Introduction: UK business inflation pressures hits three-year high;
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Having missed out on the Nobel Peace Prize, again, DonaldTrump is unlikely to trouble the scorers in Stockholm today when the economics equivalent is handed out.
Instead, Trump’s Middle Eastern conflict is proving – to no-one’s surprise – that high energy prices fuel inflation, and that geopolitical instability hurts growth.
Just this morning, a new report shows that UK businesses are facing the sharpest inflation pressures in three years, due to rising energy, fuel and raw material costs.
Accountancy and advisory firm BDO has reported that its inflation index rose to 103.65 in September, up from 102.18 in August and its highest reading since June 2023.
These elevated costs and weakening demand are putting renewed pressure on firms ahead of the Autumn Budget, BDO warns.
Their report has also found that output fell across UK manufacturing and services last month as domestic demand softened.
Scott Knight, head of growth at BDO, says:
“Businesses head into this Budget with one clear message: no surprises. Cost pressures continue to squeeze margins, hiring intentions are low and growth is starting to plateau.
Firms are not looking for grand interventions, but they do need certainty. Right now, concerns about further downside risks outweigh expectations of positive change.”
The oil price has dropped slightly this morning, though, after Trump declared that Ukraine and Russia have agreed to halt attacks on each other’s energy facilities following the US diesel-supply deal with Moscow announced on Friday night.
Brent crude had been down around 2% a few hours ago – but it’s now just 0.25% lower at $104.46 a barrel, a fairly small move really.
Kyle Rodda, senior financial market analyst at Capital.com, explains why:
A highly contentious US deal with Russia to allow the export of more diesel to ease pressure in the market for the critical industrial fuel helped slightly with optics.
But the true impact is piecemeal, especially as Middle East refining remains heavily compromised and Ukrainian forces strategically strike Russian refineries.
From 10.45am BST: Nobel Prize for economics announced
There’s some movement in the Nobel economics prize betting, with around 45 minutes to go until the announcement.
Sidney Winter, the professor emeritus of management at the WhartonSchool, and Lawrence Katz, the Elisabeth Allison Professor of Economics at Harvard University, have both appeared high on Polymarket’s odds at times this morning (although the market is very volatile).
Winter is a pioneer of modern evolutionary economics – which criticised the traditional neoclassical idea that firms are totally focused on maximising profits. Evolutionary economics shows that they instead guided by routines, and that a process similar to biological natural selection weeds out winners from losers.
Katz studies labour markets, inequality, and the economics of social problems, and co-wrote The Race Between Education and Technology, a seminal economics textbook which analysed how the tension between the supply of skilled workers, and the demand for them, affected wages.
UK government borrowing costs are dipping this morning, reversing a little of the damage caused by the bond sell-off.
The yield, or interest rate, on 10-year UK bonds is down 4 basis points (0.04 of a percentage point) to 5.41%, while 30-year gilt yields are also down 4bps to 5.91%.
This may reflect hopes that an energy ceasefire between Russia and Ukraine could pull down the oil price, easing inflation pressures….
… however, Ukraine have reported that Russia launched a targeted strike on a power plant in Kharkiv last night, shortly after Donald Trump declared the two sides had agreed to an “energy ceasefire”.
Newsflash: The EU is to limit the number of hybrid electrical vehicles imported from China to 350,000 cars a year, senior officials have confirmed in Brussels.
Exports of hybrids have been soaring in the last two years with about 800,000 battery and plug in hybrids expected to be sold this year.
The EU expects that the quota will halve China’s market share, which currently stands at 6%, in a four-year agreement made in Beijing last week.
In line with our expectations, the decline in Group net fees eased to 3% in Q1 driven by good Temp & Contracting growth in several of our countries. Perm activity remains mixed with sustained strong growth in North America but ongoing fragility in Northern Europe .
Our medium term targets can be achieved through our own actions and we were pleased to make continued good progress with our structural cost and productivity initiatives during the quarter.”
The Fight Inequality Alliance is calling on finance ministers attending the IMF/World Bank meeting in Bangkok to consider debt cancellation measures to help the Global South.
They insist that “the era of austerity is over”, and demand an end to the lending rules that force governments to pay creditors before they pay for hospitals, schools and food.
“The IMF and World Bank are legacy institutions still writing the economic rules for the rest of the world. Their austerity programmes force governments to cut funding from hospitals and schools while every dollar sent to creditors is a dollar taken from a classroom, a clinic or a family’s food budget. Cancel the debt, tax the super-rich, and stop making ordinary people pay for a crisis they didn’t create.
“Bangkok will deliver more of the same. The era of the IMF and World Bank is over. Workers, teachers, nurses and young people from Nairobi to Jakarta are already building an economy for the 99% and they are not waiting for permission”.
The FIA says it is calling for governments to:
Cancel debt. Wipe out the debts crushing poorer countries, and make every lender take the hit, from banks and hedge funds to the IMF and World Bank.
End austerity. No more cuts to schools and hospitals. Tax the richest instead.
Tax the super-rich. Back a global tax on billionaires and the new UN tax treaty.
Stop selling off public services. The World Bank should fund free public healthcare and education, not push their privatisation.
Give poorer countries a real say. The IMF and World Bank are run by rich countries. Every country deserves a fair vote.
UK chancellor John Healey is pledging to push for more international cooperation as he heads to Bangkok for the Annual Meetings of the International Monetary Fund and the World Bank.
The Treasury says Healey will use this week’s Annual Meetings to make the case that Britain and its allies can face of up to global shocks and must work together to limit the damage of conflict at home.
“The consequences of conflict in the Middle East and Europe are hitting countries worldwide, leading to higher prices at the pumps and more expensive mortgages at home, but Britain and our allies can face up to these challenges together.
“I will work with our international partners to keep trade moving, support families and businesses, and make Britain’s economy stronger and more resilient to deliver good growth in every postcode.
“My Budget will build on this approach with fiscal discipline helping to deliver economic resilience. This means breathing space for today, and hope for the future.”
The surge in inflation following the start of the Iran war has taken a bite out of the UK’s spending plans, the Institute for Fiscal Studies (IFS) is warning this morning.
The IFS has calculated that chancellor John Healey is facing a funding gap of up to £35bn, as rising inflation has eroded the value of government departments’ cash budgets, and also driven up government borrowing costs.
They warn today that Healey’s budget later this month risks being a “work of fiction” unless he sets out plans to cover these spending pressures, including the demand to spend more on defence.
Who might win the Nobel prize for economics today?
The biggest prize in economics, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, will be awarded today.
Known as the Nobel Prize in Economics (although it’s not one of the original Nobels), the winner(s) will be announced at the Royal Swedish Academy of Sciences in Stockholm from 10.45am UK time.
The prediction markets can give some indications about who is under consideration.
Leading the betting on Polymarket, at 30% this morning, is David Autor, professor of economics at the MassachusettsInstituteofTechnology.
Autor is a labour economist, who has examined how technology changes the world of work, and shown how computerization has increased skill-based wage premia in the US.
Another potential winner is AriélPakes, the Thomas Professor of Economics at HarvardUniversity, currently a 19% chance on Polymarket.
Pakes’s work has focused on developing methods to empirically analyze market responses to environmental and policy changes, such as mergers and deregulation.
Pakes’s contributions to economics include the Berry–Levinsohn–Pakes (BLP) approach to demand estimation – which analysed how consumers choose between different producrs, and how a merger might push up prices.
Third, at 12%, is SusanAthey, the Economics of Technology Professor at StanfordGraduateSchoolofBusiness.
Athey, the former consulting chief economist for Microsoft, was the first woman to win the John Bates Clark Medal (awarded to the top economist under the age of 40). Her research work has focused on auctions, developing the empirical models which underpin them.
There’s also some interest in American macroeconomist and monetary theorist MichaelWoodford (currently 10%) – he’s one of the architects of modern forward guidance, the idea that central banks can control the economy through influencing public expectations about inflation, rather than just through interest rates.