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It’s been an important week for monetary policy as governments and central bankers across the world ramp up the fight against inflation while acknowledging the hit to growth from the crisis in Ukraine.

Just a few months ago, 2022 looked set be the year of global recovery, with the US, China and Europe returning to pre-pandemic levels of growth. But yesterday, the OECD, in the first estimate by an international organisation of the costs of the warpredicted an average 1 per cent hit to growth for rich economies. This however could be halved if governments used their fiscal powers to protect the poorest from surges in food and energy prices, the OECD said.

China was the first of the big economies to make a move, making a rare market intervention on Wednesday to reassure investors faced with slowing economic growth and a still raging battle against coronavirus as well as the effects of the war.

Later that day the US Federal Reserve announced its first interest rate rise since 2018, with the lift of a quarter-point from near zero and a signal of six further increases this year. It also revised up its forecasts for inflation to 4.1 per cent by the end of the year, from 2.7 per cent in December. One official today suggested the Fed should be much bolder and raise rates above 3 per cent this year or risk “losing credibility”.

The FT Editorial Board said the Fed looked to be too optimistic, arguing it was “not clear whether it is overconfident about its ability to control the inflationary pressure that has built up over the past year — pressure that it has consistently underestimated — or to limit the slowdown in the US economy and knock-on effects on unemployment from the oil shock.”

On Thursday, the Bank of England’s monetary policy committee decided to raise UK rates from 0.5 per cent to 0.75 per cent — the third consecutive increase since December — meaning rates are now back at their pre-Covid level. It also said inflation could hit 8 per cent by the end of June and get even higher in October when energy prices are set to rise again.

Meanwhile in Europe, which is much more reliant on Russia as an energy supplier, European Central Bank president Christine Lagarde yesterday warned of “new inflationary trends” as well as “significant risks to growth”. The ECB has already announced a scaling back of its stimulus programme ahead of a potential increase in interest rates before the end of the year.

A final note of caution comes from Free Lunch writer Martin Sandbu, who cites two important lessons from the pandemic: interdependent and complex supply chains mean that small disruptions in one place can be seriously amplified elsewhere and a significant supply shock can lead to an even greater demand shock.

“The standard modelling tends to work best when intricate interdependencies do not take us by surprise,” he argues. “But at the moment, it seems reasonable to fear that any surprises we get will be bad ones.”

Latest news

• Coronavirus infections among over-70s in the UK surge to a record-high

• Shell submits plans to open large North Sea gasfield at Jackdaw, off the Aberdeen coast, as the UK seeks to reduce reliance on energy from Russia

• Four EU and Nato member states expel total of 20 Russian diplomats for actions ‘contrary to their diplomatic status’

For up-to-the-minute news updates, visit our live blog

Need to know: the economy

The International Energy Agency issued a 10-point plan to reduce global oil demand by 2.7mb/d within the next four months to help balance losses from Russia, including driving restrictions, lower speed limits and curbs on air travel. British prime minister Boris Johnson failed to get commitments from Saudi Arabia and the United Arab Emirates to pump more oil after a visit to the two Gulf countries.

The bad news keeps on coming but US and European stocks keep on climbingwiping out losses incurred since the invasion of Ukraine. Fund managers said shares in good quality companies had been sold off too hard in response to political tensions.

Latest for the UK and Europe

International sanctions, combined with high interest rates, soaring inflation, capital outflows, lower investment and falling consumer confidence are likely to drag Russia into a deep recession this year. Rating agency Scope said the economy would shrink more than 10 per cent. An imminent default on the country’s dollar debt seems however to have been staved off. President Putin said he would increase Russian salaries and pensions to cushion the impact of the sanctions.

The Ukraine crisis has led to a fresh wave of panic buying in parts of Europe. Prices of bread, pasta and meat are already rising in Italy, which imports much of its wheat from eastern Europe and 80 per cent of its sunflower oil from Ukraine. The most serious victims of supply shortages however are poor countries outside Europe, such as Somalia, that are dependent on wheat from Ukraine and Russia.

UK chancellor Rishi Sunak will use his spring statement next week to pave the way for a major overhaul of Britain’s corporate tax system in an attempt to boost business investment and bolster weak prospects for economic growth. He has £12.5bn extra to play with due to inflation doubling the effect of planned income tax freezes. Consumer editor Claer Barrett looks at what Sunak could do to alleviate rising financial anxiety.

The number of independent stores on UK high streets increased for the first time in five years in 2021 as they took advantage of favourable rents and landlords more willing to fill vacant spaces.

Global latest

India’s central bank is considering a rupee-rouble trade arrangement with Moscow that could let exports to Russia continue after western sanctions restricted international payment systems. This would allow India to continue buying Russian energy exports and other goods, risking anger from the US and its allies.

Ehsan KhandouziIran’s minister of finance and economic affairs, wrote in the FT that his country needed to change fiscal policy after the shocks of sanctions, currency fluctuations, high inflation and the pandemic. He suggested the current nuclear negotiations in Vienna could lead to positive economic outcomes, especially in banking and foreign exchange.

Hong Kong’s wealthy are hurrying to sell or ship their yachts and luxury cars out of the territory as the city braces for tighter Covid restrictions. The number of infections since the fifth Covid-19 wave struck in December yesterday passed 980,000. In almost two years before that, Hong Kong recorded only about 12,600 cases.

New Yorkers are experiencing some of the most dramatic increases in US electricity prices of up to 50 per cent. A record 1.3bn residents of New York state have already fallen behind on utility payments during the pandemic.

Need to know: business

UK energy companies Neptune and Harbour paid out bumper dividends to shareholders as oil prices soared. FT economics editor Chris Giles says there are no good economics arguments against a windfall tax on North Sea oil and gas groups.

The pharma industry is caught in a bind over its ties with Russia as it balances the needs of sick patients while also demonstrating its opposition to the war in Ukraine. “Pharma is different from, say, McDonald’s. People can live without hamburgers but they can’t live without essential medicines,” said one investment adviser.

P&O Ferries dramatically sacked 800 sailors with immediate effect yesterday, bringing chaos to Britain’s ports, as it argued the company was no longer a “viable business”. P&O, owned by Dubai-based DP World, was criticised during the pandemic for a $330mn dividend payout even as it laid off staff and took government funding to keep freight services running. The FT’s Lex column hit out at the brutal hackings.

UK business writer Cat Rutter Pooley says the impact of the Ukraine crisis on company earnings may be small, but its indirect effects such as increased inflation and lower economic growth could be significant. “The challenge for investors will be disentangling what can rightly be attributed to the inflationary impact of the conflict, and where companies use these to conceal broader margin problems in their business,” she writes .

A huge online shopping battle is playing out in India between two of the world’s richest men: Amazon’s Jeff Bezos and Reliance Industries chair Mukesh Ambani. The long-running saga highlights the difficulties for overseas ecommerce companies trying to expand in a country with 1.4bn consumers, but where regulations give local players an advantage.

The pre-pandemic years were an era of Japanese megadeals as cash-rich companies looked abroad for growth, but corporate advisers say the country’s strict travel restrictions are holding back a return to overseas dealmaking. Top companies in Japan, where since 2000, real wages have risen just 0.39 per cent, have started to raise salaries as inflation bites.

The war is also hastening the end of the affordable carsays Frankfurt correspondent Joe Miller, as manufacturers focus on high-end modelsa trend initially sparked by the semiconductor crisis. France’s Renault is in a tight spot as one of the larger car companies in Russiaincluding its controlling stake in Lada, a brand synonymous with the Soviet Union.

Science round up

Coronavirus cases and hospitalisations are rising across much of the world including in the UK, where new polling data showed Britons taking far fewer precautions against Covid-19 than in previous months.

Our Big Read examines the development of “open-source” vaccines and their potential to narrow the inequality gap whereby more than three-quarters of people in low-income countries aged 12 and over have still to receive a single dose, compared with 10 per cent in high-income countries.

AstraZeneca said it would give up on submitting its Covid-19 vaccine for approval in the US if it finds it is “banging its head against a brick wall indefinitely” with regulators.

Read our new explainer on how genomic sequencing can detect the next coronavirus variant. The FT Editorial Board lauded scientific progress but warned that it would only be effective with global political collaboration.

Get the latest worldwide picture with our vaccine tracker

And finally…

After two years of talking to each other through a screen, many of us are understandably a bit rusty on small talk. Could chatbots help us rediscover the art of conversation?