EU will rely on Russian oil for a ‘long time’, claims Putin
James Warrington
·44-min read
Putin Russia oil imports EU ban sanctions energy Hungary - Contributor/Getty Images)
Vladimir Putin has claimed that some EU countries will be unable to wean themselves off Russian oil "for a long time".
Brussels has put forward plans to ban imports of Russian oil but talks have collapsed due to opposition from Hungary, which is heavily reliant on Moscow.
Speaking at a televised meeting about the future of Russia's energy sector, Mr Putin said: “Obviously, some EU states, in whose energy balance the share of Russian hydrocarbons is especially high, will not be able to do this for a long time, to ditch our oil.”
He added that the West’s decision to cut off Russia, as well as sanctions imposed after the invasion of Ukraine, meant Europe risked paying higher prices for energy in the long run.
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The Russian president also said the sanctions had stoked inflation more broadly across Europe.
Russia is facing a collapse in oil production as a result of sanctions, which have complicated its efforts to sell the commodity globally.
Mr Putin admitted there had been “tectonic changes” in the oil market and that continuing to do business “in line with the old model looks unlikely”.
He has promised help to domestic oil producers, including facilitating access to loans and insurance after Western companies cut ties.
It came as Hungary told the EU it will cost at least €770m (£650m) to overhaul the country’s energy system as it continues to wrangle over the proposed ban.
The eastern European country, led by populist leader Viktor Orban, said it would need €550m to revamp its refineries to comply with the ban and another €220m for a pipeline from Croatia.
It warned it may also need additional funds to cope with a potential surge in oil prices if the ban on Russian imports is confirmed, Bloomberg reported.
Hungary is also said to have demanded that any sanctions focus on seaborne shipments of oil, rather than pipelines.
Mr Orban, who has close ties to Putin, has faced criticism from within the EU for his refusal to back the ban, with Lithuania’s foreign affairs minister accusing the country of holding the bloc “hostage”.
The EU is expected to announce new investments to appease countries most reliant on Russian energy and secure an agreement.
It has already offered Hungary, Slovakia and the Czech Republic an extension on the deadline for phasing out Russian oil.
05:18 PM
Wrapping up
That's all from the blog today, we will see you tomorrow! Before you go, have a look at the latest stories from our business reporters:
Bitcoin lingered near $30,000 today in cautious trading as the fallout over a collapsed stablecoin continued to keep sentiment in check.
The world’s largest cryptocurrency rose as much as 2.7pc and traded at $30,139 in the late afternoon. Other coins from Ether to Avalanche also posted modest gains.
Bitcoin is nursing a 21pc loss so far in May -- the worst monthly slump in a year -- following last week’s crypto sector turmoil over the collapse of the TerraUSD algorithmic stablecoin, also known by its ticker UST, and Tether’s brief dip from its dollar peg.
Edward Moya at Oanda said: “Small amounts of dip buying tentatively gave Bitcoin a boost, but too much of the retail and institutional world still have massive wounds from the recent collapse.”
04:59 PM
Elon Musk posts another poll amid Twitter saga
Elon Musk has taken to his 93.7m followers on Twitter again as he keeps fighting the social media platform around the issue of bots.
Musk’s complaints about lack of transparency on spam accounts is an indication that the billionaire is getting “cold feet,” though no other bidder is likely to emerge if Musk were to walk away, according to Wedbush analyst Daniel Ives.
Fake accounts “are not a new issue and likely more of a scapegoat to push for a lower price,” he said.
Twitter claims that >95% of daily active users are real, unique humans. Does anyone have that experience?
Vodafone boss says Abu Dhabi investor not a threat for strategy
Vodafone's chief executive has insisted its new biggest shareholder does not pose a threat to his plans for the company. Ben Woods writes:
Nick Read welcomed the investment from Etisalat, the Gulf telecoms group led by former Vodafone executive Hatem Dowidar, who launched a £3.3bn raid on the business last week.
Announcing Vodafone’s annual results, Mr Read said: “I had a very good conversation with Hatem on Saturday. He was at pains to go through all of the communications and the rationale.
“He is fully supportive of our strategy, both organically and the actions we are taking on the portfolio. It is always good to have a long-term shareholder, who is supportive of your strategy.”
04:19 PM
FTSE 100 closes in the green
The FTSE 100 has advanced on hopes that China would ease its Covid curbs and regulatory scrutiny.
The blue-chip index closed 0.7pc higher, but lagged its continental peers as the pound jumped more than 1pc.
Britain's unemployment rate fell to its lowest since 1974 in the first quarter of 2022, but soaring inflation led to the biggest annual fall in real earnings excluding bonuses since 2013.
"Even if employment stays supported, we suspect we will still see some of the impetus behind wage growth fade. This underscores the message from the BoE (Bank of England) that it probably won't need to hike too much further over the coming months," ING economist James Smith said in a note.
03:59 PM
Eni starts process to open rouble account for Russian gas
Eni said it will open two accounts, one in euros and the other in roubles, to pay for Russian gas.
The Italian energy group, one of Europe's biggest importers of Russian gas, said the move followed Gazprom's unilateral request to amend existing contracts under a new gas payment scheme.
"The company is going to temporarily open the two accounts without prejudice to its contractual rights, which still envisage payment in euros," Eni said in a statement, adding the measure is on a precautionary basis.
State-controlled Eni said its decision had been taken with the Italian government and in compliance with the sanctions.
Eni faces a deadline to pay Russia's state-owned Gazprom around May 20, after Moscow at the end of March demanded foreign buyers start to pay for gas in roubles or risk losing supply.
03:40 PM
Mobile phone networks blame 'greedy' private equity owners for wrecking Phones 4u in blockbuster court case
Britain’s biggest mobile networks have blamed greedy private equity investors for destroying Phones 4u and dismissed claims that they plotted the retailer's downfall as a baseless “conspiracy theory”. Matt Oliver has the story:
On the second day of a trial in London’s High Court, lawyers defending EE, Deutsche Telekom and Orange said the retail chain’s downfall was an “all-too familiar tale” of profiteering and bad management decisions.
They said Phones 4u was “bled dry" and saddled with crippling debts under the ownership of BC Partners, the private equity firm that bought the company in 2011, as bosses and investors were “more concerned with lining their own pockets” than ensuring the company's survival.
Phones 4u collapsed in 2014 after Three, O2, Vodafone and EE all pulled their products from its shelves. It prompted the closure of hundreds of stores, with thousands of staff losing their jobs.
Administrators of Phones 4u have accused the mobile companies of conspiring to destroy the retailer, which earned commission for selling handsets, in a bid to boost their own profits.
03:19 PM
Shoe Zone returns to profit
Retail chain Shoe Zone has swung back to profit in its first half as sales bounced back thanks to the end of lockdown store closures.
The group reported profits of £3.1m for the six months to April 2, against losses of £2.6m a year ago. Sales surged 73pc higher to £69.9m, with store revenues of £58m.
Online sales tumbled to £11.8m from £17.6m a year earlier as customers switched back to high street shopping, though it was still more than double levels seen a year earlier.
03:14 PM
Handing over
That's all from me today – thanks for following along! Handing over now to Giulia Bottaro.
02:54 PM
Cornwall Insight: Price cap won't fall in January
The price cap won't fall in January despite Ofgem's insistence that more regular reviews will help to bring down bills more quickly.
That's according to new research from Cornwall Insight, which is the first to predict prices under new plans to update the cap every three months instead of twice a year.
Analysts predicted the cap will rise 31pc at the next review in October, taking the average tariff to £2,600. That's broadly in line with expectations.
But they also forecast that prices will remain unchanged at the first three-monthly review in January 2022.
That's despite Ofgem saying the quarterly updates would allow consumers to benefit from a fall in gas prices from their current highs more quickly.
First @CornwallInsight predictions in for the new 3 monthly price cap. It's likely to rise 32% in Oct, then stay flat for Jan. So for someone with typical Direct Debit dual fuel use
Was (pre-April): £1,277/yr Now (Apr - Oct): £1,971/yr Oct - Dec: £2,600/yr Jan - Mar: £2,600/yr
That didn't take long. Hours after it was tabled, bosses at M&C Saatchi have rejected a takeover offer from software entrepreneur Vin Murria.
Shares in M&C Saatchi jumped this morning after a vehicle linked to Ms Murria, a director of the advertising agency, confirmed an offer of 207.5p per share – or around £254m.
But in a statement this afternoon, bosses said they were rejecting the "unsolicited hostile" bid from AdvancedAdvT, saying it "significantly undervalues" the company.
Gareth Davis, chairman of M&C Saatchi, said:
This offer is derisory. I urge shareholders to reject this bid as it significantly undervalues the business and prospects of M&C Saatchi.
02:24 PM
Sunak: No option off the table for windfall taxes
Rishi Sunak has again refused to rule out a windfall tax on energy companies, further highlighting the rift between the Treasury and No 10 on the issue.
The Chancellor said no option was off the table if energy companies failed to reinvest profits back into jobs, growth and energy security.
That contrasts with Boris Johnson's insistence that such a levy would deter investment.
Mr Sunak said in the Commons:
What we want to see are energy companies who have made extraordinary profits at a time of acutely elevated prices, investing those profits back into British jobs. Growth and energy security.
But as I have been clear, and as I have said repeatedly, if that doesn't happen soon and at significant scale, then no option is off the table.
02:12 PM
Hungary: Russian oil ban would cost €770m
Viktor Orban with Putin - Attila KISBENEDEK / AFP
Hungary has told the EU that it will cost at least €770m (£650m) to overhaul the country’s energy system as it continues to wrangle over the proposed ban.
The eastern European country, led by populist leader Viktor Orban, said it would need €550m to revamp its refineries to comply with the ban and another €220m for a pipeline from Croatia.
It warned it may also need additional funds to cope with a potential surge in oil prices if the ban on Russian imports is confirmed, Bloomberg reports.
Hungary is also said to have demanded that any sanctions focus on seaborne shipments of oil, rather than pipelines.
Mr Orban, who has close ties to Putin, has faced criticism from within the EU for his refusal to back the ban, with Lithuania’s foreign affairs minister accusing the country of holding the bloc “hostage”.
The EU is expected to announce new investments to appease countries most reliant on Russian energy and secure an agreement. It has already offered Hungary, Slovakia and the Czech Republic an extension on the deadline for phasing out Russian oil.
02:03 PM
US factory production advances for third month
There's some more data out showing the resilience of the US economy despite surging prices.
Factory production in the US rose at a solid pace in April for the third straight month, showing manufacturers are shrugging off labour and material shortages and higher prices to meet demand.
The 0.8pc increase followed a similar gain in March, according to Federal Reserve data. Total industrial production, which also includes mining and utility output, climbed 1.1pc.
It comes after a separate report showed robust growth in retail sales last month.
Analysts at Capital Economics said: “Given this show of strength from consumers, speculation that the US economy is in danger of an imminent plunge into recession look badly misplaced.”
US consumers are still spending, but they’re doing so with more discretion in the face of higher prices.
Upward revisions to retail sales point to robust momentum for consumer outlays this spring. pic.twitter.com/5211GlStkI
Wall Street jumps at the open as tech stocks rebound
Wall Street's main indices have opened sharply higher as solid retail sales and a string of strong forecasts added to an upbeat global mood.
The tech-heavy Nasdaq led gains with a rise of 2pc. The benchmark S&P 500 jumped 1.1pc, while the Dow Jones was up 0.6pc.
01:21 PM
A quarter of Brits skip meals due to inflation
The cost-of-living squeeze has led to two in three people in the UK turning off their heating, while almost half are driving less or changing supermarkets and just over a quarter say they have skipped meals.
That's according to a grim survey from polling firm Ipsos, which also found that a third of people on lower incomes have missed meals recently.
Concern about inflation is at a 30-year high and most Britons expect to see increases in the costs of essentials over the next six months.
Gideon Skinner, Ipsos's head of political research, said: "Given the economic forecasts there may well be more anxiety on the horizon. This is going to maintain pressure on the government to take more steps to help people through the cost of living crisis."
Figures out tomorrow are expected to show consumer price inflation hit 9.1pc in April – the highest in 40 years – and the Bank of England thinks it could exceed 10pc later this year.
However, Chancellor Rishi Sunak has resisted pressure to do more to help households hardest hit by the cost-of-living crisis.
01:11 PM
Poorest face 'postcode lottery' for £150 energy rebate, says charity
Thousands of struggling families are facing a "postcode lottery" to receive council tax rebates to offset soaring energy bills, a charity has warned.
Fuel poverty charity National Energy Action criticised the Government's response to the cost-of-living crisis as it warned that many vulnerable people were facing long waits for extra financial support.
It said those who do not pay council tax via direct debit were the worst affected and were waiting for rebate payments of £150.
It comes days after food bank charity Feeding Britain urged Ofgem to intervene amid fears vulnerable families had turned off their gas and electricity to avoid being pushed further into poverty.
Adam Scorer, chief executive of the NEA, said: "The Government's response to the energy crisis has been wholly inadequate so far. We've got serious concerns about the way the council tax rebate will be implemented.
"Councils across the country will have their own way of administering the scheme, creating a postcode lottery for struggling households."
Mr Scorer also warned that an "already dire situation" will get worse when the price cap rises again in October and temperatures drop again unless the Government provides further financial support.
12:57 PM
No 10: It's for Andrew Bailey to justify his words
Andrew Bailey Bank of England
Downing Street has said it's for Bank of England Governor Andrew Bailey to "justify" his words after he warned of an "apocalyptic" potential rise in food prices as a result of the Ukraine war.
The Prime Minister's spokesman said:
It's for him to obviously justify the words he uses.
We obviously wouldn't seek to underplay some of the challenges that people the world over are facing as a result of the pandemic and the war in Ukraine and inflationary pressures.
I think the exact impact of that as regards food prices are not quite known, you would have seen the head of M&S giving a slightly different view this morning.
12:49 PM
Kwasi Kwarteng to tell petrol stations to pass on savings to motorists
Downing Street has urged retailers to pass on the cut in fuel duty to customers, with Business Secretary Kwasi Kwarteng set to write to petrol firms calling on them to pass on the saving.
Chancellor Rishi Sunak implemented a 5p per litre cut in fuel duty in March to help hard-pressed motorists, but the RAC said retailers are taking an average profit of 2p per litre more than before the policy was introduced.
The Prime Minister's spokesman said:
The public rightly expect retailers and others in the supply chain to pass on the fuel duty cut at the forecourts. It's the biggest cut ever on all fuel duty rates and can mean big savings for families.
We know that a number of retailers – big supermarkets, Asda, Tesco and Sainsbury's – are passing on the cuts and we will raise this with other petrol retailers.
The Business Secretary will be writing to the industry again to remind them of their responsibilities here so they should be in no doubt about the need to make sure that everyone is passing on these cuts on the forecourt.
The RAC also accused the Treasury of pocketing a "windfall" from VAT charged on fuel as prices continue to rise.
12:40 PM
US retail sales post solid growth
US retail sales posted robust growth last month as demand showed no signs of waning despite soaring prices.
Retail sales rose 0.9pc in April, according to the Commerce Department. This was down from 1.4pc in March, but broadly in line with estimates.
The rise was mainly driven by strong car sales as supply issues eased, while punters kept flocking to bars and restaurants.
According to the Bank of America, aggregate credit and debit card spending increased 13pc year-on-year in April. The bank noted that while inflation was leading to higher spending, it was "clear consumer strength goes beyond this".
Still, retail sales are expected to slow as the Federal Reserve raises interest rates aggressively to curb surging inflation.
— U.S. Census Bureau (@uscensusbureau) May 17, 2022
12:26 PM
Uber executive to step down after TfL battles
Jamie Heywood Uber - Fiona Hanson
The executive who led Uber's licensing battles against Transport for London is stepping down from the ride-hailing giant after four years.
Jamie Heywood, the company's regional general manager for northern Europe, will step down next month, Sky News reports.
His tenure was marked by a string of rows with TfL, as well as controversies over the employment status of its drivers and its struggles to survive the pandemic.
Mr Heywood, who previously held senior roles at Virgin Mobile and Amazon, said Uber's business in the UK and northern Europe were "in great shape and well-positioned for the future".
Uber recently secured a two-and-a-half year licence to operate in London after a number of disputes with authorities.
12:14 PM
Treasury minister: Throwing money at inflation crisis could make things worse
Treasury minister Simon Clarke has claimed "throwing money" at the inflation crisis could make things worse, insisting the Chancellor planned to introduce new measures when they will "make the right difference in a targeted way".
Mr Clarke told the Commons:
On the cost of living, we've put together a £22bn package of support – including a £9bn commitment specifically on energy bills.
But we're absolutely clear: you do not solve an inflationary crisis by throwing money at that problem, you could worsen the issue which you're seeking to address.
The Chancellor will keep all of these issues under close review – I can assure you he most certainly does – and we will bring forward a programme of measures at such time that they'll make the right difference in a targeted way which does not make the very problem worse that we all need to solve.
11:38 AM
India snaps up cheap Russian oil
India has been snapping up cheap Russian oil as many western nations shun the product in the wake of Russia’s invasion of Ukraine, writes Rachel Millard.
The country’s imports of Russian oil leapt four-fold in April to 277,000 barrels per day, according to tanker tracking data reported by Reuters.
The price of oil from Russia has fallen amid concerns among traders and refineries about getting caught in sanctions or the reputational impact. That has created opportunities for buyers in India, the world’s third biggest oil importer which imports more than 85pc of its crude.
Ehsan Ul Haq, analyst with Refinitiv, said India had bought stranded Russian oil, while some European buyers had started buying more oil from Africa and the US.
India's oil imports from Russia are set to rise further this month to about 487,500 barrels per day in May, according to preliminary refinery data.
India has been criticised for its ties to Moscow. It is heavily dependent on Russia for arms supplies, signing a $5.5bn [£4bn] deal in 2018 for five S-400 missile systems.
11:23 AM
NatWest considers starting new fintech for small firms
NatWest is said to be considering launching a separate digital lender for small businesses in the UK in a bid to secure a new avenue of growth.
The plan would bring NatWest together with Brussels-based Aion in a new joint venture, Bloomberg reports.
Aion has a banking licence and already operates in several countries including Belgium and Poland. A tie-up would also involve its tech provider Vodeno. Both are owned by US private equity firm Warburg Pincus.
The plans would enable NatWest to attract smaller business customers normally shunned by traditional banks. It could also explore using the tech of offer financing to customers shopping at retailers via what's known as "banking as a service".
The move would build on NatWest's dominance position in the UK business banking market, where it has about 1m customers, or one in four companies.
Walmart has cut its forecasts for full-year profits as it warned that surging costs in everything from fuel to labour would hit margins.
The grocery giant has fared better than most of its rivals in maintaining inventory levels due to its massive scale and negotiating power with suppliers, but it's still faced soaring costs from disruption in supply chains.
Net profit slumped nearly 25pc to $2.05bn (£1.6bn) in the three months to the end of April. Walmart said it expects full-year earnings per share to fall around 1pc, down from its previous forecast of a mid-single digit increase.
Shares dropped more than 6pc in pre-market trading.
Doug McMillon, chief executive of Walmart, said:
US inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than we expected.
11:01 AM
US futures rise as risk appetite returns
Wall Street looks set to push higher this afternoon as risk appetite returned to markets amid protracted inflation and growth fears.
Futures on the tech-heavy Nasdaq led gains, jumping more than 2pc. It comes after tech stocks drove Asian markets higher on optimism Beijing may ease up on a year-long clampdown.
The benchmark S&P 500 pushed 1.7pc higher, while the Dow Jones gained 1.2pc.
10:44 AM
Inflation 'off the charts' for small firms, says OakNorth boss
Small businesses and and entrepreneurs are grappling with "off-the-chart" inflation that's putting pressure on their margins, the chief executive of small business lender OakNorth has said.
Rishi Khosla told Bloomberg: "Right now inflation on all sorts of input costs, including wage inflation, is off the charts."
He said holding onto staff was proving a big challenge, pushing companies to offer even higher pay.
Mr Khosla added that the cost-of-living crisis was forcing consumers to cut discretionary spending, although the picture wasn't consistent across the country – for instance, London hotels are still doing well.
10:33 AM
Bank of England fights to save its reputation - and the economy
Less than a year ago the Bank of England and Treasury were being accused of working together too closely – “hand in glove”, as one MP put it.
Digital money printing from the Bank neatly matched the Government’s borrowing and spending spree through the pandemic, raising eyebrows over the possibility of coordinated policy between ministers and the supposedly independent rate-setters.
That era of harmony now looks to be over.
Tim Wallace examines the crisis facing the Bank of England and asks what it can do to tackle runaway inflation.
Twitter has said it's committed to completing a $44bn takeover by Elon Musk at the agreed terms and price.
The company issued a statement saying the deal is subject to the approval of Twitter stockholders and is expected to close in 2022.
It comes after Musk suggested yesterday he could end up paying a lower price for the social media platform.
The world's richest man has put his takeover on hold and today said the deal won't go ahead until Twitter can substantiate its claims about how many users are bots – a move that's been widely interpreted as a negotiating tactic to drive down the price.
10:06 AM
Russia: Using our reserves to rebuild Ukraine would be 'outright theft'
The Kremlin has said it would be "outright theft" if the G7 and EU allowed Russia's frozen foreign reserves to be used to rebuild Ukraine.
Christian Lindner, Germany's finance minister, said he was open to the idea of seizing Russian state assets to finance the reconstruction of Ukraine and that proposals to that effect were already being discussed among the G7 and in the EU.
Moscow described such a move as illegal and warned it would demand an immediate response.
09:53 AM
Treasury accused of fuel windfall as diesel hits new high
Fuel prices petrol diesel windfall - Joe Giddens/PA Wire
The Treasury has been accused of reaping a "windfall" from motorists as fuel prices surged to yet another record high.
The average price of diesel rose to a record 180.32p yesterday, while petrol climbed to 166.8p, taking it ever closer to the all-time high of 167.3p set in late March.
The RAC, which compiled the figures, said rising oil prices meant it looked "inevitable" petrol would reach a record high in the coming days, sparking fresh misery for drivers.
The group hit out at hefty VAT charges on fuel, and also criticised retailers for taking a bigger cut than they did before the reduction in fuel duty.
Spokesman Simon Williams said:
While March’s 5p-a-litre duty cut is making a difference, it’s not proved to be helping as much as the Government had hoped which means there’s little to prevent prices going even higher.
In the meantime drivers continue to pay 28 to 30p in VAT on every litre they buy, and these amounts will only increase the higher petrol and diesel prices go. Arguably, VAT on fuel is proving to be the Treasury’s own windfall.
RAC analysis of fuel margins shows retailers – for whatever reason – are taking on average 2p a litre more than they were before the Chancellor’s 5p duty cut.
09:35 AM
Gas prices slump to four-week low as EU bows to Putin's demands
Natural gas prices have dropped to a four-week low after the EU gave in to Putin's demands for gas payments in roubles.
The European Commission has told member states that they can keep importing Russian supplies if they make a clear statement that they consider their obligations fulfilled once they pay in euros or dollars.
Putin has demanded that payments be made in roubles, with buyers opening two accounts at Gazprombank so that a currency exchange can be made.
The EU had previously said doing so would violate sanctions, but has backtracked on this warning.
European gas prices fell as much as 5.7pc – the lowest since April 19. The UK equivalent fell as much as 4.8pc after jumping yesterday amid concerns about constraints on liquefied natural gas storage.
09:21 AM
Eurozone economy pushes higher after growth warning
The eurozone economy grew more than estimated at the start of the year, though the outlook remains grim as the war in Ukraine fuels inflation and sparks an economic slowdown.
Output rose 0.3pc in the first quarter, exceeding an initial reading of 0.2pc, according to official data just released. Meanwhile, employment rose 0.5pc during the same period.
The numbers reflect the underlying strength across Europe at the start of the year as Covid restrictions eased and consumers splashed out.
But the conflict has added to cost-of-living concerns by driving up energy prices even further and adding to inflation, which is already at a record high.
Yesterday, the EU slashed its growth outlook for 2022 from 4pc to just 2.7pc and warned inflation will top 6pc.
— Extinction Rebellion London 🌍 (@XRLondon) May 17, 2022
09:00 AM
IFS: Pandemic fuels pay inequality
The Institute for Fiscal Studies have a slightly different take on this morning's jobs data – they're pointing to widening inequality in wages.
Their figures show the top 1pc of earners enjoyed 16pc growth in pay between December 2019 and March 2022, compared to just 10pc growth for the bottom 10pc of earners.
It marks a reversal of pre-pandemic trends, where the lowest-paid saw the biggest pay rises.
Xiaowei Xu, senior economist at the IFS, says: “For all the talk about labour shortages driving up low pay, the legacy of the pandemic may be greater earnings inequality.”
A lot of focus on average earnings today.
The really big story though is that the period since end 2019 has seen a massive increase in earnings inequality. Led, of course, by huge pay increases for the richest bankers.
Power firm ContourGlobal surges on $1.75bn takeover
It's a busy day on the markets this morning, but the FTSE 250 has a stand-out winner: ContourGlobal.
Shares in the power generation company have surged by more than a third after KKR agreed to snap it up in a £1.75bn deal.
KKR will pay 263.6p per share in cash for ContourGlobal, which operates a portfolio of 138 thermal and renewable power plants across Europe, North America, Latin America and Africa. That's a premium of about 36pc on yesterday's closing price.
Private equity firms are increasingly swooping on energy assets amid a surge in profits as the Ukraine war drives up prices and an accelerating shift to renewable sources.
08:41 AM
Britvic profits jump thanks to price hikes
Britvic profits price rises - Britvic
Soft drinks maker Britvic has reported a jump in profits of nearly 50pc as it ramped up prices to offset inflation, though it warned consumer spending is set to fall.
The Robinsons squash and J20 maker posted pre-tax profits of £59.3m for the six months to the end of March, up from £39.8m a year earlier.
Revenues jumped 18.5pc to £719.3m and the group said drinks bought for "immediate consumption" had now bounced back ahead of pre-pandemic levels, while trade overall across bars and restaurants recovered further.
Britvic said it increased prices at the start of the year amid efforts to offset soaring costs, but warned that inflation was only partially mitigated in the first half and that the cost-of-living crisis would hit consumer spending.
Simon Litherland, chief executive of Britvic, said:
The current geo-political uncertainty is likely to result in continued cost inflation and pressure on consumer spending at least into 2023. I remain confident however that we will continue to successfully navigate the headwinds.
08:30 AM
M&C Saatchi climbs as Vin Murria launches takeover bid
M&C Saatchi climbed in early trading after software entrepreneur Vin Murria tabled a formal takeover offer for the advertising agency.
Ms Murria appealed to shareholders for support as she confirmed an offer through her vehicle AdvancedAdvT of 207.5p per share, valuing the company at around £254m.
Shares jumped as much as 9.3pc in early trading.
08:24 AM
Imperial Brands takes profit hit after Russia exit
Imperial Brands Russia - REUTERS/Leonhard Foeger/File Photo
The tobacco company behind Golden Virginia and Rizla has reported a sharp fall in profits after pulling out of Russia.
Imperial Brands took a £225m hit from the withdrawal, dragging its pre-tax profit down 39pc to less than £1.3bn in the first half of the year. Revenue dipped 1.3pc to £15.4bn.
The FTSE 100 firm last month said it would exit Russia, where it had a factory in Volgograd and a sales and marketing business, and employed around 1,000 people.
While Imperial warned the cost-of-living crisis would hit consumer spending, it boosted market share in five key countries and hailed progress in its vaping division.
The company said it was on track to meet its full-year targets, adding that pre-tax profits actually rose on an underlying basis when one-off costs are stripped out. Shares jumped 5.7pc.
08:14 AM
Musk: Takeover won't go ahead unless Twitter proves bot claims
Elon Musk has said Twitter must prove claims about the proportion of spam and fake users on its platform before his $44bn takeover can go ahead.
The world's richest person tweeted that "this deal cannot move forward" unless the company substantiates its claims that less than 5pc of users are bots, reiterating his claim that the ratio is much higher.
It comes after Musk shocked markets last week by saying the takeover was on hold amid concerns about fake accounts.
He later tweeted that he was still fully committed to the deal, but doubts have been growing that he'll be able to pull off the acquisition.
20% fake/spam accounts, while 4 times what Twitter claims, could be *much* higher.
My offer was based on Twitter’s SEC filings being accurate.
Yesterday, Twitter’s CEO publicly refused to show proof of <5%.
Sterling has made strong gains against the dollar this morning after the latest jobs data fuelled expectations of more interest rate rises by the Bank of England.
UK wage growth jumped in the first quarter, while there were more job vacancies than unemployed workers for the first time ever, adding to concerns about inflation.
The pound climbed 0.9pc against the dollar to $1.2428. Against the euro, it slipped 0.3pc.
08:02 AM
Food prices could jump 10pc, warns M&S chairman
M&S food price inflation Archie Norman - Chris Ratcliffe/Bloomberg
Food price inflation could hit 10pc this year, the chairman of Marks & Spencer has warned, though he distanced himself from Andrew Bailey's "apocalyptic" comments.
Archie Norman told the BBC: "It wouldn't be surprising to see food price inflation over the course of the year running towards 8-10pc.
"But we don't know that yet because it runs through the year, some has gone through now but quite a lot's still to come."
Grocery inflation hit 5.9pc in April, its highest level since December 2011, according to data from Kantar.
Yesterday, Bank of England Governor Andrew Bailey said rising food prices were a major worry and apologised for being "apocalyptic".
Mr Norman said that was not a phrase he would use:
"I think you have to keep it in context, wages have been rising quite well in the UK, we've given all our people [an] over 5pc wage increase this year.
"So it's very negative for consumer discretionary income but I wouldn't use the word apocalyptic, certainly not for our customers."
07:56 AM
FTSE risers and fallers
The FTSE 100 has followed Asian markets higher this morning, though a rise in the pound after the latest jobs data is holding back gains.
The blue-chip index rose 0.5pc, driven by optimism about easing Covid restrictions in China, though it lagged its European rivals.
The pound jumped 0.7pc against the dollar, denting shares in global companies including Unilever, GlaxoSmithKline and AstraZeneca.
Vodafone dropped as much as 4pc after it warned profit growth would be below expectations in the year ahead.
But there was positive momentum from tobacco giant Imperial Brands, which gained 5.8pc after reporting higher sales in the first half of the year, helped by demand for e-cigarettes and heated tobacco products.
The FTSE 250 gained 0.7pc, with ContourGlobal surging 33pc after KKR agreed a £1.75bn takeover deal.
07:25 AM
Is anyone listening to Andrew Bailey?
Andrew Bailey Bank of England wages - Frank Augstein/Pool via REUTERS/File Photo
Andrew Bailey has pleaded with companies to show restraint in wages. The latest jobs figures suggest they're not taking any notice.
The 7pc surge in average weekly earnings was stronger than the 5.4pc economists had expected, mainly due to an increase in bonus payments. In March alone, pay climbed 9.9pc – the most since records began more than two decades ago.
That's despite the Bank of England Governor yesterday repeating his call for higher paid workers to "think and reflect" about asking for more money, warning that wage growth could fuel inflation further.
The comments have previously landed Mr Bailey – whose salary is around £575,000 – in hot water.
He told MPs:
In the situation we are in, which is very difficult for low-income households and particularly difficult where inflation is concerned on things like energy and food, it's important to bear that in mind when you are thinking about these things.
07:19 AM
Vodafone sinks as inflation threatens growth
Vodafone inflation profits - Photo by Daniel LEAL / AFP
In corporate news this morning, Vodafone has warned that inflation is likely to hit trading next year, threatening to derail its growth ambitions.
The telecoms group said next year's profits could end up at a similar level to 2022, citing the global surge in inflation as the war in Ukraine drives up energy prices.
It had previously set to medium-term target for mid-single digit growth in profit and cash flow. Shares fell as much as 4.2pc in early trading.
The outlook piles more pressure on boss Nick Read, who's facing pressure from activist investor Cevian Capital.
However, he got a boost over the weekend after UAE rival e& took a 9.8pc stake in Vodafone for $4.4bn, becoming the company's largest shareholder overnight.
Kitty Ussher, chief economist at the Institute of Directors, argues the latest jobs figures highlight the need for a workplace skills policy.
The unemployment rate is now lower than at any time since the early 1970s. Combined with half a million more vacancies in the economy than before the pandemic, there are plenty of job opportunities for people who are looking for them.
This is good news for households but it causes difficulties for businesses trying to retain staff and recruit for the right skills: our surveys show a massive 42pc of firms citing ‘skills shortages’ as having a negative impact on their organisation.
This morning’s data puts the onus on government to prioritise workplace skills policy, to ensure firms have access to the talent they need.
07:01 AM
FTSE 100 opens higher
The FTSE 100 has started the day on the front foot despite the latest jobs data highlighting the tight labour market and squeeze on living standards.
The blue-chip index rose 0.2pc at the open to 7,480 points.
06:59 AM
More reaction: All eyes on the Bank of England
Derrick Dunne, chief executive of YOU Asset Management, says all eyes will be on the Bank of England's next move.
While this might be good news for job-seekers, the number of vacancies, coupled with a record number of job-to-job moves, highlights the pace at which the labour market is tightening month on month.
This is problematic for two reasons. Firstly, a hoard of companies unable to build out their workforce could lead to falling output and, in turn, falling revenues. Elsewhere, fewer candidates puts firms under huge pressure to hike salaries in a bid to prevent existing employees from being enticed away by competitors.
Neither scenario is conducive to future economic growth, which was already shown to be waning in last week’s GDP release.
What’s more, today’s data shows that wage growth continues to lag behind inflation, setting the chances of the UK descending into a dangerous wage-price spiral ever-higher.
With analysts now forecasting that inflation will surge to 9.2pc tomorrow, the real question is what The Bank of England’s next move will be in the face of this enormously complex and multi-faceted challenge.
06:56 AM
Reaction: Soaring pay makes rate hikes more likely
Thomas Pugh, economist at RSM UK, says the jobs and pay figures show the labour market is continuing to tighten.
Combined with soaring inflation, this will probably be enough to convince a majority of members on the Monetary Policy Committee (MPC) to vote for further rate hikes at the next meeting on 16 June.
However, economic growth is likely to slow sharply in the second half of the year, which will dampen demand for labour and help to ease some the tightness, so June might be the last hike until towards the end of the year.
Admittedly, much softer economic growth in the second half of the year, due to the cost-of-living crisis, will dampen demand for labour and ease some of the tightness in the labour market. However, we think the smaller pool of available workers will keep the labour market tight for at least the next couple of years.
The tightness in the labour market was reflected in a rise in pay growth from 5.4pc in the three months to February to 7pc in the three months to March. The single month figure was even more impressive rising by 9.9pc.
Admittedly, that was driven by exceptionally strong bonuses. Excluding bonuses pay growth was a more muted 4.2pc.
But that is still well above its pre-pandemic level of about 3pc and will likely make the MPC even more concerned that the recent burst of high inflation is starting to be reflected in wages. Indeed, the MPC will probably use the strength in pay growth as the main justification for raising interest rates again next month.
However, real total pay growth, which takes inflation into account, grew by a much more muted 1.4pc, suggesting that the cost-of-living crisis was starting to bite in March and will only get worse as inflation jumps in April.
06:51 AM
Record pay growth in March as inflation surges
My colleague Tim Wallace has dug further into the data to reveal a record jump in pay in March...
Pay packets jumped almost 10pc in March to beat surging inflation, preserving workers’ living standards but raising fears that a dangerous wage-price spiral is taking hold in the economy.
Earnings the month shot up by 9.9pc on the year, the Office for National Statistics said, with bonuses in the finance and construction industries helping pay packets keep up with the cost of living.
That is the sharpest single-month jump on records dating back to 2001. By contrast inflation is at a 30-year high of 7pc.
It comes after Andrew Bailey, the Governor of the Bank of England, warned of “second-round effects” from inflation, when a wave of price rises such as the energy bills shock feeds through the rest of the economy with higher wages and so further price rises in turn.
Pay in finance is up just over 15pc, driven by a rise in bonuses of almost half. Construction incomes are up 9.6pc, amid a surge in bonuses of more than 75pc.
Retail, wholesale and hospitality staff have benefitted from a more than 11pc rise in incomes.
Private sector incomes overall were up 11.7pc, the ONS said, even as the average public sector worker’s pay packets rose 1.6pc.
06:50 AM
Capital Economics: BoE may have to raise rates further
Paul Dales, chief UK economist at Capital Economics, says the tight jobs market may force more interest rate rises by the Bank of England.
The labour market has remained stronger than expected even though the economy has been weaker than anticipated. This supports our view that the Bank of England will have to raise interest rates further than widely expected, perhaps from 1pc now to 3pc next year.
It is tempting to dismiss the jump in the three-month rate of annual earnings growth from 5.6pc in February to 7pc in March due to a one-off leap in bonus payments in the financial sector that has no significance. Earnings growth excluding bonuses only nudged up from 4.1pc to 4.2pc.
But anecdotal evidence suggests that businesses have been raising bonuses to maintain staff, so it is probably another sign of how the tight labour market is feeding into faster wage growth.
Our view that the labour market will remain tight and wage growth will accelerate further even as the economy flatlines or contracts in the next few quarters explains why we think the Bank will have to raise interest rates to 3pc to contain this domestic inflationary pressure.
06:43 AM
ONS: Half a million 'disengaged' from jobs market
Darren Morgan at the ONS says there's a mixed picture for the UK labour market.
Total employment, while up on the quarter, remains below its pre-pandemic level. Since the start of the pandemic, around half a million more people have completely disengaged from the labour market.
However, job vacancies are still rising, reaching yet another record high. Indeed, with the latest fall in unemployment, to its lowest rate since 1974, there were actually fewer unemployed people than job vacancies for the first time since records began.
Continued strong bonuses in some sectors such as construction and especially finance mean that total pay is continuing to grow faster than prices on average, but underlying regular earnings are now falling sharply in real terms.
Headline indicators for the UK labour market for January to March 2022 show that
▪️ employment was 75.7% ▪️ unemployment was 3.7% ▪️ economic inactivity was 21.4%
— Office for National Statistics (ONS) (@ONS) May 17, 2022
06:37 AM
More vacancies than workers for first time ever
Good morning.
There are now fewer unemployed people than job vacancies in the UK for the first time ever, highlighting the crisis gripping the labour market as the cost-of-living crisis deepens.
The unemployment rate dropped to 3.7pc in the first three months of the year – below economists’ forecasts and its lowest since 1974.
But hundreds of thousands of people dropped out of the workforce during the pandemic, meaning companies are struggling to fill roles. They may offer higher wages to attract talent, which in turn could fuel inflation.
That said, adjusted for inflation, average earnings excluding bonuses dropped 1.9pc from a year earlier – the biggest fall since 2013 – as the squeeze on living standards deepens.
Hong Kong stocks opened higher on Tuesday despite Wall Street stocks finishing mostly down on weak Chinese economic data.
The Hang Seng Index climbed 1.3pc. The Shanghai Composite Index opened down 0.09pc, while the mainland's second exchange, the Shenzhen Composite Index, sank 0.4pc.
Tokyo shares rose in morning trade, with the benchmark Nikkei 225 index opening in negative territory but quickly climbing 0.2pc.
Coming up today
Corporate: C&C Group, DCC, Land Securities, Vodafone (full-year results); Britvic, Imperial Brands, Tritax EuroBox (interims); TI Fluid Systems (trading update)
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