Time to recap.

The European Central Bank has pledged to maintain its record low interest rates until eurozone inflation is firmly at its new 2% target. At its first meeting since its strategy review, the ECB said it would maintain “persistently accommodative monetary policy stance” to hit its goals.

ECB president Christine Lagarde also warned that the delta variant of Covid-19 could hold back the recovery, with some restrictions expected to remain in place for the rest of the year.

More Americans have filed new claims for unemployment support, raising concerns that the US recovery is being hurt by rising delta cases. There were 419,000 ‘initial claims’ for jobless help last week, a rise of over 50,000.

The UK government has outlined plans to cut its majority shareholding in NatWest bank.

The trading plan, otherwise known as a “drip” sale, means the Treasury could end up selling up to 15% of the average amount of NatWest shares usually traded over 12 months. That could net the government a maximum £1.2bn based on the current share price, which would be on top of any additional bulk share sales the government chooses to launch over the next year.

However, the Treasury stressed it would only sell shares at a price that represented value for money for taxpayers. The government is expected to take a loss on any sale, having paid 502p a share as part of the bank’s bailout in 2008.

Consumer good giant Unilever has warned that the rise in raw material, packaging and transport costs is hitting its profit margins, sending its shares down almost 6% today.

UK factories have reported a surge in orders and output, and escalating fears that shortages of parts and labour will hurt growth.

Bank of England deputy governor Ben Broadbent has weighed into the heated debate on UK inflation, arguing that many of the factors driving up prices this year are temporary, and unlikely to create longer-term inflation pressures.

Bankers and advisers are in line for a £275m payday from the proposed takeover of the British supermarket Morrisons, according to newly published documents.

British Gas has more than doubled its profits for the first half of the year after cold weather prompted customers working from home to turn their heating up, and small companies began to reopen for business after Covid-19 lockdowns last year.

A Chinese billionaire has been granted planning permission to construct an eight-storey, 5,760-sq metre (62,000-sq-ft) private palace overlooking Hyde Park, central London.

Goodnight. GW

In the City, the FTSE 100 index has ended 30 points lower at 6968 points, down 0.45% today.

Unilever (-5.9%) dragged the blue-chip index down after warning that rising inflationary pressures were hitting its profit margins, as the cost of raw materials, packaging and transport soars.

Fellow consumer goods giant Reckitt Benckiser (-2.4%) took a knock too, with housebuilder Persimmon (-4.3%), miner Rio Tinto (-2.1%) and Primark owner AB Foods (-1.9%) all lower.

NatWest finished 2.7% lower at 194.2p, after the government announced plans to sell some of its stake, returning the bank to majority private ownership almost 13 years after its bailout.

European stock markets had a better day, though, with the Stoxx 600 finishing 0.6% higher with gains in Germany, France, Italy and Spain.

The US stock market has opened mixed, as the rise in jobless claims last week dampens the mood.

The Dow has dropped, while the tech-focused Nasdaq is a little higher, suggesting investors are a little less optimistic about the economic rebound.

• Dow Jones industrial average: down 85 points or 0.25% at 34,712 points
• S&P 500: down 3 points or 0.1% at 4,355 points.
• Nasdaq Composite: up 26 points or 0.2% at 14,658 points

Insurance group Travelers is the top faller on the Dow (-1.75%), followed by oil company Chevron (-1.4%), aircraft maker Boeing (-1.2%) and entertainment firm Walt Disney (-1%).

Big tech firms are rising, though, including Salesforce.com (+1.2%), Microsoft (+1.35%), Apple (+1%) and Alphabet (+0.3%).

The number of Americans filing new unemployment claims has jumped, in a sign that the labour market remains volatile as the pandemic continues.

There were 419,000 fresh ‘initial claims’ for jobless support last week, on a seasonally adjusted basis. That’s an increase of more than 50,000 compared with the previous seven days, when there were 368,000.

Strip out seasonal adjustments, and there were more than 406,053 initial claims – up around 14,400 week on week.

Although these weekly jobless claims numbers can be volatile, experts are disappointed to see claims rising:

This increase comes as America sees a rise in Covid-19 infections, with the Delta variant now accounting for over 80% of cases.

Here’s some early expert reaction to the European Central Bank’s new forward guidance, first from Fred Ducrozet of Pictet:

...Viraj Patel of Vanda Research....

..James Smith of Resolution Foundation:

Gurpreet Gill, macro strategist, global fixed income, Goldman Sachs Asset Management, says:

As expected, key words – persistent and tolerant –communicated during the conclusions of the ECB’s strategy review remained relevant at today’s ECB meeting. The central bank cemented its dovish policy guidance, noting its persistently accommodative policy stance may require policymakers to be tolerant of inflation overshooting its target.

We expect the ECB to maintain its status quo of “status low” for the foreseeable future, with rate hikes unlikely to be on the policy agenda until the second half of this decade at the earliest. Looking ahead, we think investor focus will be on the outlook for asset purchases, with the Pandemic Emergency Purchase Program (PEPP) scheduled to end in March 2022.

Elga Bartsch, head of macro research, BlackRock Investment Institute, says the ECB has delivered a ‘dovish surprise’ by specifying that it will leave interest rates at the current or at a lower level for much longer [until its forecasts show inflation firmly at 2%]

The ECB indicated after today’s governing council meeting that policy support in the euro area will likely persist for longer and potentially also be stronger than previously assumed, as the ECB seeks to deliver on its new symmetric inflation target of 2%. This dovish tilt to the interest rate forward guidance reinforces our overweight stance on European equities and our neutral stance on euro area government bonds, and underpins our “New Nominal” investment theme, which describes a more muted response from bond yields in the face of rising inflation than in the past.

Today’s dovish move, which will likely be followed by an upward adjustment in QE later this year, was enabled by the ECB’s new strategy framework unveiled on July 12. It has been made possible because, contrary to the strategy framework itself, which was agreed unanimously, the policy decisions themselves do not need to be taken by consensus.

So even though hawks on the governing council may have prevented the ECB adopting any form of average inflation targeting in the strategy review, doves can potentially now shift policy in the direction of some deliberate toleration of inflation overshoots. Against this backdrop the September staff inflation projections will be interesting to market participants.

Over in Frankfurt, the European Central Bank has left interest rates unchanged at their current record lows, and pledged not to raise them until inflation has stabilised at 2% in the medium term.

The ECB’s governing council left its headline borrowing rate at just 0.0%, while banks continue to be charged negative rates (-0.5%) on their deposits left with the ECB.

The ECB has also updated its forward guidance, explaining how it will achieve its new target of aiming for 2% inflation (rather than just below 2%).

It says it did so to “underline its commitment to maintain a persistently accommodative monetary policy stance to meet its inflation target”.

The ECB says.

In support of its symmetric 2% inflation target and in line with its monetary policy strategy, the governing council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term.

This may also imply a transitory period in which inflation is moderately above target.

Inflation in the euro area dipped to 1.9% last month, with rising energy and commodity prices pushing up consumer prices.

The ECB is also pressing on with its bond-buying stimulus programmes (both its long-standing QE programme, and its pandemic support scheme).

The ECB says:

1. Net purchases under its asset purchase programme will continue at a monthly pace of €20bn
   
   
2. The pandemic emergency purchase programme (PEPP) will continue to run at a significantly higher pace than during the first months of the year (having been sped up earlier this year, to stimulate growth and inflation).
   
   The total PEPP envelope remains at €1.85trn, and will run until “at least the end of March 2022” and also until the coronavirus crisis phase is over.

UK factories have recorded their strongest growth in new orders since the 1970s, but fear that staff shortages and cost pressures will hurt growth.

Manufacturing output volumes continued to grow at the fastest pace on record in the three months to July, matching June’s blistering growth, according to the latest healthcheck from the CBI.

It also found that total new orders expanded at their quickest rate since 1974, with domestic orders growing at the fastest pace on record.

And encouragingly, manufacturers expect output to grow at an even quicker pace in the next three months – the strongest growth expectations in the survey’s history.

But... concerns about the availability of materials/components, skilled labour, and plant capacity hitting output are now at their most heightened since the mid-1970s (a time of industrial disputes, and the Three Day Week introduced to ration electricity)

Rain Newton-Smith, CBI chief economist, says the government must rethink its self-isolation rules (as the ‘Pingdemic’ causes disruption across the UK economy).

She says:

Acute staff shortages evident across the economy are biting deeply within manufacturing, with skills in short supply and the number of people isolating climbing steeply.

Businesses have already endured a prolonged period of inhibited demand, so it is vital that government now takes all possible steps to protect this resurgence in activity.

In the short-term, that should mean an immediate rethink on self-isolation rules. A test-and-release system which enables healthy people to return to work would help, as would freeing double-jabbed people from isolation obligations. This would ensure manufacturers can operate at full capacity, and work towards capitalising on a swift recovery.”

Businesses are due to learn today whether their staff could qualify for “critical worker” status, enabling them to leave self-isolation in England if they are double-vaccinated to avert major disruption to food supplies.

The CBI survey also found that factory headcounts in the three months to July grew at their quickest pace since 1973. Business optimism remained strong, with investment intentions for plant & machinery in the year ahead improved to their strongest since 1988.

But firms continue to face significant cost pressures, due to ongoing global supply disruption. Average costs growth in the three months to July accelerated to its fastest pace since 1980, prompting them to raise their own output prices.

Ben Broadbent, deputy governor of the Bank of England, has predicted that many of the factors pushing up UK inflation will be temporary.

In a speech this morning, Broadbent tried to dampen the idea that the Bank should react to the jump in the cost of living over its 2% target, saying:

Quite a bit of the current rise in inflation is actually coming directly from the higher price of oil, something that is likely to fall away through the early part of 2022.

He also provided these charts:

Broadbent added:

And, as we’ve seen, periods of rapid price rises in other traded goods haven’t just been temporary – they’ve often been followed by below-average rates of inflation. So, while we know it’s going to go further over the next few months,

I’m not convinced that the current inflation in retail goods prices should in and of itself mean higher inflation 18-24 months ahead, the horizon more relevant for monetary policy.

In his speech, Broadbent laid out how the pandemic has created mismatches - in the supply of labour and goods.

On the jobs side, the furlough scheme has matched lower labour demand with lower supply, helping to support demand and wages. And on goods, the prices of many tradable goods have been driven up by supply-side problems, rising commodity prices, and a shift in demand from services and towards goods.

Broadbent argues these factors will be temporary, predicting that the very rapid rates of wholesale goods-price inflation are likely to subside at some point, and in some cases could even go into reverse.

He added:

We know the furlough scheme is being wound down, restoring a significant degree of supply to the labour market. As far as tradable goods are concerned, it’s unlikely the pandemic-related shifts in demand will continue if the threat of the illness itself recedes.

They’re more likely to narrow (we may already be seeing some signs of that correction in the data).

And in a dovish signal, Broadband argues that central bankers could choose to look through these inflationary pressures:

What, in view of all this, is the appropriate policy response to the current inflation?

Most of the overshoot relative to target in the latest CPI numbers – more than all of it, on some measures – reflects unusually strong inflation in goods prices. In all likelihood that will also be true of the larger overshoot we’re going to see towards the end of this year. And if this was only a story about global goods prices – and depending how confident you were in its transitory nature – I think the answer could well be “nothing”.

A split is clearly forming at the Bank with other policymakers, such as Michael Saunders and deputy governor Dave Ramsden, suggesting it could slow its stimulus programme to rein in inflation.

The ONS have also reported that cybercrime and fraud rose sharply during the pandemic, as criminals took advantage of the move to online shopping.

In its latest crime survey for England and Wales, the ONS shows there were 4.6 million fraud offences in the year ending March 2021, a 24% increase compared with the year ending March 2019.

This included increases in consumer and retail fraud, advance fee fraud and other fraud and may represent fraudsters taking advantage of behaviour changes possibly related to the coronavirus (COVID-19) pandemic, such as increased online shopping and increased savings.

One notorious fraud is the fake delivery scam, which tries to trick people that they need to pay a fee to receive a package. Other fraud included investment opportunity scams, the ONS adds.

There were also 1.7m computer misuse offences in the year to March 2021 – an 85% jump on the year ending March 2019, largely driven by a 162% increase in “Unauthorised access to personal information (including hacking)” offences.

This included victims’ details being compromised via large-scale data breaches, and victims’ email or social media accounts being compromised, and sometimes used to request money from their contacts.

So while many other offences, such as burglary, dropped during the lockdown, total crime levels were unchanged, the ONS says:

While there were decreases across a range of individual crime types, particularly theft offences, these were offset by rises in fraud and computer misuse offences, resulting in no change in overall levels of crime.

Here’s the details:

Consumer spending on credit and debit cards in Britain fell last week, dropping further below its pre-pandemic levels.

Aggregate credit and debit card spending dropped by 5 percentage points from the previous week, to 92% of its February 2020 average level.

That suggest the the revival in spending after lockdown measures lifted has eased off, at a time when Covid-19 cases are rising.

Spending on ‘staple’ goods fell by 8 percentage points, while ‘delayable’ spending dropped 6pp and social spending was down 2pp.

That’s according to data from payment processors provided by the Bank of England, included in the latest weekly check on the economy from the Office for National Statistics.

It also found that the number of online job adverts has increased slightly as firms continued to look to recruit workers, there are more cars on the roads, and more flights at UK airports (but just 37% as many as before the pandemic).

Here’s the full details:

• In the last two weeks: currently trading UK businesses reported that 11% of their workforce have moved from furlough or fully homeworking to a hybrid model of working; this is unchanged from the previous wave.
• In the week to 18 July 2021, the seven-day average number of daily flights increased by 6% from the previous week but is only at 37% of the level seen in the equivalent week of 2019.
• In the week to 15 July 2021, the aggregate CHAPS-based indicator of credit and debit card purchases decreased by 5 percentage points from the previous week to 92% of its February 2020 average level, with week-on-week falls in “staple”, “delayable” and “social” spending.
• On 16 July 2021, the volume of online job adverts had increased across all UK countries and English regions when compared with the previous week, except in Northern Ireland, where they fell and the East Midlands where they were broadly unchanged.
• The volume of all motor vehicle traffic on Monday 19 July was up 5 percentage points from a week ago.
• In the week to 17 July 2021, overall retail footfall in the UK was at 75% of the level seen in the equivalent week of 2019; high street footfall saw a weekly increase of 3%, its first rise since the beginning of June 2021.
• In the week to 19 July 2021, the seven-day average estimate of UK seated diners was broadly similar to the previous week at 116% of its level in the equivalent week of 2019.
• The proportion of working adults in Great Britain who in the past seven days worked exclusively from home decreased slightly by 2 percentage points from the previous week to 21%.

Consumer goods giant Unilever has warned that soaring costs are hitting its profit margins – and led it to raise its own prices.

The food, home cleaning, and personal care and beauty group told shareholders this morning that the surge in commodity costs was eating into profit margins, knocking its shares lower.

CEO Alan Jope says Unilever delivered a “strong first half”, but added:

We have seen further cost inflation emerge through the second quarter. Cost volatility and the timing of landing price actions create a higher than normal range of likely year end margin outcomes.

We are managing this dynamically and expect to maintain underlying operating margin for 2021 around flat.

Unilever, which makes Domestos bleach, Magnum ice cream, Hellmann’s mayonnaise and Dove soap, also reported that “price growth stepped up” in the second quarter of the year, as it passed on higher costs to consumers.

In the first half of this year, its underlying sales rose by 5.4% – including 1.3% from higher prices and 4.0% from sales volumes. Ice cream sales, for example, rose as lockdown restrictions began to ease in areas such as Europe.

But Unilever’s underlying operating margins dropped to 18.8% in the first half of the year, from 19.8% a year ago. The company says it increased advertising spending, and also faced a rise in “material, packaging and distribution costs globally”. Underlying earnings per share fell 2.0%.

Shares in Unilever have dropped 4.3% this morning, to the bottom of the FTSE 100.

Many manufacturers have warned that the costs of ingredients, commodities, packaging and transport have all risen as the pandemic puts pressure on supply chains.

Unilever also says that the operating environment across its markets have seen some improvements but remains volatile.

Restrictions on daily life continue around the world, impacting channel dynamics, sales mix and consumer behaviour.

Although renewed restrictions in India impacted the market in the second quarter, they were less severe than in the same period last year.

In China, normalisation has continued, but market growth is still below pre-Covid-19 levels.

The north America and Europe markets declined in the second quarter as we lapped the surge in demand for in-home food and hygiene products in the same period of 2020.

In difficult macroeconomic conditions, markets are growing in Latin America but market conditions in South East Asia remain challenging.

In Indonesia, large parts of the country have entered lock-down following a sharp rise in Covid-19 cases.

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

More than a decade after the financial crisis, the UK government is taking another step towards cutting its majority shareholding in NatWest.

The Treasury announced this morning it has instructed Morgan Stanley to sell NatWest shares on its behalf over a 12-month window, with sales starting on 12 August 2021 at the earliest and running for up to a year.

The sale is capped at 15% of the traded volume of NatWest shares, and the Treasury insists they will only be sold at a price that represents “value for money for taxpayers”.

The government says this trading plan shows “continued progress” towards the government’s plan to return its shareholding to private ownership, adding:

Shares will only be sold at a price that represents value for money for taxpayers.

There is cap on the total number of shares that could be sold of 15% of the total number of NatWest Group shares being traded in the market over the 12 month duration of the plan.

The government still owns around 54.7% of NatWest after bailing out the lender almost 13 years ago, which was then called Royal Bank of Scotland, in the crisis of 2008 as it battled to prevent the collapse of the banking system.

So this sale could finally take the taxpayer’s stake below 50% –having hit 84% back in 2009.

In May, the government sold around £1.1bn of NatWest shares, so this is another move towards lowering the taxpayer’s stake in the bank.

However, recouping the cost of the bailout remains unlikely. The UK paid an average of 502p per share when it rescued RBS. NatWest shares closed at around 200p last night. But they have been rallying recently, doubling since hitting 90p last autumn.

The sale will free up some cash as the government faces a tricky autumn spending review, with demands to spend more to fix a £10bn black hole in health, education and transport.

Also coming up today

UK retailers are warning of the risk of food shortages as the UK’s “pingdemic” puts a growing strain on supply chains.

The number of workers, including food processing staff and lorry drivers, getting pinged by the NHS Covid app continues to rise, creating increased pressure to keep shelves stocked – and calls to include supermarket staff, lorry drivers and other frontline workers on a list of those exempted from self-isolation rules.

This morning, the boss of supermarket chain Iceland told Good Morning Britain this morning that the situation is getting worse.

Richard Walker warned:

Issues around supply chain have been building for quite some time. We have a structural issue with HGV drivers for a variety of different reasons. The pingdemic has made it even worse. The double pronged problem is that our store workers are now getting pinged as well.

We have over 1,000 who have been pinged and are having to self isolate at home. The result of these two issues combined means that we are starting to see some availability issues and it is increasingly very challenging to keep our shops open, to keep lorries travelling to our shops, to keep food on our shelves and to keep staff in our shops to serve the customers.

Walker is calling on the government to adjust the app or self-isolation rules urgently, ahead of planned changes on 16 August.

Our main Covid-19 liveblog has full details:

The European Central Bank is meeting to set monetary policy across the eurozone, for the first time since it adopted its new strategy of targeting inflation of 2% and to allow temporary inflation overshoots when interest rates are at record lows.

Investors are keen to hear how this will change its ‘forward guidance’ on interest rates and its stimulus programmes, and to hear its view of the economic recovery in Europe.

We also get the latest US unemployment data, and a healthcheck on UK factories.

The agenda

• 7.45am BST: French business confidence survey for July
• 9.30am BST: BoE deputy governor Ben Broadbent Speech
• 11am BST: CBI industrial trends survey
• 12.45pm BST: European central bank decision on interest rates
• 1.30pm BST: ECB press conference
• 1.30pm BST: US weekly jobless claims