A panel of experts has been drafted in to assess whether Russia has gone into default, paving the way for insurance payouts on the debt.
The Credit Derivatives Determinations Committee (CDDC), which is meeting on Wednesday, will review whether a payment made in roubles constitutes a “failure-to-pay event”.
The Kremlin breached the terms on two bonds last week, as it made payments in roubles instead of dollars as required.
The ruling from the committee, which is run by financial industry bodies, is expected to affect contracts insuring $40bn (£31bn) of Russia’s debt.
Russia has been cut off from the financial system after a barrage of sanctions imposed following its invasion of Ukraine.
The sanctions have hampered bond payments, putting the country on the brink of its first default on external debt since the Bolshevik Revolution in 1917.
The transfer of roubles was made after foreign banks declined to process dollar coupons due on April 4. Both bonds have a 30-day grace period.
S&P Global Ratings subsequently cut the government to “selective default.”
Jochen Felsenheimer, a managing director at XAIA Investment in Munich, said: “There is still a grace period and they still have the opportunity to fulfill the US dollar payments.
“I would expect a credit event when the grace period ends.”
Investors have been pushing for clarity on what could trigger insurance payments since the latest sanctions were imposed on Russia.
Earlier this week, the CDDC ruled that Russian Railways defaulted on a bond after missing an interest payment last month.
The state-owned company failed to make a payment to investors and a 10-day grace period expired. However, Russian Railways insisted on Tuesday it had paid the debt on time, blaming intermediaries for holding up the funds.
The group said funds did not reach investors “due to the actions of intermediary financial institutions that are beyond the control of Russian Railways”, adding: “Meeting our payment obligations remains a priority.”
Russian Railways is the first firm to default since the invasion of Ukraine, and the move could set a precedent for other struggling firms.
That’s all from us today, thank you for following! Before you go, have a look at the latest stories from the business desk:
Honda bets on hybrid cars despite industry shift to fully electric models
Honda has vowed to keep investing in hybrid cars despite a global push to focus on fully electric vehicles as it unveiled a $40bn investment. Howard Mustoe reports:
Japan’s third-biggest car maker said it would spend 5 trillion yen (£31bn) over the coming decade, adding 30 electric models to its fleet in a bid to make 2m electric cars annually by 2030.
Like its rival Toyota, Honda will also bet heavily on hybrid vehicles, keeping them as part of its product lineup into the mid 2030s.
While car makers are speeding ahead with electrifying their ranges, the cost of battery parts is soaring and electricity generation is lagging in decarbonising, with coal still used to make more than a third of the world’s power.
That means retaining hybrids will make sense for some markets such as India where coal is used for three quarters of its electricity, meaning driving with petrol is cleaner than charging an electric car.
FTSE closes lower
The FTSE 100 has closed lower after the latest jobs data showed signs that the labour market continues to be tight.
London’s leading index shed 0.6pc to 7,576.
Chris Beauchamp, market analyst at IG, said: “Led by AstraZeneca and Rolls-Royce, the FTSE 100 is declining for a second consecutive day, for the first time in a month.
“The bounce from the March lows has carried the index back to the February highs, but a short-term pause now looks likely.
“But even so, with inflation carrying prices higher and yields still moving up in the months to come, the index seems well-placed for further gains that will take it to new highs for the year.”
Panel to rule on Russia’s default
A panel of dealers and investors will assess whether Russia failed to properly meet its bond obligations, paving the way for insurance payouts on the debt as the country slips closer to a default.
The Credit Derivatives Determinations Committee was asked to review whether a “failure-to-pay event” occurred for credit-default swaps after Russia last week made two bond payments in rubles, breaching the terms as they were meant to be paid in dollars.
It will meet tomorrow, and a ruling will affect contracts insuring $40bn (£31bn) of the country’s debt. Sanctions imposed because of Russia’s invasion of Ukraine have cut it off from the financial system and hampered bond payments, putting the sovereign on the brink of its first default on external debt in more than a century.
British Airways tries to poach cabin crew with £1,000 ‘welcome bonus’
British Airways is trying to lure cabin crew with security clearances from rivals with a £1,000 “welcome bonus” amid ferocious competition for staff. Oliver Gill writes:
With airlines struggling to fill staff vacancies, the flag carrier has raised the stakes by advertising for cabin crew “with attestation and hold a current Heathrow or Stansted airside ID”.
The job description states: “For candidates who are successfully offered a role through this campaign, we’re offering a welcome bonus of £1,000 – paid in two instalments – £500 after your first three months, £500 after six months in role.”
Octopus Energy buys stake in heat pumps maker
Octopus Energy has bought a Northern Irish manufacturer of heat pumps, the technology that experts believe could replace the UK’s gas boilers in future.
Octopus will take a majority stake in Renewable Energy Devices with option to buy the rest of the company by the end of the year.
The company plans to produce 1,000 heat pumps every month by the end of this year and it is eyeing new manufacturing sites.
Heat pumps work like reverse air conditioners and heat homes in highly efficient ways. The UK Government hopes that 600,000 heat pumps will be installed in homes every year from 2028.
Yelp to cover travel costs for US employees accessing abortion
In the wake of increasingly restrictive abortion laws sweeping the US, Yelp is the latest company to cover travel costs for employees who need to leave their home states to get reproductive care.
The company has nearly 4,000 workers in the US and just over 200 in Texas, where a bill has banned abortions after six weeks. Yelp will offer its benefit through the company’s insurance provider starting next month, Bloomberg reported. It will also extend coverage to dependents.
“As a remote-first company with a distributed workforce, this new benefit allows our US employees and their dependents to have equitable access to reproductive care, regardless of where they live,” said Miriam Warren, the company’s chief diversity officer.
With the Supreme Court expected to rule on a case this year that could lead to further abortion restrictions in many states, large companies with workers based in those places, such as Citigroup, Apple and Levi have begun offering a travel benefit for getting reproductive health care out of state.
That’s all from me today – thanks for following along! Giulia Bottaro will take over from here.
Hornby runs out of steam as delays hit sales
Soaring fuel prices and a shortage of drivers have caused household bills to surge and led to empty shelves in supermarkets.
But now Britain’s favourite model railway maker appears to be running out of steam as delivery delays leave it struggling to keep up with pandemic-fuelled demand for its train sets.
Laura Onita has more:
Hornby, which also produces Airfix and Scalextric, told investors that supply chain challenges held back sales growth during the year to Mar 31.
Longer shipping times for overseas goods as well as a lack of drivers last summer and fuel disruption in the UK has affected operations, it said in a trading update.
The availability of electronic components, which have been severely disrupted by the pandemic, also impacted Hornby’s “ability to increase sales further” during the year.
World Bank to send $1.5bn to Ukraine
The World Bank is preparing a $1.5bn (£1.2bn) support package for war-torn Ukraine and plans to aid developing countries struggling to keep up with surging food and energy prices.
David Malpass, President of the World Bank, said the organisation was helping Ukraine provide critical services, including paying wages for hospital workers, pensions and social programs.
Speaking at an event in Poland, he said: “The World Bank was created in 1944 to help Europe rebuild after World War Two. As we did then, we will be ready to help Ukraine with reconstruction when the time comes.”
FCA staff vote for first ever strike action
Staff at the Financial Conduct Authority (FCA) have voted to strike for the first time in the regulator’s history, union Unite has said.
More than 75pc of members at the City watchdog voted for industrial action, with a further 90pc supporting action short of a strike.
Sharon Graham, Unite general secretary, said:
For the first time ever, the employees at the Financial Conduct Authority have voted for industrial action. They have made it very clear that the proposed changes to staff pay and conditions are completely unacceptable.
The FCA management must now address the serious concerns of their employees.
Sky speeds up the demise of the satellite dish
Sky is stepping up its shift to streaming with a device that will hasten the end of the satellite dish, writes Ben Woods.
Later this year the pay TV broadcaster will launch Sky Puck, a streaming box offering access to all Sky channels and apps over an internet connection.
The move comes after the launch of Sky Glass, the streaming TV released late last year that aims to protect its customer base from the wave of US entertainment apps arriving in the UK.
The Puck will allow Sky to fight for subscribers by targeting potential customers who do not want to switch to a Glass TV.
It will also speed up the move away from the satellite dish, which has allowed the company to maintain its dominance of the pay TV market for nearly three decades.
A Sky spokesman said: “The Puck is a quick and easy way to enjoy most of the Sky Glass experience. All customers have to do is plug it in and play. You can stream every channel, show and app over WiFi, without a dish.”
Putin claims West’s economic ‘blitzkrieg’ has failed
Vladimir Putin has insisted that the West’s economic “blitzkrieg” has failed and that Russia’s financial system was operating well.
Russia’s economy is on track to crash 10pc this year – its biggest drop since the fall of the Soviet Union – and the Kremlin is on the brink of defaulting on its sovereign debt.
Putin admitted the risk of harm from sanctions could rise in the medium to long term.
After weeks of silence as his forces retreated from Ukraine, where there’s mounting evidence of war crimes against civilians, the Russian leader vowed Russia would triumph in all of its “noble” war aims.
He added that inflation and rising food and petrol prices would start to put pressure on politicians in the West.
Oil rebounds 5pc in volatile trading
Oil prices have rebounded more than 5pc in volatile trading as investors weigh up the latest outlook for demand.
Benchmark Brent crude rose to $103.5 a barrel, while West Texas Intermediate was trading just shy of $99.
Both have more than regained the ground they lost at the beginning of the week amid concerns over China’s Covid resurgence. Shanghai has eased lockdown for some housing complexes, but warned they’ll reimpose restrictions if cases climb.
Surging global inflation and the threat of sanctions on Russian oil are also wreaking havoc in wholesale markets.
Wall Street rises after US inflation data
Wall Street’s major indices gained ground at the opening bell as investors appeared to focus on the lower-than-expected rise in core inflation.
US consumer prices surge 8.5pc in March – the most since late 1981 – bolstering expectations that the Federal Reserve will raise interest rates by half a point next month.
Excluding food and energy, core prices increased 0.3pc from a month earlier and 6.5pc from a year ago. This was lower than expected, due in large part to the biggest drop in used vehicle prices since 1969.
The benchmark S&P 500 rose 0.6pc, while the Dow Jones was up 0.3pc. The Nasdaq jumped 1.3pc.
Airbus urges West not to boycott Russian titanium
Airbus has urged countries not to block imports of titanium from Russia, saying sanctions would damage western manufacturing while barely harming Russia’s economy.
Guillaume Faury, chief executive of the European plane maker, said any decision to expand sanctions to titanium –which is used widely in aerospace – would not be appropriate.
However, he said Airbus was accelerating a search for alternative non-Russian supplies in the long term, while insisting its needs were covered by stockpiles in the short and medium term.
Expert reaction: Inflation data will embolden Fed
Hinesh Patel Quilter Investors says US inflation numbers will embolden the Fed to push ahead with aggressive interest rate rises.
For the very short-term, consumers with healthy levels of income and savings will be able to absorb this inflationary shock, especially given the household tax refunds coming their way.
However, this remains an uneven recovery from the pandemic and it will be less well-off households that will struggle given the acceleration in prices we have seen in such a short time frame.
The Fed is jawboning hard at the moment to ensure inflation does not become entrenched. They are having to combat not only the pressure of supplying too much liquidity to financial markets but also factors such as commodity prices, wage hikes and geopolitical uncertainty that they haven’t had together for at least 40 years.
Clearly the risk of misstep is high and in our view investors will be best served by quality, well-diversified and fully-active money management.
Is core inflation slowing?
There’s some debate among analysts over signs of a slowdown in the so-called core consumer price index – that’s inflation with volatile food and energy components stripped out.
Callie Cox at eToro argues the Federal Reserve tends to focus on underlying “sticky” inflation, as rises in energy and food are temporary. But Danske Bank says annual core inflation of 4pc is still too high for the Fed to put up with.
Pressure mounts on Fed as prices surge
The latest inflation numbers will pile more pressure on the Federal Reserve to raise interest rates by half a percent at next months’ meeting.
The consumer price index hit 8.5pc in March from a year earlier, up from 7.9pc in February and the biggest jump since 1981.
The widely-followed inflation gauge rose 1.2pc from a month earlier – the biggest gain since 2005. Petrol costs drove half of the monthly increase.
The March figure represents what many economists expect to be the peak of current inflation, which has been fuelled by surging food and energy prices in the wake of Russia’s invasion of Ukraine.
While there are some worries that inflation will tip the US economy into recession, there’ll be even greater pressure on the Fed to tighten monetary policy aggressively to keep a lid on rising prices.
US inflation hits 8.5pc
US inflation surged to 8.5pc in March – the fastest annual rate of price growth in more than four decades.
The figure outstrips forecasts and is the highest since December 1981, with surging prices largely driven by energy costs.
Even stripping out volatile food and energy costs, inflation stood at 6.5pc.
Russian spies launch cyber attack on Ukraine’s electrical grid
Ukraine has accused a Russian spy agency of carrying out a cyber attack intended to shut down part of its electricity grid.
Gareth Corfield reports:
Russian cyber-attackers created customised malicious software intended to disconnect high-voltage substations belonging to a Ukrainian power company.
The country’s Computer Emergency Response Team, which defends against foreign hackers, said: “The idea of the attackers involved the decommissioning of several infrastructural elements.”
A malicious software “bomb” was set to digitally detonate last Friday, the team said. The bomb consisted of so-called “wiper” malware that deletes all files on computers it infects.
Such malware has previously been used by Russia but this is thought to be the first time since the February invasion where it has been used against critical infrastructure.
Germany says its gas reserves would last until late summer
Germany’s gas reserves would last until at least late summer should Russia turn off the taps now.
That’s according to the head of Germany’s network regulator, who warned pressure on the EU to ban Russian energy was building over civilian deaths in Ukraine.
Speaking to Die Zeit, Klaus Mueller said current reserves looked slightly better than three or four weeks ago and could even last until early autumn in the event of an immediate supply halt.
Calls have been mounting for the EU to halt imports of Russian gas and oil to hammer the Kremlin’s revenues. But the bloc has so far resisted pressure, with Germany most opposed to tougher sanctions due to its heavy reliance on Russian energy.
Mr Mueller said reports of atrocities would increase pressure on the EU to ban Russian gas imports, which would force Germany to ration energy a prospect he said was underestimated by many Germans.
Pret A Manger cashes in on airport chaos
Pret a Manger is cashing on the airport travel chaos that has left many passengers stranded for hours, writes Hannah Boland.
Sales at Pret outlets in London airports “soared” last week, according to new figures from Bloomberg’s Pret Index, taking them ahead of pre-pandemic levels for the first time in the past year.
The figures showed sales at airports including Heathrow and Gatwick were 120pc higher than their pre-Covid level last week, making them some of the busiest across Pret’s estate.
The rise comes after travellers faced lengthy queues at airports as they jetted off for the Easter break.
Airport chiefs warned that they were struggling to hire more security clearance workers after cutting back during Covid, with strict vetting processes making recruiting slower and staffing issues expected to last for months.
Passengers have been forced to wait for between 60 and 90 minutes to get through security, compared to less than 40 minutes normally.
US futures hold steady ahead of inflation data
US futures are subdued this afternoon as traders gear up for the latest inflation figures.
Consumer prices in the US are set to surge 8pc in March as Russia’s invasion of Ukraine disrupts commodity supply chains and drives up energy prices.
The figure is likely to strengthen the case for further tightening of monetary policy by the Federal Reserve – spooking markets.
Futures tracking the S&P 500 and Dow Jones were little changed, while the tech-heavy Nasdaq ticked up 0.2pc.
Russian Railways claims it’s not in default
Russian Railways has insisted it hasn’t defaulted on a bond – a day after a panel of credit-default swap experts ruled it was in default.
The state-owned railway company, which has been hit by sanctions, has fallen behind four bond payments due in the last month.
It insisted it had paid the debt on time, blaming intermediaries for holding up the funds.
The company said funds never reached investors “due to the actions of intermediary financial institutions that are beyond the control of Russian Railways”, adding: “Meeting our payment obligations remains a priority.”
Russian Railways is the first firm to default since the invasion of Ukraine, and the move could set a precedent for other struggling firms, as well as the Kremlin itself.
War in Ukraine sparks surge in food stockpiling
Shoppers raced to stockpile tinned tomatoes, pasta, tea, coffee and paracetamol last month amid fears that the Russian invasion of Ukraine could spark a war across Europe.
Laura Onita reports:
More than a third of consumers stocked up on everyday items such as canned tomatoes, dried pasta, lavatory paper and paracetamol last month, according to research by Barclaycard.
The behaviour mirrors panic-buying at the beginning of the pandemic when customers flocked to supermarkets to buy essentials.
It came as it emerged that Denmark is to buy 2m iodine tablets that can be used to protect against radiation poisoning.
Ukraine was invaded on Feb 24, sparking rapid fears of escalation as the West joined forces to condemn aggression by Vladimir Putin, the Russian president.
Tensions rose again on March 4 after a fire broke out during fighting around the Zaporizhzhia nuclear plant.
Reports suggested earlier this month that the EU was considering stockpiling protective gear and medicines to bolster the reserves of member states.
Zelensky calls for quick EU action on Russian oil
Meanwhile, Ukrainian President Volodymyr Zelensky has urged the EU to impose sanctions on Russian oil imports – and to set a deadline for banning Russian gas.
He also said measures should target all Russian banks. So far, sanctions have only targeted selected lenders such as Sberbank and Alfa Bank, and excluded energy transactions.
He told the Lithuanian parliament:
We cannot wait… We need powerful decisions, and the EU must take them now. They must sanction oil and all Russian banks… Each EU state must set terms for when they will refuse or limit [Russian]) energy sources such as gas.
Only then will the Russian government understand they need to seek peace, that the war is turning into a catastrophe for them.
Lloyd’s tells employees not to come into work
Lloyd’s of London has issued a statement on today’s protests, telling workers not to come into the office but saying trading was still open online.
Activists hit out at Canadian pipeline
Extinction Rebellion is demanding that Lloyd’s of London stops underwriting all fossil fuel projects, but there’s one in particular the protesters are focusing on.
The Trans Mountain expansion project plans to add around 980km of new pipeline to an existing network running through Canada.
Extinction Rebellion said the project has been opposed by Indigenous communities whose land it cuts through, and would allow a dramatic increase in the amount of tar sands Canada could export.
Pound slips amid labour market squeeze
Sterling lost ground against a stronger dollar this morning as new data showed unemployment dropped to its lowest level since 2019 in the three months to the end of February.
The Bank of England is watching closely for signs that a lack of candidates will push up wages and fuel inflation further.
While wage growth is lagging behind price rises, economists said the data would do little to alter expectations of more interest rate rises.
Ruth Gregory at Capital Economics said: “The latest batch of data brought some signs of a softening in labour demand, but with the unemployment rate having fallen to pre-Covid levels, job vacancies at a record high and wage growth rising, the labour market is very tight.
“So, even though real wages are now falling and will decline further, we still expect the Bank of England to raise interest rates from 0.75pc to 1pc on May 5 and to 2pc next year.”
The pound fell 0.2pc against the dollar to $1.3001. Against the euro, it was little changed at 83.50p.
Watchdog probes Deloitte over Go-Ahead audit
The accounting watchdog has opened an investigation into Deloitte over six years of audits of Go-Ahead, which was fined for failing to return tens of millions of pounds in taxpayer money.
The Financial Reporting Council said it was reviewing the Big Four auditor’s work on Go-Ahead’s accounts between 2016 and 2021.
A spokesman for Deloitte said the company would co-operate fully with the investigation.
Go-Ahead was fined £23.5m in March after an independent review revealed “serious errors” by its London and Southeastern rail franchise.
Lloyd’s of London closed amid climate protests
Extinction Rebellion appears to have succeeded in its efforts to shut down Lloyd’s of London this morning.
The historic insurance marketplace will be closed for the rest of the day after protesters blocked workers from entering.
The group is demanding that Lloyd’s stops underwriting fossil fuel projects.
Russia’s economy to crash 10pc, warns former finance minister
Russia’s economy is on track to contract by more than 10pc in 2022 – the biggest fall in GDP since the years following the collapse of the Soviet Union in 1991.
That’s according to Alexei Kudrin, former finance minister and now head of the Audit Chamber, who said Russia’s economy and finance ministries were currently working on new forecasts.
Russia is facing soaring inflation and an exodus of capital while grappling with a possible debt default after the West imposed crippling sanctions in response to its invasion of Ukraine.
Previous Russian government forecasts predicted GDP growth of 3pc this year after the economy expanded by 4.7pc in 2021.
EasyJet boss: Crew security delays adding to flight cancellations
Delays in processing security checks for new airline crew are increasing the number of flights being cancelled, according to the boss of easyJet.
Chief executive Johan Lundgren said the airline is waiting for the Department for Transport (DfT) to give permission for around 100 new members of staff to start work.
EasyJet has cancelled hundreds of flights in recent days, mainly on routes serving Gatwick Airport in West Sussex.
Mr Lundgren said this was primarily due to high levels of Covid-related staff absences, but also blamed the time it is taking for the Government to vet new recruits.
He said: “There’s this delay of the clearance from the DfT for people to get their IDs. There’s a backlog there and we’re waiting currently for about 100 cabin crew to get their IDs.
“There’s a three-week delay on that. That has had an impact. If that would have been on time, we would have seen less cancellations.”
PageGroup boss to step down after 16 years
Recruitment firm PageGroup has kicked off the search for its own boss after announcing the departure of chief executive Steve Ingham following a 16-year stint at the helm.
The company said that, after talks with Mr Ingham, it was decided now was the “appropriate time” to begin the search for his successor, but confirmed he will remain in post until a new chief executive has been appointed.
It comes after PageGroup reported another record quarterly performance, with March seeing gross profits top £100m for the first time.
The group said the first quarter performance puts it on track to “slightly” beat market expectations for profit of £202m in 2022.
Mr Ingham said:
Having consulted with me, the nomination committee has decided that now is the right time to commence the process to identify my successor, and I have indicated my support for their decision.
I have been privileged to lead PageGroup over the last 16 years and I am immensely proud of everything we have achieved together.
Energy price cap ‘likely to rise another £500’
Ministers have reportedly been warned that gas and electricity bills are likely to rise another £500 this autumn.
An initial assessment by Ofgem has concluded that the energy price cap is on course to rise to about £2,400 in October, the Times reports.
The regulator is said to have warned ministers that there’s considerable uncertainty in the estimate and it could be higher if the war in Ukraine fuels further disruption in wholesale markets over the summer.
According to the report, Government sources denied claims that internal Ofgem estimates had suggested the price cap could rise to up to £5,000 in a worst-case scenario.
They said that a rise to £2,400 was a “reasonable assumption”, but it was hard to make any reliable projection at this stage.
Extinction Rebellion target Lloyd’s of London
Extinction Rebellion has refocused its efforts on the City of London today, with protesters targeting Lloyd’s of London.
The climate group said 60 people had blocked the entrances at the iconic insurance headquarters, preventing staff from entering the building.
Protesters used superglue, chains and bike locks to block over 25 entrances to the building, with the aim of shutting down the market for the day.
Extinction Rebellion said it was demanding that Lloyd’s of London stopped insuring fossil fuels projects, and highlighted the Trans Mountain Pipeline extension in Canada, which they believe is being insured through the marketplace.
PwC: The worst is yet to come
Jake Finney, economist at PwC, gives a bleak outlook for the UK’s economic prospects:
Workers are not seeing the benefits of a tight labour market. Real regular pay fell by 1pc year-on-year, as nominal pay rises were unable to keep up with surging inflation rates.
Lower-income workers are expected to see the sharpest fall in their wages this year, as higher earners are seeing significantly larger rises in their nominal pay packets.
The worst is yet to come for workers. The pay squeeze is likely to tighten, with real wages expected to fall by around 2pc this year as inflation rises further.
Our modelling shows this could leave the average UK household around £900 worse off, while the lowest earners could see their incomes fall by as much as £1,300.
Nokia pulls out of Russia
Telecoms giant Nokia has become the latest company to withdraw from Russia.
The Finnish company said pulling out the country was the only option. That goes further than rival Ericsson, which earlier this week said it was suspending its business in Russia.
Pekka Lundmark, chief executive of Nokia, told Reuters: “We just simply do not see any possibilities to continue in the country under the current circumstances.”
Deliveroo growth falters as order spend falls
Deliveroo’s sales ticked up in the first three months of the year but customers spent less on average, raising questions over whether it can keep growing after lockdowns.
The company’s overall gross transaction value (GTV) hit £1.8bn in the period – up 11pc on last year. This included an 18pc rise in orders to 82.4m, although the amount spent per order fell 7pc to £21.70 on average.
In the UK and Ireland GTV was up 12pc to £956m, with orders up 20pc to 40.7m, but again the average spend per order was down 7pc to £23.50.
Fewer, larger orders are more profitable for Deliveroo because its biggest cost is its workforce of gig economy riders.
Shares slid 3pc.
FTSE risers and fallers
The FTSE 100 has dropped in early trading after new figures highlighted the strain on the labour market and wages lagging behind price growth.
The blue-chip index dropped 0.8pc, weighed down by healthcare and consumer stocks.
AstraZeneca, HSBC and Diageo were among the biggest drags, while Rolls-Royce slumped 5.6pc after JP Morgan downgraded the engineer’s stock to “underweight” from “neutral”.
The domestically-focused FTSE 250 also fell 0.8pc. Asos initially slumped 5.1pc after it swung to a loss in the first half, before recovering to a modest gain.
EasyJet summer bookings top pre-Covid levels
EasyJet has said bookings for this summer are now above pre-Covid levels, adding it expects to emerge as “one of the winners” in the post-pandemic recovery.
The budget airline said more bookings were made over the last six weeks than in the same period in 2019, with passengers booking their trips much closer to departure than previously.
It said the removal of travel restrictions had sparked a “strong and sustained” recovery, with capacity in the first three months of the year hitting 80pc of 2019 levels.
Still, easyJet said it expected to make a loss of between £535m and £565m in the six months to the end of the March.
It comes as the airline grapples with staff shortages caused by a rise in Covid cases, forcing it to cancel hundreds of flights in recent days.
It said: “We have proactively managed this in advance by making pre-emptive cancellations as early as possible, enabling the majority of our customers to rebook onto flights departing the same day.”
Sri Lanka defaults on $51bn foreign debt
Crisis-stricken Sri Lanka has defaulted on its $51bn (£39bn) external debt, calling the move a “last resort” after running out of foreign exchange to import desperately needed goods.
The nation is grappling with its worst economic downturn since independence, with regular blackouts and acute shortages of food and fuel.
Sri Lanka’s finance ministry said in a statement that creditors, including foreign governments, were free to capitalise any interest payments due to them from today or opt for payback in Sri Lankan rupees.
It said: “The government is taking the emergency measure only as a last resort in order to prevent further deterioration of the republic’s financial position.”
It added that the immediate debt default was to ensure “fair and equitable treatment of all creditors” ahead of an International Monetary Fund assisted recovery programme for the South Asian nation.
Asos to take £14m hit from Russia exit
In corporate news this morning, Asos has said it expects to take a £14m hit from its decision to pull out of Russia.
It came as the ecommerce firm said it sank to a pre-tax loss of £15.8m in the six months to the end of February as it spent heavily to try and win more customers.
This included £7.9m on launching a new strategy, £5.5m to move from the junior Aim stock market to the main FTSE stock exchange, £18.3m relating to its Hertfordshire office and £6.4m due to its takeover of Topshop.
Sales rose 1pc to £2bn over the period, but this was a marked slowdown in growth as shoppers headed back to the high street after lockdowns.
Supply chain issues also took their toll, while Asos warned inflation could hurt demand in the coming months. Shares fell more than 4pc.
Still, bosses were optimistic that sales would accelerate this year thanks to easing supply chain troubles and the return of event and holiday-led demand.
FTSE 100 drops after labour figures
The FTSE 100 has lost ground at the open, extending losses after fresh data revealed the biggest drop in living standards in eight years.
The blue-chip index dropped 0.9pc to 7,553 points.
More reaction: Jobs data makes interest rate rises more likely
Thomas Pugh, economist at RSM UK, says the latest data gives the Bank of England “all the justification it needs” to raise interest rates again .
However, economic growth is likely to slow sharply in the second half of the year, which will dampen demand for labour and help to ease some the tightness.
The squeeze in the labour market was reflected in a rise in pay growth from 4.8pc in January to 5.4pc in February. That is still above its pre-pandemic level of about 3pc and will likely make the MPC even more concerned that the recent burst of high inflation is starting to be reflected in wages.
Indeed, we expect the MPC to use the strength in pay growth as the main justification for raising interest rates next month. However, real total pay growth, which takes inflation into account, grew by a much more muted 0.4pc, suggesting that the cost-of-living crisis was starting to bite in February and will only get worse as inflation jumps in March and April.
Real wages are likely to fall by around 3pc in 2022, which would be the deepest squeeze on spending power on record.
Rishi Sunak: Data shows strength of jobs market
One person who’s upbeat about the latest ONS figures is – unsurprisingly – Chancellor Rishi Sunak.
He says the figures show:
The continued strength of our jobs market, with the number of employees on payrolls rising once again in March and unemployment falling further below pre-pandemic levels.
We are helping to cushion the impacts of global price rises through over £22bn of support for the cost of living this financial year.
We’re also helping people to find new jobs, and ensuring work always pays as this is the best way to support households in the longer term.
More reaction: Economy facing a crunch point
James Reed, chairman of Reed.co.uk, says the jobs boom is in danger of becoming a jobs overload.
The economy is facing a crunch point as businesses contend with serious challenges, from rapidly rising inflation to severe labour shortages.
The difficulties businesses now face in hiring staff are having a knock on effect on supply chains, production output and the quality of goods and services. This is slowing the UK’s economic recovery from the pandemic.
There are now 8.8m people who are economically inactive in the UK, which is 600,000 more than at the start of the pandemic. This is a symptom of what I call ‘The Great Lie Down’, with many workers leaving the workforce altogether, some through long term sickness and others preferring early retirement or different lifestyle choices.
If these workers are to be coaxed back, they will need convincing with attractive employment arrangements, higher wages and better conditions and benefits.
Expert reaction: Lagging wages threaten recovery
Suren Thiru, head of economics at the British Chambers of Commerce, says the surge in prices ahead of wages is a threat to the economic recovery.
If this continues as expected, real household incomes will be damaged further, stifling consumer spending, a key driver of UK economic output.
Weakening consumer confidence may limit households’ willingness to support spending by running down savings built-up during Covid to offset declines in real pay.
UK workforce continues to shrink
My colleague Tim Wallace has more on how the UK labour force has changed:
Unemployment fell back to 3.8pc in the three months to February, matching the lowest levels seen before Covid. The last time unemployment was lower than this was back in 1974.
In total there are now just under 1.3m people who are unemployed. At the same time there are 1.28m vacancies as bosses look for workers in record numbers.
However, overall employment is still below its pre-Covid level with just under 32.5m people in work, more than 500,000 short of the number in jobs before March 2020.
This is in large part due to a fall of around 800,000 in the number of self-employed people, who were hit particularly hard by the pandemic’s effect on the economy. The number of employees is up by more than 330,000.
The number of people aged below 65 but classed as “inactive” – neither in work nor looking for work – rose to 8.9m, its highest level since 2017.
The latest rise was caused by an increase in the number of people taking early retirement – more than 1.2m under-65s say they are retired – as well as a rise in those who are long-term sick, accounting for more than 2.3m, and an increase in those looking after their family or home, which at 1.7m is at its highest since the first lockdown.
ONS: Real pay now falling ‘noticeably’
Darren Morgan at the ONS says:
Overall, employment in December-February was little changed on the previous three months, and so is still below its pre-pandemic level.
While unemployment has fallen again, we are still seeing rising numbers of people disengaging from the labour market, and as they aren’t working or looking for work, are not counted as unemployed.
Early estimates suggest there was only a small increase in the number of employees on payroll in March, while job vacancies, although again at a record high, rose at their slowest for nearly a year.
While strong bonuses continue to mitigate the effects of rising prices on people’s total earnings, basic pay is now falling noticeably in real terms.
Real wages plunge amid cost-of-living crunch
There’s yet another reminder of the cost-of-living crisis this morning, with the latest ONS figures showing wage growth is lagging well behind surging inflation.
While average earnings excluding bonuses rose 4.1pc in February from a year ago, when adjusted for prices they dropped 1.3pc – the biggest fall since 2013.
There were also signs the labour market recovery could be running out of steam. While unemployment dropped to 3.8pc in the quarter to February and vacancies remained at a record high, payrolls increased by just 35,000 in March – well below expectations.
The figures highlight the cost-of-living crunch that’s expected to hit demand and growth for the rest of the year. On top of rising prices and lagging wages, households are also grappling with recent energy bill and tax rises.
5 things to start your day
1) How Britain is fighting to become a lithium powerhouse Inside the race to mine and refine vital car battery ingredient in the UK
2) War in Ukraine sparks surge in food stockpiling Customers race to buy tinned tomatoes, tea and pasta as threat of conflict looms
3) Heathrow faces pressure to drop rise in landing fees Some 4.2m passengers used London’s hub airport in March, the highest level since the start of the pandemic
4) Brussels backs £6.3bn foreign takeover of defence behemoth Meggitt Sale of Typhoon parts maker moves a step closer after backing from EU regulator
5) M&S slashes the price on everyday essentials amid cost-of-living crisis Marks & Spencer will lower prices across everyday staples including milk and bread
What happened overnight
Asian markets dropped lower today as Japanese and Hong Kong shares plummet. The Nikkei 225 is sitting at -1.36 per cent, while the Hang Seng is down 0.64 per cent.
Coming up today
- Corporate: Asos, easyJet (interims), Liontrust Asset Management, Moneysupermarket.com, Pennon Group (trading statement)
- Economics: BRC retail sales (UK), unemployment rate (UK), claimant count change (UK), average earnings (UK), consumer price index (US, Ger), ECB Bank Lending Survey (EU), monthly budget statement (US)