Pound drops to fresh 37-year low against dollar, as retail sales fall sharply – as it happened | Business

Fears that the British economy is already in recession after a much bigger-than-expected decline in retail sales triggered heavy selling of the pound on international money markets to a fresh 37-year low against the dollar.

With average UK wages continuing to fall behind rising prices and the Bank of England expected to push up interest rates next week, sterling fell by more than 1% against the US currency to $1.135, its lowest since 1985.

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.

A report from the World Bank added to the gloomy prognosis for the UK after it said rising interest rates could push the global economy into a recession next year, badly affecting nations like the UK that depend on revenues from trade.

The worsening global outlook 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 fall in sales last month was broad based, with petrol stations, supermarkets, clothing and furniture stores all experiencing a drop, the Office for National Statistics said.

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.

Over here, the FTSE 100 index in London was trading nearly 30 points lower at 7,252, a 0.4% drop, by mid-afternoon. Germany’s Dax, France’s CAC and Italy’s FTSE MiB were down between 1.2% and 1.7%.

Mainline train stations will stay open in London throughout the night in coming days as transport authorities prepare to look after the huge number of people expected to pay their respects at Queen Elizabeth II’s state funeral.

Restaurants and toilet facilities will stay open, with special “welfare trains” on platforms to seat vulnerable passengers who may have long waits to travel.

The limited additional night trains promised by operators for the lying in state and funeral would mainly serve destinations within the M25, Network Rail confirmed.

Our other stories today:

Thank you very much for reading. Have a good weekend. We’ll be back next week. Take care – JK

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.

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.

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.

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).

The job vacancy rate in the currency bloc ticked up to 3.2% from 3.1%, separate figures showed.

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.

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.

British and Dutch gas prices have fallen today, as Norwegian gas flows to the rest of Europe are stable, and storage levels have gone up, easing fears of an energy crunch and raising hopes that mandatory rationing this winter can be avoided.

The Dutch October contract, the European benchmark, fell €12.15 to €200 per megawatt hour, a 5.7% drop, while the contract for next-day delivery slid 13% to €176 per megawatt hour. The British contract for weekend delivery fell 45p to £265 per therm, a 14.5% decline.

Refinitiv analysts said the rise of liquefied natural gas imports at the Dutch port of Eemshaven were another factor.

European gas inventories are almost 85% full, exceeding the EU’s target. Eastbound natural gas flows through the Yamal-Europe pipeline to Poland from Germany were steady, while the Nord Stream 1 pipeline from Russia remains closed.

Analysts at Fitch Solutions said:

Continued increases to storage levels across the EU are expected, markets have increased confidence that mandatory rationing this winter will not be necessary should it prove to be a normal winter of consumption.

The European Commission published proposals on Wednesday to raise about €140bn (£121bn) by imposing windfall taxes on energy companies’ “abnormally high profits” and redirecting proceeds to households and businesses struggling with soaring bills. The EU executive’s plan did not include an earlier idea to cap Russian gas prices.

Announcing long-awaited emergency measures to tackle the rising price of electricity, the EU official in charge of the green transition, Frans Timmermans declared:

The era of cheap fossil fuels is over. And the faster we move to cheap, clean and homegrown renewables, the sooner we will be immune to Russia’s energy blackmail.

European car sales rose in August, following 13 months of declines, according to industry figures.

The European new car market finally returned to growth with a 4.4% increase year-on-year, according to the European Automobile Manufacturers’ Association (ACEA), which represents Europe’s 15 major car, truck, van and bus makers.

However – with 650,305 units registered in August – this result remains far below pre-pandemic levels. All the key EU markets contributed to the region’s growth, with solid gains seen in Italy (+9.9%), Spain (+9.1%), France (+3.8%) and Germany (+3.0%).

Eight months into 2022, overall volumes are down 11.9% for the year so far to reach nearly 6 million new passenger cars sold. The four key markets have all faced losses so far.