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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

BoE’s Tenreyro warns rate rise could be ‘self-defeating’; US jobless claims fall – as it happened

Bank Of England's Silvana Tenreyro.
Bank Of England's Silvana Tenreyro says increasing interest rates to combat a temporary rise in inflation risks being “self defeating” Photograph: Bloomberg/Getty Images

Closing summary

That’s all for today - here’s the main stories:

Goodnight. GW

Updated

FTSE 100 hits two-month high

In the City, mining companies have lifted the FTSE 100 index to its highest level since mid-August.

The blue-chip index gained 66 points to finish at 7208 points, up 0.95% today.

Rising commodity prices lifted the natural resource sector, with BHP Group (+3.7%), Rio Tinto (+3.7%) Anglo American (+3.4%) and Glencore (+3.4%) leading the risers.

Michael Hewson of CMC Markets says:

It’s been another decent day for basic resource stocks as metals price continue to rise. Copper prices have risen back to their highest levels since July, while aluminium prices are back at 2008 levels.

Rising oil and gas prices are once again putting pressure on energy intensive industries, forcing them to cut production in the face of spiralling costs and creating supply shortages, with Belgian metals supplier and manufacturer Nyrstar cutting output by 50% at three of its European zinc smelters.

The FTSE100 has managed to get back near to its recent range highs, above 7,200 led by the likes of Anglo American, Antofagasta and Glencore, while oil prices are helping to support the likes of BP and Royal Dutch Shell.

Travel and hospitality also had a good day, with airline group IAG up 3.3% and hotels operator Whitbread gaining 2.4%.

British Airways, owned by IAG, said it will start hiring new cabin crew for next summer, preparing for growth in travel demand in 2022, having axed thousands of staff during the pandemic.

Updated

The UK energy sector has also been hit by the exit of a key gas wholesale supplier this week.

CNG Group will no longer provide gas to its utility clients, a move that threatens to force more energy suppliers to collapse.

CNG has written to its customers advising them to move quickly to find an alternative provider, after many of its own customers collapsed during the past months.

The move is threatening to push up energy costs for some small businesses, reports Newsnight’s Ben Chu:

Speaking of energy... the Financial Times reports that the UK business secretary has told energy companies that Britain could be heading for a mild and wet winter.

If that prediction is right, it might ease the cost of living crisis in the coming months and prevent factories having to shut down for lack of power.

The FT says:

Energy bosses this week raised the weather outlook for the winter, and Kwasi Kwarteng, whose portfolio includes energy, shared a briefing which said that “for the late winter period from January to February 2022, the most likely scenario is for an unsettled period of wet, windy and mild spells”.

The Met Office’s published longer range forecast — used for contingency planning — only covers the next three months. It says that this period is “significantly more likely than normal to be mild”, although cold spells were possible, especially during November and December.

Opposition MPs aren’t impressed, though....

Ed Miliband, shadow business secretary, said:

“This is a new low for government energy policy. Reduced to crossing his fingers for a mild winter, Kwasi Kwarteng is showing just how much a decade of inaction from government has left us vulnerable.

“Kwasi Kwarteng is the business secretary not a weatherman. It is cold comfort for businesses and families that this is all he has to offer.”

Daligas becomes third UK energy supplier to collapse this week

Another UK energy supplier has collapsed under the pressure of record wholesale gas prices.

Small energy supplier Daligas became the third British energy supplier to cease to trade this week, regulator Ofgem says.

Daligas has around 9,000 domestic and non-domestic gas customers, Ofgem said, adding that a new supplier will be found and any domestic customer credits will be protected.

Supplies at petrol stations in London and the South East remained lower than the rest of the UK last weekend, more than a fortnight after the fuel panic began.

Figures from the Department for Business, Energy and Industrial Strategy show filling station storage tanks in the capital were just 27% full at the end of the day on Sunday, compared with 37% across the whole of Britain.

The situation was only slightly better in the South East (33%).

Average stock levels in Britain sank to 15% on September 25, two days after panic buying began.

The energy crisis has intensified in India, reports Bloomberg:

Coal India Ltd., the world’s top miner of the fuel, has temporarily stopped supplies to industrial users as the nation’s energy crisis escalates.

The move to prioritize supplies to power plants is aimed at helping boost depleted inventories that are putting continued operations at risk. But it could worsen the situation for other industries such as aluminum smelters, cement producers and steel mills, leaving them with a difficult choice of looking for costlier options or slashing production.

Hamleys reassures over Christmas supplies as it reveals top toy predictions

Toys on display at Hamley’s toy store in London, Britain, today
Toys on display at Hamley’s toy store in London, Britain, today Photograph: Andy Rain/EPA

Back in the UK, Hamleys has said there will be plenty of toys to buy in its stores this Christmas, as it unveiled its top toy predictions for 2021 – a list that includes a “magic” cauldron and the latest in Lego’s tie-up with Super Mario.

Victoria Kay, the head of buying at the toy chain, said the retailer had been building up its stock levels since March.

“I don’t have a crystal ball but all I can say it that as we stand today we’re in a really strong position.”

The possibility of a toy shortage this Christmas have become the latest concerns in the country’s supply chain crisis. This week a buildup of cargo in Felixstowe resulted in vessels being directed to other ports, leading to predictions that toy deliveries would be waylaid. The Entertainer toy chain has predicted there will not be enoughBarbie dolls and Paw Patrol toys to meet demand.

Hamleys, which is famous for its flagship store on Regent Street, London, said it had plenty of the toys in a top 10 that runs the gamut from £11 for a LOL Surprise Doll to the Barbie Dream House, which with a working lift and swimming pool costs £310.

However, it described the Magic Mixies Cauldron as the “wow toy of 2021”. The set, which costs £70, comes with a wand, spell book, potions and interactive toy. Young magicians can use it to conjure, complete with smoky special effects, a cuddly pet critter. The refills needed to repeat the theatrics cost about £10....

More here (including Hamleys’ Christmas top 10):

Stocks have rallied on Wall Street in early trading, as those strong bank results and falling jobless claims lift the mood.

The Dow Jones industrial average has jumped by 353 points, or 1%, to 34,731 points, as worries about inflation fade.

Industrial stocks are stronger, with construction equipment maker Caterpillar rising 2.3%.

Tech stocks are also picking up, with Intel up 1.3% and Apple and Microsoft both 1% higher.

Daily Life, New York, USA - 02 Oct 2021Mandatory Credit: Photo by Erik Pendzich/REX/Shutterstock (12521759m) Pedestrians pass in front of the New York Stock Exchange (NYSE) on Wall Street Daily Life, New York, USA - 02 Oct 2021
The New York Stock Exchange (NYSE) on Wall Street Photograph: Erik Pendzich/REX/Shutterstock

US banks are trading higher ahead of the Wall Street open after reporting forecast-topping third quarter results.

Morgan Stanley and Bank of America are leading the charge, both up more than 2.5%, as Victoria Scholar, head of investment at Interactive Investor, explains:

The boom in M&A and IPO activity helped drive a surge in investment banking revenue, offsetting higher costs from technology and wages. Morgan Stanley reported record IB revenues in the third quarter, up 67% to $2.85bn.

Better-than-expected loan losses are also providing a tailwind this quarter with Bank of America’s quarterly provision for credit losses creating a benefit of $624mn, reflecting a reserve release of $1.1bn. This was similarly reflected in JPMorgan’s earnings yesterday, which saw profit beat expectations on better-than-expected loan losses.

However, its net interest margins fell 11% year-on-year amid the low interest rate environment, sending shares lower. For Bank of America, investors largely shrugged off a drop in FICC revenue, which fell 5% driven by a weaker trading environment for interest rate products.

The drop in US jobless claims should also cheer investors, she adds:

It is an upbeat day for markets with US futures pointing to a strong print out of the gates as the Dow looks set to jump more than 300 points. The latest US weekly jobless claims fell to 293,000 , the lowest level since the start of the pandemic and much better than analysts’ expectations, pointing to a potential pickup in the labour market after last Friday’s disappointing non-farm payrolls report.

Meanwhile US producer inflation hit a 9-month low, with producer prices up 0.5% month-on-month, the smallest increase so far in 2021 and below forecasts. However, the annual producer inflation continued to rise, hitting 8.6% the highest since November 2010, stoking concerns about elevated price levels.

Andrea Bocelli signs with Universal Music amid streaming era

Tenor Andrea Bocelli performs Giacomo Puccini’s ‘Nessun dorma’ ahead of the UEFA Euro 2020 Championship Group A match between Turkey and Italy on June 11, 2021 in Rome, Italy.
Tenor Andrea Bocelli performs Giacomo Puccini’s ‘Nessun dorma’ ahead of the UEFA Euro 2020 Championship Group A match between Turkey and Italy on June 11, 2021 in Rome, Italy. Photograph: Valerio Pennicino - UEFA/UEFA/Getty Images

Classical music superstar Andrea Bocelli has struck a global deal with Universal Music to cash-in on three decades of hit music, new albums and opportunities including live streamed concerts.

The Italian tenor, who has sold more than 90m albums and generated more than 5bn streams, is the latest global star to sign a major deal to maximise the commercial potential of their music in the streaming era.

Bocelli has officially signed with Universal Music, the world’s biggest music company and home to acts including Taylor Swift and the Beatles, which for the last 25 years has only been the distributor of his music.

“Fully joining the artist stable of the largest record company in the world is the culmination of a dream,” said Bocelli, who sung at the opening ceremony of Euro 2020 held earlier this year.

“I celebrate this new adventure, full of ideas, new projects and of course music.”

Here’s the full story:

America’s factories hiked their prices again last month, but at a slower rate.

The US producer price index (which tracks prices at the factory gate) rose by 0.5% in September. That’s slower than in August when they jumped 0.7%, and less than economists expected.

On an annual basis, the PPI has jumped by 8.6%, the largest year-on-year advance since November 2010. That highlights the strong price pressures since economies reopened (but how temporary will they prove to be?...)

Core PPI inflation (stripping out the volatile food and energy components) only rose by 0.2% during the month, which may show inflationary pressures are easing.

US jobless claims falls below 300,000

Over in the US, the number of Americans filing new claims for unemployment support have fallen sharply to a fresh pandemic low.

There were just 293,000 initial claims last week, a fall of 36,000 compared with the previous week (on a seasonally adjusted basis).

That’s the lowest level for initial claims since March 14, 2020, a sign that US employers are holding onto workers in the face of labor shortages, the supply chain crisis, and the ongoing impact of Covid-19.

This is the first time since the first wave of Covid-19 that US jobless claims have come in below 300,000, and towards the pre-pandemic levels in the low 200,000s.

Updated

BoE's Tenreyro warns against self-defeating interest rate rise

Silvana Tenreyro, member of the monetary policy committee at the Bank of England.
Silvana Tenreyro, member of the monetary policy committee at the Bank of England. Photograph: Bloomberg/Getty Images

A Bank of England policymaker has warned that it would be ‘self-defeating’ to raise interest rates to tackle a temporary rise in inflation.

Silvana Tenreyro, a member of the Monetary Policy Committee, has pushed back against calls for borrowing costs to rise - arguing that the impact of rising energy prices would have faded before any rate hike had an effect.

Speaking to the Western Mail, Tenreyro said that part of the recent increase in inflation is down to ‘base effects’ (where prices fell during the pandemic last year), plus disruption to supplies of components such as semiconductors.

And asked whether the UK faces a sustained period of above-inflation target levels, stoked further by higher wage growth, Tenreyro replied that there is a question over whether the UK faces a one-off jump in inflation, or a longer-term move.

If it’s a one-off effect, trying to respond to that would only make inflation more volatile, she said.

Tenreyro explained:

If you take the semiconductor industries there was a huge increase in demand for electronic products with Covid which raised the demand for semiconductors. At the same time there was a confluence of very unfortunate supply effects, like the fire in the biggest plant in Japan, the energy cuts in Texas and the drought in Taiwan with semiconuductors requiring a huge demand for ultra pure water. So lots of effects were very unfortunate, but you wouldn’t expect them to continue to exert pressure or resist supply going forward.

“So typically, for short-lived effects on inflation, such as the big rises in the prices of semiconductors or energy prices, it would be self-defeating to try to respond to their direct effects. By the time interest rates were having a major effect on inflation the effects of energy prices would already be dropping out of the inflation calculation. If some effects were to prove more persistent it would be important to balance the risks from a period of above target inflation with the cost of weaker demand.

Tenreyro argued that global supply chain disruption, and government spending in the US, were also driving up demand:

“What we are also seeing is temporary supply disruptions caused by the various imbalances in the global economy as it recovers from Covid. Some countries are still locked down and others are reopened.

Demand is also being boosted far more by fiscal stimulus in some countries than others, like the US where there is a big fiscal stimulus in place.”

Tenreyro’s comments are much more dovish than fellow policymaker member Michael Saunders, who says households should get ready for “significantly earlier” interest rate rises.

They show that the MPC remains split over the question of how transitory inflation will prove to be, and whether hiking UK interest rates now is the right response to rising prices.

Investors are increasingly expecting the Bank to raise interest rates soon, after governor Andrew Bailey said inflation needed to be managed carefully to stop it becoming permanently embedded.

Updated

Takings at Pret A Manger stores across the UK rose last week, but London and Scotland are lagging.

The Office for National Statistics has used weekly transactional data from Pret as part of its weekly healthcheck on the UK economy.

And it found that sales at Pret stores in Manchester hit a pandemic high last week (which might be related to the influx of delegates and media for the Conservative Party Conference?).

Purchases at Manchester Prets rose to 113% compared to pre-pandemic level, while Yorkshire is leading the way with transactions up 142% compared to January 2020.

But London is lagging, with sales at just 82% of pre-pandemic levels, followed by Scotland with 93%.

Sales at stations have picked up recently, too, as more commuters have returned to the office - but again, not to pre-Covid-19 rates.

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

“Town centre sandwich shops had their stuffing knocked out of them during the pandemic, when daily customers disappeared overnight as entire workforces shifted to home. But it seems our love of the lunchtime snack is back, with transactions beating pre-pandemic levels in some areas.

If transactions at Pret a Manger are a measure of consumer habits, sales have snapped back in the North of England and the suburbs at a much more rapid rate than in Scotland and in the city of London.

Gas prices surged by 33% last week amid the energy crunch, the Office for National Statistics reported this morning.

The system average price (SAP) of gas traded in the UK over the On-the-Day Commodity Market (OCM) jumped to 7.707p per kilowatt hour in the week to 10th October.

That’s up from 5.785p/kWh a week earlier, ONS figures show.

It’s now quadrupled since the start of this year, when SAP was around 1.9p per kilowatt hour.

More households expected to default on mortgages and other loans

Mastercard and Visa credit cards.

Demand for unsecured lending from UK consumers rose in the last quarter, and is expected to keep rising in the run-up to 2022.

The latest credit conditions survey from the Bank of England found that overall demand for unsecured lending increased in Q3, across both credit cards and other unsecured lending, and was expected to increase further in Q4.

That could show that some stretched families are having to borrow more to cover their bills, as the cost of living squeeze hits their finances.

Survey of unsecured lending in the UK

The poll of lenders also found that more households are expected to have defaulted on mortgages and other loans in the next few months.

It says:

  • The net percentage balance for changes in default rates on secured loans to households decreased in Q3, but was expected to increase in Q4.
  • The net percentage balance for changes in default rates for total unsecured lending was unchanged in Q3, but was expected to increase in Q4.

Simon Lister at the financial comparison website, InvestingReviews.co.uk calls it a ‘potential red flag’:

“There is a potential red flag in the fact that demand for unsecured lending in the form of credit cards and loans increased in the third quarter and that lenders expect it to increase further in the next quarter. On the one hand, it could be a sign of confidence, on the other it could be a sign of finances being stretched and people increasingly relying on loans and plastic to stay afloat.

The fact that lenders think defaults on unsecured lending will increase in the fourth quarter should be a shot across the bows for both the Bank of England and Government.”

Updated

Back in the UK, defense technology group Qinetiq has warned that it has suffered from supply chain disruption.

In a trading update this morning, Qinetiq flagged that it could take a one-off writedown on a contract, joining the growing list of companies suffering problems.

It said it was tackling technical and delivery issues on the program with an unnamed client:

We are experiencing technical and supply chain issues on a large complex programme, which, if unmitigated, could result in the need for a one-off write down to our short-term guidance.

We are working closely with our customer and are making progress, jointly with our supply chain, towards recovery of the programme and mitigating this risk to less than £15m.

Qinetiq, which offers cybersecurity products and a range of military technology, also reported that US revenues have been hit by Covid-19, and the US government’s focus shifting “from counter-insurgency missions in Afghanistan to emerging near-peer threats in the Indo-Pacific”.

Shares in Qinetiq have tumbled over 10% this morning, on track for their lowest close since last December.

Qinetiq’s share price
Qinetiq’s share price Photograph: Refinitiv

German growth forecast cut amid supply chain woes.

The supply chain crisis will hit Germany’s recovery this year.

A group of top German research institutes have slashed their forecasts for growth this year to just 2.4% in 2021, down from 3.7% previously.

Their outlook for 2022 was upgraded to 4.8% from 3.9%, as the recovery from the pandemic was pushed back.

The group warned that supply chain bottlenecks are hurting factories in Europe’s largest economy.

“The Corona pandemic still shapes the economic situation in Germany”

Supply bottlenecks for intermediate products are hampering production in the manufacturing sector -- as a result, only the consumer-related service industries are growing.”

German factory orders plunged by 7.7% in August, figures released last week show, as car makers suffered from the global chip shortages.

Updated

Domino’s to hire 8,000 drivers despite supply chain challenges

Domino’s Pizza Group is planning to hire 8,000 delivery drivers in the UK and Ireland despite what it described as a “challenging” labour market as businesses across the country struggle to find workers.

More than half of the jobs will be permanent as it seeks to continue to meet growing demand as well as temporary workers for the seasonal Christmas rush.

Dominic Paul, Domino’s chief executive, said the pizza company’s supply chain had coped well “despite the well-publicised inflationary pressures and challenging labour market”.

“While we see these pressures continuing into 2022, our success in managing them to date provides us with confidence that our growth momentum will be sustained.”

Gas storage boss: lights could go out 'imminently' due to lack of security of energy supplies

Back on energy... the boss of a project to store gas in Northern Irish caves has warned that the UK’s lights could go out imminently because the government has not focused on securing energy supplies.

The UK’s lack of gas storage has been thrust into the spotlight in recent weeks as prices have surged, forcing energy companies out of business and causing rapid cost increases for industrial energy users.

Belfast shipbuilding company Harland & Wolff this week said it will gain a marine licence for a project that will use salt caverns to store gas 1,500m underground near Larne in County Antrim.

John Wood, chief executive of Harland & Wolff, on Thursday told the BBC’s Today programme that security of energy supply had dropped down the government’s priority list in recent years.

“Everybody is hell bent on decarbonisation as number one, the cost to the consumer is probably at number two, and security of supply is number three,” he said.

“That’ll be fine until the lights go out. And we see the lights going out imminently.”

The Islandmagee project could increase the UK’s overall gas storage by a third, but it would not come in time to ease the current energy crisis. However, it could help ease pressures in future, as well as providing a promising business for Harland & Wolff.

The shipbuilding company - which built the Titanic in Belfast - was bought out of insolvency by an energy company, Infrastrata, which later took on the famous name.

“The UK energy policy is all about, we’ll bring gas in through pipelines, we’ll bring LNG [liquified natural gas] in,” said Wood.

“But that’s, on paper, absolutely fine, passes every test, until the molecules don’t flow.”

Local residents and environmental campaigners oppose the Islandmagee plan. They fear it will damage the environment and harm marine wildlife and birds, as hollowing out the caves will mean waste water and dissolved salt brine is pumped back into sea.

Sky: Government set to allow more foreign butchers in to prevent pig cull

Farmer David Gibbons beds his pigs with straw at Belle Vue Farm on October 13, 2021 in Preston, England.
Farmer David Gibbons beds his pigs with straw at Belle Vue Farm in Preston, England, yesterday Photograph: Nathan Stirk/Getty Images

Sky News are reporting that the government is expected to back down today in a row over visas for foreign butchers to prevent a mass cull of British pigs.

They say:

It is understood the government will announce a package of measures, thought to include dropping a requirement for fluent English, to allow more trained butchers to come to Britain on temporary visas.

The move follows a meeting on Monday between farmers, processors and the government’s recently appointed supply chain advisor Sir Dave Lewis.

The National Pig Association (NPA), which represents the majority of farmers affected, said it was “quietly optimistic” and that the requirement for butchers to speak English was “the final blocker”.

NPA chief executive Zoe Davies said: “It is not wages because they are over the £25,000 threshold. It is coming down now to the English level requirement and the bureaucracy of the process in terms of applying for these visas.”

Sky News: Pig cull: Government set to allow more foreign butchers in to prevent mass slaughter

Farmers have warned that that up to 120,000 pigs face being culled because of a lack of abattoir workers, due to the acute labour shortages across supply chains.

Animals ready for slaughter have been stuck on farms require feeding and housing, causing financial difficulties for farmers. Large pigs which are overdue for slaughter often grow by about 1kg a day, becoming too large for slaughterhouses to handle.

Last week, the cull began at some farms:

Yesterday, the National Pig Association reported that 6,000 pigs have been culled and destroyed at farms across England due to a shortage of butchers. Because they weren’t killed in slaughterhouses, they cannot be used for human consumption.

Last week prime minister Boris Johnson played down the significance of a cull, arguing that the food industry involves “killing a lot of animals”.

The difference, though, is that in normal times the animals are used for food rather than being incinerated, and the farmers get paid.

Updated

Labour: Chancellor must get a grip on energy crisis

The Labour party have criticised Rishi Sunak for not offering help to Britain’s energy intensive industries:

Bridget Phillipson MP, Labour’s Shadow Chief Secretary to the Treasury, says the government should protect jobs at risk from the surge in gas prices:

“Our brilliant British industries are a crucial cornerstone of our economy, and we should be supporting them to boost our recovery.

“The Conservatives should be protecting and supporting them through a crisis which has come about from a severe lack of government planning.

“It doesn’t make economic sense, nor is it good value for money, to allow a temporary increase in prices to destroy British industries and jobs.

“The Chancellor should get a grip on this and support our industries - his complacent and out of touch approach is misguided and is storing up problems down the line that will leave working people paying the price.”

This chart shows why Sir Jim Ratcliffe is concerned that the UK doesn’t have enough gas storage (see opening post).

IEA: Energy crunch is risk to recovery, and boosts demand for oil

The energy crisis could threaten the global economic recovery, and will also drive up demand for oil, the International Energy Agency has predicted.

In its latest monthly report, the IEA says that the surge in prices through the global energy chain is fueling inflationary pressures, causing blackouts and could hurt growth.

Record coal and gas prices as well as rolling black-outs are prompting the power sector and energy-intensive industries to turn to oil to keep the lights on and operations humming.

The higher energy prices are also adding to inflationary pressures that, along with power outages, could lead to lower industrial activity and a slowdown in the economic recovery.

The IEA adds that shortage of natural gas, LNG and coal have all boosted demand for oil, driving US crude to a seven-year high and Brent to a three-year peak.

This switch to oil could boost demand by 500 kb/d compared with normal conditions, the IEA predicts.

In a commentary titled ‘Bumpy road ahead’, the Paris-based body predicted that demand will keep rising:

For now, a reduction in the number of new Covid cases and rising mobility are lending support to oil demand. Global gasoline demand is currently running 2% below pre-Covid levels compared with a deficit of more than 10% at the start of the year.

Air-travel is lagging further behind. All in all, world oil demand is forecast to rise by 5.5 mb/d, to 96.3 mb/d in 2021 and 3.3 mb/d in 2022, when it is set to reach pre-Covid levels.

The IEA also warns that spare capacity in the oil industry will fall as the Opec+ group boosts output, and says producers need “increased investments to meet demand further down the road”.

Yet, the IEA also says the world needs to make a rapid surge in spending on clean energy transitions, to meet rising demand.

Yesterday, the group warned that countries must intensify their investments in clean energy, or miss carbon reduction targets:

Updated

Rishi Sunak urged to cut business rates to unlock billions in investment

Chancellor Rishi Sunak has been urged to cut business rates in the budget later this month to unlock billions of pounds of investment in the economy, and ease the burden on companies.

In a joint statement today ahead of the chancellor’s post-lockdown budget, the Confederation of British Industry (CBI) and 41 other leading trade groups are demanding fundamental changes to the system, which taxes companies based on the premises they occupy.

Representing more than 260,000 businesses and 9 million employees between them, the trade groups warned failure to take action would weigh on the government’s ambition to create a high-wage, high-productivity and high-investment economy.

The intervention will add to pressure on the chancellor to cut business rates after a flurry of demands from “red wall” Tory MPs and a proposal from Labour to phase them out entirely. Companies are looking for help from the chancellor as they face severe headwinds from soaring costs and supply chain disruption caused by Covid and Brexit.

The industry groups – representing all sectors of the UK economy from airports to pubs, shops, construction and manufacturing – said the current system served as a tax on investment and could hold back firms from spending on green projects and boosting their operations outside London and large cities.

More here:

A branch of Poundland in Altrincham last year
A branch of Poundland in Altrincham last year Photograph: Phil Noble/Reuters

The owner of UK discount retailer Poundland has also been hit by supply chain disruption, but pledged to insulate customers from most of the impact.

Pepco Group reported a 19.4% jump in revenues this morning, and predicted that core profits will hit the upper end of market forecasts this year.

But Pepco also flagged that pressure on global supply chains has increased, as rising global demand drove up raw material prices.

Constrained container capacity had significantly increased its shipping costs recently, Pepco added -- amid warnings of congestion and delays at ports.

Despite this, Pepco says it won’t pass on the majority of these higher costs to consumers.

CEO Andy Bond told Reuters:

“The vast majority of our products will remain the same price in the coming year (2021-22) as they were last year (2020-21).

Bond explained that Pepco is making cost savings elsewhere to cushion the impact.

“Therefore, we feel confident that we will navigate this issue and still deliver on our financial goals as well as doing the right thing for customers.

China's factory gate inflation hits 26-year high

A worker transferring materials at a factory in Lianyungang in China’s eastern Jiangsu province.
A worker transferring materials at a factory in Lianyungang in China’s eastern Jiangsu province. Photograph: AFP/Getty Images

Over in China, factory gate inflation has hit its highest level in 26 years -- as the global supply chain squeeze continues.

Chinese manufacturers hiked their prices by 10.7% year-on-year in September, as they passed on soaring commodity and energy prices onto their customers.

That’s the highest reading since November 1995, the National Bureau of Statistics reported.

The surge hasn’t reached Chinese households, yet... the NBS also reported that consumer price inflation slower to 0.7% in September.

But China’s rising producer price inflation could hit consumers around the globe in the coming months -- if suppliers pass these higher costs on.

Steen Jakobsen, Chief Investment Officer at Saxo Bank, explains:

China PPI hits new modern record - rising to 10.7% year-on-year (vs. +10.5% expected) and thus the highest level since a year after its 1994 currency devaluation.

A rise in coal and natural gas prices have been a key driver of this development. This key inflation gauge deserves close consideration as the world watches for the degree to which “the world’s factory” passes along higher prices to global consumers of its production.

Yesterday, we saw US inflation return to a 13-year high of 5.4%, while UK inflation is expected to surge over 4% in the coming months, partly driven by the energy crunch.

Wholesale gas prices are rising again...

UK wholesale gas prices are rising this morning, back to the eye-watering record highs seen last week.

Natural gas for delivery next month is up 7% this morning, to 252p per therm.

That’s around five times more than the start of this year, when it traded around 50p per therm, a move which has put heavy users of energy under pressure in recent weeks.

UK natural gas for delivery next month
UK natural gas for delivery next month Photograph: Refinitiv

The price rocketed over 400p per therm last week, before dropping back after Russia indicated that it could stabilise the gas crisis, if its controversial Nord Stream 2 undersea gas pipeline were approved.

Russia’s president, Vladimir Putin, has firmly denied Russia is limiting gas supplies to Europe to drive up prices, using energy as a “weapon” to get Nord Stream 2 pipeline signed off.

European gas futures are also rising this morning as the energy crunch continues.

Andy Harris, consultant to energy company Neon Reef, warned this morning the energy market was in the middle of a “perfect storm”, following the surge in wholesale prices this year.

“I think it is a market that is set up to fail and my confidence in (regulator) Ofgem is somewhat diminished,” he told the BBC’s Today programme.

“We have a price cap and it’s right that consumers aren’t exposed to extremes and are put in a position where they have bills that they simply cannot afford to pay.

“Unfortunately the solutions that have been put in place by Government and Ofgem are such that all of the risk falls onto the shoulders of suppliers

“By definition then, when you hit a perfect storm as we are in now, it is only the suppliers with the broadest shoulders that are able to absorb those losses.”

The price cap rose at the start of this month, and is expected to jump next spring when it is next updated.

Sunak appears to rule out helping businesses with gas prices

Chancellor Rishi Sunak has dampened hopes that the government could help businesses with soaring gas prices, saying “it’s not the government’s job” to manage the costs of individual products.

Asked if he would accept some companies going out of business, Sunak said he “believes in a market economy”, and that he must make sure taxpayers’ money was protected.

The comments come at a time when soaring energy prices are putting firms under strain -- raising fears that industries could shut down.

Speaking in Washington after attending a G7 finance ministers, Sunak said:

We’re prepared to work with business and support them as required. It wouldn’t be appropriate for me to comment on the particular situation of any individual company.

But in general I believe in a market economy, as it’s served us very well in this country. It’s not the government’s job to come in and start managing the price of every individual product.

Sunak added that the government does recognise people have concerns about inflation --- which is why it recently launched a £500m support fund to help families this winter.

We are alive to some of these challenges, and we’ve stepped in to provide support to those families who need it.

However, charities have warned that this winter hardship fund won’t meet the scale of the challenge faced by millions of families on low incomes.

Asked about the supply chain crisis, Sunak argued that the issues are “global in nature, so we can’t fix every single problem”, but pledged there will be a “good amount of Christmas presents available”.

Sunak has been locked in a battle with Kwasi Kwarteng, the business secretary, for some form of financial support for companies at risk of closure from the energy crisis.

But firms have already warned that simply offering loans to soften the impact of soaring gas prices “won’t address the problem”.

Introduction: Industry could shut down if UK runs out of gas in cold winter

The INEOS owned Grangemouth oil refinery
The INEOS owned Grangemouth oil refinery Photograph: Murdo MacLeod/The Guardian

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

One of Britain’s leading industrialists warned that industry could be forced to shut down if the UK suffers a bad winter.

Sir Jim Ratcliffe said last night that a lack of gas storage had left the UK vulnerable, and that gas prices were likely to remain high throughout the winter.

That could lead to widespread shutdown, he warned, if a sharp winter led to rising demand from business and consumers, outstripping supplies.

Appearing on ITV’s Peston, Ratcliffe - the founder of chemicals giant Ineos - was asked if the country could shut down due to a prolonged cold spell, he replied:

“Yeah, in which case then, what you would do is you’d shut down industry.”

That would be a heavy blow to an economy still recovering from the Covid-19 pandemic.

As Ratcliffe put it:

“Economically... we’re in a bad place as it is after Covid so you don’t really need to be shutting industry down, and that’s not great for British industry if we’re telling all our customers we can’t supply them.”

Ratcliffe said that it was hard to predict how long the current situation’s going to last, but predicted it would probably continue through the winter due to the increase in gas demand.

And he criticised the UK’s lack of gas storage, relative to other European countries, saying it was “a bit pathetic really for a nation as important as the UK” to only have 10 days’ storage left.

When we had the, if you remember, the ‘Beast From The East’, we were within a day or two of running out of gas in the UK.

“If we had run out of gas it would have been a disaster for, you know, the older people who wouldn’t have been able to get heating in the house, for industry which would have had to shut down. But we were within days, and we did make that point.”

UK industry leaders have been warning for several days that factories could be forced to shut down, unless the government provides support -- with steel bodies saying they’re on the brink of a full-blown crisis that puts jobs at risk.

The surge continues to push energy suppliers closer to the brink. On Wednesday two more firms collapsed -- Pure Planet, a renewable energy firm that was backed by the oil company BP, and Colorado Energy.

The agenda

  • 9am BST: IEA monthly oil market report
  • 9.30am BST: Bank of England’s credit conditions survey
  • 9.30am BST: ONS weekly economic activity and social change in the UK, real-time indicators
  • 11am BST: Bank of England policymaker Silvana Tenreyro gives the Yrjö Jahnsson Award lecture
  • 1.30pm BST: US weekly jobless claims

Updated

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