Shipping costs have risen by more than 300% since November amid the disruption caused to freight in the Red Sea from attacks, according to fresh data.
Just hours after US and UK-led attacks on Yemen aimed at preventing renewed assaults on shipping by Iran-aligned Houthi rebels, it was revealed that freight prices continued to rise over the past week.
The most widely used measure of freight cost, the Shanghai Containerised Freight Index (SCFI), hit $3,101 (£2,429) per container from $2,871 (£2,249) last Friday, according to data given to Sky News by global logistics company DSV.
It meant that the SCFI, which measures the average cost of a 20ft-long container being shipped from Shanghai to Europe, was 310% up on the level seen at the start of November.
Marked increases started to be felt in the second half of that month as the Red Sea crisis intensified.
There have been more than two dozen attacks by Houthis on shipping, forcing major container and energy firms to re-route around Africa, avoiding the Suez Canal.
That adds many costs to freight.
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Minister: Houthi strikes were ‘self-defence’
Insurance bills are up as a result while journeys can take more than 10 days extra.
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Staff wage costs have risen as a result and additional fuel must be burned.
Another factor at play is an increase in demand for goods ahead of disruption caused by the Chinese Spring Festival – the country’s New Year holiday which gets under way next month.
Yemen’s Houthi rebels have stepped up attacks on vessels it believes are heading into and out of Israel, claiming they are aimed at ending the air and ground offensive on the Gaza Strip following the 7 October attacks by Hamas.
US and UK forces attacked several targets in an air operation on Thursday night in a bid to prevent further boat and drone-led attacks on shipping.
They fear damage to the global economy due to the delays and additional costs associated with avoiding the Suez Canal.
Many of the world’s largest shipping companies – including MSC, Maersk, CMA CGM, and Hapag-Lloyd – are still diverting many if not all planned Red Sea journeys via South Africa.
While many major companies, including Tesco in the UK, have said they are not experiencing damage from the disruption, other firms have been more vocal about the challenges.
IKEA, for example, has admitted that some products may not be available while Tesla revealed on Friday that it was pausing production at its factory in Germany for two weeks due to a shortage of parts.
While shipping costs are up markedly, they remain below the highs seen in March 2021 when the Ever Given container ship blocked the Suez Canal.
Nevertheless, the disruption has caught the eye of the governor of the Bank of England, who is charged with keeping the pace of price rises in check.
Andrew Bailey will be mindful that raised shipping prices are an inflation risk as higher shipping costs are likely to be reflected in consumer bills as they are passed down the supply chain.
Image: Map of Middle East
It’s a headwind he could do without as the inflation rate has been brought down substantially from 40-year highs in the wake of the price spike caused by Russia’s invasion of Ukraine.
He told a committee of MPs this week: “We’ve certainly seen, as best we can tell from the monitoring, shipping traffic is being affected and is being rerouted.
“That will increase shipping prices and shipping costs. I think initially that will be an issue in the monetary policy world.”
Oil costs rose by 2% on Friday following news of the US/UK-led action on speculation of the implications for Middle East stability.
Rosalie Chen, analyst at Third Bridge, said of the situation: “Our experts estimate that the current freight rates on the Europe route have reached their peak, as they already reflect the additional costs of bypassing.
“Even if all Europe route shipping companies choose to bypass the Cape of Good Hope, our experts do not believe it will cause a significant supply-demand gap.”
The UK economy unexpectedly shrank in May, even after the worst of Donald Trump’s tariffs were paused, official figures showed.
A standard measure of economic growth, gross domestic product (GDP), contracted 0.1% in May, according to the Office for National Statistics (ONS).
Rather than a fall being anticipated, growth of 0.1% was forecast by economists polled by Reuters as big falls in production and construction were seen.
It followed a 0.3% contraction in April, when Mr Trump announced his country-specific tariffs and sparked a global trade war.
A 90-day pause on these import taxes, which has been extended, allowed more normality to resume.
This was borne out by other figures released by the ONS on Friday.
Exports to the United States rose £300m but “remained relatively low” following a “substantial decrease” in April, the data said.
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Overall, there was a “large rise in goods imports and a fall in goods exports”.
A ‘disappointing’ but mixed picture
It’s “disappointing” news, Chancellor Rachel Reeves said. She and the government as a whole have repeatedly said growing the economy was their number one priority.
“I am determined to kickstart economic growth and deliver on that promise”, she added.
But the picture was not all bad.
Growth recorded in March was revised upwards, further indicating that companies invested to prepare for tariffs. Rather than GDP of 0.2%, the ONS said on Friday the figure was actually 0.4%.
It showed businesses moved forward activity to be ready for the extra taxes. Businesses were hit with higher employer national insurance contributions in April.
The expansion in March means the economy still grew when the three months are looked at together.
While an interest rate cut in August had already been expected, investors upped their bets of a 0.25 percentage point fall in the Bank of England’s base interest rate.
Such a cut would bring down the rate to 4% and make borrowing cheaper.
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Analysts from economic research firm Pantheon Macro said the data was not as bad as it looked.
“The size of the manufacturing drop looks erratic to us and should partly unwind… There are signs that GDP growth can rebound in June”, said Pantheon’s chief UK economist, Rob Wood.
Why did the economy shrink?
The drops in manufacturing came mostly due to slowed car-making, less oil and gas extraction and the pharmaceutical industry.
The fall was not larger because the services industry – the largest part of the economy – expanded, with law firms and computer programmers having a good month.
It made up for a “very weak” month for retailers, the ONS said.
Monthly Gross Domestic Product (GDP) figures are volatile and, on their own, don’t tell us much.
However, the picture emerging a year since the election of the Labour government is not hugely comforting.
This is a government that promised to turbocharge economic growth, the key to improving livelihoods and the public finances. Instead, the economy is mainly flatlining.
Output shrank in May by 0.1%. That followed a 0.3% drop in April.
However, the subsequent data has shown us that much of that growth was artificial, with businesses racing to get orders out of the door to beat the possible introduction of tariffs. Property transactions were also brought forward to beat stamp duty changes.
In April, we experienced the hangover as orders and industrial output dropped. Services also struggled as demand for legal and conveyancing services dropped after the stamp duty changes.
Many of those distortions have now been smoothed out, but the manufacturing sector still struggled in May.
Signs of recovery
Manufacturing output fell by 1% in May, but more up-to-date data suggests the sector is recovering.
“We expect both cars and pharma output to improve as the UK-US trade deal comes into force and the volatility unwinds,” economists at Pantheon Macroeconomics said.
Meanwhile, the services sector eked out growth of 0.1%.
A 2.7% month-to-month fall in retail sales suppressed growth in the sector, but that should improve with hot weather likely to boost demand at restaurants and pubs.
Struggles ahead
It is unlikely, however, to massively shift the dial for the economy, the kind of shift the Labour government has promised and needs in order to give it some breathing room against its fiscal rules.
The economy remains fragile, and there are risks and traps lurking around the corner.
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Is Britain going bankrupt?
Concerns that the chancellor, Rachel Reeves, is considering tax hikes could weigh on consumer confidence, at a time when businesses are already scaling back hiring because of national insurance tax hikes.
Inflation is also expected to climb in the second half of the year, further weighing on consumers and businesses.
The government is speeding up its adoption of AI to try and encourage economic growth – with backing from Facebook parent Meta.
It will today announce a $1m (£740,000) scheme to hire up to 10 AI “experts” to help with the adoption of the technology.
Sir Keir Starmer has spoken repeatedly about wanting to use the developing technology as part of his “plan for change” to improve the UK – with claims it could produce tens of billions in savings and efficiencies.
The government is hoping the new hires could help with problems like translating classified documents en masse, speeding up planning applications or help with emergency responses when power or internet outages occur.
The funding for the roles is coming from Meta, through the Alan Turing Institute. Adverts will go live next week, with the new fellowships expected to start at the beginning of 2026.
Technology Secretary Peter Kyle said: “This fellowship is the best of AI in action – open, practical, and built for public good. It’s about delivery, not just ideas – creating real tools that help government work better for people.”
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He added: “The fellowship will help scale that kind of impact across government, and develop sovereign capabilities where the UK must lead, like national security and critical infrastructure.”
The projects will all be based on open source models, meaning there will be a minimal cost for the government when it comes to licensing.
Meta describes its own AI model, Llama, as open source, although there are questions around whether it truly qualifies for that title due to parts of its code base not being published.
The owner of Facebook has also sponsored several studies into the benefits of government adopting more open source AI tools.
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Minister reveals how AI could improve public services
Mr Kyle’s Department for Science and Technology has been working on its mission to increase the uptake of AI within government, including through the artificial intelligence “incubator”, under which these fellowships will fall.
The secretary of state has pointed to the success of Caddy – a tool that helps call centre workers search for answers in official documents faster – and its expanding use across government as an example of an AI success story.
He said the tool, developed with Citizens Advice, shows how AI can “boost productivity, improve decision-making, and support frontline staff”. A trial suggested it could cut waiting times for calls in half.
My Kyle also recently announced a deal with Google to provide tech support to government and assist with modernisation of data.
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Joel Kaplan, the chief global affairs officer from Meta, said: “Open-source AI models are helping researchers and developers make major scientific and medical breakthroughs, and they have the potential to transform the delivery of public services too.
“This partnership with ATI will help the government access some of the brightest minds and the technology they need to solve big challenges – and to do it openly and in the public interest.”
Jean Innes, the head of the Alan Turing Institute, said: “These fellowships will offer an innovative way to match AI experts with the real world challenges our public services are facing.”