Time to wrap up:

The odds of a UK interest rate rise before the end of the year are increasing, as rising inflation puts more pressure on the Bank of England.

Bank of America predicted the BoE would raise interest rates in December, to show that it is taking inflationary pressures seriously. UK gilt yields hit their highest level since May 2019, as the City braced for higher borrowing costs.

The pound hit a two-month high against the euro, before worries over the latest Brexit row pulled sterling back.

A Deutsche Bank survey found that inflation, and rising bond yields, are the top risk... with many investors fearing that the Bank of England will raise interest rates too soon.

Oil prices rallied again, with Brent crude hitting a three-year high of $84 per barrel, as the energy crunch intensified -- helping to push aluminium to a 13-year high.

The UK’s supply chain crisis continued to hurt the economy. Consumer confidence hit a five-month low, while business output growth slowed as rising prices, empty shelves and haulage delays hit companies and worried households.

The government announced a deal with US fertiliser group CF industries to maintain carbon dioxide supplies...

...but was warned that key industries are on the brink of crisis due to record high energy costs. UK Steel urged Boris Johnson to bang ministers’ heads together to reach a solution.

The supply chain has also hit fast fashion chain ASOS, which warned on profits and announced the departure of its CEO today.

The Nobel prize for economics has been awarded to David Card, Joshua Angrist and Guido Imbens for their work on using natural experiments to examine economic systems such as labour markets.

Card’s work included a crucial research paper which showed that higher minimum wages needn’t lead to higher unemployment.

The World Bank warned that the Covid-19 pandemic has led to a “tragic reversal” in development and pushed debt in poor countries to record levels.

Struggling giant Evergrande looked set to miss a fresh round of debt repayments worth $148m, and another Chinese property developer pleaded for more time to repay what it owes.

Transport campaigners called for domestic flights should be banned and long-distance train fares subsidised.

NHS test-and-trace units run by G4S have cut the pay of some workers by up to 5% in the wake of a new contract from the government that specifies they should receive the real living wage.

And former chancellor Philip Hammond has added another job to the dozen or so he has taken on since leaving the Treasury in 2019, this time as an adviser to a Mayfair-based cryptocurrency trading firm.

Goodnight. GW

The Covid-19 pandemic has led to a “tragic reversal” in development and pushed debt in poor countries to record levels, the head of the World Bank has said.

David Malpass, the bank’s president warned the virus had widened the gap between rich and poor nations, setting back progress by years and, in the case of some countries, by a decade.

Announcing new World Bank figures showing the debt burden of more than 70 low-income nations had increased by a record 12% to $860bn (£630bn) in 2020, Malpass called for a comprehensive plan to ease the debt pressures and for rich countries to make vaccines available to the less well-off.

He said one particular problem was the lack of a bankruptcy process to help in cases where debts had become unsustainable. Under the current system, companies can declare themselves bankrupt but countries cannot.... More here:

Bank of America has predicted that the Bank of England will raise UK interest rates from their current record lows before the end of the year, to show they are taking rising inflation seriously.

BofA now expects a 15 basis point rise in December 2021, which would take interest rates up to 0.25%, followed by a 25bp hike in February.

BoFA had previously predicted the first rate rise would come in February 2022. But economist Robert Wood told clients that BoE policymakers sound increasingly concerned about inflation expectations de-anchoring, and the persistence of the shock.

Wood writes that supply shocks seem to grow by the week, with petrol prices rising amid panic buying and soaring gas prices likely to drive inflation higher too.

So, the BoE could decide that an early rate hike would ‘add credibility’, and avoid more hikes later.

UK households also face a squeeze in 2022, from tax increases and rising prices in the shops, Wood points out in a BofA Global Research report:

With price hikes combined with tax increases the UK consumer may face a real income squeeze of more than 3% of income over the next year. That is likely to have an impact far in excess of that from small rate hikes and is why we expect the BoE to pause after the second hike.

So, the decision of when and how fast to hike will be finely balanced....

The size of the real income squeeze and the potential effect of the end of the Furlough Scheme could weigh on medium term inflation. But BoE speakers have so far focused only on inflation rather than the growth risks from recent developments. They appear ready to hike soon.

We think the BoE will judge that a 15bp rate rise in the near-term, taking rates to 0.25%, would do little to damage growth but would signal they care about inflation. We choose a December hike because the BoE will have October labour market data at that point, and Saunders noted December pricing. We assume they also in December signal they plan to hike again, to 0.5%, at the February meeting if the post-Furlough labour market data remain strong enough.

Global investors are concerned that the Bank of England may raise interest rates too soon.

Deutsche Bank’s monthly investor survey found that just 20% of market professionals think the BoE will get its timing right.

Around 45% seeing a risk that the UK’s central bank is too hawkish (by hiking borrowing costs before the economy is ready), while only 20% fear it will delay too long.

In contrast, the US Federal Reserve and the European Central Bank were seen as much more likely to leave monetary policy loose for too long - with over 40% of investors fearing the Fed and the ECB will be too dovish.

Traders are preparing for the Bank of England to lift borrowing costs by the end of this year, reports Bloomberg:

Money markets priced in at least 15 basis points of tightening by the BOE’s December 2021 meeting on Monday, according to sterling overnight index swaps, which would take the key rate to 0.25%.

The market was previously betting the first increase would be in February.

Michael Saunders, one of the most hawkish members of the Monetary Policy Committee, suggested in remarks published Saturday that investors were right to bring forward bets on rate hikes. Hours earlier, Governor Andrew Bailey warned of a potentially “very damaging” period of inflation unless policy makers take action.

Britain’s government borrowing costs have hit their highest level in almost two and a half years, as the City anticipates a rise in interest rates.

The yield, or interest rate, on 10-year gilts hit 1.2% this morning for the first time since May 2019.

That extends their recent surge as energy prices and supply chain problems have intensified inflationary pressures.

Bond yields rise when prices fall, and this move suggests that traders believe the Bank of England is more likely to raise interest rates soon, to tame rising inflation.

The move comes after Bank policymaker Michael Saunders said UK households should to get ready for “significantly earlier” interest rate rises, and governor Andrew Bailey warned that rising inflation needs to be managed to prevent it from becoming permanently embedded.

Mohit Kumar of investment bank Jefferies predicts that inflation could remain higher for longer in the UK than in Eurozone or the US. That’s pushing up gilt yields (and thus the UK’s cost of borrowing).

Over the weekend, Saunders (a known hawk) argued that the market was right to bring forward rate hike expectations.

Governor Bailey’s comments were also on the hawkish side, suggesting that the BoE should be seen as acting to counter the threat of inflation.

A labour market expert whose work influenced the introduction of the UK’s minimum wage has been named as a joint winner of the Nobel economics prize.

David Card, a Canadian-born economist, was one of three US-based academics given the prestigious award for their work on whether economic theory is supported by real-life situations.

The trio – Card, Joshua Angrist, an American, and Guido Imbens, from the Netherlands – were cited for their work on natural experiments, which is said to have revolutionised empirical research.

Card, who received half the 10m Swedish kronor (£838,000) prize fund, made his name with a paper that studied whether an increase in New Jersey’s minimum wage from $4.25 to $5.25 an hour in 1992 cost jobs in the fast-food industry.

Contrary to previous research, Card and his fellow economist Alan Krueger found that employment in New Jersey restaurants increased after the minimum wage was raised.

The widely cited paper was seized on by Gordon Brown and his then economics adviser Ed Balls to justify their plans for a UK national minimum wage, which was introduced in 1999. Although there is now cross-party support for the minimum wage, it was initially opposed by the Conservatives on the grounds that it would cost jobs.

Krueger, who worked in Barack Obama’s government, died in 2019 before his work could be honoured.

Here’s the full story:

Rising inflation and higher bond yields are the number one worry facing investors -- who are also expecting stock markets to post further losses before the end of the year.

That’s according to Deutsche Bank’s monthly survey of over 600 market professionals around the world, conducted last week.

It found that ‘higher bond yields/inflation’ has shot back up to be the biggest risk to the current relative market stability, along with the risk that central banks commit a policy error (raising interest rates too soon, or too late...)

The poll also found that’ weaker growth’ is one of the top three risks for the first time of asking, while direct Covid-19 risks are out of the top 3 for the first time since the pandemic began.

A further equity correction before the end of the year remains the consensus now, with 71% expecting shares to fall at least 5% at some point before the year end.

Also short term equity sentiment is as negative as it has been since the summer of 2020, points out Deutsche strategist Jim Reid, who conducts the poll.

Reid adds:

• A very overwhelming 84% thought the next 25bps move in 10yr US Treasury yields would be up.
• Respondents cannot agree on a definition of stagflation, but there is a fairly strong consensus that stagflation of some kind is more likely than not. This is especially true in the UK, where over 50% expect it over the next 12 months.
• 5yr average inflation expectations continue to increase but not spectacularly. In Europe they have hit 2% for the first time of asking though.
• On the transitory question, the belief that inflation is permanent is continually edging upward but is still the minority opinion.
• Only 17% are now fully WFH as office work continues to edge up. The US and Asia still lag Europe.

UK consumer confidence has hit its lowest level since lockdown measures were eased back in April.

New data from YouGov and the Centre for Economics and Business Research (Cebr) shows that confidence among UK consumers fell significantly in September.

The index fell by 2.3 points to 110.5, the weakest since April 2021, as pandemic restrictions were being relaxed.

The index also found a sharp fall in the number of people who expect their household finances to improve, rather than worsen, over the next 12 months.

This metric plummeted into negative territory last month, from 101.5 to 90.9. That’s the second largest decrease on record, trumped only the 16.5 point fall seen in March last year when COVID-19 hit.

Sentiment among households about their finances in the past 30 days also grew more negative in September (down 5.5 points to 89.6), as consumers struggled with empty supermarket shelves, fuel shortages and rising prices.

Sentiment among homeowners remained stable despite stamp duty cut ending, but expectations of job security and business activity worsened last month.

The recent gains in consumer confidence this summer have been wiped out by rising inflation, and the gas and petrol crisis.

Darren Yaxley, Direct of Reputation Research at YouGov, says:

“The past few months of rising prices, bill increases and a fuel crisis brought on by labour shortages have decimated Britons’ confidence in their personal finances for the coming year, meaning Brits are less and less confident that that their household finances will improve.”

Kay Neufeld, Head of Forecasting and Thought Leadership, adds that cutting universal credit this month (by £1,000 per year) is also hitting confidence.

“September’s drop in the Consumer Confidence Index comes as no surprise following a month of headline-dominating crises, from the spike in gas prices and energy providers going bust to the recent fuel shortages and empty supermarket shelves. While inflation has been on the rise for a while, the effects have started to become more tangible in recent weeks for the average consumer, further exacerbated by the termination of several government pandemic support schemes such as the Universal Credit uplift and the furlough scheme.

The largest decreases in this month’s index were recorded in the household finance measures, with consumers concerned about the erosion of their purchasing power through higher inflation. Decreases in the business activity and the forward-looking job security measures further confirm that the economic recovery has hit a speed bump.”

The British steel industry’s lobby group warned on Monday of an impending crisis due to soaring wholesale energy prices, Reuters reports.

Without help, plants could be forced into expensive shutdowns, stoke emissions and sow chaos through supply chains, UK Steel fears.

A shortage of natural gas in Europe had sent prices for electricity and gas soaring, triggering sharp rises in the prices paid by people heating their homes or for major heavy industrial plants smelting steel.

UK Steel, which lobbies on behalf of the British steel industry, said in a briefing document:

“These extraordinary electricity prices are leading to smaller or wiped-out profits and thus to less reinvestment,”

“With winter approaching, demand for gas and electricity will rise, and prices could get higher, which will make it impossible to profitably make steel.”

UK Steel argues that the government could help by providing a fixed amount of capacity at a competitive price or a virtual interconnector.

Unless the government helps, “the consequences will be dire for our industry,” it said.

More here.

Nobel laureate David Card’s work included a hugely influential paper, with fellow economist Alan Krueger, in the early 1990s whether higher minimum wages led to more unemployment.

Card and Krueger used a natural experiment, to analyse the impact of New Jersey lifting its minimum hourly wage from $4.25 to $5.05.

The conventional wisdom among economists was that higher minimum wages lead to lower employment because they increase wage costs for businesses -- but the evidence of such a causal link was not fully convincing.

Just studying what happened in New Jersey after this increase wouldn’t show the impact, so the pair used a control group where wages didn’t change but all the other factors were the same.

So they chose fast food restaurants -- an industry where pay is low and minimum wages matter --- and compared those in New Jersey against those over the state border in Pennsylvania,

Contrary to previous research, they found that an increase in the minimum wage had no effect on the number of employees.

The Royal Swedish Academy of Sciences explain:

David Card arrived at the same conclusion in a couple of studies in the early 1990s. This pioneering research has led to a large number of followup studies.

The overall conclusion is that the negative effects of increasing the minimum wage are small, and significantly smaller than was believed 30 years ago.

More details here:

Card and Krueger research’s was used by Gordon Brown and Ed Balls to refute claims that New Labour’s minimum wage would cost jobs (our economics editor Larry Elliott reminds me).

Card and Krueger ran another important experiment, into whether school resources have an impact on students’ future labour market success,

To do this, they compared the returns on education for people who lived in the same state in the US, but who had grown up in different states – for example, people who had grown up in Alabama or Iowa, but now lived in California.

The Royal Swedish Academy of Sciences explains:

The idea is that people who have moved to California and have the same level of education are comparable. If the returns on education differ, this is probably due to Alabama and Iowa having invested differently in their education systems. Card and Krueger found that resources are important: returns on education increased with teacher density in the state in which the individuals had grown up.

Alan Krueger went on to serve as Assistant Secretary of the Treasury for Economic Policy, and chaired Barack Obama’s Council of Economic Advisers from late 2011 to August 2013, as the US emerged from the great recession.

Sadly, Alan Krueger died in 2019 so wasn’t eligible for today’s award, but he’s being warmly remembered today, as another driving force in the credibility revolution.

David Card, Joshua Angrist and Guido Imbens have been rightly recognised for their leading roles in economics’ “credibility revolution”, says economics professor Justin Wolfers of University of Michigan:

The 2021 Nobel prize in Economic Sciences in Memory of Alfred Nobel has been awarded to three economists, for their work using natural experiments to answer important questions - such as the impact of the minimum wages, immigration or spending another year at school on a person’s income.

Half of the award goes to David Card, of the University of California, Berkeley, “for his empirical contributions to labour economics”

The other half is shared jointly between Joshua D. Angrist, of Massachusetts Institute of Technology, Cambridge, USA, and Guido W. Imbens, of Stanford University, USA, “for their methodological contributions to the analysis of causal relationships”

The award explains that the trio all used natural experiments to tackle big questions about cause and effect.

Assessing how immigrations affect pay and employment levels, or the impact of longer education on someone’s future income, because you don’t have the alternative scenario as a comparison.

So the solution is to use natural experiments – situations arising in real life that resemble randomised experiments.

The Royal Swedish Academy of Sciences, who award the prize, explain:

Using natural experiments, David Card has analysed the labour market effects of minimum wages, immigration and education. His studies from the early 1990s challenged conventional wisdom, leading to new analyses and additional insights. The results showed, among other things, that increasing the minimum wage does not necessarily lead to fewer jobs. We now know that the incomes of people who were born in a country can benefit from new immigration, while people who immigrated at an earlier time risk being negatively affected. We have also realised that resources in schools are far more important for students’ future labour market success than was previously thought.

Data from a natural experiment are difficult to interpret, however. For example, extending compulsory education by a year for one group of students (but not another) will not affect everyone in that group in the same way. Some students would have kept studying anyway and, for them, the value of education is often not representative of the entire group. So, is it even possible to draw any conclusions about the effect of an extra year in school? In the mid-1990s, Joshua Angrist and Guido Imbens solved this methodological problem, demonstrating how precise conclusions about cause and effect can be drawn from natural experiments.

Peter Fredriksson, chair of the Economic Sciences Prize Committee, says the trio’s work has been of great benefit.

“Card’s studies of core questions for society and Angrist and Imbens’ methodological contributions have shown that natural experiments are a rich source of knowledge. Their research has substantially improved our ability to answer key causal questions, which has been of great benefit to society.

Incidentally, the award isn’t one of the original Nobel prizes. It was created by the Swedish central bank, Sveriges Riksbank, in 1968, but is still the most prestigious award in economics.

Card, Angrist and Imbens will share a prize worth 10m Swedish crowns (£838,000).

Here’s some reaction to the news that ASOS’s profits are being squeezed by supply chain problems, and that CEO Nick Beighton is leaving.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, fears the fashion retailer’s supply chain woes will continue:

“ASOS has enjoyed a huge boost to trading over lockdowns, albeit for less-lucrative casual wear as its core demographic was stuck at home. A reluctance to leave the house meant return rates were lower, resulting in XL margins. However, the tailwinds are easing and the ASOS bubble has burst.

Higher labour and freight costs are just one problem, but ASOS has also had trouble getting hold of the right stock, so in some cases, although demand has strengthened, the group couldn’t meet it. Supply chain problems are going to continue for the foreseeable future, which is some explanation for why next year’s sales outlook is so disappointing. ASOS is a huge player in the world of online shopping, but the pandemic has chivvied a lot of its bricks and mortar rivals to up their own digital offerings, so it will need to peddle hard to keep growing market share. This bump in the road comes as there’s a change in leadership at the top, adding a layer of strategic risk.”

Russ Mould, investment director at AJ Bell, says the scale of the problems at ASOS appear to have been underestimated:

Nick Beighton had risen through the ranks of ASOS in his 12 years with the company, moving from chief financial officer to a dual role as chief operating officer and numbers man, and then CEO in 2015.

“He took the top job just as the fast fashion movement was really going places, but that success also brought in more competition and the big players in the industry had to spend big on marketing to keep their brand front and centre for consumers.

“Cost inflation is a problem affecting multiple industries, so not something that can be blamed on Nick Beighton. But he appears to have lost his position in the company due to a struggle to sustain momentum in the business.

“ASOS seems to have found it hard to keep up with the fast fashion movement in recent years, coming under criticism for not being able to turn around new product designs quickly, experiencing warehouse problems and poor stock availability.

ASOS chairman Adam Crozier has told Reuters that Beighton is departing because he wouldn’t commit to stay for at least half of the group’s next five-year plan.

Neil Wilson of Markets.com says Beighton’s exit is a loss for ASOS:

Asos shares tumbled this morning as CEO Nick Beighton steps down and the company warned of continued supply chain problems. Revenues also missed expectations, but undoubtedly the departure of Beighton, who has steered the company through an incredible period of growth, is a contributing factor. A big loss for the company.

The search is on for a successor who can deliver £7bn of annual revenue within the next 3 to 4 years. Annual results were impressive with sales growth of +22% and profits +36%, but expectations for the next year are being massaged down to 10-15% with first half sales in mid-single digits. Asos is not wasting this supply chain crisis to lower the bar.

Heathrow is still a lot quieter than before the pandemic, but is hoping that the easing of travel restrictions will provide a boost.

The UK’s largest airport reported this morning that September passenger levels were below 40% of pre-pandemic levels.

Just 2.6 million people travelled through the west London airport in September, compared with 6.8 million during the same month in 2019.

That’s partly due to a slump in North American traffic due to the US ban on arrivals (which is now being lifted), as Victoria Scholar, head of investment at Interactive Investor, flags;

John Holland-Kaye, Heathrow’s chief executive officer, told Sky News that there is still a “long way to go”.

The UK is still taking a cautious approach, Holland-Kaye says, compared to European rivals who have opened up much more widely.

He welcomes the reduction on the ‘red list’ to just seven countries, calling it a “good step ahead” that will help people plans business trips and holidays again.

“The UK is still taking a cautious approach, still requiring testing for anyone coming into the country, but this is a good step ahead and people can start to plan their business trips, their holidays, visiting the families they haven’t seen for a long time, with confidence, including going to wonderful places like South Africa.”

Shares in fast fashion group ASOS have tumbled almost 15% to their lowest in over a year, after it warned that supply chain disruption will hit its profits this financial year.

ASOS also surprised the City by announcing that chief executive Nick Beighton was stepping down.

ASOS reported that adjusted profits jumped 36% in the financial year to 31st August, to £193.6m.

But it also predicted that adjusted earnings in the current financial year will drop to between £110m and £140m -- which would be a fall of up to 40%.

ASOS said it faces “notable cost headwinds” including rising freight costs bringing goods into the UK, Brexit duty, labour cost inflation, and outbound delivery costs.

ASOS shares have dropped to £23.70, the lowest since May 2020, having hit nearly £60 back in March this year.

Mat Dunn, ASOS’s CFO, will lead the business on a day-to-day basis while a new CEO is found.

Nick Beighton said:

“I have enjoyed every moment of my 12 years at ASOS. When I joined, there were fewer than 200 people and we had annual sales of around £220m. I leave a business reporting turnover of almost £4bn, with more than 3,000 fantastic ASOS-ers delivering for 26 million customers in 200 markets around the world.

I am particularly proud of the way in which we have led our industry on putting sustainability at the heart of everything we do with our Fashion with Integrity programme. I wish Mat and the rest of the team well for the next phase of the ASOS journey.

Gareth Stace, director general of UK Steel, has called on the Prime Minister to “bang ministerial heads together” and take control to avoid an industry crisis hitting his sector.

Mr Stace said the steel sector delivers “100%” for Boris Johnson’s vision to level up the economy. It creates highly skilled, high wage jobs -- paying 45% more than the average in the regions where it operates, he says.

Stace told LBC:

“This is a critical time. The Business Secretary has also said it’s a critical situation, and therefore why is Government just sitting on its hands and doing absolutely nothing at the moment?

“From my point of view, today, with the reported Government infighting between the Treasury and BEIS, the Prime Minister now needs to bang ministerial heads together, take control and remember that if he does nothing, then his levelling-up ambition will be left in tatters.”

Otherwise, Stace warned, the energy crisis will turn into an industry crisis, as factories are forced to shut down because they cannot afford their gas and electricity bills.

Stace also argued that the PM shouldn’t be on holiday (in Marbella) during the energy crisis, but should be taking action to address the ‘exorbitant’ energy costs which firms are facing.

“I’m sure he can get on the phone and get talking to them but to my mind, now is not the time for a prime minister to be on holiday, from the steel sector point of view.”

Stace wants Britain to copy other European countries, such as Italy, and remove some of the overheads added to bills which put UK at a ‘competitive disadvantage’ against European counterparts.

The pound is rising this morning, as traders ponder whether inflationary pressures will prompt the Bank of England to raise interest rates.

Sterling has gained half a cent against the US dollar to $1.367, its highest level in two weeks.

Against the euro, sterling has hit a two-month high of €1.18, a level last seen in mid-August.

The rally comes after a Bank of England policymaker warned households to get ready for “significantly earlier” interest rate rises as inflation pressures mount, and Kraft Heinz became the latest company to say that food prices will rise.

My colleague Angela Monaghan explains:

Michael Saunders, one of the Bank’s nine rate-setters, said investors were right to bet on faster increases in borrowing costs with consumer price inflation on course to rise above 4%, adding to signs Threadneedle Street might become the first major central bank to raise rates since the coronavirus pandemic struck.

“I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely. The decisions get taken at the proper time,” Saunders said in an interview with the Telegraph. “But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.”

His comments come as households face mounting energy bills and the prospect of higher food prices. The boss of Kraft Heinz said on Sunday the company, the maker of Heinz tomato ketchup and baked beans, was putting up prices in several countries.

“We are raising prices, where necessary, around the world,” Miguel Patricio told the BBC, adding there were a number of reasons behind the rises.

Governor Andrew Bailey weighed in too over the weekend, telling The Yorkshire Post newspaper that inflation is likely to head higher, and that the Bank faces a “very delicate and challenging job” managing its longer-term impact on the economy.

The oil price has climbed to new multi-year highs this morning, as inflationary pressures build.

Brent crude has jumped by 1.3% this morning to around $83.50 per barrel, the highest since October 2018.

US crude has hit a new seven-year high, at $80.70 per barrel for the first time since 2014.

Ipek Ozkardeskaya, senior analyst at Swissquote, says the global energy crunch is pushing oil higher, shaking off worries about slowing growth.

The barrel of US crude is now trading above the $80 level and given the global energy crunch and a cautious OPEC, there is little that could halt the positive trend, other than worsening growth expectations.

In this respect Goldman Sachs cut its growth forecast from 5.7% to 5.6% for this year and from 4.4% to 4% for the next. But on the other hand, India warned that it has no more than a couple of days worth of coal reserves left, German fuel reserves are running out of fuel, and China unloaded an Australian coal shipment despite an important ban on Australian imports, and their morose relationship of nowadays.

All in all, it looks like the oil bears are good for hibernating… bad news for inflation.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the UK supply chain crisis and business.

The UK’s supply chain crisis is hitting businesses and consumer confidence, as worries over inflation, the energy crisis and HGV driver shortages mount.

Output growth across UK businesses slowed for the fifth month running in September, hitting its lowest levels since the lockdown in March, according to accountancy and business advisory firm BDO LLP.

BDO’s latest Business Trends report shows that supply chain disruption and staff shortages are undermining the prospects for an economic recovery, with both manufacturing and services firms reporting a slowdown.

And in a worrying sign for households, BDO’s Consumer Inflation Index jumped to a 10-year high in September, pushed up by surging energy and fuel. That suggests consumers face rising prices over the coming months, as firms pass on costs to customers.

Kaley Crossthwaite, partner at BDO LLP, says the UK’s acute labour shortages and supply chain disruption are weighing heavily on productivity:

Ultimately, this could mean consumers end up paying more for less this winter.

Many businesses are caught between a rock and a hard place. Long-term planning for a post-pandemic and post-Brexit economy is crucial, but the significant challenges at their door make it increasingly difficult to focus beyond these short-term issues. The Chancellor’s autumn Budget will be watched closely later this month to see whether the government steps in to restore the confidence felt through the summer.”

Consumer confidence has fallen to its lowest level this year, PwC reports this morning.

PwC’s latest gauge of morale found that rising in inflation, and concerns over supply chains and out-of-stocks, have pulled optimism down last month.

Sentiment fell across almost every age category, region, and demographic, showing that people are beginning to feel uneasy about their financial security.

This pulled the index back to pre-pandemic levels (at +3, slightly more respondents thought they would be better off in the next 12 months than worse off.).

A majority of those surveyed said they’d seen empty shelves at supermarkets, and they expect stock shortages to worsen as we approach Christmas.

The survey also found a drop-off in spending intention on big-ticket items, such as furniture and household appliances, with the number of people expecting to spend less outnumbering those who expect to spend more by 3 to 1 -- another sign that consumer optimism has eased.

Lisa Hooker, consumer markets lead at PwC, warned that the next few weeks will be “make or break”:

The inflationary factors that have triggered the decline in sentiment are unlikely to ease in the short term, particularly for grocery, utilities and petrol. Combined with the current problems facing those industries in relation to supply, we’re beginning to see it affecting consumers’ day-to-day lives and, in turn, sentiment and demand.

“For both retail and leisure sectors, the timing couldn’t be worse. After the disappointment of last year, retailers and hospitality operators desperately need a strong run up to Christmas. Even without lockdowns, they will need to convince consumers to part with savings to have any hope of recovering to pre-pandemic levels.

For many, the coming weeks will be make or break: can the driver shortages be addressed and supply chain pressures eased? When will the crisis at the petrol pumps be resolved? And will higher energy prices cause more widespread inflationary pressures and a reluctance from consumers to spend?”

Yesterday, the Treasury rebuked business secretary, Kwasi Kwarteng, after he suggested he was consulting the chancellor, Rishi Sunak, about support for firms struggling with soaring energy prices.

Representatives from firms in key industries including steel and paper are said to have told Kwarteng at a meeting on Friday that many are “days away” from having to halt production because of spiralling costs. A source said the business secretary had asked his team to help with work on an agreed list of proposals that could be passed on to the Treasury in the next few days.

However, Treasury sources denied the department had yet received any proposals or even discussions about support for ailing essential industries, despite claims made by Kwarteng to broadcasters on Sunday morning.

Also coming up today, the Nobel prize in economic sciences will be awarded. The AFP newswire say that macroeconomics, health and labour markets are some of the topics which could be rewarded, with a number of women in with a chance of scooping the traditionally male-dominated prize:

American Anne Krueger, formerly the number two and briefly the managing director at the International Monetary Fund (IMF), as well as a former Vice President for Economics and Research at the World Bank, is one possible winner.

Her compatriot Claudia Goldin, whose research has focused on inequality and the female labour force, is another favourite to become the third woman to receive the prize.

Other potential female winners are fellow American Janet Currie, known for her work on the impact of government anti-poverty programmes on children, or Belgian labour economist Marianne Bertrand and American microeconomist Susan Athey, who was the first woman to win the prestigious John Bates Clark Medal in 2007.

The agenda

• 9am BST: Italian industrial production for August
• 10.45am BST: The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2021 awarded