with over 11.2m openings recorded.

Updated

Goldman Sachs’ warning that inflation could hit 22% is the latest “startling” forecast for the severity of the crisis that’s unfolding in the UK, says Bloomberg.

Hopes are fading that inflation will peak in October, due to the dramatic surge in gas prices in the last few weeks.

Goldman’s outlook is even more gloomy than a prediction last week from Citigroup, which price gains peaking at 18.6%, well above the 13% figure the Bank of England forecast earlier this month. More here.

Updated

If UK inflation hits 22% (which isn’t Goldman’s base case) then it will be the highest since the peak of the 1970s:

UK inflation since 1950
UK inflation since 1950 Photograph: ONS

Outgoing UK prime minister Boris Johnson has warned that Britons face tough times ahead, with the energy price cap rising 80% in October.

Johnson also argued people should have a sense of “hope and perspective”, blaming the surge in energy prices on Russia’s invasion of Ukraine.

He added:

“Whichever of the two candidates gets in next week, what the Government is also going to do is provide a further package of support for helping people with the cost of energy.

“What we’ve got to do is get through the tough months - and I’m not going to shrink from this, it is going to be tough in the months to come, it’s going to be tough through to next year.”

My colleague Pippa Crerar has the details:

“Tough” will be a severe understatement if inflation does jump as high as 22%, as Goldman Sachs fears is possible.

UK recession fears: the key charts

This charts show Goldman Sachs’ baseline forecast, for a mild UK recession in which the UK economy starts shrinking in Q4 2022, and contracts by another 0.6% during 2023:

Goldman Sachs' baseline forecasts for UK economy
Goldman Sachs' baseline forecasts for UK economy Photograph: Goldman Sachs

But this chart shows the risk that the UK could face a more severe and protracted recession.

Goldman Sachs UK forecasts
Goldman Sachs UK forecasts Photograph: Goldman Sachs

That more severe recession could be triggered by three factors:

First – households may unwind excess savings to a lesser extent than expected, because those pots of savings are among higher income households, who tend to have a lower marginal propensity to consume than lower income households.

Second – the amount of additional fiscal support from the government may turn out to be less than assumed in GS’s baseline.

Third – that gas prices may remain elevated for longer, driving inflation up to 22%

Updated

Despite the incoming recession, Goldman Sachs expect the Bank of England to hike interest rate by another 50bp in September, which would lift Bank Rate to 2.25%.

They also see ‘upside risks’ to forecasts of 25bp hikes in November and December, given “continued upside inflation and wage growth surprises and the need to keep inflation expectations anchored”.

Updated

UK inflation could hit 22% on high energy prices, Goldman Sachs warns

Sticking with the rising cost of living…. Goldman Sachs has predicted that UK inflation could hit 22% next year, if spiralling gas prices fail to fall back.

In a note on Monday, Goldman economists led by Sven Jari Stehn said that if prices stayed at current peaks, the UK will be forced to increase its energy cap by a further 80% in January.

That would be on top of October’s 80% increase in the cap, which is lifting average dual fuel bills to £3,549 per year.

If it happened, Goldman calculates it would push inflation to 22.4%, a really grim outcome, and and trigger a 3.4% decline in GDP.

Even if energy costs moderate, as Goldman’s commodities analysts expect, UK inflation could still peak at 14.8% in January, up from 10.1% last month.

They wrote:

Wholesale gas prices in the UK have surged by 145% since the start of July, and while our commodity strategists do not expect the recent spike in European gas prices to persist, we view persistently higher gas prices as an upside risk to our forecast for the Ofgem price cap increase in January.

Indeed, in a scenario where gas prices remain elevated at current levels, we would expect the price cap to increase by over 80% in January (vs 19% assumed in our baseline), which would imply headline inflation peaking at 22.4%, well above our baseline forecast of 14.8%.

That baseline forecast would still be bad enough to push the UK into recession (which Goldman is predicting will take place, see earlier post).

The good news is that UK gas prices are still falling today, but it shows just how awful the winter could be for households and businesses.

Last week, economists from Citi said consumer price inflation was set to peak at 18.6% in January, when energy bills rise.

Updated

German inflation hit near 50-year high

Inflation in Germany has accelerated this month, as consumers are hit by soaring costs of energy, food and goods.

Consumer prices in Europe’s biggest economy, calculated on an EU-harmomised basis, jumped 8.8% from a year ago in August, up from 8.5% in July, according to estimates from statistics body Destatis.

That beats the near-50 year high set in May, when harmonised inflation hit 8.7%.

On a non-harmonised basis, German consumer prices jumped by 7.9% in the year to August, up from 7.5% in July, and matching May’s reading.

Energy prices were 35.6% higher than a year ago, while food cost 16.6% more, Destatis reports, adding:

Energy prices, in particular, have increased considerably since the war started in Ukraine and have had a substantial impact on the high inflation rate.

Such high inflation in Europe’s largest economy adds to the pressure on the European Central Bank to raise interest rates sharply when it meets next week, following its first rate rise in a decade in July.

Inflationary pressures have prompted Hungary’s central bank to raise interest rates today.

The National Bank of Hungary (NBH) lifted its benchmark rate by 100 basis points, from 10.75% to 11.75%, after inflation hit a 24-year high of 13.7% in July.

Some economists have predicted inflation in Hungary could hit 20% this year, as subsidies to help with energy costs fade (Bloomberg has more details).

Updated

Shares in energy producers are dropping today, as European gas prices and crude oil both retreat.

Centrica (-4.1%) and SSE (-3.3%) are among the top fallers on the FTSE 100 index of blue-chip shares, while power station operator Drax (-5.1%) and North Sea producer Harbour Energy (-3.9%) are leading FTSE 250 fallers.

UK credit card borrowing rising as vulnerable consumers squeezed

Here’s some reaction to the jump in credit card borrowing last month:

Myron Jobson, Senior Personal Finance Analyst, interactive investor, warns that the pressure on household budget will get even worse:

“Vulnerable consumers living on a bare bones budget simply cannot make any further cuts to expenditure to weather escalating cost of living pressures – this is, in part, why we continue to see high levels of consumer debt.

“The annual growth rate of credit card borrowing has soared to its highest levels in 17 years amid the worst cost of living crisis in generations. July was a particularly agonising month for our back pockets, with inflation hitting double digits for the first time in 40 years. The cost-of-living crunch is set to go from bad to worst with the recently announced heightened energy price cap for October set to throw household budgets into disarray. Meanwhile, rises in food and petrol and other areas of expenditure is set to tighten the squeeze on households budgets.

“Those with high levels of debt should consider what they can do now to reduce their debts as the cost of credit is only rising just as the prices of everyday essentials are flying.”

Alice Haine, personal finance analyst at investment platform Bestinvest, said some people are turning to credit to handle soaring inflation, painfully high energy bills, and falling real wages.

“The rise in consumer credit borrowing reflects just how strained people’s finances are now becoming amid the cost-of-living crunch.

“Savings built up during the pandemic are being used up and people are now turning to credit to maintain their standard of living as soaring inflation, painfully high energy bills and falling real wages eat into disposable incomes.”

Gabriella Dickens, a senior UK economist at Pantheon Macroeconomics, warns that access to credit might be squeezed soon too:

“The incentive for households to use their savings to pay off debt, instead of supporting their consumption, will grow as interest rates continue to rise.

“Access to credit also might tighten if the unemployment rate starts to increase soon.”

Oil tumbles on recession worries

Oil prices are sliding today, on concerns that global demand will be hit as economies slide towards, or into recession.

Brent crude has fallen 4% today to around $101 per barrel, as economists predict that the energy crisis will drive the UK and eurozone economies into downturns.

Fed chair Jerome Powell’s determination to press on with higher interest rates to battle inflation could also lead to slower growth.

Reuters flags that Iraq’s oil exports are unaffected by the current political turmoil in the country, according to three sources, which could ease supply worries as clashes between Shi’ite Muslim groups continue.

Supporters of Shi’ite cleric Moqtada al-Sadr, a former anti-U.S. insurgent leader, have surrounded the Majnoon oil field in Basra since Monday evening as well as the 210,000 barrel per day (bpd) Basrah refinery, according to two sources.

Oil had jumped to a one-month high yesterday, so the market remains volatile.

Updated

Indian tycoon Gautam Adani named world’s third richest person

The Indian tycoon Gautam Adani has been named the world’s third richest person with an estimated $137bn (£117bn) fortune and becomes the first Asian person to break into the top three of world’s wealthy.

Adani, 60, who founded the mining-to-energy conglomerate Adani Group after dropping out of university, was on Tuesday ranked third on the daily-updated Bloomberg Billionaires Index.

His wealth has soared by $61bn so far this year, according to the index, as the market value of many of his companies have grown. Many of his businesses are involved in natural gas, coal mining and electricity generation, and are likely to have benefited from the global energy price surge.

Adani took the third spot after leapfrogging Bernard Arnault, the French billionaire who owns most of the luxury brand portfolio LVMH.

The only people richer than Adani are Tesla boss Elon Musk with an estimated $251bn fortune and Amazon’s Jeff Bezos with $153bn.

Journalists at newspapers including the Daily Mirror and Daily Express could go on strike this Wednesday, after talks with the publisher, Reach, over the weekend failed to resolve a stalemate over pay.

Reach journalists last week called off industrial action at the 11th hour, averting a strike scheduled for Friday, after the company asked for further negotiations.

But bank holiday weekend discussions between the newspaper group and the National Union of Journalists (NUJ) made no progress, ending with the company resisting the union’s demand for an improved pay settlement.

More here:

UK gas prices this winter are falling following reports (see earlier post) that Europe is further ahead on filling its storage reserves than thought.

But as the BBC’s Faisal Islam point out, prices are still much higher than before the Ukraine war began:

The energy crisis, and the rising threat of a recession, has pushed eurozone economic confidence to an 18-month low.

The European Commission’s gauge of economic morale has fallen to 97.6 in August from 99 the previous month.,

Bert Colijn, senior eurozone economist at ING, says a recession is looming:

A recession is drawing closer as businesses are becoming more pessimistic about economic activity at this point. Recent production for industry and demand for the services industry fell considerably in August and the manufacturing sector indicates rapidly weakening order books.

Fewer businesses have been hiring as weaker activity demands fewer workers, although the positive note is that the Employment Expectations index remains above its long-term trend. Nevertheless, we do expect that the economy will enter a shallow recession in the current quarter.

UK gas prices drop

UK gas prices are also falling this morning.

The day-ahead price of UK wholesale gas has dropped by over 20% to 450p per therm, while the month-ahead contract us down over a quarter.

The Dutch wholesale gas price, a benchmark for Europe, has also fallen back, despite Gazprom cutting supplies to French utility Engie this morning.

It’s an encouraging sign, although prices are still painfully high, as Gazprom prepares to close its Nord Stream 1 pipeline this week for three days of maintanance.

UK households also saved more with banks and building societies last month, indicating that people were more cautious with their spare money as economic problems mounted.

Households deposited an extra £4.3bn with banks and building societies in July, up from £2.6bn a month earlier.

Thomas Pugh, economist at leading audit, tax and consulting firm RSM UK, says consumers are “already battening down the hatches against what will almost certainly be an exceptionally tough winter”.

James Richard Sproule, Chief Economist – UK at Handelsbanken, explains:

Today’s data showed households deposited an additional £4.3bn with banks and building societies in July, compared to £2.6bn in June. This is an early indicator of where the savings rate is likely to be headed.

The savings rate has been critical to our overall outlook for the economy, our view being if people were willing to taking their savings down to a figure typically seen at the bottom of a cycle (from around 6 percent today to around 3.5 per cent) the lower degree of savings would help meet rising costs of living, if alternately people were being very cautious, we were more likely to see deposits rising and the savings rate being maintained, implying rises to the cost of living being met through reduced consumption.

UK credit card borrowing rises by most since 2005

UK households are loading up their credit card debt at the fastest rate in almost 17 years, as the cost of living squeeze tightens.

Consumers borrowed an extra £700m on their credit cards, an increase of 13.0% in the 12 months to July.

That’s the fastest increase in credit card borrowing since October 2005, new data from the Bank of England shows.

People are having to borrow more, at a time when inflation has hit a 40-year high over 10% driven by essentials such as energy and food.

Paul Heywood, chief data and analytics officer at credit scoring agency Equifax UK, explains (via Reuters):

“The most vulnerable have run out of quick fixes, which is why we continue to see considerable growth in demand for credit.”

Paul Dales of Capital Economics says the increase shows that consumer spending is not collapsing:

Some of the increase in consumer credit in July may be because some households are already turning to borrowing to make ends meet. But it is more normal for overall consumer credit to weaken during economic downturns.

Admittedly, as these data are in nominal terms, they are being supported by the rise in prices and are therefore perhaps suggesting that consumer spending is more resilient than it really is.

Overall, consumer credit increased to 6.9% in July – the highest rate since March 2019 – with households borrowing an extra £1.4bn during the month, down from £1.8bn in June.

UK consumer credit
UK consumer credit Photograph: Bank of England

Mortgage lending for house purchase held broadly steady at 63,770, above forecasts of a drop below 62,000.

Updated

European energy prices fall back from stratospheric highs

European benchmark electricity prices have eased off their record highs this morning, after the EU said it was preparing an “emergency intervention”.

The German one-year ahead electricity dropped to around €600 per MWh this morning, having hit an unprecedent – and astonishing – peak over €1000/MWh yesterday.

German year-ahead electricity prices
German year-ahead electricity prices Photograph: Refinitiv

Ursula von der Leyen’s declaration that Brussels could cut the price of electricity by separating it from the soaring cost of gas [see opening post for explanation] seems to have calmed the market.

Additionally, there are reports that the EU is set to meet its gas storage filling goal two months ahead of target.

That would help the region cope with a tough winter, with Russia limiting supplies (including squeezing Engie this morning) and energy prices raging.

Bloomberg has the details:

Reserves in the EU were filled up to 79.4% as of Aug. 27 compared with the target of 80% by Nov. 1, according to Gas Infrastructure Europe inventory data.

The EU bolstered its storage rules earlier this year after levels last winter turned out lower than in past years, particularly in German sites controlled by Russian exporter Gazprom, a factor that added to sharp increases in energy prices.

European wholesale electricity prices are still at extremely high levels. Twelve months ago, German year-ahead electricity cost around €74 per MWh.

But at least prices have moved in the right direction for businesses and households today:

Updated

Labour Party chairwoman Anneliese Dodds has warned the “massive increase” in the cap on energy bills coming in October “will plunge many, many households into financial distress”.

Asked about reports Liz Truss would support oil and gas drilling licences in the North Sea and if that was the answer, Ms Dodds told Times Radio:

“No, it’s not and the answer really is to be taking action to get the cost of those bills down.

“Labour’s been very consistent on this, we’ve got a fully costed plan that would enable the Government to not be going ahead with that massive increase in the cap on energy bills that’s projected to be coming through very, very soon, that will cause - well it’s causing households worry right now, but that will plunge many, many households into financial distress.”

The Times reports that Truss will invite applications for drilling licences to explore new fields if she becomes prime minister, with insiders suggesting as many as 130 licences could be issued.

Russia 'using gas as a weapon of war' as Gazprom cuts supplies to Engie

Russian energy giant Gazprom has intensified the squeeze on Europe’s energy market, by cutting supplies to France’s Engie.

Engie says it has been told that Gazprom will reduce gas deliveries starting today, due to a disagreement over some contracts.

In a statement, Engie said it had taken steps to protect itself:

“As previously announced, Engie had already secured the volumes necessary to meet its commitments towards its customers and its own requirements, and put in place several measures to significantly reduce any direct financial and physical impacts that could result from an interruption to gas supplies by Gazprom.”

France’s energy transition minister Agnes Pannier-Runacher told France Inter radio that the country must prepare for a complete shut-off:

“Very clearly Russia is using gas as a weapon of war and we must prepare for the worst case scenario of a complete interruption of supplies.

UK government bonds 'on course for biggest monthly fall since 1994'

British government bonds are on course for their biggest monthly fall since the bond market crisis of 1994, reports Reuters’ David Milliken.

Bond prices have slumped in August, driving up the yield (or interest rate) on shorter-dated debt to the highest since the 2008 crisis.

It’s due to the jump in energy prices which are pushing up inflation, leading to higher interest rates, and probably more government borrowing.

Here’s the full story, and here’s a neat Twitter thread with the key points:

Britain’s FTSE 100 has rallied the start of trading, following Monday’s bank holiday break.

Banks are among the risers, with Barclays (+2.9%), HSBC (+2.5%) and Lloyds (+2.3%) benefitting from expectations that interest rates will keep rising.

That’s helped to lift the Footsie by 55 points, or 0.75%, to 7482, towards the two-month highs earlier this month.

Miners, though, are hit by the drop in metal prices this morning.

Distribution group Bunzl’s shares are down over 3% after its first half earnings report disappointed investors this morning, as Victoria Scholar, head of investment at Interactive Investor, explains:

Although it raised its operating margin outlook, Bunzl is still expected to fall in the full year versus 2021. The supplies distributor enjoyed a boost in demand for its products during the pandemic but has since struggled during the post-covid economic normalisation.

The global geopolitical uncertainty and equity market turmoil weighed on the stock between April and June but since the lows, Bunzl has enjoyed a strong uptrend, rallying by more than 20%. Shares are giving back some of those gains today.

Updated

Metal prices have dropped this morning, hit by recession worries and concerns over Covid-19 cases in China.

Benchmark copper prices dropped 3% in London this morning, with nickel falling 4%.

Yesterday, China’s southern city of Shenzhen shut down the world’s largest electronics market and suspended public transport nearby, as a neighborhood-wide lockdown was brought in following a small number of Covid cases.

CNN Business has more details:

Huaqiangbei, a busy shopping area home to thousands of stalls selling computer components, mobile phone parts and microchips, is among three neighborhoods placed under a mandatory four-day lockdown in Futian district, according the district government.

Residents in those neighborhoods are forbidden to leave their homes except for Covid testing, which they are required to undergo daily until Thursday.

The UK government’s short-term borrowing costs surged to their highest level since the financial crisis this morning.

Reuters has the details:

British two-year government bond yields briefly leapt by as much as 25 basis points on Tuesday to their highest since October 2008 at 3.072%, after trading restarted following a UK public holiday when euro zone and U.S. debt had fallen sharply.

At 0710 GMT, the two-year gilt yield had recovered around half its losses and was trading 13 basis points up on the day at 2.953%

UK service sector companies hiked their prices at a record pace in the last three months, the CBI reports.

Services firms also reported that their costs rose at unprecedented rates, leading to a sharp drop in business confidence.

Charlotte Dendy, head of economic surveys at the CBI, said:

“There are slim pickings for those looking for positive signals in the services sector over the last quarter. Just as rising inflation is hurting households and every business sector, the services industry is no different.

Consumer services firms say they’ve already seen a drop in business, while business & professional services companies expect a sharp fall in the next quarter.

Thousands of pubs face closure without urgent government support to soften the blow from soaring energy bills, the beer industry has warned.

The heads of six of the UK’s largest breweries said tenants were already giving notice, and that jobs are at risk across the sector.

In some cases, pubs are facing a fivefold increase in energy bills, forcing some tenants to quit their leases.

My colleague Rob Davies explains:

Unlike households, businesses do not benefit from a cap on what suppliers can charge for gas and electricity, leaving many firms facing oblivion without state intervention.

In a letter to the government and the Conservative leadership candidates, Liz Truss and Rishi Sunak, the British Beer and Pub Association said mass job losses were inevitable in the absence of help for an industry that employs 940,000 people.

Nick Mackenzie, the chief executive of the 3,100-strong pub chain Greene King, said the energy bill blow had come just as the sector was battling back from the ravages of the Covid-19 lockdowns, which hit hospitality particularly hard and left many with punishing debts.

“While the government has introduced measures to help households cope with this spike in prices, businesses are having to face this alone, and it is only going to get worse come the autumn,” Mackenzie said.

“Without immediate government intervention to support the sector, we could face the prospect of pubs being unable to pay their bills, jobs being lost and beloved locals across the country forced to close their doors, meaning all the good work done to keep pubs open during the pandemic could be wasted.”

Here’s the full story:

Goldman Sachs: UK recession on the way

A fresh downgrade to British economic forecasts from Goldman Sachs added to the pound’s woes.

In a note published on Monday, Goldman predicted the UK would plunge into a recession in the fourth quarter of 2022, as surging inflation hits household consumption.

Goldman also expects the UK will keep shrinking through next year, forecasting a 0.6% contraction during 2023, a downgrade on its previous forecasts.

Its team of economists said:

“Concerns around cost-of-living pressures in the UK have continued to intensify on the back of the worsening energy crisis.

Real consumption is still likely to decline significantly.”

The recession could be even more severe and protracted if gas prices remained elevated for longer than feared, and if the government provides less fiscal support than Goldman assumed.

Updated

Pound hits lowest since March 2020

The pound has dropped to its lowest level in almost two and a half years, hit by recession worries and fears of more large US interest rate rises.

Sterling slipped below $1.1700 for the first time since March 2020 on Monday, as concerns over the UK’s economic outlook mounted. It has now lost over 13% of its value against the dollar since the start of this year.

Soaring energy costs are putting more pressure on Britain’s economy, hammering growth and consumer confidence and pushing businesses closer to collapse.

The pound vs the US dollar
The pound vs the US dollar Photograph: Refinitiv

The likelihood of more Bank of England rate rises isn’t providing much support for sterling, points out Dean Turner of UBS:

“Interestingly, even the lofty expectations for base rates and higher bond yields…have done little to help sterling.

So if, these reverse as I expect, there will be even less reason for investors to hold the currency of a country heading for a recession.”

The pound was also caught up in the market selloff following last Friday’s hard-hitting speech by America’s top central banker.

Federal Reserve chair Jerome Powell reiterated the central bank’s commitment to fighting inflation, despite the pain caused by interest rate hikes, signalling that borrowing costs will keep rising.

That triggered a slump on Wall Street at the end of last week, and further losses yesterday.

Introduction: EU planning energy intervention

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

With Europe’s energy crisis worsening the day, policymakers are stepping up their plans for emergency measures to curb prices as a painful winter approaches.

The European Union is preparing to intervene in the energy market, aiming to dampen soaring power costs by separating electricity costs from the soaring cost of gas.

European Commission president Ursula von der Leyen yesterday that Brussels was working on an “emergency intervention” as well as structural reforms to the power market.

Speaking in Berlin on Monday night, von der Leyen explained:

“We will have to develop an instrument, that will happen in the next days and weeks, which ensures that the gas price will no longer dominate the electricity price.

That could allow cheaper renewable energy to help set electricity prices, von der Leyen aded:

“We’ll have to ensure renewable energies are generated at lower costs, that those costs are transferred to consumers and windfall profits used to help vulnerable households.”

European electricity prices have rocketed to record highs in recent weeks, with German power for next year smashing through the €1,000 per MWh level for the first time:

Under Europe’s current market pricing system, wholesale electricity costs are based on the price of the last unit of energy bought at auction held by member states.

That means that electricity prices in the EU are driven by the “marginal” production capacity at gas power plants, which can be fired up at short notice to meet peak demand.

The Czech Republic, which holds the rotating presidency of the EU, will convene an extraordinary meeting of energy ministers on September 9th.

EU diplomats said the commission could offer a detailed plan as soon as this week, Bloomberg adds.

Von der Leyen’s comments came as the head of Shell warned the energy crisis could last for several years.

Ben van Beurden told a press conference in Norway that:

“It may well be that we will have a number of winters where we have to somehow find solutions,”

Van Beurden said solutions to the energy crisis would have to found through “efficiency savings, through rationing and a very, very quick buildout of alternatives”.

“That this is going to be somehow easy, or over, I think is a fantasy that we should put aside.

Also coming up today

BT and Openreach workers are staging fresh strikes over pay as the summer of industrial unrest across the country continues.

The Bank of England’s latest mortgage appovals data, due this morning, could show a slowdown in home loans last month. Economists predicts a small fall, to below 62,000, from around 63,700.

We also get consumer confidence figures from the US and the eurozone, and the JOLTS report showing how many job vacances are unfilled at American firms.

The agenda

  • 9.30am BST: UK mortgage approvals, and consumer credit, for July

  • 10am BST: Eurozone consumer, economic and business confidence surveys

  • 1pm BST: German flash inflation reading for August

  • 2pm BST: US house price index for June

  • 3pm BST: US consumer confidence report for August

  • 3pm BST: JOLTs survey of US job openings

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