Back to the 80s: UK inflation hits double digits

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UK inflation has hit double digits for the first time in more than 40 years, raising the possibility of interest rates rising further and faster, and coming hot on the heels of labour market data showing real levels of wages falling rapidly.

The leap in July’s CPI to 10.1 per cent, the highest in the G7, was up from 9.4 per cent in June and fuelled by a 12.7 per cent increase in food prices, the biggest increase in more than 20 years. Excluding volatile food and energy, the core rate was also more than expected, hitting 6.2 per cent.

Short-term UK government bonds sold off sharply on the news as traders lifted their expectations for Bank of England rate rises to more than two percentage points by May next year.

Economics editor Chris Giles argues the BoE needs to acknowledge the mistakes in its approach to containing inflation and that Boris Johnson’s replacement as prime minister should look afresh at its mandate. (You can read what the two Tory contenders think about the economy and other key issues in our explainer).

As Giles points out, BoE policymakers are keen to highlight what they see as the benefits of an independent central bank controlling inflation. One even deployed data going back some 800 years (!) to make his point.

Today’s news follows yesterday’s report that real levels of UK wages fell at the fastest rate for at least 20 years in the second quarter, highlighting the difficulties facing households even before energy bills rise sharply in October.

Separate ONS analysis showed poorer households were facing greater rates of inflation because they spend a bigger proportion of their budgets on energy and food, the two fastest rising components.

Economists said the hit to households would feed through to lower economic growth. Jamie O’Halloran at Pro Bono Economics, an organisation that advises the charitable sector, said the rapid rise in prices was “driving a punishing cost of living crisis, with the threat of recession looming ever nearer”.

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Need to know: the economy

A further rise in natural gas prices in Europe and the US threatens to tip some of the world’s biggest economies into recession. The latest European price is equivalent in energy terms to $400 a barrel of oil, as Russia restricts supplies and traders race to secure supplies ahead of the winter.

The US Federal Reserve publishes the minutes of its July 26-27 policy meeting at 2pm ET/ 7pm London time today. Check back on for the details.

Latest for the UK and Europe

Experts are calling for a revamp of the 25-year old Northern Ireland peace agreement. The region has been without a fully functioning executive for six months because of a row about post-Brexit trade arrangements. Michelle O’Neill, the leader of Sinn Féin, the party that won the most votes in May’s elections, told the FT she would not allow the agreement to unravel.

Fears of a German recession have deepened, according to the closely watched ZEW survey, which hit its lowest level since 2011.

A 46 per cent rise in the value of Turkish exports to Russia has raised fears the countries are working together to get round international sanctions. The first grain-carrying ship to leave Ukraine since the Russian invasion appears to have docked in Syria, a strong ally of Moscow.

Brussels is trying to boost output of homegrown raw materials needed for green energy by lowering regulatory barriers to mining and production of materials such as lithium, cobalt and graphite, used in wind farms, solar panels and electric vehicles. Denmark’s Vestas, the world’s largest maker of wind turbines, and Ørsted, the world’s biggest offshore wind farm developer, said governments needed to simplify their planning processes.

Global latest

Kenyan presidential contender Raila Odinga is challenging the narrow victory of William Ruto in the election to succeed Uhuru Kenyatta. The uncertainty has sparked fears of a return of the deadly post-election violence of 2007 and 2017.

Former Salomon Brothers economist Henry Kaufman — Wall Street’s original Dr Doom — says the US Federal Reserve needs to “toughen up” its fight against inflation. “If you want to change someone’s action, you can’t slap them on the hand, you have to hit them in the face,” he argues.

Markets editor Katie Martin discusses the impact on investors as central banks move from quantitative easing to quantitative tightening in their struggle to contain inflation in the new Behind the Money podcast.

Are we heading towards a global recession? Our economics editor Chris Giles and US economics editor Colby Smith are in discussion in an Instagram live on August 18 at 4pm BST/11am ET.

Need to know: business

Multinational companies are drawing up contingency plans in case tensions around Taiwan explode into armed conflict. “This little island that was always sort of simmering . . . all of a sudden is perceived in many headquarters like it’s going to be the next Ukraine,” said the head of the EU Chamber of Commerce in China.

Norway’s oil fund, the world’s largest sovereign wealth fund and owner of the equivalent of 1.5 per cent of every listed company in the world, has swung to a big loss, weighed down by a sell-off across all sectors except energy.

Toyota and Apple supplier Foxconn are among companies suffering electricity problems due to hydropower shortages in south-west China caused by droughts and heatwaves. The Lex column says the problems could push China back towards coal and an increase in carbon emissions.

Tencent, China’s most valuable company, reported its first ever fall in quarterly profit. The tech business is also being affected by changing consumer behaviour: “The international games market is experiencing a post-pandemic digestion period as players resume offline activities,” it said.

Walmart, the world’s biggest retailer, and DIY chain Home Depot both reported better than expected results, lessening fears of a looming US recession. Walmart shrugged off recent profit warnings while Home Depot reported its highest quarterly sales and earnings on record. Rival Target, however, reported a larger than forecast drop in profits after offering discounts to shift stock.

The US semiconductor industry is facing a sudden downturn after the boom during the pandemic, forcing some of the biggest chipmakers to drastically slash capital spending, just as Washington passes a new law to subsidise an increase in domestic capacity.

Global chip sales chart

UK hospitality businesses have lost nearly 200,000 overseas workers since the end of 2019 thanks to Brexit and the pandemic, according to an industry survey. A London restaurateur said his wage bill had increased almost 20 per cent in the past year in attempts to attract staff. “The growth in hospitality in the last 30 years has been fuelled almost entirely by a non-British workforce,” he said.

The World of Work

Apple chief Tim Cook has told his staff to return to the office three days a week from September to preserve the “in-person collaboration that is so essential to our culture”.

August is the traditional time for making yourself scarce at the office. So why are so many still working this month, asks Pilita Clark. Is the phenomenon caused by the rise of hybrid working as bosses clock on while also being at the coast with their families?

Economists are starting to use real-world data to study everyday sexual harassment in the workplace, writes Sarah O’Connor, with results showing that male perpetrators tend to suffer fewer career consequences than women.

O’Connor also detects an end to the “anti-work” trend that sprang up during the pandemic as inflation, falling real wages and chaotic financial markets push many back into the labour force.

Covid cases and vaccinations

Total global cases: 584.9mn

Total doses given: 12.5bn

Get the latest worldwide picture with our vaccine tracker

Some good news…

New technology involving miniature human organs built in a lab means animal testing could finally be on the way out. Our Big Read has the details.

Montage of lab equipment
© FT montage: Ian Bott/Dreamstime

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