Right, time to wrap up after a choppy day in which UK retail sales slid, the energy crisis threatened food supplies, US consumer morale remained weak, and markets were hit by growth worries and a slumping iron ore price.

Here are today’s stores so far:

Goodnight, and have a lovely weekend. GW

Ouch! After a rough afternoon, the UK’s index of blue-chip shares has ended at its lowest close in almost two months.

The FTSE 100 index ended the day down 64 points, or 0.9%, at 6963.6 points - the weakest closing level since 20th July.

The slump in the iron ore price hit mining companies hard, with Anglo American (-8%), and BHP Group (-4.8%) leading the fallers, with grocery technology firm Ocado (-3.9%) not far behind.

Travel stocks, though, jumped on the prospect of the UK relaxing travel restrictions. IAG gained almost 5%, while holiday firm TUI jumped 6%. Confirmation came just after the market closed…

Economic anxiety weighed on the markets today, with UK retail sales falling unexpectedly, US consumer confidence lower than hoped, and eurozone inflation confirmed at a 10-year high.

Danni Hewson, AJ Bell financial analyst, says it was a good week for travel - but not for commodities producers...

“The travel sector has been the week’s big winner with share prices in EasyJet, Jet2, TUI and On the Beach, all enjoying decent gains over the last five days.

British Airways owner IAG sat happily at the top of the FTSE 100 gainers as investors speculated that even limited changes to the UK’s travel policy would make a big difference to travellers and the travel sector.

But those tailwinds weren’t enough to lift London’s blue-chip index clear of the miners drag as the price of iron ore slumped further today. Steel production in China is down as the country looks to cut back on its carbon emissions. Falling demand leads to falling prices, leads to falling profits, its an equation as old as time and one investors have been wrestling with this week.

Bond prices also fell, pushing up the yields on US and UK government debt.

Michael Hewson of CMC Markets says:

It’s not completely clear what appears to have triggered the change of sentiment, however a bond market selloff hasn’t helped, which has sent UK 5-year gilt yields to their highest levels since March 2020, and 10-year yields to a four-month high.

It could be the recent headlines around new fiscal rules from the Chancellor of the Exchequer is exerting upward pressure on short term UK borrowing costs.

The price of iron ore has tumbled below $100 per tonne, as China’s crackdown on polluting industries hits demand hard.

Signs that China’s economy has slowed, and the Evergrande property crisis, are also weighing on iron ore (and hitting mining stocks, as flagged earlier).

Bloomberg has the details:

Iron ore sank below $100 a ton as China’s moves to clean up its heavy-polluting industrial sector spurred a swift and brutal collapse.

Prices have more than halved since peaking in May as the world’s biggest steelmaker intensifies production curbs to meet a target for lower volumes this year, and a sharp downturn in China’s property sector hurts demand.

Iron ore’s slump makes it one of the worst-performing major commodities and a notable outlier in a broader boom that’s seen aluminum soar to a 13-year high, gas prices jump and coal futures surge to unprecedented levels.

A drop back to double-digits for the first time since July last year would be a relief for steel producers, but a blow to the world’s top miners that have enjoyed bumper profits during the first-half rally. It’s bad news too for top iron ore producer Australia, where the key steel-making ingredient generates about 40% of goods exports.

The Italian helicopter-maker Leonardo has said it may cancel a planned £1bn investment into UK manufacturing if the government does not choose it to deliver a replacement for the Royal Air Force’s Puma fleet.

The Ministry of Defence announced in the spring that it wanted to replace the Puma and eventually three other models. The RAF has used the Puma since the 1970s, and upgraded versions have been used extensively to carry troops in wars including the Falklands, Iraq and Afghanistan.

Leonardo is vying with Airbus, the European aerospace conglomerate, to build a new mid-sized helicopter by about 2025. The Italian company owns the UK’s only helicopter factory, at Yeovil in Somerset, employing 3,000 workers, but Airbus this week pledged to create 400 jobs in a new helicopter production line at its factory in Broughton, north Wales, if it wins the government contract.

Nick Whitney, the managing director of Leonardo Helicopters UK, said his company’s existing facility would be able to deliver its AW149 aircraft more quickly, and the contract would unlock a previously unreported foreign direct investment from the Rome-headquartered manufacturer, including more than £500m into Yeovil.

Whitney told the Guardian:

“If the UK government doesn’t show confidence in the home rotary wing company in the UK, it has to question why our parent company would have to invest in the same volumes,”

He was speaking at Defence and Security Equipment International, a controversial arms fair held in London.

More here:

The pharmaceuticals firm GSK has struck a five-year partnership with King’s College London to use artificial intelligence to develop personalised treatments for cancer by investigating the role played by genetics in the disease.

The tie-up, which involves 10 of the drug maker’s artificial intelligence experts working with 10 oncology specialists from King’s across their labs, will use computing to “play chess with cancer”, working out why only a fifth of patients respond well to immuno-oncology treatments.

Dr Kim Branson, the global head of artificial intelligence and machine learning at GSK, said only 20% of patients respond well to the new oncology drugs that harness the body’s immune system to fight cancer.

Branson explains:

“Sometimes it works like a game buster … and it wipes out the cancer. We’d like that to work all the time. This could be transformative,”

The partnership will use GSK’s cancer drugs to start with and initially focus on solid cancers such as thoracic malignancies, gastrointestinal and women’s cancers.

Branson said:

“Hopefully we’ll create a framework that other people can contribute to,”

Here’s the full story:

Britain’s FTSE 100 has fallen to a seven-week low as mining stocks slide.

The blue-chip index has subsided back below the 7,000 point mark, down 39 points or 0.55% at 6988 points - the lowest since late July.

Miners are taking a steeper hit from growth worries, and with a stronger dollar pushing down commodity prices.

Anglo American is now down 6.6%, BHP Group has shed 4.7% and Rio Tinto has lost 4%, as China’s cuts to steel output continue to hurt the sector.

Neil Wilson of Markets.com says:

Miners are having a shocker after the tumble in iron ore prices – down 8% overnight.

A rise in US government bond yields could also worry investors; it could show the markets are preparing for the US Federal Reserve to ease back on its stimulus programme.

Just in: US consumer confidence has nudged slightly higher this month after sliding to a near-decade low in August.

The University of Michigan’s consumer sentiment index has risen to 71.0 this month, up from 70.3, but weaker than expected.

Americans surveyed reported that current economic conditions had deteriorated compared with last month, but they’re slightly more optimistic about the outlook:

Richard Curtin, Surveys of Consumers chief economist, Richard Curtin, said:

The steep August falloff in consumer sentiment ended in early September, but the small gain still meant that consumers expected the least favorable economic prospects in more than a decade.

Just two components posted additional declines: buying attitudes for household durables fell again in early September to a low reached only once before in 1980, and long term economic prospects fell to a decade low. The decline in assessments of buying conditions for homes, vehicles, and household durables left all three near all-time record lows, with the declines due to spontaneous references to high prices.

Some observers anticipated that the early August plunge in confidence would quickly disappear since it was driven by emotions. Emotions have long been known to speed responses, the so-called fight or flight response, which was the adaptive function they performed in early August. Many other sources of economic data have since shifted in the same direction, and point toward slower growth in consumer expenditures and purchases of housing to the end of 2021.

The closure of two UK fertiliser plants is threatening to create carbon dioxide shortages that could damage the country’s meat supply chain, and also hit supplies of beer and fizzy drinks.

CO2 is a byproduct of fertilizer production, so the suspension of two fertiliser plants at Billingham, in County Durham, and Ince in Cheshire this week due to soaring natural gas prices is rippling through the food supply chains.

PoliticsHome says the government is bracing itself for supermarkets and restaurants to suffer disruption in the coming days:

The Department for Environment, Food and Rural Affairs (Defra) was warned on Thursday that shortages of CO2, caused by the closure this week of two major fertilizer plants, would affect manufacturers across food and drink industry, PoliticsHome understands.

CO2 is used in the production of beer and fizzy drinks, and is also vital in meat processing.

The British Poultry Council’s Richard Griffiths said the gas is used in slaughterhouses, as well as the packaging and chilling of chickens, and warned that the industry was “very rapidly heading into a downward spiral towards supply chains seriously struggling.”

He told PoliticsHome: “After five to seven days we’ll start to see significant problems in processing birds.”

Back in 2018, Britain’s CO2 stocks ran low, threatening supplies of beer, salads and ready meals, and chicken - as processing plants use CO₂ in the slaughter process.

The Financial Times flags up that another fertiliser company, Norway’s Yara International, said on Friday it is curbing production at several facilities -- adding to supply worries.

The FT adds:

Nick Allen, chief executive of the British Meat Processors Association, said the government had asked him to gather data on what was a potentially “massive” problem for meat producers.

“We are hearing that there are no definite plans to reopen” the plants, he added. Industry groups and processors were told at the emergency meeting late on Thursday that 60 per cent of the UK’s supply of CO2, which is used to stun animals before slaughter, had been cut.

They also heard that nuclear power plants and the NHS, which use the gas as a coolant, would take priority in securing what remained, according to two people briefed on the meeting.

Industry experts also fear that shortages of fertiliser will hit crop yields, leading to lower supplies and rising prices.

Pret a Manger is giving cafe workers a 5% pay rise only weeks after ditching paid breaks and attempting to slash bonuses as food and drinks retailers compete for workers.

In an email to workers seen by the Guardian, Pret’s UK managing director, Clare Clough, said starting pay for store workers would rise to a minimum of £9.40 an hour, up from the legal minimum of £8.91, but all team members, including managers will get a raise.

The unexpected boost for workers comes only a month after Pret told employees it would permanently cease paying for break times, so that someone on an eight-hour shift, including a legally required half-hour break, would receive a pay cut of just over 6% a shift compared with pre-pandemic levels.

Pret initially also planned to permanently halve weekly mystery shopper bonuses to 50p an hour during the pandemic but relented after the Guardian revealed the move, prompting a public outcry....

The number of companies in England and Wales falling into insolvency has hit its highest level since the first pandemic lockdown.

In August 2021 there were 1,348 registered company insolvencies, the highest since the first UK lockdown in March 2020, new figures from The Insolvency Service show.

That’s up from 1,094 in July, suggesting that some companies are failing despite the easing of Covid-19 restrictions earlier this year.

It include 1,256 Creditors’ Voluntary Liquidations (where firms proactively wind themselves up) which is the highest level seen in the series since January 2019. There were just 35 compulsory liquidations.

For individuals, there 1,714 debt relief orders in England and Wales in August, down on July’s pandemic high. It’s 29% higher than in August 2020 but 12% lower than in August 2019.

There were also 614 bankruptcies, the lowest in the series which goes back to January 2019.

The Insolvency Service says:

While CVL numbers have now returned to pre-pandemic levels, numbers for other insolvency procedures, such as compulsory liquidations for companies and bankruptcies for individuals, remain lower.

That’s party due to government support, they add, such as temporary restrictions on the use of statutory demands and certain winding-up petitions, and financial support for companies and individuals.

But, restrictions imposed during the coronavirus pandemic preventing businesses serving winding-up petitions against debtors will ease from the end of September, the UK government said last week.

Colin Haig, President of insolvency and restructuring trade body R3, says:

“The insolvency figures published today highlight how much tougher the climate is for businesses and individuals than this time last year, and the toll the pandemic has taken on business and personal finances over the last 12 months.

“The increase in corporate insolvencies was driven by a rise in Creditors’ Voluntary Liquidations (CVLs). Numbers for this process were 115% higher than this time last year, and 30% higher than in 2019, which suggests that despite the opening up of the economy, there are a number of company directors who are opting to close their businesses after a year and a half of trading in a pandemic.

“This comes despite the fact that August was one of the better months for businesses since the start of the pandemic. The lifting of the final restrictions and the continued impact of the vaccine rollout means that more people are working, shopping and spending, and that looks set to continue as we enter the autumn.

“However, with the furlough scheme closing at the end of this month, company directors need to be aware of the signs of business distress and seek advice if any of them appear.

John Bell, senior partner at Clarke Bell Insolvency Practitioners in Manchester, said:

“It is encouraging to see that the vast majority of the company insolvency procedures for August 2021 (93%) are Creditor Voluntary Liquidations – i.e. ones which have been undertaken voluntarily by the directors.

This shows that most directors of an insolvent company are being pro-active in dealing with their company’s financial problems with a CVL, and thereby addressing their legal obligations and responsibilities to their creditors. while those who are being passive and just waiting for their company to be forced into Compulsory Liquidation make up only a small proportion of the monthly company insolvencies (3%).

Shares in travel and aviation businesses including the British Airways owner, IAG, Ryanair and the aero engine maker Rolls-Royce received a boost from news that the UK government is planning to simplify England’s rules for international travel.

Investors were buoyed up by the changes – which could include removing dozens of destinations from the 62-country “red list”, the highest alert for international travel requiring 11 nights’ hotel quarantine on return – which are expected to be officially announced by ministers on Friday.

Ministers are also considering removing the amber list category of countries entirely, meaning there would be a clearer distinction between “go” and “no-go” destinations....

The British’s public inflation expectations rose last month -- as people respond to signs of rising prices in the shops.

The latest Bank of England quarterly survey shows that inflation expectations for the year ahead rose to 2.7% in August, from 2.4% in May.

Longer-term inflation expectations rose to 3.0% from 2.7% in May, which is the highest since February 2020, just before the pandemic hit the UK.

UK consumer price inflation jumped to 3.2% in August, the highest rate since March 2012, and a record jump from June’s 2%.

The Bank’s survey also found that people believe that the economy would end up weaker, rather than stronger, if prices started to rise faster, by a margin of 46% to 13%.

Asked what would be ‘best for the economy’ – higher interest rates, lower rates or no change – 25% thought rates should ‘go up’, up from 23% in May.

But 12% of respondents thought that interest rates should ‘go down’, up from 11%. 36% thought interest rates should ‘stay where they are’, down from 41%.

Fewer people think the Bank of England is ‘doing its job to set interest rates to control inflation’. The net satisfaction balance – the proportion satisfied minus the proportion dissatisfied – dropped to +18%, from +24% in May 2021 and +25% in February 2021.

It’s official: inflation across the eurozone has hit its highest level in a decade.

Consumer prices jumped by 3% in the year to August, up from 2.2% in July. That’s the highest rate since late 2011, and sharply over the European Central Bank’s 2% target.

Statistics body Eurostat’s final data, which confirms its ‘flash’ estimate, shows that energy costs are continuing to drive up the cost of living.

On a monthly basis, prices rose by 0.4%.

Energy prices saw the biggest surge, up 15.4% over the last year, while unprocessed food prices are up 3% per year. Industrial goods inflation jumped to 2.6%.

Across the region, Estonia, Lithuania and Poland all saw the highest inflation rates, at 5% per year.

The ECB has argued that the jump in inflation is temporary, due to the pandemic. It predicted last week that inflation will fall back over the next couple of years, away from its target.

But last night, the Financial Times reported that the ECB expects to hit its 2% inflation target by 2025, according to unpublished internal models that suggest it is on course to raise interest rates in just over two years.

This would be at least a year earlier than most economists expect the ECB to raise its deposit rate from a record low of minus 0.5 %, the FT says.

According to the FT, ECB chief economist Philip Lane told economists at German banks that its “medium-term reference scenario” (usually unpublished), shows inflation rebounding to 2 per cent soon after the end of its three-year forecast period.

The ECB has disputed the story, calling it inaccurate, and insisting:

“Mr Lane didn’t say in any conversation with analysts that the euro area will reach 2 per cent inflation soon after the end of the ECB’s projection horizon.”

Retail sales in Great Britain fell unexpectedly in August amid severe supply chain disruption and as consumers switched more of their spending from supermarkets to pubs and restaurants after the easing of pandemic restrictions.

The Office for National Statistics said retail sales dropped by 0.9% in August after a steeper decline of 2.8% in July. While spending remains above pre-pandemic levels, City economists had forecast a rise of 0.5%.

According to the latest snapshot, sales of food dipped by 1.2% on the month after the easing of hospitality restrictions had an impact, with people raising their spending on social activities such as eating and drinking in restaurants, pubs and bars.

However, sales fell across a broad range of other categories, including a sharp fall in sales at department stores as disruption to supply chains weighed on retailers.

Britain’s biggest retailers have warned that stock levels are at their lowest since the 1980s, with the economy coming under growing pressure from shortages of workers and goods because of the fallout from Covid-19 and Brexit.....

More here:

Shares in airlines and holiday companies have jumped in early trading, following reports that the UK government is poised to ease England’s COVID-19 rules for international travel.

British Airways parent company, IAG, has risen 3.8% to the top of the FTSE 100 risers followed by Intercontinental Hotels (+2.5%), the firm behind Holiday Inns, Crowne Plaza.

Conference organiser Informa (+2.4%) and catering group Compass (+1.5%) are also rallying.

Among smaller companies, holiday operator TUI (+3.9%) and food travel group SSP (+3%) [which runs the Upper Crust and Ritazza outlets] are also stronger.

The rally follows a report in The Times that the government will relax its travel rules, following many complaints that onerous rules and red tape have hobbled airlines, holiday and tourism companies.

They say:

Dozens of countries including Turkey will be removed from the red list banning international travel in time for next month’s half-term as the government relaxes international travel rules.

The red list, which prohibits travel to 62 countries, could be halved, meaning that most destinations will be opened up for the fully vaccinated.

Grant Shapps, the transport secretary, is also expected to announce today that the traffic-light system for travel will be simplified by the scrapping of the amber classification. All destinations will be either red or green.

The red list requires passengers to pay £2,285 to quarantine in a government-approved hotel for 11 nights on their return. Countries on the list include Brazil, Argentina, Mexico, the Maldives, South Africa, Sri Lanka and Thailand.

Retail sales spending was restrained by the supply chain crisis last month, say several experts.

Jessica Moulton, senior partner at McKinsey & Company, predicts that more retailers will struggle to obtain stock:

“Retail sales appear held back by skyrocketing availability problems, due to container prices, labour shortages and inflation.

Sarah Coles, personal finance analyst, Hargreaves Lansdown, says retailers struggled to keep the shelves filled:

“Shoppers and shops were stymied by shortages in August. Keeping the shelves full was a real battle, especially for department stores, which is one reason why we spent less in these stores in August. Supermarkets had a fight on their hands to keep supply chains flowing, but the might of these retailers meant they were able to track down alternative suppliers so we could keep filling our trolleys.

Our passion for the big shop dimmed slightly in August, as we rediscovered our passion for a big night out. We spent more in bars and restaurants, and bought 1.2% less in food stores than in July. However, there are signs that life hasn’t entirely returned to normal, and we’re still spending more time raiding the fridge and parking ourselves on the sofa, because we’re still buying 3.4% more in supermarkets than before the pandemic.

Given so many of us holidayed at home, and in the rain, this year, it’s not surprising that we splashed the cash in stores like computer retailers and sports equipment shops. Sales here are up 4.5% from before the pandemic. However, there are signs that shortages were an issue here too, because sales were down 1.2% in the month.”

Oliver Vernon-Harcourt, head of retail at Deloitte, says August’s ‘dreary weather’ also kept people off the high street -- and warns we could see shortages at Christmas:

“A perfect storm of labour shortages, supply chain issues and increased demand will continue to test retail leaders as we enter the Golden Quarter. Christmas will be impacted by these headwinds; there will very likely be shortages in some categories which will force consumers to make different choices.

Retailers – particularly grocers – will have to decide which products to put on the shelves, prioritising higher-margin products where possible. Managing price increases and stock shortages will be one of the main challenges retail leaders will have to address in the coming months.”

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

Retail sales across Great Britain fell last month, in another sign that the economy cooled over the summer, and as people spent more time eating and drinking in bars and restaurants.

Sales volumes fell by 0.9% in August, dashing expectations of a 0.5% rise in sales, and comes after retailers suffered a 2.8% fall in July.

It suggest retailers had a tough summer, as the initial surge in demand following the spring reopening faded.

New figures just released by the Office for National Statistics shows that spending in food stores fell -- as more people dined out following the easing of lockdown rules.

There was also a fall in department store sales, which have now dropped ever month since April 2021, while spending on motor fuel picked up as more people returned to the road.

Jonathan Athow, ONS deputy national statistician for economic statistics, explains:

“Sales fell again in August, though not nearly as much as in July and, overall, remained above their pre-pandemic level.

“Other data suggest that the drop in food stores’ sales is linked to an increase in eating out following the lifting of coronavirus restrictions.

“Meanwhile, motor fuel sales increased on the month as people ventured out more, but they remained below pre-pandemic levels.”

Here’s the details:

• Food store sales volumes fell by 1.2% in August 2021, with some evidence to suggest that the further easing of hospitality restrictions had an impact on sales; people increased their social spending such as eating and drinking at restaurants and bars.
• Non-food stores reported a fall of 1.0% in sales volumes in August 2021, driven by falls in department stores (negative 3.7%) and other stores, such as sports equipment and computer stores (negative 1.2%).
• Automotive fuel sales volumes rose by 1.5% in August 2021 as people continued to increase their amount of travel; however, they remained 1.2% below their pre-pandemic February 2020 levels.
• The proportion of retail sales online rose to 27.7% in August 2021 from 27.1% in July, substantially higher than the 19.7% in February 2020 before the pandemic.

Compared with a year ago, sales volumes were flat. That still leaves them 4.6% above their pre-pandemic levels.

More details and reaction to follow...

We’ll also be tracking Europe’s energy price crunch which is threatening to derail the region’s economic recovery. The supply crunch is hitting profits, and forcing some manufacturers to suspend work - including at two UK fertiliser plants.

Investors are also watching for the latest US consumer confidence report, for signs that the Delta variant has hit confidence.

We also get updated eurozone consumer price data, likely to confirm that inflation hit a decade high of 3% in August.

European markets are set to open higher on the final trading day of the week.

The agenda

• 7am BST: Great British retail sales for August
• 10am BST: Eurozone inflation rate for August (final estimate)
• 3pm BST: University of Michigan survey of US consumer sentiment in September