Good morning and welcome to our continued coverage of the global economy, financial markets, supply chain crisis and UK business.
Supply chain problems gripping the global economy threaten to undermine the recovery and increase fears of stagflation, that unhealthy combination of rising prices and slowing growth.
With soaring energy prices and companies still scrambling for parts and raw materials, policymakers fear the rebound in the recovery is faltering.
Governor of the Bank of England Andrew Bailey He warned that the UK’s recovery to its pre-pandemic size will take longer than expected as supply chain problems drag growth down and help drive the pound to its lowest level this year.
Bailey told a European Central Bank panel with other major central bank heads that Britain’s GDP likely won’t recover to pre-pandemic levels until early next year, a couple of months later than anticipated in August.
“I hope we get back to the pre-pandemic level early next year, possibly a month or two later than we thought we would be in early August.”
Bailey added that:
“The big challenge now is how we can overcome this period of uneven growth, bumps on the supply side and come out the other side with a smoother recovery and a balance between supply and demand.”
Other central bankers are also concerned that supply chain shortages will skew the recovery and boost consumer prices.
They are closely watching for signs that higher-than-expected inflation leads to wage increases, creating a cycle that could increase pressure for central banks to increase borrowing costs, although they argue that these disruptions will be temporary.
Jay powell, president of the US Federal Reserve, said it was “frustrating” that supply chain bottlenecks were holding back the recovery of the world’s largest economy.
He told the EBC panel:
“The combination of strong demand for goods and bottlenecks has meant that inflation is well above target.
We expect it to continue to do so in the coming months before moderating as bottlenecks ease. ”
ECB President Christine Lagarde also appeared concerned, saying that supply bottlenecks “appear to be accelerating in some areas”:
“How long will it take for these bottlenecks to disappear is a question that we are monitoring very closely and this is on our radar screen.”
Rising energy prices is a particular headache: it increases costs for businesses and hits consumers with higher energy bills, prompting the collapse of three other UK energy companies yesterday.
Wholesale gas and coal prices are hitting records as the Northern Hemisphere heads into what could be a very difficult winter:
Michael Hewson from CMC Markets says:
Fears about stagflation appear to be increasing, after all, how could this not be the case when looking at the kind of increases in energy prices, a trend that will affect people’s disposable income, thus reducing their ability to spend. in other additional expenses?
These supply chain problems have been seen acutely in the UK this week, during the fuel crisis.
With service stations still in trouble, the government yesterday began to deploy its fleet of reserve tanks, driven by civilians, to boost fuel deliveries.
And soldiers are expected to be deployed to drive tanker trucks in the coming days.s, to help clear the queues and shortages that started nearly a week ago.
The government insists the situation is improving, said commercial secretary Kwasi Kwarteng.
“The last few days have been difficult, we have seen big queues. But I think the situation is stabilizing, we are putting gasoline on the esplanades. I think we’ll see our way through this. “
But the broader supply chain crisis remains intense, with shortages in stores and on the esplanade.
When asked if the government was sure the problems would be resolved before Christmas, Kwarteng said:
“I am not guaranteeing anything. All I’m saying is that I think the situation is stabilizing. ”
- 7am BST: Nationwide House Price Index for September
- 9.30 am BST: ONS weekly survey of real-time indicators of economic activity and social change
- 10 a. M. BST: Eurozone unemployment report for August
- 1pm BST: German Inflation Report for September
- 1.30pm BST: Weekly Unemployment Figures in the US