Time to wrap up.

Business groups have warned that the supply chain crisis in the UK is becoming increasingly challenging, with the Christmas rush ahead.

British Retail Consortium (BRC) director of food and sustainability Andrew Opie warned that “Christmas is going to be incredibly challenging in some areas.”, and that the sector is under heavy pressure.

Opie told the UK Trade and Business Commission, a group of MPs and business representatives, that the sector was on the edge of coping, and that extending temporary visas to overseas lorry drivers would help avert problems over Christmas.

“So we’re not in any way saying we’re anticipating major problems at Christmas, but all I can say to you is where we are at the moment, and if we do see problems then that is going to have an impact on products on the shelf.”

Alex Veitch from Logistics UK said that there had been a chronic shortage of lorry drivers for several years, but this has now morphed into an “acute shortage”.

“It’s really to do with Covid to a very large extent, and Brexit to a lesser extent, added to the long-term chronic problem of not enough people joining the sector.

And Richard Harrow of the British Frozen Food Federation said the industry faced a ‘perfect storm’ of driver shortages, a shortfall of other skills including engineers, and price rises across the board.

The hearing also heard concerns about the possibility of future disruption when the UK introduces checks on food imports from the EU.

Exports of food and drink to the EU have suffered a “disastrous” decline in the first half of the year because of Brexit trade barriers, with sales of beef and cheese hit hardest.

The supply chain crisis has also led to a “shortage of aluminium cans”, putting pressure on Coca-Cola’s British and continental bottling operation.

Consumers have taken to social media to discuss a lack of availability of Diet Coke and Coke Zero in various locations in recent weeks.

Coca-Cola Europacific Partners (CCEP), which is responsible for making, transporting and selling products including Fanta and Sprite across 29 countries in Europe and Asia, said it had been experiencing “a number of logistics challenges”.

The news came as the aluminium price hit a 10-year high, due to high demand and growing supply fears as China curbs producers’ energy use.

Global food prices have jumped, with bad weather driving up prices of wheat and sugar sharply last month.

Food prices climbed back to near the highest in a decade on smaller crop prospects, reviving concerns about inflationary pressures.

After easing in the previous two months, a United Nations gauge of food costs rose 3.1% in August to near a peak set in May. The advance was driven by reduced grain production expectations, frosts that hurt sugar-cane crops in top grower Brazil and tightening oilseed supplies, the UN’s Food and Agriculture Organization reported.

Prices at the eurozone factory gate have risen too, hinting at more inflationary pressures.

US jobless claims have dropped to a pandemic low, as firms hold onto their staff in the face of record vacancies.

Just 340,000 Americans filed new claims for unemployment support last week, as the labor recovery held up despite the rise in Covid-19 cases.

Robert Frick, corporate economist at Navy Federal Credit Union.

“Claims once again weathered the Delta wave, nudging down to a new pandemic-era low.

That employers are laying off fewer workers is a testament to how Americans are steadfast in resuming normal lives and how desperate employers are to keep the workers they have. Many employers are actually struggling to hire more workers, especially in the leisure and hospitality industries.”

Back in the UK, Barratt Developments has said strong demand for houses helped to boost annual profits by nearly two-thirds in its latest financial year, as it signalled continued strong demand for housing across the UK even as the government withdrew coronavirus pandemic support.

The pick-up in the airline industry has boosted Ryanair, which carried 11m passengers in August - its highest since early in the pandemic.

The owner of the Drax power plant in North Yorkshire faces a criminal prosecution hearing after allegations that dust from wood pellets used to generate electricity could pose a risk to its employees’ health.

The company has earned hundreds of millions of pounds in subsidies by upgrading its generating units to burn biomass pellets instead of coal, but the Health and Safety Executive is taking it to court over concerns that the wood dust may have threatened employee health.

Drax will appear at Leeds magistrates court on 30 November to face the allegations as well as a separate charge that it breached risk assessment obligations before allowing employees to work with potentially “hazardous substances” at the plant.

Shares in financial spread betting firm CMC Markets have tumbled by over a quarter, after it issued a profits warning as the pandemic boom in stock trading fades.

Rather than staying in playing the markets, people have been getting back to the shops. Footfall in UK high streets and retail parks last month hit its highest level since the start of the Covid-19 pandemic as increased domestic tourism boosted consumer activity.

Britons are also heading back to the gym in big numbers as they look to get back into shape after the lockdowns of the past year and seek out the extra space to exercise away from home.

The Gym Group has said its membership numbers had increased by one-third to 730,000 in the four months to the end of June, as 183,000 new recruits made a beeline for its treadmills and weight benches. The clamour means the company now plans to open 40 more gyms in a push that could include a move into empty shops.

And JD Sports could be forced to sell Footasylum after the UK’s competition regulator again ruled that the takeover would result in a worse deal for sportswear shoppers – even after the shift online during the pandemic.

Goodnight. GW

In another sign of inflation pressures, world food prices jumped in August as bad weather hits crops.

The United Nations food agency has reported that strong gains for sugar, vegetable oils and cereals drove food prices up by 3.1% last month, after two months of declines.

Over the last 12 months, world food prices have rallied about 33%, hurting consumers - particularly in poorer countries - and also increasing inflation risks for central banks.

Rising demand, disruption caused by the pandemic, worker shortages, unfavorable weather problems, and higher shipping costs have all pushed up costs.

Wheat prices surged by 8.8% month on month, driven by reduced harvest expectations in several major exporting countries, the Rome-based Food and Agriculture Organization (FAO) reported.

[Farmers in the northern U.S. Plains have been hit by a severe drought that means they could harvest the smallest spring wheat crop in 33 years.]

Vegetable oil prices rose 6.7% on the month, due to higher palm, rapeseed and sunflower seed oil prices. Rapeseed oil prices were pushed up by firm demand in the European Union, amid prospects of tightening global supplies.

Sugar prices jumped by 9.6%, the fifth rise in a row, to the highest level since February 2017. This was partly due concerns over frost damage to crops in Brazil - the world’s largest sugar exporter, adding to damage caused by prolonged dry weather conditions, the FAO said.

Bloomberg has more details:

The chances of any relief in prices in the coming months will probably be limited, according to Abdolreza Abbassian, a senior economist at the Rome-based FAO.

“The general tendency still is for firm prices to continue,” Abbassian said by phone. “High prices are usually the best solution for high prices in that farmers, producers respond. But of late, there’s a new factor with less control than the past, and that is the weather situation.”

The bottling business for Coca-Cola in the UK and Europe has become the latest to come under supply chain pressure as it reported a shortage of aluminium cans, Sky News reports.

Coca-Cola Europacific (CCEP) told the PA news agency that it had faced “a number of logistics challenges” recently that also included a squeeze on lorry driver numbers.

It came as the boss of drinks giant Diageo told Sky News that it was also battling global supply chain difficulties related to logistics and shipping, as well as the procurement of packaging materials.

Nik Jhangiani, chief financial officer of CCEP, said:

“Supply chain management has become the most important aspect following the pandemic, to ensure we have continuity for customers.

“We are very happy with how we have performed in the circumstances, with service levels higher than a lot of our market competitors.

“There are still logistical challenges and issues though, as with every sector, and the shortage of aluminium cans is a key one for us now, but we are working with customers to successfully manage this.”

More here: Vodka and coke in peril: Can shortage at Coca-Cola as Smirnoff maker suffers logistics issues

The aluminium price has hit its highest in a decade this week, due to strong demand for the widely used metal, and fears of supply cuts as smelters in China faced tougher controls on their power usage.

Aodhán Connolly, director of the Northern Ireland Retail Consortium, who chaired today’s hearing on the UK supply chain problems, says:

“The witnesses painted a pretty stark picture for the months ahead unless the Government acts quickly. They made it quite clear that red tape and labour shortages from Brexit have exacerbated problems that are being acutely felt across production, processing, manufacturing, retail and of course logistics.

“The government needs to get a handle on this both in the short and long term and we will be making recommendations based on the evidence we heard today.”

Naomi Smith, chief executive of Best for Britain which is Secretariat for the UK Trade and Business Commision, urges the government to listen to the industry:

“The Covid fig leaf can no longer cover this supply crisis of the government’s own making. They must act now and accommodate these pragmatic recommendations to ensure Christmas isn’t curtailed for a second year running.”

Exports of food and drink to the EU have suffered a “disastrous” decline in the first half of the year because of Brexit trade barriers, with sales of beef and cheese hit hardest.

Food and Drink Federation producers lost £2bn in sales, a dent in revenue that could not be compensated for by the increased sales in the same period to non-EU countries including China and Australia.

Dominic Goudie, head of international trade at the FDF, said:

“The return to growth in exports to non-EU markets is welcome news, but it doesn’t make up for the disastrous loss of £2bn in sales to the EU. It clearly demonstrates the serious difficulties manufacturers in our industry continue to face and the urgent need for additional specialist support.”

He said the difficulties now facing British food and drinks manufacturers and farmers was compounded by the lorry driver and warehouse workers shortages, which were choking the supply chain.

“At the same time, we are seeing labour shortages across the UK’s farm-to-fork food and drink supply chain, resulting in empty spaces on UK shop shelves, disruptions to deliveries and decreased production,” Goudie said.

“Unless steps are taken to address these issues, the ability of businesses to fulfil vital export orders will be impacted.”

By product category, the biggest falls in sales to the EU have been in dairy and meat: beef exports were down 37%, cheese down 34% and milk and cream down 19% in the first half of 2021 compared with the equivalent six months in 2019.

Here’s the full story:

Andrew Opie, director of Food & Sustainability at the British Retail Consortium, adds that the current situation is already challenging, and getting much more challenging in the next few months.

It feels like retailers are always on the edge of coping, he explains, with companies across the supply chain always trying to keep its head above water, he tells the UK Trade and Business Commission.

Crucially, there’s no slack in the system, so any fresh problems will have a knock-on impact on consumers, Opie says.

Q: So is it going to get worse? And what’s going to happen about Christmas?

Opie says the situation is incredibly challenging in some areas, and suggests that delivery times for online orders could be difficult.

And he points out that there’s still time to address these problems - if the government takes action.

It’s not too late for the government to do something about it, Opie says.

The BRC are among the groups asking for temporary work visas for HGV drivers from the European Union to address the driver shortage - although these calls have been rebuffed.

But retailers aren’t anticipating major problems at Christmas at this stage, he adds.

The worker shortages hitting the UK economy go far beyond just lorry drivers, says Richard Harrow, chief executive at the British Frozen Food Federation.

He tells the UK Trade and Business Commission hearing that there are shortages across the entire supply chain.

If you can’t get engineers to fix problems, you can’t run your production line, he points out.

Harrow says he’s never seen these pressures across a wide range of issues, both the availability of labour, and rising costs (both materials and wages).

He cites one BFFF member who says everything they pay for is going up in price.

We are facing a perfect storm, Harrow adds.

The UK Trade & Business Commission is holding a hearing into the UK’s supply chain problems and driver shortages.

Andrew Opie, Director of Food & Sustainability at the British Retail Consortium, explains that the sector has been coping with major supply chain disruption for almost two years, since the pandemic began.

But, it’s become more of a challenge in the last six months.

Since May, when the economy reopened, there has been more pressure in the supply chain - including the driver shortages, and also among production and distribution workers.

Opie explains that the sector is also preparing for more border changes as the UK implements checks on imports from the EU.

And he warns that the UK is entering its busiest period now in the run-up to Christmas.

For non-food companies, a massive proportion of business is done in the next three months, and food companies also see a smaller pickup in demand.

There are huge demands in the next few months to ensure consumers aren’t disappointed at Christmas. The situation is challenging now, and going to get more challenging, Opie adds.

You can watch the hearing here:

UK food and drink sales to the European Union have fallen sharply in the first half of this year, according to a new report from the Food and Drink Federation this morning, as Brexit trade barriers hit the sector.

Total UK food and drink exports were down 4.5% in January-June compared with the first half of 2020, and 17.3% lower than in the same period in 2019, the FDF says.

Although exports to non-EU markets are recovering towards pre-pandemic levels (up 13% this year), sales to the EU were down 15.9% year-on-year at £4.9bn, from £5.8bn in H1 2020.

Compared to 2019, food and drink exports to the EU were down 27.4% in the first half of 2021, a loss of almost £2bn, with sales to the Republic of Ireland badly hit.

The FDF attributes this fall to “the ongoing impacts of the COVID-19 pandemic, and the new trading relationship with the EU”.

The FDF says:

• Exports to the Republic of Ireland, our biggest export market, fell significantly with a loss of 22% compared to 2020, and 27% compared to pre-COVID data - a loss of more than £0.5bn.
• Sales to non-EU countries were up 13% in H1 2021 compared to H1 2020, driven by a return to growth in China, Singapore, Australia, Japan and the Gulf region.
• Exports to China were up more than a quarter compared to 2020, with increased sales of nearly £100m. However, the loss of sales to Germany, Spain and Italy of around a third, resulted in lost exports totalling £445m in the past year.

Dominic Goudie, Head of International Trade at the FDF, said:

“The return to growth in exports to non-EU markets is welcome news, but it doesn’t make up for the disastrous loss of £2bn in sales to the EU. It clearly demonstrates the serious difficulties manufacturers in our industry continue to face and the urgent need for additional specialist support.

“At the same time, we are seeing labour shortages across the UK’s farm-to-fork food and drink supply chain, resulting in empty spaces on UK shop shelves, disruptions to deliveries and decreased production. Unless steps are taken to address these issues, the ability of businesses to fulfil vital export orders will be impacted.”

Food imports from the EU have also dropped, down 11.2% in the last year and almost 15% lower than two years ago.

UK food producers now face stringent post-Brexit rules when selling into the EU, although the UK has delayed similar rules on imports.

Politics Home have more details:

Barratt Developments has said strong demand for houses across the country helped to boost annual profits by nearly two-thirds in its latest financial year, as it signalled continued strong demand for housing across the UK even as the government pulls back coronavirus pandemic support.

Britain’s second-largest housebuilder by market value, reported profits before tax of £810m for the year to the end of June, compared with £490m in the previous year, and said a strong forward sales book was encouraging for the year ahead.

Barratt’s revenues for the financial year at £4.8bn were only 1% lower than the equivalent in 2019, before the effects of the pandemic. It completed 17,200 houses, only 600 behind 2019 and 4,600 ahead of the 2020 financial year, which included the first national lockdown.

David Thomas, Barratt’s chief executive, said the company had made “excellent progress this year”.

“We have begun the new financial year in a strong position and, whilst there are still uncertainties ahead, our strong balance sheet, forward order book visibility and construction activity to date all stand us in good stead. There is very strong demand for houses across the country.”

More here:

Barratt is also experiencing the impact of rising raw materials costs (with timber, cement, bricks, steel and copper having all jumped in price).

Russ Mould of AJ Bell says:

“Further price increases would help the builder offset increases in input costs which the company says are proving persistent (despite central bankers’ insistence to the contrary. Barratt’s results presentation flags its expectation that input costs will rise by 4% to 5% in the year to June 2022.

“However, price increases raise the question of affordability. The stamp duty break has helped here and so has Help-to-Buy.

The prices charged by eurozone factories jumped sharply in July, driven by more expensive energy and intermediate goods.

Prices at factory gates in the euro area rose 2.3% month-on-month, and were 12.1% higher than a year ago.

This shows the dramatic surge in costs since the first lockdowns ended, which has driven the debate about whether the jump in inflation will be transitory, or more permanent...

Energy prices did the most damage, up 5.7% in the month, while intermediate goods (used to make final products for sale) rose 1.9%. Durable consumer goods prices were up 0.7%, while capital goods rose 0.5% and non-durable consumer goods by 0.1% compared with June.

Over the last year, eurozone producer prices have increased by 28.9% in the energy sector, by 12.6% for intermediate goods, by 2.7% for durable consumer goods, by 2.6% for non-durable consumer goods and by 2.5% for capital goods.

If you exclude energy, factory gate prices are still up 6.7% over the year.

Factories have been juggling rising commodity prices, transport costs and increased wages amid the supply chain crisis.

These higher producer prices can often passed on to consumers in the shops, pushing up inflation -- which has just hit a decade high of 3% in August.

Ouch. Shares in spread betting and online trading company CMC Markets have crashed by over a quarter, after it warned that a summer lull in trading activity would hit its profits.

CMC Markets reported that overall market activity has remained subdued through July and August. It blamed “reduced volatility in markets” which has deterred customers from trading, following an earlier ‘moderation of activity’ in the previous quarter.

CMC had benefited from the high market volatility early in the pandemic as clients traded more during lockdown, and a new army of traders joined the market.

Some were attracted by the surge of interest in ‘meme stocks’ such as GameStop and AMC, and the Wall Street Bets group on reddit, with others decided to invest their lockdown savings.

But this frenzy seems to have faded, with CMC reporting less activity from both new and existing clients:

Reduced volatility in markets has resulted in lower trading activity across both the newly acquired and existing cohort of clients. Similar trends have been seen across our non-leveraged and leveraged businesses.

In addition to lower activity, year to date client income retention has also been tracking moderately below the targeted 80% although is expected to recover through the remaining seven months of the year based on a reversion towards historical averages in the mix of asset class trading.

Should the current market conditions continue, CMC now expects net operating income for the full year to be between £250m and £280m.

In late July, it said it was confident of achieving net operating income “in excess of £330m”.

Shares in CMC Markets don’t lack volatility this morning, though - they’ve slumped around 26% to 310p, the lowest since last autumn, following this warning on profits.

Switzerland’s economy has returned to growth, with a solid expansion after lockdown measures were relaxed.

The Swiss economy grew by 1.8% in the second quarter of 2021, following a 0.4% contraction in Q1, as easing pandemic restrictions helped boost private consumption and the services sector.

On an annual basis, Swiss GDP was 7.7% higher than a year ago, according to data from the State Secretariat for Economic Affairs (SECO)

This has lifted Switzerland’s economy close to its pre-pandemic levels, SECO says:

“In the second quarter, total GDP was only 0.5% lower than the pre-crisis level seen in the fourth quarter of 2019,”

SECO reported that the services sector grew strongly, with private consumption up 4.1% as “numerous public health restrictions” were relaxed or lifted during the second quarter.

Accommodation and food services grew by almost 49 %, as catering businesses were allowed to reopen gradually, while domestic tourism picked up again.

Government consumption (+5.5 %) grew even more strongly, due to extraordinary expenditure to cope with the pandemic.

But manufacturing was more muted with 0.9 % growth, as “falling growth in global industry and world trade slowed down parts of Swiss industry,” SECO added.

JD Sports could be forced to sell Footasylum after the UK’s competition regulator again ruled that the takeover would result in a worse deal for trainer shoppers even after the shift online during the pandemic.

JD Sports agreed to buy Footasylum in March 2019 for £90m, but it has been a tortuous process since then, with the Competition and Markets Authority (CMA) repeatedly trying to block it.

The CMA has previously tried to stop the merger, but its initial judgment was sent back in November 2020 by the competition appeal tribunal, which found that the regulator had acted “irrationally”. A key aspect was the CMA’s failure to assess the changes wrought by the pandemic, such as the increasing number of shoppers buying online, directly from manufacturers.

In its latest provisional findings, the CMA did note that the pandemic has shifted shopping habits online, and it acknowledged the growing influence of big brands such as Nike and Adidas selling direct to consumers online.

However, it said that competition on price, quality, range and service levels on footwear and clothing could still be reduced as a result of the deal, and that high street revenues had bounced back since the easing of coronavirus restrictions. More here:

People have also been returning to the gym since the lockdown eased, according to UK operator Gym Group this morning.

The private gym operator has reported “strong demand” for gym memberships since they were allowed to reopen this spring.

It now had 730,000 members at the end of June, up from 547,000 at the end of February, with members visiting more often than before, and is planning to expand its network.

Richard Darwin, CEO of The Gym Group, explains:

“Since the re-opening of gyms in April, The Gym Group has performed strongly with excellent member feedback, a higher rate of visits per member and a rapid recovery in overall membership levels

We have identified some exciting growth opportunities to expand our estate further and raised additional funds from shareholders to capitalise upon them. With restrictions now lifted, we are planning to open 40 new sites by the end of 2022, of which three have opened so far in July and August, as we continue to make fitness accessible for all and deliver further social value to communities around the country.

We look forward to the second half of the year and beyond with confidence.”

But 2021 has still been tough for Gym Group. It made a pre-tax loss of £28.5m for the first half of the year, as the Government-enforced gym closures in the first three and a half months wiped out over 50% of its trading days.

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

The easing of UK pandemic restrictions is boosting business for UK airlines, aerospace manufacturers, and spurring business for builders and high street firms too.

Budget airline Ryanair has reported it carried 11.1 million passengers in August, sharply higher than the 7 million who flew with it in August 2020, and around 75% of the number it carried in August 2019 before the pandemic struck.

EU Covid certificates are stimulating a recovery in the travel industry, Ryanair says.

That’s an increase from July too, when it carried 9.3m passengers, and also beats Ryanair’s earlier target of carrying 10 million passengers during August.

The airline said its August load factor - which measures how many seats it filled on each flight - rose too, to 82% from 73% a year ago, following the relaxation of travel restrictions this summer.

Earlier this week, Ryanair lifted its passenger target for the autumn amid signs of a “very strong recovery” in European short-haul flights, putting it on track to expected passenger numbers would exceed pre-pandemic levels next summer.

UK engineering firm Melrose Industries is benefitting from the recovery too, telling shareholders that trading has been better than expected.

The group, which owns aerospace and automotive parts maker GKN, has reported a half-year adjusted operating profit of £223m, up from an £11m loss a year ago, as the recovery in its aerospace division helps it ride out supply chain shortages.

Justin Dowley, Chairman of Melrose Industries PLC, today said:

“We are continuing to see recovery in all our businesses with trading ahead of expectations. Encouragingly, our Aerospace business is now weighted towards the expected narrowbody recovery.

Our Automotive and Powder Metallurgy businesses are poised for strong growth as soon as the well publicised chip shortage abates and the progression in margins is ahead of plan with more to come.

But low-cost airline Jet2 has reported this morning that passengers have been booking closer to their departure date -- reflecting uncertainty over travel rules and the ongoing pandemic. And that means prices will remain ‘consistently enticing’.

Philip Meeson, executive chairman, will tell shareholders at its AGM that it’s been flying to 32 green and amber destinations, at around 55% of its pre-Covid Summer 19 capacity.

Unsurprisingly, given the continuing short-term uncertainty resulting from the UK Government’s three weekly review of its traffic light system, customers are booking significantly closer to departure for Summer 21. Despite the limited booking visibility, pleasingly, we have generated positive financial contribution from the flying to date, supported by our quick to market, flexible operating model.

The slower momentum for Winter 21/22 bookings which we reported in our Preliminary Results in early July has remained. As a result, bookings have yet to match our on-sale seat capacity and therefore pricing for both our leisure travel products - end-to-end package holidays with Jet2holidays and flight-only seats with Jet2.com - will need to remain consistently enticing. The overall Winter 21/22 capacity remains under continuous review.

Britain’s biggest homebuilder Barratt Developments is upbeat this morning, reporting a 65% surge in pre-tax profits amid “very strong demand for houses across the country”.

Its total home completions rose by nearly 37% in the year to 30 June, to 17,243, as it recovered from the lockdown (up from 12,604 in the previous 12 months); not far below the 17,856 total completions achieved in 2019.

Consumers have also been flocking back to UK high streets and retail parks, lifting footfall to its highest level since the start of the Covid-19 pandemic.

Data from the retail tracker Springboard this morning found the number of consumers visiting bricks-and-mortar shopping outlets rose by a quarter in August, helped by people choosing to take holidays at home this summer.

Footfall was still well down on its pre-pandemic levels in the same month of 2019 but the gap was below 20% for the first time since the virus first hit the UK in early 2020.

But this pick-up in demand continues to put pressure on the UK’s supply chains, with pub chains struggling to get their hands on beer.

The pub chain Wetherspoon’s yesterday warned of shortages of some beer brands, including Carling, Coors and Heineken, amid a Brexit-induced shortage of delivery drivers and industrial action.

The agenda

• 10am BST: eurozone PPI survey of producer prices
• 11.30am BST: UK Trade & Business Commission hearing on UK driver shortages and impact on supply chains
• 1.30pm BST: US weekly jobless figures
• 3pm BST: US factory orders for July