UK grocery inflation hits 13-year high; Elon Musk says US recession ‘more likely than not’ – business live

Growth at UK manufacturers is slowing and order books have softened, in another sign that economic demand is easing.

The CBI’s latest survey of British factories has found that manufacturing output growth slowed slightly in the three months to June, and is expected to ease further in the three months ahead.

Output increased in 12 out of 17 sectors in the three months to June, led by the motor vehicles and aerospace sub-sectors. But the food, drink & tobacco sub-sector shrank for the first time in just over a year.

Factory bosses reported that export order books fell back to a normal level in June, but were still above their long-term averages.

Encouragingly, fewer manufacturers plan to raise their prices than earlier this year. A net balance of 58% of firms expected domestic price growth for the three months ahead, down from 75% in May and a survey record of +80% in March 2022.

That is the weakest expectations for selling price inflation since September 2021 (although significantly above the long-run average).

Signs of weaker growth could be deterring some firms from raising prices.

Anna Leach, CBI deputy chief economist, explains:

“While manufacturing output is still being supported by a backlog of orders, growth appears to be softening.

Stocks of finished goods are now seen as broadly adequate and we may be seeing the first signs that weaker activity is beginning to slow the pace of price increases in the sector.

Manufacturers continue to report a range of challenges, including significant cost pressures, shipping delays, shortages of key inputs, and, not least, recruitment difficulties. Skills shortages remain widespread and are a key constraint on growth. All of these trends are weighing on confidence.”

Supermarket inflation hit 8.3% in the past month, the highest rate in 13 years, adding £380 to annual bills as the rising cost of living weighs on families, my colleague Sarah Butler reports:

Sales fell at all the big supermarkets as shoppers switched to discounters Aldi and Lidl and bought more own-label goods in an effort to keep a lid on spending, according to the latest data from Kantar.

Sales of supermarkets’ cheapest own-label products rose 12% while Aldi and Lidl’s sales rose by 7.9% and 9.5% respectively in the three months to 12 June. Aldi’s share of the grocery market is 9.6%, less than 1% behind Morrisons where sales fell by 7.2% in the three-month period making it the biggest loser in the market.

Here’s the full story:

Despite the money-saving trend, families splashed out during the platinum jubilee celebrations, buying a third more alcohol and 35% more ice-cream than during an average week, according to Kantar.

Sales of lemon curd were also up 16% as many people had a go at making the official jubilee trifle.

The Bank of England will need to raise interest rates further in the near future to tackle surging inflation, its chief economist Huw Pill says.

Pill told the Institute of Chartered Accountants in England and Wales this morning that the Bank was ready to act:

“We will do what we need to do to get inflation back to target.

And at least in my view, that will require further tightening of monetary policy over the coming months.

Last week, the Bank’s Monetary Policy Committee raised interest rates for the fifth time in a row, from 1% to 1.25%. Pill was one of six policymakers who backed this, while three voted for a larger rise to 1.5%.

Some economists predict the Bank could act more aggressively in August, with a 50-bp hike that would take Bank Rate to 1.75%.

Yesterday, fellow MPC member Catherine Mann called for more rapid rate rises, to prevent a weak pound pushing up imported inflation.

Mann pointed out that other central banks such as the Fed and the ECB expect to lift their borrowing costs, which would hit sterling if the BoE lagged behind. She also suggested rates could then be cut to support growth, once the inflationary shock had ebbed.

Pill, though, says monetary policy was a ‘blunt instrument’, which must focus on its main goal of controlling inflation, rather than trying to stabilise the exchange rate or economic activity.

Pill told the ICAEW:

“Monetary policy is not a panacea.

Monetary policy is not an instrument that allows you to achieve lots and lots of different things at short term: stabilise the exchange rate, fine-tune developments in employment or activity.

Tesla chief executive Elon Musk has warned that the US economy could soon fall into recession.

In an interview with Bloomberg News at the Qatar Economic Forum in Doha this morning, Musk said it appears “more likely than not” that the US economy enters recession in the near term.

Asked about president Biden’s prediction that a recession was “not inevitable” despite rising inflation, Musk pointed out that it will happen eventually… and quite possibly soon.

Musk said:

“A recession is inevitable at some point. As to whether there is a recession in the near term, I think that is more likely than not.

It’s not a certainty, but it appears more likely than not.

Musk isn’t alone. A poll of academic economists earlier this month found that nearly 70% predict the US economy will tip into a recession next year, as the Federal Reserve lifts interest rates aggressively in an attempt to cool inflation.

During the interview, Musk also said Tesla plans to cut its salaried workforce by about 10% over the next three months, which will work out as a 3.5% cut in total headcount.

Musk said:

“Tesla is reducing its salaried workforce roughly 10% over the next three months or so. We expect to grow our hourly workforce. We grew very fast on the salaried side, grew a little too fast in some areas”

Musk added that supply constraints were the biggest brake on Tesla’s growth, rather than competition from rival automakers.

On his planned takeover of Twitter, Musk said there are still a few “unresolved matters”, including the issue of how many bots are on the social media platform [earlier this month he threatened to walk away from the deal]

And asked whether he would support Donald Trump in the next US presidential election, Musk said he was “undecided at this point on that election.”

Today’s UK rail strikes are going to cost the hospitality industry’s restaurants, pubs and other businesses £500m in revenue, the CEO of UKHospitality said.

Speaking on BBC Radio 4’s Today programme, Kate Nicholls said with businesses shutting early, or not opening in response to the rail strikes, hospitality employees also won’t be able to work.

This strike will also not only have an impact this week, it will hit consumer confidence going forward. And as a result of the pandemic, one in three of our businesses have no cash reserves, one in five have still not returned to making a profit.

So they are incredibly fragile and they cannot withstand anymore of these severe economic shocks.

My colleague Geneva Abdul is live-blogging today’s industrial action on the transport network, here:

The UK’s escalating cost-of-living squeeze has prompted engineering group Rolls-Royce to offer a £2,000 payment to around 14,000 UK staff.

The aircraft engineering group told staff on Monday that it would give the cash lump sum to 11,000 shop-floor workers as well as 3,000 junior managers.

The shop-floor workers are also being offered a 4% pay rise for 2022, backdated to March.

A Rolls-Royce spokesperson said the company was offering the majority of its staff a cash lump sum of £2,000 “to help them through the current exceptional economic climate”.

He said it was the first time the company has paid out a cash lump sum that is not linked to performance, but to the economic climate, adding:

“In addition, we are offering our shopfloor staff the highest annual pay rise for at least a decade, back-dated to March, and together these measures represent around a 9% pay increase for them.”

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

UK consumers are facing the steepest increase in food bills in 13 years, as the cost of living crisis hits households.

Grocery price inflation jumped to 8.3% over the four weeks to June 12 – up from 7% a month earlier and its highest level since April 2009, new figures from data firm Kantar show.

This means annual grocery bills will jump by £380 this year, adding to the burden on people who also face surging energy bills and record price for petrol and diesel at the pumps.

Fraser McKevitt, head of retail and consumer insight at Kantar, says food bills are rising sharply:

“This is over 100 pounds more than the number we reported in April this year, showing just how sharp price increases have been recently and the impact inflation is having on the sector,”

With food prices jumping, shoppers are increasingly swapping branded items for cheaper own-label products.

Kantar reports that sales of branded products fell by 1% in the 12 weeks to June 12, while own-label sales rose by 2.9% and value own-label lines jumped by 12%.

McKevitt said sales of own-label lines have been “boosted by Aldi and Lidl’s strong performances, both of whom have extensive own-label repertoires”, adding:

“We can also see consumers turning to value ranges, such as Asda Smart Price, Co-op Honest Value and Sainsbury’s Imperfectly Tasty, to save money.”

We reported last month that the UK’s “golden era” of cheap food was over, and Kantar’s figures confirm that the squeeze on households is getting worse.

Also coming up today

Britain’s biggest nationwide rail strike for 30 years has begun, leaving train passengers facing widespread disruption and cancellations as workers responsible for train lines and infrastructure across the UK walked out.

Industry leaders fear the economic disruption will be considerable, as travellers and commuters decide to stay at home, with strikes also planned for Thursday and Saturday.

Last-ditch talks yesterday failed to resolve the bitter dispute over pay, jobs and conditions, with all sides blaming each other for the lack of progress.

The RMT said train operating companies made a late pay offer yesterday, believed to be about 2-3%, with strings attached and no guarantees against compulsory redundancies. That’s a long way below inflation, which hit 9% in April.

Richard Burge, chief executive of the London Chamber of Commerce and Industry, warned that the capital “cannot afford a summer of chaos on the railways and tube lines”, given the slowing economy.

“While this strike will be damaging, a recession is looking likely regardless; as such, I wouldn’t pin an eventual recession on this strike.”

The agenda

• 8am BST: Kantar’s report on UK grocery sector
• 11am BST: CBI industrial trends survey of UK factories in May
• 1.30pm BST: Chicago Fed National Activity Index
• 3pm BST: US existing home sales for May