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UK factory growth hits seven-month low, but eurozone powers on - business live UK factory growth hits seven-month low, but eurozone powers on - business live
(about 1 hour later)
Newsflash from America: US productivity shrank by 0.1% in the last quarter.
That’s the first drop in hourly output per worker since early 2016, and may undermine hopes that America’s growth rate can be pushed higher.
Economists had expected productivity to rise, by 1%.
US #productivity growth turns negative again! pic.twitter.com/BrU9Py6AYq
Andy Bruce of Reuters points out that the rise in factory goods prices will probably push UK inflation higher:
BoE won't like sharp pickup in UK consumer goods manufacturers' selling price index from latest IHS Markit/CIPS #PMILinks well with official "all goods" series (ie. 52.5% of CPI basket, 42% of CPIH) pic.twitter.com/BFqd1MtQkT
There are ructions in the UK jobs market today.
Morrisons is axing 1,500 roles as it cuts middle-management roles across its supermarkets. It is also creating 1,700 junior positions, in an attempt to improve customer service.
It’s a bad morning for fans of burger chain Byron too. It is closing 20 stores, or nearly a third of its estate, as part of a rescue deal with creditors.
And here’s our latest Capita story, by Rob Davies:And here’s our latest Capita story, by Rob Davies:
Government officials met executives from the outsourcing firm Capita to discuss its financial problems, it has emerged, as Labour accused ministers of being complacent and warned of similarities between the company and its collapsed rival Carillion.Government officials met executives from the outsourcing firm Capita to discuss its financial problems, it has emerged, as Labour accused ministers of being complacent and warned of similarities between the company and its collapsed rival Carillion.
In response to an urgent question from Labour’s business select committee chair, Rachel Reeves, the Cabinet Office minister Oliver Dowden said a crown representative had been appointed to monitor Capita.In response to an urgent question from Labour’s business select committee chair, Rachel Reeves, the Cabinet Office minister Oliver Dowden said a crown representative had been appointed to monitor Capita.
The move, which came after Capita halved in value following a shock profit downgrade on Wednesday, is part of a procedure designed to help officials monitor the finances of struggling companies that provide public services.The move, which came after Capita halved in value following a shock profit downgrade on Wednesday, is part of a procedure designed to help officials monitor the finances of struggling companies that provide public services.
Here’s my colleague Richard Partington on today’s UK manufacturing report:Here’s my colleague Richard Partington on today’s UK manufacturing report:
Britain’s manufacturers showed signs of a slowdown at the start of the year amid rising costs for raw materials, sending factory output to a seven-month low.Britain’s manufacturers showed signs of a slowdown at the start of the year amid rising costs for raw materials, sending factory output to a seven-month low.
The Markit/Cips UK manufacturing PMI index showed activity fell to 55.3 last month from 56.2 in December, missing City forecasts of a further acceleration in growth. However, the PMI remained well above its long-run average of 51.7 and above the 50 mark which separates expansion from contraction.The Markit/Cips UK manufacturing PMI index showed activity fell to 55.3 last month from 56.2 in December, missing City forecasts of a further acceleration in growth. However, the PMI remained well above its long-run average of 51.7 and above the 50 mark which separates expansion from contraction.
Britain’s manufacturers have experienced growing demand for orders from China, Japan, the Middle East and North America in recent months. There has also been an upturn in sales in Europe as the continent returns to economic growth after years in the doldrums. The readings come as ministers enter critical talks over trade with Brussels.Britain’s manufacturers have experienced growing demand for orders from China, Japan, the Middle East and North America in recent months. There has also been an upturn in sales in Europe as the continent returns to economic growth after years in the doldrums. The readings come as ministers enter critical talks over trade with Brussels.
However, the upswing in demand for goods has prompted rising global demand for raw materials, pushing up the cost of oil, metals, food and chemicals, and further pressuring manufacturers’ profit margins. The PMI survey showed purchase prices rose at the fastest rate in 11 months in January, and to one of the greatest extents in its history.However, the upswing in demand for goods has prompted rising global demand for raw materials, pushing up the cost of oil, metals, food and chemicals, and further pressuring manufacturers’ profit margins. The PMI survey showed purchase prices rose at the fastest rate in 11 months in January, and to one of the greatest extents in its history.
More here:More here:
Today’s manufacturing survey also shows that UK factories are being hit by rising prices.Today’s manufacturing survey also shows that UK factories are being hit by rising prices.
Companies reported that chemicals, food products, metals, oil, paper and plastics are all becoming pricier.Companies reported that chemicals, food products, metals, oil, paper and plastics are all becoming pricier.
Many factories are passing those costs onto their clients -- at the fastest pace since last April. That could be a blow to consumers, as inflation is already rising faster than wages.Many factories are passing those costs onto their clients -- at the fastest pace since last April. That could be a blow to consumers, as inflation is already rising faster than wages.
Duncan Brock, of the Chartered Institute of Procurement & Supply, says:Duncan Brock, of the Chartered Institute of Procurement & Supply, says:
“Purchasers reported that global demand impacted on their costs, with another sharp inflationary rise. Respondents mentioned forward buying as a way of controlling prices and securing supply to remain competitive, but firms also attempted to claw back some of their margins by raising their own prices to clients at a level not seen for nine months.“Purchasers reported that global demand impacted on their costs, with another sharp inflationary rise. Respondents mentioned forward buying as a way of controlling prices and securing supply to remain competitive, but firms also attempted to claw back some of their margins by raising their own prices to clients at a level not seen for nine months.
As this charts shows, raw material costs also jumped after the UK referendum (due to the slump in the pound)As this charts shows, raw material costs also jumped after the UK referendum (due to the slump in the pound)
Elsewhere in the markets, the pound has shrugged off the slowdown in UK factory growth last month.Elsewhere in the markets, the pound has shrugged off the slowdown in UK factory growth last month.
Sterling is up 0.3 of a cent against the US dollar, at $1.422 - close to last month’s 18-month high.Sterling is up 0.3 of a cent against the US dollar, at $1.422 - close to last month’s 18-month high.
Connor Campbell of SpreadEx says:Connor Campbell of SpreadEx says:
The pound was nonplussed by the decline [in the UK manufacturing PMI], focusing on the positives to hold onto a half a percent climb against the dollar – it’s basically now recovered all of last week’s losses – and 0.3% increase against the euro.The pound was nonplussed by the decline [in the UK manufacturing PMI], focusing on the positives to hold onto a half a percent climb against the dollar – it’s basically now recovered all of last week’s losses – and 0.3% increase against the euro.
There wasn’t much cheer for Capita in that urgent parliamentary question, with the government insisting it wouldn’t be bailed out and Labour MPs calling for public services to be taken back into public control.There wasn’t much cheer for Capita in that urgent parliamentary question, with the government insisting it wouldn’t be bailed out and Labour MPs calling for public services to be taken back into public control.
There’s not much relief in the City either. Capita’s shares have shed another 6.8% today to just 170p. That looks like their lowest level since October 2002.There’s not much relief in the City either. Capita’s shares have shed another 6.8% today to just 170p. That looks like their lowest level since October 2002.
Labour’s Diana Johnson suggests the government sounds like Corporal Jones over Capita (don’t panic! don’t panic!).Labour’s Diana Johnson suggests the government sounds like Corporal Jones over Capita (don’t panic! don’t panic!).
Q: If everything’s so rosy, why did Barnet council, a flagship Tory council, put contingency plans into place in case Capita’s problems worsen?Q: If everything’s so rosy, why did Barnet council, a flagship Tory council, put contingency plans into place in case Capita’s problems worsen?
Dowden denies that the government is complacent. He points out that the government’s contingency plans worked after Carillion collapsed.Dowden denies that the government is complacent. He points out that the government’s contingency plans worked after Carillion collapsed.
Alan Brown, SNP MP, asks about Capita’s pension deficit. How big is it, and what will the government do to help?Alan Brown, SNP MP, asks about Capita’s pension deficit. How big is it, and what will the government do to help?
Oliver Dowden says it’s a matter for Capita; suspending its dividend will help it to put extra funds into the pension pot.Oliver Dowden says it’s a matter for Capita; suspending its dividend will help it to put extra funds into the pension pot.
Labour MP Thelma Walker says that outsourcing public services has failed. Instead of expensive bailouts, they should be brought into public ownership.
Oliver Dowden repeats that the government isn’t bailing any companies out.
Oliver Dowden insists that the state is not bailing Capita out. Instead, shareholders are paying the price of its problems....
Liberal Democrat leader Vince Cable nails the problem.
If Capita’s own CEO thinks the company is too complex, how can the government monitor the stability and performance of these outsourcing giants?
Oliver Dowden replies that the government uses third-parties to assess their performance, and also engages closely with them through the Cabinet Office.
Vince Cable asks Oliver Dowden: "The Capita chief executive said his organisation was 'far too complex'. If the chief executive finds it difficult to understand how his organisation works, how does the government monitor the performance of these very large outsourcing companies?"
Cabinet Office minister Oliver Dowden saying outsourcing firms have specialities, so can deliver services more cheaply. That's all well and good unless the business model of the sector incentivises them to underbid, rendering contracts unprofitable.
Conservative MP Bim Afolami argues that it would be wrong to cancel contracts with Capita just because it issued a profit warning yesterday.
Minister Oliver Dowden agrees. He says there would be “very few companies” the government could deal with if it shunned every company who issued a profits warning.
SNP MP Dierdre Brock, though, argues that Capita’s problems shows we should wind back the privatisation of public services.
Cabinet minister Oliver Dowden even quotes former Labour PM Gordon Brown, who said that PFI contracts had been necessary to improve Britain’s public services.
But shadow cabinet office minister John Trickett criticises the government, accusing it of “indifference to corporate mismanagement”, and complacency in the face of a crisis in the UK outsourcing sector.
Capita down another 4.5% today (after 47.5% fall yesterday). In the House of Commons, Labour's Jon Trickett says it's in "deep trouble" as Cabinet Office minister Oliver Dowden insists it's far healthier than Carillion was.
Over in parliament, Rachel Reeves MP has asked an urgent question about Capita, following the servicing group’s profit warning yesterday.
Q: Is Capita a threat to the public finances?
Oliver Dowden MP, cabinet office minister, insists that Capita is in a very different situation than Carillion (which collapsed earlier this month).
Yesterday’s announcement from Capita was a “balance strengthening move”, not just a profits warning, Dowden says (Capita is looking to raise £700m).
We do not believe that Capita is in any way a comparable position to Carillion.
Dowden says that government officials met with Capita yesterday, and will work closely with the company to ensure continued delivery of public services.
Reeves is unimpressed, saying the government sounds “muddled and complacent”.
She also disputes that Capita and Carillion aren’t comparable.
Both have debts of £1bn, and pension deficits running into the hundreds of millions, Reeves says. Both paid out large shareholder dividends. Both rely on the public purse. Both were audited by KPMG. Both grew through acquisitions, rather than organic growth.
Reeves warns:
It seems there are more similarities than differences.
The slowdown in Britain’s factory growth last month should concern the government, says Dennis de Jong, managing director at UFX.com,
He says:
“After a clean sweep of strong manufacturing growth results reported across Europe this morning, Britain are the exception – bad timing for Prime Minister Theresa May after Brexit-impact documents were leaked earlier this week.
“Those papers claimed there is no post-Brexit deal that benefits the UK economically, and while the UK’s factory sector grew in January, it wasn’t anywhere near the level of Britain’s continental cousins, some of whom saw record highs.
“Still, growth is growth – and the optimists will point to UK firms seeing a rise in export orders. However, the seven-month low couldn’t come at a worse time for May, who still faces huge internal Conservative party pressure to keep her job.
But Lee Hopley, chief economist at EEF, the manufacturers’ organisation, is more optimistic:
She says:
“The first PMI reading for 2018 points to a good enough start to the year for manufacturers. The index has come off the boil since the end of 2017, but activity across the sector is still expanding at a healthy clip and certainly running ahead of the long-run average.
Positive global factors underpinning growth, evident through much of last year, are still very much in play with export demand continuing to put in a strong showing. No ill effects from Sterling’s recent rally are yet apparent.
Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, says UK firms are being supported by solid order books:
“While the PMI has dropped for a second consecutive month, it remains above the long term average.
It is also higher than the most recent construction and services PMI readings, suggesting manufacturing remains the star pupil in the wider UK economy.
UK factories suffered a double-whammy of slowing growth and rising prices last month, says Rob Dobson, Director at IHS Markit.
Dobson, who helped compile today’s survey, says:
Encouragingly, despite the slowdown, the latest survey is consistent with production rising at a solid quarterly rate of around 0.6% in January, with jobs also being added at a faster pace. However, output growth has slowed sharply since last November’s high, and the more forward-looking new orders index has slipped to a seven-month low.
The trend in demand will need to strengthen in the near-term to prevent further growth momentum being lost in the coming months.
“The biggest advance during the latest survey came on the prices front, with the recent easing in inflationary pressure seeing a sudden sharp reversal. Cost inflation surged to an 11-month high and to one of its highest levels in the series history, as oil prices surged higher and demand for many inputs outpaced supply.
Breaking: British factory growth hit a seven-month low last month, as Britain failed to keep pace with the eurozone.
Data firm Markit’s monthly PMI index of UK manufacturing dropped to 55.3 in January, down from December’s 56.5.
That shows that growth slowed, but it’s still above the long-term average.
UK factories say that output growth, and new order growth, both weakened last month. Raw material costs spiked -- pushing input costs up, and forcing UK firms to raise their prices.
But more optimistically, UK firms did see a rise in export orders.
Markit says:
Foreign demand improved at one of the quickest rates over the past four years. There were reports of increased sales to clients in North America, China, mainland Europe, the Middle East and Japan.
More to follow...
Is the worst really over for Greece?
Greek manufacturing output growth hit a ten-year high in January, according to today’s PMI survey.
Job creation hit a record high, suggesting Greece’s factories are dusting themselves down after the debt crisis.
Manufacturing sector growth in #Greece most marked in over 10 years. Employment expands at joint-sharpest pace on record. https://t.co/5Xilq9aR0c pic.twitter.com/AaeCGSCEfe