Economic rebound offers respite for Rishi Sunak

Today’s top stories

• Russian forces launched an armoured attack on Ukraine’s northern Kharkiv region as Moscow sought to take advantage of its superior weaponry and manpower before the arrival of US military aid.

• Benjamin Netanyahu admitted his government failed to defend Israel on October 7, but stopped short of assuming personal responsibility for the worst loss of life in the country’s history. He said Israel would “stand alone” in a defiant message after Joe Biden warned that the US would not supply weapons for a potential invasion of Rafah in the Gaza Strip.

• European Central Bank policymakers said it was “plausible” they would be able to start cutting interest rates at their meeting on June 6 if data showed inflation was still falling.

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Good evening.

Better than expected growth, the prospect of a summer interest rate cut and an improved inflation outlook: three pieces of welcome good news for UK Prime Minister Rishi Sunak just one week after his party took a heavy beating in local elections.

Data released this morning showed the country exiting recession and recording growth of 0.6 per cent in the first quarter — the fastest rate since the last three months of 2021 — driven by a strong services sector and improving car production.

Chancellor Jeremy Hunt said today’s figures were “proof that the economy is returning to full health for the first time since the pandemic” and “an indication that difficult decisions that we’ve taken over recent years are beginning to pay off”.

The quarterly performance was better than the US and eurozone but compared with the pre-pandemic levels of the fourth quarter of 2019, the UK economy was still up just 1.7 per cent, well below the 8.7 per cent expansion in the US and the 3.8 per cent growth in the eurozone over the same period.

Today’s data was preceded by yesterday’s decision by the Bank of England to keep interest rates on hold at their 16-year high of 5.25 per cent but at the same time signal a rate cut should the “encouraging news” on inflation continue. The Bank now believes it will fall close to its 2 per cent target in the next couple of months.

Hopes of an imminent rate cut helped propel the FTSE 100 to its longest streak of record-high closes in more than seven years.

Whether the encouraging data will be enough to turn around perceptions of the Tory government ahead of a general election expected later this year is a moot point. Hunt’s would-be successor Rachel Reeves has accused the government of “gaslighting” the public and that any positive scraps of news were too little, too late and not making Britons feel better off. 

Some commentators on the other hand argue that it is increasingly difficult to see clear dividing lines between the two parties when it comes to the economy, giving rise to a new Hunt-Reeves — or “Heevesian” — consensus.

Need to know: UK and Europe economy

UK broadcasters warned that terrestrial television was in danger of becoming economically unviable as more viewers watch online. Rising distribution costs meant that it would become much less cost effective per viewer. 

Other countries are closely watching new UK measures to keep young people safe online, says the FT editorial board. Legislators and regulators will have to do a better job not just of keeping up with tech innovation such as artificial intelligence, but getting ahead of it, the FT says.

Scotland’s new deputy first minister Kate Forbes vowed to cut burdens on business. Private sector executives had complained that high taxes on better-paid workers, steeper business costs than the rest of the UK and erratic policymaking was undermining Scotland’s competitiveness.

EU members agreed to use an estimated €3bn in profits from Russia’s frozen state assets to jointly buy weapons for Ukraine. Euroclear, the central securities depository, will start transferring the money in July.

Europe urgently needed to narrow the productivity gap with the US to lift growth, Sweden’s central bank chief told the FT.

Need to know: Global economy

Japan, South Korea and Australia are tightening rules to rein in Big Tech, posing fresh challenges for Apple and Google following a similar crackdown in the EU and the US.

China’s trade has returned to growth as Beijing prioritises high-tech manufacturing. Imports of critical equipment for developing AI surged 50 per cent in the first four months of this year.

The visit of Xi Jinping to Europe has been largely unproductive, says the FT editorial board. China’s president gave few concessions on the EU’s trade concerns, whether on EVs and green technology, industrial subsidies and market access, or on its support for Russia’s war effort in Ukraine.

Need to know: business

Global carmakers are stepping up investment in hybrid technologies as take-up of electric vehicles slows thanks to a combination of still high interest rates and concern over inadequate charging infrastructure.

TikTok will become the first social media platform to automatically label AI-generated content from users as tech companies and governments seek ways of identifying deepfakes and stopping the spread of misinformation.

Chinese competition is becoming a “defining challenge” for European companies, according to the EU Chamber of Commerce in China. Chinese carmaker BYD said it aimed to overtake Tesla to become the top electric vehicle seller in Europe by 2030.

Profits at British Airways owner IAG rose more than expected in the first quarter thanks to the rebound in holiday and business travel. The company, which also owns Spain’s Iberia and Ireland’s Aer Lingus, forecast another strong summer for the industry.

Smuggling of spare parts is helping Russian airlines defy sanctions and keep passenger jets in the air. A Big Read explains.

Apple apologised for a new iPad advert showing musical instruments, artistic tools and games being crushed by a giant hydraulic press amid accusations of cultural insensitivity. The company has overhauled the range of tablets as it tries to reverse faltering sales.

After the regulatory bonfire of Donald Trump’s four years in office, Biden made tackling climate change a central priority and vowed to crack down on America’s oil and gas industry. US regulators are also targeting oil price fixing. Big Oil in return is now backing Trump for president. A Big Read explains.

Pandemic lockdowns and severe inflation in drink, food and energy costs put paid to many British pubs. There are signs, however, that they are fighting back, says columnist John Gapper. Heineken is among those reopening shuttered boozers.

Is competition for eyeballs warping our sense of the world? Chief data reporter John Burn-Murdoch looks at negativity bias in the media and how it affects our perceptions of the economy.

Science round up

Scientists say extreme weather will probably continue due to high concentrations of greenhouse gases after April marked the 11th straight month of record surface temperatures. The 15.03C average was 0.67C above the 1991-2020 figure for the month and 1.58C above pre-industrial levels.

Google DeepMind unveiled an AI model of life’s building blocks and their interactions within cells, boosting efforts to find treatments for conditions such as cancer. AlphaFold 3, initially developed in 2018, gives the most sophisticated forecasts yet of how tiny biological structures look and mingle.

The first mental health treatment using schedule-1 drug MDMA faces a significant regulatory hurdle as the US Food and Drug Administration consults outside experts for its use in post-traumatic stress disorder. If cleared by the regulator, there are big implications for the nascent category of psychedelic-based treatments.

Geologists are exploring whether magmatic brine, a mineral-rich soup that collects underneath active and dormant volcanoes, can be tapped for dissolved treasure such as lithium, copper and cobalt.

A clash between Britain’s 363-year-old Royal Society and more than 2,000 UK academics has escalated over the national academy of scientists’ refusal to attribute the role of oil and gas companies in climate change.

The Labour party said it would champion science and pay greater respect to the UK’s institutions should it be elected. The current government has created tensions with policies such as immigration fees for foreign researchers and accusations of “wokeism”.

Some good news

A baby born deaf can now hear after a world-first application of gene therapy developed by researchers at Cambridge university.