Introduction: Cost of living crisis weighs on economy as millions skip mealsGood morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
The cost of living crisis is hitting UK firms, and forcing millions of people to skip meals as soaring inflation leaves them unable to buy essentials.
A survey by Which? just released found that almost half of all consumers are finding it harder to eat healthily compared to before the crisis, rising to 78% of those finding it very difficult to cope financially in the worst squeeze in decades.
Around 9% people are now finding it “very difficult to get by” – and half of those people say their household was skipping meals. A quarter of those who are finding the current situation “quite difficult” are also skipping meals.
Photograph: Which?Which? is calling on supermarkets to help their customers with clearer pricing, promotions targeted at supporting shoppers on low incomes and by ensuring budget lines are widely available, particularly in locations where people need them most.
Our latest research shows families are making huge changes to how they shop and eat as they feel the impact of soaring inflation. Among those who said they are struggling the most financially, 50% said that their household was actively skipping meals. t.co/pwuDfVtAG9
— Which? Money (@WhichMoney) October 20, 2022 Which?’s findings chime with data from the Food Foundation charity this week, which found that more people went hungry than during the chaotic first weeks of the Covid lockdown.
Hunger levels have more than doubled since January, according to the foundation’s latest tracker, with nearly 10 million adults and 4 million children unable to eat regular meals last month.
Retailers are also feeling the chill. Homeware chain Dunelm, which has enjoyed years of strong growth, has reported an 8% drop in sales in the last quarter.
Dunelm made sales of £357m for the 13 weeks to 1 October, while gross margins fell compared to last year, although it is seeing a “very good response” from customers to its seasonal “winter warm” products including rugs, curtains and blankets.
Dunelm warns that the macroeconomic environment “remains challenging”, pointing to the “particularly volatile” exchange rate movements in recent weeks.
The pound’s wild swings will have made it hard for many businesses to judge the price of imports.
Nick Wilkinson, Dunelm’s chief executive officer, warned that the landscape is demanding as shoppers face a tough winter:
“As we enter what will clearly be a challenging winter for consumers, our absolute focus remains on making every pound count for everyone, through a tight grip on operations.
Across the economy, there are signs of a slowdown as consumers cut back.
Tourism and recreation, which includes pubs, hotels, restaurants and leisure facilities, saw the sharpest fall in output of any UK sector in September, according to the latest Lloyds Bank UK Sector Tracker.
Demand fell for the fourth month running as consumers reined-in discretionary spending amid rising inflation – which hit 10.1% in September, the highest in 40 years.
Also coming up todayEuropean leaders will discuss the Commission’s latest proposals for easing the energy crisis, when they meet for a summit today.
They’re expected to back proposed emergency regulations to allow joint gas buying across the EU to negotiate better prices, and provisions to permit greater cooperation between countries in a gas supply emergency.
But they remain split over whether and how to cap gas prices to stem high inflation and stave off recession. The Commission is proposing a new, more stable gas price benchmark, and a new mechanism to curb volatile prices if they spike excessively.
The pound is hovering around $1.122 in early trading, as investors digest the deepening turmoil in Westminster after a chaotic Wednesday which saw the resignation of home secretary Suella Braverman, and total disarray in the Commons over a vote on fracking.
The agenda 7.45am BST: French business confidence report
9.30am BST: Weekly economic and business activity data from the ONS
1.30pm BST: UK weekly jobless report
3pm BST: US weekly home sales
Incidentally, the Financial Times’s Alphaville site has written a detailed piece on the rise in borrowing costs caused by the UK’s financial turmoil, here:
Quantifying Britain’s moron risk premiumCounting the cost of the UK’s ‘moron premium’What is the cost of the chaos and incompetence in Westminster on the UK’s financial position?
Simon French, chief economist at Panmure Gordon, has calculated that Britain is currently paying significantly more to borrow for a decade than it would do under a competent government.
He explains that the UK ten-year bonds would be trading at a yield of 3.25% (given how British debt had been trading compared to other G7 nations until late summer), not around 4% today.
That 75 basis-point diffence means billions of pounds extra being paid out in interest, rather than investing in services. This extra cost has been dubbed the “moron risk premium” by economist Dario Perkins of TS Lombard.
Here’s Simon’s thinking:
Enjoyable to join @seanfarrington on #r4today earlier to discuss what financial markets make of recent U.K. economic governance. I had incoming on how I arrived at the estimate that the U.K. is paying 75bp too much on its 10-year debt – indeed across most of the sovereign curve…
— Simon French (@shjfrench) October 20, 2022 Firstly debt interest costs for sovereigns, households & corporates have been increasing all year. This part of the government narrative of “global forces” rings true. Interest rate for U.K. 10Y debt would be 3%-4% – not 1% as in Jan – regardless of UK economic governance. But….
— Simon French (@shjfrench) October 20, 2022 …where in that higher range the U.K. sits is linked to domestic governance. Benchmarked against wider G7 bond market trends all year (until late summer) the U.K. should be middle of the pack – which would equate to ~3.25% on 10Y, not 4.0%. pic.twitter.com/dQAIrSxZkN
— Simon French (@shjfrench) October 20, 2022 Dubbed in some quarters as the “moron premium” (clearly more engaging writers of sell side research than I) if this is sustained this translates through to billions of pounds of public & private money paid to creditors/ inward investors almost entirely unnecessarily.
— Simon French (@shjfrench) October 20, 2022 Looked at another way this is the “dullness dividend” (am I doing this right?!) if a new PM/ Cabinet can restore a sense of order, economic coherence and respect for independent institutions that has been so lacking in recent weeks /END
— Simon French (@shjfrench) October 20, 2022 Chart 👇by @shjfrench illustrates how UK 10y gilt yields have risen relative to other G7 since Truss became clear front runner for PM in late July. This provides the basis for his 75bp estimate of the Truss risk premium over and above global trends, which looks about right to me. t.co/XSWYiYg7RU
— John Hawksworth (@jhawksworth5) October 20, 2022 Inflationary pressures are rising in Germany too, where the prices charged by producers are rising at a record pace
Producer prices soared by a staggering 45.8% year-on-year in September, matching August’s reading, which was the highest since 1949.
Energy prices were the primary factor – 132.2% higher than in the same month last year.
But rising energy costs drove up other prices too, with intermediate goods (+16.8%), capital goods (+7.8%) and durable and non-durable consumer goods (10.9% and 18.3%) also rising significantly.
In September alone, prices rose 2.3%, which was also above consensus for 1.3%.
City fund managers are also having a tough year, as investors are spooked by recession fears and soaring inflation.
Jupiter Fund Management told shareholders this morning that:
A worsening macroencomic backdrop, continued geopolitical challenges and inflationary concerns, particularly in the UK, again weighed upon investor sentiment in the third quarter
Net outflows from Jupiter slowed in the third quarter to £600m, meaning clients pulled out cash at a slower rate – although it did see net inflows of £500m from institutional investors.
Matthew Beesley, CEO, says:
“I am encouraged by the improved flow picture in Q3, despite continued market volatility.
Schroders has reported a 2.7% drop in assets under management during the quarter to £752bn, down from £773.4bn three months ago, due to a drop in its asset management arm.
UK borrowing costs rise as markets watch Truss chaos ‘in horror’UK government bond prices have fallen at the start of trading, as investors watch the chaotic scenes in Westminster, with Liz Truss’s government on the brink.
This has pushed up the yield, or interest rates, on both short and long-dated gilts, although they’re still well below the peaks seen after the mini-budget.
Bill Blain, strategist at Shard Capital, says the markets are watching events “in a kind of stunned, open-mouthed horror”.
He told Radio 4’s Today Programme that the last couple of weeks have destroyed the image of political competency – which is a key element to make any economy work.
He explains that countries need a stable currency, a sustainable bond market, and you need competent politics.
Because it looks like competent politics are broken, that’s creating the volatility that we’re seeing in markets. And I’m afraid that’s going to continue….
Whatever it is that Liz Truss tries to do to introduce stability, it just creates more chaos.
Blain concludes that markets will only rally when they see real change, and that probably means a general election, he says.
Two-year gilts are yielding 3.6%, up from 3.5% last night, while 30-year bond yields have risen to 4.06%, from below 4%.
Yields rise when bond prices fall, and rising yields show that investors want a larger return for holding the debt.
The oil prices has risen to its highest level in almost a week, which could add to inflationary pressures this winter.
Oil was lifted by news that China is considering easing its Covid-19 restrictions, such as cutting the amount of time people coming into the country must spend in mandatory quarantine.
Brent crude has gained almost 1% to $93.25 per barrel. It had dropped below $85 per barrel last month, prompting Opec+ to agree to cut output.
Car drivers are also being squeezed, with insurance premiums up 14% year-on-year, the biggest annual increase in the past 5 years.
Figures from comparison site Confused.com show that insurance premiums have risen for the last four quarters, meaning drivers are now paying £586 on average.
In the past 3 months alone, premiums have increased for motorists by £32 (6%), on average, the’ve calculated.
UK’s biggest food bank network to spend millions on parcels this winter
Patrick Butler
The UK’s biggest food bank network is preparing to spend millions of pounds topping up charity food parcels this winter, my colleague Patrick Butler reports.
The Trussell Trust will be offering help to record numbers of families at risk of going hungry as a result of the cost of living crisis.
The expenditure was needed to ensure food banks had adequate food reserves because the Trussell Trust’s customary main source of food supplies – donations from the public – was failing to keep pace with rapidly increasing demand.
The trust said it expected 1.3m emergency food parcels would be distributed by its members over the next six months to help soaring numbers of households in need – including 500,000 to families with children.
Here’s the full story:
Introduction: Cost of living crisis weighs on economy as millions skip mealsGood morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
The cost of living crisis is hitting UK firms, and forcing millions of people to skip meals as soaring inflation leaves them unable to buy essentials.
A survey by Which? just released found that almost half of all consumers are finding it harder to eat healthily compared to before the crisis, rising to 78% of those finding it very difficult to cope financially in the worst squeeze in decades.
Around 9% people are now finding it “very difficult to get by” – and half of those people say their household was skipping meals. A quarter of those who are finding the current situation “quite difficult” are also skipping meals.
Photograph: Which?Which? is calling on supermarkets to help their customers with clearer pricing, promotions targeted at supporting shoppers on low incomes and by ensuring budget lines are widely available, particularly in locations where people need them most.
Our latest research shows families are making huge changes to how they shop and eat as they feel the impact of soaring inflation. Among those who said they are struggling the most financially, 50% said that their household was actively skipping meals. t.co/pwuDfVtAG9
— Which? Money (@WhichMoney) October 20, 2022 Which?’s findings chime with data from the Food Foundation charity this week, which found that more people went hungry than during the chaotic first weeks of the Covid lockdown.
Hunger levels have more than doubled since January, according to the foundation’s latest tracker, with nearly 10 million adults and 4 million children unable to eat regular meals last month.
Retailers are also feeling the chill. Homeware chain Dunelm, which has enjoyed years of strong growth, has reported an 8% drop in sales in the last quarter.
Dunelm made sales of £357m for the 13 weeks to 1 October, while gross margins fell compared to last year, although it is seeing a “very good response” from customers to its seasonal “winter warm” products including rugs, curtains and blankets.
Dunelm warns that the macroeconomic environment “remains challenging”, pointing to the “particularly volatile” exchange rate movements in recent weeks.
The pound’s wild swings will have made it hard for many businesses to judge the price of imports.
Nick Wilkinson, Dunelm’s chief executive officer, warned that the landscape is demanding as shoppers face a tough winter:
“As we enter what will clearly be a challenging winter for consumers, our absolute focus remains on making every pound count for everyone, through a tight grip on operations.
Across the economy, there are signs of a slowdown as consumers cut back.
Tourism and recreation, which includes pubs, hotels, restaurants and leisure facilities, saw the sharpest fall in output of any UK sector in September, according to the latest Lloyds Bank UK Sector Tracker.
Demand fell for the fourth month running as consumers reined-in discretionary spending amid rising inflation – which hit 10.1% in September, the highest in 40 years.
Also coming up todayEuropean leaders will discuss the Commission’s latest proposals for easing the energy crisis, when they meet for a summit today.
They’re expected to back proposed emergency regulations to allow joint gas buying across the EU to negotiate better prices, and provisions to permit greater cooperation between countries in a gas supply emergency.
But they remain split over whether and how to cap gas prices to stem high inflation and stave off recession. The Commission is proposing a new, more stable gas price benchmark, and a new mechanism to curb volatile prices if they spike excessively.
The pound is hovering around $1.122 in early trading, as investors digest the deepening turmoil in Westminster after a chaotic Wednesday which saw the resignation of home secretary Suella Braverman, and total disarray in the Commons over a vote on fracking.
The agenda 7.45am BST: French business confidence report
9.30am BST: Weekly economic and business activity data from the ONS
1.30pm BST: UK weekly jobless report
3pm BST: US weekly home sales