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Capital 
Economy, business and finance

18 may 2022


Windfall rumours
UK inflation rose by two percentage points last month to 9 per cent, making it nearly 30 per cent higher in April than in March. This is going to hurt. The partial solution of a windfall tax on oil firms’ record profits, favoured by Labour, was at first rejected by both Boris Johnson and his chancellor, Rishi Sunak. At least they agreed on something. But now a windfall tax is on the cards. Sunak declined to rule it out in the Commons yesterday. The Telegraph says the idea is hugely popular among voters. And large numbers of Conservative MPs have duly been sitting on their hands when asked to express a view: 59 of them abstained rather than vote against a Labour motion in favour of the tax. A U-turn is coming, says shadow climate secretary Ed Milliband, who’s vastly livelier than his party leader in debates these days. Oil companies themselves are fighting a rearguard action – BP hopes promises to step up investment in the UK will help it hang onto its profits, for example – but those profits ($6.25 billion in the first quarter) may be too huge for Sunak to leave alone. 

17 may 2022

No Big Mac Moscow
McDonald’s, that symbol of American culture and consumerism that opened in Moscow in 1990, has put its Russian business up for sale. The chain employs 62,000 people in Russia and said it would temporarily close its operations there in March, a few weeks after Putin invaded Ukraine. It now hopes to sell its 850 restaurants, some run by franchisees but most of them wholly owned, to a domestic buyer. It expects to lose between $1.2 and $1.4 billion on the transaction. Russians canvassed by the BBC about the proposed sale were broadly relaxed. One said McDonald’s hadn’t done much for people’s nutrition. Another was confident whoever bought the business would fill its niche. History may – or may not – reveal how much such comments are self-censored out of fear of Russia’s resurgent police state. 

16 may 2022


Indian wheat
A ban on wheat exports by the world’s second-largest grower has driven prices up by nearly 6 per cent and compounded fears that Russia’s blockade of Odesa will cause a global spiral of hunger and food price inflation. Normally India doesn’t export much of its wheat, but this year it was planning to sell a record 10 million tonnes abroad to help compensate for the slump in Ukrainian exports caused by the war. But last month’s heatwave scorched Indian crops and drove yield forecasts down, and India’s stockpiles were already depleted by handouts during the pandemic. Meanwhile, 20 million tonnes of grain have already piled up in Ukrainian silos with no way of reaching world markets. As central bankers raise interest rates to tame inflation, Lloyd Blankfein, former CEO of Goldman Sachs, warns the likely hit to growth makes the risk of a US recession “very, very high”. Team Biden takes a calmer view, but its glide slope to the midterms still looks choppy.

13 may 2022

Entrenched inflation
Civil service cuts
The Johnson government plans to cut up to 91,000 civil service jobs to shrink the service back to pre-Brexit dimensions and save £3.75 billion a year. Johnson and his Brexit opportunities minister, Jacob Rees-Mogg, say taxpayers facing a cost of living crisis expect belt-tightening by the public sector too. Critics say the cuts will leave the civil service at its smallest size since World War Two. Before the EU referendum, and after years of austerity, there were 384,000 civil servants to run the UK’s machinery of government. They proved unable to cope with Brexit, let alone Covid, and are now struggling to produce detailed policies to seize the opportunities Rees-Mogg insists exist – for example in farming. Minette Batters, president of the National Farmers’ Union, told yesterday’s Tortoise climate summit she was “appalled” by a post-Brexit farming strategy intended to prioritise the environment but so short on detail that it was “not fit for purpose”.

12 may 2022

Crypto crash
Last November the total value of all cryptocurrencies was around $3 trillion. This morning it’s about half that. Bitcoin has led the plunge in terms of volume, since it accounts for most of the global crypto market and was trading at around $27,000 as of 7.30 this morning, having peaked at over $67,000 last year. But so-called stablecoins, notionally pegged to real currencies, are looking even more volatile. One that has attracted a lot of attention and cash, UST, abandoned its 1:1 peg to the dollar on Monday and by yesterday had lost 98 per cent of its value. Another, Luna, has lost at least 95 per cent of its value since Saturday. Does any of this matter? To the small number of people heavily invested in these things, obviously. Suicide helpline numbers have been posted on sub-Reddits for some stablecoins. To the wider economy, not so much. To put things in proportion, US stocks and bonds between them are worth about $100 trillion.

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