Members of the police searching the fields near the village of Przewodow in Poland on November 16, 2022. Two people were killed on Tuesday in an explosion at a farm near the village in south-eastern Poland that lies about six kilometers inside the country’s border with Ukraine.
Anadolu Agency | Anadolu Agency | Getty Images
NATO said there was no indication that the missile strike that hit a Polish border village on Tuesday night was deliberate, saying that Russia was ultimately to blame as it continues to bombard Ukraine with missiles.
The military alliance’s secretary-general, Jens Stoltenberg, said the missile incident took place “as Russia launched a massive wave of rocket attacks across Ukraine.”
While the investigation was ongoing into the incident, he said, “there was no indication this was the result of a deliberate attack” and no indication it was a result of “offensive military actions against NATO.”
Preliminary analysis, as previously reported, suggests the incident was caused by a Ukrainian air defense missile fired to intercept a Russian missile.
“Let me be clear, this is not Ukraine’s fault. Russia bears the ultimate responsibility as it continues its war against Ukraine,” he said.
The comments come after the alliance’s North Atlantic Council held an emergency meeting following the missile strike that hit Poland on Tuesday night, killing two civilians.
Early Wednesday morning, The Associated Press reported, citing three unnamed U.S. officials, that preliminary assessments indicated “the missile that struck Poland had been fired by Ukrainian forces at an incoming Russian missile.”
Other media agencies, including NBC News, cited similar details on Wednesday; Reuters reported a NATO source as saying President Joe Biden had told the G-7 and NATO partners that the strike was caused by “a Ukrainian air defense missile,” while The Wall Street Journal cited two senior Western officials briefed on the preliminary U.S. assessments as saying the missile was from a Ukrainian air defense system.
Those assessments came after Biden said Tuesday that it was “unlikely” the missile was fired from Russia, citing the trajectory of the rocket. President Andrzej Duda of Poland said Wednesday that there was no indication that this was an intentional attack on Poland.
“There are many indications that it was an air defense missile, which unfortunately fell on Polish territory,” Duda said.
President Joe Biden of the United States arrives at the formal welcome ceremony to mark the beginning of the G20 Summit on November 15, 2022 in Nusa Dua, Indonesia.
Leon Neal | Pool | via Reuters
U.S. President Joe Biden said it is unlikely that the missile that hit Poland and killed two people was fired from Russia, but the United States and allies unanimously agreed to support the country’s investigation.
“I’m going to make sure we figure out exactly what happened,” Biden said.
Early Wednesday morning, Polish officials said a “Russian-made missile” landed on its soil, killing two people. It would mark the first time since Russia’s war in Ukraine began in February of this year that a Russian projectile hit NATO territory.
“There is preliminary information that contests that,” Biden said when asked if the missile was fired from Russia. “I don’t want to say until we completely investigate. It is unlikely in the lines of the trajectory that it was fired from Russia, but we’ll see.”
Biden didn’t address whether the missile could have been fired by Russia from Ukraine or elsewhere.
Biden was speaking in Bali, Indonesia where he is attending the Group of 20 summit, a meeting of the world’s largest economies.
Biden has repeatedly said any attack on NATO soil will be considered an attack on all of the alliance members. He spoke with Polish President Andrzej Duda after the explosion offering his full support, according to the White House. He spokes with NATO Secretary General Jens Stoltenberg in a separate call, the White House said.
Before speaking to reporters, Biden convened a meeting of “like-minded leaders” on the situation. Participants included G-7 members and allies: European Commission President Ursula von der Leyen, Italian Prime Minister Giorgia Meloni, German Chancellor Olaf Scholz, French President Emmanuel Macron, Canadian Prime Minister Justin Trudeau, UK Prime Minister Rishi Sunak, Spainish Prime Minister Pedro Sanchez, Dutch Prime Minister Mark Rutte, Japanese Prime Minister Kishida Fumio and European Council President Charles Michel.
“We’re going to collectively determine our next step as we investigate and proceed,” Biden said. “There was total unanimity among folks at the table.”
Biden said the group also discussed Russia’s recent missile attacks in Ukraine, saying the country’s aggression has been “unconscionable.”
“The moment when the world came together at the G-20 to urge de-escalation, Russia continues to escalate in Ukraine,” Biden said. “While we were meeting there were scores and scores of missile attacks in western Ukraine. We support Ukraine fully in this moment; we have since the start of the conflict.”
Credit Suisse on Tuesday announced that it would accelerate the restructure of its investment bank by selling a significant portion of its securitized products group (SPG) to Apollo Global Management.
Credit Suisse said the transaction, along with the potential sale of other assets to third-party investors, is expected to reduce SPG assets from around $75 billion to $20 billion.
The bank said the move represented an “important step towards a managed exit from the Securitized Products business, which is expected to significantly de-risk the investment bank and release capital to invest in Credit Suisse’s core business.”
Central to the restructure plan was an offload of risk-weighted assets (RWAs), with around $10 billion of these accounted for by Tuesday’s transactions, the bank said.
“The approximately USD 20 billion of remaining assets, which will generate income to support the exit from the SPG business, will be managed by Apollo under an investment management relationship with an expected term of five years to be entered into at the first closing,” Credit Suisse added in a statement.
“Under the terms of the transactions contemplated with Apollo, Credit Suisse’s CET1 capital ratio is expected to be strengthened by the release of RWAs and the recognition, upon closing, of the premium paid by Apollo, whereby the final amount will depend on discount rates and other transaction-related factors.”
The SPG is a substantial player in the public U.S. securitization market, particularly in the area of residential mortgage-backed securities.
Credit Suisse will hold an extraordinary general meeting next week to seek the green light from shareholders on several key elements of the restructure. These include the planned 1.5 billion Swiss franc ($1.6 billion) investment from the Saudi National Bank in exchange for a 9.9% shareholding, part of a 4 billion Swiss franc capital raise.
This is a developing news story and will be updated shortly.
Oil and gas giant BP on Tuesday reported stronger-than-expected third-quarter profits, supported by high commodity prices and robust gas marketing and trading.
The British energy major posted underlying replacement cost profit, used as a proxy for net profit, of $8.2 billion for the three months through to the end of September. That compared with $8.5 billion in the previous quarter and marked a significant increase from a year earlier, when net profit came in at $3.3 billion.
Analysts polled by Refinitiv had expected third-quarter net profit of $6 billion.
BP announced another $2.5 billion in share repurchases and said net debt had been reduced to $22 billion, down from $22.8 billion in the second quarter.
It reported a net loss for the quarter of $2.2 billion, compared with a profit of $9.3 billion in the previous quarter. BP said this third-quarter result included inventory holding losses net of tax of $2.2 billion and a charge for adjusting items net of tax of $8.1 billion.
The world’s largest oil and gas majors have reported bumper earnings in recent months, benefitting from surging commodity prices following Russia’s invasion of Ukraine.
Combined with BP, oil majors Shell, TotalEnergies, Exxon and Chevron have posted third-quarter profits totaling nearly $50 billion.
This has renewed calls for higher taxes on record oil company profits, particularly at a time when surging gas and fuel prices have boosted inflation around the world.
U.S. President Joe Biden on Monday called on oil majors to stop “war profiteering” and threatened to pursue higher taxes if industry giants did not work to cut gas prices.
Oil and gas industry groups have previously condemned calls for a windfall tax, warning it would fail to resolve a sharp upswing in energy prices and could ultimately deter investment.
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“This quarter’s results reflect us continuing to perform while transforming,” BP CEO Bernard Looney said in a statement.
“We remain focused on helping to solve the energy trilemma – secure, affordable and lower carbon energy. We are providing the oil and gas the world needs today – while at the same time – investing to accelerate the energy transition,” Looney said.
Shares of London-listed BP rose nearly 1% during morning deals. The firm’s stock price is up over 45% year-to-date.
Environmental campaign groups said BP’s third-quarter results underscored the need for a windfall tax, describing the results as “a slap in the face” for the millions of Britons facing a deepening cost-of-living crisis.
“The case for a bigger, bolder windfall tax is now overwhelming,” said Sana Yusuf, energy campaigner at Friends of the Earth. “This must address the ridiculous loophole that undermines the levy by enabling companies to pay the bare minimum if they invest in more planet-warming gas and oil projects.”
“Some of the billions of pounds raised should be used to pay for a street-by-street, home insulation programme to cut energy bills and reduce emissions,” Yusuf said.
“A proper windfall tax on the profits of big polluters is no longer a far cry, it is now a necessity,” said Jonathan Noronha-Gant, senior fossil fuels campaigner at Global Witness.
“But the new U.K. Government must also urgently put us on track for a rapid transition away from dirty fossil fuels and onto renewables and decent home insulation, so we can fix this broken energy system once and for all.”
Speaking at the ADIPEC conference in the United Arab Emirates on Monday, BP CEO Bernard Looney said on a panel moderated by CNBC that he understood the public scrutiny on oil majors’ record profits, but sought to defend the firm’s record when it comes to investing and paying taxes.
“We are facing a very difficult winter ahead in the U.K., in Europe and right across the world,” Looney said.
“Our job is to pay our taxes; our job is to invest. We just announced a $4 billion acquisition in the United States just last week in renewable natural gas so that’s what our job is to do. We will continue to do that and do the very best that we can,” he added.
Euro zone inflation rose above the 10% level in the month of October, highlighting the severity of the cost-of-living crisis in the region and adding more pressure on the European Central Bank.
Preliminary data on Monday from Europe’s statistics office showed headline inflation came in at an annual 10.7% last month. This represents the highest ever monthly reading since the euro zone’s formation. The 19-member bloc has faced higher prices, particularly on energy and food, for the past 12 months. But the increases have been accentuated by Russia’s invasion of Ukraine in late February.
This proved to be the case once again, with energy costs expected to have had the highest annual rise in October, at 41.9% from 40.7% in September. Food, alcohol and tobacco prices also rose in the same period, jumping 13.1% from 11.8% in the previous month.
Monday’s data comes after individual countries reported flash estimates last week. In Italy, headline inflation came in above analysts’ expectations at 12.8% year-on-year. Germany also said inflation jumped to 11.6% and in France the number reached 7.1%. The different values reflect measures taken by national governments, as well as the level of dependency that there nations have, or had, on Russian hydrocarbons.
There are, however, euro nations where inflation rose by more than 20%. This includes Estonia, Latvia and Lithuania.
The European Central Bank — whose primary target is to control inflation — on Thursday confirmed further rate hikes in the coming months in an attempt to bring prices down. It said in a statement that it had made “substantial progress” in normalizing rates in the region, but it “expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target.”
The ECB decided to raise rates by 75 basis points for a second consecutive time last week.
Speaking at a subsequent press conference, ECB President Christine Lagarde said the likelihood of a recession in the euro zone had intensified.
Growth figures released Monday showed a GDP (gross domestic product) figure of 0.2% for the euro area in October. This is after the region grew at a rate of 0.8% in the second quarter. Only Belgium, Latvia and Austria registered GDP rates below zero.
So far, the 19-member bloc has dodged a recession but an economic slowdown is evident. Several economists predict there will be a contraction in GDP during the current quarter.
The euro traded below parity against the U.S. dollar in early European trading hours Monday and ahead of the new data releases, and barely moved after the new figures. The euro has been weaker against the greenback and that’s also something the ECB has been concerned about with concerns that this will push up inflation in the euro zone even further.
The logo of Shell on an oil storage silo, beyond railway tanker wagons at the company’s Pernis refinery in Rotterdam, Netherlands, on Sunday, Oct. 23, 2022.
Bloomberg | Bloomberg | Getty Images
British oil major Shell reported a third-quarter profit Thursday, but lower refining and trading revenues brought an end to its run of record quarterly earnings.
Shell posted adjusted earnings of $9.45 billion for the three months through to the end of September, meeting analyst expectations of $9.5 billion according to Refinitiv. The company posted adjusted earnings of $4.1billion over the same period a year earlier and notched a whopping $11.5 billion for the second quarter of 2022.
The oil giant said it planned to increase its dividend per share by around 15% for the fourth quarter 2022, to be paid out in March 2023. It also announced a new share buyback program, which is set to result in an additional $4 billion of distributions and expected to be completed by its next earnings release.
Shares of Shell are up over 41% year-to-date.
The London-headquartered oil major reported consecutive quarters of record profits through the first six months of the year, benefitting from surging commodity prices following Russia’s invasion of Ukraine.
Shell warned in an update earlier this month, however, that lower refining and chemicals margins and weaker gas trading were likely to negatively impact third-quarter earnings.
On Thursday, the company said a recovery in global product supply had contributed to lower refining margins in the third quarter, and gas trading earnings had also fallen.
“The trading and optimisation contributions were mainly impacted by a combination of seasonality and supply constraints, coupled with substantial differences between paper and physical realisations in a volatile and dislocated market,” Shell said in a its earnings release.
Wael Sawan, currently Shell’s director of integrated gas, renewables and energy solutions, will become its next chief executive on Jan. 1.
A dual Lebanese-Canadian national, Sawan has held roles in downstream retail and various commercial projects during his 25-year career at Shell.
“I’m looking forward to channelling the pioneering spirit and passion of our incredible people to rise to the immense challenges, and grasp the opportunities presented by the energy transition,” Sawan said in a statement on Sept. 15, adding that it was an honor to follow van Beurden’s leadership.
“We will be disciplined and value focused, as we work with our customers and partners to deliver the reliable, affordable and cleaner energy the world needs.”
Britain’s new Prime Minister Rishi Sunak delivers a speech outside Number 10 Downing Street, in London, Britain, October 25, 2022.
Hannah Mckay | Reuters
LONDON — Rishi Sunak on Tuesday became the U.K.’s third prime minister of the year following a meeting with King Charles III.
The tradition sees the monarch invite the leader of the party with the highest number of MPs to form a government, which since the 2019 general election has been the Conservatives.
In a speech outside 10 Downing Street after the meeting, Sunak said: “Our country is facing a profound economic crisis. The aftermath of Covid still lingers, Putin’s war in Ukraine has destabilized energy markets and supply chains the world over.”
He paid tribute to his predecessor Liz Truss, who he said was “not wrong” to want to improve U.K. growth. But, he continued, “some mistakes were made,” not “borne of ill will or bad intentions” but “mistakes nonetheless” — and he had been elected “in part to fix them.”
“I will place economic stability and confidence at the heart of the government’s agenda. This will mean difficult decisions to come. But you saw me during Covid doing everything I could to protect people and businesses with schemes like furlough. There are always limits, more so than ever, but I promise you this. I will bring that same compassion to the challenges we face today.”
The British pound was trading 0.4% higher against the dollar following the speech, at $1.1321. Sterling has failed to get a significant boost from Sunak’s appointment, but has recovered from the lows below $1.1 it reached earlier in the month.
Meanwhile, yields on short- and long-term U.K. sovereign bonds, known as gilts, dropped sharply Monday as it became clear Sunak would take office, and continued to move lower Tuesday. Yields move inversely to prices.
Sunak is now expected to begin appointing new cabinet figures in yet another reshuffle at the top of British politics.
The 42-year-old will be the youngest U.K. prime minister since 1812, and the first person of color to lead the country, which U.S. President Joe Biden said Monday was “a groundbreaking milestone.” Sunak’s parents are of Indian descent and in the 1960s moved from East Africa to the U.K.
Sunak also has the greatest personal wealth of any of his predecessors. His wife, Akshata Murthy, is the daughter of N. R. Narayana Murthy, the billionaire co-founder of Indian IT company Infosys.
Sunak and Murthy have a combined net worth of £730 million ($824 million), according to the Sunday Times Rich List, making them the joint 222nd wealthiest people in the U.K.
Earlier this year, Murthy made headlines over her non-domiciled tax status, which allows her to avoid paying millions in U.K. taxes on international earnings. She said she would start paying U.K. taxes on these earnings following the controversy.
King Charles III welcomes Rishi Sunak during an audience at Buckingham Palace, London, where he invited the newly elected leader of the Conservative Party to become Prime Minister and form a new government. Picture date: Tuesday October 25, 2022.
Aaron Chown | Via Reuters
Before entering politics, Sunak worked as an analyst as Goldman Sachs and a partner at billionaire Chris Hohn’s Children’s Investment Fund Management. He was privately educated in the U.K. and studied Philosophy, Politics and Economics at Oxford, like four prime ministers and dozens of senior political figures before him, followed later by an MBA at Stanford University.
He was elected Conservative MP for a constituency in North Yorkshire in the 2015 general election, and was finance minister under former Prime Minister Boris Johnson from February 2020 to July 2022. Through this he oversaw the U.K.’s economic response to the pandemic, including the program for furloughing millions of workers.
He ran for party leadership following Johnson’s resignation in July and was supported by MPs into the two-candidate battle against Truss, but lost in a vote by the Conservative Party’s roughly 200,000 members, who backed Truss against Sunak by 57% to 42.6%.
Truss’ resignation came just 44 days into her tenure, on 10 of which government business was suspended due to the death of Queen Elizabeth II. A wave of Conservative MPs sent letters expressing a lack of confidence in her government after she oversaw a controversial “mini-budget” that rocked financial markets, making government borrowing more expensive and raising interest rate expectations.
Truss had sacked her finance minister, reversed the majority of the proposals and attempted to reassert her position. But pressure on her from within the party continued, particularly following a chaotic night which saw the resignation of her interior minister and reports of MPs in tears after being “bullied” into a vote on fracking, which was seen as a vote of confidence in the government.
Johnson’s departure was similarly chaotic, coming after months of outrage among the public and MPs over a series of scandals. They included both Johnson and Sunak being fined by police for events held in Downing Street during Covid-19 lockdowns, and Johnson’s appointment of a senior political figure despite knowing of previous misconduct allegations against him.
Sunak now faces a packed in-tray which includes numerous forecasts the U.K. is heading for a recession; a cost-of-living crisis with inflation above 10%; the ongoing issues of the European energy crisis and war in Ukraine; the weak pound; the planned revamped budget on Oct. 31, which Finance Minister Jeremy Hunt has said will contain “difficult decisions” on spending; and the need to reassure financial markets of the U.K.’s economic competency.
He will also be navigating calls for a general election, as advocated by the opposition Labour, Scottish National, Liberal Democrat, Plaid Cymru and Green parties, as well as a few Conservative MPs who did not support Sunak.
Many Conservative MPs are resistant to an election given the party’s current poor polling figures. The next election will take place in January 2025 unless one is called by the prime minister earlier. It is also possible for an election to be forced if a majority of the U.K.’s 650 MPs vote for one.
Truss held her final cabinet meeting Tuesday morning. In a speech outside 10 Downing Street, she said: “It has been a huge honor to be prime minister of this great country, in particular to lead the country in mourning the death of Her Majesty the Queen after 70 years of service and the accession of his Majesty King Charles III.”
Britain’s new Prime Minister Rishi Sunak waves in front of Number 10 Downing Street, in London, Britain, October 25, 2022.
Hannah Mckay | Reuters
Truss only took office on Sept. 6. She cited her short-lived administration’s accomplishments as supporting households and businesses with energy bills and reversing the planned rise in national insurance tax, one of the only tax cuts that remained from the package of fiscal policies she was forced to reverse after market chaos.
Repeating themes she campaigned and governed on, she said: “We simply cannot afford to be a low-growth country, where the government takes up an increasing share of our national wealth, and where there are huge divides between parts of the country. We need to take advantage of our Brexit freedoms to do things differently.”
“It means lower taxes so people can keep more of the money they earn. And it means delivering growth that will lead to more job security, higher wages and more opportunities for our children and grandchildren.”
UBS on Tuesday reported a net income of $1.7 billion for the third quarter of this year, slightly above analyst expectations, with the Swiss bank citing a challenging environment.
Analysts had expected a net profit of $1.64 billion, according to Refinitiv data. UBS reported a net income of $2.3 billion a year ago.
The Swiss lender had missed expectations in the last quarterwhen it posted a net profit of $2.108 billion. The bank said at the time the second quarter had been “one of the most challenging periods for investors in the last 10 years” due to high inflation, the war in Ukraine and strict Covid-19 policies in Asia.
UBS said Tuesday these factors continued to be in investors’ minds in the third quarter.
“The macroeconomic and geopolitical environment has become increasingly complex. Clients remain concerned about persistently high inflation, elevated energy prices, the war in Ukraine and residual effects of the pandemic,” Ralph Hamers, CEO of UBS, said in a statement.
Other highlights for the quarter include:
Revenues hit $8.3 billion, down from $9.1 billion a year ago.
Operating expenses dropped to $5.9 billion, from $6.2 billion a year ago.
CET 1 capital ratio, a measure of bank solvency, reached 14.4% versus 14.9% a year ago.
Its investment banking division saw revenues down by 19% with the lower performance in equity derivatives, cash equities, and financing revenue being offset by revenues in foreign exchange. The Global Wealth Management division also reported lower revenues, down by 4% year-on-year.
However, Personal and Corporate Banking revenues rose over the same period on more beneficial rates from the Swiss National Bank.
Johnson previously enjoyed high levels of popularity until losing credibility in the final months of his premiership.
Gleb Garanich | Reuters
LONDON — Former U.K. Prime Minister Boris Johnson will not take part in the contest to replace outgoing leader Liz Truss.
Despite being ousted from office just three months ago, some Conservative MPs had backed Johnson for the top job, and he reportedly told allies over the last couple of days that he would formally join the contest.
But in a statement late Sunday, Johnson said it was “simply not the right time.” He added he had “cleared the very high hurdle of 102 nominations” to take part in the latter stages of the contest. Around 60 lawmakers had publicly backed the ex-PM but there had been question marks over exactly how many nominations he had received.
Johnson mentioned his two rivals in his statement, Rishi Sunak and Penny Mordaunt, who have both officially entered the contest.
“And though I have reached out to both Rishi and Penny — because I hoped that we could come together in the national interest — we have sadly not been able to work out a way of doing this,” Johnson said.
Former Finance Minister Sunak is now the red hot favorite to be the next British leader with around 140 nominations so far.
On Saturday, Johnson flew back from a vacation in the Caribbean amid a media frenzy he would throw his hat into into the ring. Johnson is believed to still be popular in the grassroots of the wider Conservative Party despite many Tory MPs being firmly against a return.
Former culture secretary and close Johnson ally Nadine Dorries tweeted Thursday that he was the only MP with “a mandate from party members and the British public,” having won the 2019 General Election.
“There is a very good chance that I would be successful in the election with Conservative Party members — and that I could indeed be back in Downing Street on Friday. But in the course of the last days I have sadly come to the conclusion that this would simply not be the right thing to do. You can’t govern effectively unless you have a united party in parliament,” Johnson said in the statement Sunday.
Johnson previously enjoyed high levels of popularity until losing credibility in the final months of his tenure amid political scandal around Covid-19 rule-breaking and his links to disgraced MP Chris Pincher.
British Prime Minister Liz Truss resigned Thursday, bringing to a close a brief 44-day tenure mired by “mini-budget” chaos, economic turmoil and weeks of political infighting.
Truss’ successor will once again be decided by a Conservative Party leadership contest drawn from a short-list of candidates. This time, however, the process has been fast-tracked into the space of a week, as the party seeks to salvage its credibility and reassure markets.
Candidates have until 2 p.m. London time on Monday to gain the backing of 100 MPs and therefore enter the ballot for party leader.
The threshold is particularly high given that the party is comprised of 357 MPs, and each is allowed to vote for only one candidate. That thus limits the number of possible contenders to three.
If just one candidate receives the 100 votes required, they will automatically win the race and become Britain’s next prime minister. If two or more candidates reach 100 nominations, the contest will proceed to indicative ballots on Monday afternoon and evening.
Should the process extend beyond Monday, Conservative Party members — which number around 200,000 people representing 0.3% of the British population — will have until Friday 11 a.m. to vote for their preferred candidate in an online ballot.
The Office for National Statistics announced inflation figures Wednesday as the U.K. undergoes a historic cost-of-living crisis and political turmoil.
Westend61 / Getty Images
LONDON — The consumer price index rose 10.1% in September, according to estimates published Wednesday by the Office for National Statistics, just exceeding a consensus forecast among economists polled by Reuters.
Increasing food, transport and energy prices were the biggest contributing factors to inflation, the ONS said. Food was up 14.6% year-on-year, transport was up 10.9% compared to last year, while the price of furniture and household goods rose 10.8%.
Sterling fell against the dollar following the news, trading at $1.1289, down from $1.1330.
Britain’s Finance Minister Jeremy Hunt said in a statement that “help for the most vulnerable” will be a priority as the U.K. weathers high inflation rates, along with “delivering wider economic stability and driving long-term growth that will help everyone.”
September’s inflation rate highlights the severity of the U.K.’s inflation crisis, and comes as the country weathers a period of economic volatility.
People in the U.K. are feeling “pessimistic” about the price of groceries, with 84% saying they spent the same or more on groceries in the last three months, according to McKinsey & Company.
“The level of inflation is already driving consumers to think differently about Christmas with 58% planning to cut back on Christmas spending and 8% not planning to do any shopping at all,” Samantha Phillips, a partner at McKinsey, said in a research note.
The forecast from the ONS won’t prompt the Bank of England to reassess how it approaches interest rates, according to Marcus Brookes, chief investment officer at Quilter Investors.
“[The Bank of England] may be satisfied by the moves made in Westminster for now, but in the coming weeks, we will see what it really makes of the government’s fiscal policy as it makes its next move at its November Monetary Policy Committee meeting,” Brookes said.
Jeremy Hunt is interviewed for Sophie Raworth’s ‘Sunday Morning’ at BBC Broadcasting House in London.
Tejas Sandhu | Lightrocket | Getty Images
LONDON — U.K. Finance Minister Jeremy Hunt used his first Monday on the job to announce that almost all of the controversial tax measures announced by his predecessor would be reversed.
The major U-turn includes scrapping the cut for the lowest rate of income tax from 20% to 19%, as well as reductions to dividend tax rates, the reversal of off-payroll working reforms, VAT claim-backs for tourists and the freeze on alcohol duty rates.
Hunt said the reversed tax cuts totaled £32 billion ($36 billion) a year.
The only fiscal policies of previous Finance Minister Kwasi Kwarteng to remain are the cancellation of the planned rise in National Insurance, a general taxation, by 1.25%; and a cut in taxes paid on property purchases.
Markets cheered the announcement, with sterling trading up over 1% against the dollar by 11:30 a.m. London time. Yields on U.K. government bonds also fell sharply, with the 10-year yield trading down 35 basis points at 3.974%. Yields move inversely to prices.
Hunt also announced that the energy package designed to subsidize consumer and business energy bills would only run until April and then be reviewed in order to “cost the taxpayer significantly less than planned.”
Under the current plan, the government is capping the amount paid per kilowatt hour for gas and electricity lower than the market rate amid soaring wholesale prices. The average household is now expected to pay £2,500 per year, still up from 2021’s average £1,400 annual bill but far lower than the £4,650 that had been predicted without intervention.
“A central responsibility for any government is to do what is necessary for economic stability,” Hunt said in a short statement statement Monday morning.
“No government can control markets, but every government can give certainty about the sustainability of public finances. That is one of the many factors that influence how markets behave. For that reason, although the prime minister and I are both committed to cutting corporation tax, on Friday she listened to concerns about the mini budget.”
Hunt said a full statement with questions would come in Parliament later Monday, but because the details were market sensitive he wanted to give a brief summary in an effort to instill “confidence and stability.”
On Friday, Prime Minister Liz Truss fired Finance Minister Kwarteng less than six weeks after the pair took office, appearing to blame the chaos sparked in financial markets by the budget he announced on Sept 23.
It included unfunded tax cuts forecast to total £45 billion ($50.78 billion), which were billed by Truss and Kwarteng as a radical plan to turbocharge the U.K.’s sluggish economic growth and were a key part of Truss’s leadership campaign.
However, markets were spooked by a range of factors including the prospect of significantly higher government debt given the impending subsidies of consumer and business energy bills, and the perceived mismatch between the Bank of England’s current monetary tightening to tame inflation and the government’s stimulus package. The lack of economic forecast from the U.K.’s Office for Budget Responsibility also weighed on markets.
Along with the potential effects of a weaker pound, the public has also been impacted by market volatility as mortgage offers were pulled and mortgage rates spiked as lenders assessed new rate hike expectations.
John Gieve, former deputy governor at the Bank of England, told the BBC Monday morning that leaks from the Treasury showed the U.K. deficit was nearing £70 billion.
“Hunt realised even if he squeezes public expenditure hard he won’t be able to square the books doing that,” he told the Today program. “So he can’t afford the sort of tax cuts, even the £25 billion that remain on the table.”
Paul Dales, chief U.K. economist, said that Hunt had wiped out the Truss/Kwarteng package in an attempt to reassure markets that the government has some fiscal discipline.
“It seems to be working, with most of the rise in the pound and the large fall in gilt yields earlier today having being sustained,” he said in a note.
“But while the Chancellor has reduced fiscal uncertainty, by guaranteeing that utility prices will be frozen only until April 2023 rather than October 2024, he has introduced more economic uncertainty.”
Dales said that this means inflation could be higher for longer, households’ real incomes could fall more steeply and any recession may be deeper.
“There are a lot of moving parts, but our existing forecasts that interest rates will rise from 2.25% now to 5.00% and that GDP will fall by 2% during a recession don’t seem that wide of the mark,” he added.
The latest U.K. inflation figures are due Wednesday.
“Today was probably an admission that you can’t just do things on the hoof without thinking about what the market reaction is going to be,” Tim Sarson, U.K. head of tax policy at KPMG, told CNBC’s “Squawk Box Europe.”
Sarson said there was limited evidence that the form of ‘trickle-down’ economics espoused by Truss, which views lower taxes as a way to boost growth and raise overall prosperity, was effective, or that altering tax rates was the most important factor in determining the success of an economy.
Even putting that aside, Truss’s approach was particularly misguided, he said.
“It was just the way that it was done, the lack of clear costing, the fact that it was being done at a time when government finances are being stretched by the need to support consumers from energy, and a time when global interest rates and gilt yields are rising. There couldn’t have been a worse time to start experimenting with that sort of trickle-down policy,” Sarson added.
The ruling Conservative Party will be hoping that the arrival of Hunt, who has held previous roles as health and foreign secretary but was a so-called “backbench” member of parliament until Friday, will give the government a much-needed boost in support.
Media reports have emerged of discontent with Truss’s premiership from her own MPs just 40 days since she took the job. However, under current Conservative party rules a fresh leadership election cannot be held for 12 months.
LONDON, ENGLAND – OCTOBER 14: Britain’s Prime Minister Liz Truss attends a press conference in the Downing Street Briefing Room on October 14, 2022 in London, England. After just five weeks in the job, Prime Minister Liz Truss has sacked Chancellor of The Exchequer Kwasi Kwarteng after he delivered a mini-budget that plunged the UK economy into crisis. (Photo by Daniel Leal-WPA Pool/Getty Images)
Danioel Lee | Getty Images News | Getty Images
LONDON — British Prime Minister Liz Truss on Friday scrapped another key tax-cutting policy after firing her finance minister, in a bid to placate markets after the government’s controversial “mini-budget.”
“It is clear that parts of our mini-budget went further and faster than markets were expecting,” Truss said in a brief press conference.
Truss scrapped the pledge to reverse predecessor Boris Johnson’s hike of corporation tax from 19% to 25%, a decision estimated to restore around £18 billion ($20.1 billion) to the U.K. Treasury’s coffers by 2026.
Finance Minister Kwasi Kwarteng was fired earlier on Friday after less than six weeks in the job, amid mounting political pressure and market chaos.
Jeremy Hunt — a former health secretary and foreign secretary — was announced as Kwarteng’s successor. Chris Philp, chief secretary to the U.K. Treasury, was also replaced by Edward Argar.
U.K. government bonds — known as gilts — rallied sharply ahead of Truss’ news conference. The long-dated 30-year yield briefly touched 4.261% during morning trade. Yields move inversely to prices.
However, bond prices gave back gains after the conference, with the 30-year yield returning to around 4.58% by around 3 p.m. U.K. time.
Sterling whipsawed during a volatile session and fell around 1.4% against the dollar after Truss’ speech, trading at around $1.1165.
In her press conference, Truss said she wanted to reassure markets of the government’s fiscal discipline, and that Hunt shared her “convictions and ambitions” for the country.
Jeremy Hunt is interviewed for Sophie Raworth’s ‘Sunday Morning’ at BBC Broadcasting House in London.
Although gilt yields rallied in the run up to Truss’ U-turn, Matthew Amis, investment director at Abrdn, said Friday that “the pressure is still for gilt yields to edge higher from here, albeit with less volatility.”
“The Bank of England will still need to hike aggressively in the next few months and the gilt market will still need to absorb extremely high levels of gilt supply (let’s not forget the energy cap measures),” Amis said.
“However with Trussonomics filed away under the heading ‘disaster’, we can hopefully get back to a functioning gilt market.”
So far, roughly half of the original tax-cutting policies set out in Kwarteng’s “mini-budget” have been scrapped. However, the government still plans to go ahead with its medium-term fiscal plan announcement and accompanying independent forecasts from the Office for Budget Responsibility (OBR), which Hunt will now be tasked with delivering.
Truss characterized the roughly £18 billion saved through the corporation tax U-turn as a “down payment” on that plan and said it would ensure public spending can “grow less rapidly” than previously outlined.
“Market reaction reflected the underwhelming message and delivery. We saw the selloff in sterling intensify and gilt yields retrace their optimistic moves from yesterday and this morning. In short, the announcement, coupled with the withdrawal of support from the BofE has not calmed markets,” said Oliver Faizallah, head of fixed income research at U.K. investment house Charles Stanley.
“The U.K. still has a credibility issue, which has not been helped with today’s events. The pressure is on new chancellor Jeremey Hunt to try and bring some confidence back to the market.”
Kwarteng cut short a visit to Washington on Thursday to fly back to London as government ministers scrambled to address the market chaos unleashed in recent weeks.
This included a sell-off of long-dated government bonds that led the Bank of England to intervene in order to save pension funds from collapse, and a spike in mortgage rates for prospective homeowners.
Truss had been under immense pressure to rethink her economic policies, with opinion polls showing support for the ruling Conservative Party collapsing and lawmakers from within her own party reportedly plotting to oust her after a tumultuous first five weeks in office.
Despite this, both she and Kwarteng had remained publicly resolute in recent days, accusing critics of the government’s radical fiscal plans of being part of an “anti-growth coalition.”
“The economic environment has changed rapidly since we set out the Growth Plan on 23 September. In response, together with the Bank of England and excellent officials at the Treasury we have responded to those events, and I commend my officials for their dedication,” Kwarteng said in his resignation letter Friday to Truss after being asked to step down.
“As I have said many times in the past few weeks, following the status quo was simply not an option. For too long this country has been dogged by low growth rates and high taxation — and that must still change if this country is to succeed,” Kwarteng added in his letter.
“We have been colleagues and friends for many years. In that time, I have seen your dedication and determination. I believe your vision is the right one. It has been an honour to serve as your first Chancellor.”
This video grab taken and released on Oct. 8, 2022 shows thick black smoke rising from a fire on the Kerch bridge that links Crimea to Russia.
– | Afp | Getty Images
Russian authorities reported on Saturday that a large blaze erupted on the only bridge linking mainland Russia to the occupied Crimean Peninsula.
Russian state-backed media cited the national anti-terrorism committee as saying that a truck exploded on the road traffic side of the Kerch bridge at 6:07 a.m. local time before the road partially collapsed.
The blaze reportedly set fire to seven oil tankers being carried by rail to Crimea, with thick black smoke seen rising into the sky.
The Kerch bridge, sometimes referred to as the Crimean bridge, is one of Russian President Vladimir Putin’s prestige projects. It was built on his orders shortly after the Kremlin annexed Crimea in 2014 to support Moscow’s claims to the territory.
A symbol of hate to Ukrainians, the 19-kilometer (12-mile) crossing is a pair of road and rail bridges spanning the Kerch Strait that Russia uses to move military equipment into Ukraine.
A screen grab from a surveillance footage shows flames and smoke rising up after an explosion at the Kerch bridge in the Kerch Strait, Crimea, Oct. 8, 2022.
Anadolu Agency | Anadolu Agency | Getty Images
The reported truck explosion comes one day after Putin’s 70th birthday and at a time when the Kremlin’s months-long invasion of Ukraine has incurred a string of humiliating setbacks in recent weeks.
Images and videos shared on social media appeared to show the scale of the fire and damage.
CNBC was not able to independently verify the authenticity of these reports and images.
The head of the Russian-installed regional parliament in Crimea, Vladimir Konstantinov, blamed the incident on “Ukrainian vandals, who have finally managed to reach their bloody hands to the Crimean bridge,” according to the BBC.
Mykhailo Podolyak, an adviser to Ukrainian President Volodymyr Zelenskyy, said that the damage was “the beginning,” although stopped short of claiming Kyiv was responsible.
“Crimea, the bridge, the beginning. Everything illegal must be destroyed, everything stolen must be returned to Ukraine, everything occupied by Russia must be expelled,” Podolyak said via Twitter.
The official Twitter account of the Ukrainian government, meanwhile, appeared to respond to the incident by saying, “sick burn.”
People pose for photographs in front of a picture of a postage stamp showing an artists impression of the Kerch bridge on fire on Oct. 8, 2022 in central Kyiv, Ukraine.
Ed Ram | Getty Images News | Getty Images
Russian media reported that traffic had been suspended due to the incident and emergency and road service personnel were working at the site to contain the blaze.
“According to preliminary information, a fuel storage tank is on fire … Navigable arches were not damaged. It is too early to speak about causes and consequences. Work to extinguish the blaze is underway,” Oleg Kryuchko, an aide to the Russian occupation head of Crimea said via Telegram, according to TASS news agency.
The incident comes hours after Russia concentrated its latest barrage of attacks on areas of Ukraine it illegally annexed.
In what the West described as sham referendums, Putin declared “four new regions of Russia” late last month as Moscow annexed Ukraine’s Donetsk, Luhansk, Zaporizhzhia and Kherson regions.
Kyiv has said it will not stop fighting until it has reclaimed every last inch of land lost to Russia.
Meanwhile, Moscow has claimed it has “the right” to use nuclear weapons to defend its territory and citizens if it feels there is an existential threat, or even if it’s attacked by conventional weapons.
Climate scientists described the shocking images of gas spewing to the surface of the Baltic Sea as a “reckless release” of greenhouse gas emissions that, if deliberate, “amounts to an environmental crime.”
Anadolu Agency | Anadolu Agency | Getty Images
Sweden’s national security service on Thursday said a crime scene investigation into the gas leaks from two underwater pipelines connecting Russia to Germany “strengthened the suspicions of gross sabotage.”
Sweden’s Security Police said the investigation found there had been detonations at the Nord Stream 1 and 2 pipelines in the Swedish exclusive economic zone, which caused “extensive damage” to the pipelines.
It added that “certain seizures have been made,” without offering further details, and that these would now be reviewed and analyzed.
“The continued preliminary investigation must show whether someone can be served with suspicion and later prosecuted,” Sweden’s Security Police said in a statement.
In a separate statement, Sweden’s Prosecutors’ Office said the area was no longer cordoned off.
Seismologists on Sept. 26 reported explosions in the vicinity of the unusual Nord Stream gas leaks, which are situated in international waters but inside Denmark’s and Sweden’s exclusive economic zones.
Denmark’s armed forces said at the time that video footage showed the largest gas leak created a surface disturbance of roughly 1 kilometer (0.62 miles) in diameter, while the smallest leak caused a circle of approximately 200 meters. The cause of the gas leaks is not yet known.
The European Union suspects sabotage, particularly as the incident comes amid a bitter energy standoff between Brussels and Moscow.
Russia has denied that it was behind the suspected attack, calling such accusations “stupid.”
Late last month, Swedish and Danish authorities said at least two detonations occurred underwater, damaging the pipelines and causing major leaks of gas into the Baltic Sea.
The magnitude of these explosions was measured at 2.3 and 2.1 on the Richter scale, respectively, they said, and likely corresponded to an explosive load of “several hundred kilos.”
Two of the leaks occurred in Denmark’s exclusive economic zone and two in Sweden’s exclusive economic zone.
Climate scientists have described the shocking images of gas spewing to the surface of the Baltic Sea as a “reckless release” of greenhouse gas emissions that, if deliberate, “amounts to an environmental crime.”
President Joe Biden speaks during the First State Democratic Dinner in Dover, Delaware.
Saul Loeb | AFP | Getty Images
WASHINGTON – The Biden administration is expected Friday to announce new economic sanctions on Russia in response to its disputed annexation of four regions of Ukraine, a White House official told NBC News.
Russian President Vladimir Putin earlier Friday announced, “There are four new regions of Russia,” referring to the Ukraine areas of Donetsk, Luhansk, Zaporizhzhia and Kherson.
Putin cited referendum votes by residents of those Russian-occupied areas, which he said approved becoming parts of Russia. Those votes are widely viewed by Western officials as rigged and illegitimate.
“The results are known, well known,” he said.
Earlier this week, the White House said the U.S. would never acknowledge the results of the “sham referendum” and would continue providing Ukraine with military and humanitarian support.
Christine Lagarde, European Central Bank (ECB) president addresses a news conference following the ECB’s monetary policy meeting in Frankfurt, Germany, September 8, 2022.
Kai Pfaffenbach | Reuters
Euro zone inflation hit a new record high of 10% in September, Eurostat data showed on Friday, up from 9.1% in August and above consensus projections of 9.7%.
The reading, which also showed price increases broadening out from volatile food and energy prices into nearly all segments of the 19-member bloc’s economy, will exert more pressure on the European Central Bank to hike interest rates aggressively at its October meeting.
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