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Fed piles pressure on Bank of England with drastic new rate rise

Federal Reserve Board Chairman Jerome Powell - JIM LO SCALZO/EPA-EFE/Shutterstock
Federal Reserve Board Chairman Jerome Powell - JIM LO SCALZO/EPA-EFE/Shutterstock

The Federal Reserve has raised interest rates by 0.75 percentage points for a second straight month in the most aggressive tightening since the 1980s, piling pressure on the Bank of England to stamp down harder on surging prices.

The US central bank kept up the breakneck pace of interest rate increases and vowed to lift borrowing costs even further despite warning of a deepening slowdown in the world’s largest economy.

Its key interest rate was increased to its joint highest level since the financial crisis even as recession fears mount.

It is the first time US rate-setters have decided on such drastic rises in back-to-back meetings since the 1980s, in a move that could force the hand of other central banks as they fall behind.

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The Fed’s chairman Jerome Powell signalled that further US increases are on the way, although they will now begin to slow after dramatic action taken to cool demand in recent months.

The Fed’s actions will turn up the heat on the Bank of England as it faces mounting pressure from Conservative MPs to get to grips with inflation as elections begin for the party’s next leader.

The Bank is weighing up a 0.5 percentage point increase ahead of its meeting next week in what would be the biggest rise in interest rates in almost three decades.

Liz Truss has called for a review into the Bank’s mandate while Rishi Sunak has warned that his Tory leadership rival’s tax cuts risk making inflation worse and lifting rates even higher.

Mr Powell’s move lifts the target range on the Fed Funds Rate to 2.25pc to 2.5pc with markets expecting it to climb above 3pc by the end of year.

Stock markets in the US rocketed after Mr Powell signalled that the pace of rate increases will begin to slow as the Fed moves to a “meeting by meeting” stance. The S&P 500, the benchmark US stock index, jumped 2.4pc and bond yields slipped back on hopes of fewer rate rises after markets were battered by central bank action in 2022.

Mr Powell said the rate-setters will likely decide to “slow the pace of increases” of rate rises but did not rule out “another unusually large” jump at its next meeting if needed.

“We think it's time to just go to a meeting by meeting basis and not provide the kind of clear guidance that we had provided.”

The Fed and other central banks face a difficult balancing act as they attempt to tame inflation with rate rises without tipping their countries into recession. The odds of policymakers executing a so-called “soft landing” for the economy as rates rise are shrinking with a growing number of forecasters on Wall Street predicting a recession.

Mr Powell said the US is not currently in recession but admitted there are growing signs of a slowdown as monetary policy tightens.

He warned of evidence of weakening spending and industrial production but also pointed to a strong jobs market as low unemployment puts more upward pressure on inflation.

“I do not think the US is currently in a recession and the reason is there are just too many areas of the economy that are performing too well and of course I would point to the labour market in particular.“

Kiran Ganesh at UBS Global Wealth Management said: “The Fed is trying to thread the eye of the needle as it seeks to underline its credibility on inflation-fighting while also staying mindful of the risk of overtightening.”

US inflation hit 9.1pc in June as food and energy prices rocket but there are clear signs that the economy is slowing. Second quarter GDP data on Thursday could reveal that the US economy is in a technical recession after a contraction in the first three months of the year.

Seema Shah, chief strategist at Principal Global Investors, said the Fed is on “one of the most aggressive hiking cycles we’ve seen in recent decades”.

ING economist James Knightley said a pivot in Fed policy is “coming” as higher interest rates cool demand.

“The Fed's work is not yet done and we look for a further 125 basis points of hikes before the end of the year. But with recession risks mounting and inflation set to fall sharply in 2023, rate cuts will be the key theme for next year.”


08:08 PM

Wrapping up

That's all from us this evening, thank you for following on another eventful day for markets. Here are the latest stories from our reporters:


07:59 PM

Powell: US is not in a recession

Powell said that the US is not in a recession at the moment.

"I do not think the US is currently in a recession and the reason is that there are just too many areas of the economy that are performing, you know, too well.

"The growth is slowing, for reasons that we understand - the growth was extraordinarily high last year."

He added the job market is doing "remarkably" well "for this state of affairs".

He noted that GDP numbers tend to be taken "with a grain of salt" as they are usually revised after they first come out.


07:51 PM

Powell: latest inflation reading was worse than expected

Powell said that the latest reading on inflation was "worse than expected".

"By the time of the September meeting we will have seen two more CPI readings and two more labour market readings and significant amount of readings about economic activity and perhaps geopolitical events," he added.

"We will make the next decision based on that data."


07:41 PM

Powell: US faces period of below trend economic growth

Powell admitted that it may be "appropriate" to slow the pace of increases while assessing their effect on the economy and inflation.

He said that the path to 2pc inflation target may involve "a period of below trend economic growth and some softening in labour market conditions" but they are "necessary" to restore economic stability.


07:37 PM

Powell: future rate rises depend on data

Jerome Powell is addressing reporters. He said that underlying demand remains "solid" despite lower production and spending.

He said that over the coming months the Fed will be looking for signs that inflation has softened.

He added: "While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data that we get between now and then."


07:29 PM

Capital Economics: we are likely smaller increases from here

Capital Economics reckons that the Fed will move to smaller interest rate increases from now on. Economist Michael Pearce said:

"With rates now close to the Fed’s estimate of neutral, the economy clearly showing signs of a slowdown in the face of rising rates and inflation set to fall in July, we suspect the Fed will shift back to smaller hikes from here, with a 50bp hike in September the most likely option.

"Chair Jerome Powell is unlikely to commit the Fed either way in the post-meeting press conference, particularly since there are still two jobs reports and two CPI readings between now and the next FOMC meeting. Powell will also have further opportunities to shape expectations in the coming weeks too, notably at the Jackson Hole symposium in late-August."


07:18 PM

US indices on the rise

Stocks climbed after the Fed's announcement, with traders eagerly waiting to hear Powell’s views on the economy for any clues on how much further rates would need to rise.

“Powell will try to strike a Goldilocks tone at the press conference, sounding sufficiently hawkish about inflation without further stoking recession fears,” said Anna Wong, chief US economist for Bloomberg Economics.

He shouldn’t sound soft on inflation to avoid giving the impression of a "Fed put” as that could cause financial conditions to ease further, contradicting the central bank’s goal, Wong added.

The Nasdaq jumped 2.5pc, the S&P 500 surged 1.3pc and the Dow added 0.3pc.


07:09 PM

Fed: spending softens but unemployment remains low

The Federal Reserve said in today's statement:

"Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

"Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity."


07:03 PM

Fed decision meets forecasts

As expected, the Federal Reserve has raised interest rates by 75 basis points in its bid to fight inflation.

The Federal Open Market Committee said it “is strongly committed to returning inflation to its 2pc objective", repeating previous language that it’s “highly attentive to inflation risks.”

The FOMC reiterated it “anticipates that ongoing increases in the target range will be appropriate,” and that it would adjust policy if risks emerge that could impede attaining its goals.


06:59 PM

Fed decision coming soon

Federal Reserve chairman Jerome Powell is set to deliver the largest back-to-back rate hike since the early 1980s, with investors seeking signs he’s open to shifting to smaller moves from September amid falling commodity prices.

The decision is scheduled for 2pm in Washington, which is 7pm London time. No quarterly forecasts will be released, and Powell will hold a press conference 30 minutes later.


06:50 PM

Ryanair's Spanish cabin crew union plans weekly strikes until January

Ryanair's Spanish cabin crew union members plan strikes on four days of every week until January to press demands for higher pay and better working conditions.

The strike action, which is also backed by the SITCPLA union, will take place from Monday to Thursday during every week from August 8 to January 7.

Ryanair played down the likely impact of the strike action and said it expected minimal disruption in Spain this winter.


06:26 PM

Saudi Arabia invests £190m in Britain’s biggest pension provider 

Saudi Arabia has taken a £190m stake in Britain’s biggest pension provider as the Gulf state expands its foothold in the City of London. James Warrington reports:

Saudi royal Alwaleed bin Talal Al Saud revealed he had taken a stake of just over 3pc in Phoenix Group through his Kingdom Holding Company. The investment makes the Saudi royal the sixth biggest investor in Phoenix.

The move comes days after Kingdom Holding took a 4pc stake in insurer and asset manager M&G worth roughly $267m.

The Saudi company said that investment was in line with its strategy of investing in global market leaders. Phoenix Group is the UK’s largest long-term savings and retirement business, with 13m customers and £310bn of assets under management.


06:03 PM

Train drivers announce new strike

Unions announced another day of strikes by train drivers on August 13, building on industrial action that closed much of the UK rail network today.

The ASLEF union said drivers voted for another strike across nine train companies as part of an ongoing dispute over pay. They are already due to strike against seven companies on Saturday.

The walkout by 40,000 members of the National Union of Rail, Maritime and Transport marked the fourth day of action by the group this summer.

Mick Whelan, general secretary of ASLEF, said: "Strikes are always the last resort.

"With inflation running at north of 10pc that means those drivers have had a real terms pay cut over the last three years. We want an increase in line with the cost of living – we want to be able to buy, in 2022, what we could buy in 2021."


05:38 PM

FTSE 100 ends higher

The FTSE 100 has closed in the green as a jump in oil stocks and strong forecasts from heavyweights Reckitt Benckiser and Lloyds Banking Group overshadowed concerns over a slowing economy and soaring inflation.

The index gained 0.6pc to 7,348.

Shares of Reckitt Benckiser climbed 2.8pc to one-year highs as the maker of Dettol and Lysol cleaning products raised its full-year revenue forecast after steep price hikes helped it beat second-quarter sales expectations.

Lloyds Banking Group rose 4.1pc after it raised its dividend and full-year profitability forecast as rising interest rates outpace modest growth in provisions for troubled loans.


05:15 PM

BBC staff to revolt over planned shake-up of audio programming

BBC staff are staging a revolt over plans to capitalise on the global podcast boom by commercialising Radio 4 programmes for overseas listeners. Ben Woods writes:

The corporation is facing internal resistance to a shake-up of its audio division that aims to bring in profits from audio output by handing control to BBC Studios, its commercial arm.

It means programmes such as Woman’s Hour and In Our Time could be packaged up as podcasts with adverts, or sold on to foreign broadcasters, as occurs with shows such as Doctor Who.

Read the full story here


04:51 PM

Spotify swerves advertising slowdown

Spotify has avoided an advertising slowdown in the second quarter, escaping the fate of other tech stocks such as Google and Snap, which took a hit from lower ad spending.

The music streaming service said advertising sales generated €360m (£299m) last quarter, an increase of 31pc from a year ago. Advertising accounted for 13pc of the company’s total revenue in the quarter.

Spotify shares rose as much as 15pc, their biggest intraday gain since December 2020. The stock had fallen 56pc so far this year through Tuesday’s close.


04:28 PM

Retailers expect downturn to worsen in August

UK retail sales continued to fall on an annual basis this month and stores anticipate a more severe slump in August, a survey by the Confederation of British Industry found.

A third of firms questioned said sales volumes were lower than the same month last year, with little more than a quarter reporting an improvement. Hardest hit were furniture and carpet stores, DIY retailers and shops selling recreational goods.

The figures show the growing toll being taken by the worst cost of living crisis in a generation. The squeeze is set to intensify in October, when another spike in energy bills is expected to see inflation top 11pc.

In further signs of weakness, retailers complained of stock levels being too high relative to expected sales. They also ordered less from suppliers and said sales were poor for the time of year.


04:18 PM

Handing over

That's all from me for today – thanks for following! Handing over to Giulia Bottaro now.


04:04 PM

HSBC to be told it must break up bank in meeting with Hong Kong investors

The boss of HSBC will be urged to carve the bank in two when he meets retail investors in Hong Kong for the first time in three years as China increasingly asserts control over the business.

Matt Oliver reports:

Noel Quinn, chief executive, and chairman Mark Tucker are to hold an informal meeting with shareholders on Tuesday, following the publication of HSBC’s half-year results.

It will be the first time since April 2019 that executives have met with Asian retail investors, who own around one third of HSBC’s shares.

Bosses previously clashed with Hong Kong investors over the decision to cancel the dividend in 2020, while many also remain unhappy about poor share price performance.

At the same time, HSBC is battling calls from top shareholder Ping An, the Chinese insurance giant, to spin off the Asian part of the bank into a separate entity – a move many in Hong Kong would support.

​Read Matt's full story here


03:33 PM

Government confirms £100m funding for Britishvolt factory

BRITISHVOLT - BRITISHVOLT
BRITISHVOLT - BRITISHVOLT

The Government has confirmed a £100m investment into Britishvolt will go ahead, following allegations it was dragging its feet over pledged funding for the new battery plant.

In a statement, Business Secretary Kwasi Kwarteng said he was “delighted to confirm” that £100m from the Government would go towards the £3.8bn ‘gigafactory’ development in northeast England.

Earlier this month, the Labour MP Ian Lavery claimed the Government had put 8,000 jobs at risk by delaying the support, which was first pledged in January.


03:22 PM

US pending home sales tumble as mortgage rates shoot up

Ouch. US pending home sales dropped 8.6pc in June, the sharpest fall since April 2020 (when the pandemic was first kicking in).

The fall, measured by the National Association of Realtors, was much more severe than the 1pc decline economists had predicted.

Lawrence Yun, NAR’s chief economist, pinned it on mortgage rates, which are increasing sharply as the Federal Reserve raises interest rates:

Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date. There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize


02:55 PM

Goldman: Cautious BoE will knock pound to $1.19

The pound will weaken to $1.19 in the next three months as the Bank of England fails to keep pace with Federal Reserve rate tightening, Goldman Sachs has predicted.

The drop is more severe than the fall to $1.21 predicted across the City, and may put more pressure on officials to increase the pace of rate increases.

Catherine Mann, one of the more hawkish members of the nine-person Monetary Policy Committee, has suggested in recent months that the Bank could increase rates more quickly to strengthen the pound, which would make imports cheaper.

The MPC is expected to step up the pace of increase with a half-percentage-point hike – the first since 1995 – when it meets next Thursday.


02:42 PM

Wall Street opens higher as Fed decision looms

Across the pond, US markets have made a strong open, with the S&P 500 rising more than 1pc in early trading.

The tech-heavy Nasdaq has made an even better opening, up 1.9pc at time of pixel.

All eyes are on the Federal Reserve today, with officials expected to back a second consecutive 0.75pc increase in their key rate. Decision at 7pm.


02:38 PM

Twitter cuts office space as it tries to lower costs

Twitter - AMY OSBORNE/AFP via Getty Images
Twitter - AMY OSBORNE/AFP via Getty Images

Twitter is reportedly cutting down on global office space as it tries to reduce overheads and encourages more staff to work from home.

Bloomberg has more details:

Twitter will significantly decrease its corporate presence in San Francisco by vacating its office on Tenth Street directly behind its Market Street headquarters, according to an email sent to employees on Wednesday. Twitter currently occupies multiple floors in the building. It has also scrapped plans to open an office across the Bay in Oakland. 

The company may close its office in Sydney and is considering plans to shutter several other offices once leases expire, including those in Seoul; Wellington, New Zealand; Osaka, Japan; Madrid; Hamburg, Germany; and Utrecht, The Netherlands, according to the memo. It may find alternative office space in some of those locations.

Space in other markets including  Tokyo, Mumbai, New Delhi, Dublin and New York may also be affected, according to the memo.

No jobs will be cut as part of the changes, Twitter said, and Bloomberg’s report makes no mention of London, where Twitter has offices just off Piccadilly Circus.


02:25 PM

Striking rail workers lose £1,500

Rail strike - NEIL HALL/EPA-EFE/Shutterstock
Rail strike - NEIL HALL/EPA-EFE/Shutterstock

Tens of thousands of rail workers have already lost £1,500 from strike action as commuters ignore advice to work from home and take the train to the office.

My colleague Oliver Gill reports:

Staff that walked out on the fourth day of industrial action by the Rail, Maritime and Transport workers union (RMT) have lost around 4pc of their annual pay - equivalent to more than two weeks’ wages.

Not only have workers foregone their pay for the day, but they have lost cash bonuses that they would have otherwise been entitled to.

Meanwhile, despite little more than one in five services running, many passengers decided to ignore advice to only take the train if it is absolutely necessary.


02:09 PM

Ryanair’s Spanish crew plots months of strikes

Spain-based Ryanair crew have announced major strikes covering four days a week for the next five months, escalating a pay dispute with the low-cost carrier.

The SITCPLA and USO unions have called for cabin crew to walk out from Monday to Thursday even week from early next month to early January.

A union representative said they had “no other option” but to walk out.

The action could be the most disruptive year in a year where walkouts and staff shortages have crippled European airports.


01:41 PM

US durable goods show surprise resilience

Orders at US factories for durable goods were surprisingly strong in June, rising 1.9pc to defy expectations for a slowdown.

The rise, which is not adjusted for inflation (so presumably would look less impressive in the context of rising pricing). was driven primarily by an 80.5pc jump in spending on defence aircraft.

Core capital goods, stripping out aircraft and military hardware, rose a less-impressive 0.5pc.

The headline gain was far stronger than the 0.4pc decline expected by economists.


01:21 PM

Jaguar Land Rover loses half a billion as chip woes drag on

Jaguar Land Rover
Jaguar Land Rover

Jaguar Land Rover has slumped to a loss of half a billion pounds in the first quarter as chip shortages and China lockdowns took their toll.

The car maker reported a pre-tax loss of £524m for the three-month period while revenue was £4.4bn – 7.6pc lower than in the final quarter of last year.

JLR said the loss was driven largely by weaker sales, with chip shortages compounded by a slower-than-expected production ramp up of the New Range Rover and Range Rover Sport models.

Lockdowns in China over the quarter also dented production and sales.

However, the car brand said it expected to see improvements in sales volumes and profitability for the remainder of the financial year.

Thierry Bollore, chief executive of JLR, said:

Although headwinds from the global semiconductor supply and Covid lockdowns in China have impacted our business performance this quarter, I am pleased to confirm that we have a completely reinforced organisation setup to respond to the semiconductor crisis.

This is now starting to recover production growth to achieve greater volumes and will allow us to take advantage of our record order book in the second quarter.


12:55 PM

Morrisons owner's £5bn petrol station sale stalls

The private equity owner of Morrisons is said to be struggling to sell off petrol station group Motor Fuel Group – a deal that was critical in securing its takeover of the supermarket chain.

Clayton Dubilier & Rice has seen talks with potential buyers falter over asking price and the availability of financing amid a broader economic downturn, Bloomberg reports. It had been seeking a valuation of about £5bn.

The private equity firm offered to sell 87 petrol stations from Motor Fuel Group's portfolio to ease the competition watchdog's concerns about the impact on fuel prices.

According to the report, CD&R is in no rush to sell the business and is prepared to wait, possibly until next year, for conditions to improve.


12:41 PM

Inside an Irish billionaire’s plan to make Britain pay for slavery

Denis O'Brien
Denis O'Brien

Having dedicated much of the past two decades to building his business empire in the Caribbean, Denis O’Brien claims people there have a “deep affinity” with his native Ireland, writes Matt Oliver.

“Many Irish people were transported to these countries particularly from the west of Ireland. They left Ireland as individuals and arrived as indentured servants,” the telecoms billionaire said in a speech last year.

Founded in 2001, O’Brien’s Jamaica-based mobile network, Digicel, now spans more than 30 countries and boasts annual sales of $550m (£457m).

The company’s charitable foundation has also donated tens of millions of pounds towards development projects and disaster relief, such as the rebuilding of Haiti after the 2010 earthquake - earning him praise from top Caribbean politicians.

Now, O'Brien wants to use his connections on both sides of the Atlantic to fashion himself a new role - as peacemaker in the thorny diplomatic row over reparations for the transatlantic slave trade.

Read Matt's full story here


12:03 PM

US futures rally on upbeat results

US futures pushed higher this morning as a batch of strong corporate earnings helped to ease some tensions ahead of the Federal Reserve meeting tonight.

Major tech stocks led the gains after reassuring figures from Microsoft and Google owner Alphabet last night.

But the mood remains edgy ahead of an expected increase in interest rates by the Fed as it tries to keep a lid on soaring inflation.

Futures tracking the tech-heavy Nasdaq jumped 1.5pc, while the S&P 500 and Dow Jones were up 0.9pc and 0.4pc respectively.


11:46 AM

Banks told to end rip-off fees and long waits on helplines by City watchdogs

Finance firms are to be held accountable for burying key rules in small print, charging “rip-off” fees, and forcing customers to wait for hours on helplines for support under new rules.

Patrick Mulholland has more:

Lenders and investment companies will now be required to show that they are delivering “good outcomes” for retail customers, under new guidance from the Financial Conduct Authority (FCA), toughening old guidelines that said companies only had to treat customers fairly. That was deemed to be too vague and favourable to businesses.

Companies could now be punished for refusing to answer the phone to customers who have a complaint, or hitting customers with hidden fees buried in small print.

“The current economic climate means it’s more important than ever that consumers are able to make good financial decisions,” said Sheldon Mills, executive director of consumers and competition at the FCA. “The financial services industry needs to give people the support and information they need and put their customers first.

“As the duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”

Read Patrick's full story here


11:09 AM

Chemical giant BASF plans more cuts amid gas crunch

BASF chemicals Germany - Daniel ROLAND / AFP
BASF chemicals Germany - Daniel ROLAND / AFP

Germany's BASF, the world's largest chemical company, is cutting ammonia production further due to soaring natural gas prices in a move that could impact sectors from farming to fizzy drinks.

Germany's biggest ammonia maker SKW Piesteritz and number four Ineos also said they could not rule out production cuts as the country grapples with disruption to Russian gas supplies.

Ammonia plays a key role in the manufacturing of fertiliser, engineering plastics and diesel exhaust fluid.

It also produces carbon dioxide as a by-product, which is needed by the meat and fizzy drinks industries.

Martin Brudermüller, chief executive of BASF, said: "We are reducing production at facilities that require large volumes of natural gas, such as ammonia plants."

He added that the company would purchase some ammonia from external suppliers to fill gaps, but warned farmers would face soaring fertiliser costs next year.


10:49 AM

Wizz Air deepens flight cuts amid travel chaos

Wizz Air will deepen cuts to its summer schedule as it grapples with travel chaos sparked by staff shortages.

After announcing a 5pc reduction in peak-season seating earlier this month, Europe’s third-biggest discount carrier will extend the cuts to about 10pc.

Jozsef Varadi, chief executive of Wizz Air, said: “We’ve been going through some real pain in terms of staff shortages at airports and air traffic control.

“We decided to trim capacity further to create more contingency and more of a buffer.”

Wizz had initially held back from slashing capacity as much as some rivals since the airports from which it operates have generally faced less of a staffing squeeze than the biggest hubs.

Even after the more severe cuts the airline is still lifting summer seating 30pc compared to pre-Covid levels in 2019, one of the biggest hikes in the industry.

Shares in Wizz Air traded 8.8pc higher, trimming their decline this year to 50pc.


10:34 AM

McDonald's hikes price of cheeseburger for first time in 14 years

McDonald's cheesebuerger price -  Geoff Pugh
McDonald's cheesebuerger price - Geoff Pugh

McDonald's is raising the price of its cheeseburgers for the first time in 14 years, in the latest sign of mounting pressures on consumers, writes Hannah Boland.

It means the price of the fast food giant's cheeseburgers will be more than a pound for the first time, costing £1.19 up from 99pc.

McDonald's said the increase was necessary as it tries to cope with "incredibly challenging times".

Alistair Macrow, chief executive officer of McDonald's UK and Ireland, said: "Just like you, our company, our franchisees who own and operate our restaurants, and our suppliers are all feeling the impact of rising inflation', meaning prices will now have to go up."

McDonald's said other menu items were also set to become between 10p and 20p more expensive over the summer, although some items would be unaffected.

It added: "We understand that any price increases are not good news, but we have delayed and minimised these changes for as long as we could."


10:15 AM

Marston's punters choose booze over food as temperatures soar

Martson's pub food heatwave - Yui Mok/PA Wire
Martson's pub food heatwave - Yui Mok/PA Wire

Marston's has said sales of food at its pub declined over the last month due to the record-breaking heatwave, with customers instead opting to cool down by buying drinks.

The pub chain said drinks sales continued to grow, adding it was cautiously optimistic that demand will remain robust across the summer despite soaring inflation.

Marston's added that the energy crisis would drive up electricity costs to about £2m higher than previously expected for the second half of the year.


09:51 AM

‘Complacent’ Rishinomics under the spotlight

Rishi Sunak economics tax cuts - BBC
Rishi Sunak economics tax cuts - BBC

“I’ve not taken the easy route,” Rishi Sunak admitted as the curtain fell on one of his bruising showdowns with Liz Truss.

On economics at least, the former chancellor has not. As he fights to stay in the race to become the next Prime Minister, Sunak is struggling to win both the heads and hearts of Tory members and right-wing economists with sober fiscal policy and a tax raising plan.

Tom Rees delves into the details. Read his full story here.


09:36 AM

Tobacco giant BAT takes £957m hit from Russia exit

Pall Mall BAT - REUTERS/Michaela Rehle/File Photo
Pall Mall BAT - REUTERS/Michaela Rehle/File Photo

Cigarette giant British American Tobacco has seen its profits drop by a quarter in the first half of the year after taking a hit of nearly £1bn from its decision to pull out of Russia.

The owner of Camel and Lucky Strike booked a £957m impairment charge related to the transfer of its Russian business. The company said last month it's in advanced discussions to sell the business, but it hasn't yet sealed an agreement.

It saw profit from operations drop by a quarter to £3.7bn in the six months to June 30, largely as a result of the charge.

BAT also said it expects worldwide sales of tobacco by volume to fall by around 3pc over the year due in part to the Ukraine war.

Chief executive Jack Bowles said:

We are not immune, of course, to the increasing macroeconomic pressures, exacerbated by the conflict in Ukraine.

However, we are well positioned to navigate the current turbulent environment due to our powerful brands, operational agility and continued strong cash generation.


09:24 AM

Eurozone to plunge into recession this year, warns Goldman Sachs

The eurozone is probably already contracting and will be plunged into recession at the end of the year.

That's according to Goldman Sachs, which predicted a contraction of 0.1pc in the third quarter and 0.2pc in the fourth. Growth will return in 2023, analysts said.

The reasons for the downturn include cuts to Russian energy supplies, the end of the post-pandemic rebound in services, weaker global growth and political turmoil in Italy.

The economists wrote: "Looking across countries, we have Germany and Italy in clear recession in the second half, while Spain and France continue to grow.

"The risks to our forecast are skewed towards a sharper recession in the event of an even more severe disruption to gas flows, a renewed period of sovereign stress or a US recession."


09:14 AM

Pound pushes higher as shares rise

Sterling has edged higher in early trading, supported by gains for UK shares.

The pound rose 0.2pc against the dollar to $1.2050. Against the euro it was little changed at 84.15p.

In a quiet week for economic data, the currency has largely been taking its cues from broader economic sentiment and the euro.

But it could come under pressure later in the day if the dollar rallies after the Federal Reserve's expected decision to raise interest rates.


09:05 AM

Rio Tinto slides as mining boom starts to fade

While the mood on markets is largely buoyant this morning, it's a different story for Rio Tino.

The FTSE 100 company has reported a sharp decline in profits and cut its dividend in half in the latest sign that the era of record mining profits is coming to an end.

A year ago, the world's biggest producers were enjoying huge returns as prices for commodities like iron ore and copper surged. Now, profit margins are being squeezed as recession fears weigh and costs rise.

Rio reported underlying profits of $8.6bn (£7.1bn) in the first half, down from a record $12.2bn last year and behind forecast.

It will pay a $4.3bn dividend, compared to the $9.1bn it handed out in the same period last year. Shares fell as much as 4.6pc to the bottom of the blue-chip index.


08:55 AM

Unions clash with ministers as new strike starts

UK rail strikes train RMT - Stuart Brock/Anadolu Agency 
UK rail strikes train RMT - Stuart Brock/Anadolu Agency

Discussions between union bosses and the Government are becoming increasingly acrimonious as a fresh national rail strike kicked off today.

The walkout by 40,000 members of RMT marks the fourth day of action by the group this summer, with other unions set to stage walkouts in coming days.

Transport Secretary Grant Shapps told Sky this morning that unions were being “increasingly militant” and blocking efforts to modernise the railway.

RMT boss Mick Lynch responded on ITV that track operator Network Rail had made a set of proposals that were “unacceptable” and not in line with soaring inflation.

Chaos on the railways isn't the only misery for Brits this summer. With the port of Dover facing delays, British Airways pilots pressing for a new pay deal and London Heathrow airport warning that a passenger cap could remain in place through next summer, there’s little sign of relief for beleaguered travelers.

Read more: Union bosses blocked rail pay deal that could have averted strike


08:42 AM

FTSE risers and fallers

The FTSE 100 has pushed close to one-month highs this morning after strong corporate results offset broader fears about the economy.

The blue-chip index rose 0.4pc, boosted by a handful of major stocks.

Reckitt Benckiser jumped 5.7pc to the top of the index after raising its full-year forecast thanks to price rises.

Lloyds was up 3.7pc after its profits beat expectations, while packaging firm Smurfit Kappa was up 5.6pc after its figures also came ahead of forecasts.

Bucking the positive trend was Rio Tinto, which fell 2pc after reporting a 29pc drop in first-half profit and more than halving its dividend.

The domestically-focused FTSE 250 rose 0.3pc. Provident Financial dropped 4.8pc after its figures disappointed investors.


08:31 AM

Rishi Sunak U-turns with energy tax cut pledge

Rishi Sunak energy VAT tax cut - Jacob King / POOL / AFP
Rishi Sunak energy VAT tax cut - Jacob King / POOL / AFP

Rishi Sunak has pledged to temporarily scrap taxes on energy bills if he becomes prime minister.

The former Chancellor, who's trailing behind Liz Truss in the leadership contest, said the year-long hiatus on paying VAT on energy bills would save the average household £160.

It's an abrupt change of tack for Mr Sunak, who has repeatedly emphasised the need to restore discipline to the public finances and criticised his rival's broad tax cut promises.

Mr Sunak said: "This temporary and targeted tax cut will get people the support they need whilst also – critically – bearing down on price pressures."


08:17 AM

GSK spin-off Haleon reports drugs price hikes

Haleon GSK - Layton Thompson
Haleon GSK - Layton Thompson

In other inflation news, GSK spin-off Haleon has reported a jump in prices for some over-the-counter drugs.

The company, which owns the Aquafresh and Sensodyne toothpaste brands, said its prices had risen 5.5pc in Europe, the Middle East, Africa and Latin America compared to just 2.1pc in North America and 3.7pc in Asia Pacific.

It came as Haleon published its first figures as an independent company after listing on the FTSE 100 following its separation from GSK.

The consumer health group said sales had risen partly due to higher prices, but that a "strong cold and flu season" helped its respiratory unit, while its pain relief products and vitamins also performed well as a result.

Revenue rose by 13.4pc in the first six months of the financial year to reach £5.2bn.

Separately, GSK reported a 19pc rise in total sales, reaching £6.9bn.

The business is hiking its sales forecast from between 5pc and 7pc this year to a new prediction of between 6pc and 8pc. Adjusted operating profit is now expected to hit 13pc to 15pc – compared to a previous 12pc to 14pc prediction.


08:10 AM

Reckitt raises forecasts as shoppers accept price rises

Reckitt Benckiser has raised its sales forecast as the consumer goods giant weathered surging inflation and benefited from an infant formula shortage in the US.

The Lysol and Dettol maker said sales growth will be between 5pc and 8pc this year – up from previous guidance of between 1pc and 4pc. It also expects growth in its operating margins.

It's the latest sign that shoppers are accepting higher prices for products despite a deepening cost-of-living crisis, at least for now. Unilever yesterday also lifted its forecasts thanks to higher sales.

Reckitt said its prices by 9.7pc in the second quarter, yet volumes still grew by 2.2pc. But the Nurofen and Durex owner said input prices were "unpredictable" and expected inflation to remain in the high teens for the full year.

Reckitt was also boosted by strong demand for baby formula in the US due to supply chain troubles for rivals.

Shares rose more than 5pc in early trading.


08:04 AM

Lloyds profits fall as bank sets aside £377m

Lloyds bank profits - REUTERS/Toby Melville/File Photo
Lloyds bank profits - REUTERS/Toby Melville/File Photo

Lloyds has seen its customers ditch 2.2m subscription services since last summer in the face of soaring inflation as it posted a fall in half-year profits.

The high street lender said it was seeing increasing signs that customers are battening down the hatches amid the cost-of-living crisis, building up savings for a financial buffer and axing non-essential subscriptions.

But it said it had yet to see a rise in borrowers falling behind with repayments, despite the inflation pressures.

It reported a 6pc fall in half-year profits to £3.7bn  after setting aside £377m amid an increasingly uncertain economic outlook.

The group said £95m of its half-year impairment charge was due to a weaker economic backdrop in the UK as soaring inflation affects consumer spending.

But the profit haul was better than the £3.2bn expected in the market and on an underlying basis Lloyds saw profits rise 34pc to £4.1bn in the first six months of 2022.

Despite the wider economic woes, the bank raised its full-year outlook across a raft of performance measures. Shares jumped 4.5pc in early trading.


08:01 AM

FTSE 100 opens higher

The FTSE 100 has pushed higher at the open following a string of major corporate results.

The blue-chip index rose 0.5pc to 7,343 points.


07:58 AM

Gas shortage still avoidable, says Germany

Germany's gas regulator has insisted shortages are still avoidable despite the latest supply cut, but warned industry and consumers would have to work harder to save gas.

Klaus Mueller, head of Germany's Bundesnetzagentur regulator, said: "The crucial thing is to save gas.

"I would like to hear less complaints but reports [from industries saying] we as a sector are contributing to this."


07:51 AM

Gas cuts to kick in this morning

Orders show Putin's latest gas cuts were due to kick in from 8am Berlin time (7am BST), even though physical supplies were still at 40pc early in the morning.

Analysts say it will take two hours for those changes to feed through at the German end of the pipeline, though.


07:46 AM

Putin cuts gas supplies again

Good morning. 

Europe's energy crisis has deepened further this morning as the continent braces for a further cut to Russian gas supplies.

Orders show flows through the key Nord Stream pipeline – the biggest gas link from Russia to the EU – will be operating at just 20pc of capacity from 8am Berlin time. That's in line with the cuts threatened by the Kremlin earlier this week.

Benchmark gas prices rose as much as 11pc in their sixth day of gains, extending the 24pc surge since the start of the week.

Prices are now more than 10 times higher than the usual levels for this time of the year. It's sparking fears of blackouts this winter and also threatening to push the region into a recession.

5 things to start your day

1) Long Covid shrinks workforce by 110,000  Cases worsen the skills shortage blighting the economic recovery

2) ‘Complacent’ Rishinomics under the spotlight in showdown to be Prime Minister  The leadership contender's policies he outlined in TV debates, in depth

3) ‘Impossible to have confidence’ that Randox Covid contracts awarded fairly, say MPs  Diagnostics company received almost £800m worth of testing kit contracts during pandemic

4) Union bosses blocked rail pay deal that could have averted strike  RMT rejected Network Rail's proposals for new pay rise

5) Crisis-hit Credit Suisse set to lose second chief in three years  Thomas Gottstein was drafted in to restore the bank’s reputation but has presided over a string of costly missteps and profit warnings

What happened overnight

Tokyo stocks opened lower this morning, with the benchmark Nikkei 225 index dipping 0.4pc. While the broader Topix index dropped 0.31pc.

Hong Kong stocks plummeted more than 1pc at the open.

The Shanghai Composite Index fell 0.2pc, while the Shenzhen Composite Index on China's second exchange also slipped 0.2pc.

Coming up today

  • Corporate: British American Tobacco, Ibstock, Lloyds Banking Group, Primary Health Properties, Provident Financial, Reckitt Benckiser, Rio Tinto, Smurfit Kappa, Unite Group (interims); Fresnillo, GSK, Lancashire Holdings, Paragon Banking, Wizz Air (trading update)

  • Economics: Fed interest rate decision (US), durable goods orders (US), GfK consumer confidence (Ger)