Central banks come close to calling time on tightening

Today’s top stories

• Microsoft’s bid to acquire games developer Activision Blizzard moved closer to completion after the UK’s competition regulator provisionally accepted the tech giant’s amendments to its proposed $75bn takeover.

• Washington and Beijing created two working groups to tackle economic and financial issues in a fresh attempt to stabilise US-China relations. EU trade commissioner Valdis Dombrovskis arrived in China with a long list of commercial grievances to discuss.

• The opposition Labour party said it would strengthen the UK’s fiscal watchdog, the Office for Budget Responsibility, to avoid any repeat of the government’s disastrous “mini” Budget, which occurred 12 months ago tomorrow. Shadow chancellor Rachel Reeves outlined in the FT her plan to “bring back stability”.

For up-to-the-minute news updates, visit our live blog

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Good evening.

It’s been an eventful few days for the global economy with some critical central bank decisions and a growing view that the end of interest rate rises is in sight, while new surveys indicate rocky times ahead for the UK and Europe.

In the UK, the “flash” reading for the S&P Global/Cips purchasing managers’ index this morning showed business activity slipping at the fastest rate since January 2021, suggesting the economy was heading for recession. The score of 46.8 for September was down from 48.6 last month, where 50 marks the divide between activity shrinking and expanding.

It follows the Bank of England’s decision on Wednesday to hold interest rates at 5.25 per cent, the first pause after almost two years of rate rises, following the release of better than expected inflation data.

The S&P data, which the BoE had sight of before its rates decision, highlighted the “mounting toll on the economy from the reality of the increased cost of living and the recent rapid rise in interest rates”, according to the company’s chief business economist Chris Williamson (although some economists warn that PMI results can sometimes signal downturns that never materialise).

Across the Channel, the eurozone PMI reading was also in negative territory at 47.1 but that was an improvement on August’s 46.7 reading. A drop in new orders for business, however, added to fears of economic contraction in the third quarter, sending the euro to a six-month low against the dollar.

Investors also bet the grim economic outlook made it more likely that last week’s quarter-point interest rate rise by the European Central Bank would be its last. However, yesterday’s hawkish remarks from Joachim Nagel, head of the Bundesbank, in which he said “entrenched” inflation must be avoided “at all costs”, suggest investors should not become too optimistic. The OECD earlier this week also stressed the importance of keeping rates at elevated levels until inflation was truly tamed.

In the US, today’s PMI reading was barely positive at 50.1, a seven-month low, as output stagnated with the services sector losing further momentum. The data follows the decision by the Federal Reserve on Wednesday to hold rates steady at their 22-year high but at the same time signalling support for another rate rise this year and fewer cuts in 2024.  

Policymakers are still wary of discussing the possibility of rate cuts until there is more certainty that price stability has been restored, but the belief is growing that a change is coming. Or as one economist put it: “The global monetary tightening cycle has ended.”

Chris Giles, the FT’s economics editor, is launching a new newsletter on central banks for premium subscribers. To make sure you receive the first edition on October 17, register here.

Need to know: UK and European economy

The FT revealed that UK carmakers would still face stringent electric vehicle sales targets, despite Prime Minister Rishi Sunak’s decision to delay a ban on new petrol and diesel cars, a decision condemned by the FT editorial board. Here’s an explainer on what Sunak’s net zero pivot means for UK climate goals and the next election, and here’s how net zero became an election issue around the globe.

As battle lines sharpen between Sunak and Labour leader Sir Keir Starmer ahead of the general election, a new survey shows public support in the UK for “big government” has hit a record high. Our Big Government series meanwhile examines the case for a wealth tax, which some economists say is due a resurgence.

The Italian economy grew 1.3 per cent more in 2021 than originally estimated, providing some relief to Prime Minister Giorgia Meloni’s government as it prepares next year’s budget.

Need to know: global economy

A Big Read examines how Chinese president Xi Jinping is taking control of the country’s stock market as he tries to boost investment in sectors that fit with his priorities for control, national security and tech self-sufficiency. Foreign investors, however, are still dumping Chinese equities.

In the first of a three-part series, the Rachman Review podcast discusses Bidenomics and whether it is working well enough to convince US voters to re-elect Joe Biden as president next year.

Research shows organised criminal groups in Mexico employ up to 185,000 people and draw in hundreds of recruits every week, highlighting the difficulty of dismantling the cartels and reducing violence in the country.

Chief data reporter John Burn-Murdoch charts how slowing economic growth many be shaping attitudes that cut across political divides. A key trend is the predilection for zero-sum thinking, the belief that for one group to gain, another must lose.

Need to know: business

Rupert Murdoch stepped down as chair of Fox and News Corp, handing leadership to his eldest son Lachlan. It is unclear, however. what might happen when the 92-year-old dies and his children gain control over the Murdoch family trust.

MSC, Europe’s largest cruise company, is pitting itself against environmental campaigners by calling for the UN shipping regulator to reconsider new regulations grading ships on carbon emissions, arguing that the rules “penalise” passenger operations.

UK retail sales bounced back and consumer confidence increased to the highest level since January 2022, highlighted by another increased profit forecast from clothes store Next. Retailers are increasingly concerned, however, about a surge in shoplifting and abuse of staff.

India is the world’s fastest-growing major economy but progress is uneven, with the gap growing between rich and poor. Business progress is also uneven: just 20 companies take 80 per cent of the profits generated by the Indian economy.

Could climate change kill the pint? The head of Japanese brewer Asahi warned of beer shortages as warmer temperatures hit supplies of barley and hops.

Science round-up

The World Health Organization urged China to offer more information about the origins of Covid-19, and said it was ready to send a second team to look into the matter, almost four years after the first cases emerged in the city of Wuhan.

Here’s our explainer on how the recent catastrophic flooding in Libya was fuelled by a “medicane” — an intense Mediterranean cyclone with hurricane-like characteristics. And here’s our pick of new books on climate and the environment.

A new artificial intelligence tool from Google DeepMind can help predict whether mutations in human genes are likely to be harmful.

Research suggests that suppressing negative thoughts is good for your mental health, contradicting the common belief in psychology that it is better to talk about distressing ideas and memories.

Are we getting closer to being able to “speak whale” or chat with bats? A fascinating new series of our Tech Tonic podcast investigates whether artificial intelligence may help us speak to animals.

Some good news

Researchers in Scotland believe they may have produced an alternative to palm oil, the ingredient found in almost half of all food and cosmetic products but which causes significant deforestation where it is harvested.