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Good evening from London,
Today’s GDP figures offer some limited respite for UK ministers facing a tough autumn of labour shortages, supply chain problems, a worsening energy price crisis and tensions with the EU over trade.
The economy grew 0.4 per cent in August — the first full month without coronavirus restrictions — but this was less than expected and remained 0.8 per cent below pre-pandemic levels. The preliminary findings follow a downwards revision of 0.1 per cent growth in July to a 0.1 per cent fall, as the UK’s recovery was knocked back by the “pingdemic” of strict isolation for contacts of people with Covid-19.
Several challenges lie ahead. The British motor industry is the latest to voice concerns over energy prices as it warned that the situation was deterring investors, while the shortage of lorry drivers (see below) is now being mirrored in a shortfall of bus drivers.
International comparisons are not favourable. The IMF warned yesterday that the UK would be the hardest hit by the pandemic in the G7, forecasting that the economy would still be three per cent smaller in 2024 than before the crisis.
In addition, the Institute for Fiscal Studies has highlighted the scale of the public finance problems faced by Chancellor Rishi Sunak, as he prepares for the Budget statement on October 27. Despite “smuggling in” some large tax increases under the cover of the pandemic, Sunak will have little money available to help services other than health.
The scale of the UK’s labour shortages meanwhile was laid bare by yesterday’s data showing vacancies hitting a record 1.1m, with many people leaving the job market altogether and others lacking the skills needed to fill the posts on offer.
“These shortages are holding back our economic recovery and won’t fix themselves by just exhorting firms to pay more,” said Tony Wilson of the Institute for Employment Studies.
Russian president Vladimir Putin has denied his country is restricting gas supplies to Europe
The World Health Organization has proposed a fresh team of scientists to lead an investigation into the origins of Covid-19 and other diseases (Bloomberg)
Russian developers of the Sputnik V vaccine have said their one-shot version, dubbed Sputnik Light, is 70 per cent effective against coronavirus
For up-to-the-minute news updates, visit our live blog
Need to know: the economy
US inflation, as measured by the consumer price index, ticked back up to a 13-year high of 5.4 per cent in September from a year ago. On a monthly basis, prices rose 0.4 per cent, up from 0.3 per cent in the previous period. “Core” CPI, which excludes volatile items such as food and energy, rose 0.2 per cent from August, maintaining an annual rate of 4 per cent.
Concerns over rising inflation go far beyond the US. The IMF yesterday used its twice-yearly World Economic Outlook to warn central banks to be “very, very vigilant”. FT chief economics commentator Martin Wolf said their job was relatively simple: offer fiscal support where needed but start “weaning finance off the opiate of free money”.
Latest for the UK and Europe
Developments in the energy crisis include a new gas storage plant in Northern Ireland that could increase UK capacity by a third. Current capacity is about 2 per cent of annual demand, compared with 20 to 30 per cent in other large gas importers. France meanwhile is planning an increase in nuclear power. Advocates say its availability and predictability has proved its worth at a time of soaring gas prices, while renewable energy remains volatile and difficult to store. The head of the International Energy Agency has said global spending on renewable energy needed to triple in the next decade.
Eurozone industrial output fell back below pre-pandemic levels in August, in another sign that the bloc’s recovery may be running out of steam. Germany was hit badly by shortages of materials, particularly a lack of semiconductors in the motor industry.
“One of the most important public health failures the UK has ever experienced” was the verdict of a parliamentary report into the country’s handling of the pandemic. The FT Editorial Board was aghast at how a nation that “prided itself on the quality of its governance ended up with one of the highest death tolls per capita of any big economy”, adding that the UK’s “fumbling [was] equalled perhaps only by the US”.
The pandemic had caused a much greater rise in public and private debt than the global financial crisis, the IMF said today in its Fiscal Monitor report, highlighting a “great finance divide” between those countries with access to finance and those without. The money was mostly well spent, or as the IMF’s head of fiscal policy put it: “Vaccination . . . is the highest return global public investment ever.” The FT Editorial Board said global recovery would stall without fairer distribution of vaccines.
Meanwhile, the G20 plan for Covid-19 debt relief for poorer countries has fallen short, according to the Jubilee Debt Campaign, with poorer nations not only preferring to keep paying during the pandemic but even taking on more debt.
One leader aiming to use current economic turmoil to his advantage is China’s president Xi Jinping, who is pressing ahead with tough reforms, even as manufacturers grapple with power shortages and one of the country’s biggest property developers teeters on the brink. Third-quarter growth figures released next week will give us an indication of how hard the struggle might be. Chinese exports, at least, seem to be steaming ahead.
Need to know: business
JPMorgan has reported a big jump in profits thanks to a boom in dealmaking and the release of $2bn in reserves as Wall Street earnings season got under way. The largest US bank reported a higher than expected profit of $11.7bn, or $3.74 per share, up from $2.92 per share last year.
BlackRock reported that their assets under management fell during the third quarter but remained near an industry high of $9.5tn, while demand for sustainable funds strengthened. Net income climbed 23 per cent to $1.68bn, while adjusted earnings per share beat forecasts to reach $10.95.
The HGV driver shortage has caused Danish shipping company Maersk to divert its big cargo ships from Felixstowe, which handles more than a third of the UK’s containerised freight, to other ports. Although UK shortages have been exacerbated by Brexit, mainland Europe has had its problems too, with Germany needing an additional 80,000 drivers and the EU as a whole requiring 400,000.
US president Joe Biden has persuaded Walmart, UPS and FedEx to extend their working hours to ease the country’s supply chain woes. US bank chiefs however are less concerned, arguing that current problems are “transitory”. Or as JPMorgan’s Jamie Dimon put it: “This will not be an issue next year at all. This is the worst part of it and the great market system will adjust for it.”
Supply chain worries seem to be less of a concern at the world’s biggest luxury group LVMH, which continues to profit from a boom in China — its second biggest market — despite the government’s new frostiness towards the mega-rich. Better than forecast third-quarter sales of €15.5bn were driven once again by its all-important Louis Vuitton brand.
The World of Work
The “Big Quit” — workers leaving their jobs because of burnout or because the pandemic has given them time to re-evaluate their careers — is not only beneficial to the individual but also to the wider economy, writes columnist Sarah O’Connor. The phenomenon, mainly observed in the US, even has its own metric: the Take This Job and Shove It index.
Those who don’t want to shove it just yet might consider getting an executive MBA to hone their skills. The key takeaway, writes FT director of strategic partnerships James Lamont, is a reminder that “business is about relationships with people, not simply transactions”.
Covid cases and vaccinations
Total global cases: 238.7m
Get the latest worldwide picture with our vaccine tracker
And finally . . .
Think: shark encased in a tank of formaldehyde — but with a Porsche. “Bringing a beautiful car indoors creates a surreal tension that forces you to notice its beauty. It shouldn’t be there, but it is.” Discover the crazy world of “carchitecture”.
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