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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK gas prices fall; growth fears hit markets; pound sinks below $1.16 amid living standards squeeze – business live

United Kingdom United States Resolution Foundation Britain Inflation
Activists attend a protest against energy prices in London.
Activists attend a protest against energy prices in London. Photograph: Guy Smallman/Getty Images

Closing summary.

Time to wrap up… after a day in which the pound has sunk to fresh 29-month lows.

Sterling is on the brink of falling to just $1.15 against the resurgent dollar, as worries about a looming UK recession, and political uncertainty, hit the currency.

Gas prices have been volatile, with the day-ahead UK wholesale price falling sharply, down 16%, but other contracts recovering on concerns that Russia could turn off gas to Europe this winter.

The day-ahead UK gas price, which has fallen back today
The day-ahead UK gas price, which has fallen back today Photograph: Refinitiv

Fitch say that a full shut-off of Russian pipeline gas to the EU increasingly “looks like a reasonable assumption”.

Recession fears have knocked oil further below the $100/barrel mark, while aluminium has hit a 16-month low as falling factory activity in China spooked the markets.

The UK’s cost of living crisis became more acute, with warnings that Britons face a 10% fall in real household incomes due to surging inflation, with an extra 3 million people at risk of falling into poverty.

Resolution Foundation warned that the outlook was ‘frankly terrifying’.

And markets are making a dire start to September, after a tough August, with stocks sliding on both sides of the Atlantic.

Here are today’s main stories:

Spain to cut VAT on gas to 5% from October

The Spanish government will cut value-added tax (VAT) on gas to 5% from 21% from October to reduce the impact of rising gas prices on household utility bills.

Prime Minister Pedro Sanchez told local radio station Cadena SER that the move is planned “so that our citizens’ heating bills are lower,”

The government seeks to “fairly share the costs and charges of the [Ukraine'] war”, he added.

The measure will mean a revenue loss worth about €190m per quarter, Budget Minister Maria Jesus Montero told reporters later Thursday.

The dollar has hit a new 20-year high against a basket of currencies, Reuters flags.

Markets fall further as slowdown worries mount

European stock markets are continuing to drop, as fears over the global economy rise.

The FTSE 100 index of blue-chip shares has now hit a six-week low, down 1.85%, or 135 points, to 7148.

Engineering firm Rolls-Royce has tumbled 8%, while mining giant Glencore is down 7.7% as commodity prices fall.

A wave of selling has hit European bourses too, with the Stoxx 600 down 1.5%.

And in New York, the S&P 500 has dropped 1% at the start of a traditionally poor month for the markets.

Fiona Cincotta, senior financial markets analyst at City Index, says:

US stocks are starting the new month on the back foot after steep declines across August. It looks like more of the same as fears over rising interest rates and slower growth continue to plague investors.

Stocks and bonds are selling off while the US dollar benefits from hawkish Fed expectations and safe haven flows. With corporate earnings now a distant memory, the market is firmly focused on the slowdown effect of hiking rates.

Adding to the downbeat mood, rising Covid cases in China and widening lockdown measures mean supply chain disruptions worries are returning. Chinese manufacturing PMI also unexpectedly contracted for a second straight month.

US jobless claims were stronger than expected, falling to 232k, down from a downwardly revised 237k and well short of the 248k forecast. The stronger than forecast jobless claims suggest that economic slowdown concerns still haven’t reached the labour market.

Several aircraft of German airline Lufthansa with the carrier's logo.
Several aircraft of German airline Lufthansa with the carrier's logo. Photograph: Daniel Roland/AFP/Getty Images

Travel news… a pilots’ strike will force German airline Lufthansa to cancelled around 800 flights on Friday - including dozens serving the UK.

Around 7,000 passengers booked on the carrier’s UK flights will be disrupted, PA Media reports.

All 34 of Lufthansa’s services connecting Heathrow with Frankfurt and Munich are grounded, in addition to 11 flights between Manchester and Germany.

Affected passengers are entitled to be flown to their final destination as soon as possible. They may also be entitled to compensation, as consumer groups do not believe cancellations due to strikes by airline employees fall under the “extraordinary circumstances” exemption.

Energy UK, the trade body, is backing a plan which could cut bills for households and non-domestic customers by reducing the costs paid to low carbon electricity generators.

The idea is that nuclear plants and renewable generators who currently hold “Renewable Obligation (RO) contracts” would be offered new longer-term agreements with a guaranteed ‘strike price’.

If wholseals energy price rose above that level, the extra earnings would be returned to consumers – as already happens with newer Contracts for Difference deals (there’s an explanation here).

But, if prices were below the strike price, generators would receive the difference – giving them certainty over revenues (and possibly meaning consumers wouldn’t get the full benefit from a hypothetical tumble in energy prices).

Currently, the surge in wholesale electricity prices is boosting earnings for electricity generators on RO deals.

The proposals couldn’t begin right away, but could start by next autumn. Energy UK estimates they could reduce energy bills by between an estimated £10.8-£18 billion per annum from next year - or a £150-£250 saving for a typical household.

Such a move would also help break the link between gas and electricity prices – currently, the high cost of wholesale gas has pushed up electricity.

Adam Berman, Energy UK’s Deputy Director, said:

“By giving generators the chance to secure a longer term agreement with lower returns in place of selling electricity at wholesale market prices, this scheme would be a significant first step to decoupling gas from retail electricity prices.

Removing the link between gas and retail electricity prices will be complex and take time, but this solution provides a quick fix for up to 40% of our generation capacity.

Growth worries hit oil

The oil price is dropping for the third day running, to its lowest in over a week.

Brent crude has fallen to $94 per barrel, down 1.5% today, while US crude is below $88.

Both have dropped around $10 per barrel since their highest points on Tuesday, on anxiety that rising interest rates, to curb inflation, will hit demand.

Charalampos Pissouros, senior investment analyst at XM, says investors are abandoning risk-linked assets

So, as long as central-bank hawks fly undisturbed, investors are likely to keep reducing their risk exposure. Concerns over a global recession is also a reason for doing so, and the renewed restrictions to curb Covid-19 in China, may intensify those fears.

The Kremlin has accused the European Union of putting up barriers to the Russian energy firm Gazprom’s operations, Reuters reports.

Kremlin spokesman Dmitry Peskov also told a daily conference call with reporters that only a few companies were able to service the hi-tech equipment produced by Siemens Energy for Nord Stream 1 (currently closed, until Saturday morning, for maintenance).

UK wholesale gas prices are off their earlier lows, with the next-day contract now down 6% at 380p per therm.

Updated

The number of Americans filing new unemployment claims has fallen to a two-month low, indicating the labor market is holding despite slowing growth.

The number of ‘initial claims’ for jobless support fell by 5,000 last week, to 232,000, the third weekly fall in a row.

Economists had expected a rise to 248,000, as inflationary pressures hit businesses.

Continuing claims – which measures people receiving at least two weeks of support- increased by 26,000 to 1.44 million (but it runs a week behind).

Recession worries are hitting metal prices today, pushing aluminum to a 16-month low.

Traders were concerned that demand will weaken, as factory output fell across Asia, in the eurozone, and in the UK last month.

Ole Hansen, head of commodity strategy at Saxo Bank, explains:

“Industrial metals are taking a beating. The growth angst is most certainly having a profound impact across markets and reducing risk appetite once again.”

Recession in the eurozone now appears likely as a result of the deepening gas crisis, Fitch Ratings has warned.

In a new report, Fitch say that a full shut-off of Russian pipeline gas to the EU increasingly “looks like a reasonable assumption” when drawing up macroeconomic forecasts for the eurozone.

If that happened, a eurozone recession starting in the second half of this year would be likely, with Germany and Italy experiencing annual declines in GDP in 2023.

Fitch says:

Economic vulnerabilities to a shut-off of Russian pipeline gas supplies are still very high despite recent aggressive efforts to diversify import sources, particularly into liquefied natural gas.

A shut-off would have a significant supply-side impact on GDP due to the limited ability in the near term to substitute lost gas supplies with other inputs.

Yesterday, Russia stopped has stopped the flow of gas via the Nord Stream 1 pipeline to Europe, citing the need to carry out repairs. The shutdown is due to last three days, and has added to concerns over winter energy supplies.

Nord Stream 1 was already only running at 20% capacity.

As well as sliding against the dollar, the pound has slipped to a two-month low against the euro.

Sterling has dipped to €1.155 against the single currency, the weakest since the start of July. It’s lost over three eurocents in the last week, hit by worries over the UK economy, and expectations of a sharp increase in eurozone interest rates this month.

The game 'Call of Duty' of Activision on a mobile phone.

Microsoft’s takeover of gaming giant Activision is facing an in-depth investigation by the UK competition watchdog.

The Competition and Markets Authority (CMA) is worried that the market for gaming consoles, multi-game subscription services, and cloud gaming services would become lessc competitive if the tech giant succeeds in acquiring the firm behind major hits such as World of Warcraft and Call of Duty.

It fears that Microsoft could block rivals from accessing Activision Blizzard games or providing access on much worse terms.

Microsoft already has a leading gaming console (Xbox), a leading cloud platform (Azure), and the leading PC operating system (Windows OS), all of which could be important to its success in cloud gaming, the watchdog points out.

Microsoft announced in January it had agreed to pay $68.7bn for Activision, the biggest deal in gaming, or the wider tech sector, ever.

The two companies now have five days to address the CMA’s concerns, or an in-depth investigation will be launched.

Sorcha O’Carroll, Senior Director of Mergers at the CMA, said:

Following our Phase 1 investigation, we are concerned that Microsoft could use its control over popular games like Call of Duty and World of Warcraft post-merger to harm rivals, including recent and future rivals in multi-game subscription services and cloud gaming.

If our current concerns are not addressed, we plan to explore this deal in an in-depth Phase 2 investigation to reach a decision that works in the interests of UK gamers and businesses.

Thousands of British university staff have voted to strike in a dispute over pay, joining the swelling ranks of workers taking industrial action.

The trade union Unison says university staff including cleaners, administrators, library, catering and security workers will walk out after rejecting a 3% pay offer from the University and Colleges Employers Association.

Instituions in London, Manchester, Liverpool, Leeds, Bath, Belfast, Edinburgh and Glasgow will be affected, Unison says.

Unison’s head of education Mike Short explained that staff are being pushed ‘to breaking point’ by the cost of living pressures.

Low pay has been a massive problem for the university sector for over a decade. Staff have become expert at stretching their pay to make ends meet. But the shock of the cost-of-living crisis has pushed many to breaking point.

“It’s always a very difficult decision to strike but staff feel they’ve been left with no choice. A 3% pay award is nowhere near enough and the employers know it. This ludicrously low increase does nothing to ease the financial pressures for thousands of struggling staff.

Back on energy…a senior European Commission official says the EC is looking into options to cap energy prices and cut electricity demand.

The measures could be part of the Commission’s upcoming proposals to tackle soaring energy costs.

Mechthild Woersdoerfer, Deputy Director General of the Commission’s energy department, told a meeting of European Parliament’s energy committee this morning that:

“There is work on emergency measures on electricity prices. There might be also something on demand reduction for electricity,”

European Commission chief Ursula von der Leyen is expected to outline the Commission’s ideas on capping energy prices in a speech on 14th September.

The International Monetary Fund has tentatively offered Sri Lanka a $2.9bn (£2.5bn) loan to help the country recover from the worst economic crisis since it gained independence from Britain in 1948.

The funding is meant to provide some breathing space for Sri Lanka, which is scrambling to restructure nearly $30bn (£26bn) in debt to creditors including China, India and a string of international banks.

Sri Lanka defaulted on its foreign debts for the first time in its history in May. The country has been grappling with soaring inflation that recently rose past 64%, as well as food, fuel and medicine shortages that led to nationwide protests in the spring.

Here’s the full story:

Back in the markets, the pound is continuing to be pummelled against the US dollar.

Sterli has now dropped by another half a cent today, to as low as $1.156, as it closes in on the lows set in March 2020.

This morning’s warning that the UK faces the biggest squeeze in living standards for a century, wiping out all the real pay growth since 2003, has highlighted the troubled state of the UK economy.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, says a ‘bleak winter’ lies ahead:

‘’Grim forecasts about poverty spreading across the UK this winter highlight the deepening woes for the UK economy. With such a bleak winter ahead, the pound has been pummelled to fresh lows against the dollar, with sterling dipping below $1.16, to $1.157. This latest drop has rounded off a torrid month for the pound which has fallen by more than 5% against the dollar in August.

It’s partly because of the higher interest rate expectations in the US, while in the UK the Bank of England might be forced to slow down rate rises in the months to come, given that that Britain faces the deepest living standards squeeze in a century. The frightening forecast from the influential think tank The Resolution Foundation that 3 million people will be forced into absolute poverty highlights the threat to revenues for companies reliant on discretionary spending.

When John Lewis starts offering free food to its army of partners who in normal times would be considered resilient, it highlights expectations that vast swathes of middle-class workers will also be sideswiped by this cost-of-living catastrophe.

Updated

Unemployment in the eurozone has hit a record low, despite the cost of living crisis, and the Ukraine war.

The euro area jobless rate dropped to 6.6% in July, Eurostat reports, with 10.983m people unemployed across the region.

Investors are bracing for the European Central Bank to agree its biggest ever interest rate rise next week.

Euro zone money markets are pricing in a roughly 80% chance for a 75 basis point September interest rate hike from the European Central Bank, after inflation jumped to a new record of 9.1% last month.

That is up from a just over 50% chance that was priced in on Wednesday, before August’s inflation report.

In July, the ECB plumped for a 50bp rise in its key rates, rather than a ‘standard’ 25bp increase, as it lifted borrowing costs for the first time in over a decade.

Gas prices fall again

UK and European energy prices are continuing to drop back from August’s highs, which could bring relief to businesses and households this winter.

The day-ahead price of UK gas has dropped by 22% today, to 315 per therm. Last week, the contract surged to almost 600p, a level only seen at the start of the Ukraine war.

The month-ahead UK gas price dipped by 6% this morning, to 431p.

Gas prices are still sharply higher than a year ago, when UK both contracts were trading around 130p per therm. But if they keep falling, it could mean household bills don’t rise as much as feared in January, when the price cap is due to lift.

Gas prices have been dropping this week, after the European Commission said it was working “flat out” on an emergency package, and on a longer-term “structural reform of the electricity market”

German power prices have also dropped smartly, after Germany said earlier this week it was making progress on its storage targets to fill capacity for the winter.

Small business sales slide

Small businesses in Britain suffered the biggest fall in the value of sales in July since the depths of the COVID-19 pandemic.

The Office for National Statistics’ latest ‘realtime’ economic data found that sales volumes dropped by a tenth.

“The value of sales by small businesses in July fell 10% from the previous month, which was the largest monthly fall since April 2020 when it decreased by 24%.”

That’s a sign that consumers have been reining in spending as inflation hit budgets, following the jump in food and fuel prices.

Online job adverts also dipped, suggesting firms may be more cautious about hiring new staff.

Consumers’ spending on credit and debit cards was broadly unchanged last week, while other measures of consumer behaviour rose, such as UK seated diner numbers.

Updated

Despite efforts to ‘level up’ the UK, London was the fastest-growing part of the country at the end of last year.

New regional growth figures from the Office for National Statistics show that eight of the nine English regions grew in the final quarter of 2021.

London showed the fastest increase, with GDP rising by 3.1%, as the capital outpaced the rest of the country despite the Omicron variant disrupting workers’ return to the office.

However, GDP in Yorkshire and The Humber fell, by 0.8%.

Regional UK GDP

All four countries in the UK posted growth in October-December; Scotland and Wales’s GDP both increased by 1.6%, England increased by 1.4% and Northern Ireland increased by 1.0%.

UK manufacturing downturn deepen

The division manufacturing the wings for the A350 at the Airbus UK East Factory in North Wales.
The division manufacturing the wings for the A350 at the Airbus UK East Factory in North Wales. Photograph: Oli Scarff/PA

Britain’s manufacturing sector suffer its steepest downturn since the first Covid-19 lockdown last month, as demand from domestic and overseas markets fell sharply.

UK factories experienced a sharp reversal in new orders, with demand from domestic and overseas clients contracting sharply.

That led to the steepest fall in manufacturing production since May 2020, with job creation almost stalling and business optimism falling.

That’s according to the UK Manufacturing Purchasing Managers’ Index, from S&P Global and CIPS, which fell to 47.3 in August, from 52.1 in July (but better than last week’s flash estimate of 46.0).

This is the first sub-50.0 PMI reading, showing a fall in activity, since May 2020.

Rob Dobson, director at S&P Global Market Intelligence, says disruption at the ports (where there were delays, and a strike at Felixstowe) hit the sector.

Output and new orders contracted at the fastest rates since May 2020, as inflows of work from both domestic and export markets slumped sharply lower.

There were reports of clients postponing, rescheduling or cancelling agreements due to increased economic uncertainties, recession warnings, rising prices and component shortages, while port congestion and Brexit complications constrained export opportunities.

Factory activity across the eurozone continued to contract last month, increasing the risk the region falls into recession.

Output fell at a similar pace to July, while new orders declined sharply once again, the latest survey of purchasing managers from S&P Global shows.

Demand for goods well, as inflation (which hit a record 9.1%) hit people’s purchasing power. With the economic outlook darkening, manufacturers cut back on buying raw materials and parts.

This pulled the eurozone manufacturing PMI down to a 26-month low of 49.6, from 49.8 in July, showing activity fell.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

The euro area’s beleaguered manufacturers reported a further steep drop in production in August, meaning output has now fallen for three successive months to add to the likelihood of GDP falling in the third quarter.

Forwardlooking indicators suggest that the downturn is likely to intensify – potentially markedly – in coming months, meaning recession risks have risen.

Falling sales have not only led increasing numbers of factories to cut production, but have also meant warehouses are filling with unsold stock to a degree unprecedented in the survey’s 25-year history. Similarly, raw material inventories are accumulating due to the sudden and unexpected drop in production volumes.

Ovo Energy boss proposes plan to fight household bill crisis

The chief executive of UK’s third largest energy supplier, Ovo Energy, has called for the government to introduce a “progressive” scheme for energy bills that would give greater support for poor households but taper off for richer users, similar to the UK’s tax system.

The proposal for a banded energy subsidy is part of a 10-point plan put forward by Stephen Fitzpatrick, whose energy company serves 4.5 million customers.

It would involve reducing the price of energy, but only for a limited amount of use per household, meaning that energy consumption beyond that level would be charged at a higher price.

This would aim to prioritise support for poorer customers, since higher-income households typically use more energy, he said.

The proposal is a variation of the “deficit tariff scheme” already backed by energy firms including Scottish Power, which would involve freezing prices at current levels and cover the difference through a central fund repaid over a number of years.

“The scale of the shock of the recent price rise this winter threatens to tip the economy into a deep recession and will be catastrophic for millions of low income households,” Fitzpatrick said on Thursday.

“It is right that we find ways to smooth further price increases in the short term.

“But this scheme can’t be open-ended and unlimited. It should be progressive just like the tax system.”

Here’s the full story:

Living standards crisis: the key charts

Here are the main findings from Resolution Foundation’s report into the UK’s living standards crisis:

The report also shows how boosting productivity – a long term problem for the UK – would be much more beneficial for living standards than abolishing the increase in National Insurance rates, as Liz Truss has pledged.

[The opening post has more details:]

Updated

House prices keep rising in August despite squeeze

UK house prices continued to rise last month, despite the cost of living squeeze hitting households, according to lender Nationwide.

Prices rose by 0.8% in August, much more than expected, as the market continued to defy the economic problems hitting Britain.

The annual rate of growth slowed to 10.0%, from 11% in July, taking the average price to a new record of £273,751. That means the average house price has increased by almost £50,000 in the last two years.

Robert Gardner, Nationwide’s chief economist, predicts the market could slow, as inflation climbs:

There are signs that the housing market is losing some momentum, with surveyors reporting fewer new buyer enquiries in recent months and the number of mortgage approvals for house purchases falling below pre-pandemic levels. However, the slowdown to date has been modest, and combined with a shortage of stock on the market, has meant that price growth has remained firm.

“We expect the market to slow further as pressure on household budgets intensifies in the coming quarters, with inflation set remain in double digits into next year.

Moreover, the Bank of England is widely expected to continue raising interest rates, which will also exert a cooling impact on the market if this feeds through to mortgage rates, which have already increased noticeably in recent months.

European stock markets have hit their lowest level in almost seven weeks, with the Stoxx 600 dropping 0.9%.

Reckitt shares down as CEO to step down

Products produced by Reckitt Benckiser.
Products produced by Reckitt Benckiser. Photograph: Stephen Hird/Reuters

Shares in consumer giant Reckitt Benckiser have slid 5.5% after it announced chief executive Laxman Narasimhan is stepping down.

Narasimhan will leave at the end of the month, with senior independent director Nicandro Durante stepping in while the board “evaluates and selects the future leadership”.

Reckitt, the firm behind Dettol, Nurofen and Durex, told shareholders that:

Laxman has decided for personal and family reasons to relocate back to the United States and has been approached for an opportunity that enables him to live there.

Narasimhan has served three years as Reckitt’s CEO, steering the company though the pandemic, and then the economic shock from the Ukraine war, which led to price rises:

Victoria Scholar, head of investment at interactive investor says:

Despite significant share price moves in both directions, the stock is little changed since the start of his time as CEO.

Having said that, the consumer goods giant has successfully navigated the post-covid challenging inflationary environment by raising prices for shoppers to successfully offset price pressures without denting consumer demand.

The London stock market has made a weak start to September, hit by concerns over the economic outlook at home, and abroad.

The FTSE 100 has fallen to a six-week low, shedding 65 points, or 0.9%, at the open to 7219 points.

Mining companies Glencore (-5%) and Antofagasta (-2.9%), insurance group Admiral (-3.5%) and engineering group Rolls-Royce (-3.3%) are among the fallers, as the slowdown in Asia’s factories worries investors.

This follows fresh losses on Wall Street last night, despite a rise in US consumer confidence yesterday.

Mark Haefele, chief investment officer at UBS Global Wealth Management, says markets may remain volatile as central bankers try to slow inflation:

The market reaction underlines our view that investors had underestimated the willingness of central banks to keep tightening. We expect further volatility and tilt equity exposure toward value, quality income, and defensives.”

A flurry of downbeat factory surveys from across Asia have shown that activity slumped in August as high costs, economic uncertainty and China’s Covid-19 lockdowns hit firms.

Manufacturing activity was weak in Japan, South Korea and Taiwan in a sign that companies, already hurt by supply chain problems, are facing weaker demand too.

China’s factories suffered too, with power cuts adding to their difficulties.

UK chancellor Nadhim Zahawi has said nothing is off the table, as the Government assesses how to deal with rising energy prices.

Speaking to Sky News, Mr Zahawi said the government is “looking at all the options”, and acknowledged that ‘perfectly' viable’ businesses are at risk of collapse:

“Everything from the chief executive of Scottish Power talking about help where we need to maybe create some sort of a fund for companies to be able to continue to help their customers.

All the way through to making sure we target the help to both households and small and medium-size businesses and probably some larger businesses, because one of my concerns is the scarring effect on the economy if perfectly viable businesses in hospitality, in leisure, in high-energy use businesses would actually suffer or no longer exist because of Putin’s use of energy as a weapon.”

The pound’s tumble during August “reflects the deteriorating outlook for Britain’s economy”, says the Financial Times, as economic and political uncertainty intensified.

It adds:

Philip Shaw, chief economist at Investec in London, said sterling’s rapid fall was “very worrying” as it reflected concerns that if Truss were named prime minister, her government’s policies would diverge from the BoE [Bank of England].

UK government bonds have also sold off this month more aggressively than the debt of other large European peers such as Germany.

George Saravelos, global head of FX research at Deutsche Bank, said investors were right to question whether the UK’s mix of fiscal and monetary was appropriate and how it would affect inflation.

Pound drops below $1.16

Sterling has fallen to its lowest level against the US dollar since the pandemic crash in March 2020, as anxiety over the UK economy rises.

The pound has dropped as low as $1.1565 this morning, as the energy crisis hammers businesses and consumers, hurting Britain’s economic outlook.

The selloff comes after the pound racked up its worst month against the dollar since October 2016.

The pound vs the US dolar
The pound vs the US dolar Photograph: Refinitiv

Fears that the UK is heading into recession pushed sterling down by 4.5% against the dollar during August; the dollar continues to strengthen as America’s central bank vows to keep raising interest rates.

Naeem Aslam of Avatrade says sterling is getting “absolutely battered” against the dollar, led by concerns over the cost of living crisis.

Consumers in the UK are squeezed to such a level that we have not seen in nearly a century, and the hope is that the new Prime Minister will deliver some sort of relief package, which should be in billions, to ease off the current crisis.

Liz Truss, the most favorite among bookies as the next Prime Minister, has already ruled out any tax hikes for this year or rationing of energy in the coming winter. Her second promise look shaky because the energy crisis is pretty much unavoidable, and it would be highly difficult to avoid energy rationing.

Nonetheless, the most important thing which matters for consumers is not energy rationing but, in fact, a support package that can ease off their living standards.

Introduction: UK faces 'frankly terrifying' fall in living standards

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

Britain is facing the biggest squeeze in living standards for a century, a new report into the challenge facing the next Prime Minister shows.

In a desperately worrying forecast, real household disposable incomes are on track to fall by 10% over this year and next. With inflation surging, rising prices mean all the real pay growth since 2003 will have been wiped out.

Resolution Foundation fears that the number of people living in absolute poverty is set to rise by three million, to 14 million people in 2023-24.

And one in three children could fall into relative poverty, the highest level since the peaks of the 1990s.

Resolution warns that Britain faces a bleak winter for living standards – with the living standards crisis set to stretch well beyond this winter into next year and 2024.

Real earnings, which are already falling at their fastest rate since the Queen’s Silver Jubilee in 1977, are forecast to continue falling until at least mid-2023, by which time all real pay growth since 2003 will have been wiped out.

Lalitha Try, Researcher at the Resolution Foundation, says ‘radical action’ is needed by the next PM:

“Britain is already experiencing the biggest fall in real pay since 1977, and a tough winter looms as energy bills hit £500 a month. With high inflation likely to stay with us for much of next year, the outlook for living standards is frankly terrifying.

“Typical households are on course to see their real incomes fall by £3,000 over the next two years – the biggest squeeze in at least a century – while three million extra people could fall into absolute poverty.

“No responsible government could accept such an outlook, so radical policy action is required to address it. We are going to need an energy support package worth tens of billions of pounds, coupled with increasing benefits next year by October’s inflation rate.

“The new Prime Minister also needs to improve Britain’s longer-term outlook, which can only be achieved by a new economic strategy that delivers higher productivity and strong growth.”

Here’s the full story:

Also coming up today

The latest manufacturing surveys are likely to confirm that UK and eurozone factory activity contracted last month.

European stock markets will start September with losses, after finishing August on the back foot. The FTSE 100 fell 1% yesterday, as government bond markets weakened.

Worries about the global economy, as inflation accelerates, are hitting stocks and bonds.

The last four days has seen a sharp change in sentiment with yields jumping sharply across the board since Fed chair Jerome Powell’s hawkish Jackson Hole speech, says Michael Hewson of CMC Markets:

While US markets fell sharply in August, we’ve also seen sharp declines in global bond markets, with US yields jumping sharply higher

While US yields have seen a sharp rise, these gains have been outpaced by a surge in German and UK yields both on the short and the long end, as markets increasingly price in the prospect of much higher interest rates, as central banks signal a singular determination to rein in sharply rising inflation.

The agenda

  • 7am BST: Nationwide’s UK house price index for August

  • 9am BST: Eurozone manufacturing PMI for August

  • 9.30am BST: UK manufacturing PMI for August

  • 9.30am BST: ONS report into GDP, UK regions and countries: October to December 2021

  • 9.30am BST: Weekly realtime data showing economic activity and social change in the UK.

  • 1.30pm BST: US weekly jobless figues

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