Economics | The Guardian

While in theory a possible default sounds like a major financial event experts remain relaxedA Russian debt default, the first stage of which could arrive as soon as this week, sounds, in theory, like a major financial event. After all, the last time Russia defaulted – indeed, the only other time since the Bolshevik revolution more than a century ago – was 1998 and chaos was a genuine possibility.Long-Term Capital Management, an enormous and already-ailing hedge fund, couldn’t handle the explosion in volatility and the general flight to safety in financial markets. Within a few weeks, the US Federal Reserve had to strong-arm 14 Wall Street banks into agreeing a $3.6bn bailout of LTCM to prevent a wider meltdown. The Fed was probably right to fear contagion: LTCM was absurdly over-extended via leverage, and half of Wall Street was over-extended to it. Continue reading...

Rolling coverage of the latest economic and financial news

Analysis: it has been removed from basket of goods to calculate UK’s annual inflation rate but is thriving

Institution believes invasion by Russia will cause ‘devastating’ damage to global economy

Formal clothes removed from list for first time since 1947, with doughnuts and coal also taken out

Ukraine believes the only way the Russian president will back down is if his economic power base in fossil fuels is seriously threatened. Putin thinks Europe and the US are too weak to do it – but some believe there is a way

Fund says a default from Russia after sanctions over its invasion of Ukraine would not trigger a global financial crisisA Russian default on its debts after western sanctions over its invasion of Ukraine is no longer “improbable”, but would not trigger a global financial crisis, the head of the International Monetary Fund said on Sunday.The Washington-based fund’s managing director, Kristalina Georgieva, said the sanctions imposed by the United States and other nations were already having a “severe” impact on the Russian economy and would trigger a deep recession there this year. The war in Ukraine will also drive up food and energy prices, leading to hunger in Africa, she added. Continue reading...

Financial crash, slow growth, Covid and inflation pressures fuelled by Russia-Ukraine war highlight faults of current systemFirst it was a financial crisis. Then a decade of slow growth that bred political anger. After that came a pandemic. Just as the threat of Covid-19 appeared to be receding, along came a European war. Welcome to the era of incessant crises.Comparisons are often made between today and the 1970s, and in some respects they are appropriate. A global economy already exhibiting plenty of inflationary pressure has been hit by an oil price shock, just as it was in late 1973. Continue reading...

Thinktanks say chancellor must act to cushion impact of inflation on the poorest in spring statementChancellor Rishi Sunak faces demands from economists across the political spectrum to increase benefits and the state pension by about 8% in his spring statement next week, in order to help alleviate the worst cost-of-living crisis for decades.A Resolution Foundation report on the state of the economy on Monday shows that only such drastic action will allow millions of people on low incomes to maintain their living standards at current levels. Continue reading...

War in Ukraine has made the already gloomy economic prospects even more desperate. Sunak needs to act, and big, if we’re to check a freefallThe old adage is that if you’re not leftwing at 20 you have no heart, if you’re not conservative 30 years later you have no head. But from the treatment of refugees to the management of the economy, no one of any age can have a head and be conservative in 2022. For our times, conservatism is just plain wrong.As the country confronts the acute stagflation of the years ahead, it will look for very different economic leadership from the warmed-up Thatcherism that, it’s becoming clear, is chancellor Rishi Sunak’s core philosophy. Economic prospects in 2023 and 2024 were dire enough before the consequences of Putin’s murderous war. Now they are desperate. Continue reading...

Conflict in Ukraine means January’s GDP boost is unlikely to last, but Threadneedle Street still seems obsessed with curbing inflationSoaring gas and electricity prices, high inflation, the worst squeeze for living standards in decades … The economic outlook was challenging even before Russia’s invasion of Ukraine. Now conflict on European soil and economic warfare through sanctions has added to the pressure.This week the Bank of England is expected to raise interest rates in response to inflationary pressures, as the war pushes up already high energy prices. It will be adding to the cost-of-living crisis by increasing the cost of borrowing, but the idea is to stop high rates of inflation becoming more permanent. Continue reading...

Like other world leaders, Ukraine’s president found tackling corruption difficult. Unlike them, he had Moscow watching himUkraine’s president. Volodymyr Zelenskiy, came under pressure to tackle corruption from the moment he was elected in April 2019.His government was on its knees financially after a series of scandals that had seen the country’s biggest bank collapse following allegations of looting. Soon after, it was nationalised. Continue reading...

The invasion of Ukraine could pitch Moscow, and the world, back into financial crises that had seemed part of historyThe big western brands showed Vladimir Putin how to do it. While the Kremlin’s army was getting bogged down in Ukraine, Coca-Cola and Starbucks lost no time in closing their doors to Russian customers.But the most emblematic move of all came from McDonald’s, which has shut all 850 of its outlets in Russia. The availability of Big Macs in the Soviet Union was seen in 1990 as evidence that the west’s old cold war foe was turning its back on communism, but the past fortnight has rekindled memories of the bad old days. There were queues outside McDonald’s when it first opened in Moscow. Last week, Russians queued for one last burger before the pull-out began. Continue reading...

Rolling coverage of the latest economic and financial news

The exodus of western brands in response to Russia’s invasion of Ukraine contributes to an existing economic shiftThe Golden Arches Theory of Conflict Prevention once proposed that no two nations with McDonald’s franchises would go to war; people in those kinds of economies would rather queue for burgers. The thesis was not only crass, but soon disproven. Yet it nodded to a broader truth: that economic ties were drawing countries closer together, creating a global interdependence which would not quickly be undone.Times have changed. On Tuesday, the American fast-food giant suspended its operations in Russia. It is part of a dramatic exodus by international brands – from Uniqlo, Netflix and Chanel to Apple, PwC and American Express – due to Vladimir Putin’s invasion of Ukraine, the western sanctions imposed in response and the public outcry. Shell and BP are selling their Russian assets. Britain and the US are banning Russian oil, while the EU is slowly phasing out gas imports, on which it is heavily dependent. On Friday, the US announced that, with allies, it was revoking Russia’s “most favoured nation” status. Continue reading...

Group of wealthy nations plan to revoke benefits and impose heavy tariffs to further isolate Moscow over Ukraine war

All sectors returned to growth in January to help lift GDP by 0.8%, says ONS

Edward Smith, co-chief investment officer at Rathbones, explains what it is and why it mattersLast month, anti-poverty campaigner Jack Monroe sparked change by highlighting huge price increases on food that far exceeded the Office for National Statistics’ inflation figure of 5.4%; the cost of living crisis, it seems, is hitting low-income Britons the hardest. The ONS responded by saying it accepted that everyone has their own “personal inflation” rate. But what affects our rate, and why does it matter? I asked Edward Smith, co-chief investment officer at Rathbones, a wealth management firm which offers a free-to-use personal inflation calculator.I’d never heard of a personal inflation rate before. Why are we talking about it now?

World Bank’s chief economist has warned Russia and Belarus are ‘mightily close’ to default

The rise was propelled by increased prices for gas, food and housing in the sharpest spike since 1982US inflation surged again last month to a new 40-year high of 7.9%, propelled by surging costs for gas, food and housing.The February figures, the sharpest increase since 1982, are only a foretaste of higher prices to come as they do not factor in the impacts of the Ukraine war, Biden’s ban on Russian energy imports and tightened oil supplies that have sent prices at US gas stations and other energy commodities to record levels. Continue reading...

Cash from overseas is used to balance the UK’s massive trade deficit. The problem is not just them, it’s also usDirty Russian money has polluted British democracy. The Conservatives have taken donations from Vladimir Putin’s chums without asking enough questions about where the cash is coming from. It is time to clean up Londongrad and also to wave goodbye to a burgeoning list of sanctioned oligarchs that now includes the owner of Chelsea, Roman Abramovich.That’s all completely true but it also doesn’t tell the whole story, which is that Russian money is just a part of an annual flow of foreign finance that enables us as a country to run permanent and massive trade deficits, where imports of goods and services are higher than exports. Put simply, we have been happy to take oligarch money so that we can live beyond our means. It is not just them, it is us.Larry Elliott is the Guardian’s economics editor Continue reading...

Global lender says funds will help country meet urgent spending needs caused by Russian invasion

Rolling coverage of the latest economic and financial news

Response to warning over impact of Ukraine-Russia war piles pressure on UK chancellor to follow suit

From a glitzy ‘debt gala’ to a considerations about whether stealing is in fact ‘a radical act of commoning’, artist Rachael Clerke’s Transactionland aims to lift the lid on economicsIt’s unusual to find a shop that encourages shoplifting. In Bristol, a new store goes further, providing an outfit for the purpose that includes a coat with extra inside pockets and a scarf with pouches for penny sweets.Rachael Clerke would not survive long as a real shopkeeper. But as the artist behind Transactionland, an experimental series of events at a Bristol community centre, she is more interested in sparking debate than turning a profit.Transactionland is at St Anne’s House, Bristol, until 20 March. Continue reading...

Households already feeling pain from surging inflation and high energy and fuel bills set to be hit hard

Exodus of big British companies continues as bosses forced to examine their companies’ links to Russia

Centre for Economics and Business Research halves growth forecast and says inflation expected to remain at 7% until 2023The shockwaves from the Russian invasion of Ukraine will cut UK living standards by £2,500 per household, lead to more persistent inflationary pressure and slow the economy to a standstill next year, economists fear.Following reports of an escalation of the west’s economic measures against the Kremlin, forecasters have cut their estimates of growth in 2022 and 2023 and become gloomier about the outlook for the cost of living. Continue reading...

Japanese measures including turning down the heating and slower trains could ease pressure on British households, say experts

Calls for boycott include other big western food and drink companies such as PepsiCo, KFC, Starbucks and Burger KingMcDonald’s, Coca-Cola, PepsiCo and other major western food and drink companies are under mounting pressure to pull out of Russia after its invasion of Ukraine, amid calls for consumer boycotts of the brands.The companies have been criticised for their failure to speak out about the invasion, and for continuing to operate in Russia, while a host of other firms such as Netflix, Levi’s, Burberry and Ikea have halted business in the country. Continue reading...

The economic consequences of the war will not be confined to the countries fighting it. We must start developing their recovery plansRussia’s invasion of Ukraine, and the sweeping sanctions the US and Europe have imposed on Russia in response, have triggered economic disruptions at four levels: direct, blowback, spillover, and systemic. To contain their longer-term consequences, we must start working on recovery plans now.Needless to say, the Ukrainian and Russian economies are being hit the hardest. Economic activity in Ukraine is likely to contract by well over a third this year, aggravating the rapidly escalating humanitarian crisis. Already, the war has led to more than 750 civilian casualties and driven 1.5 million Ukrainians to flee to neighbouring countries, with millions more on the move internally. Continue reading...

Resolution Foundation warns record-high energy prices amid Ukraine war could lead to hit worth £1,000 per householdUK household incomes are on course to collapse by the most since the mid-1970s after Russia’s invasion of Ukraine sent energy prices soaring to new highs, a thinktank has said.The Resolution Foundation said the dramatic increase in global oil and gas prices was forecast to push UK inflation above 8% this spring, causing average incomes across Britain to fall by 4% in the coming financial year – a hit worth £1,000 per household, the biggest annual decline since 1975. Continue reading...

Gas and oil hit record highs before stabilising as countries dependent on Russian imports say measures likely to be introduced ‘step by step’Gas prices and petrol hit an all-time high and oil neared record levels on Monday after the US said it had discussed the prospect of an embargo on exports from Russia, before pushback from Germany eased the market tension.The price of gas for delivery in the UK in April soared to 800p per therm at one point, up from 460p on Friday and 20 times the price of the same contract a year ago, before the autumn energy price crunch and war in Ukraine hit. Continue reading...

Rolling coverage of the latest economic and financial news

How can we expect the Tory party to wean Britain off Russian wealth and power, when they got us hooked in the first place?In some of London’s most exclusive neighbourhoods, you can suddenly sense the kind of unease that wealth usually keeps at bay. As the government talks up its determination to crack down on Russian oligarchs, a much wider shift may be afoot. On Friday the Financial Times quoted the chair of Aylesford International, a Chelsea estate agent whose current offerings include a four-bedroom apartment in Cadogan Square, SW3, going for the best part of £12m. “The severity of these sanctions is the beginning of a new world, a new market,” he said. “I don’t think you can hide any more.”On Monday, the House of Commons will debate the government’s economic crime (transparency and enforcement) bill – first drafted four years ago, since subjected to serial delays, but now finally revived thanks to Vladimir Putin’s invasion of Ukraine. Ministers say they want to tackle the tangle of secrecy and deception that has long surrounded money stripped out of overseas economies and poured into British property, assets and banks, and thereby smooth the way for even harsher action against people linked to the Russian government. Whether this will do anything to halt the current killing and chaos is rather more doubtful than some people are making out, but Boris Johnson insists the bill will “continue to tighten the noose around Putin’s regime”. Continue reading...

Impact of US card giants’ move diluted after local Mir payment system clarifies ban only affects foreign transactionsConsumers will still be able to use Mastercard and Visa-branded cards for domestic transactions in Russia, the country’s state-backed payments network has said, reducing the impact of the US firms’ decision to pull services over the invasion of Ukraine.Russia’s homegrown payments system Mir said the cardholders would still be able to access their funds, make withdrawals and domestic transfers – at least until their bank cards expire. Continue reading...

Sanctions will take time and ‘Ukraine fatigue’ could blunt west’s resolve as cost of living crisis deepens

Tory MPs and business groups urge chancellor to scrap increase intended to fund NHS and social care amid fears of stagflationChancellor Rishi Sunak is under renewed pressure from MPs and business groups to rethink plans to increase national insurance next month, as fears grow that Russia’s invasion of Ukraine will dramatically worsen the cost of living crisis and plunge the economy into “stagflation”.Both Tory and Labour MPs believe Sunak can still be persuaded to ditch the 1.25 percentage point rise – announced last September to fund the NHS and social care – and want him to use the potentially devastating effects of events in Ukraine on prices as justification for what they say is an urgently needed U-turn. Continue reading...

The war in Ukraine has united the EU, and exposed the geopolitical folly of leaving as well as the economic lossBrexit was always going to be a geopolitical and economic disaster – a once-proud nation cutting off its nose to spite its face. The daily tragedy of Putin’s laying waste of Ukraine has highlighted the shortsightedness of Johnson’s geopolitical misjudgment in leaving the European Union.As that great one-nation Tory Remainer Michael Heseltine says: “Our continent faces a threat as severe as anything since the end of the cold war. I am ashamed that the country that in my lifetime saved European democracy has now absented itself, and that others must now determine Europe’s response.” Continue reading...

Threadneedle Street is offloading debt, but the Ukraine situation poses a new dilemma for all central banksIn times of global crisis, central banks watch for signs of panic in the financial markets. On 3 March 2020, when it became clear to investors that Covid-19 posed a significant threat to the global economy, a sudden flight to safety threatened to turn into a full-scale stampede.With sellers dramatically outnumbering buyers, central banks found themselves riding to the rescue. Continue reading...

Elvira Nabiullina, noted for her symbolic outfits, wore funereal black when announcing the economic response to sanctionsElvira Nabiullina could barely hide her unease. The governor of the central bank of Russia – famed for sending coded messages with her attire – had chosen to dress in funereal black as she warned about the devastating hit to the Russian economy from sweeping sanctions imposed by western governments in retaliation for the invasion of Ukraine.With the rouble plunging by more than a quarter and queues forming for foreign currency, Nabiullina announced last Monday that the central bank’s key interest rate would more than double to a record 20%, to curb soaring inflation. In steps to cushion the blow for ordinary Russians, capital controls would be put in place, while the stock market would temporarily close. Continue reading...

Moscow stock exchange remained closed during the week, while the rouble fell to record lowsThe London stock market has suffered its biggest weekly losses since the start of the global pandemic in March 2020, as investors took fright at the escalation of the conflict in Ukraine.Shares plunged in the City following news of a fire and Russian capture of Ukraine’s Zaporizhzhia nuclear power station, with the one-day drop of more than 250 points in the FTSE 100 index taking the weekly loss to 6.7%. Continue reading...

Economists say that the pressure for higher wages appeared to be subsiding and labor shortages easingEmployers added 678,000 jobs to the US workforce in February and the unemployment rate edged down to 3.8%, as the impact of the Omicron coronavirus variant eased, workers began returning to offices en masse, and demand for services increased.Confounding expectations that the variant would dull workforce gains, the jobs data beat most economists’ forecasts by 240,000, with the total jobs added being 200,000 higher than the January figure. Continue reading...

Inflation, tax rises and the war in Ukraine expected to slow recovery from pandemicBritain’s economic growth will halve this year as a result of soaring inflation, hefty tax rises and the destabilising shock from the war in Ukraine, a leading business lobby group has warned.In the first major forecast of the UK economy since the Russian invasion of Ukraine, the British Chambers of Commerce (BCC) said it expected an inflation rate of 8% to cut disposable incomes in 2022, putting the brakes on the recovery from the pandemic. Continue reading...

Russia’s attack reminds western nations that they must leave sufficient finances to guard against external aggression

Analysis: how long the price stays high is key, as are interest rate decisions central banks make

Review of G20 fiscal stimulus spending counters many countries’ pledges to ‘build back better’Only about 6% of pandemic recovery spending has been “green”, an analysis of the $14tn that G20 countries have poured into economic stimulus.Additionally, about 3% of the record amounts governments around the world have spent to rescue the global economy from the Covid-19 pandemic has been spent on activities that will increase carbon emissions, such as subsidies to coal, and will do little to reduce greenhouse gases or shift the world to a low-carbon footing. Continue reading...

Fuel prices are soaring across America as the Ukraine crisis bites – bad news for those trying to stay warm in their carsFor the past five months Anna Hokuf has lived in her car with her cat after she left an abusive home environment. Trying to save enough money to secure an apartment doing odd jobs while homeless has been hard enough for the 19-year-old. Now rising gas prices have made it all but impossible.“I don’t have the ability to save much money and gas prices being as high as they are at almost $4 a gallon really makes being homeless tough,” said Hokuf, of the Lehigh Valley, Pennsylvania, area. “I have to keep my car on all the time to stay warm and to keep my cat warm, which wastes more gas and has caused a strain on my car.” Continue reading...

Bank’s European subsidiaries faced ‘abnormal cash outflows’, so it could no longer supply them with liquidity

President acknowledges ‘too many families are struggling’ as climbing prices hit him in pollsGetting runaway prices in America under control is “my top priority” Joe Biden told Congress on Tuesday in his first State of the Union address.Soaring inflation – now at a 40-year high – has hurt Biden in the polls and the US president bluntly acknowledged “too many families are struggling to keep up with the bills. Inflation is robbing them of the gains they might otherwise feel”. Continue reading...