Fall in eurozone inflation fuels growing optimism

Today’s top stories

• Global wages have fallen in real terms for the first time this century, according to the International Labour Organization. The drop of 0.9 per cent for the first half of this year means there was little evidence of pay pressures stoking inflation, the ILO said.

• The US revised up third-quarter growth figures to 2.9 per cent, though the new data still signalled softening consumer demand.

• Unrest in China continues, with student protests stoked by high rates of youth unemployment. Guangzhou, the country’s manufacturing hub, has eased some restrictions but new manufacturing data highlighted the squeeze from lockdowns.

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Good evening,

Has the eurozone turned the corner?

New data today showed inflation was 10 per cent in November, down from 10.6 per cent last month. The dip has fuelled speculation that the European Central Bank might slow its programme of interest rate rises.

The bigger-than-expected drop — the first decline in 17 months — was propelled by a fall in wholesale energy prices and an easing of supply chain problems. Taken together with recent data from the US, the new numbers suggest this year’s surge in global inflation has peaked.

Investors certainly think so. National inflation data from Germany and Spain yesterday led to a rally in eurozone government bonds, as bets grew that the ECB would ease up on its policy tightening. Global equities meanwhile are on track for their first back-to-back monthly gains since 2021.

It was left to ECB president Christine Lagarde to damp down expectations, warning that the central bank was “not yet done” with its fight against inflation. Economists are now forecasting an interest rate rise of 0.5 percentage points when the ECB’s governing council meets on December 15, following two consecutive increases of 0.75 points.

Europe’s business leaders are also more upbeat as the immediate threat of power blackouts recedes (see below). The glass half-full view has gathered pace thanks to falling energy prices and a mild autumn that has helped keep gas storage facilities close to capacity. Low unemployment and more fiscal support from governments have also helped.

Germany’s BDI business association told the Financial Times it had been “too gloomy” and was likely to raise its country growth forecast, while the Ifo Institute’s index of German business confidence has also bounced back. The EU’s own monthly survey, published yesterday, showed economic sentiment improving in companies and households across the bloc.

Most economists now think the eurozone downturn this year will be milder than originally forecast, with growth of 3.2 per cent for 2022 as a whole. But, on the basis that it will be much harder to refill gas storage capacity for next winter, the prognosis for 2023 remains bleak.

See how price rises in your country compare with our global inflation tracker

Need to know: UK and Europe economy

UK food inflation hit a new record of 12.4 per cent in November, up from 11.6 per cent the previous month, as the cost of meat, eggs and milk soared. The British Retail Consortium said its data suggested a “bleak” winter for households.

Our new series, Brexit: the next phase, begins with a look at the economic impact: just how bad is it? The head of Lloyds Banking Group warned that political uncertainty and regulatory costs in the UK were putting off investors.

The EU is still struggling to agree on a price cap on energy from Russia — here’s our explainer. In the meantime, Europe is importing a record amount of seaborne Russian gas. Our latest piece of visual journalism tackles the big question: Can Europe keep the lights on?

As for the UK, the country is split into two types of household energy user, writes columnist Sarah O’Connor. One group pays smoothed out bills, usually by direct debit, while the other, although generally poorer, has to pay in advance at a higher price. The head of British Gas-owner Centrica, the UK’s biggest energy supplier, has warned that more providers would probably go bust this winter.

The EU said it wanted to use frozen Russian assets to fund the reconstruction of Ukraine. Brussels and its allies froze hundreds of billions of dollars of foreign exchange reserves parked in accounts by the Russian central bank early in the conflict.

Need to know: Global economy

Beijing has upped its efforts to design its own semiconductor chips in the face of US-led sanctions against imports. The US increased the pressure on European allies to harden their stance on China, but the FT editorial board warns that US measures such as the semiconductor ban, as well as green subsidies, could endanger US-EU trade relations. Up to 500 Chinese companies have quietly redomiciled or registered in Singapore over the past year in an attempt to hedge against the rising tensions between Beijing and Washington.

One year ago, a speech on inflation from US Federal Reserve chief Jay Powell kick-started a bear market. Our new Big Read looks at how investors are coping with the new era of higher interest rates. Divisions are emerging among Fed officials about how strongly to squeeze the economy to tackle rising prices.

Need to know: business

HSBC said it would close a quarter of its UK branches after pressure from its largest investor, Ping An. The bank said its move was down to the shift to online banking.

Our Europe Express newsletter (for Premium subscribers) looks at EU plans to take advantage of Brexit and lure the derivatives trade away from London. The Bank of England said it would push ahead with the adoption of new global bank capital rules.

Our Big Read reports on how a quiet Hungarian town has become the surprise hub of Europe’s new battery industry and turned the country into an electric vehicles powerhouse.

EasyJet reported a “record bounce back” in passenger demand over the summer, helping the low-cost airline narrow annual losses after two years of pandemic disruption.

The World of Work

Workers in financial services often ignore company rules on the number of days they are meant to be in the office, according to a new report. The study also revealed that “remote-first” working, in which homeworking is the primary option for most staff, had either no impact or a positive impact on productivity.

The UK’s opposition Labour party has set out its plans to persuade “economically inactive” people to fill job vacancies, including giving local communities more control over budgets to help people back to work and reducing the dependence on big outsourcing companies to oversee such programmes.

Are workplaces becoming more divided and polarised? The Working It podcast discusses politics in the workplace and the art of dealing with opposing views.

Get the latest worldwide picture with our vaccine tracker

Some good news

New wireless “smart” bandages with integrated sensors could allow real-time monitoring of wounds and intervention to promote healing, reports the journal Nature Biotechnology.