Pound under pressure as recession looms; Europe’s energy market in ‘exceptional crisis’

From 1h ago 07. 58 Introduction: Pound under pressure as recession looms Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets. The pound is at risk of hitting its lowest level against the US dollar in 37 years, as a looming recession, rocketing inflation and political uncertainty hit the currency.

Last night, sterling sank to just $1. 15 against the US dollar, making 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 vs the US dollar in the last five yers Photograph: Refinitiv Predictions that Britain is falling into recession as storm clouds gather over the economy have hit demand for UK assets. Warnings that Britain faces a ‘frankly terrifying’ cost of living squeeze as inflation rises over 10%, also weighed.

Real wages are expected to hit their lowest level since 2003, wiping out 20 years of growth. UK households’ spending power to drop by £3,000, warns thinktank Read more The current outlook for living standards across Britain is frankly terrifying, warns @LalithaTry , and the new Prime Minister will need to announce radical policy action to address it. Read more in our latest living standards outlook https://t.

co/GcZEd24YPE pic. twitter. com/uKGTzCB33b — Resolution Foundation (@resfoundation) September 1, 2022 A weak currency will push up the cost of importing goods, adding to the pressures on UK businesses – on top of soaring energy bills, raw material costs, and ongoing supply chain disruption.

The pound isn’t alone in struggling against the US dollar. The greenback hit a 20-year high against a basket of currencies yesterday, after economic data suggested America’s Federal Reserve would keep hiking interest rates into 2023. As Jim Reid of Deutsche Bank points out: .

css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} The reverse picture was that the Euro fell back beneath parity against the dollar, and the Japanese yen fell to 140 per dollar for the first time since 1998. ” But, the pound has also lost ground against the euro in recent weeks, as soaring eurozone inflation is likely to prompt the European Central Bank to raise interest rate sharply.

Sterling is currently trading around €1. 158, compared with almost €1. 20 at the start of August.

The pound vs the euro over the last five years Photograph: Refinitiv Kit Juckes , currency expert at Société Générale , says: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} Sterling has been helped by rising short-term rates in recent weeks.

However, with more and more ECB council members pushing the idea of a 75bp hike next week, sterling’s support is waning. Meanwhile, higher Gilt yields aren’t so helpful when people see them as the price the UK pays to suck in huge amounts of money needed to balance the budget in the months/years ahead. The UK economy is in recession, the balance of payments is catastrophic and more/faster rate hikes won’t do much to restore confidence.

Also coming up today Investors are poised for the latest US jobs report, which could show a slowdown in hiring last month. The Non-Farm Payroll is expected to have risen by around 300,000 in August, after 528,000 in July. We’ll also hear how UK construction firms fared last month, and how fast factory gate prices are rising in the eurozone.

The agenda 7am BST: German trade balance for July 9. 30am BST: UK construction PMI report for August 10am BST: Eurozone PPI measure of producer prices inflation 1. 30pm BST: US non-farm payroll employment report for August Key events 27m ago BCC: UK going into recession now 1h ago Engie CEO: Energy markets are facing a turning point 1h ago Introduction: Pound under pressure as recession looms Filters BETA Key events ( 3 ) UK ( 5 ) 5m ago 09.

13 UK and European gas prices have dropped in early trading, away from the highs in late August in the scramble to secure supplies before winter. The Dutch wholesale contract for weekend delivery has fallen 21. 5%, while the British equivalent is down 10%.

The UK month-ahead contract is down 5% at 455p per therm, but still over three-times higher than a year ago when it was around 130p. 27m ago 08. 51 BCC: UK going into recession now The British Chambers of Commerce has forecast that the UK will enter into a recession before the end of 2022 (highlighting the pressures on the pound ).

Baroness Ruby McGregor-Smith, president of the BCC, told BBC Radio 4’s Today programme that small firms, in particular, need more support. . css-knbk2a{height:1em;width:1.

5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} We still believe, currently, that we are going into recession now. “We’ve just put out an economic forecast today that talks about that. But all these measures will start to change that because the challenge for us is, we’re not just talking about big businesses, many of whom are going to really, really struggle.

“We’re talking about more and more and more SMEs, which are the lifeblood of our economy. So they need more support now, as they did during Covid. This for us is no different.

” Baroness McGregor-Smith also warned that two-thirds of pubs may have shut their doors this winter (as flagged earlier). Updated at 08. 52 BST 39m ago 08.

39 After four days of losses, the UK’s blue-chip share index has opened a little higher this morning. The FTSE 100 index is up 35 points, or 0. 5%, clawing back a little of Thursday’s 1.

8% slide. Oil giants BP and Shell , and retailer JD Sports , are among the risers. But UK housebuilders, a bellwether of domestic economic confidence, are falling, after HSBC slashed its share price targets.

Berkeley Group (-4. 7%), Barratt (-3. 5%), Persimmon (-2.

1%) and Taylor Wimpey (-1. 6%) are the top fallers. 1h ago 08.

23 UK house prices are likely to stall next year as inflation continues to bite and mortgage rates rise. But tenants will continue to be hit by rising rental prices, despite the squeeze on their finances. That’s a prediction from estate and letting agent Hamptons; it forecasts prices to be unchanged in the fourth quarter of 2023 compared with the same period in 2022.

Sales are expected to be hit next year too, as rising interest rates deter first-time buyers, but 2024 could be a “year of recovery”. UK home prices will stall by 2023 as surging mortgage rates crush demand says Hamptons https://t. co/hGDNEJ2GFw — Lynks Estate Agents (@Lynks_Estates) September 2, 2022 Despite affordability issues for tenants, Hamptons said it expects rents will rise by 5% annually next year and in 2024, before slowing slightly to 4% in 2025.

The report said: . css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “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 think the supply of rental homes in the capital looks set to shrink further, pushing up rents. ” If so, that’s another blow to tenants . Last month, homeless charity Shelter warned that private tenants in London are facing “increasingly unaffordable” rents, due to high demand and a shortage of properties in the capital.

1h ago 08. 16 Celebrity chef Tom Kerridge has revealed that the annual energy bill at his pub has soared from £60,000 to £420,000 – as the hospitality sector faces a “terrifying landscape”. He told The Telegraph that “at the minute it’s a hugely volatile marketspace”, adding: .

css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “There’s no way that businesses are going to be able to absorb four, five, six hundred per cent price increases. ” Speaking to the BBC, Mr Kerridge said one of his pubs has a monthly electricity bill of £5,000 – but this is set to soar to £35,000 in December when a tied contract ends.

Energy bill at Tom Kerridge’s pub to leap from £60,000 to £420,000; Chef warns that hospitality sector faces ‘terrifying and scary landscape’ as owners say they may close over Christmas https://t. co/WtjoYIBkC4 — Mark Wingett (@Wingers76) September 2, 2022 Kerridge certainly isn’t alone. Earlier this week, brewery bosses warned that thousands of pubs face closure without urgent government support to soften the blow from soaring energy bills.

Thousands of UK pubs ‘face closure’ without energy bills support Read more One survey has found that more than 70% of pubs didn’t expect to survive the winter without help to ease energy costs. More than 70% of pubs do not expect to survive winter as energy costs soar Read more 1h ago 08. 10 Finance ministers from the Group of Seven are expected to firm up plans on Friday to impose a price cap on Russian oil aimed at slashing revenues for Moscow’s war in Ukraine, Reuters reports.

The ministers from the club of wealthy industrial democracies are due to meet virtually, and could issue a communique that lays out their implementation plans. The aim, G7 officials say, is to keep crude flowing to avoid price spikes. Here’s the details: .

css-knbk2a{height:1em;width:1. 5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “A deal is likely,” a European G7 official said, adding that it was unclear how much detail would be revealed, such as the per-barrel level of the price cap, above which complying countries would refuse insurance and finance to Russian crude and oil product cargoes. British Finance Minister Nadhim Zahawi said on Thursday in Washington that he was hopeful that G7 finance ministers will “have a statement that will mean that we can move forward at pace to deliver this.

” “We want to get this oil price cap over the line,” he told a think tank event in Washington a day after discussing the cap with U. S. Treasury Secretary Janet Yellen.

Yellen is also pushing for a price cap on Russian oil – she warned that failure to agree a deal would hurt the global economy. U. S.

Treasury Secretary Yellen warns of failure to agree on Russia oil price cap https://t. co/bp3PEW3jov — The Globe and Mail (@globeandmail) August 31, 2022 Updated at 08. 10 BST 1h ago 08.

03 Engie CEO: Energy markets are facing a turning point Europe’s energy sector is going through an “exceptional crisis”, the chief executive of France’s leading gas importer Engie has warned. “The world of energy as we have known it won’t ever be the same again,” Catherine MacGregor told RTL radio, explaining that curbs to Russian energy imports and the shift towards green energy were a ‘turning point’. Tensions between France and Russia escalated this week when Gazprom said it would cut supplies to Engie, in a row over contracts.

Asked if Engie, France’s main gas supplier to households, may face a gas shortage this winter, MacGregor said she was “very confident that we will make it”, unless particularly severe weather conditions lead to an unusually high demand. . css-knbk2a{height:1em;width:1.

5em;margin-right:3px;vertical-align:baseline;fill:#C70000;} “This is why the message of energy sobriety remains extremely important”. More here: Engie CEO: Energy markets are facing a turning point The severety of winter is a key factor determing whether Europe can get through the next few months without gas rationing and blackouts – as it whether Russian gas supplies are stopped. couple of hours of listening to conference calls about European Gas.

Some interesting “takeaways” (thread) — Paul McNamara (@M_PaulMcNamara) September 1, 2022 Important as whether Russian flows are low or zero is, the key variable is severity of winter. A mild winter will make this look like a fuss about nothing, no scope to prepare for a bad one — Paul McNamara (@M_PaulMcNamara) September 1, 2022 European wholesale gas price have dropped back from August’s record highs this week, but remain sharply higher than before the Ukraine war. Wholesale gas prices fall as Europe’s plan to avert winter energy crisis takes shape Read more Gazprom’s Nord Stream 1 is due to reopen on Saturday, after three days of maintenance.

Nord Stream 1: Russia switches off gas pipeline citing maintenance Read more 1h ago 07. 58 Introduction: Pound under pressure as recession looms Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets. The pound is at risk of hitting its lowest level against the US dollar in 37 years, as a looming recession, rocketing inflation and political uncertainty hit the currency.