A warning that US progress on inflation is likely to be slow

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• German output contracted 0.3 per cent last year as high inflation, rising interest rates and elevated energy costs made Europe’s largest economy one of the weakest performers in the world, according to an initial estimate.

• The chair of the world’s banking watchdog has said global leaders need a co-ordinated response to AI, warning that the fast-developing technology “could change the course of history, not necessarily for the good”.

• The Maldives has given India until mid-March to withdraw its troops from the archipelago nation, as its new pro-China president draws closer to Beijing.

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A top Federal Reserve official said he was “expecting to see much slower progression of inflation moving forward” ahead of data that showed US price rises outstripping forecasts in December, dimming market expectations of a cut in interest rates within the first quarter of this year.

The underwhelming December data comes at the end of a six-month period where US inflation has fallen sharply enough for rate-setters to consider lowering borrowing costs from their current 23-year high of 5.25-5.5 per cent, with most officials expecting rates to end next year at 4.5-4.75 per cent.

Traders in futures markets have bet that the Fed will lower their benchmark interest rate as early as March, making as many as six rate cuts throughout the year to just below 4 per cent.

However, December’s CPI figure of 3.4 per cent on an annual basis has forced observers to reappraise the timeline for rate cuts and raised concerns that progress on inflation has begun to slow.

Raphael Bostic, the Atlanta Fed president who will vote in the Federal Open Market Committee’s rate decision meetings this year, told the Financial Times that inflation could “see-saw” if policymakers cut rates too soon.

The inflationary impact of a recent surge in shipping costs on the back of disruption to traffic in the Suez Canal caused by the targeting of vessels by the Houthis would also need to be watched “very closely”, he said.

The cost of shipping a 40ft container from the Far East to Europe has been driven up almost 150 per cent over the past month, according to data from Xeneta, a logistics research firm, while oil prices briefly jumped above $80 a barrel for the first time in 2024 on Friday after the US and UK struck military targets, following more than 25 attacks by Houthi militants on shipping since November.

Shipping giant AP Møller-Maersk said it would reroute ships from the Red Sea around Africa “for the foreseeable future” after Houthi militants escalated their attacks, prompting economists to warn that the global economy would come under fresh inflationary pressure if the disruption continued.

Alan Beattie’s Trade Secrets briefing issued a warning that Red Sea disruptions might delay rate cuts globally, but added that it probably wouldn’t send the process into reverse.

Need to know: UK and Europe economy

Poland’s Prime Minister Donald Tusk is set to oppose the renewal of an EU free-trade deal with Ukraine in contrast to the pledge he made when he took office last month, to put Poland back at the heart of EU policymaking after years of feuding with Brussels. The European Commission is expected tomorrow to propose extending the suspension of tariffs until June 2025. Poland’s stance will not affect the outcome.

Asset managers have warned of a “major and serious risk” to European capital markets if regulators do not copy the US and cut settlement cycles to one day, after the US moved from T+2 to T+1. The move will come into effect in May.

Need to know: Global economy

Chinese chipmakers are taking group tours to network with their Japanese counterparts as the semiconductor industry adapts to increasingly stringent export controls introduced by the US and its allies. The tours offer access to Japanese chip companies and semiconductor trade fairs according to advertisements, Japanese chip company employees and Chinese industry insiders.

Three-fifths of Japan’s prime-listed companies have failed to disclose plans to improve capital efficiency that were requested by the Tokyo stock exchange as part of a radical scheme aimed at shaming them into reform.

Need to know: Business

Claims made by Boeing chief executive Dave Calhoun last October that the US plane manufacturer was focusing on improving production quality are coming under scrutiny after the mid-air door plug blowout on one of its 737 Max aircraft. As an investigation begins, he will know that his own credibility and that of his executive team are on the line. The company will now allow airline customers of its 737 Max aircraft into its factories to review its procedures.

Bill Ackman has threatened legal action against German media group Axel Springer and its US-based Business Insider financial news site in an escalation of a bitter fight over plagiarism claims against the hedge fund boss’s wife, Neri Oxman. Reports of plagiarism against the academic are “accurate and well documented”, the chief executive of Business Insider has told staff.

Fund manager GQG has amassed a $2.8bn holding in companies in the Middle East and expects to raise this further, encouraged by the “business-friendly” approaches of governments in the region and their plans to diversify away from a reliance on oil, while it has cut its position in China to around half that level.

Global reinsurers have started to pull back from risks in the Middle East, threatening to further drive up costs and risks for businesses operating in the region.

McKinsey’s work as a prime contractor to the US government fell last year to the lowest level since 2014, even after the consulting firm was added back to a list of preferred suppliers. Its US government revenue fell to $54.9mn in the fiscal year to September 30, compared with $71.1mn the previous year, according to a government database.

Freshfields Bruckhaus Deringer’s former global head of tax, Ulf Johannemann, should face more than five years in jail for his alleged role in a multi-year dividend tax fraud, public prosecutors argued in court today. He has been on trial in Frankfurt since September over legal advice he gave to Maple Bank, a defunct German subsidiary of Canada’s Maple Financial that reclaimed more than €388mn in dividend taxes it never paid between 2006 and 2009.

The World of Work

For anyone looking for a boost in the new year, keeping a “smile file” of achievements can be a good place to start, writes Emma Jacobs.

The diversity backlash from Conservative activists in US education is spreading to corporate America, sparking a public debate among executives about policies that have proliferated among businesses in recent years.

The competent jerk, who is such a high performer that they get away with being horrible to their colleagues, is destined to hit a ceiling in their careers when their actions finally catch up with them, writes Anjli Raval.

Some good news

An Egyptian-Japanese archaeological mission has uncovered a rock tomb in Saqqara, approximately 20 miles south of Cairo, believed to be more than 4,000 years old and containing a number of burials, colourful masks and other archaeological finds.