Fears of ‘hard landing’ for global economy after central bank rate hikes – business live

Britain’s financial watchdog has just fired a warning shot at the insurance industry for failing customers.

The Financial Conduct Authority has announced that home and motor insurers must improve their treatment of vulnerable customers and how they handle customers claims.

Following a review of the sector, the FCA has uncovered examples of lengthy complaints handling times and people not given appropriate settlements.

The regulator discovered examples where motor insurance customers were offered a price lower than their car’s fair market value after it had been written off, which is against FCA rules.

Relevant firms have been told to put these wrongs right and where necessary provide redress to affected customers.

The review also found that some firms were unable to show they were monitoring customer outcomes well enough, and unable to identify vulnerable customers in need of additional support.

Sheldon Mills, Executive Director for Consumers and Competition at the FCA, said:

‘Timely and fair claims handling is especially vital during the cost of living squeeze.

‘While we have seen many firms treating their customers correctly, we found too many examples of customers not receiving the service they’re entitled to.

‘Where we found issues, we’ve told firms to put them right. We’ll be monitoring them to ensure they do.’

The downturn in the eurozone’s manufacturing sector intensified during June, according to new data which underlines the risks of an economic ‘hard landing’.

Factory output in the euro area declined at the sharpest rate since October 2022 in June, according to the latest survey of purchasing managers from HCOB and S&P Global.

The eurozone manufacturing PMI found that demand for eurozone goods fell sharply at the end of the second quarter, with weak sales performances particularly evident in Austria, Germany and Italy.

Factory employment declined for the first time since January 2021 and business confidence dipped to a seven-month low.

But this slowdown could ease inflationary pressures, with output prices falling at the fastest rate in three years.

This all knocked the HCOB Eurozone manufacturing PMI to 43.4, down from May’s 44.8, which is a 37-month low. Any reading below 50 shows a contraction.

Energy prices could spike this winter, the head of the International Energy Agency has said, if China’s economy rebounds this year.

Fatih Birol told the BBC that consumers could be hit by soaring bills again this winter, explaining:

“In a scenario where the Chinese economy is very strong, buys a lot of energy from the markets, and we have a harsh winter, we may see strong upward pressure under natural gas prices, which in turn will put an extra burden on consumers,”

Birol also warned that blackouts were less likely, but not unlikely, so governments should continue to push energy-savings measures, and renewable energy technology.

On Saturday, the UK’s price cap on gas and electricity was lowered, meaning slightly lower bills for around 27 million households. However, households won’t feel much relief as some government’s energy support measures also ended in June.

Last week, the boss of British Gas-owner Centrica predicted household energy bills will remain high for the foreseeable future…

New data showing that China’s factory activity growth slowed in June has added to concerns over the global economy.

The latest PMI index of Chinese manufacturing, from Caixin, has slipped to 50.5 in June from 50.9 in May, close to the 50-point mark showing stagnation.

The report found that business confidence in China weakened in June, and that manufacturing employment fell for a fourth month in a row.

Wang Zhe, senior economist at Caixin Insight Group.

“A slew of recent economic data suggests that China’s recovery has yet to find a stable footing, as prominent issues including a lack of internal growth drivers, weak demand and dimming prospects remain,” said

“Problems reflected in June’s Caixin China manufacturing PMI, ranging from an increasingly dire job market to rising deflationary pressure and waning optimism, also point to the same conclusion.”

The deterioration of relations between Beijing and Washington could also hurt the world economy, with the two sides recently exchanging tit-for-tat sanctions.

But US Treasury secretary Janet Yellen is hoping to reestablish better relations with China, as she visits its capital this week.

Yellen’s trip is part of a push by President Joe Biden to deepen communications between the world’s two largest economies, stabilize the relationship and minimize the risks of mistakes when disagreements arise, White House officials say.

Yellen is expected to discuss with her counterparts the importance for both countries “to responsibly manage our relationship, communicate directly about areas of concern, and work together to address global challenges”, said the Treasury Department in a statement on Sunday.

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

Fears of a ‘hard landing’ in the global economy are swirling, as central banks hike interest rates to cool inflation.

Although UK growth has held up a little better than expected, the outlook for the world economy is worrying some investors.

Mark Dowding, BlueBay CIO, RBC BlueBay Asset Management. expects growth to “slow to a standstill in the second half of the year”, with the outlook in 2024 also looking downbeat.

Dowding explains:

“Interest rates have risen substantially in this cycle and some additional tightening may yet be ahead of us. In light of this, a mild recession remains likely, as a baseline assessment.

In the wake of this, it is understandable that markets will look to price lower rates in 2024, as long as inflation is seen as back under control at this point.”

Pimco, the bond trading giant is preparing for a “harder landing” than other investors, as monetary policy tightening slows economic growth.

Daniel Ivascyn, chief investment officer at Pimco, told the Financial Times:

“The more tightening that people feel motivated to do, the more uncertainty around these lags and the greater risk to more extreme economic outlooks.”

Central banks have now been raising interest rate for more than a year – but, monetary policy operates with a lag, it take a while to influence the real economy.

Ivascyn says:

“We would argue that the market may still be too confident in the quality of central bank decisions and their ability to engineer positive outcomes.

We think the market is a bit too optimistic about central banks’ ability to cut policy rates as quickly as the yield curves are implying.”

Also coming up today

The competition watchdog is expected to publish its report into the UK’s motor fuel market today, following complaints that customers are being ripped off when they buy petrol and diesel.

The chemicals tycoon Sir Jim Ratcliffe has blamed Rishi Sunak’s furlough system as a reason for the UK’s persistent inflation.

In a new book on his Ineos empire, Ratcliffe criticised the chancellor’s Covid-19 job protection scheme, arguing:

Everybody gets used to it, and nobody wanted to work. What do you think follows? It is the definition of inflation, because suddenly the currency doesn’t represent the same amount of value.

You have diluted it with all you have given away. Does he [Sunak] think it never has to be paid back? Does he think about inflation?”

One problem with this argument, though, is that the US administration also created new money to stimulate the economy, including checks of up to $1,200 per individual. And America’s inflation rate, at 4%, is just half that of the UK (8.7%).

We also get a healthcheck on the world’s factories, through the latest Purchasing Managers Surveys from the manufacturing sector.

The agenda

• 9am BST: Eurozone manufacturing PMI for June

• 9.30am BST: UK manufacturing PMI for June

• 3pm BST: US manufacturing PMI for June