From 3h ago 08.42 Pound tanks on 30th anniversary of Black Wednesday Here’s our full story on the pound, which is tanking on the 30th anniversary of Black Wednesday, when the UK crashed out of the European exchange rate mechanism. The pound sank to a fresh 37-year low against the dollar on Friday after weaker than expected retail sales raised fears that the British economy is already in recession, writes the Observer’s economics editor Phillip Inman. Sterling fell by more than 1% against the currency to $1.1351, its lowest since 1985, partly reflecting broader dollar strength as well as specific concerns about the outlook for Britain. On the 30th anniversary of Black Wednesday when the UK crashed out of the European exchange rate mechanism, the pound also hit a 17-month low against the euro, with €1 worth 87.66p. On Black Wednesday, sterling slumped 4.3% to finish the day at $1.778. It came as the latest official data showed cash-strapped consumers cut back on spending by more than expected in August, when retail sales volumes in Great Britain fell by 1.6%. Economists had predicted a more modest fall of 0.5%. The sharp decline in sales came after an upwardly revised 0.4% increase in July that appears to be a temporary bounceback after the Queen’s platinum jubilee celebrations in June. Pound falls as weak retail sales raise fears UK economy is in recession Read more
Updated at 08.46 EDT
2h ago 10.09 The University of Michigan’s consumer sentiment survey for September is a bit weaker than expected, and inflation expectations have retreated. ???????? *MICHIGAN PRELIM. SEPT. CONSUMER SENTIMENT AT 59.5; EST. 60
*MICHIGAN 1-YR INFLATION EXPECTATIONS DROP TO 4.6% (lowest since Sep. 2021⚠) FROM 4.8%
*MICHIGAN 5-10 YR INFLATION EXPECTATIONS FALL TO 2.8% (lowest since July 2021⚠) FROM 2.9% — Christophe Barraud???????? (@C_Barraud) September 16, 2022 University of Michigan’s consumer sentiment report for September came out lower than expected at 59.5. pic.twitter.com/SqbiYEdkOf — Yahoo Finance (@YahooFinance) September 16, 2022
2h ago 09.54 FedEx shares tumble in Wall Street sell-off FedEx shares are down nearly a quarter after the global delivery company issued a major profit warning last night, adding to worries about the US economy. The share price fell 23.7%, contributing to a sell-off on Wall Street. The Dow Jones fell more than 1% to 30,646, while the S&P 50 lost 1.2% to 3,854 and the tech-heavy Nasdaq slid 1.5% to 11,377. Fedex warned on first-quarter profits and withdrew its 2023 forecast after a slump in package shipping volumes. It said it would shut some offices, freeze hiring and park aircraft to cut costs. FILE - The FedEx logo is seen on a delivery truck Tuesday, June 21, 2011, in Springfield, Ill. FedEx said Thursday, Sept. 15, 2022, that it is shuttering storefronts and corporate offices while putting off new hires in a belt-tightening drive brought on by drop-off in its global package delivery business. (AP Photo/Seth Perlman, File) Photograph: Seth Perlman/AP
2h ago 09.41 Dollar buyers of London property pay a lot less than a few years ago because of sterling’s weakness, according to the property firm Knight Frank. While the pound has been one of the worse-performing major currencies this year, the dollar has grown in strength versus a series of other currencies, hitting parity with the euro in recent weeks. In addition to the US economy proving resilient and paving the way for more aggressive rate hikes, safe-haven investors have also been busy buying the greenback. As financial markets decide what Liz Truss ultimately means for the UK, a weak pound will act as a shock absorber for some parts of the economy, supporting the share price of London-based companies who are paid in dollars for example. The same is true of the residential property market in London’s prime postcodes. The exchange rate fell from US$1.71 at the start of July 2014 to US$1.15 in early September this year, which highlights the size of the relative discount for US buyers and those denominated in pegged currencies such as the Hong Kong Dollar and currencies in many parts in the Middle East. It is only part of the story though, with property prices also having fallen due to political uncertainty, tax hikes and international travel restrictions. Average prices in prime central London fell 13% over the eight-year period. When you combine the effect of falling property prices and a weaker pound, the discounts on offer can reach surprisingly high levels. The largest discount can be found in Knightsbridge, an area of the capital where prices are still 24% below their 2014 level. Combined with the currency movement, a US buyer would have benefitted from an effective discount of 49% at the start of this month compared to July 2014. Buying a £5m property in Knightsbridge would have previously required US$8.6m, a figure that had shrunk to US$4.4m last week. Discounts are smaller in areas including Islington and Canary Wharf as prices have not fallen by as much over the period. For similar reasons, flats provide a steeper discount than houses in prime central London. The discounts have grown wider at a time when international travel is approaching its pre-pandemic levels from many areas.
2h ago 09.30 Russia's central bank cuts rates to 7.5% Russia’s central bank has cut its key interest rate by 50 basis points to 7.5%. Inflation is forecast to ease, giving policymakers some wriggle room to provide cheaper lending to limit an economic slump. However, the bank signalled that this may be the last rate cut for a while. It is the fifth rate cut this year. Immediately after Moscow’s invasion on 24 February, the central bank hiked its key rate to 20% from 9.% to mitigate risks to financial stability. The rouble seemed unfazed by today’s move, hovering near 6 against the dollar. Russian inflation was at 14.1% on 9 September and is on track to finish this year between 11% and 13%, and slow to 5% to 7% next year, the central bank said. It didn’t give any forward-looking rate guidance, saying that the inflation expectations of households and businesses remained elevated. This suggests the likelihood of another rate cut has declined. Evgeny Suvorov, economist at CentroCreditBank, told Reuters: There is no direct signal in today’s press release. And this is a clear indication that the rate-cutting cycle may be over. Elvira Nabiullina, Governor of Russian Central Bank, attends a session of the St. Petersburg International Economic Forum in Saint Petersburg June 16. Photograph: Anton Vaganov/Reuters
Updated at 09.33 EDT
3h ago 08.42 Pound tanks on 30th anniversary of Black Wednesday Here’s our full story on the pound, which is tanking on the 30th anniversary of Black Wednesday, when the UK crashed out of the European exchange rate mechanism. The pound sank to a fresh 37-year low against the dollar on Friday after weaker than expected retail sales raised fears that the British economy is already in recession, writes the Observer’s economics editor Phillip Inman. Sterling fell by more than 1% against the currency to $1.1351, its lowest since 1985, partly reflecting broader dollar strength as well as specific concerns about the outlook for Britain. On the 30th anniversary of Black Wednesday when the UK crashed out of the European exchange rate mechanism, the pound also hit a 17-month low against the euro, with €1 worth 87.66p. On Black Wednesday, sterling slumped 4.3% to finish the day at $1.778. It came as the latest official data showed cash-strapped consumers cut back on spending by more than expected in August, when retail sales volumes in Great Britain fell by 1.6%. Economists had predicted a more modest fall of 0.5%. The sharp decline in sales came after an upwardly revised 0.4% increase in July that appears to be a temporary bounceback after the Queen’s platinum jubilee celebrations in June. Pound falls as weak retail sales raise fears UK economy is in recession Read more
Updated at 08.46 EDT
4h ago 07.44 Small businesses in particular are struggling – here are some voices. Barry Whitehouse, owner of the Banbury-based art shop, The Artery, says: Sales in recent months have been the lowest we have seen in 12 years. Online sales have dried up, sales in the shop are much quieter, and we are seeing weekly takings across both online and in-shop at levels at least 50% lower than before the pandemic. Customer numbers are down around 70% each week. We are reaching the point where we can no longer cover our overheads, and wages seem like a fantasy rather than a reality. We are seeing some product prices rise almost every few months, and as we have very low margins, we have no choice but to pass the increases on. We are doing all we can to hold on in the hope things will improve, and we are so thankful for our regular customers and students who are choosing to support real life independents instead of the faceless online giants. We have seen some available grants but they were match funded. We couldn’t apply as we have no money left to match. If we had the money to match, we wouldn’t need the grant. It’s the ultimate Catch 22. How long I have left in business is anyone’s guess. Meanwhile, Sheju John, founder of the kids’ book publisher Parakeet Books, says: Children’s book sales are down everywhere but it’s particularly hard on micropublishers like us where every penny counts. At the moment, the cost of living is hard for everyone and especially horrendous for parents. So extra money for books is bound to be tight. We would welcome a Government grant for small, social change-based companies. And Richard Parson at the artisan fudge retailer, Fudge Kitchen, made this plea to the government: To help the retail sector, the government needs to redress and restructure the way the entire commercial property sector operates. For long-term sustainability, landlords and tenants need to work together and be tied equitably in both the companies’ good and lean times. Upward-only rent reviews are archaic and damaging. Formulas for turnover rents and shared structural responsibilities have to be the way forward.
4h ago 07.38 Daniel Kostecki, a senior market analyst at the investment company Conotoxia, explains why the pound is at its weakest level since the 1980s. It fell more than 1% to $1.1351 earlier, and is now trading at $1.1403, down 0.5% against the dollar. First, Brexit, then the pandemic, and now an energy crisis, inflation, and a collapse in consumer demand, are all events that might not only have influenced the weakness of the British currency but also have contributed to a gradual loss of confidence of foreign investors. It seems that the pound is slowly changing its positions from a globally respected currency to one of an emerging country. Today’s retail sales data, which fell for the first time since July 2021, may have led to a drop in the sterling-dollar rate to its lowest level since 1985. Investors may be contemplating severe problems for the British economy and public in the coming months, potentially preferring to pull out of sterling investments.
4h ago 07.20 Eurozone inflation confirmed at 9.1% in August The euro area’s annual inflation rate has come in as expected at 9.1% in August, up from 8.9% in July. This is more than three times the rate in August 2021. These final figures are published by Eurostat, the statistical office of the European Union. The lowest annual rates were registered in France (6.6%), Malta (7.0%) and Finland (7.9%). The highest annual rates were recorded in Estonia (25.2%), Latvia (21.4%) and Lithuania (21.1%). Compared with July, annual inflation fell in 12 member states and rose in 15. In August, the highest contribution to the eurozone inflation rate came from energy (+3.95 percentage points), followed by food, alcohol & tobacco (+2.25 pp), services (+1.62 pp) and non-energy industrial goods (+1.33 pp). Eurostat inflation release has Eurozone core inflation (overall index excluding energy, food, alcohol & tobacco) at 4.3%. Core inflation in the UK (6.3%) and Ireland (5.8%) remained significantly higher in August. pic.twitter.com/eJfVVBSmCg — Mark Magill (@MarkMagill1982) September 16, 2022 The job vacancy rate in the currency bloc ticked up to 3.2% from 3.1%, separate figures showed.
5h ago 06.58 England and Wales company insolvencies 42% above pre-pandemic level As the economic outlook for the UK darkens, the number of companies in England and Wales which declared insolvency last month was 42% higher than before the pandemic, following the end of temporary business loans and forbearance by courts and creditors. The number of registered company insolvencies in August was 1,933, which was 43% higher than in August 2021, according to figures from the Insolvency Service. The increase has been driven by a rise in creditors’ voluntary liquidations (CVLs), where a company and its shareholders decide to crease trading, rather than compulsory liquidations. CVLs were 33% higher than in August 2021 and 73% higher than in August 2019. The number of administrations, at 116, was more than twice as high as a year ago. Insolvencies in England and Wales Photograph: Insolvency Service Jeremy Whiteson, partner in Fladgate’s restructuring and insolvency practice, notes that insolvencies rose 6% from July, while the July figure was 7% higher than in June. As government imposed restrictions on creditor remedies during the pandemic period were all removed by March 2022, an increase in insolvency figures around that date was expected- and occurred. However, recent months, up to the June figure, had shown a month on month decline. It will be important to see how the figures run for coming months. Are the July and August figures a blip- running against trend- or do they show a change in the weather for businesses? It would be unsurprising if the situation was worsening for businesses and this was not merely a one month blip. High fuel prices, inflation, labour shortages, post Brexit difficulties with international shipping, uncertainty in capital markets, raising interest rates and geo-political uncertainty all pose difficulties for businesses. He explains the different procedures: The increase in overall figures was largely caused by an increase in creditors voluntary liquidations (CVLs). This is a procedure generally used for companies with no ongoing business to dispose of remaining assets, distribute available funds to creditors and dispose of the corporate entity. The numbers of administrations and company voluntary arrangements (CVAs) – procedures more likely to be used to rescue a business – still show a significant decline from pre-pandemic figures. There were 116 administrations and 13 CVAs in August 2022- 34%% and 57% lower than August 2019 respectively. However, for the first time since the pandemic there was a month on month increase in the administration and CVA figures (43% for administrations and 160% for CVAs). That suggests that more live businesses are reaching for insolvency and restructuring protection. In other words the impact of financial difficulties is rising higher up the corporate ladder – from redundant corporate shells (who would look for liquidations) to businesses with assets, employees and trade worth saving.