Full story: Merkel downbeat on chances of deal as EU budget summit begins EU leaders remained poles apart on the terms of a €1.82tn budget and recovery package as they met for the first time in five months today, my colleague Daniel Boffey reports from Brussels. While Angela Merkel warned of the possibility of talks dragging into a second destabilising summer summit, Spain’s prime minister, Pedro Sánchez, told fellow leaders in Brussels they had an “obligation” to agree on a response to an economic downturn unparalleled since the Great Depression. His comments were echoed by Italy’s Giuseppe Conte, whose country, like Spain, was among those hit hardest by the coronavirus pandemic and faces a devastating recession. But the German chancellor, whose country holds the rotating presidency of the EU, offered a notably downbeat assessment about the level of unity among leaders going into the meeting, which is slated to finish on Saturday. Arriving at the summit, she said: “The differences are still very large and so I can’t predict that we will achieve a result this time.” “It would be desirable, but we also have to be realistic. And it really does take a great deal of willingness to compromise on the part of everyone if we are to achieve something that is good for Europe. In this respect I expect very difficult negotiations.” Kalyeena Makortoff Lloyds Banking Group has pledged to increase the number of black staff in senior roles from only 0.6% to at least 3% over the next four years, as part of a “race action plan” rolled out weeks after Black Lives Matter protests began in the UK. The commitment, announced to staff on Thursday, will mean recruiting about 168 more black colleagues into senior roles by 2024. Britain’s biggest high street lender will also publish its first ethnicity pay gap report later this year and include at least one candidate from a black, Asian or minority ethnic (BAME) background on every executive director shortlist. It will help ensure there is more diverse pool of candidates to replace the outgoing chief executive, António Horta-Osório, who will step down next year after a decade at the helm. US housing starts surge 17% Just in: The number of new homes being build in America jumped in June, as the economy opened up. Housing starts surged by 17.3% in June, to an annual rate of 1.186m new starts. That’s up from 1.011m in May, and a significant monthly move. However...the number of permits granted for new homes only rose by 2.1% in June, after a bounce of 14.1% in May. That’s less than expected. This all suggests there was a burst of construction activity as lockdown measures were relaxed, but it is now fading -- just as the Covid-10 pandemic intensifies, with a record 77,300 new cases yesterday. Bank of England: Beginning to see recovery Bank of England governor Andrew Bailey has suggested that Britain’s economy is recovering, while not speculating what shape the recovery will take. Speaking on a webinar this morning, Bailey “We are seeing activity return. We are beginning to see this recovery.” May’s GDP data, released earlier this week, did show that activity has picked up - but only slowly. So, when asked if he spies a V-shaped recovery (as chief economist Andy Haldane suggested recently), Bailey replied that “We don’t yet know the full story of this”. Bailey also pointed out that the recovery is uneven - car sales and housing transactions have picked up, but the entertainment and hospitality sector is still suffering. Euro strengthens on hope of EU progress The euro is nudging higher in the foreign exchange markets, as traders look for any signs of progress in Brussels today. Despite a mood of caution, the single currency has gained half a cent against the US dollar, to $1.143. That put it close to Wednesday’s four-month high. Against the pound, it’s picked up half a penny to 91.1p. Traders may be anticipating that leaders make some progress today and tomorrow, even if a full-blown agreement to put the €750bn Recovery Fund into action will be a stretch. It could be case of deal, or no deal yet... Brad Bechtel of Jefferies suggests another summit will be needed: The mood is not too optimistic as there seems to be some significant hold outs still but if we were to get some form of agreement that would be quite positive and the worse case is a kick the can down the road meeting for later in the month or early August. Edward Moya of OANDA says Angela Merkel’s prediction of a ‘very tough’ meeting has cooled the markets. US equities fluctuated after German Chancellor Merkel’s cautious comments suggested EU leaders might not be able to reach a compromise at the EU summit. Her comments may have been posturing, but they did sink stocks to their session lows. Negotiations are expected to be tough from the frugal four, but optimism is high that a breakthrough will be made at the two-day summit. A diminutive spectre is stalking the UK’s shops -- the spectre of shrinkflation. Snack maker Mondelez is in the spotlight, after announcing that it is cutting the size of Cadbury chocolate bars sold in multipacks to lower their calorie count. The move means Crunchie, Twirl and Wispa bars will contain no more than 200 calories each when sold in a four-pack, the BBC reports. Cutting the nation’s intake of sugary snacks shouldn’t be knocked... but Mondelez isn’t cutting its own intake of cash, as prices will stay the same. It’s part of a broader move in recent years -- I’m sure that Christmas sweetie tins were rather chunkier in my distant youth, for example. Mark Jones, food & drink supply chain expert at law firm Gordons, reckons we’ll see more shrinkflation as the economy struggles. “This is a sign of the times. You may remember in July 2017, the ONS confirmed that 2,529 products shrank in size between January 2012 and June 2017 but their price remained the same. The vast majority of the affected products were food and drink. “Whilst that process has slowed in recent years, we can expect a new wave of shrinking products. The phenomenon was embraced by the market as a consequence of the last recession. No food producers wanted to increase the on-the-shelf price but, at the same time, they needed to cover the cost of rising overheads and limited volume growth in the packaged food market. The solution was to modestly reduce the size as consumers, generally, don’t notice. “Now we are on the brink of another recession, shrinkflation will probably increase again. Only this time, when the producers are caught, they are likely to point to the obesity epidemic as their motivation rather than their margins.” In China, investors are reeling from the worst week’s losses in four months. Despite rising 0.6% today, the CSI 300 index has slumped by 4.3% this week - the biggest drop since 16-20 March. It was quite a week. Stocks hit a five-year high on Monday, then slid on Tuesday and Wednesday, before a hefty selloff on Thursday. Yesterday’s tumble came after Chinese retail sales shrank unexpectedly in June, while the wider economy returned to growth in Q2. That raised fears that consumption was weak. At the start of last week, State media were encouraging investors to take part in the “healthy bull market”. But the tone did change, urging traders to be cautious... Economists at ING have drawn up a handy graphic laying out the possible scenarios from the EU summit - and how it might move the markets. Their base case is that we see “some progress towards a compromise, but no final agreement” this weekend. That would give the euro a small nudge upwards, they reckon, while an actual deal would give it more strength. Statistics body Eurostat have confirmed that annual inflation across the eurozone was just 0.3% in June. That’s up from 0.1% in May, but well below the ECB’s target of nearly 2%. Energy prices were 9.3% lower than a year ago, but food, alcohol and tobacco prices were up 3.2% - including a 6% spike in unprocessed food. [The usual disclaimer applies -- in a lockdown, it’s hard to assess exactly how prices are moving. And the usual basket of goods and services isn’t as appropriate.] With handshakes out, EU leaders have been elbow-bumping: Our Jennifer Rankin is covering the Summit arrivals: French president Emmanuel Macron was hedging his bets too, telling reporters in Brussels that he was confident but cautious. “We will do everything we can to find an agreement”.