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Pound suffers further slide after Boris Johnson takes Brexit hard line – business live Pound suffers further slide after Boris Johnson takes Brexit hard line – business live
(32 minutes later)
The number of insolvent companies in England and Wales hit a five-year high in the second quarter of 2019, in the latest ominous economic signal for the British economy.
There were 4,321 company insolvencies between April and June, 2.6% higher than in the first three months of the year and an increase of 11.9% year-on-year.
The last time insolvencies hit this level was the start of 2014.
Duncan Swift, president of insolvency and restructuring trade body R3, said:
Today’s figures are evidence of a difficult period for UK businesses. Tighter constraints on consumers and significant uncertainty about the future of the UK economy and the UK’s relationship with the EU are just some of the key factors at play that are making the business climate a challenging one.
Questions around what Brexit really means have hit investment and growth levels, and led to a degree of economic stagnation.
Businesses in a variety of industries are struggling right now. Retailers are suffering as the world in which they operate changes and more and more people shop online. Manufacturing output and confidence is low. Private and business car sales are down. And businesses which stockpiled items ahead of the original Brexit deadline of 29 March will now be seeing those decisions have an impact on their cash flow levels.
Simply put: it’s an uncertain, difficult time to be in business right now.
The pound has moderated some of its losses for the day: it has now lost 0.3% for the day to trade at around $1.2184 against the US dollar.
The slight recovery has weighed on the FTSE 100, which is now up by only 0.07%.
But any talk of recovery comes in the context of a very difficult month for sterling owners. The pound remains down by 4.5% over the year to date, or 4% in the past month alone – leading to some rather unflattering comparisons:
Contra the doom-mongering, the pound is still up marginally against the Turkish lira this year. pic.twitter.com/CSTeBHKShm
Important pensions news from the Financial Conduct Authority.Important pensions news from the Financial Conduct Authority.
Britain’s financial watchdog has proposed measures to protect consumers transferring out of defined benefit pension schemes, including a ban on contingent charging for advice and a clampdown on ongoing fees over 20 to 30 years – practices it said were costing customers £2bn a year.Britain’s financial watchdog has proposed measures to protect consumers transferring out of defined benefit pension schemes, including a ban on contingent charging for advice and a clampdown on ongoing fees over 20 to 30 years – practices it said were costing customers £2bn a year.
Many savers have been encouraged to move their pensions when they would be better advised to stay put.Many savers have been encouraged to move their pensions when they would be better advised to stay put.
You can read more from the Guardian’s Julia Kollewe here:You can read more from the Guardian’s Julia Kollewe here:
FCA plans more consumer protection on pension transfersFCA plans more consumer protection on pension transfers
Giffgaff has been fined £1.4m for overcharging 2.6 million mobile phone customers.Giffgaff has been fined £1.4m for overcharging 2.6 million mobile phone customers.
An Ofcom investigation revealed the network, which is owned by O2’s parent company Telefónica, overcharged users a total of almost £2.9m, writes the Guardian’s Mark Sweney.An Ofcom investigation revealed the network, which is owned by O2’s parent company Telefónica, overcharged users a total of almost £2.9m, writes the Guardian’s Mark Sweney.
The communications regulator said the billing mistake was “unacceptable” and imposed a further £50,000 fine because Giffgaff failed to provide accurate information during its investigation.The communications regulator said the billing mistake was “unacceptable” and imposed a further £50,000 fine because Giffgaff failed to provide accurate information during its investigation.
You can read more here:You can read more here:
Giffgaff fined £1.4m for overcharging millions of mobile customersGiffgaff fined £1.4m for overcharging millions of mobile customers
Some more interesting detail on the UK from the eurozone economic survey: consumers don’t appear to be that bothered by the Brexit chaos.Some more interesting detail on the UK from the eurozone economic survey: consumers don’t appear to be that bothered by the Brexit chaos.
Here’s more from Samuel Tombs, chief UK economist at Pantheon Macroeconomics:Here’s more from Samuel Tombs, chief UK economist at Pantheon Macroeconomics:
The overall sentiment indicator for consumers jumped to -7 in July – its highest level since August 2018 – from -11 in June. Confidence among households about the economic outlook recovered in July, while households’ optimism about the 12-month outlook for their personal finances rose further above its long-run average.The overall sentiment indicator for consumers jumped to -7 in July – its highest level since August 2018 – from -11 in June. Confidence among households about the economic outlook recovered in July, while households’ optimism about the 12-month outlook for their personal finances rose further above its long-run average.
Although caveated by the fact that the survey was carried out before Johnson ascended to the premiership, “there’s no sign yet that consumers are going to tap the brakes on spending in the run-up to the October Brexit deadline”, Tombs said.Although caveated by the fact that the survey was carried out before Johnson ascended to the premiership, “there’s no sign yet that consumers are going to tap the brakes on spending in the run-up to the October Brexit deadline”, Tombs said.
The weakening in the eurozone is reflected across the world, and it has drawn a response from central bankers who are planning to add support to their ailing economies.The weakening in the eurozone is reflected across the world, and it has drawn a response from central bankers who are planning to add support to their ailing economies.
The Federal Reserve is expected to cut interest rates tomorrow, and the European Central Bank has all but committed to moving in September (although the Bank of England is expected to remain on hold until the Brexit path becomes clearer, for better or worse).The Federal Reserve is expected to cut interest rates tomorrow, and the European Central Bank has all but committed to moving in September (although the Bank of England is expected to remain on hold until the Brexit path becomes clearer, for better or worse).
The Bank of Japan’s Haruhiko Kuroda this morning added to the sense of wariness among central bank governors, saying that he was prepared to ease monetary policy if need be.The Bank of Japan’s Haruhiko Kuroda this morning added to the sense of wariness among central bank governors, saying that he was prepared to ease monetary policy if need be.
While the BoJ did not change interest rates, it said it would add more stimulus “without hesitation” if there is a global slowdown that threatens to weaken inflationary pressures.While the BoJ did not change interest rates, it said it would add more stimulus “without hesitation” if there is a global slowdown that threatens to weaken inflationary pressures.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said Kuroda echoed what other policymakers have been saying in recent weeks.Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said Kuroda echoed what other policymakers have been saying in recent weeks.
The language now promises further easing if downside risks materialise, mainly regarding developments in overseas economies.The language now promises further easing if downside risks materialise, mainly regarding developments in overseas economies.
Eurozone business confidence fell to an almost six-year low in July, according to closely followed indicators published by the European commission.Eurozone business confidence fell to an almost six-year low in July, according to closely followed indicators published by the European commission.
Business confidence for the eurozone fell “markedly”, the commission said, from a reading of 0.17 points in June to a negative reading of 0.12 in July.Business confidence for the eurozone fell “markedly”, the commission said, from a reading of 0.17 points in June to a negative reading of 0.12 in July.
That was the first negative reading for business confidence since October 2013, and the lowest since August of that year. It was also well below economists’ average expectations of 0.08.That was the first negative reading for business confidence since October 2013, and the lowest since August of that year. It was also well below economists’ average expectations of 0.08.
The commission’s economic sentiment indicator, which combines consumer and business confidence, fell to its lowest since 2016.The commission’s economic sentiment indicator, which combines consumer and business confidence, fell to its lowest since 2016.
The figures add to an ominous picture for the eurozone economy, which has been blighted in particular by the struggles of the German manufacturing industry – with fears rising of a global economic slowdown.The figures add to an ominous picture for the eurozone economy, which has been blighted in particular by the struggles of the German manufacturing industry – with fears rising of a global economic slowdown.
British bakery chain Greggs has reported a 58% rise in profits today, after the buzz around its vegan sausage roll boosted sales.British bakery chain Greggs has reported a 58% rise in profits today, after the buzz around its vegan sausage roll boosted sales.
The Newcastle-based company announced a special dividend of 35p per share – a vegan sausage roll payout, perhaps.The Newcastle-based company announced a special dividend of 35p per share – a vegan sausage roll payout, perhaps.
Greggs launched its vegan sausage roll in January with a hugely successful marketing campaign that drew the ire of famous ranters but boosted sales.Greggs launched its vegan sausage roll in January with a hugely successful marketing campaign that drew the ire of famous ranters but boosted sales.
Underlying pre-tax profits came in at £40.6m for the six months to 29 June, up from £25.7m the year before.Underlying pre-tax profits came in at £40.6m for the six months to 29 June, up from £25.7m the year before.
There were heavier sterling trading volumes than normal in Asia trading hours, say analysts at Deutsche Bank led by Jim Reid.There were heavier sterling trading volumes than normal in Asia trading hours, say analysts at Deutsche Bank led by Jim Reid.
The renewed selling this morning has left the pound just a percent away from hitting a 34-year low (if ignoring the “flash crash” of October 2016). They said:The renewed selling this morning has left the pound just a percent away from hitting a 34-year low (if ignoring the “flash crash” of October 2016). They said:
With 93 days until the UK’s scheduled departure from the EU on October 31, and with Johnson’s policy of leaving that day “no ifs or buts”, fears of a no-deal outcome are increasingly being reflected in the currency.With 93 days until the UK’s scheduled departure from the EU on October 31, and with Johnson’s policy of leaving that day “no ifs or buts”, fears of a no-deal outcome are increasingly being reflected in the currency.
It isn’t only sterling markets that are being affected: the yield on the 10-year gilt, the benchmark rate for UK government borrowing, has matched its almost-three-year low of 0.628% this morning.It isn’t only sterling markets that are being affected: the yield on the 10-year gilt, the benchmark rate for UK government borrowing, has matched its almost-three-year low of 0.628% this morning.
Yields fall as prices rise in response to higher demand for the bonds. That demand has been driven in part by expectations that a no-deal Brexit would lead to economic stimulus from the Bank of England. Lower interest rates tend to make the returns from bonds more attractive.Yields fall as prices rise in response to higher demand for the bonds. That demand has been driven in part by expectations that a no-deal Brexit would lead to economic stimulus from the Bank of England. Lower interest rates tend to make the returns from bonds more attractive.
Remember that Johnson and much of his cabinet have already voted in favour of the withdrawal deal that Theresa May agreed with the EU. But his new-found conversion to leaving without a deal if necessary reflects the apparent impossibility of getting enough votes to pass that deal.Remember that Johnson and much of his cabinet have already voted in favour of the withdrawal deal that Theresa May agreed with the EU. But his new-found conversion to leaving without a deal if necessary reflects the apparent impossibility of getting enough votes to pass that deal.
Kit Juckes, chief foreign exchange strategist at Société Générale, said:Kit Juckes, chief foreign exchange strategist at Société Générale, said:
UK PM Boris Johnson’s position that there is no point talking about the exit deal with the EU until the Irish border backstop arrangement is removed, reflects his inability to get the deal in its current format through Parliament.UK PM Boris Johnson’s position that there is no point talking about the exit deal with the EU until the Irish border backstop arrangement is removed, reflects his inability to get the deal in its current format through Parliament.
His hard-line stance is seeing the Conservatives win voters back from the Brexit Party, according to recent polls, and he needs either to get a deal from the EU that he can get through Parliament or win back enough Brexiteer votes to be able to win an election. Either way, he is committed to a hard-line stance towards the EU that will of course, be rebuffed aggressively. In the process, sterling moves to the bottom of its post-referendum ranges and re-tests historical trade-weighted lows.His hard-line stance is seeing the Conservatives win voters back from the Brexit Party, according to recent polls, and he needs either to get a deal from the EU that he can get through Parliament or win back enough Brexiteer votes to be able to win an election. Either way, he is committed to a hard-line stance towards the EU that will of course, be rebuffed aggressively. In the process, sterling moves to the bottom of its post-referendum ranges and re-tests historical trade-weighted lows.
Oh, to be a fly on the wall in 10 Downing Street today as they discuss a fall in sterling at peak holiday season.
Perhaps, counterintuitively, Boris Johnson and his new strategy supremo, Dominic Cummings, may welcome the fall (or what it represents), says Craig Erlam, senior market analyst at foreign exchange firm Oanda.
The weakness in the pound is a reflection of the fact that Boris Johnson’s plan is working. He wants his no-deal threats to be taken seriously by the EU in the hope that it forces them to re-engage on the backstop. Clearly he has traders convinced.
Ultimately, May failed to convince anyone that no-deal was ever an option, despite repeated warnings that it was better than a bad deal. Boris Johnson is determined not to make the same mistake and it now remains to be seen whether the EU will take his threats as seriously as the market is. Traders are currently not optimistic but it’s still early days. For now, the currency may remain under severe pressure.
The FTSE 100 is the one gainer among major European stock markets, still up by 0.14%.
Elsewhere Germany’s Dax index has been shaken by poor earnings from the Lufthansa airline and chemicals company Bayer. It fell by 0.5%.
Italy’s FTSE MIB benchmark index has hit a four-week low after falling by 0.8%.
British Gas owner Centrica’s shares are sputtering: they are now at a 21-year low.
Silver and gold miner Fresnillo is the second-worst performer on the FTSE 100, after it reported a drop in production and higher costs. Profits dropped by two-thirds.
And consumer goods company Reckitt Benckiser missed analysts expectations for sales thanks to slower sales of infant formula in the giant Chinese market.
A bit more detail on those BP earnings: profits fell by 35% in the second quarter on the back of sliding crude oil prices.
But investors of course know the effect of lower oil prices on oil company earnings; better than expected production figures helped make up for the lower prices. (Despite all of its talk of supporting the energy transition, BP is in the middle of a five-year plan to expand production.)
Via AFP:
BP said that its underlying replacement cost profit – a widely-watched measure which strips out exceptional items and changes in the value of oil inventories – was broadly unchanged at $2.8bn. That beat the average analyst forecast of $2.48bn, according to Bloomberg.
Centrica shares have fallen by 10% in early trading on the FTSE 100.
Here is the chart which probably goes some way to explaining why Centrica boss Ian Conn is being shown the door.
London’s benchmark index is up by 0.35%, however, after stronger-than-expected BP results boosted the weighty mining contingent.
And don’t forget that the FTSE 100’s multinationals are usually boosted by the falling pound, which makes their foreign currency earnings more valuable in sterling terms.
Back on sterling, it’s “relentless selling pressure” says Neil Wilson, chief market analyst at Markets.com.
If sterling weakens further “it’s anyone’s guess where cable [sterling against the dollar] could land,” he said.
Remember the previous post-2016 low was before no-deal was on the table – it was all talk of a hard v soft Brexit – no deal wasn’t even being discussed.
The reasons behind the slide are well trodden but worth noting again: increased risk of a no-deal Brexit as the new government regime pivots squarely towards making no-deal a reality.
And Johnson will not be endearing himself to many families about to go abroad ...
Terrible timing for the holidays. Why is it always August?
Ian Conn’s departure came after what he described as an “exceptionally challenging environment in the first half of 2019”, resulting in Centrica slashing its dividend in half.
Centrica slumped to a loss of £446m in the first six months of 2019, after making a profit of £704m in the same period last year.
The company blamed a litany of factors for the £1.1bn downturn in its fortunes: the UK default tariff price cap, low UK natural gas prices, extensions to outages at the Hunterston B and Dungeness B nuclear power stations, and warmer than normal weather in both the UK and North America.
The British Gas owner’s adjusted earnings for shareholders, which attempts to strip out one-off costs, slumped by 63% year-on-year to £134m. The dividend to be paid to investors fell to 1.5p per share, down from 3.6p last year.
Centrica’s UK consumer business will be “fundamentally rebased”, and it will seek another £250m of efficiencies per year, part of a £1bn cost-cutting programme.
British Gas owner Centrica has announced that its chief executive, Ian Conn, will step down next year.
Conn will remain with Centrica at least until the 2020 annual general meeting and “provide his full support to help with the transition”, the company said.
The board said it will plan for his succession and provide an update at a later point.
Conn will remain on the same pay policy until the end of his employment, Centrica said. However, bonus payments whose conditions have not yet been fulfilled will “lapse in full” and no further bonuses will be granted.
Conn has previously been the object of criticism after receiving a 44% pay rise to £2.4m for 2018, despite a difficult year in which the company imposed two bill increases, warned on profits and announced thousands of job cuts.
Charles Berry, Centrica chairman, said:
Iain has now agreed with the Board that, while he will continue to focus on driving [the] transformation, including pursuing the announced divestments and continuing to drive performance and efficiency, he will also support an orderly succession before stepping down in due course.
Here’s a graph regular readers will have seen yesterday, but it certainly bears repeating: sterling against the US dollar since the start of 2016, ahead of the June 2016 referendum.
Note that sterling popped to above $1.50 as the results of the referendum started to come through. It has since suffered, recovered somewhat, and then fallen back as it became clearer that a no-deal Brexit was increasingly likely.
Boris Johnson’s financial markets welcoming party has delivered another blow this morning, sending sterling to fresh lows.
When campaigning for the Conservative leadership, the new prime minister made it very clear that he intended to leave the EU on 31 October with or without a deal. Markets appeared not to believe him; they now appear to have caught up.
Johnson again rejected the backstop, the insurance policy that aims to prevent a hard border between Northern Ireland and the Republic of Ireland. Speaking in Scotland, he said:
We can’t accept the backstop, it was thrown out three times, the withdrawal agreement as it stands is dead and everybody gets that. But there is ample scope to do a new deal and a better deal.
Investors were not reassured and sterling tumbled again this morning, losing as much as 0.7% against the US dollar and 0.6% against the euro. One pound bought as little as $1.2121 US dollars this morning, the lowest since 14 March 2017. Watch for the $1.2106 level: that will be the lowest since January 2017.
It has been an uncomfortable month for the pound, making it one of the worst-performing currencies across the world in recent days.
On the bright side, the pound sterling is not the worst performing currency in the world today. That accolade goes to the Madagascan Ariary. The pound, on the other hand, is only the second-worst performing currency in the entire world pic.twitter.com/bwJLNID8Ho
Sterling’s Johnsonian weakness will also have tricky implications for the Bank of England, whose rate-setting monetary policy committee will be looking at the fall in the pound with a certain trepidation ahead of their latest interest rate decision on Thursday.
Falls in the pound feed eventually through into higher inflation – but it is not the kind of inflation that signals an economy that is heating up. That leaves an uncomfortable decision to leave rising inflation, or to raise interest rates to combat it at a time when the economy may be struggling even more.
The agenda
10am BST: Eurozone business confidence (July)
10am BST: Eurozone consumer confidence (July)
1pm BST: Germany inflation rate (July)
1:30pm BST: US personal spending (June)