Bank of England warns of recession risks as it raises interest rates to 1% – business live

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Oil giant Shell has almost tripled its quarterly profits, as the surge in oil and gas prices drive up earnings and intensify calls for a windfall tax on excess profits.

Shell recorded adjusted earnings of $9.13bn (£7.25bn) in the first quarter of this year, its latest quarterly results show.

That’s almost three times the $3.2bn it made in the same quarter a year earlier, and 43% higher than in the last quarter of 2021 – and even more than analysts had forecast.

Shell says the increase in earnings is mainly due to higher energy prices, a strong performance by its trading arm, and lower operating expenses and tax, partly offset by lower volumes.

The group has also taken a $3.9bn charge related to “the phased withdrawal from Russian oil and gas activities”.

Shell is no longer buying Russian oil on the spot market (after apologising for buying one shipment in March), but will continue to fulfil contracts on buying fuel from Russia signed before the invasion of Ukraine.

It says it is making an:

Orderly withdrawal from its involvement in all Russian hydrocarbons, including crude oil, petroleum products, gas and LNG in a phased manner, aligned with new government guidance.

Since these announcements, Shell has stopped all spot purchases of Russian crude, liquefied natural gas, and of cargoes of refined products directly exported from Russia. Shell will not renew long-term contracts for Russian oil, unless under explicit government direction, but is still legally obliged to take delivery of crude bought under contracts that were signed before the invasion. By the end of this year, all of Shell’s long-term 3rd party purchases of Russian crude will stop, except for two contracts with a small, independent Russian producer.

All of Shell’s contracts to purchase refined products exported from Russia will also end.

Shell adds, though, that it still has “long-term contractual commitments” for Russian liquidied natural gas (LNG).

Reducing European reliance on piped natural gas supplies from Russia is also a very complex challenge that requires concerted action by governments, as well as energy suppliers and customers.

Soaring energy prices pushed UK inflation to a 30-year high of 7% in March, and some economists fear it could hit 10% this year, intensifying the cost of living crisis.

Those pressures mean the Bank of England is widely expected to raise interest rates today to the highest level in 13 years, despite worrying signs that the economy is slowing.

The City predicts the BoE will vote for a quarter-point rise, lifting base rate from 0.75% to 1%, which would be the fourth rise in as many meetings, as it tries to dampen down inflationary pressures.

John Hardy, Head of FX Strategy at Saxo Bank, explains:

The BoE feels that the outlook for real growth in the UK is very poor, driven by a drop in real incomes and that it is tightening its policy as a necessity linked to intolerably-high inflation.

But could hiking today be a policy error, if the economy is faltering?

Kallum Pickering, a senior economist at Berenberg, says there are reasons to be cautious:

“Amid plunging consumer confidence and evidence of a pullback in household demand, [raising rates] is not without risk, in our view.

“If we are unlucky, the UK is already in the early stage of a recession.”

The Bank will also publish new economic forecasts, which may show slower growth and rising inflation than expected three months ago, with UK households facing the fastest fall in living standards since the mid-1950s.

Here’s our preview on the Bank’s decision:

Related: Bank of England expected to raise interest rates despite faltering economy

Last night, America’s central bank announced its biggest interest rate rise in 22 years, as it lifted US interest rates by 50 basis points, to a range of 0.75% to 1%,

Federal Reserve chair Jerome Powell also signalled the Fed could implement further 50bp increases at future meetings, as it takes a more aggressive approach to tackling high inflation.

Powell explained:

Inflation is much too high and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.

The economy and the country have been through a lot over the past two years and have proved resilient. It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all.

Related: Federal Reserve announces biggest interest rate hike since 2000

But Powell also said the FOMC wasn’t “actively considering” a 75bp jump, which calmed fears of a steep rate hike next month.

Shares surged on Wall Street, with the S&P 500 recorded its biggest one-day percentage gain in nearly two years.

European markets are expected to rally too.

Other central banks, including India and Brazil, raised rates on Wednesday, in a global battle against inflation.