Closing post
Time to wrap up.
McColl’s is set to appoint administrators, putting 16,000 jobs at risk, after its lenders turned down a last-minute rescue deal from Morrisons.
It is understood that EG Group, the petrol forecourts operator owned by the Issa brothers, is lined up to buy McColl’s out of administration. No deal has been finalised, however, and other offers could yet win out for the convenience store.
McColl’s, which is listed on the London Stock Exchange, said its shares were being suspended with immediate effect.
Pension trustees urged any buyer to protect McColl’s schemes.
While Morrisons, which had hoped to agree a rescue, said it was a very disappointing, damaging and unnecessary outcome.
The collapse came just a day after the Bank of England warned the UK was facing a very sharp slowdown. That which has put pressure on ministers to draw up fresh emergency help to protect millions of families.
Boris Johnson said the global inflation surge was hurting the UK, warning:
I’m not going to pretend that there isn’t going to be a difficult period as we come through the aftershocks of Covid. There is.
Recession worries have hit stock markets again, with the FTSE 100 dropping 1.5% as the global selloff continues.
Here’s more of today’s top stories:
Goodnight. GW
Updated
Recession fears hit markets again
Back in the financial markets, shares are sliding on both sides of the Atlantic.
Recession fears are sweeping the City, after the Bank of England slashed its growth forecasts yesterday.
In London, the FTSE 100 index has now shed 1.6%, or 118 points, to 7,384 points. Germany’s DAX (-2%) and France’s CAC (-2.3%) are also weaker.
The selloff is being driven by Wall Street, where the S&P 500 index is down another 1%, adding to Thursday’s selloff.
MarketWatch: U.S. stocks opened lower on Friday, extending Thursday's selloff which saw the Dow Jones Industrial Average and Nasdaq Composite Index book their worst daily drops since 2020. https://t.co/PJe5Zr48ax pic.twitter.com/pnt36pWxyZ
— Cash Flow with JVH (@CashFlowJVH) May 6, 2022
Anxiety about inflation, central bank rate hikes, China’s lockdowns and the Ukraine war are also hitting stocks.
A shock 3.9% drop in German factory output in March, reported this morning, has raised concerns about a recession in Germany
Fawad Razaqzada, market analyst at City Index and FOREX.com, explains:
The main source of worry is high levels of inflation around the world, which is hurting consumer pockets. On top of this, a global wave of monetary-policy tightening, which includes quantitative tightening, means stock markets can no longer rely on this source of support that had propped up the markets all these years, especially in the aftermath of the first waves of Covid lockdowns back in early 2020. What’s more, the impact of Russia’s invasion of Ukraine continues to push up oil and gas prices, meaning inflation is unlikely to recede any time soon. Perhaps, China’s Covid lockdowns are going to help somewhat, but this is also growth-sapping. It is a lose-lose situation.
A shock 3.9% drop in German factory output in March, reported this morning, has raised concerns about a recession in Germany.
Europe’s largest economy has been suffering badly from disrupted supply chains on the back of Russian-Ukraine conflict and lockdowns in China. Industrial production continued the trend of weaker macro data here, with a fall of almost 4% in March which was miles below expectations.
Over in the US, firms continued to add staff at a decent rate despite worker shortages.
That’s an encouraging sign, but it may also give the Federal Reserve further ammunition to ratchet up interest rates to fight soaring inflation.
The latest Non-Farm Payroll report shows 428,000 jobs were added, as the unemployment rate held steady at 3.6%, close to its pre-pandemic low. More here:
Morrisons: This is a very disappointing, damaging and unnecessary outcome
Supermarket chain Morrisons says McColl’s administration is ‘very disappointing, damaging and unnecessary’.
A Morrisons spokesperson says its deal (rejected by lenders) would have saved the vast majority of jobs:
“We put forward a proposal that would have avoided today’s announcement that McColl’s is being put into administration, kept the vast majority of jobs and stores safe, as well as fully protecting pensioners and lenders.
For thousands of hardworking people and pensioners, this is a very disappointing, damaging and unnecessary outcome.”
The squeeze on household budgets from rising inflation also hurt McColl’s, suggests Simon Underwood, business recovery partner at accountancy firm Menzies LLP.
“With the UK already feeling the strain of the cost-of-living crisis, this exposure to job losses could not have come at a worse time. It appears, higher costs may have played a part in McColl’s collapse, with many consumers looking to avoid the higher prices that are often associated with convenience shops.
The rise of grocery delivery services, and post-pandemic fallout, will also have played a role in the retailer’s financial struggles.
McColl’s collapse comes after months of talks with lenders, and several years of tough trading, as my colleague Sarah Butler explains:
While many convenience stores did well during the first phase of the coronavirus pandemic, with families choosing to shop closer to home and avoiding big supermarkets, McColl’s lost out. The group struggled to get enough products on shelves. Its generally smaller stores were also more set up for quick purchases by commuters and those on the school run rather than a weekly shop.
The group has struggled since the collapse of its former wholesale supplier Palmer & Harvey in 2017, which left it with heavy costs and disruption to deliveries. Since then its supply chain has been further disrupted by another supply partner, Nisa, being taken over by the Co-op and a new deal with Morrisons.
Bryan Roberts, a retail analyst at Shopfloor Insights, said: “McColl’s should have had a good pandemic but it does not have a full range and its pricing is out of kilter. It is somewhere you go because you have to, not because you want to.”
Here’s Sarah’s story:
A spokesperson for the trustee of the McColl’s Pension Schemes has urged all firm considering rescuing McColl’s to also protect the schemes.
Otherwise, staff could miss out on payments following administration.
They said:
“The pension schemes are significant stakeholders in the company, and the trustees call on all potential bidders to make clear that they will respect the pension promises made to the 2,000 members by McColl’s and its subsidiaries, and will not seek to break the link between the schemes and the company.”
“Breaking the link between the schemes and the sponsor company, by way of a pre-pack administration, would represent a serious breach of the pension promises made to staff who have served the business loyally over many years, and risks causing the schemes to enter the Pension Protection Fund with a resulting reduction in benefits.”
Alex Janiaud, deputy editor of Pensions World, has more details:
Breaking: Statement from the McColl's Pension Schemes as McColl's collapses into administration
— Alex Janiaud (@alex_janiaud) May 6, 2022
“The two pension schemes are relatively small compared to the McColl’s business, and funding them would clearly be manageable for the ongoing business, or for anyone who acquires it.
A breakdown of McColl's two schemes:
— Alex Janiaud (@alex_janiaud) May 6, 2022
TMGPS, which has 1,170 members, is fully funded on a statutory ongoing funding basis and therefore requires no deficit recovery contributions.
It is fully funded on a PPF basis and has a Section 75 deficit of less than £1mn.
TMPP, which has 915 members, is expected to become fully funded on a statutory ongoing funding basis next year, at which point the current £1.75mn annual deficit recovery contributions would be expected to end
— Alex Janiaud (@alex_janiaud) May 6, 2022
Fully-funded on PPF basis, S75 deficit of £15mn.
Here’s the stock market statement from McColl’s:
Intention to appoint administrators and suspension of trading
It explains that McColl’s collapsed because its senior lenders rejected a last-minute rescue deal from Morrisons, which supplies its groceries.
Whilst the constructive discussions with the Company’s key wholesale supplier to find a solution with them to the Company’s funding issues and create a stable platform going forward had made significant progress, the lenders made clear that they were not satisfied that such discussions would reach an outcome acceptable to them.
The application to appoint PwC as administrators is expected to be approved by the Court over the course of the day, McColl’s adds.
Sky: Asda co-owners could agree rescue deal
Sky News are reporting that the co-owners of Asda, EG Group, are expected to agree a deal with administrators that would rescue the bulk of McColl’s.
The deal could possibly come later today, and there are hopes that “a sale out of administration would preserve the vast majority of its workforce and store estate”, Sky adds.
Revealed: McColl’s Retail Group has just announced its intention to appoint PwC as administrator; I understand that this is likely to be followed by the sale of McColl’s to EG Group, possibly later today. Questions to be asked about the decisions of lenders and their advisers.
— Mark Kleinman (@MarkKleinmanSky) May 6, 2022
EG Group is the petrol forecourts operator co-owned by Mohsin and Zuber Issa, the Blackburn-born brothers, which acquired Asda from Walmart.
McColl's collapses, putting 16,000 jobs at risk
UK convenience chain McColl’s is calling in administrators, putting 1,100 shops and 16,000 jobs at risk.
McColl’s said discussions with its lenders collapsed today as creditors refused to extend a deadline for the retailer to find more cash.
Accountancy firm PriceWaterhouseCoopers will be appointed as administrators and will look for a buyer “as soon as possible”.
The company said in a statement to the London Stock Exchange:
“In order to protect creditors, preserve the future of the business and to protect the interests of employees, the board was regrettably therefore left with no choice other than to place the company in administration, appointing PriceWaterhouseCoopers as administrators, in the expectation that they intend to implement a sale of the business to a third-party purchaser as soon as possible.”
Shares on the stock market have been suspended.
McColl’s, which can trace its roots back to 1901 when a Scottish footballer, Robert Smyth McColl, opened the first RS McColl in Glasgow, has been in talks with its lenders, the Morrisons supermarket group and other parties over rescue deal.
Updated
Accountancy professor Prem Sikka warns there will be “tragedy” if the government doesn’t give people more help with the cost of living crisis.
UK inflation is heading to 10.2%, recession is looming and energy prices will soon increase by another 40%.
— Prem Sikka (@premnsikka) May 6, 2022
Many can't afford to cook & pensioners are taking endless bus trips to keep warm.
We need an emergency budget to boost people's purchasing power now B4 tragedy strikes.
Lower living standards inevitable for many Britons, says BoE
Lower living standards are now inevitable for many Britons, the Bank of England’s chief economist has told an online briefing, according to Reuters.
Huw Pill also argued that ‘some parts of society’ need to accept that wages won’t keep up with the surge in inflation.
Here’s Reuters’ story:
Higher energy costs and more expensive imports mean many Britons need to come to terms with a fall in living standards and it is unreasonable to expect incomes to keep up, Bank of England chief economist Huw Pill said on Friday.
“What we are buying is becoming more expensive relative to what we are selling,” Pill told an online briefing hosted by the BoE.
Britain’s economy was heading for contraction in the final quarter of 2022, and the medium-term growth prospects were weak, Pill said.
“Maybe the benchmark shouldn’t be that wage growth gets back to inflation growth quickly, because there is a need at some point for some parts of society to accept the reality that this real income squeeze is taking place,” he added.
The BoE on Thursday raised its main interest rate to 1% from 0.75%, and forecast that consumer price inflation would exceed 10% in the final quarter of this year.
Berenberg: UK could suffer a genuine downturn
Berenberg Bank don’t believe the UK is facing two years of painful stagflation, as the Bank of England’s forecasts suggest.
The UK economy typically shows a high degree of cyclicality, they point out, in a note to clients. Real GDP performance is either good or bad, rather than simply mediocre.
So Berenberg reckon growth will either remain robust, or the UK will fall into either a technical or full-blown recession.
The first is more likely, they say, but “amid darkening clouds”, the risks of a bad outcome are growing.
According to Berenberg, there’s now a 25% chance of a genuine downturn:
A short technical recession followed by a recovery thereafter would not be a drama. The more serious risk to watch is that the UK suffers a genuine downturn with a sharp and protracted fall of real GDP as well as visible damage to other parts of the economy such as the labour market, housing and production.
On a one-year horizon, we see a 25% risk of such an outcome. It could happen if any the three major global risks materialises: 1) an immediate EU gas embargo against Russia; 2) prolonged large-scale lockdowns in China that disrupt global supply chains; or 3) an overtightening by the US Fed – although that is probably more of a threat for 2023 than 2022.
Boris Johnson, who has capped public sector pay rises at 2% this year - while inflation heads for 10% - tells @SkyNews that “our solution is a high wage economy”
— Jim Pickard (@PickardJE) May 6, 2022
Johnson: A difficult period ahead
Prime minister Boris Johnson has warned there is a difficult period ahead, but hasn’t revealed any fresh help to support struggling families.
Interviewed on Sky News following yesterday’s local elections, Johnson was asked what he’ll do to address the economic pain to come as inflation rises to 10%.
Johnson says inflation has spiked around the world, driven by the cost of energy, and that the UK hasn’t invested enough in domestic energy security, by neglecting nuclear power and not pushing renewables fast enough.
I’m not going to pretend that there isn’t going to be a difficult period as we come through the aftershocks of Covid. There is.
But fixing supply side issues, especially on energy security, will protect people in the future, he adds.
Q: Why not do a windfall tax on energy companies, so we can help people now?
Johnson reveals he had the heads of Shell and BP in yesterday, and told them the country needs them “invest massively in clean, green renewables, in stuff that will make a difference to energy prices”.
Johnson cites windfarms and hydrogen, to ensure supplies are protected in the future.
And he adds that ‘clobbering’ energy firms doesn’t make sense:
“What the country needs is a government that will take a big decision about how to fix our energy supply, and you don’t do that simply by clobbering the companies that we need to make investments in our domestic energy security.”
[Projects are already underway, though. BP’s spending £18bn on North Sea oil and gas, offshore wind, hydrogen facilities, electric vehicle charging points and carbon capture projects, which wouldn’t stop if there was a windfall tax].
Johnson didn’t announce any fresh support, but did say £22bn is already being provided.
That total includes changes to the Universal Credit taper rate, the rise in National Insurance thresholds, the cut to fuel duty, the council tax rebate, and the £200 energy bill discount which will be repaid on charges levied in future years.
Our Politics Live blog has full details:
Updated
Morrisons has put forward a last-minute rescue deal for the McColl’s convenience store chain that could protect 16,000 jobs.
The supermarket chain is understood to have offered to take on the ailing business as a going concern, assuming its debts, which amount to about £100m, and taking responsibility for its pension scheme, which had a deficit of about £3m when it was last assessed in 2019.
Morrisons’ deal was put forward late on Thursday night after McColl’s, which has more than 1,100 small shops around the UK, including about 250 Morrisons Daily outlets and a number of Martin’s, warned it was “increasingly likely” to call in administrators.
Q: What would it take for the Bank of England to pause its interest rate rises?
BoE chief economist Huw Pill says the Bank wants to see greater evidence that inflation expectations, wage and price rises, and economic momemtum were more consistent with its inflation targets (to get inflation back to 2%).
Pill tells CNBC the Bank expects underlying wage growth to rise further in the next few quarters, for firms to pass on their cost increases to consumers, and corporations to attempt to restablish their profit margins.
That’s all natural in this economic environment, Pill says. But if they start to “run away, or become unanchored like in the 1970s”, then more rate rises could be needed.
Here’s a clip from his interview with CNBC’s Julianna Tatelbaum.
Today I spoke with @bankofengland Chief Economist, Huw Pill on @CNBCi alongside @GeoffCutmore and I asked him what the MPC would need to see in order to justify *pausing* rate hikes down the line? #BoE pic.twitter.com/AW3PKSBMPr
— Julianna Tatelbaum (@CNBCJulianna) May 6, 2022
The Bank of England faces a tricky decision on how high to raise interest rates without hurting an economy on the brink of recession, says chief economist Huw Pill.
Pill has told CNBC TV, following yesterday’s interest rate rise, that:
“It’s a tricky balance to seek in current difficult circumstances.
And the arguments around where rates should be set in order to achieve that balance are quite finely balanced in themselves.
Pill wouldn’t comment on fiscal policy (government spending and tax policy), but pointed out monetary policy (setting interest rates) has its limits.
That’s why there’s pressure on Rishi Sunak to work on an emergency budget to help families with rising costs of energy and food.
MORE BOE'S PILL: 'THERE IS A BIG DANGER' IN MONETARY POLICY MAKERS TRYING TO DO THINGS THAT THEY DON'T HAVE THE TOOLS TO DO #huwpill #bankofengland #monetarypolicy #inflation
— Mace News (@MaceNewsMacro) May 6, 2022
Pill added the Bank is also worried about ‘secound-round effects’ -- the classic wage-price spiral where inflation pushed up earnings (as workers try to protect themselves from the cost of living squeeze).
“We have been surprised by the strength in the labor market -- and expect it to tighten further,” Pill said. “So there are second round effects. There is a risk that inflation becomes more self-sustaining -- and that is something we have to guard against.”
He rejected comparisons with 1970s stagflation, despite BOE’s the forecast showing double digit inflation and flat growth for two years.
“We are not headed in that direction,“ Pill said. “The reason is that the monetary framework -- introduced 25 years ago -- has been transformational” and policy makers now are adept at spotting and fighting inflation.
Rising costs and economic uncertainty hit UK builders
UK builders have been hit by a slowdown in new orders, another sign that economic growth is slowing, towards the brink of recession.
Construction companies say the speed of recovery lost momentum last month, as higher costs and worries about the economic outlook hit demand.
Worryingly, business optimism in the sector is now the weakest since September 2020, as prices of energy, fuel and raw materials jumped again.
Firms continued to suffer supply chain delays, due to shortages of staff, materials and transport, port delays, and the war in Ukraine, according to the latest PMI survey of construction firms.
Tim Moore, economics director at S&P Global, which compiles the survey said housebuilding took the biggest hit.
“The construction sector is moving towards a more subdued recovery phase as sharply rising energy and raw material costs hit client budgets. House building saw the greatest loss of momentum in April, with the latest expansion in activity the weakest since September 2021.
Commercial and civil engineering work were the most resilient segments, supported by COVID-19 recovery spending and major infrastructure projects respectively.
There were major delays and gridlock at the Port of Dover last month, partly due to an IT problem in the government’s new trade portals, used by hauliers when shipping goods to the EU.
This added to queues caused by the suspension of P&O Ferries services after it sacked almost 800 staff, in the Easter getaway.
Here’s a video clip of Conservative Chairman Oliver Dowden denying the UK faces an economic horror story (see earlier post).
"I don't accept your characterisation of this being an economic horror story"
— BBC Radio 4 Today (@BBCr4today) May 6, 2022
Conservative Chairman Oliver Dowden tells @bbcnickrobinson we are facing an unprecedented global challenge from inflation but "we need to have a bit of a sense of proportion"https://t.co/y7ce6kcLtt pic.twitter.com/xfyMfxv2Xv
Airline group IAG are the top faller in London, down 8%, after scaling back its expansion plans after the chaos at UK airports over Easter.
IAG, which owns British Airways, has trimmed its full-year group capacity guidance after it (and other airlines) cancelled hundreds of flight last month, due to shortages of crew and ground staff ill with Covid-19.
That disrupted holiday plans for many families. So IAG now plans to ramp up capacity more slowly, and only fly around 80% of 2019 levels this year, from its February forecast of 85%.
Fewer flights could mean less disruption and cancellations, and provide ‘more stability’.
Two stocks I'm watching today: #Adidas and #IAG.
— Julianna Tatelbaum (@CNBCJulianna) May 6, 2022
Brutally, the British-Airways owner has been forced to trim capacity plans to avoid disruptions as they continue to struggle to cope with staff shortages.
The sportswear giant cuts guidance amid China COVID lockdowns.
IAG also told the City that the recovery in business travel and trips by wealthy passengers will return it to profitability this quarter, after suffering an operating loss of €731m in Q1.
Updated
Recession worries hit markets
European stock markets have fallen in morning trading as recession fears worry investors.
In London, the blue-chip FTSE 100 index is down around 50 points, or 0.65%, at 7454 points, while the Europe-wide Stoxx 600 has lost 1%.
That follows a jolting slump on Wall Street last night, where fears that central bankers will push economies into recession saw the Nasdaq register its biggest one-day decline since June 2020.
That warning from Roger Lee, head of UK equity strategy at Investec, that “this is really the sum of all our fears” highlights just how worried investors are about the Bank’s forecasts.
AJ Bell investment director Russ Mould, says:
“Concern about inflation is the culprit, as ever, and the wild swings we’ve seen this week are a reminder that sentiment is about as fragile as a porcelain doll.
“The other fear is that the cure for inflation, higher rates, could be as bad as the disease if they choke off growth and even lead to recession.
Dowden: It's not an economic horror story, keep a sense of proportion
Conservative party chairman Oliver Dowden says we should maintain a sense of proportion, insisting the UK isn’t facing an economic horror story.
Speaking on Radio 4’s Today programme, Dowden says the UK is facing challenges of a scale not seen for at least 40 years.
He says inflation is being driven up by supply chain pressures as we recover from Covid, the lockdowns in China, and increase in oil and gas prices due to the crisis in Ukraine.
Dowden says he has “read and fully accepts” the Bank of England’s analysis (which sees inflation over 10% by the end of this year, unemployment rising to 5.5%, and GDP shrinking in 2023).
We are facing an unprecedented global inflationary challenge, and that does demand unprecedented action from the government.
That’s what we’ve done with the £22bn of support we’ve provided.
Q: In the face of this latest economic horror story, shouldn’t a Conservative government be cutting taxes (as some cabinet ministers argue) not putting them up?
Dowden replies that we need to have a bit of sense of proportion about the situation.
I don’t accept your characterisation of this being an economic horror story.
He argues that not locking down last winter means the economy is in better shape than it would have been.
Q: Are you saying it’s not bad?
Dowden repeats that we need “a correct sense of proportion about this” and he doesn’t accept it’s a horror story.
[But if you can’t afford to feed your family, or heat your home, or lose your job, surely it is?]
Dowden on #r4today:
— Joel Taylor (@JoelTaylorhack) May 6, 2022
‘I don’t accept this is an economic horror story
‘We need a sense of proportion’
Does proportion provide food or heating?
Tory chairman Oliver Dowden claims Britain is not facing an ‘economic horror story’. Says he accepts Bank of England warnings of 10% inflation and recession but it needs to be kept ‘in proportion’
— Jason Groves (@JasonGroves1) May 6, 2022
Q: Roger Lee, head of UK equity strategy at Investec (a major investment group) has said the Bank of England’s forecasts are “the sum of all our fears”, with growth forecasts downgraded, inflation expectations upgraded and interest rates still going up.
Dowden says the UK faces an “unprecedented challenge of global inflation” from the recovery from of Covid and the Ukraine war, and the British people want the government to focus on those challenges and show bold leadership.
Q: Why not show bold leadership and cut taxes?
Dowden claims they have cut taxes, pointing out that Rishi Sunak lifted the threshold where people pay national insurance (by £3,000 to £12,570, from July) in the spring statement, cut fuel duty (by 5p per litre), and will cut income tax to be cut to 19p by 2024.
On those points...Lifting the NI thresholds will mean workers earning under £35,000 are taxed less. But, overall, that £6bn cut in national insurance is more than wiped out by the £12bn increase in tax from lifting the NIC rate by 1.25 percentage points (the new health and social care levy).
The Office for Budget Responsibility has calculated the UK tax burden is heading for a 70-year high.
And overall, the lack of support for low-income families in the spring statement means 1.3 million people will be pushed into absolute poverty next year.
The pound has slipped to a new two-year low this morning, after its worst day since the Covid-19 pandemic began in 2020.
Sterling has dropped another half a cent to $1.23, the lowest since June 2020.
It’s being hit by the risk of a recession, and predictions that the Bank of England won’t raise interest rates as fast as previously thought, given the very gloomy economic outlook.
The cost of living crisis, and Thursday’s interest rate rise, will soon weigh on house price growth, says lender Halifax.
Prices climbed by another 1.1% in April, the 10th monthly rise in a row, Halifax’s latest house price report shows.
Average property prices hit another new record high of £286,079, up £47,568 over the last two years.
But that post-lockdown property boom could fade as incomes are squeezed, and the cost of borrowing rises, says Russell Galley, managing director at Halifax.
“For now, at least, despite the current economic uncertainty, the strong increases we’ve seen in house prices show little sign of abating. Demand in the housing market remains firm and mortgage servicing costs are relatively stable with fixed-rate deals making up around 80% of mortgages on homes across the industry, protecting many households from the effects of rate rises so far.
“However, the headwinds facing the wider economy cannot be ignored. The house price to income ratio is already at its highest ever level, and with interest rates on the rise and inflation further squeezing household budgets, it remains likely that the rate of house price growth will slow by the end of this year.”
House prices show 10th monthly rise in a row, up by 1.1% in April to ave of £286,709, which is £47k up in two years. Halifax expect price growth to slow. Everybody has been saying that since January… pic.twitter.com/X0F5f9nVwc
— Peter Bill (@peterproperty) May 6, 2022
The best way to help struggling families through the cost of living crisis is to uprate benefits now in line with this year’s surge in inflation, the Resolution Foundation says.
Benefits such as Universal Credit and the state pension only rose by 3.1% in April, as they’re based on last September’s Consumer Price Index, so are already lagging behind inflation (which hit 7% in March).
That mechanism means they should rise higher next April -- but that’ll be too late for families struggling now.
Resolution says Rishi Sunak should bring forward next year’s increase:
While the Chancellor can’t shield everyone from impact of higher inflation, he has plenty of scope to provide more targeted support for the low-and-middle income households worst affected by this cost of living crisis.
The best way to do this is through the benefits system. Here bringing forward next April’s benefits uprating – currently project to be around 8-10 per cent. For example, an 8 per cent uprating in benefits would be the equivalent to around £600 a year on the basic state pension and over £300 a single adult’s basic Universal Credit. While even this may not be enough to fully cover the October price cap rise for many – or indeed other increases in the cost of living – it would be a major intervention. It would also have the added bonus of no longer-term cost for the Treasury.
Resolution also warn that nine million English households would be in ‘fuel stress’ this autumn, with the Bank forecasting Ofgem’s price cap will rise to £2,750 in October, up another 40%.
The Bank of England’s Monetary Policy Committee has opted to raise interest rates and forecast double-digit inflation and a £1,200 income squeeze, marking the scale of our cost of living crisis: analysis from @JamesSmithRF @adamcorlett and @JMarshall_3: https://t.co/k7ZMIAEoru pic.twitter.com/2eGSp4agIs
— Resolution Foundation (@resfoundation) May 6, 2022
The risk of a UK recession dominates today’s front pages:
Friday's Guardian: “Bank raises interest rates and warns inflation will hit 10%”
— BBC News (UK) (@BBCNews) May 5, 2022
#BBCPapers #TomorrowsPapersToday https://t.co/7FuHsAa3Vz pic.twitter.com/NsHKJR4kGb
The Mirror points out that the TUC are calling for an emergency budget to help families with the cost of living crisis.:
Tomorrow's front page: Why won't they help? #TomorrowsPapersTodayhttps://t.co/hkLXGHTsCb pic.twitter.com/qBN4vl3Zw8
— The Mirror (@DailyMirror) May 5, 2022
Tomorrow's @independent front page #tomorrowspaperstoday To subscribe to the Daily Edition https://t.co/XF8VnDpHYF pic.twitter.com/RJPcFqvXq4
— The Independent (@Independent) May 6, 2022
The Times report that one cabinet minister says Rishi Sunak should cut VAT to stimulate the economy and help people.
“A recession feels inevitable, we may already be in one. What we’re hearing from retailers is horrifying, prices are going through the roof.”
Friday's Times: “Slash taxes to stave off recession, Sunak urged” #BBCPapers #TomorrowsPapersToday https://t.co/7FuHsAa3Vz pic.twitter.com/YKZb1qC8hT
— BBC News (UK) (@BBCNews) May 5, 2022
Friday's Mail: “Families set for record squeeze”#BBCPapers #TomorrowsPapersToday https://t.co/7FuHsAa3Vz pic.twitter.com/WXJyYYZm94
— BBC News (UK) (@BBCNews) May 5, 2022
Friday's Telegraph: “Bank warns of recession and highest inflation in 40 years” #BBCPapers #TomorrowsPapersToday https://t.co/7FuHsAa3Vz pic.twitter.com/Qz8MyzogTL
— BBC News (UK) (@BBCNews) May 5, 2022
Introduction: Pressure on UK government as recession fears swirl
Good morning, and welcome to our rolling coverage of the business, the world economy and the financial markets.
Pressure is growing on the UK government to do more to protect struggling households from a looming recession, as cost of living crisis hammers the economy.
Economic fears are swirling, spooking the markets, after the Bank of England warned of a “very sharp slowdown” yesterday, even as it lifted interest rates to a 13-year high of 1%.
With inflation heading to a 40-year high of 10%, unemployment set to hit 5.5% by 2025, the outlook is dire --- sending the pound slumping to two-year lows.
The Bank also pointed out there was little it could do to help with the unprecedented jump in energy bills, and the second-biggest fall in living standards on record.
As BoE governor Andrew Bailey put it to CNBC:
“We’re seeing this unprecedentedly large shock to real income in this country coming from abroad, it’s a terms of trade shock.
And that is having a negative effect on real income, we think that’s going to feed through to activity during the course of this year in a big way,”
Households face an average £1,200 hit to take-home pay.
Bank of England raises rates again and signals cost of living crisis is set to deliver a £1,200 hit to incomes: read our full reaction from @JamesSmithRF @adamcorlett and @JMarshall_3 here: https://t.co/k7ZMIAEoru
— Resolution Foundation (@resfoundation) May 5, 2022
Labour urged ministers to act, with new measures such as a windfall tax on energy company’s excess profits (with Shell and BP both posting bumper earnings this week).
Rachel Reeves, the shadow chancellor, said the government was out of ideas and out of touch.
“Not only are ministers shrugging their shoulders at the spiralling cost of living crisis, they’ve made it worse by hitting working people and businesses with 15 Tory tax rises that will further stifle our economic growth.”
New: Government under growing pressure to launch a fresh package of emergency financial support for struggling households in the cost of living crisis, after the Bank of England warns of recession https://t.co/UAB4fVXeUP
— Richard Partington (@RJPartington) May 5, 2022
Boris Johnson admitted on Tuesday that the government “can do more” to help families struggling with the cost-of-living crisis, during his bruising interview with ITV’s Good Morning Britain.
The I, though, reports that Rishi Sunak will not intervene before the next Budget to try and stop a recession.
The Chancellor believes that the rise in interest rates – which were hiked to 1 per cent on Thursday – makes it dangerous to increase public borrowing in order to spend more or cut taxes, because the cost of servicing the country’s debts is growing.
Fears over the global economy are rising too, as China’s growth slows and Russia’s invasion of Ukraine continue.
The BoE’s forecasts alarmed markets, explains Jeffrey Halley at OANDA, starting a “massive risk aversion wave” which saw the worst year on Wall Street this year.
It’s what they said, and not what they did, that saw Sterling slump by 2.0%. The bombshell was the 2023 growth forecast, which was marked down massively to -0.25% from 1.25% previously.
The BOE basically said there was going to be a recession next year, somewhat at odds with the Federal Reserve’s statements that a soft landing was possible in the US. Overnight BOE officials basically said they were going to concentrate on tackling inflation because there wasn’t much, they could do to offset a slowdown.
Fears of a ‘hard landing’ wiped over 1,000 points off the Dow Jones Industrial Average, which lost 3.1%, while the tech-focused Nasdaq Composite slumped almost 5%.
The steep fall came one day after the Fed chair, Jerome Powell, announced the sharpest rise in interest rates in over 20 years, and said the Fed needed to do “everything we can to restore stable prices”.
European stock markets are set to open lower:
European Opening Calls:#FTSE 7486 -0.23%#DAX 13857 -0.33%#CAC 6318 -0.79%#AEX 692 -0.54%#MIB 23660 -0.42%#IBEX 8407 -0.33%#OMX 1979 -0.33%#SMI 11832 -0.38%#STOXX 3672 -0.65%#IGOpeningCall
— IGSquawk (@IGSquawk) May 6, 2022
The agenda
- 7am BST: Halifax house price index for April
- 9.30am BST: UK construction PMI survey for April
- 1.30pm BST: US Non-Farm Claims payroll report
Updated
