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Good evening from a sweltering London
European governments continue to search for ways of weaning themselves off Russian power before huge increases in energy bills hit households over the next few months.
The latest push came with German chancellor Olaf Scholtz’s backing for a new gas pipeline linking Spain and Portugal to central Europe via France. The proposal, backed today by Madrid and Lisbon, could be ready within nine months, according to Spanish energy and environment minister Teresa Ribera.
In the meantime, according to Portuguese prime minister António Costa, the port of Sines on his country’s south-west coast could be used as a hub to ship liquefied natural gas into Europe. LNG is becoming increasingly important as Russian gas dwindles, but Europe faces strong competition from Asia to lock in supplies for the winter months.
The EU has identified the lack of alternative pipelines as a key obstacle in beefing up the bloc’s energy infrastructure. Berlin is already under serious pressure after Russia cut flows through Nord Stream 1, the key connector with Europe, which is currently running at just 20 per cent capacity. German households are bracing for a surge in heating bills this winter as the shortfall pushes up prices and complicates the country’s efforts to fill its gas storage facilities.
A range of government measures to tackle the surge in energy prices are in operation across Europe, from price caps to tax cuts, windfall taxes and subsidies.
Low rainfall is also complicating matters. Norway this week said it would curb electricity exports to Europe if water levels for its hydropower plants remained low, denting hopes it could come to its neighbours’ rescue. And in Germany, low levels on the Rhine are adding to business worries: inland waterways may only account for about 6 per cent of German transport volumes but are used to ship 30 per cent of coal, crude oil and natural gas.
In the UK, forecasts for household energy bills continue to escalate, fuelling a deepening cost of living crisis. The latest, from consultancy Auxilione, suggests the average could top £5,000 next year, following a steep rise in wholesale gas prices.
Ministers are meeting power company chiefs to discuss possible remedies, while also drawing up plans to combat the threat of outages this winter. On the positive side, a common front against Russia’s energy squeeze has improved fractious relations between the UK and the EU.
The IMF last week suggested European countries pass on increased energy costs to consumers to encourage energy saving and the shift to greener power, albeit with targeted help for poorer households that are disproportionately affected by the increases.
Meanwhile, the International Energy Agency said western sanctions had only had a “limited impact” on Russian oil output. Although exports have fallen to Europe, the US, Japan and Korea, the routing of flows to countries such as India, China and Turkey has mitigated the country’s losses.
The IEA also lifted forecasts for oil demand thanks to its increased use for power generation in Europe and the Middle East as gas becomes too expensive.
Amid the gloom there are some crumbs of comfort for consumers. US petrol prices have dipped below $4 a gallon for the first time since Russia’s invasion of Ukraine. The trend is also being replicated in Europe, reports our Energy Source newsletter: EU drivers are paying 9 per cent less than in June and British drivers 8 per cent.
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Need to know: the economy
New UK GDP figures this morning showed the economy shrank 0.1 per cent in the second quarter, following growth of 0.7 per cent in the first three months of the year, as households cut spending and falling Covid cases and testing depressed health output. The country also reported its worst trade deficit since records began.
Latest for the UK and Europe
Drought was formally declared across parts of England, as the UK suffers its driest summer for 50 years, with rainfall, river flows, soil moisture, groundwater and reservoir levels all much lower than normal.
Industrial production in the eurozone increased for the third month in a row, raising hopes that supply chain problems may be easing. The June rise of 2.4 per cent on the previous year was well ahead of the 0.8 per cent forecast by economists.
The German economy, in particular its industrial sector, has been hit hard by surging inflation, supply chain issues and faltering global demand. Growth in what was traditionally Europe’s powerhouse has stagnated, with the IMF slashing its 2023 forecasts. On top of this, severe drought along the Rhine poses a massive threat to business.
Fed official Mary Daly told the FT it was too soon to “declare victory” against inflation despite Wednesday’s encouraging CPI report. She did however signal support for the Fed to slow the pace of its interest rate increases.
Columbia’s first leftist government in modern times is targeting the wealthy and the country’s commodities exports in a major tax reform. The measures aim to raise an additional $5.8bn next year or 1.7 per cent of GDP.
Argentina raised interest rates to 69.5 per cent as inflation leapt 7.4 per cent in July from the previous month, marking an annual increase of 71 per cent.
Need to know: business
The head of SMIC, China’s top chipmaker, said geopolitical tensions were creating panic in an industry already beset by high inflation and a gradual downturn in demand.
US west coast editor Richard Waters says the use of data is moving to the forefront of regulators’ antitrust concerns. Lina Khan, chair of the US Federal Trade Commission, has emphasised the need to act more aggressively against vertical integration — deals that combine companies in different parts of a value chain, such as Amazon’s purchase of iRobot.
Pandemic-related migration to Florida has led Miami to become the new boom town for corporate lawyers.
Beijing’s zero-Covid policy and weak consumer confidence has battered China’s second-hand market for luxury goods such as high-end watches and handbags.
One high-end industry definitely not on the rocks — unless you like it served that way — is Scotch whisky. The spirit has proved surprisingly resilient considering the headwinds of Brexit changes in trade rules, supply chain problems and surging inflation. The number of Scottish distilleries is at its highest since the second world war.
Steady progress is being made on driverless cars, writes innovation editor John Thornhill, but the lack of public acceptability and legal certainty could yet prove the industry’s biggest roadblock.
Carmakers are also facing challenges in their drive towards an electric future. China has monopolised supplies of materials for electric batteries while the cost of those that remain on the market is soaring. Chinese company CATL today announced a €7.3bn battery plant in Hungary, confirming its status as the world’s largest car battery manufacturer.
Science round up
North Korea declared “victory” over Covid-19, just three months after first admitting to an outbreak of the virus, with a total death toll of just 74. Experts are sceptical, given the lack of mass testing, while some suggest it may have more to do with wanting to revive trade with China.
The Omicron variant continues to cause havoc in parts of the world. Tibetan cities were locked down after experiencing their first Covid outbreak in two years. Lockdowns have also affected popular Chinese tourist destinations such as Hainan.
There was however optimism in Hong Kong, which this week shortened its hotel quarantine for international arrivals to three days.
The EU drugs regulator said it would await trial data before approving vaccines designed to tackle the original coronavirus and the Omicron variant. The decision contrasts with the US, which is planning to approve the jabs before data on their efficacy are released.
BioNTech and Pfizer are starting clinical trials for vaccines targeting the BA.4 and BA.5 variants of Omicron. BioNTech reported lower sales and earnings than expected in the second quarter after the EU renegotiated its Covid vaccine contract amid a glut of shots. Pfizer is also testing a vaccine for Lyme disease.
Novavax also pointed to lower demand for jabs as it slashed its 2022 revenue forecast. People in rich countries have become more reluctant to take repeated booster shots, while vaccine hesitancy is still a factor in poorer nations.
Another potential danger is poliovirus, which has been detected in London sewage, prompting the rollout of a vaccine booster to children in the city aged one to nine.
Covid cases and vaccinations
Total global cases: 581.2mn
Total doses given: 12.4bn
Get the latest worldwide picture with our vaccine tracker
Some good news…
Columnist Sarah O’Connor picks out a cheering nugget from some new official statistics. Compared with pre-pandemic times, Britons are spending more time socialising, relaxing and keeping fit and less time commuting. Long may it continue.