The pound is at risk of hitting its lowest level against the US dollar in 37 years as a looming recession, soaring inflation and political uncertainty hit the currency. Last night, sterling sank to just $1.15 against the US dollar, a weak start to September – after its worst month against the greenback since shortly after the Brexit referendum. It is approaching the Covid crash low of just over $1.14 in March 2020, which was the worst level since 1985. The pound against the US dollar over the past five years Photo: Refinitiv Predictions that Britain is slipping into recession as storm clouds gather over the economy have hit demand for UK assets. Warnings that Britain is facing a “frankly terrifying” cost-of-living squeeze as inflation soars above 10% also weigh heavily. Real wages are expected to hit their lowest level since 2003, erasing 20 years of growth. A weak currency will increase the cost of importing goods, intensifying pressures on UK businesses – on top of rising energy bills, raw material costs and ongoing supply chain disruption. The pound isn’t the only one struggling against the US dollar. The dollar hit a 20-year high against a basket of currencies yesterday after economic data showed America’s Federal Reserve will continue to raise interest rates until 2023. As Deutsche Bank’s Jim Reid points out: The opposite picture was that the euro fell below parity against the dollar and the Japanese yen fell to 140 yen to the dollar for the first time since 1998.’ However, the pound has also lost ground against the euro in recent weeks as a sharp rise in eurozone inflation is likely to prompt the European Central Bank to raise interest rates sharply. Sterling is currently trading around €1.158, up from almost €1.20 in early August. The pound against the euro over the past five years Photo: Refinitiv Kit Juckes, currency expert at Societe Generale, says: Sterling has been helped by a rise in short-term interest rates in recent weeks. However, as more ECB board members push the idea of a 75bp hike next week, sterling’s support is waning. Meanwhile, higher Gilt yields are not so helpful when people see them as the price the UK is paying to absorb huge sums of money needed to balance the budget in the coming months/years. The UK economy is in recession, the balance of payments is disastrous and more/faster rate rises will do little to restore confidence.
Also coming today
Investors are bracing for the latest US jobs report, which could show a slowdown in hiring last month. Non-Farm Payrolls are expected to have increased by about 300,000 in August, after 528,000 in July. We’ll also hear how UK manufacturing companies fared last month and how fast factory gate prices are rising in the eurozone.
THE AGENDA
7 am BST: German trade balance for July 9.30 am BST: UK Construction PMI Report for August 10 am. BST: Eurozone PPI measure of producer price inflation 1.30 p.m. BST: US non-farm payrolls report for August
Important events BETA filters Key events (5) United Kingdom (5) Europe (3) Russia (3) Ukraine (3)
Shell boss Ben van Beurden is set to step down, reports say
Kaliena Makortov Shell’s long-time chief executive Ben van Beurden is set to step down next year after nearly a decade in the role, according to Reuters. The London-based energy company has shortlisted four internal candidates to take over after months of succession planning efforts that accelerated once Sir Andrew Mackenzie became Shell’s chairman in May 2021. Van Beurden, who took over in 2014, would leave Shell amid the worst energy crisis of his tenure, which subsequently pushed the oil and gas giant’s profits to record highs. The energy boss, who is paid 7.4 million euros in 2021, warned earlier this week that gas shortages in Europe are likely to last several years, raising the prospect of continued energy consumption. Van Beurden could be replaced by the Canadian head of Shell’s integrated gas and renewables division, Wael Sawan, who is said to be the frontrunner in Shell’s search for a successor…. Here’s the full story:
Global food prices are falling again
Global food prices fell in August for a fifth consecutive month, helped by the resumption of grain exports from Ukrainian ports. The UN Food Organisation’s world price index fell further from its record highs earlier this year as prices of staple foods fell. International wheat prices fell by 5.1%, which according to the UN were: ….driven by improved production prospects, especially in Canada, the United States of America and the Russian Federation, and higher seasonal availability as harvests continued in the Northern Hemisphere, as well as resumption of exports from Black Sea ports in Ukraine for the first time in more than five months of interruption. Vegetable oil prices fell 3.3%, due to lower global prices of palm oil, sunflower oil and canola oil. Dairy prices fell 2%, with weak demand hitting butter and milk powder. Meat fell 1.5%, due to poultry and meat. Sugar fell 2.1 percent, after “an increase in the sugar export cap in India and lower ethanol prices in Brazil raised expectations for more sugarcane use for sugar production.” Germany was hit by a drop in trade in July as Europe’s biggest economy continues to be hit by the energy crisis and wider disruption from the Ukraine war. German exports fell 2.1% month-on-month in July, while imports fell 1.5% compared to June, narrowing Germany’s trade surplus. Trade with Russia has been hit by sanctions, with exports down 15% in the month and 55% less than a year ago, while imports from Russia fell 17%. Good morning from Germany, where its prime as an exporting power is fading. Germany’s trade surplus narrowed in July as exports fell at a faster pace than imports. The export & import balance was €5.4 billion, down from €6.2 billion in June. The surplus has shrunk significantly in recent months. pic.twitter.com/3QvlyZDNlH — Holger Zschaepitz (@Schuldensuehner) September 2, 2022 That drop in trade is raising concerns that Germany could slip into recession, says Carsten Brzeski, global head of macroeconomic services at ING. Trade is no longer a driver of growth, but has become a brake on German growth. From the second quarter of 2021, the contribution to net export growth was actually negative. Global supply chain frictions, geopolitical risks and rising production costs are the obvious drivers behind this new trend. Looking ahead, the outlook for German trade is mixed. There is some relief in supply chains and transportation costs. However, at the same time, low water levels, high energy prices and the potential fundamental change in supply chains and production processes due to geopolitical uncertainty will be clear barriers to growth. Natural gas prices in the UK and Europe fell in early trading, off the highs of late August in the race to secure supplies before winter. The Dutch wholesale contract for weekend delivery fell 21.5%, while its UK counterpart fell 10%. The UK contract for next month is down 5% to 455p per heat, but is still three times higher than a year ago, when it was around 130p.
BCC: The UK is going into recession now
The British Chambers of Commerce have predicted that the UK will enter recession before the end of 2022 (highlighting the pressures on the pound). Baroness Ruby McGregor-Smith, chair of the BCC, told BBC Radio 4’s Today program that small businesses, in particular, needed more support. We still believe, at present, that we are entering a recession now. “We just released an economic forecast today that speaks to that. But all these measures will start to change that because the challenge for us is that we’re not just talking about big businesses, many of which will really, really struggle. “We are talking about more and more SMEs, which are the lifeblood of our economy. So they need more support now, as they did during Covid. This is no different for us.” Baroness McGregor-Smith also warned that two-thirds of pubs may have closed their doors this winter (as pointed out earlier). Updated at 08.52 BST After four days of losses, the UK blue-chip share index opened slightly higher this morning. The FTSE 100 rose 35 points, or 0.5%, recovering some of Thursday’s 1.8% slide. Oil giants BP and Shell, and retailer JD Sports, are among the entrants. But UK housebuilders, a bellwether for domestic economic confidence, fell after HSBC cut its share price targets. Berkeley (-4.7%), Barratt (-3.5%), Persimmon (-2.1%) and Taylor Wimpey (-1.6%) groups are the leaders. UK house prices are likely to stall next year as inflation continues to bite and mortgage rates rise. However, renters will continue to be hit by rising rent prices, despite the squeeze on their finances. This is a prediction from the Hamptons real estate agent. predicts that prices will remain unchanged in the fourth quarter of 2023 compared to the same period in 2022. Sales are expected to take a hit next year as rising interest rates discourage first-time buyers, but 2024 could be a “bounce year”. Despite affordability issues for renters, Hamptons said it expects rents to grow 5% annually next year and 2024, before slowing slightly to 4% in 2025. The report said: “Lower rental yields in London will make it harder for landlords to absorb rising costs than their counterparts in the North. “This is why we believe the supply of rental housing in the capital looks set to shrink further, pushing up rents.” If so, that’s another blow to renters. Last month, homelessness charity Shelter warned that private renters in London were facing “increasingly unaffordable” rents due to high demand and a shortage of properties in the capital. The famous chef Tom Kerridge…
