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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK economic outlook ‘very uncertain’, warns Bank of England, as recession fears hit markets –as it happened

Sainsbury United Kingdom Simon Roberts United States Bank of England Argos
Governor of the Bank of England, Andrew Bailey (centre) during the Bank of England's Financial Stability Report press conference today.
Governor of the Bank of England, Andrew Bailey (centre) during the Bank of England's Financial Stability Report press conference today. Photograph: Stefan Rousseau/PA

Closing summary

Time for a quick recap.

The economic outlook has “deteriorated materially”, the Bank of England has warned, as pressures including the Russian invasion of Ukraine hit households and families.

In its latest Financial Stability Report, the BoE said:

The Russian invasion of Ukraine could cause more disruption to global energy and food markets. There are also risks from abroad that could indirectly affect the UK.

Risks for borrowers with higher levels of debt will be greater if prices increase faster than expected, growth is weaker than expected or it becomes harder to borrow. In the past we have highlighted that lending to businesses with higher debt burdens, including in the US, could be a particular risk to the UK financial system.

The BoE was confident, though, that UK banks have capacity to weather global uncertainty; they must set aside more capital to weather the economic storm.

In the cost of living squeeze ...

The boss of Sainsbury’s warned that the pressure on households will “only intensify” through the rest of this year, as the supermarket pledged to invest £500m in attempting to keep prices low.

Pet food brands Whiskas, Dreamies and Pedigree are caught up in a row over price rises between supplier Mars and supermarket chain Tesco.

Supplies of some of the brands are running low in stores and online in the supermarket chain’s second falling-out with a major supplier in a fortnight.

Single mothers warned that soaring bills have hit their finances – and explained why one-off payments aren’t enough, in our latest special report on the crisis.

The children’s commissioner for England has called on the government to develop urgent plans to tackle child poverty, amid the cost of living crisis that is hitting the most vulnerable in society hardest.

The European gas crisis has intensified after one of Norway’s biggest operators was forced to shut three oil and gas fields after workers went on strike.

UK gas prices reached three-month highs on Tuesday as the energy company Equinor said that the fields on Norway’s continental shelf, which produce the equivalent of 89,000 barrels of oil a day, would suspend production.

Norway’s Gassco, the state-owned pipeline operator, told the Financial Times on Tuesday that “in a worst-case scenario, deliveries to the UK could stop totally”.

Rising worries about a European recession hit stock markets, as the euro slumped to a two-decade low.

The pound has fallen to its lowest since the start of the pandemic, shedding almost two cents to as low as $1.192.

Shares tumbled in London and across Europe as the jump in natural gas prices intensified the strain on the European economy.

Oil also tumbled as recession fears mounted, with Brent crude diving 6% to below $107 per barrel, the lowest since mid-May.

Mining stocks, oil producers and airlines are among the big fallers in London, where the FTSE 100 share index had lost 182 points or 2.5% in afternoon trading. Anglo American and Glencore shed 7%, while BP and Shell fell 6%.

Germany’s DAX index, and France’s CAC, are both down around 2.4%.

British Airways is to cancel more than 1,000 additional flights this summer from Heathrow and Gatwick as staff shortages continue to affect its operations.

Floating windfarms could be built off the coasts of Cornwall and Pembrokeshire after the Queen’s property manager identified a clutch of sites in the Celtic Sea that could host them.

Sales of new cars in the UK fell by almost a quarter last month, the worst June since 1996, as global chip shortages hammered the industry.

Royal Mail managers across the UK are poised to take industrial action in the next two weeks in a dispute over jobs and pay.

Unite, the union that represents the workers, said 2,400 managers would work to rule between 15 and 19 July, followed by strike action between 20 and 22 July over Royal Mail’s plan to cut 700 jobs and slash pay by up to £7,000.

The logistics firm DHL is to expand in the UK in response to the growth in home deliveries, setting up new depots and enlarging others, which will create more than 4,000 jobs.

We’ll be back tomorrow....GW

Updated

Pound falls to lowest since March 2020 against US dollar

The pound has now hit a two-year low against the US dollar, dropping to just $1.192.

Recession concerns, risk-off sentiment and today’s gloomy outlook from the Bank of England are taking their toll on sterling, explains Victoria Scholar, head of investment at Interactive Investor.

Cable was under pressure during the month of June with many analysts becoming increasingly bearish on the pound as we enter the second half of the year.

Headwinds from a UK economic slowdown, rising interest rates and rampant inflation are expected to take their toll on the British currency as the descending trendline looks set to extend itself.

The pound-dollar exchange rate is now below psychological support at $1.20 which has now become the major near-term resistance level to watch with weakness exacerbated by strong demand for the greenback.

Updated

Norway strikes threaten to cut off gas supplies to UK within days

The Johan Sverdrup oil field in the North Sea west of Stavanger, operated by Equinor.
The Johan Sverdrup oil field in the North Sea west of Stavanger, operated by Equinor. Photograph: Carina Johansen/NTB Scanpix/AFP/Getty Images

Norway has warned that gas exports to the UK could be shut off this weekend if the offshore workers’ strike escalates.

Norway’s Gassco, the state-owned pipeline operator, told the Financial Times on Tuesday that “in a worst-case scenario, deliveries to the UK could stop totally”, with striking workers planning to extend the shutdowns this Saturday to a key distribution hub that supplies the UK.

More here: Norway strikes threaten to cut off gas supplies to UK within days

As reported earlier, Equinor, Norway’s state-backed energy company, had already shut down three oil and gas fields.

The strikes began on Monday evening over pay claims to compensate for rising inflation, pushing gas prices to their highest level since early in the Ukaine war.

Some encouraging news in the gloom - new orders for US-manufactured goods increased more than expected in May.

US factory orders rose 1.6% in May, after advancing 0.7% in April, the Commerce Department reports.

Recession fears have pummelled the oil price too, with Brent crude sinking by 6% to below $107 per barrel.

As Stephen Innes of SPI Asset Management put it:

Oil is still struggling to break out from its current recessionary malaise as the market pivots away from inflation to economic despair.

Updated

Stocks have fallen heavily in New York too, where trading has resumed after Monday’s Independence Day holiday.

The S&P 500 index has dropped 2% so far, having already shed more than 20% since the start of January in its worst start to a year since 1970.

Updated

Britain’s Foreign Office says it was now advising against all but essential travel to Sri Lanka due to the impact of the country’s economic crisis.

It says:

“Sri Lanka is experiencing a severe economic crisis which has led to shortages of basic necessities including medicines, cooking gas, fuel and food.”

Sri Lanka’s energy minister warned on Monday that fuel supplies will run out in a few days, forcing nationwide school closures and prolonged power cuts, as the worst economic crisis in its history continues.

Inflation in Sri Lanka has soared over 50%, while depleted foreign exchange reserves have made it harder to pay for imports.

Sri Lanka defaulted in May, as shortages of food, fuel and medicines and rolling power blackouts led to nationwide protests and a plunging currency.

The pound has also sunk against the US dollar, to a three-week low, on concerns that the economic outlook is darkening.

Sterling has dopped by almost 1.5 cents to $1.1963, toward’s June’s two-year low, as fears of a recession drove investors into the safety of the dollar.

Raffi Boyadjian of XM says today’s spike in natural gas prices has dented optimism:

Recession worries took a bit of a backseat at the start of July as the selloff paused for breath, but the panic crept back in on Tuesday as a fresh surge in natural gas prices upset the uneasy calm.

Shares in Europe reversed earlier gains, mirroring US futures, which also floundered after a positive start and are now pointing to modest losses when traders return from the Independence Day holiday.

The pound vs the US dollar over the last five years
The pound vs the US dollar over the last five years Photograph: Refinitiv

Updated

Germany is sticking to its plan to prioritize private households in the case of a gas emergency, Economy Minister Robert Habeck said today (Reuters reports).

Habeck presented a revised law giving the government powers to bail out utilities struggling from rising gas prices.

Habeck said the gas market situation was tense and he could not say yet whether more stabilization measures would be needed but added that the government wants to prevent a domino effect in the gas market.

Updated

European stock markets have sunk deeper into the red, as fears of an economic downturn grip investors again.

Britain’s FTSE 100 has now sunk by 1.9%, or 137 points, to 7096 points, the lowest in ove a week.

Engineering firm Rolls-Royce are the top faller, down 6%, followed by advertising giant WPP (-6.2%) copper producer Antofagasta (-6.1%), mining giant Anglo American (-6%) and betting group Entain (-5.5%).

France’s CAC and Germany’s DAX are both down over 2%, as the surge in gas prices and slowdown in business growth reported today fan economic worries.

European stock markets
European stock markets Photograph: Refinitiv

The surge in gas prices helped to drive the euro sank to a two-decade low versus the dollar today.

The euro is now down almost 1.5 cents at $1.0286, on growing worries that energy shortages will drive Europe into recession.

Jordan Rochester, a currencies analyst at Nomura, explains:

“Everyone is gearing up for Nord Stream to be turned off and Russia has already signaled they will use that as a weapon. So this is really hitting the competitiveness of German manufacturing.”

Gas prices jump as Norway strikes add to supply woes

Back in the markets, UK gas prices hit three-month highs this morning as a strike by Norwegian energy workers threatened further disruption to supplies.

The day-ahead price of UK gas jumped 13.5% to 260p per therm, on track for its highest close since the start of April, while August’s contract is up 7% at 302p.

European gas prices rose to four-month highs.

The industrial action by Norwegian offshore workers has forced Norway’s Equinor to temporarily shutdown of three North Sea oil and gas fields -- Gudrun, Oseberg South and Oseberg East.

The strike could intensify unless a pay deal is reached, with workers seeking wage increases to compensate for rising inflation.

Reuters explains:

A planned escalation of an ongoing strike by Norwegian offshore oil and gas workers could cut 56% of the Nordic country’s gas exports from Saturday, the employer’s association Norwegian Oil and Gas (NOG) said on Tuesday.

Gas exports would be cut by 1,117,000 barrels of oil equivalent (boe) per day from July 9, while 341,000 of barrels of oil would be lost, NOG said in a statement.

Updated

Rising living costs and interest rates will put increased pressure on UK household finances in the coming months, the Bank signals.

But despite this, the share of households with high debt-servicing ratios – those who are typically more likely to experience repayment difficulties – is not expected to increase substantially this year.

That’s partly because debt serviceability will be “cushioned in the near-term by fiscal support measures” (government spending, such as the £15bn cost of living package).

My colleague Phillip Inman explains:

Rising costs are expected to depress the living standards of many families and put many in financial distress.

However, the Bank said about 80% of UK mortgages are on fixed rate deals, and despite 40% needing to be refinanced over the next 18 months, mortgage payers were in a good position to afford higher interest bills.

Here’s the full story:

The plunge in cryptocurrencies this year highlight the underlying vulnerabilities with crypto, Bank of England governor Andrew Bailey tells reporters in London.

“Both the experience that we’ve had in recent weeks and also the work that we’re doing both domestically and internationally, I think further draws out that there are issues both in the unbacked crypto world and the so called stablecoin.

The FPC points out that the combined value (or market capitalisation) of cryptoassets has fallen to $900bn, from a peak of almost $3bn in late 2021.

That has exposed “a number of vulnerabilities within cryptoasset markets”, but not posing risks to financial stability overall, the Bank adds.

Recent crypto crises include the collapse of the terra stablecoin, and the liquidation of crypto hedge fund Three Arrows Capital.

Updated

Royal Mail managers announce strike dates

Managers at Royal Mail are to hold a strike this month in a dispute over job cuts and pay, as the UK’s summer of discontent intensifies.

Unite, the managers’ trade union, says that 2,400 managers will work to rule on 15-19 July, followed by strike action on 20-22 July.

Unite says the industrial action follows a plan to cut 700 jobs and slash pay by up to £7,000, and will disrupt postal and parcel service across the country.

Unite general secretary Sharon Graham said:

“This business is awash with cash but it is putting profits and dividends for the few at the top ahead of its duties as a public service.

“There is not a single aspect of these cuts which is about improving customer service. They are being driven entirely by a culture of greed and profiteering which has seized a 500 year-old essential service, driving it close to ruin.

“Our members are determined to force the business to take a different path, and they have the full backing of Unite.”

According to Unite, during the work to rule and strike action:

  • Deliveries will not be covered
  • Managers will take their breaks and start and finish on time
  • Managers will be taking their rest days leaving units with no manger on site
  • Weekends volunteer operation won’t be covered
  • Units will have no person in control responsible for safety of the staff and buildings
  • Goodwill to work extra unpaid hours will cease
  • Some key services, like next day delivery and tracked items, will be delayed
  • Postal staff may refuse to cross picket lines or work in unmanaged buildings

Russia’s invasion of Ukraine means there is a danger of further significant disruption in the commodity markets, says BoE governor Andrew Bailey.

He points to the surge in volatility in commodity prices, which led to a rise in margin calls (on traders who had been caught out by these moves)

In particular, Bailey cites the London Metal Exchange, which was forced to suspend trading in nickel for a week after prices rocketed [with one major trader caught in a short squeeze]

The Financial Stability Report points out that commodity markets can be concentrated among a few “large, opaque and, highly interconnected participants”, which means shocks can spread quickly.

The FPC will continue to monitor the sector, Bailey says, and stands ready to work with other authorities as necessaryto ensure the resilience of the financial sector.

Bank of England governor Andrew Bailey is holding a press conference now, to outline the report.

He emphasises that global financial conditions have tightened significantly in recent months, as today’s report states, but that the UK banking system remains strong.

Despite the weaker outlook, the UK banking system remains strong.

Bailey also says the Bank will start its annual stress test of the banking sector in September, after delaying it from March so that lenders could focus on managing the associated market disruption from the Ukraine war.

It will test the resilience of the UK banking system to several potential downside risks, including:

Deep simultaneous recessions in the UK and global economies, real income shocks, large falls in asset prices and higher global interest rates.

The results should be published in the middle of next year.

Updated

Bank of England tells lenders to brace for economic storm

With an economic storm looming, the Bank of England has confirmed it is telling UK banks to ramp up their capital buffers.

Its Financial Policy Committee (FPC) confirmed that the BoE will double the counter-cyclical capital buffer (CCYB) rate to 2% July next year, meaning they will have more capital in reserve.

The FPC says:

To help ensure UK banks have the resilience to lend in stress, we will increase the UK CCyB rate from 1% to 2% from July 2023.

[this increase was first proposed last December].

The Bank adds that it stand ready to vary this rate in either direction in the future, depending on how risks develop.

Household finances likely to become more stretched

The Bank of England is clear that the cost of living crisis will pile more pressure on the finances of households and businesses.

With interest rates rising, it will be harder for familes and firms repay or refinance debt, meanin they will become more stretched.

Plus, falling real incomes will add to the strain on borrowers.

The Bank says:

The combination of inflationary pressures, slower economic growth and tightening financial conditions will adversely affect households’ and businesses’ finances in the near term.

The FPC assesses that UK household and corporate debt vulnerabilities have increased somewhat since December and are likely to increase further.

Bank: Equity markets likely to remain volatile

Turning to the financial markets, the Bank points out that stocks have had a torrid year (global shares are down around 20% since January, hammering pensions and ISAs).

The worsening economic outlook has caused markets to be volatile in recent months, it says, with more turbulence likely:

Equity prices have fallen sharply this year and are likely to continue to be volatile. And the Russian invasion of Ukraine has resulted in very high levels of volatility in commodity markets. This has put pressure on businesses that use or trade commodities.

Some businesses that are very exposed to commodity markets may face sharp falls in their profits.

But the wider UK financial system has so far been resilient to the stress facing commodity markets, the Bank points out:

UK businesses that were previously able to access funding from financial markets have continued to be able to.

But there are still risks in these markets that could affect UK financial stability. It is crucial that international work coordinated by the Financial Stability Board is successful in tackling these risks.

Outlook for the economy is very uncertain, warns BoE

A number of risks could affect UK financial stability, the Bank of England warns, given the ‘very uncertain’ economic outlook.

It says:

The Russian invasion of Ukraine could cause more disruption to global energy and food markets. There are also risks from abroad that could indirectly affect the UK.

Risks for borrowers with higher levels of debt will be greater if prices increase faster than expected, growth is weaker than expected or it becomes harder to borrow. In the past we have highlighted that lending to businesses with higher debt burdens, including in the US, could be a particular risk to the UK financial system.

Countries with high levels of government debt will also be impacted if interest rates increase further or if growth is weaker than expected. For example, some countries in the euro area have seen a big increase in interest rates on government debt recently.

And in China, disruption caused by Covid and a vulnerable property market continue to be risks that could affect the stability of the UK financial system.

Bank of England: Global economic conditions have worsened.

Global economic conditions have worsened, putting pressure on the finances of UK households and businesses, the Bank of England has warned.

In its latest Financial Stability Report, just released, the Bank of England warns that “The economic outlook for the UK and globally has deteriorated materially”, with inflationary pressures rising sharply following the war in Ukraine.

The Report says:

Prices of essential goods such as food and energy have risen sharply in the UK and globally, and the outlook for growth has worsened. This is largely a result of Russia’s illegal invasion of Ukraine.

Like other central banks around the world, we have increased interest rates to help slow down price increases. Markets have been volatile and financing conditions have tightened.

These higher prices, weaker growth and tighter financing conditions will make it harder for households and businesses to repay or refinance debt. Given this, we expect households and businesses to become more stretched over coming months. They will also be more vulnerable to further shocks.

More to follow....

Updated

Back in the markets, the euro has slumped to a two-decade low against the US dollar amid fears of a eurozone recession.

The euro has dropped by 1% to $1.0316, as traders fear that soaring energy costs will push the region into a downturn.

Today’s PMI, showing a slowdown in growth, won’t have helped.

In the travel sector, British Airways is reportedly planning to axe flights for up to 105,000 holidaymakers this month.

Britain’s biggest airline has told airport slot authorities that it is cancelling more than 650 flights from Heathrow and Gatwick in order to avoid a repeat of last month’s travel chaos, the Daily Telegraph says today.

More than 76,000 seats are being axed from Heathrow and 29,400 from Gatwick on flights to more than 70 destinations including Malaga, Ibiza, Palma, Faro and Athens.

A Government “amnesty” on the rules on airport slots is in place until Friday, which allows airlines to change schedules without facing a potential penalty. That could mean other airlines also make cancellations to summer flights this week, in an attempt to avoid further disruption at airports.

Updated

UK firms are planning price hikes as they battle their own rising costs, the struggle to build operating capacity and a shortage of raw materials caused by war and continuing supply chain disruption.

So says Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply:

Another deterioration in the UK marketplace meant new order growth dropped for a fourth month in a row to its weakest since February 2021, indicating the direction of travel for service activity in the coming months.

This is unlikely to change any time soon as consumer reluctance to spend will increase with cost-of-living pressures dominating priorities, and purchases perceived as non-essential going on the back burner for now.

UK services firms plan further price rises this year

UK services firms are planning to keep hiking prices as they pass on higher input costs to their customers.

Service sector companies raised their prices at a rapid pace again in June, with the rate of price inflation only fractionally lower than May’s record high, according to the latest snapshot of the economy, from S&P Global.

Some 37% of services firms surveyed said they raised prices in June, while only 2% cut them -- and many said they were aiming for further price rises this year.

That is a sign that consumers face more inflationary pressures, backing up Sainsbury’s warning today that the squeeze will intensify.

Two-thirds of firms reported a rise in their average cost burdens in June -- such as energy, fuel and staff wages.

UK service sector input costs
UK service sector input costs rose at record pace in 2022 Photograph: S&P Global

Tim Moore, economics director at S&P Global Market Intelligence, explains:

“June data highlighted the second-fastest rise in input prices since the survey began 26 years ago, driven by intense wage pressures and rapid increases in fuel costs.

Staff shortages added to demand and supply imbalances, with subsequent constraints on business capacity acting as a further incentive to defend margins from escalating operating expenses.

Around 37% of the survey panel reported an increase in their charges since May and many commented on plans to push through further price rises in the second half of 2022.

The survey of UK purchasing managers also found that new orders growth fell to the lowest since February 2021, during the national lockdown. Firms blamed the cost of living crisis and pessimism about the economic outlook.

Stubbornly high inflationary pressures and signs of weaker customer demand pushed business optimism to the lowest since May 2020.

The overall service sector PMI, which measures activity, rose to 54.3 from 53.4 in May, and also above the “flash” reading of 53.4 taken during June.

After a positive start, shares have dropped in London while European stocks are now flat.

The FTSE 100 index of blue-chip shares is down 46 points, or 0.64%. Financial stocks, mining companies and oil producers are in the fallers, suggesting recession fears are rising.

Sainsbury’s are up 1.7% after its first-quarter results.

Updated

Supply shortages push UK June car sales to lowest since 1996

It’s official: UK car sales last month were the worst for the month since June 1996 (when many were more focused on football than automobiles).

Trade body SMMT has reported that:

  • June new car registrations fall -24.3% to 140,958 units – weakest performance for the month since 1996.
  • Ongoing challenges in component supply, exacerbated by restrictions in China, hamper industry’s ability to fulfil demand.
  • Year to date registrations reach 802,079 units – a fall of -11.9% on last year, and second weakest first half for 30 years.

Battery electric vehicles sales grew 14.6% year-on-year, while drivers continued to shun diesel (down over 46%).

The semiconductor shortage is stifling the new car market even more than last year’s lockdown, says Mike Hawes, SMMT chief executive:

Electric vehicle demand continues to be the one bright spot, as more electric cars than ever take to the road, but while this growth is welcome it is not yet enough to offset weak overall volumes, which has huge implications for fleet renewal and our ability to meet overall carbon reduction targets.

With motorists facing rising fuel costs, however, the switch to an electric car makes ever more sense and the industry is working hard to improve supply and prioritise deliveries of these new technologies given the savings they can afford drivers.”

Eurozone downturn looms as growth slows in June

Business growth across the euro zone has slowed to a 16-month low, according to a new poll of companies that suggests Europe’s economy could shrink this quarter.

Manufacturing production fell in June, for the first time in two years, while the services sector grew more slowly.

Worryingly, inflows of new work stalled in June, ending a 15-month sequence of growth, while factory order book volumes declined at the steepest rate since the depths of the initial COVID-19 lockdown in May 2020.

That’s according to S&P Global’s final composite Purchasing Managers’ Index (PMI), seen as a good guide to economic health. It fell to 52.0 in June from May’s 54.8, slightly better than the preliminary 51.9 estimate, but nearer to the 50 point mark showing stagnation.

This sharp slowdown raises the risk of the region slipping into economic decline in the third quarter, said Chris Williamson, chief business economist at S&P Global Market Intelligence:

The manufacturing sector is already in decline, for the first time in two years, and the service sector has suffered a marked loss of growth momentum amid the cost of living crisis.

Household spending on non-essential goods and services has come under particular pressure due to soaring prices but business spending and investment is also waning in response to the gloomier outlook and tightening financial conditions.

Shoppers are switching to Sainsbury’s economy own-brand products due to the squeeze on budgets, CEO Simon Roberts tells reporters.

But premium range items are still in demand for special occasions.

“We are seeing some switching into economy own-label, clearly as we expected, and that’s the reason why Sainsbury’s quality Aldi-price match is playing such an important role.

“We are also seeing at the same time premium sales remaining resilient.”

Union: Train drivers’ strike could bring “massive” disruption this summer

The head of the UK train drivers’ union has warned of “massive” disruption this summer as his members vote on their first national strike since 1995.

Walkouts over pay would further inflame Britain’s travel chaos, with the union Aslef balloting drivers at 10 train companies over industrial action.

Mick Whelan, general secretary of drivers’ union Aslef, has told the Financial Times that:

“It will be far more disruptive than it has been in the past. We do not go on strike very often.”

“We believe [strikes] will have a massive effect....There will be a summer of disruption.”

This could come on top of industrial ation by RMT union members, who have already held one walkout last month

The Transport Salaried Staffs’ Association (TSSA) union, whose members manage control rooms, signalling and power for train operators and Network Rail, is also holding a strike ballot.

Our transport correspondent Gwyn Topham wrote about the situation here:

and here:

Full story: Sainsbury’s boss warns UK living costs squeeze will ‘only intensify’

The pressure on households will “only intensify” through the rest of this year, the boss of Sainsbury’s has warned as he said the supermarket would invest £500m in attempting to keep prices low.

The pledge came as the UK’s second biggest supermarket, which also owns the Argos and Habitat chains, revealed that sales at established stores fell 4% in the 16 weeks to 25 June compared with the same period a year before and excluding fuel.

The slide was led by an 11% fall in sales of general merchandise and a 10% drop in sales of clothing. Grocery sales fell 2.4% year-on-year but were up nearly 9% on pre-pandemic levels.

The figures emerged as shoppers switch to cheaper products, such as frozen and tinned foods and supermarket own label items, and set themselves tight budgets amid hefty grocery inflation and a squeeze on the cost of living from higher energy, petrol and housing costs. More here:

Richard Hunter, head of markets at interactive investor, says Sainsbury is struggling to maintain momentum as customers cut back, based on today’s results.

Set against ever tightening competitive screws, Sainsbury had its work cut out on any number of fronts going into the statement. And the ferocity of competition in the sector is plain to see.

Against strong comparatives from a partial lockdown last year, each of the main categories have fallen, with Grocery sales down 2.4%, Argos 10.5%, General Merchandise 14.6% and Clothing 10.1%. The picture is marginally better against pre-pandemic sales, although still mixed, with Grocery up 8.7% and Clothing up 3.9%, but Argos down 4.5% and General Merchandise down 13.8%.

Here’s Steve Dresser of Grocery Insight:

Matt Britzman, equity analyst at Hargreaves Lansdown, adds:

“Jubilee celebrations might have provided a temporary distraction for consumers who indulged in Pimms, Prosecco and strawberries, but we’re very much back to reality now.

It doesn’t come as much of a surprise that management are warning of a consumer that’s watching every penny as the cost-of-living crisis takes its toll, and the group’s expecting that pain to only get.

It’s positive then to see guidance remain intact, though it’s worth remembering it’s been raised and lowered already this year.

Updated

Cost of living dampening demand for new cars

Rising energy costs are deterring drivers from buying new cars, knocking sales by around a quarter year-on-year last month.

Lisa Watson, director of sales at Close Brothers Motor Finance, explains:

“The soaring cost of living remains at the top of the agenda for consumers, with the price of electricity, petrol, and diesel all on the rise.

This means prospective car buyers are having to think not just about the upfront cost, but also the ongoing maintenance and running expenses of a vehicle. It’s clear from June’s registration data that this is dampening demand for new cars.

Alongside this contraction in demand, supply issues continue to cause huge delays, Watson adds:

Stellantis is pulling the handbrake on production in several Citroen and Peugeot factories in France, and Ford has recently closed its order book for the new Fiesta due to production difficulties.

This follows recent difficulties for Toyota, Mini, and VW Group, worsened by the ongoing chip shortage. In reality, even customers keen to buy might be waiting until next summer for a car to land on their driveway.”

SAS files for bankruptcy protection in the United States as it fights for survival

The tail fin of a parked Scandinavian Airlines (SAS) airplane is seen on the tarmac at Copenhagen Airport.
The tail fin of a parked Scandinavian Airlines (SAS) airplane is seen on the tarmac at Copenhagen Airport. Photograph: Andrew Kelly/Reuters

Scandinavian airline SAS has filed for bankruptcy protection in the United States, as it tries to push through a financial restructuring as pilots start strike action.

SAS AB said this morning it had filed for chapter 11 bankruptcy protection, to accelerate a restructuring plan announced in February.

Wage talks between SAS and around 1,000 cockpit crew, who are pushing for an improved pay deal, collapsed on Monday, triggering a strike that adds to travel chaos across Europe this summer.

The company said in a statement on Tuesday it would continue to serve its customers throughout the bankruptcy process, although the pilot strike is impacting its flight schedule.

Carsten Dilling, chairman of the Board of SAS, explained:

The Board has concluded that legal tools are required to make progress in our ongoing negotiations with key stakeholders, and ultimately to succeed in making SAS a competitive and financially strong business.

The process we have commenced will enable SAS to continue our more than 75-year legacy of being integral to Scandinavian infrastructure and societies.

Sainsbury’s says it is “investing over £500m” in the two years to March 2023 in keeping its prices low.

This is being funded by cost savings, the company tells shareholders, adding it is “continuing to inflate behind competitors”. [ie, raising prices less quickly].

A new term for the City jargon book....

Updated

On June’s slump in UK car sales, Bloomberg says:

First-half sales fell 12% to around 800,000 vehicles -- the second-weakest showing in 30 years.

The SMMT has repeatedly called for government support to help soften the blow of surging energy costs as carmakers try to transition to producing zero-emissions vehicles.

The UK has seen auto production steadily decline over decades, with uncertainty over the future of its trading relationship with the European Union adding to the industry’s woes.

‘It’s hard getting money to stretch’: single mothers say they need support

Kelly Ross
Kelly Ross Photograph: Graeme Robertson/The Guardian

Lone parents are suffering particular hardship in the cost of living squeeze, as a Guardian special report this week shows.

Kelly Ross, a single mother to her three-year-old son Charlie, has just found out her energy bills are tripling in price, from £94 a month to £292.

With summer holidays on the horizon, there’s not much left in the pot for anything other than essentials, and she finds it hard to escape the constant burden of money worries.

“I think I’m glad that my son is this young at the minute because he doesn’t really know that we’re missing out on things,” the 39-year-old says. “It’s hard getting the money to stretch and still trying to give your child a life for him to look back at with fond memories.”

As she speaks, her son Charlie zooms around Littlethorpe village hall on a trike while other parents and children play and chat. This is her one weekly respite, a free group for struggling parents in the area run by the Leicestershire-based charity Home-Start Horizons.

She says:

“Nobody judges. If one day you want to come in crying, they’ll just make you a tea and give you a hug,” she says.

Here’s the full story:

Mothers like Ross are facing a bleak winter.

Research by the Institute for Fiscal Studies revealed this week how a decade of austerity, during which vital benefits have been frozen or cut, has resulted in child poverty in single-parent households rising by almost 10% – compared with only 2% for two-parent families.

Half of all children being raised by one parent are now in relative poverty.

Jim Holder, editorial director of magazine and website What Car?, said car buyers are being hit by a combination of issues, including rising energy bills which push up manufacturing costs, and thus forecourt prices.

Holder warned:

“The result is longer waiting times on cars which will cost more to buy.”

UK car sales slide in June

The UK automotive industry has suffered its worst June for new car sales since 1996, amid the cost of living crisis and supply chain woes.

Registrations of new cars fell by around 24% last month compared with June 2021, according to preliminary figures from the Society of Motor Manufacturers and Traders (SMMT).

Rising inflation hit consumer confidence - deterring people from buying big ticket items such as a new car. And even if you wanted to take the plunge, manufacturers continued to struggle to obtain components.

As well as the well-publicised shortage of semiconductors, carmakers face a shortage of wiring harnesses due to the conflict in Ukraine. Those harnesses are used to bundle together electric cabling that controls different systems in a car.

Registrations so far this year are thought to have fallen by 12% to about 800,000 units, due to those challenges. We’ll find out when the data is released at 9am...

Updated

Introduction: Sainsbury's CEO warns cost of living squeeze will intensify

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

The squeeze facing UK households will only intensify in the coming months, as inflation hits incomes.

That’s the warning from Sainsbury’s boss Simon Roberts this morning, as the supermarket chain reports a drop in underlying sales for the last quarter.

Roberts, chief executive of the supermarket group, says “We really understand how hard it is for millions of households right now”, with inflation hitting a 40-year high of 9.1% in May.

Customers are “watching every penny and every pound”, Roberts says, and he fears the pressures on budgets will get worse, as Sainsbury’s “invests £500 million” to keep prices down.

Roberts says:

The pressure on household budgets will only intensify over the remainder of the year and I am very clear that doing the right thing for our customers and colleagues will remain at the very top of our agenda.

Sainsbury’s underlying sales fell by 4% in the 16 weeks to 25 June (excluding fuel sales), led by weakness in general merchandise as cash-strapped consumers held back on discretionary spending.

Grocery sales down 2.4% compared with last year (when pandemic restrictions boosted spending at supermarkets), while sales at its Argos division fell 10.5% in the quarter.

On Thursday, Sainsbury’s shareholders will vote on whether it should pay the independently set living wage for all staff and contracted workers.

My colleague Sarah Butler explained last week:

Sainsbury’s has raised pay for its 171,000 direct employees across more than 1,400 stores in the UK to the living wage, which is independently calculated for the Living Wage Foundation charity, of at least £9.90 an hour outside London or £11.05 in the capital.

However, it has not made the same commitment to contractors.

Today, Roberts says:

We are proud to be the first major supermarket to pay the Living Wage to all colleagues, regardless of where they live - and to have increased Sainsbury’s colleague pay by 25% and Argos by 39% over the past five years.

Also coming up today

The latest UK car sales data are expected to show that registrations tumbled by nearly a quarter year-on-year in June, as the sector continues to struggle with supply disruption (more on that shortly).

The Bank of England releases its latest Financial Stability Report this morning, which will analyse the stability of the UK financial system and what it is doing to remove or reduce any risks to it.

In parliament, MPs on the Business, Energy and Industrial Strategy Committee will examine the strengths and weaknesses of the semiconductor industry and its supply chain in the UK, at a hearing.

We also get the latest healthcheck on UK and eurozone services companies.

In the City, the FTSE 100 index is set to open a little higher as European stocks rally. But copper is languishing ner a 17-month low, on concerns of a possible recession.

The agenda

  • 9am BST: UK new car sales for June
  • 9am BST: Eurozone service sector PMI survey for June
  • 9.30am BST: UK service sector PMI survey for June
  • 10.15am BST: BEIS committee holds hearing into UK semiconductor industry
  • 10.30am BST: Bank of England’s financial stability report
  • 11am BST: Bank of England holds press conference
  • 3pm BST: US factory orders for May

Updated

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