Get all your news in one place.
100’s of premium titles.
One app.
Start reading
The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Cost of living squeeze deepens as recession looms; Felixstowe port strike dates set – as it happened

Recession United Kingdom Inflation Bank of England Andrew Bailey United States Liz Truss Resolution Foundation Economy Andrew Sentance
The Port of Felixstowe in Suffolk, Britain's biggest and busiest container port.
The Port of Felixstowe in Suffolk, Britain's biggest and busiest container port. Photograph: Joe Giddens/PA

Closing summary

Time to wrap up:

Dockers at Felixstowe are planning eight days of strike action over pay that could cause serious disruption to the UK’s largest container port.

Nearly 1,900 workers plan to stop work for more than a week at the Hong Kong-owned port, starting on Sunday 21 August and ending on Monday 29 August, according to the union Unite. The workers voted 92% in favour of strike action last week.

The union said the latest round of talks with the company at Acas, the conciliation service, had failed to yield a “reasonable offer”, but further talks are planned for Monday.

Prolonged strikes would almost certainly disrupt traffic through the port, adding to the problems facing the UK economy as it braces for a deep, year-long recession.

In another dispute, managers employed by Network Rail have voted to accept a 4% pay offer.

Economists have warned that the UK faces a ‘deepening economic crisis’, after the Bank of England forecast the country will fall into its longest recession in 30 years.

Bank of England governor Andrew Bailey has defended the Bank’s actions, following sharp criticism from some politicians. He denied that the MPC had been too slow to raise interest rates, and insisted he wouldn’t leave his eight-year post early.

Bailey also called on businesses and workers to resist fuelling inflation by hiking prices, or pushing for large wage increases -- arguing that society shoud recognise that the poorest (who suffer most from inflation) are least able to protect themselves.

A day after predicting that inflation would hit 13.3%, the highest in over 40 years, Bailey told the Today programme:

If everybody tries to beat inflation – and that is in both price-setting and wage-setting – it doesn’t come down, it gets worse.”

Millions of families are now cutting back on energy, food and other essential purchases, data from the Office for National Statistics shows.

Poor households are more likely to be making cuts, as the cost of staple goods and services jumps.

These are truly desperate times, and millions of people have been forced to take desperate measures,” said Sarah Coles senior personal finance analyst at Hargreaves Lansdown

“While all of us are facing the pain of rising prices, it’s those on lower incomes, renters, people with disabilities and those in the most deprived areas that are facing impossible challenges.”

Struggling families need help fast, before energy bills jump over £3,000 per year in the autumn. But any new package will have to wait until the Conservative leadership race is over.

Rising borrowing costs may now be cooling the UK housing market, with prices dropping last month for the first time in over a year.

But the US jobs market is hotter than thought, with American firms adding more than half a million new jobs in July.

That takes the US labor market - finally - back to its pre-pandemic level, a milestone in the economic recovery.

But Europe’s economy faces yet another problem - the Rhine, a key waterways, is just days away from being closed to commercial traffic because of very low levels caused by drought.

And Sir Christopher Gent, the former chief executive of Vodafone and ex-chair of GlaxoSmithKline, has been fined £80,000 by the UK financial watchdog for disclosing inside information to shareholders while chair of the medical-devices maker ConvaTec.

We’ll be back on Monday. GW

Passengers queue for a bus in Wimbledon.

Some late news: Over 1,600 London bus drivers are set to strike later this month.

The Unite union has announced two days of strike action involving bus workers employed by London United, which runs services in west and south-west Greater London, after their employer failed to make a reasonable pay offer.

It will affect workers based at London United bus depots in Fulwell, Hounslow, Hounslow Heath, Park Royal, Shepherd’s Bush, Stamford Brook, and Tolworth.

The initial strike action will take place on Friday 19 August and Saturday 20 August. The first day of industrial action coincides with strikes planned for the London Underground and Overground.

Unite says workers were offered a pay increase of 3.6% in 2022 and 4.2%t next year, well below inflation.

Unite regional officer Michelle Braveboy said:

“Strike action will cause considerable disruption to passengers across London.

This dispute is of the company’s own making, it can make a fair pay offer to its workers but has chosen not to, so it now faces the prospects of a highly disruptive strike action.”

There are around 25,000 London bus drivers altogether.

Another industrial dispute has been resolved, with managers employed by Network Rail have voting to accept a 4% pay offer.

The Transport Salaried Staffs’ Association (TSSA) confirmed its management-grade members had accepted the deal, which should ensure a skeleton service will continue to run during planned strikes in August.

The government has hailed the move as a breakthrough in the wider rail strikes dispute.

The decision was announced the day after 2,500 other TSSA members at Network Rail confirmed they would take action alongside 40,000 Rail, Maritime and Transport workers’ union (RMT) members, including signallers and train operating staff, on Thursday 18 and Saturday 20 August.

The transport secretary, Grant Shapps, said it was “fantastic news”, adding:

“This acceptance by these TSSA members will mean that we have a strong, reliable contingency staff for any future strikes and will be able to run services for passengers and minimise disruption to lives of everyday people.

More here:

The owners of Felixstowe port say they’ve not given up on reaching a deal with workers.

Hutchison Ports says they improved their pay offer from 5% to 7%, and are disappointed by Unite’s announcement of an eight-day strike.

A company spokesperson says:

The company continues to actively seek a solution that works for all parties and that avoids industrial action. We understand our employees’ concerns at the rising cost of living and are determined to do all we can to help whilst continuing to invest in the port’s success. Discussions are on-going and the company’s latest position in negotiations is an enhanced pay increase of 7%.

We are meeting again on Monday 8th August with Acas and the union.

“The port has not had a strike since 1989 and we are disappointed that the union has served notice of industrial action while talks are ongoing.

The port provides secure and well-paid employment and there will be no winners from industrial action.”

Deal news: Amazon is buying the makers of the Roomba, the robot vacuum cleaner, in a $1.7bn all cash deal.

The acquisition of iRobot will expand Amazon’s range of smart home devices.

Roomba’s aren’t cheap -- iRobot’s j7+ costs around £899, but have proved popular with families as they pootle around sucking up dirt and dust while dodging obstacles.

The company also makes a robot mop, the Braava - although again, a £699 price tag means many households (ours, certainly) will stick with the traditional methods....

Braava

Russia has banned investors from so-called ‘unfriendly countries’ from selling shares in certain strategic enterprises until the end of the year.

A presidential decree signed by President Vladimir Putin prohibits the sale of shares in key assets, from energy projects and banks to production sharing agreements and producers of coal and nickel.

Reuters says the ban covers almost all big financial and energy projects where foreign investors still have stakes.

Further talks are scheduled to take place at Acas next Monday, Unite adds, so there’s still a chance that the Felixstowe strike action is averted.

Unite national office for docks Bobby Morton says:

“Strike action will cause huge disruption and will generate massive shockwaves throughout the UK’s supply chain, but this dispute is entirely of the company’s own making. It has had every opportunity make our members a fair offer but has chosen not to do so.

“Felixstowe needs to stop prevaricating and make a pay offer which meets our members’ expectations.”

The Unite members who work at Felixstowe undertake a wide range of roles, including crane drivers, machine operators and stevedores.

An eight-day strike at the port of Felixstowe could cause significant disruption to UK supply chains.

Felixstowe handles about 40% of containers entering and leaving the UK, so delays unloading goods could cause a ripple effect through the economy.

My colleague Joanna Partridge explained last month:

Felixstowe handles about 45,000 containers each week, with freight including clothing, consumer goods and manufacturing components.

The Unite strike is timed to coincide with an increase in traffic: the number of containers begins to rise from August, as retailers bring over more goods, particularly from the far east, to start filling their warehouses before Christmas.

Unite says that talks at Acas “failed to reach a satisfactory conclusion” yesterday, after the Felixstowe Dock and Railway Company didn’t improve on an offer of a 7% pay increase.

That is significantly below the RPI inflation rate of 11.8%, Unite points out.

Unite general secretary Sharon Graham said:

“Both Felixstowe docks and its parent company CK Hutchison Holding Ltd are both massively profitable and incredibly wealthy. They are fully able to pay the workforce a fair day’s pay.

“The company has prioritised delivering multi-million pound dividends rather than paying its workers a decent wage.

“Unite is entirely focused on enhancing its members’ jobs, pay and conditions and it will be giving the workers at Felixstowe its complete support until this dispute is resolved and a decent pay increase is secured.”

Felixstowe port workers to strike for eight days from August 21

Dockers at the UK’s largest container port, in Felixstowe, are to hold an eight-day strike from 21st August, in a pay dispute.

The Unite union has announced the dates for the strike action, saying the Felixstowe Dock and Railway Company had failed to make an acceptable pay offer.

Over 1,900 workers who are members of Unite will take part in the strike action, from 21st to 29th August, the union says.

The Port of Felixstowe in Suffolk
The Port of Felixstowe in Suffolk Photograph: Gareth Fuller/PA

The move is the latest blow to efforts by ministers to contain a wave of industrial unrest sparked by the cost of living crisis.

Workers at the port of Felixstowe in Suffolk balloted 92% in favour of a strike last month after they were offered a below-inflation pay rise by the Felixstowe Dock and Railway Company.

Updated

The US dollar has strengthened sharply after today’s stronger-than-forecast jobs report.

It’s knocked the pound down by a cent, to $1.2020, the lowest in over a week.

CBI chief Tony Danker also put his finger on one problem pushing up inflation -- shortages of workers.

Danker said “labour shortages is probably the number one issue facing businesses today”, as it holds back growth and also leads to wage pressures.

“I think we need to start, as a country, getting serious about how we solve labour shortages.”

Vacancies at UK firms have soared to record highs in recent months, with firms across the economy struggling to hire staff.

Several factors are to blame - some older workers have left the workforce altogether; long Covid has driven up sickness rates, and Brexit has hit the pool of EU workers which some firms, such as easyJet, relied on.

CBI fears vacuum until next UK PM starts

Back in the UK, CBI director general Tony Danker said he fears a vacuum until the next prime minister is chosen.

Danker, whose organisation represents UK businesses, says “we cannot wait until September 5 for action” to tackle the economic crisis, as Kwasi Kwarteng says will happen.

PA Media have the details:

Danker was speaking on BBC Radio 4’s World at One programme and was asked about the Prime Minister and Chancellor being on holiday while the economic crisis looms.

Mr Danker said:

“I have no problem with people having short holidays. My fear is much more profound, which is that there will be a vacuum from now until September 5.

“We need the current Prime Minister and the current Chancellor to fill that vacuum. We need them to make decisions. We need them to make plans. We need them to reassure firms, markets and households that we are gripping this.

“We cannot wait until September 5 for action. We cannot wait until September 5 for plans and we cannot wait until September 5 for reassurance.”

He added that ministers need to prepare interventions for when Ofgem announce the energy price cap rise later this month:

“They need to be signalling that the Government has a response and an answer. And they need to be setting out growth plans and growth intentions now.”

US jobs market recovers to pre-pandemic levels

Well, this is A Moment, and a welcome one too amid the economic gloom.

Both US nonfarm employment and the US unemployment rate have returned to their February 2020 pre-pandemic levels, today’s jobs report shows.

Our US business editor Dominic Rushe reports:

The US added 528,000 jobs in July as the unemployment rate edged down to 3.5%, in a stronger than expected report.

Economists had been expecting jobs growth to slow in July and the latest figures from the labor department were far stronger than the average 388,000 jobs gained over the last four months.

Job growth was widespread, led by gains in leisure and hospitality, professional and business services, and healthcare.

Meanwhile in the US, July was a much stronger month for job creation than expected.

The US Non-Farm Payroll, which measures employment across the US, shows there were 528,000 new jobs created last month, beating forecasts of a slowdown to 250,000.

The US unemployment rate actually dropped to 3.5%, with widespread job gains across leisure and hospitality, professional and business services, and health care -- even though the US is technically in recession.

Wage growth was also stronger than forecast, with average hourly earnings up 0.5% in the month.

That’s an encouraging sign for the US economy... but it also means the US Federal Reserve is likely to keep raising interest rates sharply to squeeze out inflation.

Stock markets have dropped in Europe, as have Wall Street futures, as a result.

Despite the painful squeeze already being felt by millions, there’s no sign of immediate support from the government.

UK business secretary, Kwasi Kwarteng, has admitted it will be more than a month before ministers can introduce any measures to tackle the rising cost of living.

Kwarteng, who is backing the foreign secretary, Liz Truss, to become the next leader of the Conservative party, said he was expecting a a new prime minister to introduce a “support package” in an emergency budget but it could not happen until after they start work next month.

Here’s the story, by my colleague Emily Duggan:

The news that sixteen million people have cut back on food and essentials shows that households are already taking “difficult decisions”, says Laura Suter, head of personal finance at AJ Bell.

Suter explains (via Sky News):

“The cost of living crunch means certain groups feel the pinch more than others. Disabled people are more likely to have to cut back on food and essentials, as are people living in deprived areas.

“Those renting are also more likely to have slashed their spending, with many citing rising housing costs as one of the key factors contributing to their rising living costs.

However, as more homeowners come off their cheap fixed rate mortgages and roll on to pricier deals we’ll likely see them feel the crunch more too.”

Deprived households cut back the most

The ONS’s cost of living survey also shows clearly that the most poorest households are suffering more than wealthier ones.

Those in the most deprived areas were more likely to have reduced spending on food and essentials.

The ONS says:

Among those who had seen cost of living increases, those living in the most deprived fifth of areas in England were more likely to have cut back on food and essentials (42%) than average (35%).

Meanwhile, those in the least deprived fifth of areas were less likely (27%).

Cutting electricity and gas use was more common than average among those who were earning between £10,000 and £15,000 per year (56%), and less common among those earning more than £50,000 per year (44%).

Those living in the most deprived areas more likely to be using credit too -- at 18%, compared with just 8% of those living in the least deprived areas.

Also, those living in rented housing whose cost of living had gone up were more likely to have reduced their spending on food and essentials (46%) than those who own their homes outright (27%) or are paying off a mortgage (33%)

Matt Whittaker of Pro Bono Economics has tweeted the key findings, and says it shows the need for targeted support.

The cost of living squeeze is having a devastating impact on disabled people, warns Scope, the disability equality charity, even before the energy price surge this winter.

Tom Marsland, policy manager at Scope, says today’s ONS’s Cost of Living survey highlights the need for more support:

“These stark findings show millions have already had to cut back, with disabled people hardest hit – even before October’s terrifying energy price hikes have come into force.

“Scope has been inundated with calls from disabled people who have been forced to make dire cutbacks on personal care, hygiene, food and energy because of rampaging inflation.

“This is having a devastating impact on disabled people’s lives, and the support from government just won’t touch the side.

“Life costs more if you’re disabled, which is why the government must get more financial support to disabled people now, to stop millions being pushed deeper into destitution.”

Today’s ONS reports shows that disabled people were more likely than non-disabled people to have reduced their spending on food and essentials because of their increased costs of living (42%, compared with 31%).

Updated

WPP’s logo

In the City, shares in advertising giant WPP have slumped more than 7% after investors reacted to concerns over the strength of the ad market next year as the global economy weakens.

The London-based marketing services giant is the top faller on the FTSE 100, with more than £700m wiped off its market value, despite beating analyst consensus for performance in the second quarter and joining peers in raising full year targets.

WPP reported organic revenue growth of 8.2% in the second quarter - well ahead of City expectations of 5.5% growth. The company reported double digit revenue growth in the US, the world’s largest ad market, and Germany in the second quarter with the UK growing at 6.2%.

The strong performance prompted the company to raise its underlying growth forecast for this year by 0.5% to a range of 6% to 7%, similar to US rivals Omnicom and Interpublic and France’s Publicis which have already reported solid results.

However, Mark Read, the chief executive of WPP, admitted that there is a “more uncertain economic environment ahead” in 2023.

WPP said it was “confident” of sticking to its target of organic revenue growth of 3-4% and headline operating profit margin of 15.5-16% next year, but said it would not confirm official guidance for 2023 until February.

Investors are taking this unwillingness to give a concrete forecast as a potential sign that the market could weaken, sending WPP’s shares down more than 7%. The company’s shares are down 14% in the last year.

Thomas Singlehurst, analyst at Citi, says:

“There is a lot of scepticism out there over the outlook for the advertising sector.

Updated

Full story: Workers asking for pay rises risk embedding inflation, says Bank boss

Workers should refrain from asking for inflation-matching pay rises, according to the governor of the Bank of England, who warned there was a risk of inflation becoming “embedded”.

Andrew Bailey, who added that he does not expect interest rates to settle at pre-financial crisis levels of about 5%, refused to be drawn on what an appropriate pay rise would be, a day after he warned inflation would hit 13% in October. The Bank’s inflation target is 2%.

“If everybody tries to beat inflation – and that is in both price-setting and wage-setting – it doesn’t come down, it gets worse,” he said, speaking to BBC Radio 4’s Today programme on Friday.

“My key point is, if inflation becomes embedded and persistent, it gets worse. And the effects get worse.”

The UK is embroiled in a summer of strikes by workers in industries from rail and aviation to post and telecommunications as unions attempt to secure increases to allow members to keep wages in line with inflation levels running at a 40-year high.

More here:

Households have been warned that the average energy bill could climb to nearly £4,000 a year from January, higher than some previous forecasts.

Auxilione, a small energy consultancy, has predicted that the energy price cap in Great Britain will be lifted to £3,488 per year from October, and then against to £3,994 at the quarterly change in January 2023.

Predictions for January are still uncertain as there are more than three months left until the price is decided.

October’s prediction is likely to be more accurate (Ofgem should release the new price cap later this month - it’s currently £1,971 per year).

The research firm Cornwall Insight, who have a good track record on the price cap, predicted earlier this week it could hit £3,615 a year from January.

Last month BFY, a management consultancy, predicted a typical energy bill could reach £3,850 a year by January.

The important issue is that the government’s existing package of support will be inadequate for struggling households, as Resolution Foundation warned (see opening post).

Updated

It’s become clear this week that Andrew Bailey and Liz Truss have very different views about how to handle inflation and the economic crisis.

That suggest there could be significant tensions between Downing Street (should Truss beat Rishi Sunak) and Threadneedle Street as the economy slides into recession - a situation where you want monetary and fiscal policymakers to work together.

Particularly with some newspapers (notably today’s Daily Mail) blaming Bailey for not reacting faster last year.

ITV News’s Joel Hills sums up the situation:

Updated

Here’s a video clip of business secretary Kwasi Kwarteng criticising the Bank of England’s control of inflation this morning (see earlier post), saying ‘clearly something’s gone wrong’ as inflation heads towards 13%.

Millions cut back on energy, food and essentials

Around 24 million people in Great Britain have been cutting energy use in their home, while 16 million cut back on food and essentials, the Office for National Statistics has warned.

The ONS’s latest cost of living survey has found that nine in 10 adults in Great Britain said their cost of living has increased, as rising inflation hammered household incomes.

The most common causes were:

  • an increase in the price of their food shop (94%)
  • an increase in gas or electricity bills (82%)
  • an increase in the price of fuel (77%)

Faced with these price rises, millions of families are cutting spending where they can, running down their savings, or borrowing more on credit.

More than a third of those whose cost of living had gone up cut back spending on food and essentials (equal to around 16 million people).

Almost a quarter (23%, around 11 million people) used savings to cover costs, and 13% (around 6 million people) said they were using more credit than usual.

The survey also found that people are:

  • spending less on non-essentials (57%, around 26 million people)
  • using less gas and electricity in their home (51%, around 24 million people)
  • cutting back on non-essential journeys in their vehicle (42%, around 19 million people)

Breaking away from the UK economic crisis briefly... Britain’s financial watchdog has fined City veteran Sir Chris Gent £80,000 for disclosing inside information.

The Financial Conduct Authority (FCA) said Gent, the former chair of medical products maker ConvaTec Group, had told two of ConvaTec’s major shareholders about two announcements, before the information had been announced properly to the market

They related to an expected revision of ConvaTec’s financial guidance and the CEO’s plans for retirement.

Gent, a former chief executive of mobile network giant Vodafone, had acted negligently in disclosing the information, says the FCA.

But there’s no evidence he traded on the information or that he intended to make personal gain, or avoid loss, from making the disclosures.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, says:

‘Private disclosure of inside information, especially by the Chairman of a listed issuer, risks investor confidence and the integrity of financial markets.

Sir Christopher failed to properly apply his mind to the question of what information he could properly disclose.

Updated

The Bank of England’s chief economist says the Bank is trying to keep its options open over future interest rate moves.

Huw Pill has told Bloomberg TV that the BoE wants to “ensure there’s an element of flexibility” over borrowing cost changes, so people shouldn’t assume rates will rise by another 50 basis points at its next meeting.

Given the uncertainties we face, I think we need flexibility either to go further, or to stay where we are, and the pace at which we go further to be varied according to circumstances”

But will rising interest rates hit house prices, as it pushes up mortgage costs?

Pill says the Bank expects the housing market to cool, but doesn’t foresee a ‘dramatic downturn’.

World food prices fall, helped by Ukraine wheat deal

We have some good news in the global battle against soaring inflation.

World food prices dropped significantly in July, according to the United Nations food agency’s world price index, further below their record highs after the Ukraine invasion began.

The UN’s Food and Agricultural Organization says the Black Sea export deal agreed between Russia and Ukraine last month was a key factor.

Its Cereal Price Index dropped by 11.5% last month, with wheat leading the price falls.

World wheat prices dropped by as much as 14.5%, FAO said, partly in reaction to the Russia-Ukraine deal on grain exports from key Black Sea ports, and also because of seasonal availability from ongoing harvests in the northern hemisphere.

Prices of vegetable oil, sugar and meat also dropped, pulling the FAO’s index of the most globally traded food commodities down to 140.9 points last month, from 154.3 in June.

But, the FAO warned that the bleak global economic outlook could threaten food security.

“The decline in food commodity prices from very high levels is welcome, especially when seen from a food access viewpoint,” said Maximo Torero, FAO Chief Economist.

“However, many uncertainties remain, including high fertilizer prices that can impact future production prospects and farmers’ livelihoods, a bleak global economic outlook, and currency movements, all of which pose serious strains for global food security.”

Updated

Here’s Helen Goodman, professor in practice at Durham University’s School of Government and International Affairs, on this morning’s interviews:

The Bank has come under fresh political fire this morning, from business minister Kwasi Kwarteng.

Kwarteng, who is backing Liz Truss, argues that the Bank was too slow to respond to rising inflation in 2021.

Kwarteng told Sky News:

“There is an argument - and I think it’s a strong one - to say that inflation was an issue that was identified at the beginning of last year.

“If your target is 2% and you’re predicting 13%, something’s gone wrong. And you’ve got to look at how the bank is organised and what the what the targets are,”

Inflation was just 0.4% in February 2021, when the UK was still in a Covid-19 lockdown. But it then started climbing, and by May 2021 was above the Bank’s 2% target.

However, the BoE resisted raising interest rates until its final meeting of 2021, worried that unemployment would jump when the furlough scheme ended that autumn.

Asked whether the BoE would keep its independence in a Truss-led government, Kwarteng said:

“It’s absolutely going to keep its independence.”

And Kwarteng also argued that cutting the tax burden, as Truss plans, will help:

“I’ve never understood why if we’re going to help people, how are we going to help people by putting up their taxes? Especially when their daily shop, their costs, are going up.

“What’s very clear to me from what the Bank of England said yesterday is that more of the same, just simply carrying on with our economic policy at the moment, is not going to cut it, it’s not going to help us get out of this difficulty.”

Andrew Bailey also says he doesn’t know what ‘normal’ interest rates will be in future, but they’re not going back to their levels before the 2008 financial crisis.

And he argues the Bank’s plan to start selling government bonds purchased under its £895bn quantitative easing programme will not have a ‘big impact’ on the cost of government borrowing.

“We don’t think that the rolling back of QE and the sale of assets is going to have a big impact on market interest rates”

BoE governor warns against high pay rises and price increases

The Bank of England governor has urged workers and businesses to resist pushing for high wage and price increases to match inflation.

He tells the Today Programme this would fuel inflation and hurt the least well off in society, in a signal to both companies and unions.

Q: What’s an inflationary pay rise in the current climate?

Andrew Bailey says there isn’t a specific number, but if everyone tries to beat inflation in both price setting and wage setting then it won’t fall.

If everyone tries to beat it, it doesn’t come down, it gets worse, that’s the problem.

The second problem, is that those who are worst hit by inflation are the poorest, who don’t have the bargaining power to protect themselves.

Bailey says:

“I put this in terms of high pay rises and high price increases, because in that world it’s the people who are least well off who are worst affected because they don’t have the bargaining power.

I think that is something that, you know, I would say broadly we all have to be very, very conscious of.”

Q: So that’s your message is that those who do have the muscle....

Bailey explains that the current inflation shock is particularly bad for people on low-incomes as it is concentrated in food and energy -- essential staples for us all.

I think there is a role in society to reflect on the fact that there are people who do not have the same ability to offset the effects of inflation, and they are going to be very badly affected by this.

Updated

Bailey: Firms aren't struggling to raise prices

Q: What’s the point in raising interest rates, if the inflationary shock is coming from global energy and food prices?

Bailey says the real risk is that inflation becomes embedded, following a domestic shock and a fall in the labour market over the last two years.

Firms are telling him that they’re struggling to find workers, and not finding it hard to raise prices.

The economy is ‘still robust’ in the eyes of businesses, he says, and if inflation becomes embedded it becomes worse.

Bailey says:

The first thing they want to talk to me about is that businesses have trouble hiring people, and that is still going on. They’re also saying to us actually they’re not finding it difficult to raise prices at the moment.

That can’t go on.

Updated

Bailey denies being too slow to raise interest rates

Andrew Bailey has denied that the Bank acted too late to tackle the UK’s inflationary threat, following criticism from allies of Liz Truss.

No-one knew a year, two years ago, that there would be a war in Ukraine, he tells the Today Programme.

Q: But inflation hit 30-year highs in December, before the Ukraine invasion.

Bailey points out that the Bank has been raising interest rates since December, and before that point the economy was still recovering from the pandemic.

If the Bank had acted faster, it would have risked bringing forward a recession - if the furlough scheme had led to an increase in unemployment

Q: Attorney General Suella Braverman says rates should have been raised a long time ago - you’re saying very plainly that is wrong?

I am saying that, Bailey replies:

“If you go back two years, which is, given the monetary transmission mechanisms, where we’d have to go back to, given the situation we were facing at that point in the context of Covid, in the context of the labour market, the idea that at that point we would have tightened monetary policy, you know I don’t remember there were many people saying that.”

Bailey adds that he looks forward to an ‘active engagement’ with the new government, and the Bank is always there to support taking public policy forward.

Bailey: Open to discussions with government over how regime works

The Today Programme are playing their interview with Bank of England governor Andrew Bailey now.

Asked about the political storm around the BoE’s handling of the crisis, Bailey says central bank independence is ‘critically important’, but its job is to get inflation back to target.

Bailey insists he intends to serve his full eight-year term as governor (which runs until 2028).

Q: Would changes to your current terms of independence be damaging, or are you open to change?

Bailey replies that he doesn’t see a large desire to question central bank independence, but he’s very happy to discuss the details of the current regime.

He rejects claims that the Bank is not accountable - it’s accountable to parliament, and he testifies to MPs regularly.

Bailey also points out that the government sets the Bank’s target for price stability (currently 2% inflation).

I’m open to any discussions with the government about how they think the regime should operate, Bailey adds.

Updated

UK house prices fall for first time in a year

UK house prices fell for the first time in more than a year in July, as the country’s largest lender warned of the impact of higher interest rates and the broader cost of living crisis.

The average price of a home was £293,221 last month, down 0.1% month on month, the first decrease since June last year, according to the latest report from Halifax.

The marginal drop pushed down the annual rate of growth from 12.5% to 11.8%, although overall house prices remain more than £30,000 higher than at the same time last year.

Russell Galley, Halifax’s managing director, says households are being squeezed by rising borrowing costs:

“While we shouldn’t read too much into any single month, especially as the fall is only fractional, a slowdown in annual house price growth has been expected for some time.

“Leading indicators of the housing market have recently shown a softening of activity, while rising borrowing costs are adding to the squeeze on household budgets.”

Here’s the full story:

Here’s some reaction:

IFS: Next PM must find billions of new support

Britain’s next prime minister must find billions of pounds of support for households and public services, Paul Johnson, director of the Institute for Fiscal Studies think tank, has said.

Speaking to BBC Radio 4’s Today programme about the Bank of England’s forecasts, Johnson warned that the Conservative leadership debate is not focusing on the challenges facing the public finances.

Johnson said high inflation could give a short-term lift to tax revenues (from higher wages and prices)....

But the thing that I find remarkable about the Conservative leadership debate is that they don’t seem to be talking about the things that’s really going to be in need of public finances.

“The first is, of course, they’re going to have to find many more billions to support households. I mean, this is a much bigger increase in energy bills than was expected even a few months ago when the support packages were announced, and that’s not going to be helped by the sorts of tax cuts that are being talked about.

Johnson also warns that some struggling public services face “potentially big real-terms cuts”

“Secondly, of course, there’s going to need to be more money for public services - the health service education and so on - because with inflation at 13%, and pay rises there in the 5-6% range, that means that the level of increases that were put in place this year and announced a year ago are looking far too small, because that was done in the expectation that inflation will be 3-4%.

Labour MP Barry Sheerman tweets:

The UK is facing ‘a juggernaut’ that will smash through family finances, warns Labour’s shadow work and pensions secretary Jonathan Ashworth.

Ashworth told the Today Programme that households need more support to cope with surging energy bills:

“There will be families and pensioners across the country waking up this morning reading the news who are absolutely terrified because a juggernaut is heading its way which will smash through family finances.

So, action is needed. We’ve got time to plan.

“The package that was announced to support families cope with energy bills is clearly not enough if we’re talking about energy bills of over £4,000, that’s nearly half the full state pension.

“So, we would reduce VAT on energy bills, we wouldn’t be giving £4bn worth of tax breaks to gas and oil companies as the Government is doing, we would be retrofitting homes.”

‘The big squeeze’: what the papers say about Bank of England’s recession forecast

Today’s UK newspapers are dominated by the Bank of England’s prediction that the UK is heading into a long recession:

The Financial Times goes big with a “red alert” graphic showing GDP and inflation alongside an image of Bank governor Andrew Bailey, under the headline:

“BoE warns of long recession as interest rates rise by half-point”. It notes that the outlook is worse than that of the US or the EU.

“Britain slides into crisis”, says the Times, creating a similar graphic showing interest rate rises, under the title “black Thursday”.

Economics editor Mehreen Khan says the Bank “unleashed a catastrophic set of forecasts that would have been scarcely believable a year ago”.

Today’s Guardian leads on the Bank’s latest rate rise and the forecast of 13% inflation. It lays the blame squarely on Vladimir Putin over his invasion of Ukraine, quoting Bailey’s line that “there is an economic cost to the war”.

The Daily Mail calls Andrew Bailey “The banker who is running out of credit”, saying the Bank faced a ferocious backlash last night for not acting sooner.

My colleague Graham Russell has all the details here:

Yesterday’s hefty rise in UK interest rates, from 1.25% to 1.75%, probably won’t be the last in this cycle, despite the looming recession.

Amarjot Sidhu, economist at BNP Paribas Markets 360, predicts rates could reach 2.5% by the end of the year:

In forecasting a prolonged recession and implicitly pointing to rate cuts eventually, the Bank of England stands apart from its peers despite delivering a similarly oversized hike.

In the short-term, the BoE is not done fighting inflation though, and we still see three more 25bp hikes this year.

Sidhu also believes the Bank’s medium-term forecasts for both growth and inflation will prove overly pessimistic.

Andrew Sentance, a former MPC policymaker, argued yesterday more steep rises are needed:

Bank of England governor Andrew Bailey has hit back against criticism over his handling of the crisis, as pressure on Britain’s top central banker grows.

In an interview with the BBC’s Today Programme that we’ll hear later, Bailey has denied the Bank had been too slow to start raising interest rates.

Yesterday, attorney general Suella Braverman said interest rates should have been raised a long time ago (the Bank started raising rates last December)

Updated

Key event

The two candidates to become the next prime minister clashed over the solution to the crisis last night.

Liz Truss claimed a recession wasn’t inevitable, and that cutting taxes would help the economy grow. She’s promising an emergency budget if she succeeds Boris Johnson.

But Rishi Sunak, who appeared after Truss for a grilling from Conservative members on Sky News, stepped up his criticisms of Truss’s £30bn plan for unfunded tax cuts, claiming it would lead to “misery for millions”.

Sunal warned:

“The lights on the economy are flashing red, and the root cause is inflation. I’m worried that Liz Truss’s plans will make the situation worse.

“If we just put fuel on the fire of this inflation spiral, all of us, all of you, are going to just end up with higher mortgage rates, savings and pensions that are eaten away, and misery for millions.”

Here’s the full story, by my colleague Heather Stewart:

Introduction: UK faces 'deepening economic crisis' as recession looms

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

The UK is heading into deepening economic misery, after a horror show of economic forecasts from the Bank of England yesterday.

Britain faces a bleak outlook -- heading into a recession this winter that will last over a year, with inflation surging over 13%. Unemployment will rise and households will face a historical squeeze on living standards following the sharp jump in gas prices, the BoE said.

The economic costs of Vladimir Putin’s invasion of Ukraine have mounted, on top of an economy already hurt by the pandemic, and adjusting to the reality of Brexit.

The Bank’s grim warning came alongside the biggest rise in interest rates by the most in 27 years on Thursday, as its policymakers desperately try to get a grip on inflation (currently 9.4% and heading higher).

Jack Leslie and James Smith of Resolution Foundation have analysed the Bank’s monetary policy report, and say its forecasts are ‘disastrous’ for living standards.

They warn:

Despite the Government spending over £30bn in support, the Bank is forecasting that the economy will fall into recession later this year, contract for six successive quarters and not recover its pre-pandemic level within the forecast period (ending mid-2025). Inflation is now projected to peak higher – at an eye-watering 13.3% in October – and high inflation will now be with us for longer.

All this is disastrous for living standards: the Bank now expects that real household disposable income will fall by around 3.7% over the course of 2022 and 2023 – the largest such fall on record.

To pile misery onto families, the Bank forecasts that unemployment will rise by roughly 900,000 people; the Bank sees this as sufficient to keep inflation from becoming entrenched.

Leslie and Smith says there is no quick fix to rising energy costs. So the next prime minister must do more to shield families from the worst effects of the crisis, focused on low-to-middle income households.

All this lays bare the challenges for the next Prime Minister: although they might hanker after a honeymoon period, the reality is that the deepening economic crisis will be top of their ‘to-do’ list – and in particular providing support focussed on low-to-middle-income households – when they step into 10 Downing Street on 5 September.

Also coming up today

The latest US jobs report is due later, showing the health of America’s employment market as its economy slows. Economists predict job creation slowed in July, to 250,000 from 372,000 in June.

The agenda

  • 7am BST: Halifax house price index for July
  • 1.30pm BST: US jobs report for July
Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Cher Reveals the "Fiasco" That Ensued When She Performed for Princess Margaret in 1965: "I Was Mortified"
"It was like a bad dream that we couldn’t get out of; we just had to stand there and wait for it to be over."
Marie Claire
Marie Claire
From frozen to feast, how to safely defrost your Thanksgiving turkey
Experts have recommended three different methods to defrost your turkey for Thanksgiving dinner
The Independent UK
The Independent UK
“One of the most important guitars in rock and roll history”: George Harrison’s Futurama smashes auction estimate and sets a new record with staggering $1.27 million sale
The oddball electric – which was used during the Beatles’ early years, and saw action in over 300 historic shows – becomes the most expensive electric guitar formerly owned by a Beatle to sell at auction
Guitar World
Guitar World
Keke Palmer: I'm living life on my own terms
Keke Palmer has revealed that she feels proud to be living life "on [her] own terms".
BANG Premier
BANG Premier
Crypto entrepreneur Justin Sun buys $6 million banana—and plans to eat it unless Elon Musk wants to send it to space
Sun outbid six others for the iconic work.
Fortune
Fortune
Paul Simon names the fan-favorite song he’ll never perform again
The folk rock icon said his hearing loss has limited the songs he can perform live
The Independent UK
The Independent UK
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.
Download on the AppStore Get it on Google Play