Some economists say it will take an economic contraction and higher unemployment to bring inflation downThe Federal Reserve raised interest rates by the largest hike in 28 years on Wednesday as it fights to drag down runaway inflation – and now economists are weighing whether it’s sufficient to cool the economy without crushing economic growth and slamming the economy into recession.“We’re not trying to induce a recession,” the Fed chair, Jerome Powell, said in comments after the rate hike was confirmed. But Powell made clear that some economic forces behind the 40-year inflation high are out of the Fed’s control. Jumps in commodity prices, he said, could “take the decision out of our hands”. Continue reading...

Analysis: Wall Street braces for rises in borrowing costs in July and September as 8.6% inflation spurs on central bankThe ghost of Paul Volcker is haunting Washington today after the US Federal Reserve announced it was stepping up the fight against inflation with an aggressive 0.75 percentage point increase in interest rates.Four decades ago – the last time the annual increase in the American cost of living was higher than its current 8.6% – Volcker became legendary as the central banker who was prepared to drive the world’s biggest economy into deep recession to squeeze inflation out of the system. Continue reading...

Christine Lagarde is failing to heed the lesson of last decade’s crisis: act quickly and act clearlyPerhaps the European Central Bank was feeling left out as the financial world turned its attention to the US Federal Reserve’s interest rate hike. But emergency meetings of major central banks are supposed to produce more substance than the weak offering that emerged from Frankfurt after a morning of contemplation: a plan to accelerate work on a “new anti-fragmentation instrument”.The fragmentation in question is the widening of bond yields between eurozone countries. In short, as interest rate rises have come into view, weaker economies are having to pay meaningfully greater rates to borrow than the likes of Germany – about 2.4 percentage points more in the case of Italy. Continue reading...

Federal Reserve expected to increase cost of borrowing by 0.75 percentage points to curb rising inflationThe world’s financial markets are preparing for the sharpest rise in US interest rates in almost 30 years, as America’s central bank took action to halt rising inflation.After days of frenzied investor speculation and signs of growing central bank anxiety, the Federal Reserve is expected to increase the official cost of borrowing by 0.75 percentage points for the first time since 1994. Continue reading...

Join me in asking the government for a fourth budget to halt the biggest rise in family poverty seen in our lifetimes

David Buttress says Welsh council estate upbringing adds wealth of experience needed to help others make ends meet

Unemployment rise and prospect of new Scottish independence referendum fuel recession fearsThe pound has fallen to its lowest level against the dollar since the onset of the Covid pandemic amid growing concern over the strength of the British economy.Sterling dropped by more than a cent against the dollar to trade below $1.20 on foreign exchange markets for the first time since March 2020, as City traders reacted to mixed figures from the jobs market and the prospect of a fresh referendum on Scottish independence. Continue reading...

Sterling is hit by fears over slowing economy, tensions over Northern Ireland protocol, and push for new Scottish referendum

Analysis: Slow earnings growth and unemployment rise do not mean labour market is collapsing, but they could be a signThe idea that Britain’s labour market is booming sits oddly with evidence that the economy has stalled since the turn of the year. Job vacancies are at record levels, the unemployment rate is below 4% and competition for workers – as the cancelled flights and check-in delays at airports show – is strong.Even so, there were hints in the latest figures from the Office for National Statistics that the jobs market is starting to cool slightly. This trend can be expected to continue over the coming months if growth continues to be weak. Continue reading...

Producers fear losing £150m in annual sales unless government keeps ‘steel safeguards’The government is facing pressure from the UK steel industry and Labour to extend metal import limits brought in after Brexit, after a warning that a flood of products could cost British producers £150m in lost sales.The international trade minister, Anne-Marie Trevelyan, must decide by 30 June whether to keep “steel safeguards” set out last year or remove the import limits on five categories of products, which include tin mill products, steel quarto plates and wire rod. Continue reading...

Document sent to journalists to critique opposition’s policies says Labour has had more budget surplusesA private Treasury attack dossier circulated to critique Labour’s economic policy includes detailed figures in the small print that highlight difficult statistics on the public finances under Conservative governments.Labour said the figures in the dossier, seen by the Guardian, were “embarrassing” because they showed Labour’s favourable record on budget surplus compared with the Conservatives’. Continue reading...

Inflation and soaring energy bills cause squeeze on living standards, as unemployment rises slightly

US investors fret about possible recession as S&P 500 plummets into bear territory and global markets feel aftershocksFears about a possible recession have pounded stock markets around the world amid reports that US Federal Reserve could raise interest rates by as much as 0.75% this week – its biggest single hike in borrowing costs for nearly 30 years.As Wall Street’s benchmark S&P 500 index fell almost 4% on Monday into bear territory, prompting selloffs from Sydney to Shanghai, US central bank policy makers will begin a two-day meeting on Tuesday with expectations mounting that they will lift rates by at least 0.50%. Continue reading...

Pound hits one-month low after UK GDP falls 0.3% in April and European stock markets drop to three-month lows

What options are open to EU as Britain publishes bill detailing plans to override parts of protocol?

The government’s push to bridge Britain’s geographical divide is unlikely to work – and there are better policies that willLast autumn, Boris Johnson brought the Department for Levelling Up, Housing and Communities into being. Naming a ministry after a catchphrase seems to suit our age of rhetoric as policy. How long before we see a Department for Getting on Your Bike, or a Department for Unleashing the British Entrepreneurial Spirit?The levelling up initiative was born out of the Conservatives’ 2019 election victory, in which many former Labour constituencies in the north and Midlands – the so called “red wall” – changed sides. The thinking was that these acquisitions, the fruits of the war over Brexit, could not be kept once Brexit was “done” unless their needs were addressed. The idea of levelling up – finding policies to reverse regional gaps in income, health, education and jobs – was part of a wider narrative of a “realignment”, moving left on economics, right on questions of social policy. It was a way to consolidate the coalition brought together by Brexit so that it would have a life beyond Brexit itself. Continue reading...

FTSE 100 index closes more than 100 points down as GDP falls amid inflation and soaring energy costs

Women born in the 1950s have been hard hit by rushed changes to the state pension ageThousands of older women are struggling with the cost of living because of a pensions “injustice” dating back years that has never been put right, according to campaigners.They say large numbers of women born in the 1950s are having to go without, or can only afford basics, often because they have used up their savings and do not have the financial cushion to cope with soaring living costs. Continue reading...

Analysis: Fall in GDP in April also increases probability of 0.25-point increase in interest rates this week

The case is morally compelling – but it might leave Ukraine less able to sustain stable economic growthRussia’s war on Ukraine shows no sign of ending, but it is not too soon to start thinking about how to ensure postwar Ukraine’s stability, prosperity, and security. Already, two discussions are occurring: one about financing economic reconstruction, and the other about affirming Ukraine’s external security. The problem is that these discussions are proceeding separately, even though the issues are intimately related.Reconstruction costs are uncertain because the course of the war is uncertain. Ukraine’s prewar GDP was about $150bn (£120bn). Given a capital-output ratio of three, and assuming that a third of the capital stock will be destroyed, we are again talking about $150bn. As always, alternative assumptions yield alternative scenarios, but $150bn seems like a reasonable starting point. Continue reading...

Impasse over Brexit deal forcing companies to reconsider investing in Britain, says business lobby groupThe UK’s foremost business lobby group has warned the government that its threat to override the Northern Ireland protocol is forcing companies to think again about investing in Britain and dragging down the economy.The Confederation of British Industry (CBI) said immediate talks with the EU, rather than political grandstanding, were needed to resolve the impasse over the protocol, which governs post-Brexit trade between the EU, Northern Ireland and Great Britain. Continue reading...

Exclusive: Debt Justice calls on UK to use power to make private lenders take part in effective relief schemeThe lack of an effective debt relief scheme is forcing some of the world’s poorest countries to cut public spending to keep up payments to their creditors, research reveals.A report by Debt Justice says the most heavily indebted nations were expected to reduce public expenditure by 3% on average between 2019 and 2023 despite the need to counter the impact of spiralling food and energy prices. Continue reading...

A ruling on whether or not to waive patent rules will this week show if the trade body is for the world or the westA crisis at the World Trade Organization has been brewing for years and it now looks like coming to a head. There are many potential flash points as trade ministers assemble for talks in Geneva this week but in the end they boil down to a single issue: vaccines.Put simply, the WTO’s members need to decide whether they are going to waive patent protection for Covid-19 treatments developed in the west so that poorer countries can manufacture their own lower-cost vaccines. What the meeting ought to do is come up with a meaningful agreement covering the waiving of patent rules not just for the current but any future pandemic. If it does so, the WTO will live to fight another day. All the other vexatious issues – and there are plenty of them – will be fudged or kicked down the road. Continue reading...

As we try to find our place in the world, politics veers between the equally unreal claims of boosters and decliners. The latter are now in the ascendantDecline is back. Commentators are noticing that the UK economy has not been doing well and is projected to stagnate. Other countries are doing better, in productivity, investment, research and skills. It really is deja vu all over again. But not quite. Only yesterday we were being told a different story – one of the fastest rates of growth in the OECD, of a new global, buccaneering Britain, a science superpower, an innovation hub, the fastest vaccine rollout… What is going on?We have been living in an era of revivalism. At its core is an economic story which holds that Thatcherism had reversed the longstanding British economic decline, which had perhaps started in the 1870s, or perhaps in 1945. From being the sick man of Europe, the UK could stand proud again, and return to a global role. This view profoundly affected politics. New Labour, the party of post-decline cool Britannia, started to talk of British leadership, of global Britain, of a special internationalist destiny.Do you have an opinion on the issues raised in this article? If you would like to submit a letter of up to 250 words to be considered for publication, email it to us at observer.letters@observer.co.uk Continue reading...

The true cost of Brexit is becoming painfully clearer by the dayBritain’s growth prospects are the gloomiest of all developed nations. The OECD predicted last week that the UK economy would not grow at all next year, the worst outlook for any OECD nation. This follows warnings in April from the IMF that the UK will experience the worst growth out of the G7 nations in 2023. After a decade of stagnant wages, it seems Britons need to resign themselves to the fact that the buoyant growth of the 2000s is but a distant memory.Every country has suffered the shock of the pandemic, followed by the spike in oil and wheat prices triggered by Russia’s illegal war in Ukraine. But other developed economies have proved more resilient, enjoying export-driven recoveries in the wake of Covid. Here in Britain, the economic malaise left exposed by the 2008 financial crisis is long term and structural. Continue reading...

As with another self-inflicted economic injury in the 1920s, Britain is struggling under a burden that could be reversedIn my last column I suggested that Brexit is the biggest act of self-harm inflicted on the British economy since the return to the gold standard in 1925. Even arch-Brexiter Jacob Rees-Mogg has recently admitted that implementing the next stage of the bureaucracy associated with Brexit would be an “act of self-harm”. I did not make that up.As minister for Brexit opportunities he has the sisyphean task of searching for such opportunities. One of the few he is reported to have come up with is the chance to abandon EU rules on the manufacture of vacuum cleaners, thereby making them more powerful and less environmentally friendly. I am not making that up either. Continue reading...

Boris Johnson’s hopes of an economic ‘reset’ look unlikely in the face of rising fears over pay and the cost of livingSoaring inflation, an economy falling to the bottom of global league tables, and a summer of strike action ahead. As Boris Johnson attempts to reset the political agenda, the economic backdrop could hardly be worse.This week the government will face more troubling news, with official figures on Monday expected to show the economy came close to stalling in April as families struggled with a record rise in energy bills. On Tuesday, fresh data will probably confirm wages again failed to keep pace with the cost of living, while the Bank of England is expected to raise interest rates to tighten the screw on household and business borrowing. Continue reading...

An investor’s rant gives an insight into the City’s short-termist view of the environment crisisIf the future remembers any corporate villain from 2022, it will be Stuart Kirk. The satirically titled head of “responsible investment” at HSBC looks the part: shaven headed, tightly trimmed beard, hard, sharp eyes. Like all the best villains, the banker’s arguments are insidiously appealing. He says out loud what his audience thinks, cutting through polite society’s pious crap to reveal its selfish desires.“There’s always some nut job telling me about the end of the world,” he told the Financial Times’s Moral Money conference – and I haven’t made that title up either. “Who cares if Miami is six metres underwater in 100 years? Amsterdam has been six metres underwater for ages and that’s a really nice place.” Continue reading...

Analysis: the assault in Ukraine continues, but it seems clear that real damage is being done to Putin’s economy• Russia-Ukraine war: latest updatesSanctions have affected many aspects of life in Russia, but one particular shortage has sent the wealthy elite into a spin: beauty clinics are running out of Botox.The business daily newspaper Kommersant reported this month that Botox imports saw a threefold drop to 74,500 units in the period between January and March compared with the same time last year, after one western manufacturer stopped exporting to Russia. Continue reading...

As staff grapple with rising food and petrol prices, average pay of FTSE 100 bosses has risen to pre-Covid levels“If that had been our CEO, he would’ve been on the front pages with whiskers painted on him and labelled a greedy fat cat,” remarked the executive, chewing on a roasted scallop in a busy north London restaurant. The diner works at an energy supplier and has just seen the thumping £6.5m handed out to John Pettigrew, boss of National Grid, the privately owned national electricity operator.Pettigrew’s job in charge of a low-profile, non-customer facing infrastructure business perhaps spared him from scrutiny. But it is AGM season, when executive pay deals are published and put to a vote by shareholders, and there will doubtless be others who become an emblem of corporate largesse as worker discontent deepens in the coming months. Continue reading...

My former colleague JR (Dick) Sargent, who has died aged 96, was the founding professor and chair of the economics department at Warwick University when it launched in 1965. Following a period of unrest, he was instrumental in reshaping the university to make it more democratic. The changes that were made reverberated through other universities.Within a few years of Warwick’s launch many staff and students felt the university’s structure was insufficiently democratic and excessively oriented towards the business community. These views were influenced by les événements, the wave of student and worker unrest that swept across Europe in 1968. They were articulated by a staff member, the labour historian EP Thompson, in his book Warwick University Ltd (1970). Continue reading...

Theme parks, toy brands and even coastal hotspots are looking to the latest dinosaur blockbuster for a bump in salesDinosaur attractions across the UK are braced for a fresh wave of visitors following the release of Jurassic World Dominion this weekend.The sixth film in the franchise is expected to offer a boost not only to UK cinemas – the series’ box-office takings so far top £200m – but to the country’s many dinosaur-themed attractions. Continue reading...

Rolling coverage of the latest economic and financial news, as US consumer prices rise at their fastest pace since 1981

Inflation rate sends stock markets into tailspin as S&P 500 falls over 2% and Nasdaq down over 3.5%Inflation in the US rose unexpectedly last month to a fresh four-decade high of 8.6%, the labor department said on Friday.The latest consumer price index (CPI) figures showed that the cost of living increased by one percentage point from April and was broad-based, with the indexes for shelter, gasoline and food being the largest contributors. Continue reading...

As campaigners seize on how Covid shook up work, 70 UK firms embark on largest trial yet of shorter weekFive days on, two days off has been the defining pulse of British labour for more than 80 years. But as 70 UK companies embark on the largest trial yet of a four-day week, the working calendar may finally be changing.Campaigners are seizing on the way Covid shook up working lives to push back the boundaries of the weekend for the first time since the postwar years when the whole of Saturday became a day off for most. One advocate predicts a four-day week could be available to the majority in Britain within five years and Stephen Fry this week gave his voice to an increasingly confident four-day week campaign, which argues shorter hours boosts productivity, cuts carbon emissions and improves family life – all without cutting pay. Continue reading...

PM must act quickly as economy and household finances worsen, but Treasury is not sympatheticPetrol heading for £2 a litre. A £100 bill to fill the average family car with fuel. A warning from the west’s leading thinktank that only Russia of the world’s 20 leading economies will have weaker growth than the UK next year.Boris Johnson might have hoped for easier weeks to begin his political fightback. A pickup in the economy is vital if the prime minister is to cling on to his job after 148 of his MPs said they lacked confidence in him. Things are not going to get any easier for some time to come. Continue reading...

Assessment finds customers could access accounts despite any collapse but three banks have shortcomingsThe UK’s largest banks are no longer “too big to fail” and could foot the bill for their own failures, the Bank of England has said, but it found shortcomings at three banks including HSBC and Lloyds.Fourteen years on from the financial crisis that threatened a collapse of the banking system and led to huge taxpayer bailouts, the Bank of England’s first public assessment of lenders’ “living wills” found that even if a major UK lender were to collapse, customers would be able to access their accounts, and banks could broadly provide services as normal. Continue reading...

Shortage of candidates since January means thousands of vacancies unfilledUK employers increased the number of new staff in May at the slowest pace since early 2021 after a steep fall in the number of workers responding to job adverts.After an increase in job switching by workers last year, often to secure higher pay, employers said the shortage of candidates since January meant they were unable to fill thousands of vacancies. Continue reading...

In today’s newsletter: In the biggest trial of its kind, sixty UK companies are experimenting with a four-day week – Nimo Omer finds out why

PM raises spectre of 1970s-style economic crisis that could force dramatic rise in interest rates

UK fuel prices keep climbing and European Central Bank signals end of ultra-loose monetary policy

Base rate to rise by 0.25% and quantitative easing to stop in July after ECB warns about inflationThe European Central Bank (ECB) plans to raise interest rates next month for the first time since 2011 after warning inflation would increase by more than previously estimated.Resisting calls for a 0.5% increase next month, the ECB’s governing council said the base rate for the 19-member currency bloc would be raised by 0.25% with a further, and possibly larger increase scheduled for September. Continue reading...

Pepco says ‘acute spike in inflation’ and lack of wage rises forcing consumers to spend lessThe cost of living crisis is prompting UK shoppers to cut back even on essential items as wages fail to keep pace with inflation, the owner of Poundland says.Pepco Group, which owns Poundland in the UK, Dealz in Ireland and the Pepco chain across Europe, says that while the absolute levels of inflationary pressure are greater in central and eastern European markets, higher wage growth of about 10% in those regions compared with others is substantially offsetting this. Continue reading...

RAC calls it a ‘truly dark day’ as latest increase puts cost of filling typical 55-litre family car at £100.27The average cost of filling a typical family car with petrol has exceeded £100 for the first time on what was labelled a “truly dark day” for drivers.Figures from data firm Experian Catalist show the average price of a litre of petrol at UK forecourts reached a record 182.3p on Wednesday. Continue reading...

Analysis: US to examine with fresh urgency easing reliance on China as pandemic disruptions expose global economic vulnerabilitiesEveryone has a story to tell about the supply chain problems that have affected the global economy, from the beginning of the pandemic through to the disruption caused by the war in Ukraine. From shortages of Ikea furniture and Christmas turkeys, to the dearth of computer chips that sent the cost of secondhand cars soaring, the dislocation of a once smooth-running system has caused havoc in the global economy.But while predictions about the easing of bottlenecks have come and gone without any improvement, it has become clear the disruptions of the past two years or more are spurring fundamental changes to the world economy that could have yet more profound impacts on our lives. Continue reading...

Business group downgrades its outlook for growth next year to 0.6% as inflation soarsBritain’s economy will “grind to a halt” before shrinking in the second half of this year as soaring inflation and tax rises take their toll, according to forecasts from one of the UK’s leading business groups.Consumers and business will pay a high price for Russia’s invasion of Ukraine and persistent delays to supplies from China, said the British Chambers of Commerce (BCC) as it downgraded its outlook for growth next year to 0.6%. Continue reading...

Zero-growth warning for UK as petrol prices surge and OECD says Britain will be weakest economy in G7 next yearBoris Johnson’s attempt to reset his troubled premiership has received a double blow after petrol prices had their biggest daily rise in 17 years and a leading international thinktank said the UK economy would slow to a standstill next year.Fears that Britain is heading for a prolonged period of 1970s-style stagflation intensified amid fresh evidence of the damaging impact of the war in Ukraine on the cost of living and growth. Continue reading...

Thinktank forecasts UK growth to slow to standstill in 2023, as impact of conflict felt

Treasury secretary admits she regrets describing inflation as ‘transitory’ and says it is ‘top economic problem at this point’Janet Yellen told Congress that the US is facing “unacceptable levels of inflation” on Tuesday as the treasury secretary defended herself from criticism of her previous comments that rising prices were “transitory”.Although the hearing with the Senate finance committee was centered on Joe Biden’s budget for 2023, Yellen was forced to answer questions on inflation, including some on how she once said that inflation would be “transitory”, or temporary. Continue reading...

Rolling coverage of the latest economic and financial news