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UK factory growth stumbles amid trade wars and Brexit uncertainty - business live UK factory growth stumbles amid trade wars and Brexit uncertainty - business live
(35 minutes later)
The slide in UK factory growth has brought the City back to earth with a bump after the summer holidays.
Stephen Cooper, UK head of industrial manufacturing at KPMG, says the PMI report has “a bit of back to school dread” about it.
Optimism has fallen whilst job creation is virtually at a standstill, with cuts by larger businesses neutralised by job growth in SMEs.
“Together with export orders – also at a 25 month low despite continued sterling weakness – these figures are particularly concerning against the backdrop of global trade wars and increasing uncertainty around Brexit – both of which will be weighing on businesses.”
UK manufacturing will keep struggling until a Brexit transition deal has been hammered out, warns Helena Sans, Head of Manufacturing at Barclays.UK manufacturing will keep struggling until a Brexit transition deal has been hammered out, warns Helena Sans, Head of Manufacturing at Barclays.
Here’s her take on today’s factory PMI:Here’s her take on today’s factory PMI:
“With such an underwhelming set of data, the only positive to pull out is that the index still remains in positive territory.“With such an underwhelming set of data, the only positive to pull out is that the index still remains in positive territory.
The improving performance we‘ve seen in exports over the past two years, boosted by the weakness in sterling, took a worrying hit last month.The improving performance we‘ve seen in exports over the past two years, boosted by the weakness in sterling, took a worrying hit last month.
Political and economic uncertainty is clearly impacting manufacturers investment intentions but one thing that is certain is in order to increase exports and drive growth, what manufacturers need to see sooner rather than later is a Brexit transition deal to avoid the risk of prolonging a more cautious and tentative approach to investment from the sector.”Political and economic uncertainty is clearly impacting manufacturers investment intentions but one thing that is certain is in order to increase exports and drive growth, what manufacturers need to see sooner rather than later is a Brexit transition deal to avoid the risk of prolonging a more cautious and tentative approach to investment from the sector.”
UK #manufacturing upturn slows as new export orders contract for first time since April 2016 #procurement #supplychain https://t.co/KoD1dKsBGt pic.twitter.com/p2q7yPGS63UK #manufacturing upturn slows as new export orders contract for first time since April 2016 #procurement #supplychain https://t.co/KoD1dKsBGt pic.twitter.com/p2q7yPGS63
Lee McDarby, Corporate IP Managing Director at foreign exchange firm moneycorp, says confusion over Britain’s future relationship with the EU is hurting factories - and hampering new investment.Lee McDarby, Corporate IP Managing Director at foreign exchange firm moneycorp, says confusion over Britain’s future relationship with the EU is hurting factories - and hampering new investment.
He says:He says:
“The news that manufacturing is at a two year low and well below forecast will come as a shock to markets after months of steady, if unspectacular, growth.“The news that manufacturing is at a two year low and well below forecast will come as a shock to markets after months of steady, if unspectacular, growth.
Ordinarily the weak Pound should lead to increasing demand for British manufactured products abroad, however this has not materialised.Ordinarily the weak Pound should lead to increasing demand for British manufactured products abroad, however this has not materialised.
Instead, manufacturers are being held back by the same lack of confidence in the economy that is suppressing Sterling. It’s tough to nail new orders from overseas when you have no certainty over what trading rules will look like in six months’ time.Instead, manufacturers are being held back by the same lack of confidence in the economy that is suppressing Sterling. It’s tough to nail new orders from overseas when you have no certainty over what trading rules will look like in six months’ time.
UK factories are grappling with “suppressed domestic demand and a slowdown in output”, explains Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking.UK factories are grappling with “suppressed domestic demand and a slowdown in output”, explains Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking.
He adds:He adds:
“As we approach the final months of negotiations on Britain’s exit from the EU, firms are continuing to plan for all outcomes. Investment in automation and robotics are key for many who are looking to tackle productivity and mitigate labour shortages.“As we approach the final months of negotiations on Britain’s exit from the EU, firms are continuing to plan for all outcomes. Investment in automation and robotics are key for many who are looking to tackle productivity and mitigate labour shortages.
“However, there remains some anxiety among manufacturers with exposure to consumer markets. Sluggish wage growth has blunted spending power and the current woe in the retail sector is weakening demand for new stock.”“However, there remains some anxiety among manufacturers with exposure to consumer markets. Sluggish wage growth has blunted spending power and the current woe in the retail sector is weakening demand for new stock.”
The pound had already been under pressure this morning, due to Brexit worries.The pound had already been under pressure this morning, due to Brexit worries.
The slowdown in UK manufacturing has now dragged it back below $1.29, down 0.5% today.The slowdown in UK manufacturing has now dragged it back below $1.29, down 0.5% today.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, is also alarmed by the slowdown across UK factories.Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, is also alarmed by the slowdown across UK factories.
“Fears for a stalling manufacturing sector took a step closer to becoming a reality this month with the most disappointing performance for two years. “The lifeline of strong export orders enjoyed since May 2016 dried up, as the attraction of a weaker pound was not enough to sustain the momentum.....“Fears for a stalling manufacturing sector took a step closer to becoming a reality this month with the most disappointing performance for two years. “The lifeline of strong export orders enjoyed since May 2016 dried up, as the attraction of a weaker pound was not enough to sustain the momentum.....
With a subdued global economy threatened by escalating trade wars and Brexit uncertainty making its mark, it’s unclear where future opportunities to sustain the health of the sector will come from.With a subdued global economy threatened by escalating trade wars and Brexit uncertainty making its mark, it’s unclear where future opportunities to sustain the health of the sector will come from.
NEWSFLASH: Britain’s factory growth has hit a two-year low amid Brexit uncertainty and the US-China trade war.NEWSFLASH: Britain’s factory growth has hit a two-year low amid Brexit uncertainty and the US-China trade war.
The UK Manufacturing PMI has fallen to just 52.8 in August, down from 53.8 in July.The UK Manufacturing PMI has fallen to just 52.8 in August, down from 53.8 in July.
That’s the weakest reading in 25 months, and shows the sector moved closer to stagnation last month (any reading over 50 shows growth).That’s the weakest reading in 25 months, and shows the sector moved closer to stagnation last month (any reading over 50 shows growth).
Markit, which compiles the survey, says that new export orders fell last month for the first time in over two years.Markit, which compiles the survey, says that new export orders fell last month for the first time in over two years.
This dragged job creation down to near-stagnation, while business optimism hit a 22-month low.This dragged job creation down to near-stagnation, while business optimism hit a 22-month low.
Rob Dobson, director at IHS Markit, says UK manufacturing looks “increasingly lacklustre”.Rob Dobson, director at IHS Markit, says UK manufacturing looks “increasingly lacklustre”.
He blames a slowdown in the global economy, and worries over Britain’s exit from the EU.He blames a slowdown in the global economy, and worries over Britain’s exit from the EU.
Dobson writes:Dobson writes:
“Although slower growth of domestic demand contributed to manufacturing’s weak performance, the main constraint was the trend in new export business. Foreign demand declined for the first time since April 2016, despite the weakness of sterling, amid reports of slower global economic growth and the increasingly uncertain trading environment. Inflows of new work from both domestic and overseas sources will need to strengthen if manufacturing is to show renewed vigour in the coming months.“Although slower growth of domestic demand contributed to manufacturing’s weak performance, the main constraint was the trend in new export business. Foreign demand declined for the first time since April 2016, despite the weakness of sterling, amid reports of slower global economic growth and the increasingly uncertain trading environment. Inflows of new work from both domestic and overseas sources will need to strengthen if manufacturing is to show renewed vigour in the coming months.
“Looking ahead, manufacturers’ optimism about the outlook for the year ahead has been receding in recent months and is now at a 22-month low. While a hoped-for improvement in new export order growth and new product launches are forecast to stimulate future expansion, manufacturers are also expressing rising concerns about the uncertain backdrop of Brexit.”“Looking ahead, manufacturers’ optimism about the outlook for the year ahead has been receding in recent months and is now at a 22-month low. While a hoped-for improvement in new export order growth and new product launches are forecast to stimulate future expansion, manufacturers are also expressing rising concerns about the uncertain backdrop of Brexit.”
As a result, UK factories may not provide any economic growth this quarter, Markit fears.As a result, UK factories may not provide any economic growth this quarter, Markit fears.
More reaction to follow....More reaction to follow....
Moritz Degler of Oxford Economics is concerned by Italy’s factory slowdown:Moritz Degler of Oxford Economics is concerned by Italy’s factory slowdown:
The Italian industrial sector – the second largest in the eurozone after Germany – looks to have stagnated in August. The manufacturing PMI fell by 1.4 points to 50.1 as current output, new orders and expectations continued this year’s downward trend. pic.twitter.com/z2KfGCjUqiThe Italian industrial sector – the second largest in the eurozone after Germany – looks to have stagnated in August. The manufacturing PMI fell by 1.4 points to 50.1 as current output, new orders and expectations continued this year’s downward trend. pic.twitter.com/z2KfGCjUqi
Trade war jitters have also hit the eurozone.Trade war jitters have also hit the eurozone.
Manufacturing growth across the single currency region slowed in August, according to data firm Markit. Eurozone factory exports only grew at their slowest rate in two years, as demand for goods tailed off.Manufacturing growth across the single currency region slowed in August, according to data firm Markit. Eurozone factory exports only grew at their slowest rate in two years, as demand for goods tailed off.
Here are the key findings from Markit’s monthly survey of eurozone purchasing managers:Here are the key findings from Markit’s monthly survey of eurozone purchasing managers:
Final Eurozone Manufacturing PMI at 54.6 in August, down from 55.1 in July.Final Eurozone Manufacturing PMI at 54.6 in August, down from 55.1 in July.
Firmer output growth, but new orders rise at slowest rate for two yearsFirmer output growth, but new orders rise at slowest rate for two years
Concerns about tariffs and global trade weigh on confidence.Concerns about tariffs and global trade weigh on confidence.
The report also shows that Ireland and the Netherlands had a strong month, while Spain and Italy struggled:The report also shows that Ireland and the Netherlands had a strong month, while Spain and Italy struggled:
Chris Williamson, chief business economist at IHS Markit, says eurozone manufacturers are growing more anxious:Chris Williamson, chief business economist at IHS Markit, says eurozone manufacturers are growing more anxious:
“Worries about trade wars and the damaging impact of tariffs, as well as Brexit and other political worries, all contributed to a dampening of business optimism about the year ahead.“Worries about trade wars and the damaging impact of tariffs, as well as Brexit and other political worries, all contributed to a dampening of business optimism about the year ahead.
Business expectations were the second-lowest since November 2015.Business expectations were the second-lowest since November 2015.
Economics consultancy Pantheon blame the US tariffs for the slowdown in China’s factories last month.Economics consultancy Pantheon blame the US tariffs for the slowdown in China’s factories last month.
"China’s Caixin manufacturing PMI signals trade tariff damage" @freyabeamish @mc_economist #PantheonMacro"China’s Caixin manufacturing PMI signals trade tariff damage" @freyabeamish @mc_economist #PantheonMacro
So far, America and China have imposed 25% tariffs on $50bn of each others goods.So far, America and China have imposed 25% tariffs on $50bn of each others goods.
Later this week, Donald Trump could sign off levies on another $200bn of Chinese imports, which would escalate the trade war significantly.Later this week, Donald Trump could sign off levies on another $200bn of Chinese imports, which would escalate the trade war significantly.
In another blow, Turkey’s inflation rate has surged as the slump in the lira hits consumers.In another blow, Turkey’s inflation rate has surged as the slump in the lira hits consumers.
Prices rose by a painful 17.9% in August, up from 15.9% in July. That’s the highest level since 2003, and shows that the Turkish currency crisis is causing real damage.Prices rose by a painful 17.9% in August, up from 15.9% in July. That’s the highest level since 2003, and shows that the Turkish currency crisis is causing real damage.
Turkish consumer inflation jumped more than 2% in August to 17.9% -- the highest since the end of 2003. Producer prices, meanwhile, rose 6.6% for the month. #TurkeyTurkish consumer inflation jumped more than 2% in August to 17.9% -- the highest since the end of 2003. Producer prices, meanwhile, rose 6.6% for the month. #Turkey
Typically such blistering price rises would prompt an interest rate hike to curb demand.Typically such blistering price rises would prompt an interest rate hike to curb demand.
But Turkey’s central bank may be unwilling to hike borrowing costs at its next meeting, in a fortnight’s time, due to president Erdoğan’s firm opposition to high interest rates.But Turkey’s central bank may be unwilling to hike borrowing costs at its next meeting, in a fortnight’s time, due to president Erdoğan’s firm opposition to high interest rates.
The lira wobbled late last week when a deputy governor resigned; Erdoğan will name his replacement, under new powers approved this year.The lira wobbled late last week when a deputy governor resigned; Erdoğan will name his replacement, under new powers approved this year.
Ouch! Turkey’s factory sector had a torrid time in August, as the country’s currency crisis hurt its economy.Ouch! Turkey’s factory sector had a torrid time in August, as the country’s currency crisis hurt its economy.
The Turkish manufacturing PMI, just released, fell to just 46.3 last month from 51.0 in July. That drags the sector straight back into contraction.The Turkish manufacturing PMI, just released, fell to just 46.3 last month from 51.0 in July. That drags the sector straight back into contraction.
The Turkish lira slumped dramatically last month, from 5 lira to the US dollar on 1 August to over 7 lira/$1 a fortnight later.The Turkish lira slumped dramatically last month, from 5 lira to the US dollar on 1 August to over 7 lira/$1 a fortnight later.
This did make exports more competitive, but also sent import costs surging, drove up the cost of repaying loans in foreign currencies, and prompted fears of capital controls or an IMF bailout. Not good for business.This did make exports more competitive, but also sent import costs surging, drove up the cost of repaying loans in foreign currencies, and prompted fears of capital controls or an IMF bailout. Not good for business.
The Istanbul Chamber of Industry, which compiles the report, says (with a touch of understatement:The Istanbul Chamber of Industry, which compiles the report, says (with a touch of understatement:
August was a month of challenging business conditions for manufacturing firms in Istanbul. Weakness of the Turkish lira led to strong inflationary pressures, and contributed to slowdowns in both output and new orders.August was a month of challenging business conditions for manufacturing firms in Istanbul. Weakness of the Turkish lira led to strong inflationary pressures, and contributed to slowdowns in both output and new orders.
Currency weakness did have the effect of helping to support new export orders, which increased fractionally during August.Currency weakness did have the effect of helping to support new export orders, which increased fractionally during August.
China isn’t the only country to experience a manufacturing slowdown last month.China isn’t the only country to experience a manufacturing slowdown last month.
South Korea’s factory sector shank for the sixth month in a row. Its manufacturing PMI came in at 49.9, up from 48.3 in July, but still in contraction territory (just).South Korea’s factory sector shank for the sixth month in a row. Its manufacturing PMI came in at 49.9, up from 48.3 in July, but still in contraction territory (just).
That may show that the US-China trade war is sending ripples of uncertainty into other markets.That may show that the US-China trade war is sending ripples of uncertainty into other markets.
China’s export situation is currently “grim”, warns Dr. Zhengsheng Zhong of CEBM Group.China’s export situation is currently “grim”, warns Dr. Zhengsheng Zhong of CEBM Group.
He fears today’s slowdown in China’s factory growth could be a prelude to a wider slowdown.He fears today’s slowdown in China’s factory growth could be a prelude to a wider slowdown.
“Generally speaking, the manufacturing sector continued to weaken amid soft demand, even though the supply side was still stable.“Generally speaking, the manufacturing sector continued to weaken amid soft demand, even though the supply side was still stable.
Prices of industrial products were underpinned by a proactive fiscal policy, and environmental protection policies that had limited some factory production. I don’t think that stable supply can be sustained amid weak demand. In addition, the worsening employment situation is likely to have an impact on consumption growth.Prices of industrial products were underpinned by a proactive fiscal policy, and environmental protection policies that had limited some factory production. I don’t think that stable supply can be sustained amid weak demand. In addition, the worsening employment situation is likely to have an impact on consumption growth.
China’s economy is now facing relatively obvious downward pressure.”China’s economy is now facing relatively obvious downward pressure.”
Chinese factory bosses are growing increasingly worried about the trade war with America, data firm Caixin says.Chinese factory bosses are growing increasingly worried about the trade war with America, data firm Caixin says.
Optimism regarding future production remained relatively subdued in August, with confidence little-changed from June’s recent low.Optimism regarding future production remained relatively subdued in August, with confidence little-changed from June’s recent low.
Positive forecasts were generally linked to expectations of rising client demand. However, concerns over the ongoing China-US trade war and softer demand conditions weighed on overall sentiment.Positive forecasts were generally linked to expectations of rising client demand. However, concerns over the ongoing China-US trade war and softer demand conditions weighed on overall sentiment.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we discover how the world’s manufacturers fared in August, in the face of trade war anxiety and worries over the global economy.Today we discover how the world’s manufacturers fared in August, in the face of trade war anxiety and worries over the global economy.
And the early signs aren’t good -- growth in China’s manufacturing sector has slowed to its lowest level in over a year. Export orders shrank in August, for the fifth month in a row, and factory bosses cut staff.And the early signs aren’t good -- growth in China’s manufacturing sector has slowed to its lowest level in over a year. Export orders shrank in August, for the fifth month in a row, and factory bosses cut staff.
Import costs also jumped sharply, as firms paid the price of the tit-for-tat tariffs imposed on some US goods entering China.Import costs also jumped sharply, as firms paid the price of the tit-for-tat tariffs imposed on some US goods entering China.
This dragged the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) down to 50.6 in August from July’s 50.8.This dragged the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) down to 50.6 in August from July’s 50.8.
That’s the weakest level since June 2017, and worryingly close to the 50-point mark that shows stagnation.That’s the weakest level since June 2017, and worryingly close to the 50-point mark that shows stagnation.
China's Caixin manufacturing PMI hit 14-month low https://t.co/2Gq8kFyLkO pic.twitter.com/DqLaCjNiiTChina's Caixin manufacturing PMI hit 14-month low https://t.co/2Gq8kFyLkO pic.twitter.com/DqLaCjNiiT
Although output did increase, new orders rose at the slowest rate since May 2017, as Caixin explains:Although output did increase, new orders rose at the slowest rate since May 2017, as Caixin explains:
Latest data indicated that demand conditions softened, with total new business rising at the slowest pace for 15 months.Latest data indicated that demand conditions softened, with total new business rising at the slowest pace for 15 months.
Weaker foreign demand contributed to the softer increase in overall new work, with export sales declining for the fifth month in a row.Weaker foreign demand contributed to the softer increase in overall new work, with export sales declining for the fifth month in a row.
This slowdown suggests that the tariffs imposed on Chinese goods by Washington this year, and the threat of further levies this autumn, are now hurting China’s economy.This slowdown suggests that the tariffs imposed on Chinese goods by Washington this year, and the threat of further levies this autumn, are now hurting China’s economy.
Later today we learn how Europe’s factories performed. The UK manufacturing PMI is expected to dip a little to 53.9 from 54 in July. That would be a pretty solid performance.Later today we learn how Europe’s factories performed. The UK manufacturing PMI is expected to dip a little to 53.9 from 54 in July. That would be a pretty solid performance.
Also coming upAlso coming up
Italy is on the radar after rating agency Fitch lowered its outlook on Italian debt to “negative” last week.Italy is on the radar after rating agency Fitch lowered its outlook on Italian debt to “negative” last week.
The country’s populist government has hit back, saying it will make a “historic choice” between what citizens need and what ratings agencies say should be done. That’s likely to leave investors on edge.The country’s populist government has hit back, saying it will make a “historic choice” between what citizens need and what ratings agencies say should be done. That’s likely to leave investors on edge.
Argentina’s government is expected to announce sweeping spending cuts on Monday, in an attempt to tackle the currency crisis that had sent the peso plunging his year.Argentina’s government is expected to announce sweeping spending cuts on Monday, in an attempt to tackle the currency crisis that had sent the peso plunging his year.
The pound may also come under pressure, after UK PM Theresa May (once again) ruled out a second Brexit referendum, and eurosceptic MPs attacked her Chequers plan.The pound may also come under pressure, after UK PM Theresa May (once again) ruled out a second Brexit referendum, and eurosceptic MPs attacked her Chequers plan.
Here’s the agendaHere’s the agenda
9am BST: Eurozone manufacturing PMI for August9am BST: Eurozone manufacturing PMI for August
9.30am BST: UK manufacturing PMI for August9.30am BST: UK manufacturing PMI for August