Time to wrap up... here’s today’s main stories:

Have a lovely weekend. GW

Jaguar Land Rover has been forced to shut down car production at one of its key factories for a week amid a global shortage of computer chips (a timely example of the disruption caused by the supply chain crisis).

Assembly line workers will return to JLR’s Halewood factory on Merseyside on Monday after a week of producing no vehicles. The plant makes the Land Rover Discovery Sport and Range Rover Evoque models, although it has struggled with supply issues throughout the year.

Every big carmaker in the world has acknowledged the effects of the shortage of chips, also known as semiconductors, which are used in cars to control everything from batteries towindscreen wipers.

The French carmaker Renault on Friday said it would cut its output by 500,000 cars this year, double its previous forecasts. The Renault chief financial officer, Clotlide Delbos, warned that the chip supply would remain constrained throughout much of 2022, Reuters reported.

Growth at US companies has picked up this month, as its service sector recovers as cases of the Delta variant fall.

But, as in the UK, factory output growth has slowed as supply chain bottlenecks and labour shortages leave manufacturers struggling to meet orders.

Factory production growth in October is the softest since July 2020, data firm IHS Market’s latest PMI survey shows.

With services firms strengthening, US private sector businesses recorded a sharp and accelerated upturn in output, says Markit.
Inflation pressures intensified. Average input prices rose at a survey record pace, with firms citing supply problems, shortages, greater transport fees and increased wage bills.
Companies passed these costs onto customers, with the rate of selling price inflation for goods and services also hit a new series peak.

Chris Williamson, Chief Business Economist at IHS Markit, explains:

“October saw resurgent service sector activity as COVID-19 case numbers continued to fall, marking a encouragingly strong start to the fourth quarter for the economy. Hiring has likewise picked up as firms have been encouraged to expand capacity to meet rising demand.

“However, while manufacturers also continue to report strong demand, factory production remains plagued by constraints, including record supply chain bottlenecks and labor shortages.

Prices paid by factories for raw materials rose at yet another new record pace as a result, in turn feeding through to both higher prices at the factory gate and spilling over into higher service sector prices. Higher wages are also having to be offered to attract or retain staff, adding to the inflationary pressures.

“Thus, while the economy looks set for stronger growth in the fourth quarter, the upward rise in inflationary pressures also shows no signs of abating.”

Here’s the key points (any reading over 50 shows growth).

• ▪ Flash U.S. Composite Output Index at 57.3 (55.0 in September). 3-month high.
• ▪ Flash U.S. Services Business Activity Index at 58.2 (54.9 in September). 3-month high.
• ▪ Flash U.S. Manufacturing PMI at 59.2 (60.7 in September). 7-month low.
• ▪ Flash U.S. Manufacturing Output Index at 52.3 (55.7 in September). 15-month low.

Over in China, coal prices have posted their biggest weekly fall since May, after Beijing intervened to boost supplies and cool energy costs.
The most-traded contract on Zhengzhou Commodity Exchange, for delivery in January , hit the lower daily trading limit of 14% and settled at 1,408.4 yuan ($220) a tonne, according to Reuters data. That was nearly 30% below a record high hit on Tuesday and down nearly 15% for the week, the biggest weekly drop since May. The contract later fell a further 6.1% in Friday’s night session.

The slump came after China’s National Development and Reform Commission said it would “study specific measures to intervene” if coal prices kept rising, and organised a meeting with China’s biggest coal producers.

Following a string of rolling blackouts, Chinese premier, Li Keqiang also announced that China plans to build more coal-fired power plants and has hinted that it will rethink its timetable to slash emissions, in a blow to hopes of reducing carbon emissions.

Shares in social media company Snap have tumbled over 20% in New York trading.

Snap warned last night that Apple’s recent privacy changes would hit its advertising revenues, and were hurting its ability to target and measure its digital advertising.

Those changes, rolled out this summer, prevent digital advertisers from tracking iPhone users without their consent.

Snap chief executive Evan Spiegel told analysts that this change has made it harder for companies to measure the performance of their ads, saying:

“This has definitely been a frustrating setback for us.”

Snap made revenues of $1.07bn in the third quarter of the year, below forecasts, and also predicted, with Q4 revenues expected to be lower than analysts expected.

Other social media companies are also struggling in early trading, with Facebook down 4% and Twitter losing 3.4%.

Tesco, John Lewis, Primark, Asos and the Co-op are calling on the government to introduce a legal requirement for companies to carry out human rights and environmental checks on their global supply chains.

Such “failure to prevent” legislation could potentially fend off scandals such as the poor treatment of workers in Leicester factories supplying the fast fashion group Boohoo uncovered last year.

A review commissioned for the Business and Human Rights Resource Centre (BHRRC) suggests that if such legislation was in place, Boohoo could have been found liable.

After reports of low pay and poor factory conditions in Leicester last year, Boohoo commissioned a report by Alison Levitt QC which found that the allegations were “substantially true”.

It said Boohoo’s monitoring of the factories was “inadequate” because of “weak corporate governance” and called the failure to assess the risk to workers during the coronavirus pandemic “inexcusable”. More here:

Russia’s central bank has just raised its key interest rate to 7.5% from 6.75%, to tackle rising inflation.

That’s a punchier rate hike than expected, with the markets expecting rates to lift to 7% or 7.25% today.

The Bank of Russia acted after inflation hit a five-year high of 7.4% last month, with food prices rising particularly fast. It has already raised rates several times this year.

In a statement announcing today’s hike, the Bank of Russia says the balance risks for inflation are ‘markedly’ to the upside.

It also hinted that it could raise interest rates again at future meetings.

It says:

Inflation is developing substantially above the Bank of Russia’s forecast and is expected to be within the range of 7.4–7.9% at the end of 2021.

The contribution of persistent factors to inflation remains considerable on the back of faster growth in demand relative to output expansion capacity. In this environment, given that inflation expectations are up again, the balance of risks for inflation is markedly tilted to the upside.

This may bring about a more sustained deviation of inflation from the target. The Bank of Russia’s monetary policy stance is aimed to limit this risk and return inflation to 4%.

If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of further key rate rises at its upcoming meetings.

The chances of a Bank of England interest rate rise next month have fallen today, the City believes.

The markets now see a November rate hike (from 0.1% to 0.25%), as a 56% possibility this morning.

That’s down from almost 90% at one stage earlier this week, after governor Andrew Bailey suggested on Sunday the BoE “will have to act” to curb inflationary pressure.

BoE chief economist Huw Pill’s view that November’s meeting is “finely balanced” (see earlier post) may have encouraged traders to reassess the odds of action next month.

September’s drop in retail sales, and weakening consumer confidence, could also have dampened rate expectations.

Two policymakers, Catherine Mann and Silvana Tenreyro, have argued the Bank should wait and see how surging gas prices and raw material shortages affect inflation, before lifting borrowing costs from their current record lows.

The Monetary Policy Committee is due to meet in mid-December too, when it will also know more about the impact of ending furlough on unemployment, and whether supply chain problems improved in time for the Christmas rush.

Some former BoE policy makers, such as Andrew Sentance, have said a November rate hike would be too early, while Danny Blanchflower warned raising rates too early could choke off the economic recovery:

The markets are currently pricing in rates hitting 1% by next September, following a rapid repricing of expectations this week:

UK factory managers reported the sharpest jump in purchasing prices since Markit started its survey in January 1992.

Many blamed sharply rising energy bills, higher freight costs and steep price increases for a range of raw materials.

Service sector firms were more upbeat, reporting higher client spending and export sales growth, they also reported increased costs such as higher wages.

Markit says:

Survey respondents often cited rising fuel, transport and energy bills, alongside steep price increases for items in short supply around the world (especially semiconductors and other electronics components).

That led UK companies to hike their prices at the fastest rate in at least 20 years:

Output charges at UK private sector firms increased in response to escalating input costs, with the latest rise the steepest since the index began more than two decades ago.

UK companies have been hit by a record jump in costs, as output growth at Britain’s factories almost stalls amid the supply chain crisis.

Rising wages and the worsening global supply chain crisis drove costs up at a record pace -- input price inflation hit the fastest rate since the index began in January 1998.

Output growth at factories only grew marginally. The flash UK Manufacturing Output Index fell to 50.6, the weakest reading since February, and close to stagnation, data firm Markit reports.

Manufacturers said they were struggling to meet customer demand, and overwhelmingly blamed capacity constraints and disruptions at their plants amid severe staff and raw material shortages, as well as falling export sales.

Around 64% of UK manufacturers reported worsening supplier delivery times in October, while only 1% saw an improvement.

Stocks of finished goods were depleted at a rapid pace as goods producers struggled to keep up with customer demand.

Faced with shortages, firms built up their stockpiles of raw materials and parts at the fastest rate since December 2020.

But overall, the survey shows a pick-up in growth this month, led by the service sector.

Companies reported stronger demand due to the roll back of pandemic restrictions (the problem, though, was meeting that demand).

Here’s the details (any reading over 50 shows growth)

• Flash UK Composite Output Index October: 56.8, 3-month high (September final: 54.9)
• Flash UK Services Business Activity Index October: 58.0, 3-month high (September final: 55.4)
• Flash UK Manufacturing Output Index October: 50.6, 8-month low (September final: 52.7)
• Flash UK Manufacturing PMI October: 57.7, 2-month high (September final: 57.1)

Chris Williamson, Chief Business Economist at IHS Markit, said the UK economy picked up speed again in October, despite the slowdown in factory output.

However, the expansion is looking increasingly dependent on the service sector, which is at risk of slowing as Covid-19 cases rise.

Growth is also being accompanied by an unprecedented rise in inflationary pressures, which will inevitably feed through into higher consumer prices in coming months. “The news comes at a time when the Bank of England is already leaning towards hiking interest rates to safeguard against inflationary expectations becoming entrenched.

The record readings of the PMI survey’s price gauges will inevitably pour further fuel on these inflation worries and add to the case for higher interest rates.

However, the economic growth signals from the PMI remain less convincing from a policy standpoint. The service sector is clearly in something of a sweet spot as the UK has seen more people’s lives and livelihoods return closer to normal. Some of the growth momentum will therefore fade as this rebound passes.

Moreover, rising Covid-19 case numbers pose a downside risk to growth in the coming months, potentially deterring some services-oriented activity among consumers in particular and potentially leading to the renewed enforcement of health restrictions as winter draws in.”

Retail sales in Great Britain fell unexpectedly for the fifth month running in September, marking the worst slump for high street shops and online sales since modern records began in 1996.

The Office for National Statistics said retail sales dipped by 0.2% in September, after an upwardly revised fall of 0.6% in August, despite the removal of most coronavirus restrictions across the UK.

Confounding expectations for a boom in consumer spending fuelled by billions of pounds in household savings built up during lockdown, retail sales volumes have fallen in each month since April.

The latest figures come as fears mount about the strength of the economy, with shortages of workers and goods and rising inflation dragging down growth and contributing to a squeeze on household finances. More here:

Growth at businesses across the eurozone has slowed sharply to a six-month low in October amid increasing supply bottlenecks and ongoing concerns about Covid-19.

Factories were worst hit, with manufacturing output growth hitting a 16-month low this month.

But the service sector also cooled, with growth the weakest since April.

That’s according to IHS Markit’s ‘flash’ survey of purchasing managers across the eurozone, which indicates growth across the eurozone is slowing.

Firms also reported record price rises, as they passed on an unprecedented surge in costs on to customers.

Supply chain worries hit business optimism, particularly in manufacturing.

But there’s some good news -- job creation accelerated to the joint-highest in 21 years as firms boosted capacity to meet demand.

Here’s the details (anything over 50 shows growth)

• Flash Eurozone PMI Composite Output Index at 54.3 (56.2 in September). 6-month low.
• Flash Eurozone Services PMI Activity Index at 54.7 (56.4 in September). 6-month low.
• Flash Eurozone Manufacturing PMI Output Index at 53.2 (55.6 in September). 16-month low
• Flash Eurozone Manufacturing PMI at 58.5 (58.6 in September). 8-month low.

Across the Channel, French factory output has fallen at the fastest rate since May 2020 as manufacturers suffer “intense shortages” of raw materials and components.

French manufacturing production fell into contraction this month for the first time since January, according to the ‘flash’ survey of purchasing managers from IHS Markit.

Goods producers reported that “severe delays” on input deliveries caused customers to cancel or postpone their orders. Problems are acute in the car-making sector, where semiconductor shortages have hit production.

Supply chain problems increased, driving input cost inflation to a 17-year high, as firms reported problems obtaining shipping containers, widespread shortages of materials and logistic issues.

Service sector growth hit a three-month high, though, but the wider PMI showed that growth hit a six-month low (at 54.7, down from 55.3).

Joe Hayes, Senior Economist at IHS Markit, said supply chain woes were hitting French factories harder:

“While until recently, the effects of inputs shortages have been most apparent on prices, we’re now seeing them have a noticeable impact on production levels and order books as firms simply lack the stocks to produce their goods, and customers are having to cancel or postpone their orders.

A number of firms suggested that some parts of the economy, like the automotive sector, are really struggling.

Bethany Beckett, UK economist at Capital Economics, says the UK economic recovery stalled last month, as spending in the shops dipped for a record-breaking fifth month.

The 0.2% m/m fall in retail sales volumes in September (consensus 0.5% m/m) offers more evidence that the economic recovery is fast running out of steam.

Indeed, this fall came despite the panic-buying related 2.9% m/m rise in petrol sales last month; retail sales volumes excluding fuel fell by 0.6% m/m. Given the backdrop of continued shortages and rising COVID-19 infections, we suspect that retail sales growth will continue to be weak in the coming months.

The 9.3% plunge in household good spending may reflect a dip in demand for home improvements as the service sector has reopened, Beckett adds:

Overall, the data support our view that the economic recovery stalled in September. Our forecast is for GDP to return to its February 2020 peak in early 2022, but the risk is that the resurgence in COVID-19 cases and continued shortages means that GDP takes longer to reach that landmark.

The unexpected drop in retail sales last month has alarmed experts.

Here’s Suren Thiru, head of economics at the British Chambers of Commerce (BCC):

Samuel Tombs, chief UK economist at Pantheon Macroeconomics:

...and economist Julian Jessop of the IEA:

The fall in retail spending comes alongside a fall in UK consumer confidence, as worries over inflation, food and fuel shortages, rising Covid-19 cases, and the prospect of higher interest rates.

The GfK Consumer Confidence Index fell for a third month in a row to -17 in October, its lowest since February, from -13 in September.

Joe Staton, GfK’s client strategy director, says people are feeling gloomier, and less keen to make big purchases in the run-up to Christmas.

“Against a backdrop of cheerless domestic news ... it is not surprising that consumers are feeling down-in-the mouth about the chilly winter months ahead.”

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

Retail sales across Great Britain have fallen again, in their longest losing streak in at least 25 years, in a sign that the UK economic rebound could be fading.

Retail sales volumes dropped by 0.2% in September 2021, driven by a fall in spending at non-food stores, although there was a jump in spending on fuel during last month’s panic buying.

That’s the fifth monthly decline in a row, after the initial burst of spending as shops reopened after the pandemic lockdown.

That, the Office for National Statistics says, is the longest run of monthly falls in a row since the survey began in 1996.

Economists had expected a 0.5% rise.

Spending fell most sharply at non-food stores, where sales volumes dropped by 1.4%.

That included a 9.3% fall at household goods stores, with furniture and lighting stores sales tumbling by 14.8%.

Spending at food stores rose by 0.6% -- and is 3.9% above pre-coronavirus pandemic levels.

Last month’s panic at the pumps lifted automotive fuel sales volumes by 2.9% in September 2021 -- or 1.8% above their pre-pandemic February 2020 levels.

The ONS adds that consumes are still spending more online than before Covid-19.

The proportion of retail sales online rose to 28.1% in September 2021 from 27.9% in August, and “substantially higher” than the 19.7% in February 2020 before the pandemic.

Reuters’ Andy Bruce has spotted that the ONS have revised down their earlier retail sales figures too:

Also coming up today

New purchasing manager indices in the UK, France, Germany and the wider eurozone will show how manufacturing and services companies are faring this month.

Michael Hewson of CMC Markets says the PMIs could show a slowdown:

In the past few months, it has become increasingly apparent that we’ve seen peak PMI, when it comes to Germany and France, as well as the UK, although the slowdown has been more marked in Germany where we have seen a big fall from levels in the low 60’s to the mid to high 50’s. France manufacturing flash PMI is expected to come in at 53.9, and services 55.6.

In Germany September manufacturing activity fell to its lowest level since January, while services slipped to a three-month low, with both expected to weaken further to 56.5 and 55.2 respectively in October.

UK manufacturing and services activity has also seen moderate weakness in the past few months, but has shown some evidence of stabilisation, although rising power prices are now starting to become a headwind, not only in the UK but across the world. UK manufacturing is expected to slow to 56.1, and services to 54.5.

Yesterday, the CBI warned that British firms face the tightest supply chain squeeze since the 1970s

The agenda

• 7am BST: UK retail sales for September
• 9am BST: Eurozone ‘flash’ survey of purchasing managers this month
• 9.30am BST: UK ‘flash’ survey of purchasing managers this month
• 11.30am BST: Russia’s central bank sets interest rates
• 2.45pm BTS: US ‘flash’ survey of purchasing managers this month