More strikes are planned in August by Aslef and the RMT union in the row over pay, jobs and conditions, however Aslef train drivers' union said it was "categorically untrue" to suggest there was ongoing unofficial industrial action.
"The truth is the company [Avanti West Coast] does not employ enough drivers to deliver the services it has promised," a spokesperson said.
Avanti said normally 250 journeys a week are staffed by drivers working overtime, however suddenly staffing had dropped to levels that would cover under 10 trips.
Drivers at a number of train companies, including Avanti, often work rest days which Aslef said operators depend on.
Transport secretary Grant Shapps has waded into the row, posting on Twitter that "archaic rules... mean working on rest days is voluntary" and called for modernisation.
📢 UNOFFICIAL STRIKES: Passengers using Avanti West services should expect disruption today. Archaic rules from 1919 mean working on rest days is voluntary. Unions now stopping drivers volunteering - causing misery for public & staff who won't get paid. We MUST modernise rail.
— Rt Hon Grant Shapps MP (@grantshapps) July 31, 2022
Operators such as West Midlands Trains have previously spoken about pressures on staffing, particularly after the pandemic delayed new drivers' training, which typically takes more than a year.
A spokesperson for Avanti said starting from Monday, last-minute cancellations were likely to continue until the industrial dispute had been settled and it urged customers to check their journeys in advance.
The company runs services from London to Glasgow and Edinburgh, with routes to Manchester, Liverpool, North Wales and Birmingham.
"We are sorry for the enormous frustration and inconvenience this will cause our customers and condemn the drivers' actions."
Octopus Energy has asked the government for a £1bn taxpayer funding package to seal a takeover of Bulb, its stricken rival.
Sky News has learnt that privately owned Octopus is nearing a deal with ministers to acquire its smaller competitor, which collapsed late last year.
City sources said this weekend that a deal would involve Octopus paying between £100m and £200m to take on Bulb's 1.6m-strong customer base.
It would also include a "significant" profit-share agreement to give the government a return for several years on earnings from Bulb customers.
The £1bn government funding package is being sought by Octopus because Bulb does not hedge its purchases of wholesale gas, leaving it exposed to soaring prices during an energy crisis which has deepened since Russia's invasion of Ukraine.
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A source close to the talks said the £1bn would be repaid by the company in full and denied descriptions of any further taxpayer support as a dowry.
Insiders said this weekend that an agreement between Octopus and the government to take over Bulb could be reached within weeks, although they cautioned that the complexity of the deal could yet prevent it from happening.
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Bulb's collapse last November was the most significant among dozens of supplier failures, with Ofgem, the industry regulator, facing heavy criticism for its approach to licensing new entrants to the market.
The company's administrator, Teneo Restructuring, and the investment bank Lazard have been orchestrating the search for a buyer.
Octopus Energy tabled the only formal offer for Bulb ahead of a deadline last month, meaning that ministers have few options to remove the financial burden to taxpayers that the company has become.
If Octopus does strike a deal, it would take the likely total exposure to the government of Bulb's collapse to more than £3bn, including the £1bn dowry.
The independent Office for Budget Responsibility said in March that the bailout would require more than £2bn to cover its operating losses.
The profit-share agreement, which would last several years, would, however, enable the government to recoup a small part of the cost to taxpayers.
One person involved in the discussions described it as "a fair deal for all parties".
The repayment of the £1bn hedging costs package over time, combined with the up-front sale price and share of profits, could mean that Bulb's failure ultimately costs taxpayers less than £2bn, according to one source.
A rescue by Octopus Energy would also secure Bulb's customers under the leadership of a company that is regarded as industry-leading.
Some sector executives believe Bulb is losing as much as £5m every day because of its failure to hedge forward gas purchases.
Octopus Energy's swoop on its smaller competitor in would take its customer base to 5m British households and cement its status as one of the most important utilities operating in the UK.
Founded by Greg Jackson, its chief executive, it has raised more than £1bn from a swathe of blue-chip investors.
This week, it said it had completed a $550m fundraising, with $325m committed to support the growth of its UK and international energy technology platform, Kraken.
"Octopus will continue to do all we can to help customers through the energy crisis, whilst investing in better solutions to make sure it never happens again," Mr Jackson said.
Centrica, the owner of British Gas, and Masdar, an Abu Dhabi-based company, were also reported to have been considering bids for Bulb, but no offer materialised from either.
The scramble to finalise the sale of Bulb comes annual household energy bills are forecast to approach £4,000 next year - an unthinkable figure just a few months ago.
A recent prediction from Cornwall Insight suggested the industry price cap would rise to £3,500 in October.
Michael Lewis, the chief executive of E.ON, which supplies more than 4m UK households, told Sky News business correspondent Paul Kelso that up to 40% of households could be forced into fuel poverty this winter.
The Treasury's approval will also be needed to sign off a deal.
Octopus Energy is being advised by KPMG on the talks about a takeover of Bulb.
Octopus Energy and Bulb declined to comment on Saturday, while the Department for Business, Energy and Industrial Strategy has been contacted for comment.
Thousands of British companies are cutting economic ties with China en masse, threatening to heap more pressure on the cost of living, the head of the CBI business group has warned.
Tony Danker, the CBI director-general, said chief executives were increasingly switching business links from China to other countries in anticipation of a further deterioration in relations between Beijing and the West.
Danker said the UK would need to find new trade partners and rekindle old ones — for example in the EU — if the West severed its China links. “If the political experts and security experts are right, we are all going to need to be good friends again,” he said.
“Every company that I speak to at the moment is engaged in rethinking their supply chains,” he said. “Because they anticipate that our politicians will inevitably accelerate towards a decoupled world from China.”
Danker said companies were restructuring their supply chains in anticipation of hardening anti-China political sentiment.
“We need new strategic alliances in the world,” he said, adding that companies needed to build “resilience . . . In Washington this is all they are talking about.”
Prices would inevitably rise, he warned, albeit not immediately. “It doesn’t take a genius to think cheap goods and cheaper goods may be a thing of the past.”
Removing China from corporate supply chains “will be more expensive and thus inflationary and will redefine the trade strategy for Britain . . . it’ll be no longer who we sell to but where we source from.”
The CBI is not endorsing either Sunak or Truss in the race for the Tory leadership. Instead, Danker says he is happy that both candidates appear to grasp the need for a positive business strategy.
Johnson famously said “fuck business” in response to corporate concerns about the impact of Brexit. Danker quipped: “Boris Johnson said he wanted to fuck business, which was a lively suggestion, but we are looking for a proper relationship.”
He described September 5, when the new prime minister will be chosen, as a potential “reset moment” for relations between business and government after years of Brexit tensions.
“We can’t afford old arguments about Brexit or immigration or green [issues]. We need a radical plan for growth, informed by companies,” he said. “We have had a lost decade, and there is a risk of another lost decade.”
The CBI chief expressed disappointment that some of the Tory leadership candidates had criticised the 2050 net zero target.
Johnson had been a “first-class prime minister” when it came to the green agenda, recognising that it would be a driver of economic growth in the coming years, he argued.
“The candidates need to be careful. I understand the politics but being a green sceptic now is eroding the platform you will have as prime minister for what we think is the biggest economic and business opportunity for the UK,” he said. Recognising green opportunities was not “woke”, he added.
Danker suggested that the leadership debate was not reflecting current business priorities, but putting an excessive focus on headline corporation tax rates rather than the overall balance of business taxes.
While Tory leadership candidates argue about cutting regulations, Danker said CBI membership wanted smarter, faster regulation rather than just cutting red tape for the sake of it.
Light-touch regulation in new cutting-edge sectors would be a priority in the coming years, he added.
Apple’s revenues grew slightly on the back of iPhone sales and its services division despite headwinds from supply chain shortages and factory shutdowns in China.
The iPhone maker said revenues had risen 2 per cent from a year ago to $83bn, slightly ahead of analysts’ forecasts for $82.8bn, according to Refinitiv.
Apple in April had warned of up to $8bn in setbacks related to supply and production issues for the quarter. But finance chief Luca Maestri told the Financial Times that those costs ended up being less than $4bn, and should improve in the current quarter.
“The situation on supply is improving,” he said. “The big question mark, as always, are potential Covid restrictions, but in the current environment, if nothing changes, we expect supply constraints to be less than what we saw in June.”
Earnings per share for the quarter fell 8 per cent to $1.20, beating forecasts for $1.15. Net profit was down 10 per cent to $19.4bn, above forecasts of $19bn.
Shares of Apple, which have fallen about 13.6 per cent year-to-date amid a broader tech sell-off, rebounded 3 per cent in after-hours trading.
“Credit should be given to [chief executive Tim] Cook for the way he has led this company over the last couple of years,” said Paolo Pescatore, analyst at PP Foresight. “The company is very well placed to weather any storm, in stark contrast to others.”
Apple’s most important product is thriving, executives said. Sales of its iPhone, which accounted for 49 per cent of overall revenue, rose 3 per cent to $40.7bn. Cook said the June quarter saw a “record” number of people switching to iPhone from Android.
“On iPhone, we haven’t seen any sign of demand weakness from the macro environment other than foreign exchange,” Maestri said. “We believe demand continues to be very strong but we don’t have enough supply to satisfy that demand.”
Maestri noted that Apple generated almost $23bn in operating cash flow and returned more than $28bn to shareholders through dividends and share buybacks.
Apple’s “installed base of devices” — which include iPhones, iPads and other hardware — reached an all-time high for “all major product categories”, Maestri said, although he declined to provide a specific number. In January that figure totalled 1.8bn.
That helped boost revenue at Apple’s Services — a high-margin division that houses the App Store and digital media purchases — 12 per cent to $19.6bn, slightly below expectations for $19.7bn. The number of people paying recurring subscription fees to Apple across its range of services is 860mn, Apple reported, up 160mn in the past 12 months.
Mac revenues fell 10 per cent to $7.4bn from a year ago. Sales of iPads also dropped 2 per cent to $7.2bn and wearables, such as Apple Watch and AirPods, declined 8 per cent to $8bn.
Cook bemoaned “a cocktail of headwinds” holding back wearables, including a stronger dollar, supply constraints and Apple’s decision to pull out of Russia.
Apple also cited “deceleration” in its advertising business, days after Meta, Snap, Twitter and YouTube all disappointed investors.
Analysts at Bernstein had previously warned that fiscal year 2023 revenue estimates might be too high if the broader economy continues to falter.
“Apple is consumer-centric, and is highly transactional, with less than 10 per cent of its revenues and profits being recurring — meaning it could be vulnerable to a downturn,” they wrote.
Centrica has called on the UK government to support households hammered by the energy crisis despite the owner of British Gas reinstating its dividend for the first time since 2020 and its profits surging fivefold.
Russia’s war against Ukraine and its subsequent throttling of supplies to Europe has caused a huge increase in the price of gas.
Chief executive Chris O’Shea warned that the UK was facing “a difficult winter” amid forecasts that the average annual UK household energy bill could soar towards £4,000 early next year, with the most vulnerable homes in line to pay £500 in January.
The charity Citizens Advice said on Thursday that it had already seen more people seeking help with energy in the first half of 2022 than in the whole of 2019 or 2020, including “unprecedented” numbers who could not afford to top up prepayment meters and so could not turn on their fridge or cook.
O’Shea defended the move to restart Centrica’s dividend, arguing that the last year had demonstrated the need for strong energy companies after the collapse of dozens of smaller UK energy suppliers.
“I know it’s difficult to see the words ‘dividend’ or ‘profits’ when people are suffering,” he said. He also pointed to the new windfall tax on energy groups, saying Centrica was paying “well over £600mn”.
Operating profits at the UK’s biggest energy retailer jumped to £1.3bn in the first six months of the year from £262mn during the same period in 2021, buoyed by higher revenues from its oil, gas and nuclear assets. It will pay a dividend of 1p a share, totalling £59mn.
O’Shea acknowledged that customers were “struggling” and called for greater action from the government, which launched a £15bn support package for households in May when bills were forecast to rise to about £2,800 — a level now far below where bills are expected to reach.
“You look at the average household income in the UK [and] you can see it’s going to put a lot of pressure on people,” said O’Shea. The median UK household income is around £31,400 after tax, according to the Office for National Statistics.
“We wait to see if there will be more [government] intervention. We’ve been calling for more support for consumers,” he added.
Oil has also rallied since the invasion, powering the profits of the largest energy groups.
Shell, Europe’s largest oil company, on Thursday reported adjusted earnings of $11.5bn in the second three months of the year, breaking the record $9.1bn posted in the first quarter. It also announced a $6bn share buyback.
Several countries, including the UK, have imposed additional taxes on energy companies this year, but another round of record profits for oil majors could lead to calls for additional levies. BP is also expected to reveal a strong performance in the coming days.
Rishi Sunak, the former UK chancellor running for the Conservative party leadership, said that the windfall tax he introduced was “the fair and right policy, given these record profits energy companies are seeing”.
But Liberal Democrats leader Ed Davey called for a “much tougher windfall tax to get the funds to help millions or people through what will be the toughest winter in generations”.
Frances O’Grady, general secretary of the TUC union, described energy groups’ “eye-watering profits” as “an insult to the millions of working people struggling to get by because of soaring energy bills” and called for “real action” to reduce such costs.
At Centrica, operating profits in the British Gas Energy segment of the business fell 43 per cent to £98mn, driven largely by the need to buy gas and electricity for new customers for whom it had not been able to hedge in advance.
Gas prices are now trading at about 10 times the average level of the past decade.
“The source of our profits is not rising customer energy bills,” said O’Shea, arguing that in the first half of the year on average Centrica made just £6 per UK household it supplied, with the amount it can charge largely governed by the UK price cap.
The company has, however, benefited from rising wholesale electricity prices from its stakes in nuclear plants and from its North Sea oil and gas assets.
O’Shea declined to confirm whether the UK could face gas shortages this winter if Russia completely severs exports, saying only that “we have to see how the winter pans out”.
But he emphasised that the company had secured additional contracted gas volumes from Norway and was in the process of trying to restart the Rough offshore storage facility — which the company shut down in 2017 — to bolster the UK’s supply security.
The UK is less exposed to direct Russian gas imports than mainland Europe, but can rely on pipeline shipments from Belgium and the Netherlands for around 15 per cent of supplies on the coldest days, so shortages in Europe could potentially have a knock-on effect.
O’Shea said discussions with the UK government on restarting Rough were continuing at pace, but he was unable to commit to the facility being ready for this winter. He said the company estimated that Rough could have saved consumers about £100 off their bills last winter if it was operational. Centrica is not asking for government support to finance the cost of restarting the facility.
“I think it could transform security of supply in the UK and also lower customer bills,” he said.
At the group level, adjusted earnings before interest, tax, depreciation and amortisation, including from oil and gas producing assets, increased to £1.66bn in the first six months of the year, from £682mn during the same period in 2021. Adjusted earnings per share, which strip out the effect of writedowns and other one-off charges, jumped to 11p from 1.7p.
Additional reporting by Delphine Strauss and Jim Pickard
The Federal Reserve raised its benchmark policy rate by 0.75 percentage points for the second month in a row on Wednesday as it doubled down on its aggressive approach to taming soaring inflation despite early signs the US economy is starting to lose steam.
At the end of its two-day policy meeting, the Federal Open Market Committee lifted the target range of the federal funds rate to 2.25 per cent to 2.50 per cent.
The decision, which had unanimous support, extended a string of interest rate increases that began in March and have ratcheted up in size as the Fed’s battle to fight inflation intensifies.
The rate rise means the central bank is in the throes of the most aggressive cycle of monetary tightening since 1981. It follows a half-point rise in May, and a 0.75 percentage-point rise last month — the first of that magnitude since 1994.
With inflation running at its fastest pace in more than four decades, further rate rises are expected well into the second half of 2022, but the pace of those increases is hotly debated.
Economists are split over whether the Fed will implement another 0.75 percentage point rate increase at its next meeting in September or opt for a smaller half-point rise.
In a press conference following the decision, Jay Powell, Fed chair, said that as the central bank continues to tighten policy “it likely will become appropriate to slow the pace of increases” while policymakers assess how rate rises are affecting the economy and inflation.
Those remarks prompted a market rally, with the blue-chip S&P 500 index rising by 2.6 per cent and the tech-heavy Nasdaq gaining 4.1 per cent. The two-year Treasury yield, which moves with interest rate expectations, was 0.08 percentage points lower at 2.97 per cent.
Ashish Shah, a chief investment officer at Goldman Sachs Asset Management, said: “We’re past peak hawkishness . . . their speed going forward will be slower.”
However, Powell said the Fed would shift to a “meeting-by-meeting” approach to setting policy and that “another unusually large increase could be appropriate” at the September meeting. He added that the committee “wouldn’t hesitate” to implement an ever-sharper rise if warranted by economic data.
James Knightley, chief international economist at ING, said: “Inflation remains the Fed’s number one priority and they’re willing to sacrifice growth to achieve it.”
The Fed chair warned a period of slower growth and a weaker jobs market might be needed to bring down high inflation, but he rejected the suggestion that the US is already in a recession.
“The US is not currently in a recession, and the reason is that there are just too many areas of the economy that are performing too well,” he said, although he added that avoiding one has become more challenging.
The central bank altered its assessment of the economy, noting that “recent indicators of spending and production have softened”, a more downbeat outlook than last month when it said “economic activity appear[ed] to have picked up”.
Powell reiterated allowing inflation to become “entrenched” would be a worse outcome than moving too aggressively, adding: “Price stability is what makes the whole economy work.”
The federal funds rate is projected to reach about 3.5 per cent this year, a level that will more actively constrain economic activity.
Central bank policymakers want to see a string of decelerating monthly inflation readings but economists warn that might not happen for months, at least for “core” readings stripping out volatile items such as food and energy.
In June, core goods and services recorded an alarming 0.7 per cent jump, led by a sharp uptick in rent and other housing-related costs and other expenses that are likely to remain elevated into the autumn.
The Fed raised rates just one day before the release of gross domestic product figures, which could show a second straight quarter of contracting economic growth. That would meet one of the common criteria for a technical recession, but Powell on Wednesday pointed to other signs of economic strength — including the robust labour market — to challenge the notion.
Energy bills could hit £3,850 a year by January after Russia further curbed gas supplies to Europe, sending wholesale prices for this winter soaring to all-time highs.
A typical household faces paying £500 for its energy in January alone, according to the latest forecast from consultants BFY, which will pile more pressure on the government to offer increased support for consumers.
Energy bills have already risen to a record £1,971 a year for a typical household from April.
The price cap that limits most tariffs is now forecast to rise to fresh highs of £3,420 in October and £3,850 in January, according to BFY, a management consultancy focused on the energy sector.
Credit Suisse plans to scale back its investment bank under new chief executive Ulrich Körner, as the troubled lender battles to return to profit and reverse a slump in its shares.
The Swiss bank on Wednesday installed Körner, who has run its asset management business since March, 2021, to replace Thomas Gottstein, who is stepping down after leading the 166-year-old institution through one of the most tumultuous periods in its history.
As part of a series of sweeping changes, Credit Suisse launched a “comprehensive” review of its businesses that will focus on shrinking its unprofitable investment bank and making significant cost cuts across a company that employs 45,000 people.
“Our goal must be to become a stronger, simpler and more efficient group with more sustainable returns,” said chair Axel Lehmann.
Körner, who worked with Lehmann when they were both at the bank’s Swiss rival UBS, faces the twin challenge of reviving profits without risking more of the scandals that have beset the lender in recent years.
The plans for a strategic review — the lender’s second in less than a year — came as its second-quarter results underlined the damage investment banking was doing to its bottom line.
The investment bank fell to a SFr1.2bn loss in the quarter as revenues dropped by a third in both fixed income and equity sales and trading. The lender said it expected a loss in the investment bank in the third quarter.
The lacklustre performance at the investment bank contributed to an overall net loss for the quarter of SFr1.6bn ($1.7bn) after revenues dropped 29 per cent compared with the same period a year earlier. The loss was significantly higher than the SFr206mn analysts had expected.
Credit Suisse said David Miller and Michael Ebert would run the investment bank, while the unit’s chief executive, Christian Meissner, would focus on its strategic transformation. The Financial Times reported on Tuesday that Meissner was planning to leave the group.
Its wealth and asset management divisions, which Credit Suisse has been trying to grow, failed to offset the weakness in the investment bank. Pre-tax income in the wealth management business dropped 74 per cent to SFr114mn compared with a year earlier, while revenues in the asset management division were down 25 per cent.
“Our results for the second quarter of 2022 are disappointing, especially in the investment bank, and were also impacted by higher litigation provisions and other adjusting items,” said Gottstein, who added that he was leaving “for personal and health-related considerations”.
The findings of the strategic review will be announced alongside its third-quarter results in October. Credit Suisse said they would include a significant cost reduction, from about SFr17bn to SFr15.5bn in the medium term, which would be achieved through cost efficiencies and digital transformation.
Credit Suisse’s shares hit a three-decade low this month, and are down more than 40 per cent this year. The shares were up 1.5 per cent in early afternoon trading on Wednesday.
However, analysts were sceptical about the bank’s ability to hit the cost-cutting targets.
“We would need to see further details on the plan, [for example] how much of the savings is related to investment bank transformation, before giving Credit Suisse the benefit of these planned cost savings as we believe the bank also needs to continue with investments in particular in technology,” said Kian Abouhossein, analyst at JPMorgan.
Körner was brought in to head Credit Suisse’s investment arm in the immediate aftermath of the collapse of Greensill Capital, which led the Swiss lender to close $10bn of funds last spring.
Credit Suisse on Wednesday also set aside SFr434mn of provisions for litigation, and said up to $200mn was in relation to US regulatory investigations into the use of personal messaging tools to communicate with clients. Several Wall Street banks have set aside a similar amount to the $200mn fine JPMorgan paid over the matter last year.
Credit Suisse is set to appoint Ulrich Körner as its new chief executive, taking over from Thomas Gottstein, whose departure will bring an end to one of the most tumultuous periods in the Swiss bank’s 166-year history.
The appointment of Körner, who is head of the bank’s asset management division, is expected to be announced on Wednesday morning when the bank reports its second-quarter results, according to four people with knowledge of the plans.
Christian Meissner, who has been head of the lender’s investment bank, is also planning to leave the group, having joined just over a year ago. But his departure will not be announced on Wednesday, said people with knowledge of the matter.
Körner, who is Swiss, rejoined Credit Suisse in March last year, having previously worked at UBS where he had run the bank’s asset management business.
Gottstein took over as chief executive of Credit Suisse in February 2020, just weeks before Switzerland was forced into coronavirus lockdown. His departure was first reported by the Wall Street Journal.
The 58-year-old’s time as chief executive was blighted by twin crises surrounding the collapse of specialist finance firm Greensill Capital and family office Archegos within weeks of each other in spring last year. It was punctured by a string of historical scandals that caused the bank’s share price to hit a three-decade low this month.
The implosion of Greensill forced Credit Suisse to close a $10bn suite of investment funds, while the bank suffered a $5.5bn trading loss when Archegos crashed.
Gottstein became chief executive after a highly embarrassing corporate espionage scandal caused the abrupt departure of predecessor Tidjane Thiam.
A surprise choice, Gottstein was widely regarded as a safe pair of hands who would steady the ship after the untimely ousting of Thiam.
At the time, he led the lender’s domestic business and had worked his way up through the investment bank.
During his tenure as chief executive, Gottstein oversaw a complete overhaul of the executive team. The bank is looking for a new chief financial officer, with David Mathers due to depart later this year.
The bank’s board has also been revamped, with Gottstein serving under three different chairs. He was appointed by Urs Rohner, who left after 10 years at the helm last year.
Rohner was replaced by former Lloyds Banking Group chief executive António Horta-Osório, who was forced out of the bank after just nine months following disputes with his fellow board members and being caught breaching Covid-19 quarantine rules.
Former UBS executive Axel Lehmann took over as chair in January, having joined the board only a few months earlier.
Credit Suisse is expected to report its third straight quarterly loss on Wednesday morning, having already issued a profits warning, its third of the year.
The bank is under pressure to cut costs after a pullback in risk-taking last year and retreat from some business lines following the Greensill and Archegos scandals. Gottstein has described 2022 as a transition year.
The IMF has slashed its global growth forecasts and raised its projections for inflation, warning that the risks to the economic outlook are “overwhelmingly tilted to the downside”.
The downgraded estimates, released on Tuesday, come as the world grapples with the fallout from Russia’s invasion of Ukraine, prolonged disruptions caused by the coronavirus pandemic and rapidly tightening financial conditions, with central banks seeking to contain soaring prices.
The fund now expects growth in gross domestic product to slow to 3.2 per cent in 2022, down 0.4 percentage points from its April estimate and roughly half the pace of last year’s expansion. In 2023, global growth is set to weaken further to 2.9 per cent. Just three months ago, that estimate was 0.7 percentage points higher.
Global inflation is likely to intensify, with the IMF raising its forecasts for this year and next by nearly a full percentage point to 8.3 per cent and 5.7 per cent, respectively.
The multilateral lender said the economic outlook had become much more gloomy and “extraordinarily uncertain”, with inflation at historic peaks and challenges to growth increasing.
Pierre-Olivier Gourinchas, the IMF’s top economist, warned in an interview it would also be an environment that tests the “mettle” of central banks around the world to continue raising interest rates in a bid to restore price stability even if the economy was slowing.
“We are in a very critical moment here,” he said. “It’s easy to cool off the economy when the economy is running hot. It’s much harder to reduce inflation when the economy is close to a recession.”
The risk of a recession is “particularly prominent” in 2023, because by next year growth is expected to bottom out in several countries, stockpiles of savings amassed during the pandemic will have shrunk, and “even small shocks could cause economies to stall”.
One “plausible” scenario the fund mapped out is a sharp reduction in Russian energy exports, including a full cessation of the country’s gas supply to Europe, which would further knock back growth and ignite new price pressures.
The baseline outlook for Germany, the eurozone’s largest economy and a country acutely exposed to a Russian gas cut off, is already bleak, with the fund now expecting growth of 1.2 per cent this year and just 0.8 per cent in 2023 — a figure almost 2 percentage points lower than estimated back in April.
After a 3.2 per cent expansion slated for 2022, the UK is projected to grow just 0.5 per cent next year, the lowest rate across the G7.
But Gourinchas stopped short of labelling the forthcoming economic environment as “stagflationary”, akin to the 1970s, maintaining that central banks have much more credibility now than they did then. He said however that “the risk that we may have a global recession has gone up [and] inflation will remain more persistent than we anticipated”.
Triggering the more pessimistic growth forecasts were downgrades across the world’s largest economies.
Hindered by extensive Covid-19 lockdowns, China’s economy is set to expand just 3.3 per cent this year, 1.1 percentage points less than anticipated in April and set to be the lowest growth in more than four decades, aside from the 2020 shock.
For the US, last year’s 5.7 per cent expansion is forecast to more than halve to 2.3 per cent in 2022, before dipping further the following year to just 1 per cent, as soaring inflation eats away at households’ ability to buy goods and services, consumption ebbs and the Federal Reserve’s historically aggressive monetary tightening campaign begins to bite.
Compared with April’s projections, the new estimates are each more than 1 percentage point lower.
Once adjusted for inflation, “real” GDP growth in the US of only 0.6 per cent on a year-over-year basis is expected in the fourth quarter of 2023. “It doesn’t take much to knock the economy off into something that you might call a technical recession,” Gourinchas said.
He added that emerging markets had become a chief concern, as the Fed’s tightening cycle pushed up borrowing costs globally. While “disorderly” financial market conditions had not yet taken root, he said, the big wild card was just how much additional pressure economies could withstand.
Emerging markets were likely to come under even more intense pressure should the fund’s alternative scenario of a sharp drop in Russia’s oil and gas exports come to pass, with inflation expectations mounting and central banks forced to tighten monetary policy even more aggressively.
Under those circumstances, global growth is forecast to decline in 2022 and 2023 to just 2.6 per cent and 2 per cent, respectively. According to the fund, it has fallen below 2 per cent just five times since the 1970s.
The euro area, already set for much lower growth this year than previously forecast, would also be disproportionately affected. The IMF had already revised lower its projections to a 2.6 per cent expansion in 2022 and 1.2 per cent in 2023.
A cessation of Russian gas exports could slash another 1.3 percentage points from the region’s 2023 growth forecast, resulting in “near-zero regional growth”.
That is likely to create more problems for the European Central Bank, already facing challenges including how to raise interest rates to fight inflation without causing a new eurozone debt crisis.
Gourinchas said a bond-buying tool unveiled by the ECB last week could potentially have a “very large soothing effect” on markets but added it would be a “delicate exercise” to pull off.
Ministers must offer bigger cost-of-living support payments as energy bills are expected to soar further this winter, a committee of MPs has said.
Financial help for the vulnerable and poor needed to be "updated" to reflect higher bills in October, they said.
Witnesses told the Business Committee: "If you think things are bad now, you've not seen anything yet."
Its report also called energy regulator Ofgem "incompetent". Ofgem said it was working hard to reform the market.
Overhaul of policy
In recent days, millions of low-income households on benefits have been receiving the first £326 instalment of payments to assist with the rising cost of living.
Further payments will come later in the year, including extra support for pensioners and people with disabilities, and a £400 discount on everyone's domestic energy bill.
Those payments were set when the typical energy bill was anticipated to rise by £800 - a prediction Ofgem says is now too low. Influential industry analyst Cornwall Insight has predicted a rise of more than £1,200 a year in October, pushing the typical bill to £3,244 a year from October, then £3,363 a year from January.
A normal bill at present is about £2,000 a year, which follows a £700 a year rise in April.
The Business Committee's report said the government's support package was "no longer sufficient"
"The impact of the energy price crisis on households is likely to cause an unacceptable rise in fuel poverty and hardship this winter," the report said.
"The government must immediately update its support, targeting this at customers who are on low incomes, fuel poor, and in vulnerable circumstances, and develop a scheme to support vulnerable customers to accelerate the repayment of energy debt resulting from this crisis."
The committee has been hearing from experts, ministers and industry insiders for months.
"We were told by a number of witnesses, 'if you think things are bad now, you've not seen anything yet,'" said Darren Jones, who chairs the committee.
The Department for Business, Energy and Industrial Strategy said: "No national government can control global inflationary pressures; however, we have introduced an extraordinary package of support to help households."
Ofgem failures
The wide-ranging report made a series of other recommendations, including:
consideration of the introduction of cheap, social tariffs for the most vulnerable
allowing prepayment meter customers to pay for energy after they have used it, rather than before
bringing in a "far-reaching" insulation programme in UK homes
Members of the Business Committee follow the Public Accounts Committee of MPs in heavily criticising regulator Ofgem for its role in allowing suppliers to set up and operate without sufficient oversight. It said there was too much focus on competition instead.
Owing to the failure of 29 companies, 2.4 million customers were moved to other suppliers, and often to more expensive tariffs, and one large supplier - Bulb - is in special administration.
"Ofgem has proved incompetent as the regulatory authority of the energy retail market over the last decade," the report said.
"It allowed suppliers to enter the market without ensuring they had access to sufficient capital, acceptable business plans, and were run by individuals with relevant expertise."
A spokesman for Ofgem said the regulator had been "clear and transparent" that suppliers and its own regime had not been robust enough.
"No regulator can, or should, guarantee companies will not fail in a competitive market but we are working hard to reform the entire market, as well as closely scrutinising and holding individual energy suppliers to account, to further strengthen the regulatory regime," he said.
Social tariffs
The committee also questioned the future of the price cap, which sets a limit on the cost of each unit of energy and the standing charge for domestic customers in England, Wales and Scotland.
It said the government should consider a social tariff instead for the most vulnerable, and then a relative tariff for everyone else.
Social tariffs were phased out by suppliers about a decade ago.
Prepayment meter customers, who pay for their energy in advance, have a different - slightly more expensive - price cap. Citizens Advice has warned that the number of people seeking help because they cannot afford to top up their meter has reached a new record.
This is known as self-disconnections and the committee said that Ofgem and suppliers should identify those at risk and allow them to pay for energy after they have used it.
The MPs also called for an "urgent, far-reaching, and long-term" insulation programme for UK homes.
"Ultimately, the UK needs to reduce its dependence on imported gas. Energy efficiency is the quickest and most cost-effective way to reduce gas demand and lower energy bills," the report said.
The Ofgem spokesman said: "We are also working with all parts of government and industry on the long-term solution to the energy crisis by moving us away from imports of expensive gas towards a more secure, reliable, home-grown energy system."
Amazon is raising the price of its Prime subscription across Europe in September by up to 43 percent a year. In an email to customers overnight, Amazon revealed its annual Prime cost will jump 20 percent in the UK from £79 to £95 from September 15th. In France the price hike is even more acute, moving from €49 per year to €69.90 — a 43 percent increase.
Amazon will also hike prices in Spain and Italy by 39 percent annually, with the company’s second-biggest market, Germany, seeing an annual 30 percent rise. Amazon’s Prime price increases in Europe come just months after the price of Prime in the US rose to $139 per year, up from the previous $119 annual fee. Amazon Prime typically includes fast shipping, access to sales, and free movie / TV streaming in most markets.
Amazon is also increasing the monthly cost of Prime in European markets, by £1 or €1 per month. The monthly rates don’t include the discount that’s applied to yearly subscriptions, and it’s clear from Amazon’s increases that most households subscribe annually. These are the annual Amazon Prime price increases across Europe:
UK - £79 to £95, a 20 percent increase
France - €49 to €69.90, a 43 percent increase
Germany - €69 to €89.90, a 30 percent increase
Italy - €36 to €49.90, a 39 percent increase
Spain - €36 to €49.90, a 39 percent increase
This is also the first Amazon Prime increase in the UK, Amazon’s third-biggest market behind the US, since 2014. Amazon is hugely popular in the UK, and market research firm Kantar says more than 50 percent of households have an Amazon Prime subscription.
Reuters reports that Amazon blames the price increases on “increased inflation and operating costs.” The price change announcement comes just days before Amazon is set to post its Q2 earnings results. Amazon posted its first quarterly loss in seven years last quarter, with the company blaming part of the loss on the rising costs of fuel, transportation, and warehouse storage.
Millions of people face falling into "unmanageable debt" if the government doesn't update its energy support package before winter, MPs have warned.
A number of measures were unveiled earlier this year aimed at helping people pay their bills, as prices rocketed due to a massive rise in wholesale energy costs.
Most households will receive at least £400, with more for people in vulnerable groups such as pensioners, the disabled, and those on low incomes.
The committee's chairman Darren Jones said: "Once again, the energy crisis is racing ahead of the government.
"To prevent millions from dropping into unmanageable debt, it's imperative that the support package is updated and implemented before October, when the squeeze will become a full-on throttling of household finances and further tip the economy towards recession."
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The committee has been hearing from experts, ministers, and industry insiders for months, and Mr Jones said the message was: "If you think things are bad now, you've not seen anything yet."
"This winter is going to be extremely difficult for family finances, and it's therefore critical that public funds are better targeted to those who need it the most," he added.
The committee suggested that the energy price cap be axed in favour of a discounted tariff for the most vulnerable.
There were also problems with the support package that needed addressing, they said, including multiple payments for people who own more than one home.
Ofgem not tough enough on new suppliers
The committee of MPs also said that £94 will have to be added to bills to cover the costs of dozens of suppliers failing in little over a year.
It accused the regulator Ofgem of "incompetence over many years" in allowing poorly-run companies to set up business as energy suppliers.
"Ofgem failed to use its existing powers and didn't bring action against energy suppliers even when it was clear that they should have done," the committee said.
"Negligent energy regulator Ofgem enabled now bankrupt energy firms and inexperienced CEOs to increase energy bills further."
Paul Ridley, a father of two children with special needs, told Sky News that due to the crippling rise in the cost of living, he was buying "less and less shopping" and having to prioritise the children eating first.
He is a full-time unpaid carer to son Keith who has autism, epilepsy, irritable bowel syndrome and depression - and who is at home with him 24-hours-a-day, seven days a week.
Even if a day-care place is found for him, he doesn't know how much he will be charged and whether he can afford the transport there and back, as he doesn't have a car.
The family is already struggling to collect his medication from a pharmacy across town.
Mr Ridley said: "For ministers and MPs who are looking at this - come and live in my world for a week...Try being a carer, with all these costs and rising energy bills."
Mr Ridley's son's needs are such that they often have to use the washing machine. Also, his medication needs to be kept cold - both of which require energy.
Stress
He says he has seen his household energy bill rise from between £200-£400 a month to at least £700.
The stress over the financial situation is also picked up on by Keith, exacerbating his condition.
Said Mr Ridley: "He doesn't understand the bills and that prices are going up. But he does pick up on the stress and the worry of everyone else.
"Even though we hide it, he is sensitive and when he thinks something is bothering dad that then impacts his health.
Image:The government says it is 'taking action to directly help families with the cost of living'. File pic
"It can lead to more epileptic episodes and partial seizures which also affects his IBS, and we're in a never-ending circle."
Insulate homes 'street by street, community by community'
The BEIS committee also said that, while the government can increase support for bill payers, a better strategy long-term would be to reduce demand for energy.
The UK has the worst level of home insulation in Europe and the committee said that a fully-funded national campaign to insulate homes "street by street, community by community" was needed.
Mr Jones said: "Ultimately, ministers know that the long-term solution is to reduce our need for energy through insulation works that keep our homes warm in winter and cool in summer.
"If the government is really taking this energy crisis and the country's net-zero targets seriously, it will come forward with a bold, fully-funded, national home insulation programme before the end of the year."
BEIS said: "We are also investing £6.6bn this parliament to improve the energy efficiency of homes, delivering savings of £300 a year on average."
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