Surprise falls in UK manufacturing and construction point to slowing economy – business live
Manufacturing output drops for the first time in a year and construction down sharply for a second month while trade deficit narrows
On this note, we are closing the blog for the day.
A tweet from Donald Trump warning Russia to get ready for US missile strikes against its ally Syria sent the Russian rouble down 2.5% to its lowest level since November 2016.
The rouble, already down, tumbled 2.5%, taking its total losses to almost 12% since Friday when the US government imposed fresh sanctions against seven Russian oligarchs and their businesses.
The Russian rouble has fallen to its weakest level since November 2016, Turkey’s lira hit another record low and emerging markets stocks slipped, after Donald Trump warned Russia in a tweet to “get ready” for US missile strikes against its ally Syria in response to Saturday’s chemical weapons attack on a rebel-held town outside Damascus.
In the US, consumer prices fell for the first time in 10 months in March due to weak gasoline prices, according to the Labor Department.
The consumer price index slipped 0.1% last month, the first and biggest drop since May 2017. It comes after a 0.2% increase in February. However, the annual inflation rate rose to 2.4% from 2.2%, marking the fastest annual growth in a year.
Here’s some reaction to the news that online retailer Shop Direct will be closing three warehouses in Greater Manchester.
Martin Lane, managing editor of money.co.uk, says:
Another dark day for the retail industry with Shop Direct making nearly 2,000 members of staff redundant, proving even online retailers aren’t immune to current economic pressures.
The pattern of well loved stores filing for administration or cutting jobs over the last few weeks is terrible news for the UK’s retail industry. The location of Shop Direct’s warehouses appears to be the cause of these redundancies being made and with a new site not expected until 2021 there is little hope for staff to be transferred.
The National Institute of Economic and Social Research has put out its monthly estimate of GDP growth. It reckons that growth slowed to 0.2% in the first quarter of this year, from 0.4% in the fourth quarter.
Amit Kara, head of UK macroeconomic forecasting at NIESR, said
The main reason for the weakness was severe weather in March which is likely to have disrupted activity in all major sectors of the economy. There is a small offset in industrial production growth which recovered in the first quarter after the previous quarter was affected by the Fortis oil pipeline shutdown.
Take for example the quarterly GDP growth for the final quarter of 2010 when the UK experienced a prolonged period of extreme cold weather. The economy was initially estimated to have shrunk by 0.5% but subsequent data revisions show that the economy expanded by 0.1% over this period.
More bad news in the retail industry.
The online retailer Shop Direct is to close three sites in Greater Manchester, leading to the loss of nearly 2,000 jobs, PA reports.
The move is part of Shop Direct’s plans to open a new warehouse in East Midlands Gateway, which will replace current centres in Shaw, Little Hulton and Raven.
The firm said that the three sites have “limited accessibility, layout and loading restrictions”, and no longer meet the group’s “operational ambitions”.
Returning to today’s triple set of UK data – industrial production, trade and construction – the forecasting group EY Item Club has looked at the impact on GDP and interest rates.
A largely disappointing set of news on the UK economy which fuels suspicion that GDP growth likely slowed to 0.3% quarter-on-quarter in the first quarter.
While the weakened February data may surprise the Bank of England and provide some food for thought, the odds remain strongly in favour of the monetary policy committee pressing ahead with a 25 basis point interest rate hike to 0.75% at their May meeting. However, expectations of another hike in November may well be diluted.
With the snowfall having spilled over into the first week of March, we could see another soft outturn cap off Q1. Overall, it seems likely that GDP growth will soften from the +0.4% (qoq) recorded in Q4, though the extent of this will largely hinge on how the dominant services sector has fared.
Surveys suggest that the snow has weighed heavily on the sector, with the March services PMI falling to the lowest seen since immediately after the EU referendum in July 2016. Still, with snow affecting only a brief period of the quarter, we expect the impact to be relatively modest and have tentatively pencilled in a 0.1ppt slowing in growth to 0.3% for Q1.
The UK’s sugar tax came into force on Friday, leaving a bitter taste for sugar companies and drinks manufacturers that now have to pay a levy on high-sugar drinks they sell.
In another blow to sugar companies and farmers, sugar prices have fallen to 2 1/2 year lows, due to a glut of sugar on the market caused by high output from India and Thailand.
The market is finding it hard to get out from under the cloud of increased sugar production that is effectively the result of good weather and government policies.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said about the manufacturing and trade data:
The modest stimulus to growth from sterling’s 2016 depreciation has begun to fade, while the global trade upswing has lost some momentum too.
UK exports up 3.8% YoY in February with exports to the EU-27 dominating in total quantity (£12.7bn/ month) and YoY change (+£1.5bn/month). A combination of weak GBPEUR and strong trade links. pic.twitter.com/wdoaSeqC4s
Returning to the trade data, while the goods trade deficit shrank in February, this reflected a drop in imports rather than an improvement in exports.
And the deficit widened by £100m the three months to February.
The ONS head of national accounts Darren Morgan said:
Manufacturing continued to grow in the three months to February but at the slowest rate seen since the summer, with increases in machinery, metal products and pharmaceuticals offset by falls in electrical appliances and oil refining. This drop in refining may have contributed to the fall in fuel exports and the large rise in fuel imports also seen in the three months to February.
The trade deficit widened a little in the three months to February, with reduced imports of machinery offsetting the rise in fuel imports.
Construction fell in the three months to February after an erratic couple of months, mainly due to a big decline in repair work. However, this was partially offset by growth in both infrastructure and housebuilding.
The detail of the manufacturing data reveals that seven of 13 manufacturing sub-sectors declined in March, led by machinery and equipment, down 3.9%, the first fall since last June.
Of the sub-sectors that upped their factory output in February, the weapons and ammunition industry stood out – output rose 28.6%, its strongest growth since August 2014.
The ONS said there was some anecdotal evidence that heavy snow in late February hurt construction, although the impact was hard to quantify.
Lee Hopley, chief economist at EEF, the manufacturers’ organisation, was quick to respond to the data.
Manufacturing’s recent run of growth came to a halt in February though the picture across sectors was more varied, with some hefty output falls in some key sub-sectors. Whilst there doesn’t appear to have been an appreciable impact on the sector’s performance from the ‘Beast from the East’ in February, weather-related events may yet have a bearing on the numbers in the coming month however.
Despite this, the data looks more like a temporary wobble than a turn for the worse. Whilst other indicators may have softened since the start of the year, on-going growth in the global economy should continue to spur growth across manufacturing in the coming quarters.
Sterling slipped after the surprise falls in UK manufacturing and construction output in February. The figures will be scrutinised by the Bank of England, which has been widely expected to raise interest rates next month.
The trade figures are better. Britain’s goods trade deficit with the rest of the world shrank to £10.2bn in February from £12.2bn in January – the smallest shortfall since September, and better than the City had expected.
The UK data are out. Manufacturing output fell unexpectedly in February, posting its first drop in almost a year, according to official figures. It fell 0.2% in February from the previous month and stagnated in January.
The Office for National Statistics also reported another sharp drop in construction output of 1.6%, defying hopes of a small rebound after January’s 3.1% slump.
Turning to oil, Saudi Arabia’s energy minister said today that he was happy with the current state of the oil market.
The oil cartel Opec, Russia and several other non-Opec countries began cutting supply in January 2017 in an effort to eliminate the global glut of crude that had built up in previous years. The pact has been extended until the end of this year.
I think a lot of the glut has been cleared.
Germany’s VDMA engineering association has called on the West to lift some sanctions against Moscow.
Its president, Carl Martin Welcker, has told Reuters that the association is hoping for a sustained recovery in demand from the Russian market. German engineering exports to Russia rose 22.5% to €5.3bn last year, but that was still far below a peak of almost €8bn peak in 2012.
Russia has developed very positively over the past year, after all the disappointing years before.
Economic sanctions have little political impact in this respect, we want them to be critically scrutinised. The things that work should be upheld and others should be loosened if possible.
A report released this morning shows that Britain’s high streets suffered more store closures in 2017 than in any year since 2010. Fashion retailers, shoe shops, travel agents and estate agents have been driven out by the rise of internet shopping.
A net 1,700 chain shops closed their doors in 2017, according to analysis of the UK’s top 500 towns compiled by the Local Data Company (LDC) for PricewaterhouseCoopers. An average of 11 stores a day opened, while 16 a day closed. The data does not include independent shops.
Fashion and footwear stores were the hardest hit in 2017, according to LDC, as shoppers’ freedom to spend on non-essentials was diminished by rising food price inflation, partly fuelled by the fall in the value of the pound after the vote for Brexit in 2016.
Tesco is the biggest riser on the FTSE 100 index in early trading after its better-than-expected results, with the shares up 3.6%. Other supermarkets Sainsbury’s and Morrison’s are also up.
Asos shares have fallen as much as 7% despite strong results, after the company upped its investment plans.
European stock markets have opened lower, as expected, with trade tensions simmering.
FTSE 100 index in London down 0.27% at 7246.85
Hammerson, which runs the Bullring shopping centre in Birmingham and Brent Cross in London, said this morning that it has rejected a sweetened £5bn bid from bigger French rival Klépierre.
The French shopping mall operator offered to pay 635p a share in a mix of Klépierre shares and cash, up from its £4.9bn proposal on 8 March (615p a share).
The board has considered the revised proposal from Klépierre carefully. At 635p, it is only a 3% increase on the previous proposal and continues very significantly to undervalue the company.”
Britain’s biggest retailer Tesco has reported a 28% rise in operating profits, beating City expectations. Profits were boosted by better than expected sales in the last three months of its financial year.
Online fashion retailer Asos, which targets shoppers in their 20s, has also reported strong numbers. Sales were up 27% in the first half and it expects similar growth in the second half. Chief executive Nick Beighton said the firm would step up investment in distribution and logistics.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The head of the International Monetary Fund, Christine Lagarde, has issued a stark warning that the current system for world trade is “in danger of being torn apart”, with the potential to upset the present global economic upswing and make consumers poorer. She urged governments around the world to steer clear of protectionism or face negative consequences.
Let us redouble our efforts to reduce trade barriers and resolve disagreements without using exceptional measures.
For equity markets to regain a sense of equilibrium we need to start to see progress on the road away from a potential trade war, and currently there is no evidence of that whatsoever.
The strange thing is that for all the warm words, and President Trump’s positive response to them, is that what President Xi actually said wasn’t much different to previous speeches he has made in the past, which means that eventually these words will need to be turned into actions. The easiest one to deliver is probably the reduction in tariffs on cars, but even that is likely to be difficult, particularly since further talks between the various parties aren’t actually planned at the moment.
Source: The Guardian