Closing summary: IMF predicts sickly world economy and UK slowdown
The message from the International Monetary Fund’s meetings in Washington to the world economy is grim: Russia’s invasion of Ukraine will hang over everything, causing higher prices and slowing activity.
The IMF downgraded growth forecasts across the world, with 2022 GDP growth now expected at 3.6%, down from January’s prediction of 4.4%.
UK economic growth is expected to match the US in 2022, but in 2023 it will slump to the bottom of the league table of comparable economies in the G7, the IMF said. It will also face the highest inflation.
The data will add to the pressure on the UK government, which is already under severe strain following the unprecedented fines for Prime Minister Boris Johnson and chancellor Rishi Sunak for criminal breaches of lockdown regulations.
Add in slower growth and higher prices and it could be even more politically toxic when energy prices rise again in the winter. Labour’s shadow chancellor Rachel Reeves said the IMF data showed that government policy was wrong, although she did not give details on how:
NEW: The IMF's economic outlook shows the UK is forecast to have the slowest growth in the G7 next year.
— Rachel Reeves (@RachelReevesMP) April 19, 2022
Once again, the Conservative economic strategy of low growth and high taxes is laid bare.
Labour will tax fairly, spend wisely and get our economy growing.
UK energy companies are also calling for the government to step in with a major intervention to help consumers pay for higher prices, amid concerns that fuel poverty could increase rapidly.
ScottishPower’s boss, Kevin Anderson, said he wanted a “social tariff” to cut £1,000 off bills for poorer customers, although that would mean removing the price cap for better-off households, a policy that could potentially benefit energy companies.
You can continue to follow the Guardian’s live coverage from around the world:
In the Russia-Ukraine war: Russian troops capture eastern city as the battle for the Donbas region begins
In UK politics, MPs will vote on Thursday in a debate relating to claims Johnson lied to parliament, the speaker has announced
In the US, Joe Biden will discuss the Russia-Ukraine war in a video call with allies
Thank you as ever for following, and do join us tomorrow for more live coverage of business, economics and financial markets. JJ
Russian central bank governor vows court action to access frozen currency reserves
Russia’s government will challenge freezing orders on much of its foreign currency reserves in court, according to its central bank chief.
Elvira Nabiullina, governor of the Central Bank of the Russian Federation, said Russia would challenge asset freezes under sanctions by the US, EU, UK and others which have prevented it from accessing up to $300bn (£230bn) of its reserves - almost half of the total.
The freeze on reserves has been one of the Western allies’ most financially damaging moves in response to Vladimir Putin’s invasion of Ukraine, limiting Russia’s ability to slow the steep drops in the value of the rouble against other currencies.
Russian news agency Interfax on Tuesday quoted Nabiullina at a discussion of the central bank’s annual report with the Communist Party of the State Duma. She reportedly said:
Of course, this is an unprecedented ‘freeze’ of the gold and forex reserves, so we will be preparing all lawsuits, and we are preparing to file them, as this is unprecedented on a global scale, for the gold and forex reserves of such a large country to have been frozen. [...]
But our reserves have not been seized, they have been ‘frozen’, we cannot make use of them, but they have not been taken away, expropriated or seized, but ‘frozen’ and we will of course be challenging this in all instances.
Russia has previously proven itself adept at using courts, including the successful pursuit of Sergei Pugachev, a former senior Kremlin official who ran an election campaign for Putin, in London courts to claim ownership of UK property Russia claimed was bought with stolen funds.
Former president Dmitry Medvedev, who advises Vladimir Putin on national security matters, said this month that Russian businesses whose assets were subject to sanctions would take legal action in the US, EU and elsewhere. His claim was later backed up by Russia’s finance minister, Anton Siluanov.
Nabiullina was quoted as saying that the central bank’s reserves were “essentially divided into two parts”. She said the first part of the reserves, in dollars, euros and pounds, was supposed to protect the domestic market from financial crises, and the second, in gold and yuan, in the event of a geopolitical crisis.
The report made no mention of Russia’s invasion of Ukraine.
For the UK’s prospects, it is worth noting that the IMF GDP downgrade for 2023 is also the biggest of the G7, suggesting that its economists think things have worsened quickly.
The IMF said:
In the United Kingdom, GDP growth for 2022 is revised down 1 percentage point—consumption is projected to be weaker than expected as inflation erodes real disposable income, while tighter financial conditions are expected to cool investment.
The US Federal Reserve and other central banks are looking at how to tame inflation. Here is the IMF’s view of how price increases will hit across the world.
It is in the US where inflation is expected to spike highest. The US was already thought to be “running hot” by many economists following the truly enormous fiscal stimulus created in its pandemic response. Now the IMF sees inflation hitting almost 9% by the summer.
But it’s also worth noting the massive jump in the latest inflation forecasts in so-called emerging markets and developing economies. That has been driven by food and fuel prices, both of which have been hugely affected by the war in Ukraine.
First it was rising inflationary pressures caused by supply-side bottlenecks. Then it was the arrival of the new Omicron variant towards the end of 2021. Now it is the war in Ukraine, something not anticipated when the Washington-based organisation last published its assessment in January but which dominates the IMF’s world economic outlook.
The IMF also warns the war has exacerbated two tricky policy dilemmas, one facing central banks and one troubling finance ministers.
You can read the full analysis from the Guardian’s economics editor, Larry Elliott, here:
Here is the IMF’s data table outlining the main forecasts at its spring meetings in Washington.
Beyond the major economies, it is worth noting the deep recession that Russia is expected to have this year and next following its effective isolation from much of the global economy under Vladimir Putin.
Putin’s war on Ukraine is the biggest known unknown in the forecasts.
Pierre-Olivier Gourinchas, the IMF’s research department director, said:
Uncertainty around these projections is considerable, well-beyond the usual range. Growth could slow down further while inflation could exceed our projections if, for instance, sanctions extend to Russian energy exports.
UK growth to slow while inflation jumps
The UK is expected to show the joint-fastest growth in the G7 this year, despite having its growth estimate cut from 4.7% to 3.7%. However, the outlook will worsen rapidly, according to the IMF.
The Washington-based lender said that it expects GDP growth of only 1.2% in 2023, just over half the rate previously expected.
That will mean the UK will face the weakest growth and the highest inflation of any G7 country in 2023, the IMF said.
IMF downgrades global GDP growth forecast from 4.4% to 3.6%
The International Monetary Fund has cut its global growth forecasts because of the war in Ukraine, warning that Russia’s invasion could lead to the fragmentation of the world economy into rival blocs.
In a half-yearly update, the IMF said prospects had worsened “significantly” in the past three months as it reduced its growth estimate for 2022 from 4.4% to 3.6%.
The Washington-based body said every member of the G7 group of leading industrialised nations and the bigger developing countries would grow less rapidly this year than previously expected, and there was a strong risk of an even worse outcome.
You can read the full report here:
Another step in the decline in UK-Russia relations: the Treasury has said it plans to revoke the Moscow Stock Exchange’s status as a recognised stock exchange in response to Russia’s invasion of Ukraine.
The move which would remove some tax relief for investors, according to Reuters. Yet it is the symbolism that is arguably more important, after two decades during which the UK pushed for closer links between the City of London and Russia. In particular, 31 companies - including some of the titans of the Russian state-controlled energy complex - had share instruments listed on the London Stock Exchange.
The UK’s financial secretary to the Treasury, Lucy Frazer, said in a statement:
Revoking Moscow Stock Exchange’s recognised status sends a clear message – there is no case for new investments in Russia.
For all the concerns about supply chains and concerns over a possible US recession, it looks like US housing market is motoring along.
US housebuilders started on 1.79m new homes in March, nudging up from the previous month and almost 50,000 more than economists expected, according to the US Census Bureau.
But then again we already knew that external shocks are the biggest lights flashing red on global economists’ radars.
When did you realise you were out of your depth? asks Conservative MP Richard Fuller.
We realised in the autumn of last year that it was a very challenging time for the company, and we needed to change the fundraising process to a sale process, Wood says.
Darren Jones says he senses Wood’s personal regret over the business’s failure, but asks did you know it was a high-risk model? Wood says:
I can assure you we never adopted a high-risk approach and were willing to risk the company failing.
Up until the autumn of last year we had not seen a significant risk.
Hindsight is a wonderful thing, but with the benefit of hindsight what we would have done is begin those funding conversations sooner, complete a funding round in 2020 during the pandemic, have increased collateral and be able to hedge out for longer periods of time.
We didn’t object to takeover offers before the collapse in search of a higher valuation, Wood says.
He says he cannot give a view on what the administrator will do if no sale is agreed in the next few months.
After a long pause, he says: “I don’t think it’s responsible for me to share details of a sales process that is ongoing in a public forum.”
Wood is asked about his continued salary of a quarter of a million pounds. Labour MP Andy McDonald asks: “Is that morally justifiable?”
Wood says he is doing everything he can to minimise the costs to taxpayers.
“Quite frankly I think a lot of us find that absolutely staggering,” McDonald says.
Wood argues that Bulb collapsed in part because it was unable to access hedging markets of larger rivals.
That meant it was unable to hedge against the big rises in wholesale energy prices that caused chaos in the industry - and pushed 29 suppliers into bankruptcy. Bulb is the biggest casualty so far.
Wood argued that it was taken by surprise, like other suppliers. “We saw the business model as very realistic,” he said.
He added: “We were not using customer credit balances to finance growth.”
Bulb founder apologises for company's collapse
Next up in front of MPs is Hayden Wood, chief executive and co-founder of Bulb Energy, the energy provider which collapsed in November. The collapse has meant that taxpayers have had to put aside £1.7bn.
Wood said:
I am very sorry with the way things turned out with Bulb.
Darren Jones, the chair of the business committee, has asked how much money he invested. Wood said he put in “all of my personal savings in 2015”.
Jones then asked about his salary. Wood responded that it remains £250,000 per year - the same as before the company’s collapse - after he was asked to stay on by administrators.
Updated
In related news, oil markets have been jumpy on Tuesday - benchmark North Sea crude prices have dropped by 1.4%.
Brent crude had only dipped earlier on Tuesday morning, but has now fallen by $1.50 per barrel to $111.72. West Texas Intermediate, the North American benchmark, is down by 1.5% to $106.51.
Among the significant moving parts at the moment are supply worries from Libya and uncertainty over when Shanghai’s industry will restart fully amid strict lockdowns. Reuters reported:
Oil prices see-sawed on Tuesday as investors fretted over tight global supplies after Libya halted some exports and as factories in Shanghai prepared to reopen post a Covid-19 shutdown, easing some demand worries.
Prices came under pressure with the dollar trading at a fresh two-year high. A firmer greenback makes commodities priced in dollars more expensive for holders of other currencies.
One of the big political questions during the cost-of-living/energy crisis has been whether the UK should introduce a windfall tax on oil and gas producers whose profits are in many cases booming.
Unsurprisingly, the fuel producers are against that.
Chris O’ Shea, chief executive of Centrica, which also owns oil and gas production in Norway, said:
A one-off windfall tax has I think in the past been shown to deter investment, so I would suggest a root and branch review of that and then decide what best gives us the outcome that we’re looking for.
The government left a “big gap” in improving the energy efficiency of UK homes in its energy security strategy, according to Michael Lewis, chief executive of E.ON.
Better insulation would be a “silver bullet” for the UK’s energy crisis, he told MPs on Tuesday.
Lewis said the UK’s home energy efficiency is the worst in Europe, but we do not have a coherent strategy to upgrade them. He said:
Our concern with the energy security strategy was that it was an energy supply strategy, and we need also an energy demand strategy, i.e., energy efficiency. For us that was the big gap.
These are things that we can do quickly, that we can ramp up for vulnerable customers quickly. We were very disappointed that the government did not address that directly, because that actually is the silver bullet for solving some of the short-term energy problems.
The UK’s draughty houses have long been identified as a key concern in tackling energy demand, but - as the Guardian’s Rob Davies reported today - the road to more efficient housing has been long and bumpy.
You can read more here:
Keith Anderson, chief executive of ScottishPower, has called for a £1,000 “deficit fund” for every vulnerable customers to spread the cost of energy increases over a decade.
Anderson said the company had received 8,000 calls from people concerned they will be unable to pay their bills, and that he fears a “truly horrific” toll in October.
Ultimately he wanted a “social tariff” to ensure that poorer customers pay less than other customers.
He said:
I am hugely concerned for people - massively concerned for people.
There are so many who will struggle, really really struggle with this issue. We’re seeing the start of that.
Anderson and Chris O’ Shea, chief executive of British Gas-owner Centrica, both said price increases in October, when the price cap will increase again just as heating usage rises, would be a significant challenge.
Anderson said:
Come October that’s going to get horrific, truly horrific.
It has got to a stage now where the size and scale of it is beyond what I can deal with, beyond what I think this industry can deal with. I think it needs a massive shift, a significant shift in the government policy and approach towards this.
Energy bosses warn of expected increase in UK fuel poverty
Energy bosses have warned of significant increases in the number of British houses falling into fuel poverty in the coming months, amid rising energy bills.
Speaking to MPs on the business, energy and industrial strategy select committeein parliament, the chief executives of several energy suppliers said that there were signs of more customers concerned about payments.
Michael Lewis, chief executive of E.ON, said:
We are expecting a severe impact on customers’ ability to pay.
That will see a “significantly larger number of people moving into fuel poverty [...] and a consequent significant increase in bad debt,” he said.
Government action “isn’t nearly enought to mitigate the full impact of the price increase”, Lewis said.
E.ON expects the debts of customers to increase by 50%, or 800m, up from £1.6bn now.
EDF has seen a 40% increase in calls from customers worried about their debt.
Simone Rossi, EDF chief executive, said:
We are concerned about what is in front of us.
Unfortunately pre-payment customers are being hit first.
We now see bills being higher for longer, so I would expect government to reassess in short order to see what is possible.
Rolls-Royce hopes to gain UK small reactor approval by 2024
Rolls-Royce is to start building parts for its small modular nuclear reactors in anticipation of receiving regulatory approval from the British government by 2024, according to a director.
Paul Stein, chairman of Rolls-Royce SMR, a subsidiary of the FTSE 100 engineering company, said he hoped to be providing power to the grid by 2029.
Small modular reactors (SMRs) are seen by their proponents as a way to build nuclear power plants in factories, a method that could be cheaper and quicker than traditional designs. The technology, based on the reactors used in nuclear submarines, is seen by Rolls-Royce as a potential earner far beyond any previous business such as jet engines or diesel motors.
The UK government under Boris Johnson has put nuclear power at the centre of its energy plans in response to climate concerns and a desire to ditch Russian gas. SMRs are expected to play a major role in an expansion of nuclear to supply a quarter of the UK’s energy needs. Lower costs would be crucial in justifying the nuclear push, given that onshore wind is seen as much cheaper and quicker to install.
Speaking to Reuters in an interview conducted virtually, Stein said the regulatory “process has been kicked off, and will likely be complete in the middle of 2024.
We are trying to work with the UK government, and others to get going now placing orders, so we can get power on grid by 2029.
Other companies are also planning to build SMRs, including the US’s Westinghouse.
Updated
The online greetings card and gifts business Funky Pigeon has stopped taking orders after being hit by a cyber-attack last week.
The company said it was writing to all customers from the past 12 months to inform them of the hack, saying no payment data was at risk and it did not believe account passwords have been affected.
The WH Smith-owned company said it has taken its systems offline as a precaution and is therefore unable to fulfil any orders. In a statement, WH Smith said:
As soon as we discovered the incident last Thursday, we launched a forensic investigation led by external experts to understand the incident and whether there has been any impact on customer data.
We are currently investigating the extent to which any personal data – specifically names, addresses, e–mail addresses and personalised card and gift designs – has been accessed.
You can read the full story here:
Great Britain’s energy regulator has said it will investigate increases in fuel bills amid concerns that suppliers may be charging households unfairly.
Gas prices in particular have surged in recent months to records, prompting almost every household energy supplier to raise prices to the maximum allowed. That price cap, set by regulator Ofgem, has also soared.
However, some consumer advocates have argued that energy companies have raised prices by more than needed to cover higher wholesale costs, in an effort to strengthen their own balance sheets at customers’ expense.
Jonathan Brearley, chief executive of Ofgem, on Tuesday told BBC Radio 4:
We’re going to take a close look at those direct debits. We’re going to make sure that they are raised fairly - clearly prices have gone up - and if they haven’t been we’ll take action and make sure companies put it right.
You shouldn’t take more than is necessary. You shouldn’t be building up a credit balance.
Brearley said price increases must be brought in “reasonably and fairly” and not for “other reasons outside of the customer interest”.
Energy companies should be ring-fencing customer money so that it is only used to pay for their gas and electricity, Brearley said.
The International Monetary Fund (IMF) is also facing calls at its semi-annual meeting in Washington for aid from Sri Lanka as the south Asian country struggles with an economic crisis.
Thousands of Sri Lankan people have protested on the streets of Colombo against the ruling Rajapaksa brothers amid soaring food and fuel prices, adding to financial pressures that have built up during the Covid-19 pandemic. Critics allege years of financial mismanagement by the brothers, Gotabaya and Mahinda, who are president and prime minister respectively.
The country has already suspended payments on some foreign debts as it tries to negotiate restructured repayments.
Reuters reported that a delegation headed by finance minister Ali Sabry kicked off formal talks with the IMF in Washington on Monday. It wants to add to its depleted foreign currency reserves and gain loans to access vital supplies via the rapid financial instrument (RFI) which is meant for countries with urgent trade needs.
In a statement, Sri Lanka’s finance ministry said the IMF was not immediately minded to grant the loan, but added:
The IMF has subsequently informed Minister Sabry that India had also made representations on behalf of Sri Lanka for an RFI.
It had been communicated that IMF will consider the special request made despite it being outside of the standard circumstances for the issuance of an RFI.
Stellantis halts production in Russia as sanctions hit supplies
Here is a vivid example of the kinds of economic damage that the IMF has had to weigh up: Stellantis, one of the world’s largest carmakers, has said it has suspended production at a plant in Russia after the country’s economic isolation caused shortages.
Stellantis (the combo last year of Peugeot and Fiat Chrysler) builds Peugeots, Citroens, and Vauxhall-equivalent Opels at the plant in Kaluga, about 100 miles south of Moscow. The camarker was also planning to build Fiats there, while it also had a partnership with Japan’s Mitsubishi Motors.
Companies across the global economy have stopped business in or with Russia, but others have held out as long as possible. Stellantis’s rival Volkswagen also has a plant in Kaluga where it halted production just over a week after Russia’s invasion of Ukraine.
Stellantis had already warned that disruption to the supply of parts risked shutting down the plant. Sanctions on some Russian banks in response to the invasion of Ukraine have also made it more difficult to deal with Russian companies.
The Kaluga plant has capacity to produce 125,000 cars a year, but only managed 33,000 in 2021, according to data company Marklines.
In a statement Stellantis said:
Given the rapid daily increase in cross sanctions and logistical difficulties, Stellantis has suspended its manufacturing operations in Kaluga to ensure full compliance with all cross sanctions and to protect its employees.
Updated
Elon Musk has sent another shot across the Twitter board’s bows with a tweet suggesting that he could cut its members’ salaries to $0 if his bid to take over the social network succeeds.
In response to a tweet about the board losing their big fees on a hostile takeover, Musk said the company could save $3m (£2.3m) a year in board fees.
Board salary will be $0 if my bid succeeds, so that’s ~$3M/year saved right there
— Elon Musk (@elonmusk) April 18, 2022
Twitter on the weekend adopted a “poison pill” strategy to defend against a takeover by Musk, who bought nearly a tenth of the company last month. It is unclear whether he intends to try to force a hostile bid through after making a “best and final offer” last week.
IMF to downgrade global growth forecasts
Good morning, and welcome to our live rolling coverage of the latest in business, economics and financial markets.
The International Monetary Fund (IMF) will today outline the expected cost to the world economy of Russia’s invasion of Ukraine and rising global prices, in its latest GDP forecasts.
Kristalina Georgieva, the IMF’s managing director, last week said that higher prices for food and energy casued by the invasion would hit global growth for 2022 and 2023. It has downgraded the growth outlook for 143 countries around the world, she said.
In Ukraine much economic activity has stopped, including the supply of vital commodities like wheat, while Russia has been targeted by severe sanctions and countries that rely on it for oil and gas are scrambling to find alternatives. While neither is among the first tier of globally connected economies, the invasion has added to a series of global economic tensions, including bunged up supply chains and strict lockdowns in Chinese cities such as Shanghai that could further dent the global economy.
Economists at Deutsche Bank expect recessions in the US and the euro area within the next two years, and Mohamed El-Erian, a prominent economic advisor to insurer Allianz, warns that “stagflation” could be the order of the day: non-existent economic growth coupled with high price increases.
Look for today’s release of the revised #IMF forecasts for individual countries and the global economy.
— Mohamed A. El-Erian (@elerianm) April 19, 2022
They will have a distinct stagflationary nature.
Analytically, the toughest forecasting challenge is capturing the feedback loops that are set to intensify in the months ahead.
Russia on Monday started an offensive in eastern Ukraine’s Donbas region, according to Ukrainian president Volodymyr Zelenskiy. The push has been expected for weeks after the invasion ground to a halt in the north of the country around the capital, Kyiv.
Russian president Vladimir Putin had intended to capture Kyiv and remove its leadership, but he appears to have pivoted to capturing the eastern Donbas region after his first strategy failed. Ukraine’s presidential chief of staff Andriy Yermak described it as the beginning of “the second phase of the war”, but the country has said it will defend itself against the invasion.
It is relatively calm on UK stock markets after the four-day Easter weekend, with the FTSE 100 dipping by 0.1% on the opening bell. However, the export-exposed Germany’s Dax benchmark dropped 0.7% and France’s Cac 40 fell by 0.9%.
Shares in Hong Kong fell heavily after the Chinese government put pressure on tech companies in video streaming and food delivery. Hong Kong’s Hang Seng stock index dropped 2.4% as a result.
The agenda
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1:30pm BST: US housing starts (March; previous: 1.77m; consensus: 1.74m)
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2pm BST: International Monetary Fund to publish world economic outlook
