OECD pushes back against expectations of interest rate cuts

Today’s top stories

• Far-right ministers in Israel piled pressure on Benjamin Netanyahu to spurn a broader hostage-for-prisoner release deal with Hamas, even as talks continue in Qatar over extending the temporary truce in Gaza.

• HSBC chief Noel Quinn warned that the lifting of the bankers’ bonus cap could “unleash inappropriate amounts of risk” but Deutsche Bank boss Christian Sewing urged Brussels to consider scrapping the cap to keep European lenders competitive. Bim Afolani, the new minister for the City of London, said yesterday that UK regulators needed to be more comfortable with corporate risk-taking. “There’s no point having the safest graveyard,” he said.

• There were signs of stabilisation in the UK property market as mortgage approvals rose more than expected in October to a three-month high.

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Good evening.

The OECD today delivered a gloomy outlook for the global economy, highlighting sticky inflation, a softening of growth, slower trade expansion and faltering business and consumer confidence.

It also warned that the European Central Bank and Bank of England might have to hold interest rates at their current highs until 2025 — much longer than markets are expecting.

The US Federal Reserve on the other hand might start cutting in the second half of 2024, the OECD said. Expectations of early reductions have grown this week after Fed official Christopher Waller said he was “increasingly confident” monetary policy was “well positioned” to get inflation back to 2 per cent. The much stronger state of the US economy compared with Europe was highlighted again today by an upwards revision of GDP growth for the third quarter to 5.2 per cent from an initial estimate of 4.9 per cent.

The OECD forecast that average inflation in the G20 economies would ease only gradually, falling to 5.8 per cent in 2024 and 3.8 per cent in 2025, compared with 6.2 per cent in 2023. (If you’re a Premium subscriber, you can read more on why inflation is proving stickier than expected in Chris Giles’s latest Central Banks newsletter).

As regular DT readers will know, opinion is divided over the future direction of inflation and interest rates. There is a marked difference, for example, between investors already celebrating the prospect of rate cuts and central bankers warning it is too early to take their feet off the pedal.

Investor optimism is strongest in the US, where bonds are on track for their best monthly performance in nearly four decades, fuelling a dramatic comeback from the early autumn sell-off. 

Caution is much more noticeable across the Atlantic, where policymakers argue the “last mile” in the fight against rising prices will be the hardest. The BoE’s Jonathan Haskel was the latest to try to dampen expectations, saying yesterday there was no chance of cutting UK rates “anytime soon”, highlighting that it could take at least a year for the labour market to loosen to pre-pandemic levels.

The latest data on prices is at least heading in the right direction. New figures today showed inflation falling more than expected in Spain and Germany ahead of eurozone-level data tomorrow. In Germany it hit 2.3 per cent, the lowest since June 2021. Across the Channel, industry numbers yesterday showed UK shop price inflation slowed from 5.2 per cent to 4.3 per cent in November, the lowest rate in over a year.

As for growth, the OECD said the global figure would weaken to 2.7 per cent next year — the slowest since the financial crisis, except from the first year of the pandemic — before picking up to 3 per cent in 2025, as price rises slow and real income grows. For the US it expects 1.5 per cent next year and 1.7 per cent in 2025 and for the UK 0.7 per cent followed by 1.2 per cent.

Need to know: UK and Europe economy

UK grocery inflation may be slowing but the competition watchdog today accused food companies of pushing up prices more than costs. It said about three-quarters of branded goods makers, notably baby formula manufacturers, had increased their profitability and contributed to higher prices.

Financial Times analysis shows the impact of high borrowing costs on British companies: the number of business closures in 2022 overtook creations for the first time since 2010.

Nato warned that Russia intended to destroy Ukraine’s power and heating infrastructure in the coming months. Kyiv is also involved in a battle against its own oligarchs whose influence has shrunk as the war has progressed. But are the institutions in place to stop a new generation emerging?

Need to know: Global economy

The UAE is accompanying its hosting of the COP28 summit, which starts tomorrow in Dubai, with $200bn in clean energy investments. A Big Read explains its bid for climate influence.

Early data suggested Cyber Monday sales in the US this week were forecast to hit a record $12bn — the biggest online shopping day ever. The huge spend over the holiday weekend, including Black Friday, could however give retailers a festive hangover, says US financial editor Brooke Masters.

Chief economics commentator Martin Wolf says the power of its alliances means the US is likely to keep its status over China as the world’s pre-eminent economic superpower.

Vietnam’s decision to raise tax rates for multinationals to bring it into line with a global agreement to crack down on avoidance could hit foreign direct investment. A top exporter of electronics and textiles, Vietnam’s FDI has hit records as global companies search for a manufacturing alternatives to China.

Panama is shutting one of the world’s largest copper mines after its Supreme Court struck down a Canadian company’s contract to operate it amid large protests over issues ranging from environmental damage to perceived corruption. Cobre Panamá accounts for more than 1 per cent of global copper output.

Need to know: business

Barclays is considering dropping thousands of clients at its investment bank as part of a strategic overhaul to boost profits and cut £1bn of costs. Its shares are trading close to their lowest level since the pandemic, and Barclays’ valuation is among the cheapest of any major global bank.

Deloitte and KPMG are asking staff to use burner phones when they visit Hong Kong, a sign of the increasing difficulties facing global companies in a city long known as an international business hub.

You were the future once. The FT revealed GM was scaling back plans for its Cruise self-driving business after California regulators took the cars off the road last month.

Uber said it would allow London black cabs on its platform next year in an effort to win over its old enemy the Licensed Taxi Drivers’ Association, which represents around two-thirds of the city’s 15,000 black cabbies.

Saudi Arabia’s sovereign wealth fund and private equity group Ardian is buying a 25 per cent stake in London Heathrow airport from the Ferrovial infrastructure company for £2.4bn.

EasyJet reinstated its dividend for the first time since the pandemic in the latest evidence confirming the bounceback in air travel. The low-cost carrier swung back to profit of £455mn after a loss of £178mn last year following a record summer.

A new UK “anti-greenwashing rule” will ban asset managers using vague references to “sustainability”. Funds must now show companies meet a “credible” environmental or social standard, have the potential to improve against this criteria, invest in tangible solutions to problems affecting people or the planet, or a mixture of these.

The World of Work

The latest question for FT careers expert Jonathan Black: Should I switch non-profit work for the corporate world? What do you think?

Black also tackles listeners’ problems in a special “agony aunt” episode of the Working It podcast, tackling possessive bosses, overpaid colleagues and working from abroad.

Delphine Strauss highlights the long hours and large debts suffered by care workers stranded by the UK’s migration clampdown.

Some good news

The first commercial long-haul flight powered by so-called sustainable aviation fuels — in this case a mix of waste cooking oil, animal fats and other unorthodox ingredients — took off from London for New York. Although green campaigners are sceptical, the aviation industry hailed the Virgin Atlantic fight as a milestone.