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Cineworld on brink of bankruptcy after Covid slump

·29 min read
Cineworld bankruptcy US debt admissions cinema pandemic Covid - REUTERS/Henry Nicholls/File Photo
Cineworld bankruptcy US debt admissions cinema pandemic Covid - REUTERS/Henry Nicholls/File Photo

Cineworld is preparing to file for bankruptcy after it was hammered by a collapse in audiences during the Covid crisis.

The world's second-largest cinema chain has hired lawyers and consultants ahead of potential petitions in US and UK courts as it battles to stay afloat.

Shares in the London-listed company shed as much as 80pc of their value, tumbling to a new low of 1.8 pence before closing at 4.1 pence after the news was reported by the Wall Street Journal. It followed a 60pc drop on Wednesday when the company said it was holding rescue talks with investors.

Chicago-based law firm Kirkland & Ellis has reportedly been brought in to offer advice alongside New York consultancy AlixPartners. Cineworld declined to comment.

The company has blamed the turmoil on disappointing box office sales, which have put a strain on its finances and made it harder to pay down debt.

It is thought that Cineworld could now file for a Chapter 11 bankruptcy in a US court within a matter of weeks, with a UK insolvency filing also under consideration.

In the UK the chain employs thousands of staff and operates 127 Cineworld and Picturehouse theatres. Globally it employs 28,000 people.

At the height of the pandemic, Cineworld temporarily shut its UK cinemas and placed 5,500 workers on furlough.

Philippa Childs, head of the entertainment and media union Bectu, said: "This is very worrying news, not least for the UK's Cineworld and Picturehouse workforce who have already been through a tumultuous time during the pandemic.

"The UK's cinema industry suffered an incredible blow due to Covid-19 and this latest news will be very unsettling for cinema workers.

"We will do everything we can to support our members during this challenging time and will be looking to Cineworld to mitigate the impact of any bankruptcy arrangements on its employees."

Asked about the reports, a spokesman for Cineworld said: "We don’t have anything to add beyond the statement we made on Wednesday.”

The business reported a $708m (£599m) loss last year, compared to a $3bn loss in 2020, even after sales were boosted by the release of new James Bond and Spiderman films.

At the same time, the company – which faces paying $1bn for pulling out of its takeover of Canada’s Cineplex – added $493m to its debt pile, taking the total to $4.8bn.

Cineworld's warning on Wednesday said ticket sales had been “below expectations”, despite the release of blockbusters such as Top Gun: Maverick and Thor: Love and Thunder, and that a disappointing future line-up meant the malaise could continue until November.

The company stressed that its business continued to trade as usual.

Cineworld has warned shareholders to expect a “very significant dilution” of their holdings if it successfully strikes a rescue deal.

Cineworld was founded by Steve Wiener and opened its first theatre in Hertfordshire in 1996.

The business grew to become one of the UK’s largest cinema chains before merging with Cinema City International in 2014, a group controlled by the Greidinger family that has its roots in Israel.

Three years later it swooped on US giant Regal in a £2.7bn takeover, creating the world’s second largest cinema group.

However, Mooky Greidinger, Cineworld’s chief executive, recently revealed his fears for the business.

Speaking during an Israeli court hearing over a local distribution dispute, he said the company’s future “isn’t certain”.

According to local media, he said: “We were an unprecedented success story.

“I don’t think there are many Israeli companies that reached a status similar to the world’s second largest cinema chain.

“But two-and-a-half years ago our life's work collapsed. Over the past two-and-a-half years, because of Covid-19, I’ve been fighting every day to save what we have built.

“I hope we succeed but it isn’t certain.”

06:15 PM

Wrapping up

That's all from us this week, we shall see you on Monday! Before you go, check out the latest stories from our reporters:

06:13 PM

Gazprom to halt Nord Stream gas link for three days for works

Natural gas flows via the key Nord Stream pipeline from Russia to Europe will be halted for three days at the end of the month for maintenance, according to Gazprom.

Gas supply will stop from Augist 31 through September 2 as the single functioning turbine at the Portovaya compressor station needs “a complex of routine maintenance,” said the Russian gas producer.

European benchmark futures rose as much as 9pc after the announcement as traders remain on edge over Russia’s further moves over the controversial link, where flows have already been cut to just 20pc of capacity. Gas prices posted the longest run of weekly gains this year today, intensifying the pain for industries and households, and threatening to push economies into recession.

05:53 PM

Britain will not start criminal proceedings against P&O Ferries

Britain will not start criminal proceedings against P&O Ferries over the company's decision to fire nearly 800 workers in March and then hire cheaper staff, the government's Insolvency Service has announced.

The sackings sparked criticism from trade unions and politicians, leading the government to cancel a contract with the company.

A spokesman for the Insolvency Service said: "After a full and robust criminal investigation into the circumstances surrounding the employees who were made redundant by P&O Ferries, we have concluded that we will not commence criminal proceedings."

05:34 PM

FTSE 250 in worst weekly performance since early July

The FTSE 250 has logged its worst weekly performance since early July as a bunch of grim data this week including consumer sentiment hitting a record low in August stoked fears about a recession in the UK.

The index, more exposed to the domestic economy, slid 1.2pc and logged weekly losses of 2.2pc. Meanwhile, the FTSE 100 has inched up 0.1pc today aided by sterling's tumble to a five-week low.

AJ Bell financial analyst Danni Hewson said: "The consumer backdrop feels increasingly gloomy and that's bad news because consumer spending is such an important contributor to the UK economy.

"The Bank of England faces the unenviable task of trying to get inflation down without inflicting too much pain on businesses and households and the seeming impossibility of this task is raising the spectre of prolonged stagflation – a slowing economy and surging prices."

05:12 PM

Ofcom ends two-year investigation into Sky's pay-TV services handling

Ofcom has ended a near two-year investigation into Sky's handling of its customers with a slap on the wrist for the company.

The telecoms regulator said companies have to let subscribers know when the minimum contract period has ended for their broadband, mobile, home phone and pay-TV services. But Sky had not done this for its pay-TV customers, because it thought it was exempt.

Ofcom said: "Sky considers that its pay-TV services do not fall within the definition of an 'electronic communications service'.

"Sky therefore maintains that it has no obligation to notify its pay-TV customers when their minimum contract period is coming to an end."

Sky was told to change its practices in nine months from now. The company said: "We continue to believe Sky's pay-TV service is not an electronic communication service under the legal definition in the Communications Act 2003, but we note the outcome of Ofcom's investigation."

04:46 PM

Bank of Cyprus rejects takeover offer from Lone Star Funds

Bank of Cyprus has rejected a takeover offer from Lone Star Funds at 1.51 euros per share.

Under UK takeover rules, Lone Star has until Sep. 30 to announce whether or not it will make an offer. A representative for Bank of Cyprus declined to comment to Bloomberg.

Bank of Cyprus shares rose as much as 23pc today. The stock closed 9pc higher, giving the company a market value of €579m (£492m).

US-based Lone Star, led by billionaire founder and chairman John Grayken, has a track record of investing in banks and its portfolio includes Germany’s IKB Deutsche Industriebank and Portugal’s Novo Banco.

04:22 PM

Foot Locker's appoints new boss in “huge win”

Foot Locker has named retail industry veteran Mary Dillon to be its next chief executive, in a move that one analyst called a “huge win” for the company.

Dillon, formerly the chief and executive chair of Ulta Beauty, will replace Richard Johnson, who is retiring. Dillon will also become a member of the athletic-wear retailer’s board.

Shares of Foot Locker rose as much as 25pc in New York trading, their biggest gain in almost five years. The company also reported second-quarter results that beat analysts’ estimates.

Dillon is “beloved” by Wall Street and her joining Foot Locker is a “huge win” for the company, Evercore analyst Warren Cheng said in a note to clients.

04:10 PM

Handing over

That's all from me – thanks for following! Giulia Bottaro will see you through to the weekend.

04:02 PM

Insulation firm Kingspan posts record results despite costs surge

Insulation company Kingspan told shareholders it had a record performance in the first half of the year despite "extraordinary" cost increases across raw materials.

The Irish company reported a 42pc boost in revenue to €4.2bn (£3.6bn) and said its trading profits were up by almost a third, hitting €434m.

It also reiterated its expansion plans, including building 25 new production lines in the next five years.

But the group acknowledged significant price inflation of raw materials and the potential pressure that energy supply constraints could add in the months ahead.

The results coincided with Kingspan announcing that ex-Bank of Ireland chief operating officer Senan Murphy had been appointed as non-executive director of the group.

Shares in Kingspan were up more than 5pc.

03:35 PM

Wayfair to slash 870 jobs amid cost-cutting plan

Wayfair furniture job cuts - AP Photo/Jenny Kane, File
Wayfair furniture job cuts - AP Photo/Jenny Kane, File

Online furniture retailer Wayfair is cutting about 870 employees – or 5pc of its global workforce – as part of an overhaul aimed at keeping down costs.

The company reported 55pc sales growth in 2020 as locked-down families spent heavily to furnish living rooms and other parts of the house. Last year, as more people ventured out, sales declined 3.1pc.

Wayfair expects costs related to the job cuts to run between $30m (£25m) and $40 million in the third quarter, mostly related to employee severance and benefits.

The company said it's also in the process of making substantial cuts to third-party labour costs as well. Shares fell as much as 13pc.

03:12 PM

Revolution Beauty to suspend shares amid accounting issues

Revolution Beauty has said trading in its shares will be suspended from September as it doesn't expect to be able to release its full-year results on time on August 31.

The make-up retailer previously said its auditors had raised accounting issues that could have a material impact on its profit for the year.

Shares dropped more than 40pc.

The latest revelation comes days after Boohoo acquired nearly a 13pc stake in Revolution, making it the third largest shareholder.

02:43 PM

Tech stocks drag down Wall Street

Wall Street's main indices have opened lower, dragged down by major tech stocks amid fears of more interest rate rises.

The S&P 500 fell 0.4pc at the open, while the Dow Jones was down 0.3pc. But the tech-heavy Nasdaq was the biggest loser, shedding just over 1pc.

02:13 PM

Cineworld shares nosedive on bankruptcy reports

Cineworld shares crashed 80pc following reports the chain is planning to file for bankruptcy in the US within weeks.

The Wall Street Journal reported that Cineworld has hired lawyers from Kirkland & Ellis and consultants from AlixPartners to advise on the Chapter 11 filing.

The world's second-largest cinema operator is also said to be considering an insolvency proceeding in the UK.

02:03 PM

Truss's tax cut plans and soaring inflation to almost double UK's borrowing bill

A combination of soaring inflation and Liz Truss’s planned tax cuts will blow a £170bn hole in the UK’s public finances this year – well above the official forecast of £99bn, economists have warned.

Szu Ping Chan has more:

Official figures showed the government borrowed £4.9bn in July to plug the gap between tax revenues and spending.

This is £4.7bn higher than expected by the Office for Budget Responsibility (OBR), and comes amid a 63pc jump in debt interest costs.

The Foreign Secretary, who is vying to succeed Boris Johnson as prime minister, has pledged to reverse a £13bn rise in national insurance payments introduced by rival and former Chancellor Rishi Sunak. She has also pledged to scrap green levies on energy bills and cancel planned increases in corporation tax next year.

Pantheon said it expected the combination of extra support, surging inflation and a recession to cause government borrowing to hit £170bn this year, in contrast to £99bn forecast by the OBR.

The UK's annual deficit currently stands at £55bn this financial year. That’s £3bn more than official forecasts in March.

Read Szu's full story here

12:39 PM

Hong Kong house prices could fall 10pc after rate rises

Hong Kong house prices - REUTERS/Bobby Yip//File Photo
Hong Kong house prices - REUTERS/Bobby Yip//File Photo

House prices in Hong Kong could tumble as much as 10pc in the second half of the year after two major banks raised mortgage rates for new buyers to the highest since 2008.

HSBC and Standard Chartered are raising the cap on Hong Kong residential mortgage rates by 25 basis points for the first time this year.

As a result, home prices could fall 5pc to 10pc in the second half, putting buyers’ purchasing power to the test, according to analysis by Bloomberg.

Hong Kong's property market is already feeling the heat after four rate rises this year.

Average prices have already fallen around 4pc, according to data from Centaline, after an exodus of residents amid political tensions and strict Covid rules.

12:16 PM

US futures slide as traders ramp up interest rate bets

US futures lost ground this morning after a string of Federal Reserve officials reiterated their determination to keep raising interest rates.

Two voting members of the FOMC – St. Louis’s James Bullard and Kansas City’s Esther George – said the central bank will continue to raise interest rates until inflation eased back to its 2pc target.

While their views diverged on the size of the September move, they dampened expectations that a string of weak economic data will encourage the Fed into a dovish pivot.

Futures tracking the S&P 500 fell 0.8pc, while the Dow Jones was down 0.6pc. The Nasdaq slumped 0.9pc.

12:00 PM

More Budweiser strikes planned after talks collapse

Budweiser GMB strikes - Daniel Acker/Bloomberg
Budweiser GMB strikes - Daniel Acker/Bloomberg

Britons could be facing more beer shortages as Budweiser workers plan more strikes.

Members of the GMB union are plotting further industrial action after they turned down a pay offer from the company.

Around 275 workers at Budweiser's factory near Preston will walk out between August 22 and August 29. It follows a wave of strike action last month.

Stephen Boden at the GMB said:

We don’t believe there is any real desire from Budweiser to resolve this dispute.

It’s disgraceful that they cancel a meeting the evening before we are due to meet with no real reason.

Therefore, we will be going ahead with a series of stoppages over eight days, impacting all departments and shifts across the site.

11:47 AM

How the Bank of England failed to keep pace with inflation – according to its former policymakers

The Bank of England's mission hasn't changed in more than 300 years.

Founded in 1694 to bankroll a war against France, its job then was to "promote the public good and benefit of our people". Those words survive in today's mandate, though much has changed.

So is it time for a rethink? Many who used to work there think so.

Almost a dozen rate setters told Szu Ping Chan that the Bank was too slow to respond to signs of an overheating economy.

Read her full story here.

11:28 AM

Citi fined £12.6m for trading surveillance failings

Citigroup FCA fine - REUTERS/Mike Segar
Citigroup FCA fine - REUTERS/Mike Segar

Citigroup has been fined £12.6m by the City watchdog for failing to properly implement market abuse controls.

The Financial Conduct Authority said compliance teams at the US bank's broker-dealer couldn't effectively monitor trading activities for potential insider dealing and market manipulation.

It said the systems were found wanting between November 2015 and January 2018.

Citigroup is already under pressure to improve its controls after it was hit with a record £44m fine by the Bank of England in 2019 for years of inaccurate reporting about its capital and liquidity levels.

US regulators also slapped it with a $400m fine the following year for persistent problems with risk management.

Citigroup was granted a 30pc discount on the latest fine after agreeing to resolve the case.

11:05 AM

Pound drops against dollar after Fed comments

Sterling dropped against the dollar after hawkish comments by Federal Reserve speakers pushed traders to ramp up their bets on interest rate rises.

Money markets now reckon there's a 40pc chance of another aggressive 75 basis-point rate rise next month.

The pound fell as much as 0.5pc to $1.1869 – its lowest since July 18. It's fallen more than 2pc since Monday, putting it on track for its worst weekly performance since June 2021.

10:44 AM

Putin should be banned from G20, says Sunak

Tory leadership contender Rishi Sunak has called on the G20 to ban Russian President Vladimir Putin from its meetings until Moscow halts the war in Ukraine.

Putin and Chinese leader Xi Jinping will attend the G20 summit on the resort island of Bali this November, a longtime adviser to the Indonesian president said earlier.

A spokesman for the former Chancellor said:

Our G20 partners and allies have a collective responsibility to call Putin’s abhorrent behaviour out. Sitting round a table with him isn’t good enough when he is responsible for children being killed in their beds as they sleep.

We need to send a strong message to Putin that he doesn't have a seat at the table unless and until he stops his illegal war in Ukraine.

10:32 AM

Bitcoin slumps to three-week low amid market gloom

Cryptocurrencies suffered a sharp sell-off this morning as global markets retreated amid growing uncertainty about interest rates and the economic outlook.

Bitcoin tumbled as much as 8.3pc, reaching the lowest level since late July. It pared losses to trade down 6pc at $21,990.

Ether and smaller cryptocurrencies posted bigger declines. Around $220m of crypto positions were sold off in just an hour this morning, with Bitcoin accounting for around half that, according to data from Coinglass.

Crypto's recovery since June is looking increasingly shaky as traders struggle to get a clear sense of the Federal Reserve's plans for interest rate rises.

10:06 AM

Apple warns of security flaw for iPhones, iPads and Macs

Apple warned of serious security vulnerabilities for iPhones, iPads and Macs that could potentially allow attackers to take complete control of these devices.

Giulia Bottaro has more:

The tech giant said it is "aware of a report that this issue may have been actively exploited".

It said the malicious application "may be able to execute arbitrary code with kernel privileges", which means the hacker could fully access the device.

The vulnerability could also process "maliciously crafted web content" which "may lead to arbitrary code execution" on WebKit. WebKit is Apple's browser engine used on various applications such as Safari, Mail and App Store.

Security experts have advised users to update affected devices, such as the iPhones6S and later models, several models of the iPad, including the fifth generation and later, all iPad Pro models and the iPad Air 2, as well as Mac computers running MacOS Monterey. It also affects some iPod models.

Rachel Tobac, chief of SocialProof Security, said that the vulnerability means a hacker could get "full admin access to the device" so that they can "execute any code as if they are you, the user".

09:37 AM

FCA warns over 'buy now pay later' amid cost-of-living crunch

Klarna FCA buy now pay later - Klarna
Klarna FCA buy now pay later - Klarna

The City watchdog has told firms offering 'buy now pay later' loans to spell out the cost of late repayments to customers as the cost-of-living crisis escalates.

Companies like Klarna offer interest-free, short-term loans to consumers to help spread payments for goods such as clothes.

The loans are unregulated, but the Financial Conduct Authority can intervene in how they are advertised.

The FCA told BNPL firms and the British Retail Consortium that benefits of 'buy now, pay later' were being emphasised in adverts without fair and prominent indications of any relevant risks.

Some BNPL lenders charge late payment fees, and a failure to pay can also hit consumers' credit ratings.

The watchdog said it would use criminal and regulatory enforcement powers to tackle promotions which breach its rules.

09:20 AM

German producer prices surge to record high

German producer prices surged to a record high last month in a sign the country's inflation woes will only get worse.

Factory gate prices surged 37.2pc from last year, driven primarily by high energy prices. The monthly increase was also a record.

The producer price index, which measures inflation before it reaches consumers, suggests soaring prices in Germany may not have passed their peak.

Europe's largest economy stagnated in the second quarter, with the war in Ukraine, soaring energy prices, the pandemic and supply disruptions bringing it to the edge of a downturn.

The country's finance ministry said:

The outlook for the further development [of the economy] is currently noticeably gloomy.

The significantly lower gas supplies from Russia, the persistently high price increases for energy and, increasingly, other goods, as well as the longer-than-expected supply chain disruptions, also in connection with China's zero-Covid policy, are weighing heavily on the economy's development.

09:07 AM

Record-breaking gloom grips Britain ahead of 'nightmare' winter

Here's some more on the grim economic data that's weighing on sentiment this morning, courtesy of my colleagues Louis Ashworth and Tim Wallace.

A record-breaking economic gloom is gripping Britain as households brace for a “nightmare” winter of soaring costs.

Consumer confidence has plummeted to its lowest ever level as the Bank of England increases interest rates to counter rocketing inflation, according to a closely watched survey from the data company GfK.

Meanwhile, separate data showed that a host of industries are in contraction in a sign the country is teetering on the brink of recession.

GfK blamed acute concerns over the cost of living for a drop in its confidence index to -44, the lowest it has been since launching in 1974.

The outlook darkened on every one of GfK's measures, with Britons feeling increasingly pessimistic about their own finances and the general economy both at present and over the next year.

The bleak outlook is unlikely to be enough to prevent the Bank of England from a spate of further interest rate rises to control inflation, which reached a new 40-year high of 10.1pc in July.

​Read their full story here

08:53 AM

Just Eat sells Brazilian business stake for €1.8bn

Just Eat Takeaway iFood - REUTERS/Eric Gaillard/File Photo/File Photo
Just Eat Takeaway iFood - REUTERS/Eric Gaillard/File Photo/File Photo

Just Eat Takeaway has agreed to sell its 33pc stake in Brazilian food delivery business iFood for as much as €1.8bn (£1.5bn).

The deal fulfils a promise to shareholders and will bolster the company's balance sheet, but it marks a cut-price sale. Just Eat last year said a €2.3bn offer for its holding was inadequate.

Just Eat said it will use the proceeds to strengthen its balance sheet and repay debt, and the company said it’s also still pursuing a partial or full sale of its Grubhub business. Shares jumped 29pc.

08:42 AM

FTSE risers and fallers

The FTSE 100 has slipped into the red this morning amid a fresh wave of negative sentiment over the economic outlook.

The blue-chip index initially dropped 0.3pc before moderating losses slightly, capped by the pound tumbling to a four-week low.

While retail sales pushed higher in July, the overall trend continues downward, with shoppers forced to pay more to buy less as inflation surges.

A separate survey showed consumer sentiment has tumbled to its lowest level on record.

The domestically-focused FTSE 250 tumbled 0.5pc and was on track for a weekly loss of 1.4pc.

Joules was the biggest market mover, slumping more than 30pc after it issued a profit warning.

08:24 AM

Joules shares crash after profit warning

Joules profit warning - Joules
Joules profit warning - Joules

There's more evidence of the grim outlook for retailers after Joules issued a warning on profits.

The upmarket brand said trading had "softened materially" since its last update as hot weather hit sales of its rain-proof and warm clothes and accessories, while dwindling consumer sentiment forced it to offer more discounts.

Joules said it now now expects a full-year adjusted loss before tax “significantly below” current market expectations and is in discussions with its bank on a waiver of certain covenants on its loans.

Shares in Joules crashed 39pc following the update.

08:13 AM

More reaction: Last hurrah before spending slumps

Richard Lim, chief executive of Retail Economics, says the outlook for the retail sector is "as tough as I can recall".

The amount of spare cash families has left after paying for essentials is evaporating fast. So, while sweltering temperatures boosted demand for summer clothes and supported sales of beauty products, it feels like this is the last hurrah before the impact of rising interest rates and rocketing inflation chokes spending further.

Cutting back on ‘nice-to-haves’, trading down to cheaper alternatives and delaying non-essential spending are all coming into play as a more cost-conscious consumer emerges. Sales volumes declined across both food and non-food compared with the previous year, as consumers tighten their belts.

The outlook is as tough as I can recall. Inflation is still yet to peak, and the impact of rising interest rates takes time to trickle through to households.

Consumer confidence has hit an all-time low and even those that do have cash to spend will be more inclined to bolster their rainy-day fund given such an uncertain outlook.

08:10 AM

Reaction: Shoppers are cutting back spending

Kien Tan, director of retail strategy at PwC, warns the outlook for retailers is much bleaker than the headline figures suggest.

Perhaps surprisingly, the ONS reported a slight 0.3pc increase in retail sales volumes in July 2022.

However, looking under the surface, and bearing in mind the additional full trading days in July given the extended Jubilee bank holidays in June, the momentum in retail sales continues to be negative, reflecting the wider cost-of-living crisis and reining back of spending by consumers.

The improvement in retail sales in July was almost entirely accounted for by non-store sales, reflecting promotional and clearance activity online, such as the Amazon Prime Day event held in June last year, but in July this year.

Almost every other retail category continued to go backwards. While value sales were almost 6pc higher than the previous year – excluding petrol – this was accounted for by inflation. In volume terms, sales actually declined by 3pc compared to July 2021.

08:07 AM

ONS: Retail sales in downward slide

Darren Morgan at the ONS said there are signs consumers are tightening the purse strings as the cost-of-living crisis deepens

Retail sales nudged up very slightly in July, but looking at the longer-term picture, they are continuing the downward trend which started last summer.

Online sales did pick up this month, as retailers told us that sales were boosted by a range of offers and promotions.

However, fuel sales fell with some evidence suggesting the very hot weather meant fewer people travelling.

Clothing and household goods sales declined again, with feedback continuing to indicate consumers are cutting back due to increased prices and concerns around affordability and cost of living.

08:01 AM

FTSE 100 opens lower

The FTSE 100 looks set to end the week on the back foot after UK borrowing figures jumped and a rise in retail sales failed to calm concerns about the economic outlook.

The blue-chip index fell 0.3pc to 7,520 points.

07:51 AM

Online shopping discounts spark retail sales rebound

UK retail sales online shopping - Chris Ratcliffe/Bloomberg
UK retail sales online shopping - Chris Ratcliffe/Bloomberg

This morning's other major economic data is retail sales, which enjoyed a surprise rebound last month as online promotions helped defy expectations of an inflation-driven slowdown.

The volume of goods sold in July rose 0.3pc after a decline of 0.2pc the month before, according to the Office for National Statistics.

The increase was driven by a 4.8pc surge in online retail, with inflation-busting deals offsetting a decline in sales of clothing, household goods and second-hand items.

Still, the figures showed the value of retail sales rose sharply while volumes stagnated. That indicates shoppers are paying higher prices for the same amount of goods.

The numbers also came alongside a drop in consumer sentiment to a record low, highlighting mounting concerns of a recession and inflation that are squeezing household budgets.

Helen Dickinson, chief executive of the British Retail Consortium, said:

The summer sunshine brought a slight uplift in sales. Summer clothing, air conditioning appliances and outdoor foods all benefitted from record temperatures, but most retailers will still be seeing falling volumes in the face of rising inflation.

07:45 AM

Inflation threatens tax cut plans

The latest public sector net borrowing figures show how much surging inflation is driving up the cost of servicing government debt.

It's not just borrowing though – benefits and pensions bills will also be driven higher, limiting the headroom for major tax and spending giveaways.

That's causing some concern among economists, who have raised questions about the Tory leadership contenders' promises for tax cuts.

Liz Truss’s pledges include a promise to reverse April’s national insurance tax increase and cancel next year’s rise in corporation tax.

Meanwhile, Rishi Sunak has offered to cut VAT on energy bills and a series of reductions in the basic rate of income tax.

The IFS said:

The two candidates for Prime Minister need to recognise this even greater-than-usual uncertainty in the public finances.

Additional borrowing in the short term is not necessarily problematic – and indeed may be appropriate to fund targeted support. But significant permanent tax cuts would, unless matching spending cuts can be delivered, certainly increase the chances that the government fails to meet its own manifesto commitments on borrowing.

Read more on this story: Inflation surge threatens Truss's tax cut plans, says IFS

07:38 AM

Inflation drives up UK debt costs

Good morning.

Government borrowing has exceeded forecasts as surging inflation drives up the costs of servicing debt.

Public borrowing hit £4.9bn in July – much larger than the £0.2bn expected by the fiscal watchdog. That took the total for 2022-2023 so far to £55bn, which is £3bn more than forecasts.

While tax income was higher, the deficit was driven up by debt servicing costs, which surged 81pc from last year.

That's because a quarter of government debt is tied to the retail price index, which surged to its highest since 1981 last month as rampant inflation shows no signs of slowing.

The figures will add to pressure on Tory leadership contenders Liz Truss and Rishi Sunak, who've both vowed to cut taxes despite surging public borrowing.

5 things to start your day

1) How the Bank of England failed to keep pace with inflation – according to its former policymakers  Veterans of the Monetary Policy Committee say it is time for a rethink of how it works

2) Interest rates must hit 6pc to tame inflation, says founding Bank of England rate-setter  Willem Buiter says policy will need to be "seriously restrictive" to reach 2pc target

3) Discovery offloads GB News stake as channel builds £60m war chest  Co-founders and US backer bought out in latest shake-up of broadcaster taking on Sky News and BBC

4) Former Lloyds chairman backs Truss plan for City super-regulator  Existing financial watchdogs frequently ‘conflict or pull in different directions’, says Lord Blackwell

5) Peter Thiel’s luxury New Zealand lodge blocked by environmentalists  Billionaire's planning application denied on the grounds the estate would have ‘sufficient adverse visual effects’

What happened overnight

Asian shares were left in limbo this morning while the US dollar made all the running as recession clouds gathered over Europe and highlighted the relative outperformance of the US economy.

Added concerns about the health of China's economy saw MSCI's broadest index of Asia-Pacific shares outside Japan ease 0.3pc, to be down 1.1pc on the week.

Chinese blue chips were flat, while South Korea lost 0.5pc. Japan's Nikkei fared better with a 0.3pc gain due in part to a renewed slide in the yen.

Coming up today

  • Corporate: Apax Global Alpha (interims)

  • Economics: GfK consumer confidence, public finances, retail sales (UK), inflation (Japan), producer prices (Germany)