- Recession looms after UK economy shrank in March
- Germany gas supply drops as Ukraine shuts off pipes from Russia
- FTSE 100 drops 1.6pc after GDP fall
- Tom Stevenson: How to turn a profit in the post-Covid market
- Sign up here for our daily business briefing newsletter
Germany’s economy minister has accused Russia of “weaponising” energy supplies as he described new sanctions imposed by the Kremlin as an escalation.
A subsidiary of Gazprom that was seized by Germany last month is no longer receiving gas supplies from Russia after Moscow launched a retaliation against European sanctions.
Robert Habeck said the move showed Russia was using the stand-off over energy as a “weapon”, adding that it seemed designed to drive up prices.
European natural gas prices surged 22pc amid the clash, with markets also rattled by a drop in Russian supplies after Ukraine was forced to shut a key transit point as a result of the war.
Still, Mr Habeck downplayed the impact of the new sanctions, saying Germany was receiving gas from alternative sources and could cope with the disruption.
That's all from us, thank you for following! We will see you tomorrow, but before you go, have a look at the latest stories from our reporters:
- Rishi Sunak’s tax raids trigger recession warning
- Ardent critic of Brexit appointed to key Bank of England role
- KPMG fined £14m for forging documents over Carillion collapse
- Cryptocurrencies collapse after 'Black Wednesday' for blockchain
- Don't force us to re-label free range eggs, plead British farmers
Twitter unveils hiring freeze ahead of Elon Musk's takeover
Twitter chief Parag Agrawal announced a hiring freeze and other cost-cutting efforts, a reflection of the company’s state of uncertainty while it awaits Elon Musk’s $44bn (£36bn) takeover.
Twitter won’t hire new employees and may rescind offers already out, Bloomberg reported. Some exceptions will be made for business-critical roles, as determined by Twitter leadership. The company is also pulling back on costs such as travel, consulting and marketing.
Agrawal said global events, including the war in Ukraine and the supply chain crunch, have hurt Twitter’s business results and may continue to do so. The company isn’t planning company-wide job cuts, “but leaders will continue making changes to their organizations to improve efficiencies as needed,” Agrawal wrote.
Demands for pay rises will fuel inflation beyond the energy price spike, Bank of England warns
More interest rate rises will be needed to stamp out inflation as surging pay packets threaten to feed back into prices, the Bank of England’s deputy governor has warned. Tom Rees has more:
Sir Dave Ramsden warned businesses are scrambling to fill record vacancies as he backed pushing borrowing costs even higher to rein in the strongest price pressures in three decades.
He warned the Bank has not “gone far enough” yet after four back-to-back hikes that lifted interest rates to a post-financial crisis high of 1pc.
The Monetary Policy Committee member said in an interview with Bloomberg: “Certainly on the basis of my current assessment of prospects, we’re not there yet in terms of how far monetary policy has to tighten.
“I‘m still very, very supportive of the forward guidance that there may well need to be further tightening in the coming months.”
FTSE 100 ends lower
Looking at this side of the Atlantic, the FTSE 100 closed in the red. Risk appetite shrank after data showed the British economy weakened in March, and persistently hot US inflation data exacerbated investors' fears of aggressive rate hikes.
The blue-chip index closed 1.6pc lower at 7,233.
Banking stocks were also underwater as the likelihood of an economic slowdown and of recession in Britain weighed on cyclical stocks, senior analyst at Swissquote Bank Ipek Ozkardeskaya said.
"There is a rising fear that economic slowdown is going to be the major theme this year and the Bank of England also said it is expecting a recession before the end of this year. The data is a confirmation that UK recovery is slowing down," Ozkardeskaya said.
US stocks whipsaw
Stocks whipsawed in another session of exhausting swings, following a selloff that pushed the US equity benchmark closer to a bear market. Treasuries and the dollar rose as concern about the economic outlook boosted the allure of haven assets.
The S&P 500 posted mild losses, trading well off session lows. The tech-heavy Nasdaq 100 outperformed, rebounding after a rout that pulled pandemic-era stalwart Apple down more than 20pc from its January peak. Caution prevailed on Wall Street after data showed prices paid to US producers rose more than forecast in April, reinforcing bets that the Federal Reserve will keep its firm grip on monetary policy.
The main US equity indexes have lost $6.3 trillion in value since the March 29 high on worries about an economic slump amid rising inflation and rates.
Beyond Meat misses revenue expectations
Plant-based burgers maker Beyond Meat missed Wall Street’s expectations for its first-quarter revenue, as it faces continued pressure from investors, impatient for signs of improvement.
Revenue came in at $109m (£89m) in the three months to April 2. While US sales outpaced expectations, international sales missed. The company maintained its sales guidance for the rest of the year.
Beyond Meat was once a darling of Wall Street, but its initial sales boom has worn off and competition has intensified. The Californian company’s earlier stream of new fast-food partnerships has also dramatically slowed.
KPMG fined £14m over Carillion audit scandal
KPMG will pay more than £14m over misconduct on major work it carried out for collapsed Carillion and data services company Regenersis, in the latest in a long list of audit scandals surrounding the firm.
The Financial Reporting Council asked a tribunal to sanction the firm for as much as £20m, at the start of a two-day London hearing. Its executive counsel said that the firm had agreed to a severe reprimand, with the fine reduced to £14.4m for admissions and mitigating factors. It will also pay all of the costs from the case.
The proceedings follow a five week tribunal hearing in January where details of KPMG and six ex-employees’ wrongdoing, including accusations of acting dishonestly, came to light.
The FRC’s counsel also proposed sanctions against five former KPMG staff. It asked for a £400,000 fine for Peter Meehan, KPMG’s audit engagement partner at the time, and for him to be excluded as a qualified accountant for 15 years.
Three senior managers, Alistair Wright, Richard Kitchen and Adam Bennett, should be fined £100,000 apiece and excluded for 12 years, with audit junior Pratik Paw excluded for four years and facing a £50,000 fine. A decision on the final amount will be delivered in the coming months.
Google unveils glasses that translate languages in real time
Google has unveiled smart glasses which translate speech in real time so the wearer can understand someone talking to them in a foreign language. Gareth Corfield writes:
The spectacles display a text bubble next to the speaker's face showing the user what language their friend or colleague is speaking in with a live translation, like subtitles. The glasses, which are still in the prototype stage, have a tiny camera, microphone and micro-sized computer embedded in one side of the frame.
Together with a miniscule projector that uses a lens of the glasses as its screen, the gadget is able to hear, process and display its translation.
Introducing the invention at Google's developer conference on Wednesday, chief executive Sundar Pichai said: "To understand and be understood. That’s what our focus on knowledge and computing is all about."
Hargreaves Lansdown drops as savers hit by stock market turmoil and Ukraine war
Investment platform Hargreaves Lansdown has revealed a fall in new customers and cash inflows as it said savers have been impacted by the global stock market turmoil and Ukraine war.
The Bristol-based firm said net inflows dropped 46pc to £2.5bn in its third quarter, with assets under administration down 6pc at £132.3bn in the four months to the end of April.
Shares fell 7pc, having dropped more than 10pc at one stage.
Chief Chris Hill said: "The challenging backdrop driven by unprecedented macroeconomic and geopolitical events has impacted markets and investor confidence, in turn leading to moderated flows and asset levels."
Octopus Energy backs Tesco chairman's plan to bring electricity to UK from Morocco
Octopus Energy has unveiled a partnership with Xlinks, which is building a subsea power cable to deliver renewable energy from Morocco to the UK, led by Tesco chairman Sir Dave Lewis.
Xlinks will speed up the UK’s transition to net zero by laying four 3,800km-long subsea cables to connect a huge renewable energy farm in the Moroccan desert with Devon.
The site will supply 3.6 GW of power to the UK for an average of 20 hours a day, which is expected to power about 7m heat pumps all year round.
It is currently in the development phase, undertaking economic, environmental and archaeological impact assessments. It is scheduled to become operational in 2027.
IEA boss: We'll release more oil if needed
The International Energy Agency may release more oil in future if it is necessary, according to executive director Fatih Birol.
The IEA said separately that the world will not be left short of oil even with lower output from sanctions-hit Russia. In two recent moves the group released only 9pc of what it has in stock.
Mr Birol said: "If there's a need in the future, and our governments decide so, we will be again coming to the market to address supply disruptions."
The IEA chief also said that Russian oil production would fall by at least 3m barrels per day in the second half of 2022.
He added that the summer may be challenging for the oil market, while winter may be challenging for the gas market.
UK to launch labour market review
The Government is launching a review into the UK labour market in an effort to find longer-term solutions to the cost-of-living crisis.
Boris Johnson said: "Tackling the economic challenges of today means helping more people into high-wage, high-skilled jobs and this review will look at how we can equip people with the skills they need to thrive in the workplace no matter where they're from."
The Government said the review would be led by minister Matt Warman and look into how the it can create a highly-skilled workforce that would lead to better wages and help deal with the cost-of-living issue.
Boris Johnson and Chancellor Rishi Sunak have come under pressure to introduce new policies as the UK hurtles towards a recession and British households suffer a worsening cost-of-living crisis.
Free range egg rules 'not all they're cracked up to be'
Egg farmers have demanded ministers rip up free-range labelling rules as they warn another avian flu outbreak could hit before the end of the year.
Hannah Boland has more:
British farmers were forced to re-brand their free-range eggs as "barn" eggs in March after all chickens had to be kept indoors for four months to curb the country's largest ever outbreak of bird flu.
The UK-wide housing order was only lifted on May 2 after officials said the risk of the outbreak spreading had lessened, meaning free-range eggs were able to return to shelves.
However, industry bosses warn more outbreaks of avian flu could come later this year and next, piling further stress on farmers who are already battling soaring costs. Keeping birds inside adds to farmer's electricity and heating bills.
Farmers hope the Government will allow free-range rules to align with requirements for organic produce, meaning chickens only have to be outside for a third of their life.
Wall Street falls on interest rate fears
Wall Street's main indices dropped at the opening bell, with losses driven by tech stocks as investors worried about aggressive interest rate rises to tackle inflation.
The tech-heavy Nasdaq dropped 1.5pc, while the S&P 500 was down 0.8pc. The Dow Jones fell 0.4pc.
Lloyds to prioritise young staff for pay rises
The chairman of Lloyds Bank has said the company plans to prioritise its junior staff as he was accused of giving employees a pay rise that "doesn't even touch the sides" as the cost of living soars.
At its annual general meeting today, Robin Budenberg said the bank is thinking about how its lowest-paid staff are faring during the crisis, with inflation expected to hit 10% later this year.
He said: "Our colleagues, especially at a more junior level, are impacted by the rising cost of living and our 2022 pay budget will seek to prioritise spend towards these individuals.
"All awards are determined by the board's remuneration committee following extremely careful consideration against our policies scorecard."
His comments came as members of the union Unite gathered outside the meeting hall in Edinburgh over a pay dispute with the bank.
US jobless claims creep higher
The number of Americans filing new claims for unemployment benefits unexpectedly rose last week, but demand for workers remains strong amid shortages.
Initial claims for state unemployment benefits increased 1,000 to 203,000 for the week ending May 7 – the highest since February, according to the Labor Department.
Economists polled by Reuters had forecast 195,000 applications for the latest week.
Claims have been largely treading water since hitting a more than 53-year low of 166,000 in March. Economists blamed the second straight weekly increase on volatility in the data around moving holidays like Easter, Passover and school spring breaks.
BP: Windfall tax wouldn't deter investment
BP's chief executive has insisted a windfall tax wouldn't affect its investment plans, despite claims by Boris Johnson to the contrary.
The FTSE 100 oil giant plans to invest £18bn in the UK up to 2030, and Bernard Looney told shareholders this was "not somehow contingent on whether or not there is a windfall tax".
It comes amid a growing rift in Downing Street over whether or not to impose a levy.
While Boris Johnson has been adamant that a windfall tax isn't an option, Chancellor Rishi Sunak said he was "pragmatic" about the issue and that all options were on the table.
Gas prices surge 22pc as Germany and Russia clash over supplies
Natural gas prices jumped after Germany said Russia was using energy as a weapon in an escalating clash over supply.
Russia has cut supplies to a German subsidiary of Gazprom, prompting energy minister Robert Habeck to accuse the Kremlin of "weaponising" the commodity.
Markets are also fretting about a drop in Russian flows to Europe after Ukraine was forced to close a key transit point as a result of the war. Shipments via Ukraine are set to fall about 30pc today.
Benchmark European prices surged more than 22pc, while the UK equivalent was up 37pc. Power prices in Germany also jumped, with next month's contract rising as much as 17pc.
Fewer than one in ten companies order staff back to the office full-time
Fewer than one in ten companies have told staff they must come back to the office full-time, new data reveals as employees around the world insist on working from home.
Lucy Burton has more:
The majority of businesses surveyed by estate agent CBRE expect to push for a return to more regular office life in the coming months, but just 6pc are planning to enforce full-time commuting.
The survey of 120 companies across various sectors found 39pc of bosses expect their workers will be at the office for three or more days a week.
Richard Holberton, head of EMEA occupier research at the CBRE, said: "Companies must now decide how much personal autonomy to allow as well as the balance between office and home."
The figures, set to be published next week, come as employees around the world openly revolt over back-to-work plans even if they are not forced to return full-time.
Ukraine won't reopen gas route until it regains control
Ukraine will not reopen the suspended Sokhranovka gas transit route from Russia to Europe until the country regains control over its gas transit system.
The gas pipeline via that crossing point runs through Ukraine's Luhansk region, part of which has been under control of Russia-backed separatists since 2014.
Sergiy Makogon, the head of the system's operator, told Reuters there was enough capacity for Russian state gas giant Gazprom to deliver all its Europe-bound volumes through the Sudzha transit route, which remains open.
He said Gazprom had been unaware that Moscow-backed separatists in Ukraine's east had started stealing gas transiting Ukraine, which Kyiv said was one of the reasons it announced a "force majeure" on gas flows via Sokhranovka.
Wall Street braced for another sell-off
Wall Street looks set to suffer another day of losses as stocks follow the FTSE 100 into the red amid inflation and recession fears.
The tech-heavy Nasdaq slumped more than 3pc yesterday after hotter-than-expected inflation figures fuelled fears of aggressive interest rate rises. That took the index's year-to-date losses to 27.4pc.
The slump looks set to continue this afternoon, with tech giants Meta, Microsoft, Google owner Alphabet, Apple, Amazon and Tesla all falling between 1pc and 2pc in pre-market trading.
Futures tracking the Nasdaq tumbled 1.1pc. The S&P 500 was down 0.7pc, while the Dow Jones shed 0.5pc.
Rishi Sunak names Bank of England's new MPC member
Chancellor Rishi Sunak has announced that Dr Swati Dhingra will join the Bank of England as its new external member of the Monetary Policy Committee.
Dr Dhingra, an associate professor at the London School of Economics, will join the MPC in August on a three-year term.
She will replace hawkish rate-setter Michael Saunders, who has been on the MPC since August 2016.
Rishi Sunak said:
Dr Swati Dhingra’s experience in international economics will bring valuable new expertise to the MPC. I am delighted to appoint her to this role and look forward to seeing her contribution to policymaking in the coming years.
I would also like to thank Michael Saunders for all his work since he joined the Bank of England, and wish him the best in the next stage of his career.
Petrol jumps back above 165p
Petrol has jumped back above 165p a litre while diesel is less than half a penny away from its record, marking a fresh blow for motorists as the cost-of-living crisis deepens.
Petrol averaged 165.05p a litre yesterday, according to the latest figures from the AA. The last time it was higher was the day of the Chancellor’s Spring Statement and fuel duty cut. It had hit a record of 167.30p a litre the day before.
Diesel now averages 179.55p a litre. Its record was 179.90p on the day of the statement.
The sharp increases mean filling a typical 55-litre petrol tank now sets drivers back £90.78, compared to £70.38 a year ago.
Luke Bosdet at the AA said:
Petrol prices look to rise much higher in the coming weeks and people who rely on their cars for essential daily trips, such as driving to work, need to prepare their finances for further substantial increases.
The summer weather and more driving in daylight will take some of the sting out of the pump price rises. Motor vehicles should be getting better fuel consumption compared to March.
However, rapid price increases on the forecourt boards will be what catches drivers’ attention.
Russia's oil revenues jump 50pc despite boycotts
Russia’s oil revenue is up 50pc so far this year, even as traders boycotted the country's supplies in response to the invasion of Ukraine
Moscow earned roughly $20bn (£16.4bn) each month in 2022 from combined sales of crude and products – amounting to about 8m barrels a day – according to the International Energy Agency.
Many refineries started shunning Russian oil even before the UK and US said they would halt imports by the end of the year. The EU is pushing for a similar ban, but is yet to reach an agreement following pushback from countries including Hungary.
The IEA said: “If agreed, the new embargoes would accelerate the reorientation of trade flows that is already under way and will force Russian oil companies to shut in more wells.”
Rouble nears 2020 levels amid Putin's controls
The rouble strengthened in morning trading as Putin's capital controls continue to prop up the market.
The rouble has become the world's best-performing currency this year after Russia imposed measures to shield it from a market crash in the wake of the Ukraine invasion and ensuing sanctions.
It gained more than 2pc to 65.58 against the dollar after briefly touching its strongest since late February 2020. Against the euro, it was up more than 3pc to 68.28, having earlier hit its strongest since January 2020.
It comes after a major association told traders to shun Russia's local exchange rate for the rouble amid concerns about its crumbling credibility.
Superdry sales rebound as shoppers return to high street
Superdry has reported a jump in sales as shoppers returned to the high street after Covid restrictions eased – but its online trading slumped.
The retailer said store sales rose 200pc year on year to £47.2m in its fourth quarter to April 23. This was also 22.9pc higher than the same period in 2020 before the pandemic struck.
But it saw online sales drop 21.5pc in the quarter due to the switch back to stores and as it cut back on promotions.
Overall, revenues for the full year rose 8pc to £600.7m, with the improved trading in shops offsetting a decline in online sales.
It comes after Superdry said it will increase prices by around 2pc in an effort to mitigate soaring costs. Shares dropped 4pc despite the sales rebound.
Julian Dunkerton, chief executive of Superdry, said:
We are conscious of the cost-of-living pressures on consumers, meaning that now more than ever we must continue to deliver product that stands for what is important to them: quality, style and sustainability at great value.
As we head into 2022-23 we remain cautious on the macroeconomic outlook and the impact of inflation but are confident that our strategy is positioning the brand for future success.
Shell sells Russian petrol stations to Lukoil
Shell has reached a deal to sell its petrol stations in Russian to oil giant.
The FTSE 100 group said it will sell Shell Neft, which owns its retail and lubricants business in the country. It didn't reveal a price tag, but analysts expected the assets to be sold at a heavy discount.
The deal includes 411 retail stations, mainly located in the central and northwestern regions of Russia, and the Torzhok lubricants blending plant, around 200 kilometres north-west of Moscow.
It comes after Shell announced it was cutting ties with Russia in response to the Ukraine war – a move that cost it $3.9bn (£3.1bn) in the first quarter.
Huibert Vigeveno, Shell’s downstream director, said:
Our priority is the well-being of our employees. Under this deal, more than 350 people currently employed by Shell Neft will transfer to the new owner of this business.
EU insists gas supply not at risk from Ukraine shutdown
The EU has insisted that its gas supplies were not at risk after Ukraine said it was suspending the flow of Russian gas to the continent through a key transit point.
A spokesperson for the European Commission said: "While these developments may have an impact on part of the gas transit to the EU, they do not bring about any immediate security of supply issue for the EU,"
They added that Ukraine's inability to operate the Novopskov gas compressor station was a result of actions by Russia, adding: "Ukraine has been a reliable transit partner for many years."
Read more on this story: Germany gas supply drops as Ukraine shuts off pipes from Russia
Pound slumps after GDP hit
Sterling slumped again to its lowest level in two years as traders were rattled by the latest GDP figures.
The UK economy fell 0.1pc in March, with economists warning of a mounting risk of recession as the cost-of-living crisis deepens.
The pound dropped 0.6pc against the dollar to $1.2178.
JD Sports raises profit targets again
JD Sports has raised its profit forecasts again as it enjoyed strong sales despite shortages in key footwear lines.
The retailer said it was "reassured" by trading in the 14 weeks to May 7 as like-for-like sales rose more than 5pc compared to the same period last year.
JD said the sales growth came despite "a backdrop of a global shortfall in the supply of certain key footwear styles" as Covid restrictions continue to hamper production in some regions.
As a result, the sportswear giant lifted its expectations for full-year pre-tax profits to around £940m. It had already increased its profit target to at least £875m in an update in January. Shares rose 2.6pc.
Still, JD warned it was "conscious of the headwinds that prevail at this time, including the general global macro-economic and geopolitical situation".
John Lewis boss calls for emergency Budget amid cost-of-living crisis
The boss of John Lewis has called on the Government to act before the summer to tackle the cost-of-living crisis.
Sharon White called on ministers to take the same "decisive action" seen during the pandemic amid rising energy prices.
Speaking on ITV's Peston last night, Ms White said: "I think the time absolutely has come for action, whether it's an emergency budget or whether it's another vehicle.
"As I say, I think we're all really nervous about what's going to happen in October, so when energy bills potentially go up again by up to £1,000, it's winter."
Asked if she wanted action now, she said: "I do, I think there ought to be action before the summer, so the decisive action that we saw – I thought the Government did incredibly well at pace and scale during Covid – I think we need to see the same decisive action taken at speed and at pace because otherwise... those are impacts across millions of households right across the country."
The John Lewis and Waitrose chief said action should be taken even if it means a temporary hit to public finances.
It comes after Tesco chairman John Allan said there was an "overwhelming" case for a windfall tax on energy giants.
Johnson and Sunak split over windfall tax
There are growing signs of division between Boris Johnson and Rishi Sunak over the prospect of a windfall tax on energy giants.
The Chancellor has said he's "pragmatic" about the idea as a possible way to raise money to provide more help to households facing the strain of higher energy prices.
He told the BBC: "I'm not naturally attracted to the idea of them but what I do know is that these companies are making a significant amount of profit at the moment because of these very elevated prices."
Mr Sunak his view that no options were off the table if oil and gas companies did not provide significant investment soon in Britain.
That flies in the face of comments made earlier this morning by Boris Johnson, who ruled out a windfall tax, arguing it would deter investment.
Germany's Gazprom subsidiaries getting no Russian gas
Some subsidiaries of Gazprom in Germany are receiving no Russian gas after the Kremlin hit them with retaliatory sanctions.
Robert Habeck, Germany's economy minister, said the country had found alternative suppliers and would provide details later in the day.
Germany last month transferred Gazprom Germania – an energy trading, storage and transmission business abandoned by Russia's Gazprom – to its energy regulator to ensure energy security.
Subsidiaries on Moscow's new sanctions list include Germany's biggest gas storage facility at Rehden in Lower Saxony, with 4bn cubic metres of capacity and operated by Astora, as well as Wingas, a big gas trader which supplies industry and many local utilities.
Deliveroo inks deal with union amid employment row
Deliveroo has signed a deal with the GMB union amid a row over the rights of its self-employed riders.
The agreement, which covers the company's more than 90,000 riders, will give GMB collective bargaining on pay and consultation rights on benefits and other issues, including riders’ health, safety and wellbeing.
GMB will also be able to represent individual riders who are its members in disputes.
The deal comes after the IWGB union launched a legal battle for riders to be classed as "workers", giving them the right to unionise and bargain collectively.
The agreement recognises that riders are self-employed, following a series of UK court judgements that upheld this verdict.
Mick Rix, GMB National Officer, said:
This deal is the first of its kind in the world. Tens of thousands of riders for one of the world’s largest online food delivery services will now be covered by a collective agreement that gives them a voice – including pay talks, guaranteed earnings and representation in times of difficulty.
Riders deserve respect for the work they do; and Deliveroo deserves praise for developing this innovative agreement with GMB - a blueprint for those working in the platform self-employed sector.
This is a valuable contribution in making work better and to the future world of work.
BT secures sports tie-up with Discovery
BT has finalised a deal to create a new sports joint venture with US media giant Warner Bros Discovery.
The telecoms giant confirmed that the companies will form a new 50-50 tie-up that will bring together BT Sport and Eurosport.
The two brands will initially stay separate but will ultimately be brought "together under a single brand in the future".
The FTSE 100 firm said it will immediately receive £93m from Warner Bros Discovery, and up to £540m if future conditions are met.
It came as BT reported that trading was "on the right track" despite a dip in revenues for last year.
Earnings rose 2pc to £7.6bn as cost savings offset the lower revenues. BT also said it will extend its cost savings plans to save £2.5bn by the end of 2025, amending previous targets of £2bn in savings by 2024.
Shares rose 2.7pc after the announcement, bucking the wider fall on the FTSE.
Boris Johnson rejects windfall tax... again
Boris Johnson has doubled down on his rejection of a windfall tax on energy giant, even after the latest GDP figures laid bare the impact of surging prices on the UK economy.
Oil giants including BT, Shell and British Gas owner Centrica have reported record profits thanks to the recent jump in oil and gas prices fuelled by the war, while families are facing increasing pressure on their household finances.
But the Prime Minister again ruled out a windfall tax, saying the Government didn't want to deter investment by energy companies.
He told LBC: "I don't like them. I didn't think they're the right thing. I don’t think they’re the right way forward.
"The disadvantage with those sorts of taxes is that they deter investment... they need to be investing in new technology, in new energy supply."
Bernard Looney, chief executive of BP, told the Times last week that the company would go ahead with investment in Britain even if a windfall tax were to be imposed.
Asked about that, the Prime Minister told LBC: "Well, you know, then we'll have to look it."
Rishi Sunak: Growth is best way to help families
Growth is the best way to help families, says Chancellor Rishi Sunak, after GDP falls 0.1pc in March.
The UK economy recovered quickly from the worst of the pandemic and our growth in the first few months of the year was strong, faster than the US, Germany and Italy, but I know these are still anxious times.
Our recovery is being disrupted by Putin’s barbaric invasion of Ukraine and other global challenges but we are continuing to help people where we can.
Growth is the best way to help families in the longer-term so as well as easing immediate pressures on households and businesses, we are investing in capital, people and ideas to boost living standards in the future.
PwC: Biggest economic threat since start of Covid
Barret Kupelian, senior economist at PwC, says the UK economy has entered its most challenging period since the beginning of the pandemic.
Even though the economy grew by 0.8pc in aggregate terms in the first quarter of the year, output came to a standstill in February and contracted in March.
Compared to its peers, the UK economic performance is mediocre. Unlike some European economies, output continues to remain higher than pre-pandemic levels, but UK performance lags behind that of France, Canada and the US.
The UK outlook will continue to remain challenging in the coming months as consumer and business spending cools.
This will be further amplified as increases in taxes, such as the national insurance hike and freezing of income tax bands, as well as the rising price of necessities, such as energy and food, redirect and slow down or contract spending in the UK economy.
The Russian invasion of Ukraine and the effects of the cost of living crisis have also adversely affected the UK economic outlook in a short period of time.
FTSE risers and fallers
The FTSE 100 has dropped sharply in early trading as the latest GDP figures batter investor sentiment.
The blue-chip index slumped 2.3pc, with commodity stocks among the worst performers.
Oil giants BP and Shell were down 2.4pc and 1.9pc respectively, while miners slumped 4.3pc, tracking the drop in commodity prices amid recession fears.
It was a sea of red across the FTSE, with almost all stocks in the red after GDP fell 0.1pc in March and economists warned on a looming downturn as the cost-of-living crisis deepens.
BT was a rare bright spot, rising 2pc after it confirmed its new sports joint venture with Discovery. Rolls-Royce also pushed higher following an upbeat trading update.
The domestically-focused FTSE 250 tumbled 1.9pc.
Reaction: UK headed for stagflation
James Smithat the Resolution Foundation calls on the Government to provide further support for the hardest hit households.
The UK started the year with a rapid recovery from the pandemic. But the economy already appears to be losing momentum as the cost of living crisis intensifies and the risk of stagflation looms.
The economy contracted in March amid rising inflation and falling incomes. With consumer confidence at historic lows and inflation forecast to rise to double digit levels later this year, causing average pay packets to fall by £1,200, there is a clear risk that we slide into recession.
The Government can’t shield everyone from all of its impact, but it should provide further targeted support to the low-and-middle income households who will be worst affected.
More interest rate rises needed as inflation surges, says BoE official
Just to pile more pressure on markets this morning, there are some hawkish comments from Bank of England official Dave Ramsden.
The Deputy Governor said the Bank will have to raise interest rates further to control the surge in prices, adding there was a risk the inflation crisis will take longer to ease than previously though.
Mr Ramsden told Bloomberg the jobs market could prove stronger than the BoE anticipates, driving price rises ever higher. Inflation is already at 7pc and likely to top 10pc before the end of the year.
The Bank lifted interest rates to 1pc last week and warned of a sharp economic slowdown later in the year.
The Deputy Governor declined to comment on market expectations that rates will hit 2.5pc by the middle of 2023, but said he was worried about inflation.
He said: "Certainly on the basis of my current assessment of prospects, we're not there yet in terms of how far monetary policy has to tighten.
"I'm still very, very supportive of the forward guidance that there may well need to be further tightening in the coming months."
More reaction: Risk of recession is rising
Paul Dales, chief UK economist at Capital Economics, says the economy has run out of momentum.
The risk of recession has just risen, although strong price pressures will probably mean the BoE will raise interest rates further.
The key point is that all of the growth in the first quarter came when GDP rose by 0.7pc in January.
GDP was flat in February and fell by 0.1pc in March, which leaves the economy with no momentum just when the surge in inflation is starting to become a big drag on households’ real incomes.
Suddenly, our forecasts that GDP will be flat in both the second quarter and third quarter seem pretty optimistic. A contraction in GDP or a recession now feels a bit more likely.
Reaction: UK faces 'serious fight' to avoid recession
Ed Monkat Fidelity International warns the UK is facing three years of stagnation, with the threat of a recession mounting.
Any momentum the UK economy had as it emerged from the pandemic appears to be ebbing away. Growth in the first quarter of 0.8pc was below forecast and is down from 1.3pc in the preceding period, and the month-on-month figures now show a worrying slowdown.
From growing by 0.7pc in January, the economy flat-lined in February and fell slightly in March. Numbers can be revised but it’s clear the UK faces a serious fight to avoid recession this year.
Soaring energy, fuel and food prices continue to eat into household budgets. And while some are already having to choose between basic necessities, this is unlikely to be the end of the squeeze.
With inflation reaching 7pc households are navigating largely unfamiliar financial territory while also trying to prepare for the likelihood that bills will rise still further.
Despite government promises this week to address the cost of living challenge, the threat of recession appears to be growing. By the end of the second quarter of 2025 the UK economy is expected to be barely bigger than it is today.
The Bank of England has so far been focused on bringing inflation down in the medium term via rate rises. It must now also factor in an economy at risk of shrinking earlier than it has forecast as well.
ING: Covid spending props up economy
Here's some interesting analysis from James Smith, developed markets economist at ING.
He points out that GDP would be 1pc lower today if it weren't from the recent boom in health spending, driven by Covid testing and vaccines.
Surprisingly, health output actually increased in March despite the ongoing wind-down of Covid-related activities, but clearly, that’s unlikely to last.
Health spending has been a key driver of GDP through the pandemic, and in fact, the overall size of the economy would be around 1pc smaller had output in this sector stayed flat since early-2020.
Reaction: Outlook 'increasingly fraught'
Yael Selfin, chief economist at KPMG UK, says the economy is at growing risk of a recession.
The outlook looks increasingly fraught. While we do not yet see a recession coming this year, weak growth means that additional shocks or spillovers from other economies make this scenario increasingly likely.
The squeeze on consumers has tightened from the second quarter of this year, with the increase in energy tariffs and the higher cost of food and other commodities arising from the conflict in Ukraine, pushing up the cost of living.
At the same time, tighter financial conditions and rising interest rates have seen the cost of borrowing increase.
Reaction: The UK will underperform next quarter
Samuel Tombs at Pantheon Macroeconomics points out that the UK put in mid-table performance compared to its G7 peers in the first quarter.
That's thanks largely to the effects of the energy price cap, which shielded households from some of the surge in prices.
But now this has risen, he warns the UK is set to lag behind over the second quarter.
CBI: Times will get even tougher
Rain Newton-Smith, chief economist at the CBI, says businesses are braced for the situation to get worse.
The economy barely kept its head above the water during a volatile start to the year, but times look set to get that bit tougher.
Cost pressures and rising prices have tightened their grip, with both businesses and households feeling the pinch. The end result is a weaker economic outlook
It’s clear that the most vulnerable households and energy-intensive businesses may need further support, so the government should keep this under review.
Services sector drags down economy
My colleague Tim Wallace has dug into the numbers:
The biggest drop by services sector in March came in wholesale and retail trade and the repair of vehicles, which plunged by more than 15pc in March. The ONS noted chaos in global supply chains has stunted the delivery of components for car manufacturers, limiting the number of vehicles they can produce and forcing up prices.
However, personal services picked up while health and social work also grew by 1.5pc on the month, with the return of more GP appointments and A&E care pushing up output, indicating the availability of public services, rather than active choices by consumers, is offering the key prop to the figures.
Meanwhile, manufacturing output fell 0.2pc in March, with a slump of more than 5pc in pharmaceuticals, 4.1pc in textiles and 3.5pc in chemicals.
The construction industry managed to grow by 1.7pc on the month, with strong demand for maintenance work on homes, as well as for new commercial property.
Over the first quarter of the year as a whole, GDP grew by 0.8pc as the economy recovered from the omicron wave over winter, before the war in Ukraine sent already high inflation spiralling further, largely through a leap in costs of goods such as petrol.
For the three months to March, the recovery in hospitality combined with growth in information and communications, and transport and storage was enough to offset to hit to retail to keep the services sector growing.
ONS: GDP falls in March
Darren Morgan, ONS Director of Economic Statistics, said:
The UK economy grew for the fourth consecutive quarter and is now clearly above pre-pandemic levels, although growth in the latest three months was the lowest for a year.
This was driven by growth in a number of service sectors as the economy continued to recover from Covid-19 effects, including hospitality, transport, employment agencies and travel agencies. There was also strong growth in IT.
There were, though, some downward effects from other services, including retailing, wholesaling and car sales and also health, due to continuing decreases in the Test and Trace service and vaccination programmes.
Our latest monthly estimates show GDP fell a little in March, with drops in both services and in production. Construction, though, saw a strong month thanks partly to repair work after the February storms.
UK heads for recession
There a more worrying signs that the UK could be headed for a recession after the economy shrank in March.
GDP fell 0.1pc after February's growth was revised down to zero, according to the ONS.
The figures, which come even before April's massive surge in energy bills, highlight the risk of an economic downturn as rising prices continue to batter households.
The services sector was the biggest drag on the economy, with consumer-facing sectors such as retail suffering a slide in sales.
5 things to start your day
1) Germany gas supply drops as Ukraine shuts off pipes from Russia Olaf Scholz forced to import extra fuel from Norway and Netherlands
2) Passengers will bear the brunt of Heathrow's rising landing fees Heathrow accuses airlines of trying to ‘protect their own profits’
3) Millions of electricity customers launch class action lawsuit against cable 'cartel' Cable companies Nexans, NKT and Prysmian face accusations of overcharging British households
4) Tesco to open offices in its supermarkets Grocer seeks to cash in on rise of homeworking
5) Disney beats Netflix as streaming service adds new subscribers Disney+ adds customers despite Wall Street concerns over cost-of-living crisis
What happened overnight
Hong Kong stocks opened lower on Thursday after overnight drops on Wall Street.
The Hang Seng Index tumbled 1.35pc, or 267.68 points, to 19,566.89.
Mainland China's Shanghai Composite Index fell 0.45 percent, or 13.90 points, to 3,044.80, while the Shenzhen Composite Index plummeted 0.64 percent, or 12.33 points, to 1,906.18.
Tokyo also stocks fell in early trade on Thursday as investors fret over inflation.
The benchmark Nikkei 225 index fell 1.34 percent, or 350.51 points, to 25,863.13 in early trade, while the broader Topix index gave up 0.79 percent, or 14.59 points, to 1,836.56.
Coming up today
- Corporate: BT, 3i (full-year results); Grainger (interims); Balfour Beatty, Coca-Cola HBC, Convatec Group, RHI Magnesita, Superdry (trading statement)
- Economics: GDP (UK), manufacturing production (UK), industrial production (UK), producer price index (US), jobless claims (US)