Closing post
Time to wrap up.
The eurozone’s central bank has hiked interest rates by a historic amount as it attempts to tame rampant inflation.
The European Central Bank lifted all three of its policy rates by 75 basis points, the second increse in borrowing costs in a row.
President Christine Lagarde warned that further hikes are coming at future meetings, as inflation remains far too high and is likely to stay above target for an extended period
The ECB also slashed its growth forecasts, and lited its inflation outlook, following the surge in gas prices as Russia has cut supplies to Europe.
President Christine @Lagarde introduces the economic growth outlook for the euro area pic.twitter.com/vgEYLwk2V6
— European Central Bank (@ecb) September 8, 2022
President Christine @Lagarde introduces the inflation outlook for the euro area pic.twitter.com/AknbroueNT
— European Central Bank (@ecb) September 8, 2022
During a press conference, Christine Lagarde said that further interest rate rises would be needed to bring inflation down to the 2% target.
She said there were four reasons the eurozone was slowing.
High inflation is dampening spending and production throughout the economy, and those headwinds are reinforced by gas supply disruption
The rebound in demand for services after the re-opening of economies from pandemic lockdowns will lose steam
A weakening of gloal demand, as other central banks also raise interest rates (ie, the Federal Reserve) and ‘worsening terms of trade’ will mean less support for the euroarea economy
Uncertainty remains high, and confidence is falling sharply.
She also urged eurozone governments to focus their energy support packages, denied the ECB had a target rate for the euro, and admitted that the Bank had got its forecasts wrong.
Lagarde also explained that the ECB’s ‘really dark’ downside scenario shows the eurozone falling into recession next year, if Russia stops all gas supplies to Europe.
UK Prime Minister Liz Truss has capped consumer energy bills for two years at around £2,500 for the average household, averting the anticipated 80% surge in October.
Truss also announced a six-month support scheme for businesses, but further details are yet to be released.
The package could cost £130bn or more, depending on how high wholesale gas prices remain over the coming months.
Truss also announced schemes she said would increase energy resilience, including launching a new round of about 100 new oil and gas licences and lifting the moratorium on fracking for shale gas, as well as accelerating new sources of energy supply, including nuclear, wind and solar.
Economists say the package should mean inflation peaks lower than feared, while the recession could be shallower.
But charities have warned that the plan won’t protect the poor, while it has also been criticised for being badly targeted.
The pound has dipped back towards yesterday’s 37-year lows, as markets digest the daunting economic challenge facing the new government.
In other news:
The owner of Primark has warned it is expecting lower profits next year as it grapples with a strong dollar and soaring costs that have pushed the fast-fashion retailer’s annual energy bills up by about £100m.
Lloyd’s of London has warned of a “challenging year” of natural catastrophes, Russia’s invasion of Ukraine and inflation as the world’s oldest insurance market braced for a £1.1bn hit from unrecoverable planes and cargoes related to the war in Ukraine.
Shares in Darktrace, the artificial intelligence and cybersecurity company, have slumped by almost 35% after the US private equity firm Thoma Bravo walked away from a potential takeover of the business, whose founder, Mike Lynch, is fighting extradition to the US on fraud charges.
Britain’s competition watchdog has paved the way to clear Morrison’s takeover of convenience store chain McColls’s, by ruling that it only creates competition concerns in a few areas.
Telecoms companies are being investigated over whether they misleading consumers about inflation-busting bill increases when promoting deals in their marketing campaigns.
Kim Kardashian has ventured into the world of finance, launching her own private equity firm with the help of a former partner from the US powerhouse the Carlyle Group.
NIESR, the economic think tank, have just published their verdict on Liz Truss’s energy bill freeze --> its not sufficiently targeted and unnecessarily expensive.
They point out that he new price cap will be noticeably higher than it was in April this year: the poorest households will face energy bills of £1,900 (a rise of £400 a year), which is unsustainable in terms of disposable income and savings.
This policy is a universal subsidy that will disproportionately benefit the richest households who also have the highest energy consumption: this makes the policy inefficient and expensive, taking the total cost to between £100bn-150bn which is substantially greater than the cost of the furlough scheme during Covid.
A much more cost-effective option would be a variable price cap (whereby the cost of energy per unit rises with usage): this would further cut the energy bills of the poorest and lower-income households, incentivise energy saving and could have paid for itself.
⚠️OUT NOW⚡️ Our response to the Government’s #EnergyBill Plan:
— National Institute of Economic and Social Research (@NIESRorg) September 8, 2022
An inefficient & expensive policy that will disproportionately benefit the richest #households who also have the highest energy consumption
There are better alternatives- Read here in full⬇️https://t.co/BP83q82hkv
