Some very sad news tonight. Economist Howard Archer, the Chief Economic Advisor to the EY ITEM Club, has passed away.

Oxford Economics, who Howard joined in 2017, announced this evening that he had died after a brave battle against cancer.

Howard was highly regarded and widely respected among both fellow professional economists and journalists - and he’s been widely quoted in the media for many years.

I found Howard’s work invaluable ever since I joined the Guardian, especially for his ability to rapidly analyse and explain economic news and data.

Adrian Cooper, the CEO of Oxford Economics, said:

“I worked closely with Howard in recent years providing technical support to the ITEM Club, which he led with distinction. He was a very insightful analyst of the twists and turns of UK economic data and a skilled forecaster. He was also incredibly dedicated to his craft - still publishing right up to the end of his life - and generous in sharing his experience with others, to whom he was a much-loved colleague.”

EY’s UK chief economist, Mark Gregory, says:

“It was a real privilege to work with Howard. His passion, work ethic and enthusiasm shone through in everything he did, and he was an inspiration to those who worked with him. He made an invaluable contribution to the EY ITEM Club as our chief economic advisor over the last four years, and he was rightly highly regarded in the world of economics and among our people and clients. He will be sadly missed, and all our thoughts are with Howard’s family, friends and colleagues.

As these tributes show, Howard will be very much missed.

That’s all for today, and this week. Here are today’s main stories:

After a day of heavy selling, the FTSE 100 has closed down 136 points at 7017 points, a tumble of 1.9%.

That’s its lowest closing level in almost a month, since May 19th, and its biggest one-day fall in over a month.

The Footsie dropped as low as 7008.7 points in late trading, the lowest intraday level in over three weeks.

Michael Hewson of CMC Markets says:

It’s been a disappointing end to the week for stock markets in Europe, with the after effects from Wednesday’s Fed decision still reverberating, wiping out any prospect of gains in a week that saw new record highs for both the DAX and Stoxx600.

In what can only be described as choppy trading conditions, sentiment was given an additional knock this afternoon on the back of comments from St. Louis Fed President James Bullard who said he was leaning towards a US rate rise in 2022, much sooner than Wednesday’s changed “dots” of two by the end of 2023.

While Bullard may be not a voting member this year, he is a voting member next year, and as such his vote will count, furthering muddying the time line for markets as to when the Fed will move in response to inflation concerns.

This has given the US dollar an additional shove higher, as well as cutting the ground out from industrial metals, though oil prices have remained fairly resilient thus far.

Consequently, equity markets have fallen back sharply, with all sectors getting clobbered, with the FTSE100 moving back towards the lows this month, and the DAX following suit, as market confidence that the US central bank would look through concerns about slightly higher average inflation, taking a bit of a knock.

Tesco is amongst the biggest fallers despite posting Q1 sales that were better than expected, and against some pretty tough comparatives, despite UK sales rising to over £10bn. This seems a rather odd reaction given the challenges, as well as increased costs facing the sector over the past 15 months. It could be investors are disappointed that guidance was left unchanged in spite of such a good performance in Q1, or it could be that their expectations were unrealistic. It shouldn’t be forgotten that last year’s comparatives were tough given that supermarket shelves were almost stripped bare in the aftermath of the first lockdown, and yet like for like sales were still higher.

Royal Dutch Shell and BP are underperforming despite oil prices that are resisting the stronger US dollar, with both near the bottom of the FTSE100, while banks have slipped back as short-term rates rise and longer-term rates come down, flattening the bond curve, with Barclays being the worst performer.

Deloitte will allow its 20,000 UK employees to choose how often they come into the office, if at all, after the pandemic, making it the latest firm to throw out the rulebook and embrace ultra-flexible working.

The accounting firm said it would let staff decide “when, where and how they work” following the success of remote working during the Covid crisis. While the company has offered more flexible working since 2014, the latest announcement will mean ditching its office-focused approach once the final phase of lockdown restrictions are lifted next month.

Deloitte chief executive, Richard Houston, said:

“We will let our people choose where they need to be to do their best work, in balance with their professional and personal responsibilities,”

Stock markets are being by a ‘mini taper tantrum’, says Fawad Razaqzada, market analyst at Think Markets.

It is turning into a bit of a black Friday for risk assets in what looks like a mini taper tantrum.

Already lower on the day, stocks losses accelerated after the Fed’s Bullard admitted that “it is natural we have tilted a little bit more hawkish.”

Investors fear that with inflation rising rapidly, QE might be tapered sooner than expected. With the weekend approaching and given the lack of any bullish news flow, investors are not in any mood to buy this latest dip, this late in the day. So, it looks like we might end the day sharply lower, with index futures likely to gap lower at the Asian open on Monday.

Stocks, growth names in particular, have continued to sell-off, with the FTSE and DAX down nearly 2% on the day, with the losses for US indices being slightly lower – especially the Nasdaq.

The major currency pairs have also sold off, led by the NZD/USD, as well as commodity currencies such as the South African rand and Mexican peso. Gold and silver have given up most of their earlier gains. Bitcoin and other cryptos have not been immune to the selling either.

The only exception has been crude oil, but with sentiment towards risk assets turning sour, I wouldn’t be surprised if oil prices follow suit later in the day or early next week.

On Wednesday, Federal Reserve chair Jerome Powell said the Fed would slow, or ‘taper’, the pace of its bond-buying stimulus programme after it sees “substantial further progress” towards its inflation and maximum employment goals.

Inflation is currently over target, while millions of Americans are still out of work following the pandemic, but Powell showed confidence that the labor market would recover strongly.

The dollar has hit a new two-month high against a basket of major currencies, as it continues to benefit from the prospect of earlier US rate rises.

This has driven the pound down to $1.382, its weakest point since the start of May.

Sterling started this week at $1.41, but has been hit by the stronger dollar.

Stocks have opened lower in New York, with James Bullard’s hawkish comments hitting the mood.

The S&P 500 index which covers a broad swathe of the market, is down around 1% or 40 points at 4,181 points, away from this month’s record highs.

Financials, energy and ‘consumer stables’ sectors are leading the falls, along with basic materials and industrials.

The Dow Jones industrial average, which tracks 30 of the largest US firms, is down over 1.3% or 452 points at 33,370 points.

The tech-focused Nasdaq is holding up slightly better, down 0.6% or 86 points at 14,074 points.

Fiona Cincotta, senior financial markets analyst at City Index, explains:

The reflation trade which saw investors rotate out of high growth and into value stocks looks to be unwinding. As the tech heavy Nasdaq hit a fresh record high on Thursday, the Dow broke below a key support.

The timing of this unwinding is interesting, because it comes as the Fed indicates towards tighter policy. Usually, higher interest rates are supportive of gains in cyclicals and value stocks. Perhaps the Fed has calmed the market that inflation won’t overheat?

The selloff is accelerating in London, pulling the FTSE 100 down to its lowest level in two weeks,

The blue-chip index fell as much as 120 points, or over 1.6%, to 7032.5 points, its lowest since early June.

Neil Wilson of Markets.com says investors are dialing down their risk exposure in the wake of the Federal Reserve’s slightly hawkish meeting on Wednesday, when it signalled it won’t let inflation run riot.

What the Fed’s meeting also told us was that once inflation expectations become unanchored, it’s a tough job to re-anchor them

Losses accelerated after the Fed’s James Bullard’s hawkish comments a little while ago.

Today’s losses puts the index on track for its worst week since late February (although there’s still time to recover).

Engineering firm Melrose (-5%), Royal Dutch Shell (-4.3%), and specialist chemicals firm Johnson Matthey (-3.9%) are still the top fallers, as anxiety about the prospect of higher US interest rates to calm inflation continues to ripple through markets.

Tesco (-3.5%) are lower after reporting a UK sales slowdown this morning.

Hospitality firms are also weaker, with hotel chain Whitbread down 3%.

Sophie Griffiths, market analyst for UK & EMEA at OANDA, says this morning’s weaker than forecast UK retail sales data have added to the downbeat mood.

UK Retail Sales declined in May as the euphoria felt from shops reopening in April shifted to higher spending on eating out in May, as indoor dining reopened. Retail sales declined 1.4% MoM in May, after surging 9.2% in April. Expectations had been for a 1.6% rise.

The figures are slightly disappointing, but retail sales are volatile and even more so now as the economy is re-opening. After April’s immensely strong read, a softer May, particularly given the awful weather and the re-opening of inside hospitality isn’t so surprising.

Retailers will be hoping that April wasn’t the end of the pent-up demand. Given how hard retailers have been hit across the past year, they will want to see elevated sales from pent up demand continuing for a while longer. It will take more than one strong month to even start making inroads into the damage caused by the lockdown this year, let alone last year. Still, I don’t think the weaker sales reflect falling consumer sentiment, it’s more likely that households opted to enjoy spending in restaurants and services over goods.

Commodity stocks remain under pressure amid the stronger US Dollar. Oil and base metal continue to decline with oil majors and miners tracing the commodity prices lower.

Federal Reserve Bank of St. Louis President James Bullard has declared that US inflation has been stronger than anticipated, in an interview which has pushed Wall Street futures lower.

Speaking to CNBC about Wednesday’s FOMC meeting, Bullard said recent economic data has been stronger than the Fed expected, meaning the committee is now a little more hawkish [a majority of officials now expect rates to rise in 2023]

He says:

The committee has been surprised to the upside over the last six months”.

Back in December, the FOMC were projecting 4% real GDP growth in 2021, Bullard points out. Now they are predicting 7% growth this year, “faster than China has grown in recent years”.

We were projecting just 1.8% core CPE inflation in December, now we’re saying 3% in 2021 on core PCE, Bullard continues (referring to the forecasts released on Wednesday).

The forecasts also show unemployment “coming down dramatically”, to 4.5% by the end of the year, Bullard explains, adding:

We were expecting a good year, a good reopening, but this is a bigger year than we were expecting, more inflation than we were expecting, and I think it’s natural that we’ve tilted a little bit more hawkish here to contain inflationary pressures.

Bullard also reveals that was one of the seven Fed officials who predicted an interest rate rise in 2022 [13 of the 18 saw rates higher in 2023].

Here’s some reaction:

Stocks are heading lower in Europe, with the FTSE 100 now down 80 points or 1.1%, and Germany’s DAX off around 0.9%.

The Europe-wide Stoxx 600 has hit a one-week low, down 0.7% today, having hit record highs on Wednesday.

Energy stocks, financial companies, utilities, consumer-goods and services firms, and basic materials companies are all lower in Europe, as investors continue to digest Wednesday’s crucial Federal Reserve meeting.

The US central bank took a more hawkish position, bringing forward the likely date of its first interest rate rise, It also started ‘talking about talking about’ tapering its asset-purchase stimulus programme, two changes that have gripped the markets.

Yesterday, technology stocks rallied while the long-term interest rate on US government debt fell -- two signs that investors are less worried about long-term inflation risks.

If the Fed does indeed raise interest rates in 2023 as officials expect, and slow its QE programme at coming meetings, then the resulting tightening could hold inflation in check.

So the ‘reflation trade’ into companies that benefit from faster growth, rising prices, and higher long-term interest rates is unwinding.

This week’s fall in commodity prices is another sign that recent inflationary pressures may be transitory.

Joshua Mahony, senior market analyst at IG, sums up the morning:

“A disappointing retail sales figure has done little to help elevate an already depressed pound. However, that weak pound has done little to lift the FTSE, with markets continuing to feel the residual effects of Wednesday’s FOMC meeting.

“European markets are heading towards the weekend on the back foot, with declines for the likes of the Dow and S&P 500 highlighting the ongoing concerns that rising inflation could soon curtail the expansive monetary policy mix around the world.

“Despite promises that central banks will remain accommodative, we are evidently moving towards a phase which will become increasingly dominated by attempting to quantify just how long we have left until the pendulum starts to swing back towards monetary tightening.

“With Norway’s central bank laying out plans to start raising rates in September, we are evidently seeing growing confidence that the worst is behind us and thus normalisation will be required to avoid overheating.

“The pound has been hit hard in the wake of Wednesday’s FOMC meeting, but a bout of disappointing retail sales figures has further increased the pressure on sterling this morning.

“Nonetheless, the decline in May retail sales is perhaps more indicative of a shift in spending habits rather than a decline, with consumers opting cut back on food purchases (-5.7%) in favour of eating out.

“That pressure on food sales does bring the supermarkets into focus, while data from Tesco further highlighted how demand growth has been slowing in recent months.

“However, while questions have been asked of in-person demand at Tesco, digital capacity improvements have facilitated a whopping 22.2% in online sales compared with last year.”

Tesco has warned that sales are likely to fall in the UK – including online – as customers return to more normal behaviour by eating out and attending the office, my colleague Sarah Butler reports.

The supermarket reported a 0.5% rise in sales in established UK stores in the 13 weeks to 29 May, down from an 8.8% rise in the previous quarter.

Underlying sales across the group, which also operates stores in Europe as well as the Booker grocery wholesaler, rose 1% to £13.4bn.

Tesco’s finance director, Imran Nawaz, said the company anticipated sales would fall by a “few per cent” in the year ahead as restrictions on dining out and travelling were removed.

Ken Murphy, the chief executive, said Tesco had enjoyed a “really strong first quarter” but admitted it was “definitely going to be challenging to stay in positive territory” on sales in the UK.

More here:

Sterling dipped to a new six-week low against the US dollar this morning, after the retail sales figures showed a dip in May.

The pound fell below $1.386, for the first time since May 6th, before recovering back to near $1.39 - down a quarter of a cent.

Against the euro, the pound is down 0.2% at €1.166, down from a 10-week high yesterday.

Although today’s moves are small, they add to a steady move lower against the US dollar since the pound hit a three-year high at the start of June.

The pound had strengthened early this year as the rapid vaccination programme lifted hopes of a strong recovery.

But Ricardo Evangelista, senior analyst at ActivTrades, suggests the pound’s “Goldilocks” phase is ending, with the end of lockdown having been delayed (and Covid-19 cases rising):

The pound lost ground versus other major currencies during early Friday trading, following the publication of May’s retail sales figures for the UK, which fell short of expectations. Investors looked at last month’s performance of the retail sector with some concern, as the country’s economic recovery, and the strong performance of the pound, have to a large extent been driven by consumers spending savings accumulated during the months of lockdown.

This slowdown could mark the end of a ‘Goldilocks’ period for sterling, with the shine of a successful vaccination program wearing off, following the extension of the country’s partial lockdown, and consumer spending receding as the end of furloughs looms.

Over in Germany, factories have hiked their prices at the fastest rate since the financial crisis, partly due to more expensive metal products and wood.

The German Producer Price Index rose 1.5% month-on-month in May, more than doubling the 0.7% consensus forecast.

The last time prices at the factory gate rose more compared to the previous month was in the run-up to the financial and economic crisis in July 2008, statistics body Destatis says.

On an annual basis, producer prices for industrial products increased by 7.2% compared with May 2020, the fastest increase since October 2008.

The annual increase was mainly driven by energy prices (which slumped early in the pandemic last year), and intermediate products (used to produce final goods).

Intermediate goods prices were up 10.7% compared to May 2020, and 2.2% higher than in April.

Factories around the world have been hit by the surge in raw material costs in recent months, as supply chains have struggled to cope with increased demand.

Today’s PPI data suggests they’re now passing that onto their customers - which could lead to higher prices in the shops.

Destasis explains:

Compared to May 2020 intermediate goods’ prices increased especially regarding metallic secondary raw material (+69.9%), sawn and planed wood (+38.4%) and metals (+23.1%).

Prices of basic iron, steel and ferro-alloys increased by 33.6%, prices of non-ferrous metals were up 26.6%.

The main reasons for the rise in steel prices are likely to be increasing demand in Germany and abroad, problems in the supply of raw materials and sharp increases of import prices for iron ore (+76.8% from April 2020 to April 2021)

But... the recent dip in commodity prices may be a sign that these inflationary pressures are easing. Copper, corn, palladium and platinum all fell sharply yesterday.

The London stock market has made a subdued start to trading.

The blue-chip FTSE 100 is down 33 points or 0.45% at 7120 points, away from the 15-month high seen earlier this week.

Energy firm Royal Dutch Shell are down 2.3%, following the drop in crude oil prices as the prospect of earlier US interest rate rises pushed up the dollar.

Consumer goods maker Reckitt Benckiser (-2.5%), specialist chemicals producer Johnson Matthey (-2.3%) and telecoms firm BT (-1.75%) are also lower, along with Tesco (-2.2%).

But mining companies are recovering some of their recent losses, as commodity prices stabilise after a slump yesterday (again, due to the strong dollar after US Federal Reserve officials predicted two interest rate rises in 2023).

Ross Mould, investment director of AJ Bell sums up the mood:

Markets were relatively calm on Friday as investors took time to digest the Federal Reserve’s shock earlier this week that US interest rates might go up sooner than previously expected.

“The FTSE 100 slipped as oil producers and financials gave up some of their recent gains. Industrials and miners were among the top risers, including Rio Tinto which staged a small recovery after being in a falling trend since the start of June. China recently said it would release metal reserves to calm a strong rally in commodity prices, and this has weighed on the mining sector in general.

Supermarket giant Tesco has also provided evidence that the surge in food shopping is slowing as the lockdown was relaxed.

Tesco’s UK sales rose 0.5% in the March-May quarter compared to a year earlier (when stockpiling early in the pandemic had lifted spending at grocers).

Sales were still 9.3% higher than two years ago, Tesco’s said, with customers consuming more meals at home than before Covid-19.

Two-year sales growth peaked in March - up 14.6% - but then “moderated in April/May as restrictions eased”, it adds.

Total group sales in the quarter were 1% higher than a year ago.

Tesco’s wholesale arm, Booker, benefited from the reopening of hospitality venues, with its sales 9.2% higher than a year ago.

And online demand remains high, at 1.3m orders per week. Sales were 22.2% higher than last year, following a surge in capacity in April 2020.

Shares in Tesco are down 2.2% this morning.

Chief executive Ken Murphy said:

“While the market outlook remains uncertain, I’m pleased with the strong start we’ve made to the year and continue to be excited about the many opportunities we have to create value over the longer term.”

Murphy has also said he was “very keen” for the UK government and the European Union to resolve their dispute over whether chilled meat products such as sausages, produced in Great Britain can continue to be sold in Northern Ireland.

Reuters has the details:

“We’re clearly very keen for the government to find a sustainable solution for the Northern Irish protocol with the EU and we’re waiting with interest ... we’re looking forward to a resolution,” Tesco CEO Ken Murphy told reporters after the group updated on first quarter trading.

He said product availability at Tesco’s 50 stores in the province is currently “really good”.

“Where we have had challenges in terms of bringing product into the north we have been able to switch to local supply,” he said.

More from the call:

Sales also dropped at clothing stores (-2.5% month-on-month) and department stores (-6.7% m/m) in May.

That suggests that demand moderated after the initial reopening rush in April, as the lifting of lockdown restrictions encouraged spending in restaurants rather than shops.

The ONS explains:

Clothing and department stores both reported monthly declines of 2.5% and 6.7% respectively.

However, both declines follow strong growth in previous months and the three month on three month growth to May 2021 highlights the continued recovery in these sectors with growth of 28.9% and 12.6% respectively.

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 unexpectedly in May as the reopening of hospitality venues hit spending at food shops, and online.

Retail sales volumes declined by 1.4% between April and May 2021, new figures show, following the latest easing of lockdown restrictions which allows people to eat indoors in restaurants and pubs again.

That follows a very strong April, when retail sales surged by 9.2% as the reopening of non-essential shops during April saw people racing back to the high street.

Economists had forecast retail sales growth of 1.6% in May. But instead, it appears that the reopening of indoor hospitality hit sales at food and drink vendors - as people took the opportunity to eat and drink out again.

The largest contribution to the monthly decline in May 2021 came from food stores (such as supermarkets), the Office for National Statistics says, where sales volumes fell by 5.7%.

The ONS explains:

...anecdotal evidence suggests the easing of hospitality restrictions had had an impact on sales as people returned to eating and drinking at locations such as restaurants and bars.

Despite this fall, food store sales remain higher than their pre-pandemic level, with sales in May 2021 2.6% higher than in February 2020.

But the ONS adds:

Feedback from retailers suggested that sales were negatively affected in May by both the reopening of all retail sectors and the relaxation of hospitality restrictions, with specialist retailers of alcoholic drinks and tobacco reporting a monthly decline of 8.4%.

Online shopping also took a hit in May, with retail sales volumes dropping by 4.2% as people returned to physical shops again.

Non-food stores, such as household goods outlets, had a better May, with sales volumes up 2.3%.

Household goods stores (for example, hardware and furniture stores) saw a 9% rise in sales, while “other” non-food stores reported 7.7% sales growth.

The ONS says:

.... anecdotal evidence from retailers suggested increased spending on outdoor garden furniture in preparation for the summer and the relaxation of social gathering rules.

But overall, retail sales are still strong over the last two months.

In April and May combined, average total retail sales volumes were still 7.7% higher than in March 2021 (before the easing of lockdown rules), and 9.1% higher than in February 2020 before the pandemic hit the UK.

Here’s ONS director of economic statistics, Darren Morgan:

More retail and reaction to follow....

Meanwhile in the markets, the US dollar is holding onto its gains since the US Federal Reserve penciled in earlier interest rate rises on Wednesday.

This has pushed the pound down to around $1.39, the lowest in six weeks.

European stock markets are set for a subdued open.

The agenda

• 7am: UK retail sales for May
• Today: Online retailer Boohoo hold AGM