Europe’s growth forecast cut as Ukraine war drives up inflation; diesel price hits record – as it happened

Time for a recap

Concerns over the global economic recovery have continued to mount, after China’s economic activity plummeted, and eurozone growth forecasts were cut.

China’s retail sales tumbled by over 11% in April, while industrial production contracted by 2.9% — both the worst readings since the early months of the pandemic in 2020.

Unemployment rose, while property sales saw their biggest slump since August 2006.

Analysts warned that China’s economy could shrink this quarter, as Covid-19 lockdowns continued to hit consumer spending and factory output.

The EC has slashed its forecasts for European growth, as the Ukraine war disrupts supply chain and drive up energy commodity costs. It now expects the eurozone to only expand by 2.7% this year, from 4.0% previously.

Portugal is expected to record the fastest growth in the EU this year, at 5.8%, followed by Ireland with 5.4%. The weakest growth is seen in Estonia, with just 1%, followed by Germany and Finland with 1.6% each.

Inflation is expected to average 6.1% this year, three times the ECB’s target, having hit record highs of 7.5% last month. That will mean a serious cost of living squeeze for European households, as we’re also seeing in the UK.

EC vice-president Valdis Dombrovskis said the Ukraine war was hurting economic growth:

There is no doubt that the EU economy is going through a challenging period due to Russia’s war against Ukraine, and we have downgraded our forecast accordingly.

The overwhelming negative factor is the surge in energy prices, driving inflation to record highs and putting a strain on European businesses and households. While growth will continue this year and next, it will be much more subdued than previously expected. Uncertainty and risks to the outlook will remain high as long as Russia’s aggression continue

Soaring energy prices have also pushed the eurozone into a record trade deficit, and widened its trade gap with Russia.

In the UK, the diesel price hit a new record high over £1.80, and fuel prices could keep rising if the EU ban on Russian oil goes ahead.

Greenpeace said its protesters have occupied a jetty where a tanker carrying a 33,000-tonne shipment of Russian diesel was due to berth, forcing it to turn around in the Thames, in an attempt to stop fossil fuel sales funding the Ukraine invasion.

McDonald’s started the process of selling its business in Russia after 30 years of operating its restaurants in the country, following Moscow’s invasion of Ukraine.

The fast food operator said the humanitarian crisis caused by Russia’s invasion and the unpredictable operating environment meant continuing operating in Russia was untenable as it was no longer “consistent with McDonald’s values”.

Ofgem has outlined plans to change the UK’s energy price cap every three months — leading analyst to warn that bills could jump in both this October and next January.

In other news…

A group of 58 leading economists and politicians, including the former business minister Vince Cable, has written to the chancellor to say that scaling back City regulation will put the UK at risk of another financial crash.

London mayor Sadiq Khan has said the capital is “desperate” for commuters to return and needs to keep investing to lure them back, as he reopened the Northern line via Bank station, a key connection into the City.

Administrators for the collapsed rent-to-own firm BrightHouse, which specialised in loans for big-ticket items such as fridges and sofas, have warned they will not have enough money to compensate thousands of customers who were left with unaffordable debts.

Greggs has revealed its sales in large cities and locations near offices are lagging behind those elsewhere in the country amid the shift to working from home.

Ryanair warned of a “fragile” recovery in airline passenger numbers after Russia’s invasion of Ukraine and the Omicron coronavirus variant pushed it to a €355m loss for the financial year.

Lifestyle brand Made.com has slashed its sales forecasts and issued a profits warning, warning that the market is much weaker than forecast.

Stocks have dipped on Wall Street, as recession fears continue to weigh on markets. But in London, the FTSE 100 has shrugged off earlier losses to be up 36 points, or 0.5%, at 7455 in late trading.

And the Bank of England governor Andrew Bailey has told MPs that the UK economy has experienced an “almost unprecedented” run of shocks, with the Ukraine war coming on top of Covid

We can’t predict things like wars … that’s not really in our remit.

Andrew Bailey, governor of the Bank of England, has started to give evidence to the Commons Treasury committee about the risk of a recession.

He’s appearing amid growing criticism from government benches about the UK’s soaring inflation rate (which hit 7% in March, even before energy bills soared in April).

Bailey has begun by telling MPs that he’s not at all happy that inflation is overshooting the Bank’s 2% targets, and that most of the overshoot is due to energy and tradeable goods prices.

He argues that the Bank couldn’t reasonably have done anything differently regarding monetary policy (critics say it should have raised interest rates sooner….)

Our Politics Live blog will be tracking the main developments:

Sadiq Khan: London must invest to lure commuters after Covid

Gwyn Topham

London is “desperate” for commuters to return and needs to keep investing to lure them back, its mayor, Sadiq Khan, has said as he reopened the Northern line via Bank station, a key connection into the City.

Khan said the reopening was another milestone on the road to recovery after Covid. The underground branch had been closed for 17 weeks to build a new tunnel, track and concourse to alleviate congestion in the station, a key interchange for tube lines and the Docklands Light Railway.

The commissioner for Transport for London, Andy Byford, said it had been completed “on time and on budget” – a critical point for TfL as it seeks to negotiate long-term capital funding for investment from the government.

The full £700m Bank upgrade project, encompassing six years of work on the station and including better connections, accessible lifts, and a new station entrance, will be completed later this year.

Khan said the reopening of “one of the most complicated stations in the world” was “another example of investment in public transport paying dividends, that will lead to an improved experience for commuters – we’re desperate to get people back to the office.

“This is crucial. If you’ve been working from home for the last two years, we’ve got to make the offer of returning to the office – the journey – enticing.”

Wall Street has opened in the red, as news that China’s economic activity weakened in April add to concerns about a global economic slowdown.

Investors are also still concerned that the Federal Reserve will tighten policy sharply this year, given mounting concerns over inflation (as we’ve just heard from NY Fed chief John Williams).

The S&P 500 index of US stocks dipped by 33 points, or 0.8%, to 3,990 points, back towards the bear-market territory it flirted with last week, before a strong rally on Friday.

The tech-focused Nasdaq Composite has dropped around 1% to 11,667 points.

Raffi Boyadjian, lead investment analyst at XM, says recession fears have risen after last month’s slump in activity in China:

Fresh jitters about recessionary risks dented sentiment on Monday, weighing on stocks, oil and risky currencies, following some disappointing data out of China that greeted investors at the start of the week’s trading. Industrial production in the world’s second largest economy unexpectedly fell by 2.9% in the 12 months to April, while retail sales plunged by 11.1%, missing the forecasts by a wide margin.

Although investors were already expecting a significant hit to China’s economy from the lockdowns, the extent of the contraction has shaken confidence as the global growth outlook keeps deteriorating amid central banks’ battle against inflationary forces. China does not have the same inflation problem as the rest of the world but authorities’ efforts to stimulate the economy have left a lot to be desired.

New York Fed President John Williams, a member of the FOMC committee which sets US interest rates, has said inflation is far too high and persistently so, Reuters reports:

Williams has also said the inflation is the number one issue for the Fed (CPI hit a 40-year high last month), and that it makes sense to keep raising interest rates by 50 basis points to control it.

[The Fed made its first 50bp hike in two decades earlier this month].

Back in the UK, the Green party aren’t impressed by Ofgem’s plan to change Britain’s energy price cap every three months.

Co-leader of the Green Party, Adrian Ramsay, said updating the cap twice as often won’t address the cost of living crisis:

“Changing the goalposts in this way will do nothing to help the millions of households struggling to put food on the table and pay eye-watering energy bills. Energy companies may think that such tinkering will mitigate the cost-of-living crisis, but they’re not fooling anyone.

“We need measures that put money back in people’s pockets now. That’s why the Green Party has argued for restoring the £20 uplift to Universal Credit and doubling it to £40 per week, in addition to other benefits. We also want to provide every household with an additional £320 to help them pay for spiralling energy costs.

And in the longer term, a nationwide insulation programme over the next decade funded by a carbon tax on fossil fuel companeis would help cut energy bills “dramatically”, Ramsey adds.

Manufacturing activity declined in New York State declined this month, in another worrying sign of economic slowdown.

The New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, fell to minus 11.6 this month, down from +24.6 in April.

Economists had expected the index to fall slightly to around +16.5, so this shows that conditions deteriorated.

Twenty percent of respondents reported that conditions had improved over the month, while thirty-two percent reported that conditions had worsened.

Firms reported that new orders declined sharply this month, while shipments fell at the fastest pace since early in the pandemic. Growth in unfilled orders slowed too.

The consumer champion Martin Lewis has apologised after swearing at Great Britain’s energy regulator over changes to its price cap on bills.

As flagged earlier, Ofgem has confirmed it is planning to update the energy price cap four times a year from October to allow it and consumers to adjust more quickly to volatile markets.

Lewis, the founder of the consumer advice site MoneySavingExpert, apologised after swearing on a press call with the regulator regarding the changes. He accused Ofgem of selling consumers “down the river” and wants it to do more to tackle the energy crisis.

He said:

“I finished the call by asking it to at least consider cutting standard charges, which huge rates stop people really saving by cutting energy use.”

Lewis later said he had had “good meetings” with Ofgem and apologised again for the “emotional rant”.

Lewis is concerned that Ofgem will require suppliers to pay a market stabilisation charge when acquiring new customers, if wholesale prices fall below a set threshold.

That will kill hopes of firms launching cheaper, fixed-term deals, if energy prices fall, he warns:

I missed this earlier.. but inflation pressures have continued to rise in Germany.

The prices charged by German wholesalers rose by another 2.1% in April, lifting annual wholesale price inflation to 23.8%.

That’s the highest since the data series began in 1962, as wholesalers passed on rising costs.

Destatis says the Ukraine war continued to push up the cost of raw materials, energy sources and food products.

The high annual rate of change for wholesale prices mainly derives from increased prices for raw materials and intermediate products. The largest impact on the annual rate of change in April 2022 had the price increase in wholesale trade of mineral oil products (+63.4%).

The high price increase in wholesale trade of solid fuels (+70.9%), grain, unmanufactured tobacco, seeds etc. (+56.3%) as well as metals and metal ores (+55.7%) also contributed to the high rate of change in March 2022.

The average price of a litre of diesel has hit a high of just over £1.80 a litre – and could rise even further if the EU ban on Russian oil goes ahead.

The RAC reported that the price a litre in the UK has outstripped the previous record of £1.79, set in March after Moscow’s invasion of Ukraine.

The amount paid on forecourts had dipped in the interim but began rising again in recent weeks as efforts to hit the Kremlin economically fed through into already high fuel prices. A full EU ban on Russian energy imports could push this even higher.

High diesel prices are a warning sign for the economy as the fuel is typically used in vans and lorries owned by businesses, driving up their costs.

The RAC said petrol prices were also rising – up 3p since the start of the month at 166.65p on average, a penny shy of the record high set in March. More here:

Greenpeace says protesters have occupied a jetty where a tanker carrying a 33,000-tonne shipment of Russian diesel was due to berth, forcing it to turn around in the Thames.

The campaign group said 12 activists gained access to Navigator Terminals in Grays in Essex and climbed onto the jetty late on Sunday.

Greenpeace is protesting against the UK Government allowing fossil fuel money to flow to Russian President Vladimir Putin.

Essex Police said officers were called to reports of people gaining access to the terminal shortly after 11.05pm on Sunday, PA Media reports.

The force said eight people have been arrested on suspicion of aggravated trespass, and officers are working with partners to bring “a number of others” to safety.

Greenpeace said several protesters remain in place, with one activist on the offloading pipes, another hanging off the jetty and others occupying the jetty preventing the tanker from docking.

They have unfurled a banner reading: “Oil fuels war”.

Greenpeace said the 183-metre-long vessel was due to offload at 11.59pm on Sunday.

Georgia Whitaker, oil and gas campaigner at Greenpeace UK, said:

“The UK’s attachment to fossil fuels has backfired in the worst way possible – we’re funding a war, our energy bills and fuel costs are sky-high, and we’re driving the climate crisis.

“It has to stop.

“Putin invaded Ukraine nearly three months ago, and yet fossil fuel money from the UK is still funding his war chest.

“Ministers have kicked a ban on Russian oil imports to the end of the year despite strong public support for it.

“To stand up to Putin, bring bills down and tackle climate change, the Prime Minister must get us off fossil fuels as fast as possible, stop ludicrous energy waste from our substandard draughty homes, and prioritise cheap, clean, homegrown renewable power.”

McDonald’s has started the process of selling its business in Russia after 30 years of operating its restaurants in the country, following Moscow’s invasion of Ukraine.

In March, McDonald’s closed all its restaurants in Russia including its site in Pushkin Square in the capital, which was the first in the country.

As part of the exit, the company expects to record a non-cash charge of about $1.2bn (£980m) to $1.4bn.

McDonald’s said.

“The humanitarian crisis caused by the war in Ukraine, and the precipitating unpredictable operating environment, have led McDonald’s to conclude that continued ownership of the business in Russia is no longer tenable.”

UK diesel prices have hit record highs, pushing up the costs faced by some firms and motorists.

The RAC reports that the average price of a litre of diesel has hit a new record high at 180.29p.

Petrol prices are also close to March’s record levels, as the cost of living squeeze continues to put pressure on households and businesses.

RAC fuel spokesperson Simon Williams said:

Efforts to move away from importing Russian diesel have led to a tightening of supply and pushed up the price retailers pay for diesel.

While the wholesale price has eased in the last few days this is likely to be temporary, especially if the EU agrees to ban imports of Russian oil.

Williams adds that the 5p per litre cut in fuel duty in March’s Spring Statement has had little impact:

“Unfortunately, drivers with diesel vehicles need to brace themselves for yet more pain at the pumps. Had Mr Sunak reduced VAT to 15% as we call on him to do instead of cutting duty by 5p, drivers of diesel vehicles would be around 2p a litre better off, or £1 for every full tank. As it is, drivers are still paying 27p VAT on petrol and 29p on diesel, which is just the same as before the Spring Statement.

“The average price of petrol is also on the rise having gone up nearly 3p a litre since the start of the month to 166.65p which means it’s less than a penny away from the all-time high of 167.30p set on 22 March.”