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The adage that a week is a long time in politics has never been more appropriate.
Could it have been just seven days since we reported on the UK’s ‘mini’ budget? A tax statement that unleashed chaos in the financial markets, sharp criticism from the IMF and a £65 billion emergency intervention from the Bank of England, leaving Britons fearful of implications for their mortgages and pensions and hammering the Tories in opinion polls.
But first some better news for the British government. New GDP data this morning showed that the economy improved in the second quarter, easing fears of a recession. However, significant revisions to previous data show that the UK is now the only G7 economy to remain smaller than before the pandemic.
One of the major criticisms of last week’s package was the lack of independent auditing by the Office of Budgetary Responsibility. Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng tried to make amends today by meeting OBR officials in an effort to reassure the markets that deleveraging Britain’s debt was serious.
The financial shockwaves from the British gilt sell-off have been felt far beyond Britain, leading to wide swings in US and European bonds in what one market participant described as the “dog wagging”. UK pension funds are still in chaos. (If you want to delve deeper into the implications for markets, try Rob Armstrong’s Unhedged Newsletter: Five Lessons from Britain’s Bad Week.)
The political consequences are also enormous. When she took office, Truss said she was willing to be unpopular, and that’s a good thing. The Tory leader heads to her party conference this weekend – just as the new energy price hikes take effect – and faces a battle to contain frustration both within her ranks and the wider British electorate, which could get worse if another round of austerity is seen as the way to balance the books.
Truss is confident that her government’s reforms will ultimately result in better growth and points to a generous aid package for household and business energy bills.
But, as economics editor Chris Giles points out, the prime minister’s experiment has so far failed to account for real-world contingencies.
It is not wise to denigrate economic orthodoxy, he argues, “neither to dismiss the respected top treasury official, nor to refuse an independent assessment of public finances. In fact, the past week has shown that the only problem with economic orthodoxy is the name. Rather call it knowledge and experience”.
UK financial crisis: full coverage
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Need to know: the economy
Eurozone inflation hit a new high of 10 percent in the year to September, up from 9.1 percent in August. Energy prices rose by a whopping 40.8 percent and food by 11.8 percent, but by stripping out these volatile items, core inflation remained at 4.8 percent, up from 4.3 percent in August.
Inflation in Germany, the bloc’s largest economy, reached 10.9 percent. Economists believe the country, which yesterday announced a €200 billion energy aid package, will plunge into recession next year.
Latest for UK and Europe
The EU pushes ahead with the imposition of new sanctions on Russia after Moscow annexed four Ukrainian regions, including a price cap for Russian oil, a ban on EU individuals from serving on the boards of Russian state-owned companies and new measures against individuals. Brussels estimates the blow to Russian revenues at 7 billion euros per year.
EDF Energy is considering postponing the shutdown of two of the UK’s five remaining nuclear power plants at Hartlepool and Heysham to support the country’s energy supply. Our Big Read looks at the EU’s winter emergency plan.
Polls suggest: Luiz Inacio Lula da Silva is headed for victory in Sunday’s Brazilian presidential election amid concerns that incumbent Jair Bolsonaro could contest the result if he loses. “The world’s tenth largest economy deserves a better political class” is the opinion of the FT Editorial Board. Watch our new film about the country’s most important choice since the return to democracy in 1985.
Lebanon is to re-peat its currency for the first time in 25 years, bringing it closer to black market value, in an effort to restore confidence in its financial system. Since the start of the country’s financial collapse in October 2019, the Lebanese pound has shrunk by more than 95 percent.
Need to know: business
movie world said ticket sales were unlikely to recover to pre-pandemic levels over the next two years. The world’s second-largest movie theater chain, which recently filed for Chapter 11 bankruptcy, has been hit by the rise of streaming services and a lack of new blockbuster movies.
The strength of the US dollar increases the pressure international airlines, which generate revenues in local currency, but pay much of their costs in dollars. Fares, which have already risen after the border restrictions ended, could rise even further.
H&M, the world’s second-largest retailer, reported a decline in quarterly profit after being hit by the closure of its Russian operations and rising costs. Colleague clothing seller Next one became the last British company to lower its forecasts and warn of the effect of the falling pound.
The market turmoil of recent days has raised fears for the health of the UK stock market, which is already suffering from a wave of takeovers and a collapse of IPOs. Pension funds and insurers are also “appalled” at allocating cash to UK-focused private equity groups.
The British car industry calls for more help with their £100m jump in utility bills. Our Big Read examines the prospects of: British Volt, which aims to lead the development of batteries for electric vehicles. Chinese car manufacturer Geely has acquired an 8 percent stake in Aston Martin.
A cost-of-death crisis? british undertaker Dignity has been affected by the impact of rising energy prices on cremations.
UK health chiefs have warned of a possible “twindemic” of coronavirus and flu this winter unless people get vaccinated. The dominant flu virus worldwide is H3N2, a subtype associated with more severe disease.
U.S Behind the money podcast discusses who will pay next Covid vaccines as experts say the US is not doing enough to support their development.
Carlo RovellicKnown to make complex ideas seem simple, the physicist tells the FT that “science isn’t just about writing equations. It’s about reconceptualizing the world.”
And more alien news: NASA successfully smashed a satellite into an asteroid to change its course in a test of new technology that could potentially save Earth from destruction.
IMPACT SUCCESS! Watch from #DARTMIssion‘s DRACO Camera, as the vending machine-sized spacecraft successfully collides with asteroid Dimorphos, which is the size of a football stadium and poses no threat to Earth. pic.twitter.com/7bXipPkjWD
— NASA (@NASA) September 26, 2022
Covid cases and vaccinations
Total number of worldwide cases: 12.7 billion euros
Total Doses Administered: 610.3mn
Get the latest global photo with our vaccine tracker
What good news . . .
New fundraising opportunities are open this weekend London Marathon after assisted wheelchair participants were allowed to race for the first time.
Participants in the London Marathon in 2010. Until 2022, wheelchair participants were not allowed to be assisted during the race © Tom Hevezi/AP
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