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The adage that a week is a long time in politics has never appeared more apt.
Can it be just seven days since we reported on the UK’s “mini” Budget? A fiscal statement that unleashed chaos in financial markets, stinging criticism from the IMF and an emergency £65bn intervention from the Bank of England, leaving Brits fearing implications for their mortgages and pensions and the Tories getting hammered in opinion polls.
But first, some better news for the UK government. New GDP data this morning showed the economy improving in the second quarter, lessening fears of recession. However, significant revisions to earlier data show the UK is now the only G7 economy that remains smaller than it was before the pandemic.
One of the big criticisms of last week’s package was the lack of any independent scrutiny from the Office for Budget Responsibility. Prime minister Liz Truss and her chancellor Kwasi Kwarteng tried to make amends today by meeting OBR officials in an effort to reassure markets that they were serious about bringing down Britain’s debt.
The financial shockwaves from the sell-off in UK gilts have been felt far beyond Britain, sparking big swings in US and European bonds in what one market participant described as the “tail wagging the dog”. UK pension funds are still caught up in the chaos. (If you want to go deeper on the implications for markets, try Rob Armstrong’s Unhedged newsletter: Five lessons from Britain’s bad week.)
The political repercussions are also huge. On taking office, Truss said she was prepared to be unpopular, which is just as well. The Tory leader heads to her party conference this weekend — just as swingeing new energy price rises take effect — facing a struggle to contain frustration both from within her ranks and from the wider UK electorate, which could yet get worse if a new round of austerity is seen as the way to balance the books.
Truss is sure her government’s reforms will eventually deliver in the form of improved growth and points to a generous package of help on energy bills for households and businesses.
But, as economics editor Chris Giles points out, the prime minister’s experiment has, so far at least, failed to take account of unforeseen circumstances in the real world.
It is not wise to denigrate economic orthodoxy, he argues, “nor to sack the respected top Treasury civil servant, nor to refuse to allow independent assessment of the public finances. In fact, the past week has shown the only problem with the economic orthodoxy is its name. Call it knowledge and experience instead”.
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Need to know: the economy
Eurozone inflation hit a new high of 10 per cent in the year to September, up from 9.1 per cent in August. Energy prices rose a whopping 40.8 per cent and food by 11.8 per cent, but stripping out these volatile items left “core” inflation at 4.8 per cent, up from 4.3 per cent in August.
Latest for the UK and Europe
The EU is ploughing ahead with imposing new sanctions on Russia after Moscow annexed four Ukrainian regions, including a price cap on Russian oil, a ban on EU individuals serving on boards of Russian state-owned enterprises and new measures targeting individuals. Brussels puts the hit to Russian revenues at €7bn a year.
EDF Energy is considering postponing the closure of two of the UK’s five remaining nuclear power plants at Hartlepool and Heysham to buttress the country’s energy supplies. Our Big Read looks at the EU’s emergency plan for winter.
Polls suggest Luiz Inácio Lula da Silva is on track for victory in Brazil’s presidential election on Sunday amid concerns that incumbent Jair Bolsonaro may contest the result if he loses. “The world’s tenth-largest economy deserves a better political class” is the view of the FT Editorial Board. Watch our new film on the country’s most important choice since its return to democracy in 1985.
Lebanon is to re-peg its currency for the first time in 25 years, moving it closer to the black market value, in an effort to restore confidence in its financial system. Since the start of the country’s financial meltdown in October 2019, the Lebanese pound has shrunk by more than 95 per cent.
Need to know: business
Cineworld said ticket sales were unlikely to recover to pre-pandemic levels for at least two years. The world’s second-largest cinema chain, which recently filed for Chapter 11 bankruptcy, has been hit by the rise of streaming services and a dearth of new blockbuster movies.
The strength of the US dollar is piling pressure on international airlines, which raise revenue in local currencies but pay much of their costs in greenbacks. Fares, which have already surged after the ending of border restrictions, could edge up even further.
H&M, the world’s second-largest retailer, reported a plunge in quarterly profits after being hit by the closure of its Russian business and surging costs. Fellow clothes seller Next became the latest UK company to cut its forecasts and warn of the effect of the falling pound.
The market turmoil of recent days has added to fears about the health of the UK stock market, which is already suffering from a wave of takeovers and a collapse in initial public offerings. Pension funds and insurers have also been “spooked” about committing cash to UK-focused private equity groups.
The UK car industry is pleading for more help with their £100mn jump in energy bills. Our Big Read examines the prospects of Britishvolt, which aims to spearhead development of batteries for electric vehicles. Chinese carmaker Geely has taken an 8 per cent stake in Aston Martin.
A cost-of-dying crisis? UK funeral provider Dignity has been hit by the impact of surging energy prices on cremations.
UK health chiefs have warned of a potential “twindemic” of coronavirus and flu this winter unless people get vaccinated. The dominant flu virus worldwide is H3N2, a subtype associated with more severe disease.
Our Behind the Money podcast discusses who’s going to pay for the next Covid vaccines as experts say the US isn’t doing enough to support their development.
Carlo Rovelli, the physicist know for making complex ideas seem simple, tells the FT that “science is not just about writing equations. It’s about reconceptualising the world”.
And in some more out-of-this-world news: Nasa successfully smashed a satellite into an asteroid to deflect its course in a test of new technology that could potentially save the earth from destruction.
IMPACT SUCCESS! Watch from #DARTMIssion’s DRACO Camera, as the vending machine-sized spacecraft successfully collides with asteroid Dimorphos, which is the size of a football stadium and poses no threat to Earth. pic.twitter.com/7bXipPkjWD
— NASA (@NASA) September 26, 2022
Covid cases and vaccinations
Total global cases: 12.7bn
Total doses given: 610.3mn
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Some good news . . .
New fundraising opportunities have opened up in this weekend’s London Marathon after assisted wheelchair participants were allowed to race for the first time.