Time to wrap up:

A software defect in part of the UK’s air traffic control system corrupted flight data “in the space of a millisecond”, leading to a six-hour outage and mass airline cancellations and delays across the UK last week, National Air Traffic Services has said.

But ministers said the Nats report into the incident still left questions unanswered, saying they needed “to urgently understand why this issue was not discovered and fixed before it caused chaos”.

According to the report, the error first occurred at 10am and was notified to engineers who investigated – but the system appeared to be working again, until 12.30pm when a repeat occurred and a major incident was declared.

The transport secretary, Heidi Alexander, said the industry regulator the Civil Aviation Authority (CAA) would now “check their findings” and investigate Nats’ plans.

Volkswagen has cut its financial guidance for this year, due to issues at Porsche, provisions for job cuts and a weak Chinese market.

The London stock market has recorded its biggest one-day drop since early July.

Japan’s central bank has increased interest rates to a fresh 31-year high as it attempts to combat global inflation linked to the war in Iran.

The Bank of Japan (BoJ) voted to raise its target interest rate from 1% to 1.25%, the highest level since 1995.

The move meant the BoJ joined the US Federal Reserve and the European Central Bank in tightening monetary policy this month, as central banks attempt to curb the impact of rising prices, linked to the conflict in the Middle East.

Retail sales across Great Britain unexpectedly rose last month, the latest economic indicator to defy gloomy forecasts as the chancellor, John Healey, prepares to present next month’s budget.

Newsflash: German carmaker Volkswagen has slashed its outlook, and warned that it faces a €10bn hit due to challenges at its Porsche division and in China, and the cost of job cuts.

Volkswagen has cut its forecast for Operating Return on Sales to ‘up to 1%’, down from a previous forecast 4.0 to 5.5%.

It is taking a €6bn non-cash impairment against goodwill allocated to Porsche.

Additional restructuring expenses from the expansion of early retirement schemes, the planned sale of its Osnabrück site, and “the development in the Chinese automotive market” will knock another €2bn off profits.

The news came before the Frankfurt market closed, so there was time for Volkswagen’s shares to fall by 5.5%.

Britain’s blue-chip share index has posted its biggest one-day drop in over two months.

The FTSE 100 share index has closed for the day, down 157 points or 1.45% at 10,659 points, its biggest one-day drop since 8 July.

Airtel Africa (-11.3%) was the top faller, following reports that its Airtel Money division is considering downsizing its London IPO.

Retailers and mining stocks were also in the fallers.

Stocks fell alongside government bonds today, as the yield on UK and US debt rose (see earlier post).

Fears of higher interest rates abounded today, after the Bank of Japan became the latest central bank to raise interest rates.

Premium sportswear brand On has signed a sponsorship deal with Kylian Mbappé - thereby ending the French sensation’s long-standing partnership with Nike - in a bid to break into the football market, my colleague Amee Joshi writes.

The Swiss company, founded in 2010 by ex-McKinsey consultants David Allemann and Caspar Coppetti, alongside world champion triathlete Olivier Bernhard, became known for its ‘Cloutec’ technology which Bernhard described as imitating the feeling of “running on clouds”.

Just over a decade on, in 2021, the trio floated the company on the New York Stock Exchange at a valuation of $8bn, raising almost $750m. It has since been recognised as one of the fastest growing brands in the industry, with their first-quarter sales growing to 14.5% this year, surpassing analysts forecasts.

Losing Mbappé, the star footballer many believe is poised to win this year’s Ballon D’or, only adds to Nike’s growing list of woes. Over the last five years, the sportswear giant’s shares have fallen by 75%, cast down by decreasing revenues in the lucrative Chinese market. Their persistent struggles culminated in last week’s announcement that it will crash out of the S&P 100.

Part of Nike’s decline has been attributed to their loss of focus on innovation, allowing smaller rivals, like On and Hoka, to attract top athletes and celebrities (like world champion marathon runner Hellen Obiri and actress Zendaya), and grow their global market share.

The “High Level Timeline” into the software glitch on 8 September shows there was a gap of almost two and a half hours before the initial problem, and the start of a major incident.

Initially, air traffic controllers and system engineers receive a system error notification at 10.02am that morning, related to the squawk code request explained in our earlier post.

That notification swiftly vanished, though, suggesting the system had recovered.

Between 10.06am and 12.32pm, health checks were carried out on infrastructure with no evidence found of any hardware fault.

But then at 12.32pm, the link between the London Area Control (LAC) system and the NAS was automatically dropped and the LAC system enters “a period of link instability”.

At 12.45pm, flight restrictions were imposed, and departures from UK airfields were temporarily stopped, so that air traffic controllers could operate safely under fallback arrangements.

Further restrictions were imposed through the day, before all airspace restrictions were lifted at 7.30pm.

The software error which brought UK airspace to a standstill was due to a problem handling squawk codes - an identification code transmitted (squawked) by the aircraft during flight.

Nats’s report explains that the incident was triggered by a valid manual request for a squawk code.

While this request was being processed, the National Airspace System received a message for a higher priority activity to be undertaken which resulted in the squawk code allocation being paused while the system processed the higher priority message.

So far, so normal. But, when the processing of the squawk allocation request resumed, the software defect meant it did not resume correctly and the resulting output was corrupted.

Nats says there was a very narrow window for things to go wrong in:

1. The defect existed in a specific subsection of code within a software module, with an exposure window estimated as approximately one millisecond.

2. For the fault to occur, a higher-priority request had to arrive during that exact millisecond while the original request was part-way through updating a value.

3. Had the higher-priority request arrived even one millisecond earlier or later, the update would have completed normally.

The government asked the UK’s civil aviation authority to check Nats’s report into its systems outage.

Heidi Alexander, the UK’s transport secretary, says:

“The disruption we saw last week was completely unacceptable and I know how frustrating it was for passengers, airlines and airports.

“I have now received NATS’ report and, while I am pleased to see that the safety of passengers was protected, it’s clear we need to urgently understand why this issue was not discovered and fixed before it caused chaos. I have therefore tasked the CAA with conducting an independent review to check NATS’ findings and investigate their investment plans to enhance resilience in the future, along with regulatory accountability.

“It is crucial that our national infrastructure is fit for the future, and this government will make sure the aviation sector is as resilient as possible, so passengers can get to where they need to be.”

Newsflash: British air traffic control operator Nats has reveale that the outage which affected hundreds of thousands of passengers last week was due to a software defect.

In a report into the disruption, Nats also dismisses claims that the disruption was caused by “military intervention.”

Martin Rolfe, Nats chief executive officer, says:

“This was a software issue in a specific part of our flight data system, that we have traced to a small subsection of coding.

The issue has been identified and mitigation is in place while a permanent fix is safety tested and deployed.”

The Financial Times reported last week that four people briefed on the incident claimed that the shutdown was caused by a flight plan submitted by a UK military aircraft.

NATS, though, is blaming “a software defect” in a small part of the National Airspace System (NAS), which is used to manage of UK airspace.

Hundreds of thousands of passengers were caught up in the disruption which began on Tuesday 8 September.

The software in question allocates codes to individual aircraft when manual requests are made; these are usually allocated automatically. These codes are used to identify flights on radar when they are airborne.

This glitch led to restrictions being put in place to limit air traffic to maintain safety. Although the software issue only affected flights in the London Area Control centre – higher level flights operating mainly above 24,500ft – the restrictions had to be placed across the UK so that the NAS could be restarted and flight data reloaded, it says.

The eurozone’s top central banker has tried to cool expectations that high energy costs will force the European Central Bank to keep raising interest rates.

Christine Lagarde told a news conference in Dublin:

“Interest rates do not move in lockstep with the price of energy because, obviously, the price of energy and its impact on prices has also an impact on other factors, including notably growth and consumption, and we factor in all these elements.”

Mothercare has warned it faces a “highly uncertain” future after its Middle East franchise partner revealed it was set to close most of its franchised stores across the region next year.

The troubled baby products group said it was a “heavy blow” for the firm and has now launched an urgent strategic review, adding that it has sufficient resources to trade for “a number of months”

Clive Whiley, chairman of Mothercare, told shareholders this morning:

“Whilst our recent financial performance has been resilient, this is a heavy blow to the Mothercare business and our stakeholders. We will continue to pursue discussions to restore critical mass and value for stakeholders, against this more difficult backdrop.”

Investors are taking fright, knocking Mothercare’s share down by 67% in early trading.

Bank of Japan governor Kazuo Ueda is giving a press conference in Tokyo now, to explain today’s decision to hike interest rates.

Reuters has helpfully collated some of the important quotes

ON 50-BP OR BACK-TO-BACK RATE HIKES:

“That depends on how ​price conditions develop. There could be ‌various possibilities. We shouldn’t ‌rule anything out.“

“We’re at a phase where we need to look at various data carefully. ‌But that doesn’t mean we can move slowly. We will analyse data carefully and take timely action as needed.“

“As for the pace of future rate hikes, we don’t have any pre-set idea in mind such as once every three months. We will determine at each policy meeting how best to ensure underlying inflation stabilises ‌at 2%.“

RISK FACTORS:

“If the renewed rise in energy costs persists, that could add further pressure to wholesale inflation and then consumer inflation. That’s something ​we need to look out for.“

FINANCIAL CONDITIONS:

“Financial conditions are becoming less accommodative as we raise rates ... It’s important to avoid financial conditions from tightening too much, or to cause a big adjustment in asset prices, by raising rates too sharply.“

NEUTRAL RATE UNCERTAIN:

“It is hard ⁠to pinpoint where the neutral rate is, and therefore the terminal rate. ​It might be the ​case that as we adjust policy ​as appropriate, we will know where those rates sit ex-ante.“

ON INFLATION:

“Up till ​now, our short-term ‌policy focus was ​to push ​up underlying inflation from levels below 2%. Now, underlying inflation is approaching 2%. If risks of underlying inflation overshooting 2% materialise, that could have a negative impact on Japan’s economy. It’s important to stabilise underlying inflation at 2%. Our policy phase has changed.“

The oil price has dropped by 2% this morning, pushed down by hopes that supply disruptions from Saudi Arabia may not be as severe as feared.

Brent crude has dropped to $102.55 a barrel, following reports that Saudi authorities hope to bypass a damaged section of its 1,200-km East-West Pipeline and restore roughly half its capacity within days.

That pipe was damaged in an attack last week which drove oil up over the $100/barrel mark, as traders anticipated significant disruption to supplies.

A drop in the oil price would cheer households, businesses and central bankers alike!

Despite the inflationary squeeze on households, retail sales across Great Britain have risen over the summer.

The heatwave, a pick-up in web shopping, and the joys (and pain and disappointment!) of the men’s football World Cup, helped to lift spending over the three months to August, new data shows.

Retail sales volumes rose by 0.9% in the June-August quarter, the Office for National Statistics has reported this morning.

Non-store retailers’ sales volumes rose following a particularly strong June period – perhaps because people preferred to order goods online rather than braving the high street in the heatwave.

Retailers selling alcohol and beverages performed well across all three months to August, which they attributed to promotions, the hot weather, and the World Cup.

In August alone, retail sales volumes rose by 0.5%, reversing a 0.5% drop in July.

August’s rise is unexpected (economists had forecast a 0.2% fall), so this is the latest piece of economic data to beat expectations after last week’s jump in UK GDP.

ONS senior statistician Jon Gough said:

“Retail sales increased in the latest three months, with a particularly strong June for online outlets helping to boost their sales across the period. Food store sales also rose, with supermarkets doing well in July and August.

“Meanwhile, retailers selling alcohol and beverages performed well across all three months, which they attributed to promotions, the hot weather and the World Cup.”

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

The global interest rate rising cycle has spun again today, after the Bank of Japan decided to raise interest rates to their highest level in 31 years.

The BoJ voted to raise its target interest rate by a quarter of one percentage point to 1.25%, the highest level since 1995. The vote was not unanimous – with two board members dissenting to the hike.

The move meant the BoJ has joined the US Federal Reserve and the European Central Bank in tightening monetary policy this month, as part of the global fight against inflation.

But the Bank of England is, so far, resisting joining the battle, having yesterday voted to leave UK interest rates on hold at 3.75%.

The BoJ has been in a rate-rising cycle since 2024, when it lifted its policy rate out of negative territory. It has been under pressure to raise borrowing costs as the yen weakened steadily against the dollar this year, to levels which prompted policymakers to intervene to stabilise the currency.

A hike today had been expected. So the news that two BoJ policymakers opposed the move has excited the markets.

Jim Reid, strategist at Deutsche Bank, reports:

So although the central bank reiterated that it will continue raising rates if economic and inflation conditions evolve as projected, the market has reacted to the two high profile dissenters. The Yen is -0.72% lower at 157.10, having been at around 153.40 at the start of the week and the JGB curve has steepened, with 2yrs -2.2bps and 30yrs +3.2bps

The agenda

• 7am BST: Retail sales data across Great Britain for August

• 10am BST: Eurozone construction output for July