UK prime minister Liz Truss is under mounting pressure to change course on her tax and borrowing plans after a new opinion poll gave the Labour opposition party a lead of 33 points, an enormous gap with the Conservative party since the 1990s. During a stilted broadcast interview, Truss vowed to stick to plans unveiled in last week’s tax-cutting, debt-inducing «mini» Budget. Truss reiterated that cutting taxes for big business and high earners paying a 45 per cent upper-income tax rate were vital to stave off a recession. «We are cutting taxes across the board because we were facing the highest tax burden on Britain in 70 years, and that was causing a lack of economic growth,» Truss told local radio channels. He added that she seemed to have «a wooden speaking style with a mind to match». After Truss spoke yesterday morning, bonds and currencies gave up their gains on Wednesday after the BoE’s intervention. www.sba.tax

 Germany yesterday revealed a €200bn «protective shield» for businesses and consumers struggling with soaring energy bills, as inflation in Europe’s largest economy soared to double digits for the first time in more than 70 years. Since the start of the energy crisis, the most extensive aid package adopted by a European government will include an emergency cap on gas and electricity prices, to be financed by new borrowing. «The government will do everything it can to ensure that happens.» He described the package as a «double ka-boom» that would help everyone, from pensioners to big companies, pay their energy bills. The move to cap energy costs came as Germany’s statistical agency said inflation hit a seven-decade high of 10.9 per cent in September, accelerating from 8.8 per cent in August. Economists expect the increase in German prices to lift overall eurozone inflation to a new record of 9.7 per cent today. German energy prices rose 43.9 per cent in the year to September, accelerat

  The central bank warned of a «material risk to UK financial stability» from turmoil in the British government bond market, sparked by chancellor Kwasi Kwarteng’s tax cuts and borrowing plan last week. Economists warned that the injection of billions of pounds of newly minted money into the markets could fuel inflation. UK government bond markets recovered sharply after the announcement, but the pound fell, down 0.8 per cent against the dollar in afternoon trading in London to $1.064. However, the bank stressed it was not trying to lower long-term government borrowing costs. At a meeting with the chancellor yesterday, bankers urged Kwarteng not to wait until a planned statement on November 23 to take action to calm the markets. Kwarteng attempted to reassure markets that he was serious about restoring order to the public finances by telling government departments to identify efficiency savings, reminding them they would have to live within very tight spending limits already set until

  US earnings/strong dollar: buck starts here Even with currency hedging ,  the earnings pressure will remain .  Morgan Stanley reckons that every 1 per cent change in the Dollar Index knocks 0 . 5 per cent off company profits .  Combined with the effects of higher inflation and a consumer demand dip ,  the appreciation should shave 10 per cent off of fourth-quarter S&P 500 earnings .  Analysts see earnings per share from S&P 500 companies touching $218 this year then climbing to $259 in 2024 ,  up nearly a quarter from 2021 . That seems optimistic given that companies already struggle with margin compression and the Federal Reserve remains committed to fighting inflation with more interest rate rises .  More domestically oriented US companies should have an easier go .  The S&P 500 US Revenue Exposure index ,  which tracks the stocks in the benchmark with higher than average US revenue exposure ,  is down 14 per cent this year . Sterling weakness/HK stocks: utility bills H

  The European Central Bank’s chief economist has called on eurozone governments to tax rich people and companies more to finance support for those hit hardest by the energy crisis. Philip Lane said that funding for policies to help the most vulnerable groups in society «could take the form of higher taxes on higher earners or on industries and firms that are highly profitable despite the energy shock». Lane’s remarks were published after the UK government’s budget, which included a tax cut for the highest earners and triggered a bond sell-off and sharp depreciation of the pound. The UK and EU member states have unveiled fiscal support for households and businesses to deal with soaring energy prices. Lane said governments faced a trade-off in choosing how to finance measures to support those hit hardest by the crisis created by Russia’s invasion of Ukraine, which has drastically cut Moscow’s supply of natural gas and oil to Europe. «From the view of fairness, but also a macroeconomic p

  Sterling tumbled against the dollar to below $1 . 09 ,  hitting its lowest point since 1985 ,  after UK chancellor Kwasi Kwarteng unveiled a £45bn debt-financed tax-cutting package that sparked a historic increase in borrowing costs .  Kwarteng’s political and economic gamble includes the biggest set of tax cuts for 50 years ,  with the end of the 45p additional rate for the highest earners as well as a sharp reduction in levies on dividends .  But concern over the amount of debt required to finance the tax cuts triggered a frenetic day of trading that raised doubts on whether Britain’s new economic approach was sustainable .  «Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time» . Kwarteng has staked the political fortunes of the Conservative party on the bet that the radical tax cuts and deregulation will raise Britain’s sluggish growth rate to 2 . 5 per cent .  «This is a new approach for a new era focused on growth ,

 An expected surge in interest rates triggered by Friday’s budget has triggered fears for the future of indebted companies, with hundreds of thousands already in financial distress. With the financial markets now pricing in an interest rate rise to 5 per cent by March, concerns are mounting that companies across the UK will be unable to service the corporate debt taken out when rates were at rock-bottom levels. Meanwhile, the most dramatic budget continued dividing opinion in the business world. Tech chiefs warmly applauded the extension to EIS and venture capital trust schemes for start-ups and seed capital. David Fleming, UK head of restructuring at the consulting firm Kroll, said insolvencies were already rising because of supply chain pressures, energy costs and wage increases. «Five per cent interest rates will heap more pressure on cashflow and profitability,» he said. Although businesses were granted government-backed loans during Covid, many on fixed rates, the Bank of England

The EU plans to raise €140bn from energy companies’ profits to soften the blow of record high prices this winter, which would amount to a levy in response to the crisis over Ukraine. A proposed windfall tax on power companies that do not burn gas, which has soared in price, would be accompanied by measures on fossil fuel groups. «In these times, it is wrong to receive extraordinary record profits benefiting from war and on the back of consumers,» said Ursula von der Leyen, European Commission president, as she outlined plans to funnel windfall profits back to households and businesses. «Profits must be shared and channelled to those who need it the most. » The proposal would set a mandatory threshold for prices charged by companies that produce low-cost, non-gas energy, such as nuclear and renewables. Companies would have to give EU states the «excess profits» generated beyond this level, which the commission seeks to set at €180/MWh. Kadri Simson, the energy commissioner, said the com

  The US shale industry has warned it cannot rescue Europe with increased oil and gas supplies this winter amid fears that a plunge in Russian exports will send crude prices soaring back above $100 a barrel .  « Our production is what it is , » said Wil VanLoh ,  head of private equity group Quantum Energy Partners ,  one of the shale patch’s biggest investors .  «We’re not adding rigs and I don’t see anyone else adding rigs , » said Sheffield ,  who runs one of the biggest oil producers in the US .  Crude prices could rise above $120 a barrel this winter as supplies tighten ,  Sheffield added . The International Energy Agency said yesterday that oil sales from Russia ,  the world’s biggest petroleum exporter ,  could fall by almost 20 per cent when the EU embargo takes full effect .  Brent crude prices rose 3 per cent to $94 a barrel following the report .  Soaring shale production in the past decade made the US the world’s biggest oil producer ,  with pre-pandemic output hitting 13mn

Inflationary pressures have increased across the globe in recent years, but the rate of change is not uniform. In the euro area, for instance, prices outside energy and food have risen at a rate of 3.5%. In the United States, prices outside energy and food have risen at a rate of nearly 50% higher than in the euro area. But, this is not the first time that inflationary pressures have varied across regions. Inflation can harm economies. It prevents consumers from making purchases and reduces incomes for producers. Deflation, meanwhile, has led to prolonged periods of deflation in Japan, where prices have fallen below the rate of inflation. As a result, the US Federal Reserve, along with other central banks, has instituted monetary policies to avoid deflation. The Federal Reserve is preparing to raise interest rates again in an effort to tame rising prices. Rising energy costs and supply chain clogs are among the reasons why prices are increasing globally. Earlier this year, the Organiza

  Hopes that the Federal Reserve can engineer a soft landing for the US economy took a hit yesterday when a crucial measure of inflation came in higher than forecast and triggered a sharp sell-off on Wall Street .  The consumer price index increased 0 . 1 per cent for August ,  above economists’ expectations for a 0 . 1 per cent drop .  Most worryingly for policymakers ,  core inflation ,  which strips out volatile items such as energy and food ,  rose by 0 . 6 per cent for an annual increase of 6 . 3 per cent ,  compared with 5 . 9 per cent recorded for July .  Wall Street was caught off guard by the hotter-than-expected inflation figures . The S&P 500 tumbled 3 . 1 per cent during morning trading yesterday ,  while the Nasdaq Composite ,  stacked with technology companies more sensitive to changes in interest rate expectations ,  fell more than 4 per cent .  In government debt markets ,  the yield on the 2-year US Treasury ,  which is more sensitive to interest rate expectations

  The UK economy stagnated in the three months to July as the cost of living crisis hit households and businesses .  Output was flat ,  according to official data released yesterday ,  compared with economic growth of 0 . 3 per cent in the three months to April .  The latest data will soon be superseded by figures that are likely to show a relative decline in UK economic performance compared with other leading economies such as Germany .  In yesterday’s data from the Office for National Statistics ,  the growth rate lost momentum as rising costs hit consumers and businesses . Inflation hit a 40-year high of 10 . 1 per cent in July ,  eroding the money people have available to spend on goods and services .  The size of the economy in July was no higher than six months earlier and the monthly rise in gross domestic product of 0 . 2 per cent fell short of the 0 . 4 per cent forecast by economists polled by Reuters .  Economists had expected more of a bounce back from the 0 . 6 per cent fa

 Analysts warned that the trade deficit narrowed in July due to a strong rebound in exports after the Jubilee bank holiday, but it is still set to rise to a record high as a share of GDP. The deficit, which shows the difference between the value of imports and exports, narrowed to £7.8 billion in July from £11.4 billion in June as firms caught up on sales after the extra day off. However, the trade deficit, which has been made worse in recent months by the soaring price of energy imports, remains high by historical standards. The average deficit in the 2010s was £2.2 billion; in the past two years, it rose to £4.4 billion. The UK is a net energy importer and was subject to the surge in wholesale energy prices during the pandemic, which was later exacerbated by the Russia-Ukraine war and resultant sanctions. The deficit in fuel trading, including spending on oil and natural gas, rose to £5.6 billion in July, from £5.1 billion in June. That is more than three times the 2021 average of £1

  The European Central Bank has agreed to start discussions in early October on shrinking its balance sheet ,  increasing the pressure on the already stretched budgets of southern European governments .  The proposed shift ,  which causes a central bank’s balance sheet to shrink and is known as quantitative tightening ,  may come into force in the first quarter of 2023 ,  the insiders said .  A change would bring the ECB into line with other major central banks ,  such as the US Federal Reserve and Bank of England .  Both the UK and US central banks have already started to shrink their bond portfolios as part of their efforts to tackle soaring inflation by pushing up financing costs ,  leading to accusations that policymakers in Frankfurt remain behind the curve . The discussion on shrinking the ECB’s balance sheet is due to start at the governing council’s meeting in Cyprus on October 5 ,  when it will not be making monetary policy decisions .  Any announcement on the issue is unlikel

The UK economy edged back to growth in July with output up by an estimated 0 . 2 per cent in the month ,  following a sharp 0 . 6 per cent fall in June .  The modest rebound means gross domestic product ,  the main measure of output ,  stagnated at 0 per cent in the three months to the end of July .  City economists had forecast 0 . 4 per cent growth over the three months ,  and warned that the economy remains at risk of dropping into a «shallow» recession as the cost of living crisis hits households and businesses .  Production fell by 0 . 3 per cent after a fall of 0 . 9 per cent in the previous month . This was mainly because of a fall of 3 . 4 per cent in electricity ,  gas ,  steam ,  and air conditioning supply .  Construction also fell in July by 0 . 8 per cent ,  after a fall of 1 . 4 per cent in June .  The decrease in monthly construction output came solely from a fall in repair and maintenance work ,  which declined by 2 . 6 per cent .  Output in consumer-facing services gre