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| Brexit hangover leaves UK nursing worst monthly contraction since 2016 -- business live | |
| (32 minutes later) | |
| Yael Selfin, Chief Economist at KPMG UK, fears that the UK faces many more months o weak growth: | |
| “The hangover that’s followed the UK’s original exit date is proving stronger than anticipated. Today’s figures signal the UK economy is likely to experience more subdued growth for the rest of the year, marred by Brexit uncertainty. | |
| “The significant drop in car manufacturing, and in broader manufacturing activity at the start of Q2, point at more than just a reversal of the stock building effect seen as businesses prepared for an expected Brexit in March. | |
| “While services saw a slight improvement in April, continued weakness of financial services and the hospitality sector do not bode well for the overall prospects for the economy this year.” | |
| Ruth Gregory of Capital Economics fears that the UK economy could stall, or even shrink, in the current quarter. | |
| She says the contraction in April shows that the “Brexit hangover” was bigger than feared, telling clients: | |
| The deluge of activity data suggested that the economy got off to a bad start in Q2. Indeed, the economy shrank by 0.4% m/m in April, the second monthly contraction in a row. This meant that the 3m/3m rate slowed to 0.3% (consensus 0.4%), following Q1’s 0.5% gain. The sectoral breakdown of growth made for pretty discouraging reading too. Construction contracted in April by 0.4% m/m, while services output only managed to stagnate. The surprise was just how sharply manufacturing output plunged. It fell by 3.9% m/m. | |
| Admittedly, a couple of temporary factors dragged on growth in April. The first is the unwinding of the stockpiling boost – which saw firms increasing their stocks in Q1 to protect themselves against a possible no deal Brexit on 29th March. The other is the decision by car manufacturers to bring forward their annual production shutdowns from August to April in case of a no deal, which resulted in a 24% m/m drop in vehicle production – the biggest monthly fall since records began. Given the sector’s weight in GDP (1.5%), this knocked a chunky 0.2ppts off overall GDP. That will come back in May. | |
| However, even without this, then, GDP would have fallen by 0.2% m/m in April. We had thought GDP would rise by 0.2% q/q in Q2 but it’s now possible that GDP won’t rise at all or even contract. | |
| Overall, the clear message is that underlying growth is pretty sluggish. With the Brexit paralysis and a slowing global economy taking its toll, we doubt GDP will grow by much more than 1.5% or so in 2019 as a whole and expect interest rates to remain on hold until the middle of next year. | |
| The slide in growth in April shows that Brexit uncertainty is hurting the UK economy, says Alessandro Capuano of Fineco Bank: | |
| After a resilient start to the year fuelled by Brexit stockpiling efforts, maintaining that momentum is proving to be a challenge. | |
| Last week we saw the first red signs following gloomy reports on the manufacturing and construction industries. Following a positive first-quarter mainly driven by an increase in inventory build-up, Q2 2019 is proving to be rather disappointing. | |
| Here’s some expert reaction to the news that Britain’s economy stumbled in April: | |
| UK economy shrank by 0.4% in April. That’s the weakest monthly growth rate in three years. ONS puts it down to a “dramatic fall in car production” amid uncertainty about Brexit policy. Quarterly growth rate still in positive territory https://t.co/lTykz9OHc7 | |
| A real deluge of bad news for British economy today: GDP down -0.4% MoM, much worse than expected -0.1%; industrial production plunges -2.7%, while analysts expected-0.7%; manifacturing production down -3.9% (exp. -1.1%). It seems that #brexit is taking its tool. | |
| Moreover, this will force the gov to strongly reduce their forecasts on 2019 growth. @graemewearden | |
| We need to be careful about the 0.4 % contraction in April GDP (temporary car plant closures), just as wise people were careful with strong performance in Feb and March. pic.twitter.com/SOlJRRQrWx | |
| Monthly GDP figures can be erratic, so it’s sensible to look at the quarterly growth figures too. | |
| They show that the UK economy grew by 0.3% over the February-April period (despite contracting in both March and April). | |
| That’s down from 0.5% growth in January-March, suggesting that the economy struggled as the Brexit crisis intensified this spring. | |
| The ONS’s head of GDP, Rob Kent-Smith, has confirmed that the UK economy suffered from car plant shutdowns in April. | The ONS’s head of GDP, Rob Kent-Smith, has confirmed that the UK economy suffered from car plant shutdowns in April. |
| He also points out that factories slowed their stockpiling activities, after the UK’s Brexit date was pushed back to 31 October. | He also points out that factories slowed their stockpiling activities, after the UK’s Brexit date was pushed back to 31 October. |
| Kent-Smith says: | Kent-Smith says: |
| “GDP growth showed some weakening across the latest 3 months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK’s original EU departure date leading to planned shutdowns. | “GDP growth showed some weakening across the latest 3 months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK’s original EU departure date leading to planned shutdowns. |
| “There was also widespread weakness across manufacturing in April, as the boost from the early completion of orders ahead of the UK’s original EU departure date has faded.” | “There was also widespread weakness across manufacturing in April, as the boost from the early completion of orders ahead of the UK’s original EU departure date has faded.” |
| 0.3% growth in GDP in the 3-months to April https://t.co/n3mqUifXEF pic.twitter.com/PWDU66NEuG | 0.3% growth in GDP in the 3-months to April https://t.co/n3mqUifXEF pic.twitter.com/PWDU66NEuG |
| Britain’s services sector stagnated in April, with no growth at all. | Britain’s services sector stagnated in April, with no growth at all. |
| The construction industry also had a bad month, with output down 0.4%. | The construction industry also had a bad month, with output down 0.4%. |
| UK manufacturing suffered a sharp contraction in April, today’s GDP report shows. | UK manufacturing suffered a sharp contraction in April, today’s GDP report shows. |
| Industrial production declined by 2.7% during the month, with manufacturing shrinking by an alarming 3.9%. | Industrial production declined by 2.7% during the month, with manufacturing shrinking by an alarming 3.9%. |
| This appears to be due to UK car plants shutting down in April, as manufacturers prepared for a no-deal Brexit which never came. | This appears to be due to UK car plants shutting down in April, as manufacturers prepared for a no-deal Brexit which never came. |
| Brexit: UK car production plunges amid 'untold damage' of EU leave date chaos | Brexit: UK car production plunges amid 'untold damage' of EU leave date chaos |
| BREAKING: Britain’s economy shrank by 0.4% in April, new figures from the Office for National Statistics show. | BREAKING: Britain’s economy shrank by 0.4% in April, new figures from the Office for National Statistics show. |
| That’s its biggest monthly fall since March 2016, and follows a 0.1% contraction on March. | That’s its biggest monthly fall since March 2016, and follows a 0.1% contraction on March. |
| More to follow! | More to follow! |
| The US stock market is expected to follow Asia and Europe higher. | The US stock market is expected to follow Asia and Europe higher. |
| The Dow Jones industrial average is up 110 points in the futures market (actual trading begins in five hours). | The Dow Jones industrial average is up 110 points in the futures market (actual trading begins in five hours). |
| Including tonight’s bump, Dow futures now +2% in the last three days. México deal adding to the enthusiasm. Chatter about China talks resuming #stocks #ChinaTradeTalks pic.twitter.com/aB4F1s4OKj | Including tonight’s bump, Dow futures now +2% in the last three days. México deal adding to the enthusiasm. Chatter about China talks resuming #stocks #ChinaTradeTalks pic.twitter.com/aB4F1s4OKj |
| Relief that America won’t impose new levies on Mexican imports is pulsing away, even though there’s some confusion over what’s exactly been agreed. | Relief that America won’t impose new levies on Mexican imports is pulsing away, even though there’s some confusion over what’s exactly been agreed. |
| Jim Reid of Deutsche Bank explains: | Jim Reid of Deutsche Bank explains: |
| Markets are blowing small celebratory bubbles this morning as late on Friday the US announced a deal with Mexico to ensure that tariffs don’t get imposed today as planned. | Markets are blowing small celebratory bubbles this morning as late on Friday the US announced a deal with Mexico to ensure that tariffs don’t get imposed today as planned. |
| However there was some subsequent confusion as Mr Trump tweeted that Mexico has agreed to buy “large” amounts of agricultural products from the US as part of the deal. This didn’t seem to be anywhere in the accord released and sources close to the negotiations suggested on Bloomberg that there weren’t any additional side deals planned. So a bit puzzling but there will be relief that the tariffs have been avoided and perhaps some might believe it shows Trump’s propensity to strike deals after brinkmanship. | However there was some subsequent confusion as Mr Trump tweeted that Mexico has agreed to buy “large” amounts of agricultural products from the US as part of the deal. This didn’t seem to be anywhere in the accord released and sources close to the negotiations suggested on Bloomberg that there weren’t any additional side deals planned. So a bit puzzling but there will be relief that the tariffs have been avoided and perhaps some might believe it shows Trump’s propensity to strike deals after brinkmanship. |
| Holiday news: troubled tour operator Thomas Cook has confirmed that it’s in talks with China’s Fosun, its largest shareholder. | Holiday news: troubled tour operator Thomas Cook has confirmed that it’s in talks with China’s Fosun, its largest shareholder. |
| Fosun is interested in buying Thomas Cook’s tour operator business. A sale would provide the company with much-needed capital. | Fosun is interested in buying Thomas Cook’s tour operator business. A sale would provide the company with much-needed capital. |
| More here: | More here: |
| Thomas Cook in talks with Club Med owner to sell tour operator business | Thomas Cook in talks with Club Med owner to sell tour operator business |
| This morning’s optimism doesn’t extend to Neil Woodford. | This morning’s optimism doesn’t extend to Neil Woodford. |
| Shares in Woodford’s publicly-traded fund, Woodford Patient Capital Trust, have hit a fresh record low this morning, down another 5% below 60p for the first time. | Shares in Woodford’s publicly-traded fund, Woodford Patient Capital Trust, have hit a fresh record low this morning, down another 5% below 60p for the first time. |
| That’s despite an attempt this morning to reassure the City. In a brief and breezy statement (somewhat lacking in details), WPCT said it was “pleased with the operational progress of its portfolio companies”, and “closely monitoring the situation” at Woodford Investment Management. | That’s despite an attempt this morning to reassure the City. In a brief and breezy statement (somewhat lacking in details), WPCT said it was “pleased with the operational progress of its portfolio companies”, and “closely monitoring the situation” at Woodford Investment Management. |
| This is WPCT’s first public comment since another Woodfood fund, Equity Income, slammed the door to prevent investors getting out. | This is WPCT’s first public comment since another Woodfood fund, Equity Income, slammed the door to prevent investors getting out. |
| Neil Woodford’s listed fund falls despite attempt to reassure investors | Neil Woodford’s listed fund falls despite attempt to reassure investors |
| A week on, Woodford’s strategy -- and his links with financial platform Hargreaves Lansdown - are under major scrutiny. As the Sunday Times pointed out - Woodford investors have lost money, and paid fees for the privilege: | A week on, Woodford’s strategy -- and his links with financial platform Hargreaves Lansdown - are under major scrutiny. As the Sunday Times pointed out - Woodford investors have lost money, and paid fees for the privilege: |
| @ST_Money nails it.All made money but investors. pic.twitter.com/IBPxhoEb3Z | @ST_Money nails it.All made money but investors. pic.twitter.com/IBPxhoEb3Z |
| “Investors encouraged by Hargreaves to plough money into the #Woodford Equity Income fund on launch have lost £91 for every £10,000 put in, yet also forked out £455 in fees. Woodford pocketed £240 of that; Hargreaves creamed off the other £215” https://t.co/2piKLB6Q43 | “Investors encouraged by Hargreaves to plough money into the #Woodford Equity Income fund on launch have lost £91 for every £10,000 put in, yet also forked out £455 in fees. Woodford pocketed £240 of that; Hargreaves creamed off the other £215” https://t.co/2piKLB6Q43 |
| Hargreaves Lansdown shares have dropped 2% this morning, to a two-month low. | Hargreaves Lansdown shares have dropped 2% this morning, to a two-month low. |
| Britain’s FTSE 100 has hit a five-week high in early trading. | Britain’s FTSE 100 has hit a five-week high in early trading. |
| The blue-chip index has gained 40 points to 7,370, its highest level since early May. | The blue-chip index has gained 40 points to 7,370, its highest level since early May. |
| Mining companies are among the top risers, with Antofagasta, Anglo American and BHP Group all up around 1.5%. They’re all vulnerable to trade war worries, as weaker economic growth hits commodity prices. | Mining companies are among the top risers, with Antofagasta, Anglo American and BHP Group all up around 1.5%. They’re all vulnerable to trade war worries, as weaker economic growth hits commodity prices. |
| European stock markets have all begun the week strongly. | European stock markets have all begun the week strongly. |
| Neil Wilson of Markets.com says the US-Mexico deal is giving stocks a lift: | Neil Wilson of Markets.com says the US-Mexico deal is giving stocks a lift: |
| It’s a sea of green as stocks rebound on Trump’s Mexican fix. Investors are relieved at Mexico and the US coming to an agreement to avoid the latter slapping the former with tariffs, and this sent equity futures north. | It’s a sea of green as stocks rebound on Trump’s Mexican fix. Investors are relieved at Mexico and the US coming to an agreement to avoid the latter slapping the former with tariffs, and this sent equity futures north. |
| But, he’s also worried about the precedent of threatening a trade war to change immigration policies. Could the White House try the same trick with Europe, to force NATO members to spend more?... | But, he’s also worried about the precedent of threatening a trade war to change immigration policies. Could the White House try the same trick with Europe, to force NATO members to spend more?... |
| This may only embolden Mr Trump to use tariffs as policy tool for the pursuit of non-economic interests. As previously suggested, the EU could be next – maybe to get the 2% defence spending target. | This may only embolden Mr Trump to use tariffs as policy tool for the pursuit of non-economic interests. As previously suggested, the EU could be next – maybe to get the 2% defence spending target. |
| Commodity prices are also rallying this morning, after the US stepped back from hitting Mexico with new tariffs. | Commodity prices are also rallying this morning, after the US stepped back from hitting Mexico with new tariffs. |
| The copper price has gained 0.6% to $5,831 per tonne, having fallen for the last eight weeks in a row. Nickel (1.3%) and lead (+1.2%) are also higher this morning. | The copper price has gained 0.6% to $5,831 per tonne, having fallen for the last eight weeks in a row. Nickel (1.3%) and lead (+1.2%) are also higher this morning. |
| 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. |
| It’s tipping it down in London this morning, but that’s not dampening the optimistic mood in the City, and across the global markets. | It’s tipping it down in London this morning, but that’s not dampening the optimistic mood in the City, and across the global markets. |
| Shares have jumped in Asia today after the US stepped back from launching a trade war with Mexico. | Shares have jumped in Asia today after the US stepped back from launching a trade war with Mexico. |
| Donald Trump’s surprise change of heart means Mexican imports won’t face 5% tariffs from today, a move that would have further escalated America’s trade dispute with other economies. | Donald Trump’s surprise change of heart means Mexican imports won’t face 5% tariffs from today, a move that would have further escalated America’s trade dispute with other economies. |
| Trump calls off tariffs after US-Mexico deal but Mnuchin says threat remains | Trump calls off tariffs after US-Mexico deal but Mnuchin says threat remains |
| Trump’s threat to use economic tariffs to tackle a political problems (migration at the US border) had worried the markets -- what other issues could the US try to solve by threatening trade war? | Trump’s threat to use economic tariffs to tackle a political problems (migration at the US border) had worried the markets -- what other issues could the US try to solve by threatening trade war? |
| Under the agreement, Mexico will immediately expand a border program that sends migrants seeking asylum in the US back to Mexico while they await adjudication, deploy more security officers to contain the flow of migrants headed to the US, and crack down on human smuggling, the declaration said. | Under the agreement, Mexico will immediately expand a border program that sends migrants seeking asylum in the US back to Mexico while they await adjudication, deploy more security officers to contain the flow of migrants headed to the US, and crack down on human smuggling, the declaration said. |
| There’s obvious relief that a deal’s been reached -- even though several of Mexico’s “concessions” on asylum seekers were apparently agreed months ago. | There’s obvious relief that a deal’s been reached -- even though several of Mexico’s “concessions” on asylum seekers were apparently agreed months ago. |
| As Elsa Lignos of RBC Capital Markets puts it: | As Elsa Lignos of RBC Capital Markets puts it: |
| The biggest weekend news was Trump’s Friday night tweet (and a formal joint US-MX statement) announcing an agreement which suspends Trump’s tariffs threat on Mexico for now. | The biggest weekend news was Trump’s Friday night tweet (and a formal joint US-MX statement) announcing an agreement which suspends Trump’s tariffs threat on Mexico for now. |
| Reading through the details, Mexico basically re-committed to existing promises (and maintained its own red line of rejecting safe third-country status) – aka Trump blinked. The reaction in Asia has been positive. | Reading through the details, Mexico basically re-committed to existing promises (and maintained its own red line of rejecting safe third-country status) – aka Trump blinked. The reaction in Asia has been positive. |
| Talk of blinking won’t please the president, though - he wants more credit! | Talk of blinking won’t please the president, though - he wants more credit! |
| If President Obama made the deals that I have made, both at the Border and for the Economy, the Corrupt Media would be hailing them as Incredible, & a National Holiday would be immediately declared. With me, despite our record setting Economy and all that I have done, no credit! | If President Obama made the deals that I have made, both at the Border and for the Economy, the Corrupt Media would be hailing them as Incredible, & a National Holiday would be immediately declared. With me, despite our record setting Economy and all that I have done, no credit! |
| Investors aren’t bothered about the president’s legacy though. Japan’s Nikkei index has jumped 1.2%, as a wave of buying swept Asian trading floors. China’s CSI 300 index has gained 1%, with similar gains in Australia and South Korea too. | Investors aren’t bothered about the president’s legacy though. Japan’s Nikkei index has jumped 1.2%, as a wave of buying swept Asian trading floors. China’s CSI 300 index has gained 1%, with similar gains in Australia and South Korea too. |
| The big question, though, is whether Trump is also prepared to cut a deal with Beijing, so he can notch up another ‘win’ ahead of next year’s reelection race. | The big question, though, is whether Trump is also prepared to cut a deal with Beijing, so he can notch up another ‘win’ ahead of next year’s reelection race. |
| Hopes of a breakthrough at this month’s G20 leader’s meeting could push European shares higher today. The FTSE 100 index is expected to jump 40 points to 7368, adding to Friday’s rally. | Hopes of a breakthrough at this month’s G20 leader’s meeting could push European shares higher today. The FTSE 100 index is expected to jump 40 points to 7368, adding to Friday’s rally. |
| Hopes of an early US interest rate cut following Friday’s weak US jobs report are also keeping traders optimistic (although, if we get a trade war deal, there’s less need to cut borrowing costs to support the economy....) | Hopes of an early US interest rate cut following Friday’s weak US jobs report are also keeping traders optimistic (although, if we get a trade war deal, there’s less need to cut borrowing costs to support the economy....) |
| European Opening Calls:#FTSE 7367 +0.47%#DAX 12113 +0.56%#CAC 5385 +0.39%#MIB 20469 +0.53%#IBEX 9273 +0.40% | European Opening Calls:#FTSE 7367 +0.47%#DAX 12113 +0.56%#CAC 5385 +0.39%#MIB 20469 +0.53%#IBEX 9273 +0.40% |
| Also coming up today | Also coming up today |
| The latest GDP figures will show how Britain’s economy performed in April, after the threat of a disorderly exit from the EU was delayed until October. Economists fear a small contraction (-0.1%), as the boost from Brexit stockpiling faded. | The latest GDP figures will show how Britain’s economy performed in April, after the threat of a disorderly exit from the EU was delayed until October. Economists fear a small contraction (-0.1%), as the boost from Brexit stockpiling faded. |
| We also get new UK trade data. | We also get new UK trade data. |
| The agenda | The agenda |
| 9.30am BST: UK GDP for April | 9.30am BST: UK GDP for April |
| 9.30am BST: Industrial production for April | 9.30am BST: Industrial production for April |
| 9.30am BST: UK trade balance for April | 9.30am BST: UK trade balance for April |