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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Opec+ agrees small oil output rise in rebuff to Biden; UK inflation ‘could hit 15%’ – as it happened

Recession Inflation Economy United States Niesr OPEC
A 3D-printed oil pump jack in front of the OPEC logo.
A 3D-printed oil pump jack in front of the OPEC logo. Photograph: Dado Ruvić/Reuters

A late PS - the oil price has now dropped back, with Brent crude sliding back below $100 per barrel.

Brent lost its earlier recovery, after the latest US oil inventory figures showed a surprise rise in stocks last week (suggesting lower demand than expected).

Victoria Scholar, head of investment at Interactive Investor, tells us what’s going on:

Oil prices are trading sharply lower by around 2% as Brent crude approaches critical near-term support at $98 a barrel. OPEC+ decided on a minimal output increase of 100,000 in barrels per day, with the slight supply increase catalysing the move lower. It is understood that Saudi Arabia and the UAE are the only producers actually able to raise their oil production.

On top of that data from the EIA saw that US crude stocks unexpectedly rose by 426.55 million barrels last week, versus expectations for a draw of 600,000. This echoed what we saw yesterday in terms of the latest API figures, surprising analysts with a build for crude oil versus expectations for a draw. There was already nervous price action this morning with brent crude breaking below $100 a barrel with OPEC+’s decision reinforcing the bearish move lower.

After peaking in March this year with the war in Ukraine exacerbating existing oil price inflation, prices have started to retreat from the highs with Brent crude back in double digit territory.

Closing summary

A quick recap

The Opec group of oil producers has defied pressure to significantly increase oil production.

Despite president Joe Biden’s trip to Saudi Arabia last month, the cartel only agreed to increase output by 100,000 barrels per day in September.

It’s one of the smallest increases in its history, equivalent to around a minute-and-a-half of daily demand.

Analysts said the move was a rebuff to Western pressure... although also pointed out that some Opec members were struggling to meet existing production goals anyway.

Randeep Somel, manager of the M&G Climate Solutions Fund, says Joe Biden’s fist bump with Mohammed bin Salman has only delivered a “miniscule OPEC+ production increase”.

Somel adds:

“It doesn’t look as if higher oil prices are going to be resolved by a supply response. The key factor now will be how resilient the global economy can be with higher oil prices and if inflation can be tamed despite energy prices remaining high.

Otherwise the only option central banks will have is to raise interest rates in order to curtail demand.”

Tight energy markets will continue to squeeze households, with a warning today that UK consumer price inflation could hit 15% early next year.

Rising prices and weakening growth leaves the UK at risk of stagflation, the NIESR thinktank warned this morning.

It predicts the UK will enter a recession this quarter - which will last until the first quarter of 2023 -- pushing up unemployment, and widening economic inequality within the country.

The government is facing growing calls to provide more support for struggling households.

Charities warned that renters whose utility bills are included in their rent are at the mercy of their landlords and could miss out on the UK government’s existing £400 energy discount.

Drivers are still being squeezed too, with a warning that large petrol retailers were too slow to pass on falling wholesale petrol prices.

French energy provided EDF is also strugging in the hot weather, warning that it may need to turn down nuclear output as river temperatures rise, making it harder to cool reactors.

Elsewhere today....

The global management consultancy Bain & Company has been barred from tendering for UK government contracts for three years after its “grave professional misconduct” in state corruption in South Africa, the Cabinet Office said.

The chief executive of Tinder has left the dating app after less than a year after the market value of its parent company plunged by more than a fifth following reporting disappointing results.

Adverts for two funeral providers have been banned after they misleadingly implied that their MDF coffins were more eco-friendly than other options.

Shell gives employees 8% bonus after record profit

Shell is handing the vast majority of its more than 80,000 staff around the world a bonus equivalent to 8% of their annual salary, after the oil company’s profits surged to a record.

The UK firm said:

“In recognition of the contribution our people have made to Shell’s strong operational performance against a recent challenging backdrop, our executive committee has decided to make a special recognition award of 8% of salary to all eligible staff across the world.

“The award enables those employees to share in our current operational and financial success – it is not a response to inflation or cost-of-living challenges.”

The one-off payment will be made to most of Shell’s 82,000 employees. Only those on its executive committee, along with its executive vice presidents, and contractors are excluded.

Last week, the FTSE 100 company reported a record profit, of $11.5bn, for the second quarter in a row on the back of soaring oil and gas prices, and strong refining profit margins.

Those profits were described as an insult to millions of strugging households, as soaring energy bills are pushing inflation to the highest level in decades.

Inflation hits those on lower incomes hardest - as they have the least savings to cushion the blow, and less discretionary spending to cut back on.

Also, the average inflation rate they face is higher, and essential spending on food and heating make up a larger chunk of their budgets.

That means more support is needed for low-income households this winter.

Why UK inflation could hit 15% next year

Resolution’s Jack Leslie has written a handy explanation of why soaring wholesale gas prices will drive UK inflation to such painful levels in 2023.

The key factor is that the price of the futures contract for natural gas in the coming winter has risen to record levels, following the recent reduction in supply of gas to Germany from Russia.

Although these markets are sometimes thinly traded and so prices can be volatile, it is clear that current expectations for gas prices this winter are more than twice what they were prior to the Russian invasion of Ukraine and higher than the peak in March 2022.

All of this has pushed forecasts for the energy price cap in October to £3,358 and then £3,615 in January 2023 (substantially higher than when Ofgem wrote to the Chancellor in May with the expectation that the price cap would be £2,800 come the autumn).

High gas prices also push up electricity prices, with both leading to increased costs for businesses as well as consumers – costs which are ultimately passed through, meaning families will have to cope with higher and more persistent consumer price inflation.

Resolution: prepare for 15% inflation in early 2023.

Britons have been warned that inflation could hit 15% next year.

In a new report, Resolution Foundation warned that prices could continue to accelerate, due to soaring gas prices which many predict will prompt the Bank of England into its biggest interest rate rise since 1995 tomorrow.

UK inflation is already nearing double-digits, even before energy bills jump in October and January, as seems inevitable.

Resolution say the jump in gas prices will drive inflation even higher than feared, even though other commodity prices have eased off.

Contrary to many reports, there have been some recent encouraging signs for lower inflation: a range of key imported commodity prices have fallen materially – by up to 61 per cent – since their peaks earlier in the year, reducing global inflationary pressures.

But these positive trends have likely been more than offset by a deterioration in the outlook for gas prices, with the energy price cap now expected to top £3,600 early in 2023.

This means that consumer price inflation will now peak higher and later than the Bank of England previously thought, with CPI inflation plausibly moving above 15 per cent next year (without Government measures to reduce prices).

Updated

Bloomberg’s energy editor Javier Blas confirms that some Opec+ members won’t be able to meet their share of the oil increase, even though it’s smaller than the White House hoped:

...while those who can pump more will do so pretty quickly, he adds:

Today’s OPEC+ members’ decision to raise oil output by 100,000 barrels per day “is a step forward,” a senior U.S. administration official has told Reuters.

President Joe Biden wants to see more, they added, and will push at home and abroad on energy supplies.

We may not even get the full extra 100,000 barrels per day from Opec+ members next month, cautions Noah Barrett, research analyst for Energy & Utilities at Janus Henderson Investors:

OPEC+ agreed to increase production by 100kb/d in September and the increase will be split among member nations.

Given that some countries are currently underproducing their quotas, this means that they may not be able to deliver on their portion of the 100kb/d September increase. So even though we see a headline increase of 100kb/d (which is fairly small), the actual supply increase may be even lower than that.

Barrett agrees that the US was probably hoping for more from Opec, especially after Biden’s recent trip to the Middle East.

But given overall supply/demand management, Opec+’s decision is logical, he adds:

There’s still a great deal of uncertainty on oil demand in the back half of this year, driven by questions around Chinese demand, and the potential for U.S. or even a global recession.

Additionally, spare capacity remains tight; OPEC’s press release categorized spare capacity availability as “severely limited”, which also limits OPEC’s ability to bring a material supply increase into the market.

The US economy remained weak in July, according to new data showing private sector output contracted at the fastest pace for over two years

Data firm S&P Global Insight reports that private sector business activity shrank in July, for the first time since June 2020 and broad-based.

It’s latest purchasing manager survey shows that output fell, while new export orders weighed on overall new business again, as foreign client demand deteriorated.

Five out of seven US sectors were hit by lower output, with only industrials and tech increasing.

US PMI
US PMI Photograph: S&P Global Insight

The US economy has already shrunk in Q1 and Q2, and Chris Williamson, chief business economist at S&P Global Market Intelligence, said the data suggests US GDP could fall for a third quarter in a row:

“US economic conditions worsened markedly in July, with business activity falling across both the manufacturing and service sectors.

Excluding pandemic lockdown months, the overall fall in output was the largest recorded since the global financial crisis and signals a strong likelihood that the economy will contract for a third consecutive quarter.

An increase of 100,000 barrels of oil per day may sound like quite a lot, but it’s actually just 0.1% of global demand (estimated at around 99m barrels per day).

It’s also one of the smallest rises in the oil cartel’s history, which may not placate Western demands for more oil to cool inflation.

The oil price has recovered earlier losses after Opec+ decided to slow the pace of their production increases.

Brent crude rose back over $100 per barrel, after dipping toward $99 this morning.

The Brent crude oil price today
The Brent crude oil price today Photograph: Refinitiv

Opec+ has warned that ‘choronic underinvestment’ in the oil sector is making it harder to meet demand.

The group has issued a statement confirming today’s decision to increase output by (just) 100,000 barrels of crude oil per day in September.

But ii also warns that the “severely limited availability” of excess capacity means it must be used with “great caution” in response to severe supply disruptions.

The Meeting noted that “chronic underinvestment in the oil sector” has reduced excess capacities across the sector -- from upstream (finding new reserves), to midstream (transporting and storing it) and downstream (refining and selling it).

This means it will be hard to meet demand beyond next year, it adds:

The Meeting highlighted with particular concern that insufficient investment into the upstream sector will impact the availability of adequate supply in a timely manner to meet growing demand beyond 2023 from non-participating non-OPEC oil-producing countries, some OPEC Member Countries and participating non-OPEC oil-producing countries.

Reuters: Small Opec+ increase is 'insult' to Biden

The OPEC+ plan to raise oil output by a tiny 100,000 barrels per day is being described as ‘almost insulting’ to U.S. President Joe Biden after his trip to Saudi Arabia last month to persuade OPEC’s leader to pump more to help the U.S. and global economy, says Reuters.

The increase, equivalent to 86 seconds of global oil demand, comes after weeks of speculation that Biden’s trip to the Middle East and Washington’s clearance of missile defence system sales to Riyadh and the United Arab Emirates will bring in more oil.

An OPEC+ document showed the group was set to raise output by 100,000 bpd from September and two sources said it has been effectively rubber-stamped by a close-door meeting.

“That is so little as to be meaningless. From a physical standpoint it is a marginal blip. As a political gesture it is almost insulting,” said Raad Alkadiri, managing director for energy, climate, and sustainability at Eurasia Group.

OPEC and its allies led by Russia have been previously increasing production by about 430,000-650,000 bpd a month although they have struggled to meet full targets as most members have already exhausted their output potential.

More here: OPEC+ set to approve minuscule oil output rise in rebuff to Biden

Updated

Opec+ agrees small increase in oil output - reports

OPEC+ has reportedly agreed to raise its September oil output targets by 100,000 barrels per day, dashing hopes of a larger increase.

The decision, at today’s meeting of oil ministers, should bring some more supplies onto the market...but it’s a much slower pace than in earlier months.

For both July and August, for example, the group had pledged to raise output by 600,000 barrels, having added an extra 400k per month at earlier meetings.

The US has been pushing Opec to boost output, but President Joe Biden’s visit to Saudi Arabia last month did not yield an agreement.

However, some Opec+ members had already been struggling to deliver previous output targets, having exhausted their spare production.

Here’s Bloomberg’s take:

The 23-nation alliance would divide the increase proportionally between members, delegates said. In recent months, with only the Saudis and the United Arab Emirates able to bolster production, just a fraction of the group’s promised increases have reached world markets. There were no discussions about whether the Organization of Petroleum Exporting Countries and its allies would keep increasing production beyond September, they said.

The agreement is only a modest indication that Riyadh and Washington are on a path toward reconciliation, coming after a visit to the kingdom last month that saw US President Joe Biden greet Crown Prince Mohammad bin Salman with a fist bump. Late on Tuesday, the US approved the sale of $3.05 billion of weapons including Patriot missiles to the Middle East heavyweight.

German Chancellor Olaf Scholz insists gas turbine at centre of row with Russia works

German Chancellor Olaf Scholz (R) and Siemens Energy Chairman Christian Bruch look at the Siemens gas turbine intended for the Nord Stream 1 gas pipeline in Russia today.
German Chancellor Olaf Scholz (R) and Siemens Energy Chairman Christian Bruch look at the Siemens gas turbine intended for the Nord Stream 1 gas pipeline in Russia today. Photograph: Andreas Rentz/Getty Images

In other energy news... German Chancellor Olaf Scholz has insisted that Russia had no reason to hold up the return of a gas turbine for the Nord Stream 1 gas pipeline.

The turbine is stranded in Germany, following servicing in Canada, in an escalating standoff that has seen has flows to Europe fall to a trickle, just 20% of capacity.

Standing next to the turbine on a factory visit to Siemens Energy in Muelheim an der Ruhr, Scholz said it was fully operational and could be shipped back to Russia at any time - provided Moscow was willing to take it back.

“The turbine works,” Scholz said, telling reporters:.

“It’s quite clear and simple: the turbine is there and can be delivered, but someone needs to say ‘I want to have it’”.

But Kremlin spokesman Dmitry Peskov blamed a lack of documentation for holding up the turbine’s return to Russia.

German Chancellor Olaf Scholz stands in front of a turbine of the Nord Stream 1 pipeline during a visit on August 3, 2022 at the plant of Siemens Energy in Muelheim an der Ruhr, western Germany, where the engine is stored after maintenance work in Canada

Ministers from the Opec+ group of oil producers have started their monthly meeting to discuss production levels.

Reuters is reporting that one proposal is to raise output by 100,000 barrels per day next month, a fairly modest increase which might ease supply shortages.

Opec and its allies had been increasing output by 400,000 barrels per day each month earlier this year - and by more over the summer - as they gradually unwound massive production cuts made early in the pandemic in 2020.

The FT is reporting that Saudi Arabia had warmed to the idea of a small increase, following Crown Prince Mohammed bin Salman’s welcome in France last week and US president Joe Biden’s trip to Jeddah in July:

Updated

The AA have joined the RAC in criticising major fuel retailers for not passing on the drop in wholesale petrol prices to drivers in full.

AA president Edmund King called it “pretty unforgivable” behaviour, that hurt motorists during the cost of living crisis:

“Average UK pump prices are down by around 9.5p a litre for petrol and 7p for diesel compared to early July. But, since early June, wholesale petrol is down 20p-25p a litre depending on whether or not you factor in VAT.

In many areas of Britain, a 10p-a-litre drop in pump prices is still a ‘pumpdream’. And that is where the fuel trade is forcing struggling drivers to play the pump-price postcode lottery.

“When you consider that many small independents have been slashing 10p and sometimes 15p off fuel, because lower costs have allowed it, the failure of bigger forecourts to do likewise is pretty unforgiveable.”

Labour MPs urge BT boss to meet unions over pay dispute

Senior Labour MPs have written to the chief executive of BT, urging him to intervene in a pay dispute which has sparked strikes by thousands of workers.

The party’s deputy leader, Angela Rayner, and shadow digital, media and sport secretary Lucy Powell urged Philip Jansen to enter into negotiations with the Communication Workers Union (CWU).

They said he should follow the lead of other chief executives and “take your place at the negotiating table to find a fair deal”.

CWU members at BT and Openreach have staged two 24-hour strikes in recent days in protest at a 1,500 pay increase which the union described as a real-terms wage cut because of the soaring rate of inflation.

BT, though, is unwilling to restart pay talks - Jansen said last week that the £1,500 pay deal offered to frontline staff was “history” and not open for negotiation.

A BT Group spokesman said:

“At the start of this year, we were in exhaustive discussions with the CWU that lasted for two months, trying hard to reach an agreement on pay.

“When it became clear that we were not going to reach an accord, we took the decision to go ahead with awarding our frontline colleagues the highest pay award in more than 20 years, representing a pay rise of around 5% on average and 8% for the lowest paid.

“We have been in constant dialogue with the CWU and we have reaffirmed our willingness to discuss how we move forward from here but it would be inappropriate to reopen negotiations on a pay award that we implemented in April, when it was due.”

The summer of industrial unrest has caused tensions within Labour, over leader Keir Starmer’s policy that frontbenchers should not join on picket lines.

Rayner and Powell met union officials in a Zoom meeting on Monday, but shadow levelling up minister Lisa Nandy did visit striking BT workers on Monday, to show supporr for constituents campaigning for better pay and conditions.

Over in Turkey, inflation has soared to a fresh 24-year high... of 79.6% in July.

Prices continued to climb, due to the lira’s continued weakness and global energy and commodity costs.

That’s up from 78.6% in June, and actually a little lower than forecast - but still the sharpest annual inflation since 2002, with prices climbing another 2% in just one month.

Updated

Services companies make up about three-quarters of the UK economy, so July’s slowdown is a concern -- especially as manufacturing growth hit a two-year low.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said supply chain problems are still hitting growth.

“The services sector was on a go-slow trajectory in July, with the weakest level of growth since February 2021, as some ongoing shortages and subdued new business gains hindered progress.”

Anxiety over a possible recession is hitting business confidence too, Brocks adds;

“Service firms responded with a downbeat view of the next 12 months, the second lowest since May 2020, aware that the looming threat of further interest rises and recession on the horizon is unlikely to encourage consumers to spend.

French energy provider EDF could be forced to cut power output from some of its nuclear reactors as river temperatures rise due to hot weather in France.

EDF’s move adds to the energy crisis in Europe, with many of EDF’s French nuclear plants offline due to routine maintenance or defects.

Bloomberg has the details:

The French utility said late Tuesday that power stations on the Rhone and Garonne rivers will likely produce less electricity in the coming days, but there will be a minimum level of output to keep the grid stable. A heat wave is pushing up river temperatures, restricting the utility’s ability to cool the plants.

The reductions threaten to further push up power prices, which are already near record levels in France and Germany. Europe is suffering its worst energy crunch in decades as gas cuts made by Russia in retaliation for sanctions drive a surge in prices.

UK services sector growth drops to 17-month low

British services sector activity growth has slowed to its slowest pace since early 2021, during a Covid-19 lockdown.

Outpur growth hit a 17-month low in July, as the economy was hit by the highest inflation in 40 years. Order books remained subdued, and confidence about the future remained at an historically subdued level.

But there were also signs that inflationary pressures could be easing a little, as input cost inflation softened to its lowest since December 2021.

This pulled S&P Global/CIPS UK Services Purchasing Managers’ Index down to 52.6, down from 54.3 in June -- and weaker than the ‘flash’ reading taken in mid-July.

UK service sector PMI

Tim Moore, S&P Global Market Intelligence’s economics director, said.

“UK service providers reported their worst month for business activity expansion since the national lockdown in February 2021.

Reduced levels of discretionary consumer spending and efforts by businesses to contain expenses due to escalating inflation have combined to squeeze demand across the service economy.

The near-term outlook also looks subdued, as new order growth held close to June’s 16-month low and business optimism was the second weakest since May 2020.

Updated

Despite economic headwinds, German exports beat forecasts with 4.5% growth in June.

Exports from Europe’s largest economy hit a record level thanks to demand from the European Union, the United States and China, data this morning shows.

Exports rose for a third month in a row, pushing Germany’s seasonally adjusted trade surplus to €6.4bn (£5.35bn) in June, well above a forecast for €2.7bn.

Preliminary data last month had shown Germany posting its first trade deficit in more than 30 years in May, but that May figure of €-1.0bn has been revised to show a small surplus.

Updated

Eurozone 'slips into contraction' as inflation hits economy

The eurozone private sector shrank last month for the first time since Febuary 2021, as manufacturing output declined and the service sector slowed.

Companies across both sector blamed the damaging impact that high inflation was having on output levels, with businesses hit by a fall in new orders and growing economic uncertainty.

The latest survey of eurozone purchasing managers, from S&P Global, found that the manufacturing sector was a significant drag on the euro area economy during July as production volumes fell at the fastest rate since May 2020.

Services activity continued to rise overall, but growth slowed to its weakest since the Omicron-related disruption at the start of the year.

Lloyd’s of London insurer Hiscox is committed to a planned insurance consortium providing cover for ships travelling through a safe passage from Ukraine, its chief executive said has told Reuters.

Trade body the Lloyd’s Market Association last month said a consortium could be formed to provide cover for grain shipments transported through the Black Sea to alleviate a global food crisis.

The consortium had not yet been finalised, Aki Hussain told Reuters by phone.

“We have committed our support to the Lloyd’s market-led initiative.

“We are very supportive of it.”

Lloyd’s insurer Ascot and broker Marsh have already launched a separate facility to provide up to $50m in cover for grain shipments from Ukraine.

The first grain-carrying ship to leave Ukrainian ports since the Russian invasion began left the port of Odesa on Monday, under an internationally brokered deal to unblock Ukraine’s agricultural exports.

The Razoni safely anchored off Turkey’s coast on Tuesday, and is being inspected today:

An inspection delegation boarding the Sierra Leone-flagged cargo ship Razoni carrying 26,000 tonnes of corn from Ukraine, off the coast of north-west Istanbul today.
An inspection delegation boarding the Sierra Leone-flagged cargo ship Razoni carrying 26,000 tonnes of corn from Ukraine, off the coast of north-west Istanbul today. Photograph: Ozan Köse/AFP/Getty Images

Taylor Wimpey staff to get £1,000 to help with cost of living squeeze

A Taylor Wimpey Plc residential housing construction site.

Taylor Wimpey, one of Britain’s biggest housebuilders, is handing many of its employees a payment of up to £1,000 to help them with soaring living costs.

Staff on annual salaries of up to £70,000 will qualify for the payment, to help them cope with rising inflation and the predicted increase in fuel bills this winter, my colleague Julie Kollewe reports.

Other companies have also been giving staff one-off payments to help; HSBC agreed a £1,500 payment for lower-paid staff earlier this week.

Taylor Wimpey’s move came after a solid set of first-half results with revenues of £2.1bn, down 5.4% from last year, and a profit before tax of £334.5m, up 16.3%. Excluding joint ventures, the company completed on 6,790 homes, down from 7,303 last year but ahead of its expectations.

The group, run by Jennie Daly, now expects full year operating profit toward the top end of £873-£924m. That’s driven by strong average selling prices that are expected to be 4%-5% higher than last year, fully offsetting 9%-10% build cost inflation.

Taylor Wimpey shares have risen 2.3% on the news.

Matt Britzman, equity analyst at Hargreaves Lansdown, said:

“This was a good set of numbers against the backdrop of record performance last year.

There’s still a structural supply/demand imbalance in the UK propping up prices despite consumer spending power falling. The forward order book looks strong and Taylor Wimpey’s doubling down on efforts to take full advantage, opening the check book to push more outlets and being new land plots into the fold.

Cost inflation remains a thorn, running around 9-10% but fully offset by higher prices for now. It remains to be seen how long that can continue, but while it does shareholders can continue to expect solid returns.”

Updated

Budget airline Ryanair flew almost one million more passengers in July than in June, despite the disruption at UK airports.

Ryanair carried 16.8m passengers last month, 80% more than in July 2021. That’s up from the 15.9m in June, when Ryanair broke its passenger record.

Planes were fuller than a year ago too, with Ryanair lifting its load factor to 96% in July, from 80% in July 2021.

The £6bn merger between British cybersecurity company Avast and US rival NortonLifeLock has been provisionally given the green light by the UK competition watchdog -- sending Avast’s shares rocketing.

The Competition and Markets Authority (CMA) said it does not believe the tie-up raises competition concerns in the UK following an in-depth merger launched after the deal was announced last August.

The CMA said while concerns were first raised in its initial probe, more detailed analysis of the deal found that the merging businesses face “significant competition” from the likes of main rival McAfee and a range of other smaller suppliers.

It added security applications provided by Microsoft - the owner of the Windows operating system - are increasingly important alternatives for consumers, with the group now offering free built-in security application that “give protection which is as good as many of the products offered by specialist suppliers”.

Shares in Avast have jumpd over 40%, suggesting the City didn’t expect the CMA to give provisional clearance.

Avast’s share price
Avast’s share price Photograph: Refinitiv

The CMA has set a deadline of August 24 for responses to its provisional decision, with a final report due by September 8.

Updated

UK petrol prices not falling in line with wholesale cost – RAC

Major retailers are moving too slowly to cut petrol prices, the RAC has warned.

Although fuel prices did drop last month, those reductions still don’t fairly reflect the fall in the wholesale price of fuel.

My colleague Gemma McSherry explains:

Over the last eight weeks, the average price paid for unleaded by drivers across the UK has only dropped by 9p a litre – all of which came off in July – despite wholesale petrol prices falling by 20p in the same time period.

According to the motoring organisation, the wholesale cost of unleaded is now back to the prices reached in early May, meaning a litre should be 167p, not 183p.

The disparity in cost from wholesale to consumer means drivers are paying nearly £9 more on a tank of petrol than they should be, it said. A tank of diesel should be lower than the end of July average, the RAC added.

RAC fuel spokesperson, Simon Williams, criticed the supermarket chains for not cutting prices faster last month:

“July has been an unnecessarily tough month for drivers due to the big four supermarkets’ unwillingness to cut their prices to a more a reasonable level, reflecting the consistent and significant reductions in the wholesale cost of petrol and diesel.”

Updated

World economy 'fraying at edges'

NIESR have also slashed their global growth forecasts, and lifted their inflation forecasts, warning that the world economy also risks stagflation.

Global GDP is only expected to rise by 2.8% this year, and again in 2023, down from 3.3% and 3.2% growth which was forecast in the spring.

And inflation across the OECD is now seen soaring to 9.7% this year (up from 8.2% forecast previously), and only drop back to 6.3% in 2023 (up from 4.5%).

NIESR’s forecasts

“The world economy is fraying at the edges”, warns Corrado Macchiarelli, NIESR’s Manager for Global Macroeconomics Research:

The easing of monetary and financial conditions during Covid, continuing disruptions to supply chains and the continuing war in Ukraine have prompted us to revise global GDP growth down and inflation up even further, compared to our Spring Outlook.

Uncertainty around Russia’s supply of gas to the Euro Area, the effect that higher policy and market interest rates will have on global demand, and the impact of higher fuel and food price rises on emerging markets are among the key downside risks to this forecast.”

The next UK prime minister should focus economic policy on redistributing resources to the most financially vulnerable households and maintain public services, NIESR adds.

They recommend:

  • A Universal Credit uplift of £25 per week for at least six months from October 2022 to March 2023.

  • Raising the energy grant from £400 to £600 for the 11 million low-income households.

  • doubling the financial support for the Towns Fund from £4.8bm to £9.6bn and expanding the remit of the UK Infrastructure Bank; increasing its capital from £14bn to £50bn.

Professor Stephen Millard, NIESR’s Deputy Director for Macroeconomics, says families need support, while the Bank of England tries to get inflation under control.

“The UK economy is heading into a period of stagflation with high inflation and a recession hitting the economy simultaneously.

It’s now up to the Monetary Policy Committee to make sure inflation does come down next year and the new Chancellor to support those households most affected by the recession and cost-of-living squeeze.”

Introduction: UK facing recession and cost-of-living crisis

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

The UK is heading into a period of stagflation with high inflation and a looming recession dealing a double-blow to the country as a winter of economic misery approaches.

That’s the chilling warning from the National Institute of Economic and Social Research this morning, which fears that one in five households will be left without savings by 2024, as the cost-of-living crisis hits.

In its latest quarterly outlook of the UK economy, NIESR warns that CPI inflation is anticipated to peak close to 11 per cent in the fourth quarter of this year, when energy bills across Britain are expected to soar over £3,000 per year.

Those soaring prices mean average real household disposable incomes would shrink by 2.5% this year, as wages fail to keep up with inflation.

NIESR warns that vulnerable households will be worse hit. It predicts the UK will enter a recession this quarter - which will last until the first quarter of 2023 -- pushing up unemployment.

NIESR’s latest economic forecasts

This would worsen economic inequality across the country, scuppering the Levelling Up agenda.

NIESR sees the gap between London and the rest of the United Kingdom widening, as the West Midlands, and parts of Wales and Scotland continue to fall further behind.

The government must give more support to help struggling households through the crisis, insists Professor Adrian Pabst, NIESR’s Deputy Director for Public Policy:

“All households are facing soaring energy and food bills but too many have to resort to credit, build up payment arrears or see their savings wiped out.

The incoming administration needs to provide immediate emergency support to the 1.2 million hardest hit households and the one-in-five households that will become financially vulnerable as the energy price cap is lifted and the recession begins to bite.”

Here’s the full story:

And here are the key points from their report:

  • We expect GDP to grow by 3.5 per cent this year and 0.5 per cent next year, with an ‘evens’ chance of GDP being lower at the end of this year than at the end of last year.
  • We forecast consumer price index inflation to peak close to 11 per cent in the fourth quarter, falling back to 3 per cent at the end of 2023. We expect retail price index inflation to reach 17.7 per cent – its highest rate since June 1980.
  • We expect the Monetary Policy Committee to continue tightening policy, with Bank Rate reaching 3 per cent in the second quarter of next year.
  • We see unemployment rising above 5 per cent over the coming twelve months as firms respond to the fall in aggregate demand.

Also coming up today

Ministers from the Opec oil producers will meet today, but are not expected to agree to boost crude supply, as a possible global recession could limit energy demand.

The latest survey of purchasing managers are expected to show that service sector growth slowed in the UK, and across Europe, in July.

And the travel sector continues to struggle with the summer rush, with British Airways deciding to restrict sales for short-haul flights from Heathrow all summer, with no more tickets for departures before 15 August.

The agenda

  • 7am BST: German trade balance for June
  • 9am BST: Eurozone service sector PMI for July
  • 9.30am BST: UK services sector PMI for July
  • 10am BST: Eurozone retail sales for June
  • Noon: OPEC and non-OPEC Ministerial Meeting
  • 3pm BST: US factory orders for June

Updated

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