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Pound falls as UK trade deficit swells and industrial output stumbles - business live Pound falls as UK trade deficit swells and industrial output stumbles - business live
(35 minutes later)
10.53am BST
10:53
Britain’s export performance remains “underwhelming”, says Sam Tombs of Pantheon Economics.
He blames manufacturers for hiking their prices since the pound fell, rather than trying to grow their market share.
The main problem remains that exporters have hiked their prices, blunting the boost to competitiveness from the weak pound. Foreign-currency prices for U.K. goods exports in May were just 5% lower than in Q4 2015.
Exports are earning healthy profits, but few are willing to invest and ramp up production due to Brexit risk. Markit’s survey of export orders also has weakened over the last few months, casting further doubt over the likelihood of a sustained trade boost going forwards.
This chart shows how exports have been lagging behind imports for more than a year
10.31am BST10.31am BST
10:3110:31
Today’s data suggest that Britain’s economy has only grown by 0.3% in the second quarter of the year, says Howard Archer, Chief Economic Advisor to the EY ITEM Club.Today’s data suggest that Britain’s economy has only grown by 0.3% in the second quarter of the year, says Howard Archer, Chief Economic Advisor to the EY ITEM Club.
That would only be slightly better than the 0.2% growth posted in Q1 - the weakest of any G7 nation.That would only be slightly better than the 0.2% growth posted in Q1 - the weakest of any G7 nation.
Archer says:Archer says:
“Based on today’s data and the business survey results for June, we now think that industrial production is likely to have contracted by 0.5% in Q2, with construction output down 1.8%.“Based on today’s data and the business survey results for June, we now think that industrial production is likely to have contracted by 0.5% in Q2, with construction output down 1.8%.
And though an improved performance from the services sector will provide some support, GDP is likely to have grown by just 0.3% with the risks to that projection skewed to the downside.And though an improved performance from the services sector will provide some support, GDP is likely to have grown by just 0.3% with the risks to that projection skewed to the downside.
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10.25am BST10.25am BST
10:2510:25
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10.21am BST10.21am BST
10:2110:21
Sterling has also hit a nine day low against the euro.Sterling has also hit a nine day low against the euro.
The pound has dropped by almost half a eurocent to €1.1311.The pound has dropped by almost half a eurocent to €1.1311.
That means one euro is now worth 88.4p.That means one euro is now worth 88.4p.
10.15am BST10.15am BST
10:1510:15
UK data disappoints: snap reactionUK data disappoints: snap reaction
Today’s trade data provides little evidence that Britain’s economy is rebalancing away from consumer spending and towards exports.Today’s trade data provides little evidence that Britain’s economy is rebalancing away from consumer spending and towards exports.
My colleague Katie Allen points out that the weak pound doesn’t seem to be providing much support.My colleague Katie Allen points out that the weak pound doesn’t seem to be providing much support.
Imports rising faster than exports in UK. Remains to be seen if weak pound can boost exports enough to offset consumer slowdown pic.twitter.com/opT6YU0xPxImports rising faster than exports in UK. Remains to be seen if weak pound can boost exports enough to offset consumer slowdown pic.twitter.com/opT6YU0xPx
Mike Bird of the Wall Street Journal highlights that the goods deficit has been widening for a long time:Mike Bird of the Wall Street Journal highlights that the goods deficit has been widening for a long time:
Aaaaaaany minute... now! No... now! Now! pic.twitter.com/wpsRo4dstUAaaaaaany minute... now! No... now! Now! pic.twitter.com/wpsRo4dstU
Claus Vistesen of Pantheon Economics wins the prize for pithy analysis:Claus Vistesen of Pantheon Economics wins the prize for pithy analysis:
Grim U.K. data!Grim U.K. data!
Fast FT show that UK industrial production has been disappointing for several months:Fast FT show that UK industrial production has been disappointing for several months:
The pound has dropped after UK industrial production missed forecasts for the 4th month in a row https://t.co/tuMJRoUXIX pic.twitter.com/0IFGpegEJeThe pound has dropped after UK industrial production missed forecasts for the 4th month in a row https://t.co/tuMJRoUXIX pic.twitter.com/0IFGpegEJe
UK industrial production fell by 0.1%, missing a 0.4% expansion estimate - this is the 4th consecutive month of failing to hit forecasts. pic.twitter.com/WtFvDg4CEBUK industrial production fell by 0.1%, missing a 0.4% expansion estimate - this is the 4th consecutive month of failing to hit forecasts. pic.twitter.com/WtFvDg4CEB
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10.09am BST10.09am BST
10:0910:09
ONS senior statistician Kate Davies sums up today’s flurry of disappointing UK data:ONS senior statistician Kate Davies sums up today’s flurry of disappointing UK data:
“Activity in the production sector was broadly unchanged in May, though the underlying position is weaker with both total output and manufacturing falling in the three months to May compared with the previous three months.“Activity in the production sector was broadly unchanged in May, though the underlying position is weaker with both total output and manufacturing falling in the three months to May compared with the previous three months.
Construction output also fell on a three-monthly basis, though this is after several years of growth.Construction output also fell on a three-monthly basis, though this is after several years of growth.
“Meanwhile the total trade deficit widened by £2 billion in the most recent three months, primarily due to high imports especially from outside the European Union.”“Meanwhile the total trade deficit widened by £2 billion in the most recent three months, primarily due to high imports especially from outside the European Union.”
10.08am BST10.08am BST
10:0810:08
In another blow, UK construction output fell by 1.2% in May. Actually, it’s a triple-dose of bad news -- UK construction output fell by 1.2% in May.
It also shrank by 1.2% in the March-to-May quarter, compared to the previous three months. That’s the biggest drop since September 2012.It also shrank by 1.2% in the March-to-May quarter, compared to the previous three months. That’s the biggest drop since September 2012.
The ONS blames “falls in both repair and maintenance, and all new work.”The ONS blames “falls in both repair and maintenance, and all new work.”
New construction work, most notably from infrastructure, fell 4.0% in May (ONS). Surprising given all the talk of infrastructure spending.New construction work, most notably from infrastructure, fell 4.0% in May (ONS). Surprising given all the talk of infrastructure spending.
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10.01am BST10.01am BST
10:0110:01
The 0.2% drop in UK manufacturing output in May was triggered by a drop in car production.The 0.2% drop in UK manufacturing output in May was triggered by a drop in car production.
The ONS says:The ONS says:
Transport equipment provided the largest downward contribution, falling by 2.3%; within this, motor vehicles, trailers and semi trailers fell by 4.4%, the largest fall since February 2016, when it fell by 5.8%.Transport equipment provided the largest downward contribution, falling by 2.3%; within this, motor vehicles, trailers and semi trailers fell by 4.4%, the largest fall since February 2016, when it fell by 5.8%.
9.53am BST9.53am BST
09:5309:53
Pound takes a tumblePound takes a tumble
That double-dose of disappointing UK economic data has hit the pound.That double-dose of disappointing UK economic data has hit the pound.
Sterling has slumped to $1.2917, down half a cent, as traders digest the news that Britain’s trade deficit has widened and industrial output fell in May.Sterling has slumped to $1.2917, down half a cent, as traders digest the news that Britain’s trade deficit has widened and industrial output fell in May.
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9.49am BST9.49am BST
09:4909:49
UK trade deficit widensUK trade deficit widens
More bad news! Britain’s trade deficit has widened, due to a surge of imports.More bad news! Britain’s trade deficit has widened, due to a surge of imports.
The total trade deficit jumped by £1bn in May, to £3.1bn - a worse reading than the City expected.The total trade deficit jumped by £1bn in May, to £3.1bn - a worse reading than the City expected.
Here are the key points from the Office for National Statistics:Here are the key points from the Office for National Statistics:
Between the 3 months to February 2017 and the 3 months to May 2017, the total UK trade (goods and services) deficit widened from £6.9 billion to £8.9 billion.Between the 3 months to February 2017 and the 3 months to May 2017, the total UK trade (goods and services) deficit widened from £6.9 billion to £8.9 billion.
The widening of the trade deficit in the 3 months to May 2017 reflects a higher rise in imports than the rise in exports of goods, in particular transport equipment (cars, aircraft and ships), oil and electrical machinery from non-EU countries; a decrease in exports of services also contributed.The widening of the trade deficit in the 3 months to May 2017 reflects a higher rise in imports than the rise in exports of goods, in particular transport equipment (cars, aircraft and ships), oil and electrical machinery from non-EU countries; a decrease in exports of services also contributed.
Between the 3 months to February 2017 and the 3 months to May 2017, the total UK trade (goods and services) excluding erratics deficit widened from £8.6 billion to £9.3 billion.Between the 3 months to February 2017 and the 3 months to May 2017, the total UK trade (goods and services) excluding erratics deficit widened from £8.6 billion to £9.3 billion.
The total UK trade (goods and services) deficit widened by £1.0 billion between April and May 2017 to £3.1 billion, following a narrowing in April 2017; this reflects an increase in imports of goods on the month following a decrease in April 2017.The total UK trade (goods and services) deficit widened by £1.0 billion between April and May 2017 to £3.1 billion, following a narrowing in April 2017; this reflects an increase in imports of goods on the month following a decrease in April 2017.
£2.0bn rise in total trade deficit, to £8.9bn, in Mar-May compared with Dec-Feb, with goods imports up https://t.co/TkORTiM7gq£2.0bn rise in total trade deficit, to £8.9bn, in Mar-May compared with Dec-Feb, with goods imports up https://t.co/TkORTiM7gq
9.42am BST
09:42
UK industrial production weaker than expected
Newsflash! Britain’s industrial production fell by 0.1% in May.
That’s a weaker performance that expected, and reinforces fears that the UK economy is faltering.
It’s also much weaker than France and Germany, which both reported strong growth earlier today (details here)
Manufacturing output shrank by 0.2% during the month, dashing hopes that the weak pound is proving a tonic for the sector. Energy output fell by 0.8%.
The Office for National Statistics says:
In May 2017, total production was estimated to have decreased by 0.1% compared with April 2017, due to falls of 0.2% in manufacturing and 0.8% in energy supply; transport equipment provided the largest contribution to the manufacturing decrease, followed by food products, beverages and tobacco.
9.34am BST
09:34
Here’s Martin Ellis, Halifax housing economist, on the 1% drop in house prices last month.
“House prices have flattened over the past three months. Overall, prices in the three months to June were marginally lower than in the preceding three months. The annual rate of growth has fallen, to 2.6%; the lowest rate since May 2013.
“Although employment levels continue to rise, household finances face increasing pressure as consumer prices grow faster than wages. This, combined the new stamp duty on buy to let and second homes in 2016, appears to have weakened housing demand in recent months.
“A continued low mortgage rate environment, combined with an ongoing acute shortage of properties for sale should help continue to underpin house prices over the coming months.”
9.14am BST
09:14
Factories in the eurozone’s Big Two economies powered on in May, new figure show.
German industrial output jumped by 1.2% month-on-month. That’s the fifth monthly rise in a row, marking the best run since 2010.
German industry is enjoying its best run of growth in over seven years https://t.co/bivk4NWNwb pic.twitter.com/929LpDdQ5R
France did even better, expanding their output by 1.9% after a 0.6% decline in April.
8.53am BST
08:53
In classical market theory, bonds and shares are supposed to move in opposite directions.
The idea is that investors pour money into equities when they’re feeling optimistic, or dump their shares and scurry into fixed-income (bonds) in times of anxiety.
It doesn’t always hold true - especially in a world where central bankers have driven bond prices to record highs. But it’s a decent yardstick.
So, we now have bonds and stock both falling as the markets anticipate higher interest rates.
Naeem Aslam of Think Markets fears that this could mean a correction is on the way....
Are we heading towards another taper tantrum? Both bonds and equity markets are showing similar pattern- bonds down and equity markets down pic.twitter.com/V0Oj2CpcGj
8.42am BST
08:42
Halifax: House price fell in June
Newsflash: UK house prices fell by 1% in June, according to the Halifax’s monthly survey.
That’s rather weaker than the 0.2% rise which the City expected, and could be another sign that higher inflation and falling real wages are hitting the economy.
Over the last three months, prices rose by 2.6% year-on-year -- the weakest rate in more than four years.
Halifax: UK house prices fell 1% in June. Down to 2.6% annual rate of increase. Worrying to think of how things might change when rates rise pic.twitter.com/fFK5FFrowC
However, Nationwide’s figures have shown that house prices rose in June, so this monthly data needs to be treated a little cautiously.
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8.38am BST
08:38
Bonds are also suffering from the prospect that central bankers might have finally tired of topping up the punchbowl of monetary policy.
The interest rate on German 10-year bunds is hovering at an 18-month high this morning, while Italian bond yields are at a two-month high.
Bond rout eases a bit. German 10y yields rise 1bp to 0.57%. pic.twitter.com/7OI79rjPMb
It shows how nervous investors are about the prospect of an end to monetary stimulus, after seeing umpteen billions of new pounds, dollars and euros pumped into the system over many years.
As Kit Juckes of Societe Generale puts it:
At the risk of a circular argument, if the ECB signalling a teeney-weeny shift in the direction of travel for monetary policy prompts a big reaction, that does pose the question of how, when or if central bankers can actually escape the gravitational pull downwards from the ZIRP/QE world.
That’s a question we asked a lot when we entered this mad world. Is the right image one of a man caught in quicksand, or one of a rocket floating aimlessly in space?
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8.32am BST
08:32
European stock markets have dipped in early trading.
David Madden of CMC Markets says traders are pondering whether the European Central Bank might tighten monetary policy, as they wait for the US jobs report.
The very aggressive easing policy [by the ECB] certainly assisted the economic health of the region, but it also pushed up equity markets. Now central bankers are thinking about moving away from an easing bias, it prompted traders to cash in their positions.....
The non-farm payroll report at 1.30pm will be the highlight of the trading session, and the consensus is for a 179,000 jobs to have been added in June. The unemployment rate is tipped to remain at 4.3%, and average earnings is anticipated to rise from 0.2% to 0.3% on a month on month basis.
8.23am BST
08:23
You can keep tabs on all the G20 action here:
8.11am BST
08:11
Asian markets hit by central bank worries
Shares have fallen across Asia today, as traders hunkered down ahead of the US jobs report.
In Japan, the Nikkei hit a three-week low – but then recovered some ground after the Bank Of Japan boosted its government bondbuying programme.
Australia’s S&P/ASX 200 index shed almost 1%, and there were losses in Hong Kong, South Korea and China too.
Despite the BoJ’s move, the big concern in the markets right now is that central banks are moving towards unwinding their stimulus programme.
Yesterday, minutes from the European Central Bank showed that policymakers had discussed dropping its pledge to boost its own bond-buying efforts, if needed.
Mike van Dulken of Accendo Markets explains:
Investors are digesting hawkish ECB minutes and prepping for further withdrawal of global easy money policy; tapering of ECB QE, unwind of Fed’s balance sheet. Maybe even a UK rate hike.
7.54am BST
07:54
The agenda: US jobs data
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Investors are edgy today as they brace for a splurge of economic data from both sides of the Atlantic. Bonds and equities are both under some pressure.
It’s Non-Farm Payroll day in the US, when we learn how many Americans joined the labour market last month. The consensus forecast is that the NFP rose by around 179,000 in June, which would show that the economy continues to create jobs at a healthy rate.
Average earnings are expected to have picked up last month, pushing the annual rate to 2.6% from 2.5%, while the jobless rate could remain at just 4.3%
US Non-Farm Payroll is one of the top events on the economic calendar for Friday, July 7 pic.twitter.com/824mDfGvcr
A weak report might fuel worries that the US economy is slowing; conversely, a really strong report would create more pressure to keep raising interest rates. So there could be some drama when the figures hit the wires at 1.30pm BST.
In the UK, we find out how the industrial sector fared in May, and how Britain traded with the rest of the world.
Economists predict that UK industrial output rose by 0.5% during the month, up from 0.2%
They also expect that Britain ran a trade deficit of around £2.5bn with the rest of the world, despite the supposed benefits of a weaker pound.
City investors will also be watching developments in Hamberg as the G20 leaders meeting gets underway.
The key event of the day could be Donald Trump’s first meeting with Vladimir Putin.
Protectionism and climate change are high on the agenda, after Hamburg police broke up protests last night.
Analysts at RBC Capital Markets say:
Though unlikely to move markets, the G20 meeting is expected to have a major focus on trade after the removal of standard language about resisting trade protectionism at the previous finance ministers meeting in March.
Here’s the agenda:
8.30am: Halifax UK house price survey for June
9.30am: UK industrial production for May
9.30am: UK trade balance for May
1.30pm: US non-farm payroll for June