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| UK faces 'mild recession' as economy shrinks at fastest rate since 2009 - business live | UK faces 'mild recession' as economy shrinks at fastest rate since 2009 - business live |
| (35 minutes later) | |
| 3.03pm BST | |
| 15:03 | |
| The dollar is slipping against the yen and the euro on the data. | |
| 3.02pm BST | |
| 15:02 | |
| US data just out: the ISM services/non-manufacturing index for July has come in at 55.5, slightly less than expected and down from 56.5 in June, signalling a slowdown. Employment in the services sector has weakened. | |
| US ISM Services/Non-Manufacturing (JUL) slight miss at 55.5 vs 55.9 exp, from 56.5; Employment subindex at 51.4 vs 52.7 prior. $DXY $FED | |
| Updated | |
| at 3.04pm BST | |
| 2.43pm BST | |
| 14:43 | |
| US stock markets have opened and are broadly flat. The Dow Jones edged up nearly six points at the bell to 18,319.73 while the tech-heavy Nasdaq and the wider S&P 500 were down slightly. | |
| Updated | |
| at 2.50pm BST | |
| 2.41pm BST | |
| 14:41 | |
| Corporate round-up | |
| Here’s a quick round-up of today’s corporate news: | |
| HSBC, Britain’s biggest bank, has admitted a regulatory breach in the US as it unveiled a slump in first-half profits in what it termed “turbulent” markets, our City editor Jill Treanor reports. More here. | |
| Standard Chartered has been rooting out some of its clients as it cleans up its business in the wake of regulatory investigations, its chief executive has said as the emerging markets-focused bank returned to profit in the first half of 2016. Read the full story here. | |
| The boss of ad agency Saatchi & Saatchi, Kevin Roberts, has resigned after provoking fury by claiming that women in the advertising industry lacked “vertical ambition” (he said they had “circular ambition”). He was suspended at the weekend by Publicis, Saatchi’s parent company, after denying that sexism was an issue in the advertising world. | |
| The boss of London housebuilder Berkeley Group, Tony Pidgley, made £21.5m last year – despite a slight pay cut from £23.3m the previous year. Not bad for an East End lad who was adopted by travellers at the age of four and grew up in a disused railway carriage. You can read the full story here. | |
| The energy regulator, Ofgem, has promised to introduce next spring the first price controls for some customers since the domestic power sector was privatised more than 15 years ago. Full story by our energy editor, Terry Macalister, here. | |
| The Scotch whisky industry has warned of higher tariffs following the Brexit vote in June, and urged the UK government to push for favourable trade conditions after leaving the EU. David Frost, chief executive of the Scotch Whisky Association, said: | |
| We are calling on the UK government to bring clarity to the transition to Brexit as soon as possible and to negotiate to ensure that the current open trading environment is not affected. | |
| Updated | |
| at 2.45pm BST | |
| 2.24pm BST | 2.24pm BST |
| 14:24 | 14:24 |
| A cut in UK interest rates on Thursday will only have a short term impact, says Christopher Metcalfe at Newton Investment Management: | A cut in UK interest rates on Thursday will only have a short term impact, says Christopher Metcalfe at Newton Investment Management: |
| Tomorrow the Bank of England is expected to announce the first interest rate reduction in more than seven years from its current record low of 0.5% to 0.25%. Given current market expectations, in such an event we would only expect a modest impact to sterling, FTSE and 10-year Gilts. | Tomorrow the Bank of England is expected to announce the first interest rate reduction in more than seven years from its current record low of 0.5% to 0.25%. Given current market expectations, in such an event we would only expect a modest impact to sterling, FTSE and 10-year Gilts. |
| A 25bp cut in the base rate will provide no more than a short-term sugar rush to the UK economy and the private sector will continue to be uncooperative. Unwilling or unable to take on the quantities of new debt necessary to overcome the structural headwinds facing the global economy, the response will continue to be the monetary policy equivalent of ‘Can’t Cook, Won’t Cook’. | A 25bp cut in the base rate will provide no more than a short-term sugar rush to the UK economy and the private sector will continue to be uncooperative. Unwilling or unable to take on the quantities of new debt necessary to overcome the structural headwinds facing the global economy, the response will continue to be the monetary policy equivalent of ‘Can’t Cook, Won’t Cook’. |
| Price of credit for firms is already low and it is difficult to imagine if businesses are scared or unwilling to invest in the wake of Brexit at 50bp interest rates, whether a further to 25bp will induce them to invest. Our view continues to be that the deflationary pressures exerted by the burden of surplus debt, overcapacity across many industries, and technological disruption are too big in magnitude for monetary policy to counter. Given the private sector lacks the confidence and/or ability to increase credit by the required amount, the onus falls on the public sector. | Price of credit for firms is already low and it is difficult to imagine if businesses are scared or unwilling to invest in the wake of Brexit at 50bp interest rates, whether a further to 25bp will induce them to invest. Our view continues to be that the deflationary pressures exerted by the burden of surplus debt, overcapacity across many industries, and technological disruption are too big in magnitude for monetary policy to counter. Given the private sector lacks the confidence and/or ability to increase credit by the required amount, the onus falls on the public sector. |
| Lower interest rates mean lower margins for the banking sector. It is increasingly difficult for banks to make an attractive spread on deposits without taking large credit and/or deposit risk. This is the clear message from Europe’s experiment with low interest thus far and continues to support our decision to hold zero banks within our Newton UK portfolios. | Lower interest rates mean lower margins for the banking sector. It is increasingly difficult for banks to make an attractive spread on deposits without taking large credit and/or deposit risk. This is the clear message from Europe’s experiment with low interest thus far and continues to support our decision to hold zero banks within our Newton UK portfolios. |
| Record-low interest rates and bond yields may validate continuing to pay higher prices for equities and other risk assets, continuing the hunt for yield and supporting safe haven assets. The housing market, particularly in the southeast of England has benefited from the availability of cheap finance. The search for yield and the decision to lower rates may support asset prices in the near-term. | Record-low interest rates and bond yields may validate continuing to pay higher prices for equities and other risk assets, continuing the hunt for yield and supporting safe haven assets. The housing market, particularly in the southeast of England has benefited from the availability of cheap finance. The search for yield and the decision to lower rates may support asset prices in the near-term. |
| 1.43pm BST | 1.43pm BST |
| 13:43 | 13:43 |
| The good ADP jobs figures are not necessarily a good guide to Friday’s non-farm payroll numbers. David Morrison, senior market strategist at Spreadco, said: | The good ADP jobs figures are not necessarily a good guide to Friday’s non-farm payroll numbers. David Morrison, senior market strategist at Spreadco, said: |
| [The ADP report] was good news as far as investors were concerned, but it doesn’t necessarily mean that we’re set for a strong Non-Farm Payroll number on Friday. | [The ADP report] was good news as far as investors were concerned, but it doesn’t necessarily mean that we’re set for a strong Non-Farm Payroll number on Friday. |
| Analysts are generally wary of taking the ADP data as a heads-up for Non-Farm Payrolls as the latter tends to be much more volatile than the ADP release. This has certainly been the case over the last few months. | Analysts are generally wary of taking the ADP data as a heads-up for Non-Farm Payrolls as the latter tends to be much more volatile than the ADP release. This has certainly been the case over the last few months. |
| But the other issue is that the next Fed meeting isn’t until 20/21st September. Not only will July’s employment data be old news by then, but the market already doubts that the Fed will tighten monetary policy this year, let alone ahead of November’s presidential Election. | But the other issue is that the next Fed meeting isn’t until 20/21st September. Not only will July’s employment data be old news by then, but the market already doubts that the Fed will tighten monetary policy this year, let alone ahead of November’s presidential Election. |
| 1.25pm BST | 1.25pm BST |
| 13:25 | 13:25 |
| US jobs data stronger than expected | US jobs data stronger than expected |
| Ahead of the US non-farm payroll numbers comes a report showing private sector employers created more jobs than expected in July. | Ahead of the US non-farm payroll numbers comes a report showing private sector employers created more jobs than expected in July. |
| The ADP report showed employment increased by 179,000 jobs last month compared to forecasts of a 170,000 rise. That compares to 176,000 in June, itself revised upwards from 172,000. | The ADP report showed employment increased by 179,000 jobs last month compared to forecasts of a 170,000 rise. That compares to 176,000 in June, itself revised upwards from 172,000. |
| 12.13pm BST | 12.13pm BST |
| 12:13 | 12:13 |
| Labour shadow chancellor John McDonnell has called for action from the government following the latest gloomy economic data: | Labour shadow chancellor John McDonnell has called for action from the government following the latest gloomy economic data: |
| The economic outlook for the UK is uncertain, and it’s time the Chancellor stepped up and told us what he is planning to do....We must rebalance our economy and support our key industries with an industrial strategy that can provide the good secure jobs that we so desperately need. | The economic outlook for the UK is uncertain, and it’s time the Chancellor stepped up and told us what he is planning to do....We must rebalance our economy and support our key industries with an industrial strategy that can provide the good secure jobs that we so desperately need. |
| 11.13am BST | 11.13am BST |
| 11:13 | 11:13 |
| Markets are currently mixed in the wake of the various PMI surveys. | Markets are currently mixed in the wake of the various PMI surveys. |
| The FTSE 100 is now down 15 points or 0.2% while France’s Cac has slipped 0.28%. But Germany’s Dax has edged higher following its strong service sector performance, adding 0.1%. | The FTSE 100 is now down 15 points or 0.2% while France’s Cac has slipped 0.28%. But Germany’s Dax has edged higher following its strong service sector performance, adding 0.1%. |
| Meanwhile sterling is virtually flat against the dollar at $1.3355 and down 0.24% against the euro at €1.1926. | Meanwhile sterling is virtually flat against the dollar at $1.3355 and down 0.24% against the euro at €1.1926. |
| Updated | Updated |
| at 11.14am BST | at 11.14am BST |
| 11.08am BST | 11.08am BST |
| 11:08 | 11:08 |
| Larry Elliott | Larry Elliott |
| Here is our report on the Markit surveys from economic editor Larry Elliott: | Here is our report on the Markit surveys from economic editor Larry Elliott: |
| The Bank of England has been provided with fresh evidence of the softness of the economy in the immediate post-Brexit period by a survey showing activity on course to decline by 0.4% in the third quarter of 2016. | The Bank of England has been provided with fresh evidence of the softness of the economy in the immediate post-Brexit period by a survey showing activity on course to decline by 0.4% in the third quarter of 2016. |
| Ahead of Threadneedle Street’s decision on whether to provide additional stimulus to boost growth, the Markit/CIPS snapshot of the services sector underlined the blow to output, orders and confidence delivered by the shock referendum result. | Ahead of Threadneedle Street’s decision on whether to provide additional stimulus to boost growth, the Markit/CIPS snapshot of the services sector underlined the blow to output, orders and confidence delivered by the shock referendum result. |
| The final purchasing managers index for services for July fell from 52.3 to 47.4 in June – the sharpest drop on record and in line with a flash estimate provided by Markit/CIPS just under two weeks ago. | The final purchasing managers index for services for July fell from 52.3 to 47.4 in June – the sharpest drop on record and in line with a flash estimate provided by Markit/CIPS just under two weeks ago. |
| Live UK faces ‘mild recession’ as economy shrinks at fastest rate since 2009 - business live UK services sector contracts as Brexit concerns bite Read more | Live UK faces ‘mild recession’ as economy shrinks at fastest rate since 2009 - business live UK services sector contracts as Brexit concerns bite Read more |
| A composite PMI – including manufacturing as well as services – showed a slightly bigger fall than first feared, declining from 52.5 to 47.5. | A composite PMI – including manufacturing as well as services – showed a slightly bigger fall than first feared, declining from 52.5 to 47.5. |
| Construction was not included in the original flash estimate of economic conditions in the aftermath of Brexit, but the all-sector PMI fell from 51.9 in June to 47.3 in July, its lowest level since the economy was in recession in April 2009. Any reading below 50 indicates that activity is contracting. | Construction was not included in the original flash estimate of economic conditions in the aftermath of Brexit, but the all-sector PMI fell from 51.9 in June to 47.3 in July, its lowest level since the economy was in recession in April 2009. Any reading below 50 indicates that activity is contracting. |
| The full report is here: | The full report is here: |
| Related: UK services sector contraction adds to recession fears | Related: UK services sector contraction adds to recession fears |
| 10.35am BST | 10.35am BST |
| 10:35 | 10:35 |
| Back with the European retail sales, and following recent weakness, they could pick up again as energy costs fall, says Peter Vanden Houte at ING Bank: | Back with the European retail sales, and following recent weakness, they could pick up again as energy costs fall, says Peter Vanden Houte at ING Bank: |
| Eurozone retail sales stabilized in June, though cheaper oil and stronger job creation should support consumption in the second half of the year. | Eurozone retail sales stabilized in June, though cheaper oil and stronger job creation should support consumption in the second half of the year. |
| According to Eurostat figures released today, Eurozone retail sales stabilized in June, after a 0.4% expansion in May. This was in line with the consensus estimate. Portugal and Spain saw the highest increases (+3.1% and +1.0% MoM respectively), while Germany recorded a 0.1% fall and in France retail sales contracted 0.4% on the month. Year-on-year retail sales expanded by 1.6%. | According to Eurostat figures released today, Eurozone retail sales stabilized in June, after a 0.4% expansion in May. This was in line with the consensus estimate. Portugal and Spain saw the highest increases (+3.1% and +1.0% MoM respectively), while Germany recorded a 0.1% fall and in France retail sales contracted 0.4% on the month. Year-on-year retail sales expanded by 1.6%. |
| On average, retail sales grew 0.1% over the quarter after a 0.6% increase in the first quarter. The main culprit for the somewhat weaker consumption growth was most likely the 30% increase in oil prices over the quarter, sapping households’ purchasing power. | On average, retail sales grew 0.1% over the quarter after a 0.6% increase in the first quarter. The main culprit for the somewhat weaker consumption growth was most likely the 30% increase in oil prices over the quarter, sapping households’ purchasing power. |
| However, since July, energy prices have been weakening again, while July’s PMIs are also showing that job creation remains strong in the Eurozone. Even though Brexit might have a minor adverse impact on consumer confidence, we believe that the underlying fundamentals remain strong enough to support consumption in the second half of the year. That said, we don’t see any strengthening of the expansion in the near future with GDP growth likely to hover around 0.2% over the next few quarters, resulting in a 1.5% expansion for the whole of the year. | However, since July, energy prices have been weakening again, while July’s PMIs are also showing that job creation remains strong in the Eurozone. Even though Brexit might have a minor adverse impact on consumer confidence, we believe that the underlying fundamentals remain strong enough to support consumption in the second half of the year. That said, we don’t see any strengthening of the expansion in the near future with GDP growth likely to hover around 0.2% over the next few quarters, resulting in a 1.5% expansion for the whole of the year. |
| 10.25am BST | 10.25am BST |
| 10:25 | 10:25 |
| More from Markit on the UK economy as evidenced from its latest surveys: | More from Markit on the UK economy as evidenced from its latest surveys: |
| PMI shows UK business costs rising due to weaker £ but selling price inflation unchanged. Points to profit squeeze pic.twitter.com/L45TGJ7Rki | PMI shows UK business costs rising due to weaker £ but selling price inflation unchanged. Points to profit squeeze pic.twitter.com/L45TGJ7Rki |
| 10.17am BST | 10.17am BST |
| 10:17 | 10:17 |
| Eurozone retail sales flat in June | Eurozone retail sales flat in June |
| Retail sales in the eurozone were stable in June, ahead of the UK’s referendum, compared with the previous month. | Retail sales in the eurozone were stable in June, ahead of the UK’s referendum, compared with the previous month. |
| In the wider European Union they declined by 0.2%. In May there was an increase in both areas of 0.4%. | In the wider European Union they declined by 0.2%. In May there was an increase in both areas of 0.4%. |
| Meanwhile the year on year figure rose by 1.6% in the euro area and by 2.4% in the wider EU. | Meanwhile the year on year figure rose by 1.6% in the euro area and by 2.4% in the wider EU. |
| Euro area retail trade stable in June 16 over May 16, +1.6% over June 15 #Eurostat https://t.co/DcPGzpbt1E pic.twitter.com/NQPvhMJfK5 | Euro area retail trade stable in June 16 over May 16, +1.6% over June 15 #Eurostat https://t.co/DcPGzpbt1E pic.twitter.com/NQPvhMJfK5 |
| Updated | Updated |
| at 10.21am BST | at 10.21am BST |
| 10.08am BST | 10.08am BST |
| 10:08 | 10:08 |
| Even without a recession, the UK faces a period of lacklustre growth, says Dean Turner, economist at UBS Wealth Management: | Even without a recession, the UK faces a period of lacklustre growth, says Dean Turner, economist at UBS Wealth Management: |
| Off the back of equally disappointing manufacturing figures, today’s numbers confirm that the UK economy is slowing. Although not currently our base case, if current levels for the PMIs are sustained, we may need to brace ourselves for a mild recession by the end of the year. | Off the back of equally disappointing manufacturing figures, today’s numbers confirm that the UK economy is slowing. Although not currently our base case, if current levels for the PMIs are sustained, we may need to brace ourselves for a mild recession by the end of the year. |
| Today’s confirmation of the downturn in the Services PMI should not be underestimated, with significant near-term implications for UK businesses. But until the fog of Brexit begins to clear, it is frankly too early to tell whether the latest string of disappointing data is a real cause for concern. Time will tell if a recession is on the cards but it is clear we now face a period of lacklustre growth, a sharp contrast to the above trend growth we’ve enjoyed for the last three years. | Today’s confirmation of the downturn in the Services PMI should not be underestimated, with significant near-term implications for UK businesses. But until the fog of Brexit begins to clear, it is frankly too early to tell whether the latest string of disappointing data is a real cause for concern. Time will tell if a recession is on the cards but it is clear we now face a period of lacklustre growth, a sharp contrast to the above trend growth we’ve enjoyed for the last three years. |
| These figures support speculation that we will see an interest rate cut tomorrow. We expect the Bank of England to cut rates by at least 25 basis points, reopen QE, and potentially discuss other easing measures. | These figures support speculation that we will see an interest rate cut tomorrow. We expect the Bank of England to cut rates by at least 25 basis points, reopen QE, and potentially discuss other easing measures. |
| 10.02am BST | 10.02am BST |
| 10:02 | 10:02 |
| But: | But: |
| #UK services #PMI shrinks at fastest since '09. #BoE cut "foregone conclusion" says @Markit. Sterling traders differ pic.twitter.com/up1AT0TnXC | #UK services #PMI shrinks at fastest since '09. #BoE cut "foregone conclusion" says @Markit. Sterling traders differ pic.twitter.com/up1AT0TnXC |