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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Europe’s growth forecast cut as Ukraine war drives up inflation; diesel price hits record – as it happened

China United States Andrew Bailey Lloyd Blankfein Bank of England European Commission Goldman Sachs
A sculpture depicting the Euro currency symbol outside the former European Central Bank headquarters in Frankfurt..
A sculpture depicting the Euro currency symbol outside the former European Central Bank headquarters in Frankfurt.. Photograph: Andre Pain/AFP/Getty Images

Closing summary

Time for a recap

Concerns over the global economic recovery have continued to mount, after China’s economic activity plummeted, and eurozone growth forecasts were cut.

China’s retail sales tumbled by over 11% in April, while industrial production contracted by 2.9% -- both the worst readings since the early months of the pandemic in 2020.

Unemployment rose, while property sales saw their biggest slump since August 2006.

Analysts warned that China’s economy could shrink this quarter, as Covid-19 lockdowns continued to hit consumer spending and factory output.

The EC has slashed its forecasts for European growth, as the Ukraine war disrupts supply chain and drive up energy commodity costs. It now expects the eurozone to only expand by 2.7% this year, from 4.0% previously.

Portugal is expected to record the fastest growth in the EU this year, at 5.8%, followed by Ireland with 5.4%. The weakest growth is seen in Estonia, with just 1%, followed by Germany and Finland with 1.6% each.

Inflation is expected to average 6.1% this year, three times the ECB’s target, having hit record highs of 7.5% last month. That will mean a serious cost of living squeeze for European households, as we’re also seeing in the UK.

EC vice-president Valdis Dombrovskis said the Ukraine war was hurting economic growth:

There is no doubt that the EU economy is going through a challenging period due to Russia’s war against Ukraine, and we have downgraded our forecast accordingly.

The overwhelming negative factor is the surge in energy prices, driving inflation to record highs and putting a strain on European businesses and households. While growth will continue this year and next, it will be much more subdued than previously expected. Uncertainty and risks to the outlook will remain high as long as Russia’s aggression continue

Soaring energy prices have also pushed the eurozone into a record trade deficit, and widened its trade gap with Russia.

In the UK, the diesel price hit a new record high over £1.80, and fuel prices could keep rising if the EU ban on Russian oil goes ahead.

Greenpeace said its protesters have occupied a jetty where a tanker carrying a 33,000-tonne shipment of Russian diesel was due to berth, forcing it to turn around in the Thames, in an attempt to stop fossil fuel sales funding the Ukraine invasion.

McDonald’s started the process of selling its business in Russia after 30 years of operating its restaurants in the country, following Moscow’s invasion of Ukraine.

The fast food operator said the humanitarian crisis caused by Russia’s invasion and the unpredictable operating environment meant continuing operating in Russia was untenable as it was no longer “consistent with McDonald’s values”.

Ofgem has outlined plans to change the UK’s energy price cap every three months -- leading analyst to warn that bills could jump in both this October and next January.

In other news...

A group of 58 leading economists and politicians, including the former business minister Vince Cable, has written to the chancellor to say that scaling back City regulation will put the UK at risk of another financial crash.

London mayor Sadiq Khan has said the capital is “desperate” for commuters to return and needs to keep investing to lure them back, as he reopened the Northern line via Bank station, a key connection into the City.

Administrators for the collapsed rent-to-own firm BrightHouse, which specialised in loans for big-ticket items such as fridges and sofas, have warned they will not have enough money to compensate thousands of customers who were left with unaffordable debts.

Greggs has revealed its sales in large cities and locations near offices are lagging behind those elsewhere in the country amid the shift to working from home.

Ryanair warned of a “fragile” recovery in airline passenger numbers after Russia’s invasion of Ukraine and the Omicron coronavirus variant pushed it to a €355m loss for the financial year.

Lifestyle brand Made.com has slashed its sales forecasts and issued a profits warning, warning that the market is much weaker than forecast.

Stocks have dipped on Wall Street, as recession fears continue to weigh on markets. But in London, the FTSE 100 has shrugged off earlier losses to be up 36 points, or 0.5%, at 7455 in late trading.

And the Bank of England governor Andrew Bailey has told MPs that the UK economy has experienced an “almost unprecedented” run of shocks, with the Ukraine war coming on top of Covid

We can’t predict things like wars ... that’s not really in our remit.

Andrew Bailey testifies to MPs

Andrew Bailey, governor of the Bank of England, has started to give evidence to the Commons Treasury committee about the risk of a recession.

He’s appearing amid growing criticism from government benches about the UK’s soaring inflation rate (which hit 7% in March, even before energy bills soared in April).

Bailey has begun by telling MPs that he’s not at all happy that inflation is overshooting the Bank’s 2% targets, and that most of the overshoot is due to energy and tradeable goods prices.

He argues that the Bank couldn’t reasonably have done anything differently regarding monetary policy (critics say it should have raised interest rates sooner....)

Our Politics Live blog will be tracking the main developments:

Updated

Sadiq Khan: London must invest to lure commuters after Covid

Mayor of London Sadiq Khan re-opens the Bank branch of the Northern line at Monument Station in London today
Mayor of London Sadiq Khan re-opens the Bank branch of the Northern line at Monument Station in London today Photograph: Aaron Chown/PA

London is “desperate” for commuters to return and needs to keep investing to lure them back, its mayor, Sadiq Khan, has said as he reopened the Northern line via Bank station, a key connection into the City.

Khan said the reopening was another milestone on the road to recovery after Covid. The underground branch had been closed for 17 weeks to build a new tunnel, track and concourse to alleviate congestion in the station, a key interchange for tube lines and the Docklands Light Railway.

The commissioner for Transport for London, Andy Byford, said it had been completed “on time and on budget” – a critical point for TfL as it seeks to negotiate long-term capital funding for investment from the government.

The full £700m Bank upgrade project, encompassing six years of work on the station and including better connections, accessible lifts, and a new station entrance, will be completed later this year.

Khan said the reopening of “one of the most complicated stations in the world” was “another example of investment in public transport paying dividends, that will lead to an improved experience for commuters – we’re desperate to get people back to the office.

“This is crucial. If you’ve been working from home for the last two years, we’ve got to make the offer of returning to the office – the journey – enticing.”

Updated

An entrance to the NYSE on Wall Street in New York.
An entrance to the NYSE on Wall Street in New York. Photograph: Brendan McDermid/Reuters

Wall Street has opened in the red, as news that China’s economic activity weakened in April add to concerns about a global economic slowdown.

Investors are also still concerned that the Federal Reserve will tighten policy sharply this year, given mounting concerns over inflation (as we’ve just heard from NY Fed chief John Williams).

The S&P 500 index of US stocks dipped by 33 points, or 0.8%, to 3,990 points, back towards the bear-market territory it flirted with last week, before a strong rally on Friday.

The tech-focused Nasdaq Composite has dropped around 1% to 11,667 points.

Raffi Boyadjian, lead investment analyst at XM, says recession fears have risen after last month’s slump in activity in China:

Fresh jitters about recessionary risks dented sentiment on Monday, weighing on stocks, oil and risky currencies, following some disappointing data out of China that greeted investors at the start of the week’s trading. Industrial production in the world’s second largest economy unexpectedly fell by 2.9% in the 12 months to April, while retail sales plunged by 11.1%, missing the forecasts by a wide margin.

Although investors were already expecting a significant hit to China’s economy from the lockdowns, the extent of the contraction has shaken confidence as the global growth outlook keeps deteriorating amid central banks’ battle against inflationary forces. China does not have the same inflation problem as the rest of the world but authorities’ efforts to stimulate the economy have left a lot to be desired.

New York Fed President John Williams, a member of the FOMC committee which sets US interest rates, has said inflation is far too high and persistently so, Reuters reports:

Williams has also said the inflation is the number one issue for the Fed (CPI hit a 40-year high last month), and that it makes sense to keep raising interest rates by 50 basis points to control it.

[The Fed made its first 50bp hike in two decades earlier this month].

Back in the UK, the Green party aren’t impressed by Ofgem’s plan to change Britain’s energy price cap every three months.

Co-leader of the Green Party, Adrian Ramsay, said updating the cap twice as often won’t address the cost of living crisis:

“Changing the goalposts in this way will do nothing to help the millions of households struggling to put food on the table and pay eye-watering energy bills. Energy companies may think that such tinkering will mitigate the cost-of-living crisis, but they’re not fooling anyone.

“We need measures that put money back in people’s pockets now. That’s why the Green Party has argued for restoring the £20 uplift to Universal Credit and doubling it to £40 per week, in addition to other benefits. We also want to provide every household with an additional £320 to help them pay for spiralling energy costs.

And in the longer term, a nationwide insulation programme over the next decade funded by a carbon tax on fossil fuel companeis would help cut energy bills “dramatically”, Ramsey adds.

Manufacturing activity declined in New York State declined this month, in another worrying sign of economic slowdown.

The New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, fell to minus 11.6 this month, down from +24.6 in April.

Economists had expected the index to fall slightly to around +16.5, so this shows that conditions deteriorated.

Twenty percent of respondents reported that conditions had improved over the month, while thirty-two percent reported that conditions had worsened.

Firms reported that new orders declined sharply this month, while shipments fell at the fastest pace since early in the pandemic. Growth in unfilled orders slowed too.

Updated

The consumer champion Martin Lewis has apologised after swearing at Great Britain’s energy regulator over changes to its price cap on bills.

As flagged earlier, Ofgem has confirmed it is planning to update the energy price cap four times a year from October to allow it and consumers to adjust more quickly to volatile markets.

Lewis, the founder of the consumer advice site MoneySavingExpert, apologised after swearing on a press call with the regulator regarding the changes. He accused Ofgem of selling consumers “down the river” and wants it to do more to tackle the energy crisis.

He said:

“I finished the call by asking it to at least consider cutting standard charges, which huge rates stop people really saving by cutting energy use.”

Lewis later said he had had “good meetings” with Ofgem and apologised again for the “emotional rant”.

Lewis is concerned that Ofgem will require suppliers to pay a market stabilisation charge when acquiring new customers, if wholesale prices fall below a set threshold.

That will kill hopes of firms launching cheaper, fixed-term deals, if energy prices fall, he warns:

I missed this earlier.. but inflation pressures have continued to rise in Germany.

The prices charged by German wholesalers rose by another 2.1% in April, lifting annual wholesale price inflation to 23.8%.

That’s the highest since the data series began in 1962, as wholesalers passed on rising costs.

Destatis says the Ukraine war continued to push up the cost of raw materials, energy sources and food products.

The high annual rate of change for wholesale prices mainly derives from increased prices for raw materials and intermediate products. The largest impact on the annual rate of change in April 2022 had the price increase in wholesale trade of mineral oil products (+63.4%).

The high price increase in wholesale trade of solid fuels (+70.9%), grain, unmanufactured tobacco, seeds etc. (+56.3%) as well as metals and metal ores (+55.7%) also contributed to the high rate of change in March 2022.

Full story: Average UK price of diesel hits record of more than £1.80 a litre

The average price of a litre of diesel has hit a high of just over £1.80 a litre – and could rise even further if the EU ban on Russian oil goes ahead.

The RAC reported that the price a litre in the UK has outstripped the previous record of £1.79, set in March after Moscow’s invasion of Ukraine.

The amount paid on forecourts had dipped in the interim but began rising again in recent weeks as efforts to hit the Kremlin economically fed through into already high fuel prices. A full EU ban on Russian energy imports could push this even higher.

High diesel prices are a warning sign for the economy as the fuel is typically used in vans and lorries owned by businesses, driving up their costs.

The RAC said petrol prices were also rising – up 3p since the start of the month at 166.65p on average, a penny shy of the record high set in March. More here:

Greenpeace protesters block arrival of Russian diesel tanker at Grays terminal in Essex

Greenpeace says protesters have occupied a jetty where a tanker carrying a 33,000-tonne shipment of Russian diesel was due to berth, forcing it to turn around in the Thames.

The campaign group said 12 activists gained access to Navigator Terminals in Grays in Essex and climbed onto the jetty late on Sunday.

Greenpeace is protesting against the UK Government allowing fossil fuel money to flow to Russian President Vladimir Putin.

Essex Police said officers were called to reports of people gaining access to the terminal shortly after 11.05pm on Sunday, PA Media reports.

The force said eight people have been arrested on suspicion of aggravated trespass, and officers are working with partners to bring “a number of others” to safety.

Greenpeace said several protesters remain in place, with one activist on the offloading pipes, another hanging off the jetty and others occupying the jetty preventing the tanker from docking.

They have unfurled a banner reading: “Oil fuels war”.

Greenpeace said the 183-metre-long vessel was due to offload at 11.59pm on Sunday.

Georgia Whitaker, oil and gas campaigner at Greenpeace UK, said:

“The UK’s attachment to fossil fuels has backfired in the worst way possible - we’re funding a war, our energy bills and fuel costs are sky-high, and we’re driving the climate crisis.

“It has to stop.

“Putin invaded Ukraine nearly three months ago, and yet fossil fuel money from the UK is still funding his war chest.

“Ministers have kicked a ban on Russian oil imports to the end of the year despite strong public support for it.

“To stand up to Putin, bring bills down and tackle climate change, the Prime Minister must get us off fossil fuels as fast as possible, stop ludicrous energy waste from our substandard draughty homes, and prioritise cheap, clean, homegrown renewable power.”

McDonald’s to sell its Russian business over Ukraine war

A McDonald’s restaurant in Saint Petersburg
A McDonald’s restaurant in Saint Petersburg Photograph: Anton Vaganov/Reuters

McDonald’s has started the process of selling its business in Russia after 30 years of operating its restaurants in the country, following Moscow’s invasion of Ukraine.

In March, McDonald’s closed all its restaurants in Russia including its site in Pushkin Square in the capital, which was the first in the country.

As part of the exit, the company expects to record a non-cash charge of about $1.2bn (£980m) to $1.4bn.

McDonald’s said.

“The humanitarian crisis caused by the war in Ukraine, and the precipitating unpredictable operating environment, have led McDonald’s to conclude that continued ownership of the business in Russia is no longer tenable.”

UK diesel prices have hit record high

UK diesel prices have hit record highs, pushing up the costs faced by some firms and motorists.

The RAC reports that the average price of a litre of diesel has hit a new record high at 180.29p.

Petrol prices are also close to March’s record levels, as the cost of living squeeze continues to put pressure on households and businesses.

RAC fuel spokesperson Simon Williams said:

Efforts to move away from importing Russian diesel have led to a tightening of supply and pushed up the price retailers pay for diesel.

While the wholesale price has eased in the last few days this is likely to be temporary, especially if the EU agrees to ban imports of Russian oil.

Williams adds that the 5p per litre cut in fuel duty in March’s Spring Statement has had little impact:

“Unfortunately, drivers with diesel vehicles need to brace themselves for yet more pain at the pumps. Had Mr Sunak reduced VAT to 15% as we call on him to do instead of cutting duty by 5p, drivers of diesel vehicles would be around 2p a litre better off, or £1 for every full tank. As it is, drivers are still paying 27p VAT on petrol and 29p on diesel, which is just the same as before the Spring Statement.

“The average price of petrol is also on the rise having gone up nearly 3p a litre since the start of the month to 166.65p which means it’s less than a penny away from the all-time high of 167.30p set on 22 March.”

Here are next year’s growth forecast for the EU:

Energy crunch pushes eurozone trade gap to record high

The surge in energy costs has dragged the eurozone into a record trade deficit with the rest of the world.

The euro area recorded a €16.4bn deficit in trade in goods with the rest of the world in March 2022, compared with a surplus of €22.5bn in the same month a year ago, the latest trade data shows.

Adjusted for seasonal swings, the eurozone trade gap was even bigger at €17.6bn.

The wider EU recorded a €27.7bn deficit in trade in goods in March.

In January-March, the EU ran up an €81.5bn deficit in trade in goods, compared with a €48.5bn surplus a year earlier.

That’s mainly due to the surge in wholesale energy costs, which has pushed up the cost of Europe’s energy imports by 138% in the first quarter of the year (from €69.1bn to €164.7bn).

As a result, the EU’s deficit in energy trade almost tripled to €128.7bn in Q1.

A fair chunk of that money will have gone to Moscow. The EU’s trade deficit with Russia has more than quadrupled in January-March, to €45.2bn from €10.8bn in Q1 2021.

Portugal is expected to record the fastest growth in the EU this year, at 5.8%, followed by Ireland with 5.4%.

The weakest growth is seen in Estonia, with just 1%, followed by Germany and Finland with 1.6% each.

The UK, incidentally, is expected to grow by 3.4% this year, faster than the eurozone and EU average of 2.7%.

However. UK growth is seen slowing to 1.6% in 2023, slower than the European average of 2.3% -- but better than the small contraction forecast by the Bank of England.

Updated

Here are the key charts from the EC’s new forecasts:

Paolo Gentiloni, Commissioner for Economy, warns that Europe’s growth could be even lower, and inflation even higher, depending how the Ukraine war develops.

“Russia’s invasion of Ukraine is causing untold suffering and destruction, but is also weighing on Europe’s economic recovery. The war has led to a surge in energy prices and further disrupted supply chains, so that inflation is now set to remain higher for longer.

Last year’s strong economic rebound will have a lingering positive effect on growth rates this year. A strong labour market, post-pandemic reopening and NextGenerationEU should provide further support to our economies and help to drive public debt and deficits lower.

This forecast is however subject to high uncertainty and risks that are closely linked to the development of Russia’s war. Other scenarios are possible under which growth may be lower and inflation higher than we are projecting today.”

Europe’s growth will be “much more subdued” than previously expected, due to the Ukraine war, says Valdis Dombrovskis, executive vice-president for an Economy that Works for People.

Explaining today’s growth downgrades, Dombrovskis says:

“There is no doubt that the EU economy is going through a challenging period due to Russia’s war against Ukraine, and we have downgraded our forecast accordingly.

The overwhelming negative factor is the surge in energy prices, driving inflation to record highs and putting a strain on European businesses and households. While growth will continue this year and next, it will be much more subdued than previously expected. Uncertainty and risks to the outlook will remain high as long as Russia’s aggression continues. But there are some positives that allow us to weather this crisis. Our economic fundamentals are solid: before this war started, the EU economy had embarked on a path of strong recovery and growth

More jobs are being created in the EU economy, attracting more people into the labour market and keeping unemployment low. And as Member States put their recovery and resilience plans into full effect, this will provide a much-needed boost to our economic strength.”

Europe's growth forecast cut as energy crisis drives up inflation

The European Commission has cut its forecast for European growth this year, and hiked its inflation forecast, as the Ukraine war hits the economy.

In its latest Spring forecasts, the EC predicts real GDP growth in both the EU and the euro area of 2.7% in 2022, down from 4% forecast three months ago.

Growth is expected to slow to 2.3% in 2023, down from a previous forecast of 2.8% in the EU (and 2.7% in the euro area).

And with energy prices having soared this year, inflation is expected to average 6.1% in 2022, and peak at 6.9% in the current quarter (it hit 7.5% in April, the highest rate in the history of the monetary union).

That’s a “considerable upward revision compared to the Winter 2022 interim Forecast” of 3.5% inflation, the Commission says. Inflation is then seen falling to 2.7% in 2023, still over the European Central Bank’s 2% target.

The Commission says:

The outlook for the EU economy before the outbreak of the war was for a prolonged and robust expansion. But Russia’s invasion of Ukraine has posed new challenges, just as the Union had recovered from the economic impacts of the pandemic.

By exerting further upward pressures on commodity prices, causing renewed supply disruptions and increasing uncertainty, the war is exacerbating pre-existing headwinds to growth, which were previously expected to subside.

The report highlights that the Ukraine war has added to pre-existing headwinds facing the economy.

It has led to rising energy commodity prices, supply chain disruption and more expensive food and other basic goods and services.

The report says:

The main hit to the global and EU economies comes through energy commodity prices. Although they had already increased substantially before the war, from the low levels recorded during the pandemic, uncertainty about supply chains has pressured prices upwards, while increasing their volatility.

This is true for food and other basic goods and services, with households’ purchasing power declining.

Updated

The sharp falls in retail sales and industrial production in April is a sign that China’s growth rate likely to contract this quarter, warns ING.

ING analyst Iris Pang predicts that China’s GDP will contract by around 1% in Q2 2022, following the 11.1% drop in retail sales, the 2.9% fall in industrial output, and the rise in unemployment to 6.1% in April.

The overview of the data paints a gloomy picture of the economy. Our GDP forecast of -1% YoY for the second quarter is confirmed by this activity data.

The main reason is the long lockdown in Shanghai. This hurt retail sales the most, and also those factories that do not have “closed-loop operation”; if they don’t have domitories for workers, they struggle to operate. Moreover, logistics were heavily disrupted as the movement in and out of Shanghai is difficult, and most logistics were used for transporting daily necessities and medical resources.

Our concern is whether China will have lockdowns elsewhere, for instance in Bejing, Pang adds:

The key question for us is how long future lockdowns will be.

Any city that has to endure a 1-month lockdown will have its GDP in contraction on a yearly basis for that month. A 2-month lockdown may have a longer impact of more than 2 months as the jobless rate will increase, and people need time to find another job but at the same time firms are not ready to hire.

Updated

Lifestyle brand Made.com has slashed its sales forecasts and issued a profits warning, warning that the market is much weaker than forecast.

Made.com, which sells furniture, kitchen equipment and other household goods online, reports that trading has been “volatile in recent months and more challenging than anticipated at the start of the year”.

It now expects gross sales to fall by up to 15% this year, with adjusted EBITDA earnings to show a loss of between £15m and £35m.

Back in March, Made.com had forecast gross sales growth of between 15% and 25%, and positive adjusted EBITDA between £5m and £15m, on the assumption that global supply chain disruptions normalise.

Today, though, it says it the market backdrop for 2022 is “much weaker”, so it now expect to miss its target of £1.2bn of gross sales by 2025.

Nicola Thompson, Chief Executive Officer, said,

“There is no escaping the tough trading environment at the moment. However, we are laser-focused on executing our strategy and we are delivering strong progress across each of our strategic pillars. Our customers are at the heart of our business and we’re seeing a really positive reaction to our improved proposition, with average lead times consistently at the targeted 3-4 weeks average for the last two months.

MADE continues to outperform the online furniture and home market and I am confident the company will emerge in a very strong position.”

Made’s CFO Adrian Evans is stepping down in June, to be replaced by Patrick Lewis, the great grandson of the founder of John Lewis.

Shares in Made.com are down 15% at record lows, around 54p. They’ve lost almost three-quarters of their value since floating at 200p less than a year ago...

Made.com’s share price

Updated

Ofgem’s proposal to update Britain’s price cap every three months could mean bills jump again in January, warns Justina Miltienyte, head of policy at Uswitch.com:

“Updating the price cap on a quarterly basis would mean a second update hot on the heels of October’s expected increase in rates.

“This could demand a swift revision to household budgets at one of the most expensive times of year, raising the possibility of a painful New Year hangover.

“Until now, the price cap has at best acted as a delay mechanism for the pain of rising wholesale prices, but it is unable to prevent harsh increases hitting customers altogether. A quarterly review means that the ability of the cap to delay the pain of rising prices is shorter.

“Conversely, if wholesale prices start falling, Ofgem would have the ability to pass these through to those on standard plans a little sooner.

“The price cap has always been a sticking plaster to deal with the problems of the energy market, and this proposed change is another attempted quick fix. The cap fails to give real, meaningful help to those who need it the most and this has been brought into extreme focus as costs have rocketed. More fundamental longer-term reform is still needed.”

Ryanair aircraft at dawn at Dublin airport.
Ryanair aircraft at dawn at Dublin airport. Photograph: Clodagh Kilcoyne/Reuters

Ryanair has warned of a “fragile” recovery in airline passenger numbers after Russia’s invasion of Ukraine and the Omicron coronavirus variant pushed it to a €355m loss for the financial year.

The Irish airline would aim for a “return to reasonable profitability” over the financial year to March 2023, it said on Monday, after it lost €1.4bn (£1.2bn) during the first two pandemic-affected financial years.

Airlines have been hanging on for the return of passengers following two years of travel restrictions.

There were high hopes for significant earnings in the 2022 summer holiday season after many countries lifted bans on tourism, but the knock-on effects of Russia’s invasion of Ukraine plus staffing difficulties have clouded airlines’ prospects.

Michael O’Leary, the Ryanair chief executive, said “we hope to return to reasonable profitability” in the coming year and highlighted “pent-up demand” despite uncertainty. The “recovery is strong but can be fragile”, he said.

“With luck we’ll have a strong summer.”

Here’s the full story:

Ofgem proposes more frequent price cap changes

UK energy regulator Ofgem has outlined plans that, if implemented, would see the price cap on bills in Great Britain changed twice as often.

Ofgem is proposing that the energy price cap, the mechanism that determines gas and electricity bills for 22 million households, could soon be reviewed every three months, rather than six as it is currently.

This would let bills adjust faster to changes in wholesale prices, the regulator argues, and reduce the risk of further supplier failures -- after around 30 energy suppliers collapsed since the start of last year.

The cap rose by 54% in April, to £1,971 per year for an average bill, and could jump to around £2,900 in October.

Ofgem argues that a more frequent cap change means savings would be passed on faster to customers when wholesale gas prices fall. But, it would also allow energy suppliers to pass on rising prices sooner, rather than run at a loss for many months.

Ofgem chief executive Jonathan Brearley told Sky News it would also mean that bills could go up quicker, but they would also fall more rapidly in reaction to wholesale price shifts.

“I remember back in the 2010s when people saw their prices go up and were waiting and wondering why prices didn’t come down equally quickly.

“The good thing about the price cap is that we will make sure it only reflects costs, and therefore it only reflects what you need to pay for your energy.”

Brearley warned that October is likely to bring more pain to households:

“With the Russian invasion of Ukraine, we are seeing a sustained increase, a further increase, in gas prices. So, the difficult news I have is that it is likely in October that prices will go up again.”

Myron Jobson, senior personal finance analyst at interactive investor, warns more regular price increases would worry strugging consumers:

“Adjusting the cap more regularly in the current high and rising inflation environment means energy bills will go up more frequently, which could spell disaster for households already struggling to stay financially afloat.

With the cost of seemingly everything else also on the up, more regular price rises will be a worry for many.

“However, smaller but more frequent price changes would be more palatable than less frequent but sharp price hikes for many consumers as it provides greater consistency. It is easier to budget for smaller price hikes than larger ones.

“A more regular review of the energy price cap would mean that prices would come down as quickly as they go up. However, high inflation means the latter will be a reality for some time. As such, it is important to regularly review your spending habits to ensure that you are living with within your means and plan ahead to avoid money worries in future.

In Germany, manufacturers are wrestling with an unprecedented backlog of orders, as supply bottlenecks continue to hit the sector.

The Munich-based ifo institute reports that the order backlog among Germany’s manufacturers is currently at a record high. Even if no new orders came in, production could continue for 4.5 months.

Timo Wollmershäuser, Head of Forecasts at ifo, explains:

“The order backlog reflects both the high demand for German industrial goods over the past few months, and the difficulties companies are having processing existing orders promptly due to the shortage of key intermediate products and raw materials.”

Greggs: cost pressures increase as sales lag in big cities

A Greggs branch at Tower Bridge Road.
A Greggs branch at Tower Bridge Road. Photograph: Jill Mead/The Guardian

In the UK, food-to-go baking chain Greggs says sales in big cities and office locations lagging behind its other stores, as cost pressures rise.

In a trading update, Greggs reported that like-for-like sales in company-managed shops are up 27.4% so far this year, partly due to trading restrictions on shops a year ago, and 15.8% over the last 10 weeks.

Sales at transport locations have shown a marked increase in activity in recent weeks. However, demand at larger cities and in office locations is slower than at other outlets, with some office workers still working from home part of the week.

Greggs reports that:

Sales of hot food and snacks are showing particularly strong growth, with chicken goujons and potato wedges proving popular.

Greggs also warns that “market-wide cost pressures” have been increasing (such as rising energy costs and raw ingredients such as wheat and oil), and also expects consumer incomes to come under pressure in the second half of the year as inflation keeps rising.

We will continue to work to mitigate the impact of cost pressures whilst protecting Greggs’ reputation for exceptional value.

Greggs could face a shareholder revolt later this week, with two respected investor advisory groups unhappy about its high pay packets for executives:

George Magnus, an associate at Oxford University’s China Centre, says layoffs in the property and tech sector are pushing unemployment up in China:

Stocks have opened lower in London, as China’s April slowdown added to concerns about the economic outlook.

The FTSE 100 index of blue-chip shares has dropped 50 points, or 0.7%, to 7368 points.

Equipment rental firm Ashtead (-2.7%) and packaging group Smurfit Kappa (-2.4%) are among the top fallers, along with engineering group Rolls-Royce (-2.5%) and airline group IAG (-2.2%).

European markets are also lower, with Germany’s DAX index down 0.5% and France’s CAC down 0.8%.

China April property sales tumble

The Evergrande City in Wuhan, Hubei Province, China, last year
The Evergrande City in Wuhan, Hubei Province, China, last year Photograph: Getty Images

China’s property sales fell sharply in April too, as Covid-19 lockdowns hit demand.

Reuters has the details:

Property sales by value in April slumped 46.6% from a year earlier, the biggest drop since August 2006, and sharply widening from the 26.17% fall in March, according to Reuters calculations based on data from the National Bureau of Statistics (NBS) released on Monday.

Property sales in January-April by value fell 29.5% year-on-year, compared with a 22.7% decline in the first three months.

China’s property sector has been strugging with a liquidity crisis, after Beijing brought in rules to rein in property developers’ debt. That has been exacerbated by strict lockdown measures to combat Covid-19 outbreaks.

Last week, Chinese property developer Sunac became the latest company in the sector to default on a bond payment, in a real estate crisis that began at indebted property group Evergrande.

China slowdown: What the experts say

China’s slowdown in April will reinforce global growth concerns, warns Lee Hardman of MUFG bank:

Economic weakness was widespread in April as retail sales contracted by an annual rate of -11.1%, industrial production by -2.9% and property investment by -2.7% on a year to date basis.

The latest data clearly highlights the economic damage inflected by the government’s continued commitment to their zero-COVID strategy. It will encourage further downgrades to forecasts for economic growth in Q2 and for this year as a whole. The current Bloomberg consensus forecast is for annual GDP growth to slow from 4.8% in Q1 to 4.0% which now appears too optimistic.

The longer the COVID restrictions remain in place the greater the downside risks to growth for the year as whole and the current Bloomberg consensus forecast for growth of 4.8% in 2022.

Tommy Wu, lead China economist at Oxford Economics, said lockdowns are ‘severely’ affectin China’s supply chains:

“The prolonged Shanghai lockdown and its ripple effect through China, as well as logistics delays resulting from highway controls... have severely affected domestic supply chains,”

China’s disappointing economic numbers have buffeted economic sentiment further, reports Naeem Aslam, analyst at Avatade:

Clearly, it is China’s zero-tolerance policy that is causing the industrial output and consumer spending to break down, and currently, they are sitting at their worst level since the pandemic began.

The data has made traders anxious about the global economic outlook. The general trend is likely to prevail in the market, which is that the dollar index continues to act as a safe haven, Treasuries will soar, and oil prices may move further lower; this shows that this week could be another week of weakness for the global equity markets.

Fu Linghui, spokesperson for the National Bureau of Statistics, told reporters that China’s economy took a hit from the rise in Covid-19 cases in April.

But Fu added that the impact will be “short-lived”, and that the economy will recover.

“The fundamentals of the Chinese economy remain unchanged. The overall trends of economic transformation and upgrading and high-quality development remain unchanged.

“There are many favorable conditions for stabilizing the economy and achieving the expected development goals.

Introduction: China’s economic activity slides as Covid lockdowns hit growth

People riding vehicles in Beijing, China, today
People riding vehicles in Beijing, China, today Photograph: Tingshu Wang/Reuters

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

China economic slowdown has accelerated as Covid-19 lockdowns hit its factory sector hard, consumers slashed their spending, and unemployment rose.

Retail sales and factory output both plunged at the fastest rate since early in the pandemic, with analysts warning of no quick recovery.

Retail sales fell by 11.1% in April from a year ago, almost twice as bad as the 6.1% fall expected by economists. It is the biggest slump since March 2020, in the first wave of Covid, with many consumers either under restrictions, or worried about the economic outlook.

Industrial production dropped by 2.9% in April, year-on-year, dashing hopes of a rise of 0.4%. That’s the biggest fall since early 2020, as the ‘zero covid’ strategy forced factories to suspend operations and disrupted supply chains.

China’s labour market took a hit too, with the nationwide jobless rate rising to 6.1% in April, up from 5.8%. That’s the highest rate since February 2020.

The data shows the rising economic cost from the tough restrictions brought into quash outbreaks of the pandemic, such as lockdowns in Shanghai, and mass testing and quarantine centres in Beijing, where some businesses such as gyms, malls, and cinemas were closed in its largest district.

Alicia García-Herrero, chief Asia Pacific economist at Natixis in Hong, told Al Jazeera that ““The data might be only the start of the recession”.

“Given the continuation of the COVID restrictions in May, the data will not be good in this month as well.

We shall expect more rescue policies to support private and small enterprises, which are important hubs for employment, as unemployment increased to 6.1% in April.”

The slowdown will add to concerns that the world economy could be weakening.

Last night, former Goldman Sachs chief executive Lloyd Blankfein warned there was a “very, very high risk” that the US economy was heading towards a recession.

Blankfein, now Goldman’s Senior Chairman, told CBS News’ “Face the Nation” that companies and consumers should prepare for a recession as the Federal Reserve lifts interest rates to tackle inflation, but added that it’s not ‘baked in the cake’ yet.

“If I were running a big company, I would be very prepared for it,.

If I was a consumer, I’d be prepared for it.”

European stock markets are set to open a little lower, having ended last week with a strong rally. But despite that bounce, global stocks sank for a sixth consecutive week, the longest losing streak since the middle of 2008.

Also coming up today

The European Commission is set to cut its prediction for 2022 euro-area growth and almost double its estimate for inflation, when it releases its latest economic forecasts today.

Draft documents seen by Bloomberg and the FT show that the eurozone is seen growing by 2.7% this year, and 2.3% next year, down from 4% and 2.7% forecast in February.

Inflation is expected to rise over 6%, as consumers and businesses are hit by the energy crisis following the Ukraine war.

Bank of England governor Andrew Bailey faces a grilling over the UK’s surge in inflation, when he appears before the Treasury Committee.

Conservative MPs are expected to criticise Bailey’s handling of inflation, which is expected to hit 10% later this year.

One cabinet minister has told the Telegraph that the Bank has been failing to “get things right”, with another saying government figures were “questioning its independence”.

The agenda

  • 10am BST: European Commission publishes Spring Forecasts
  • 3.15pm BST: Treasury committee hearing with the Bank of England

Updated

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