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The UK will have the highest inflation rate in the G7 until at least the end of 2024, Moody’s has warned.
British consumer prices are predicted to rise by a further 3.9pc next year according to the ratings agency, even as interest rates have risen at the fastest pace since the 1980s.
This is similar to Italy and far higher than in other large advanced economies, with inflation in Germany expected to average 3pc next year, 2.5pc in the US and 2.1pc in France.
The UK currently has the highest rate of inflation among G7 countries at 6.8pc. On average across 2023, it is predicted to remain far higher than in peer countries at 7.8pc.
Moody’s said inflation was on the way down in both advanced and emerging economies as families had depleted much of their pandemic savings.
But it warned this could still change, with food and energy prices rising since June and tight labour markets pushing up wages.
That’s all from us this week.
I’ll leave you with this story about an AI singer which has become the first creation of its kind to secure a major record deal…
Britain’s factories are being forced to cut jobs and slash investment as demand slumps and overseas orders dry up .
Deputy economics editor Tim Wallace reports:
Orders from the US, China, Europe and South America are all in freefall, according to the purchasing managers’ index (PMI), an influential survey of businesses from S&P Global.
As a result, output and activity in manufacturing is falling more sharply than at any point since the first Covid lockdown. Aside from the pandemic, this is the worst performance since the financial crisis.
The UK’s manufacturing PMI score fell to 43 in August, from 45.3 in July. Any score of less than 50 shows activity is falling, so this points to a deepening crunch in the industry.
Among Europe’s major economies, only Germany’s manufacturers are suffering a deeper crunch than Britain’s.
Fhaheen Khan, economist at industry group Make UK, said higher interest rates and sustained inflation have hammered demand.
He said: “Manufacturers are now acting by cutting jobs and investment as the backlog of work starts to dry leading to an inevitable downturn in economic activity soon.
“Policy makers and rate setters will need to be wary of the cost of higher unemployment given prices remain elevated for many consumers and the loss of incomes will hurt many if we take this too far.”
There is a glimmer of light as manufacturers reported their output prices edged down for the third month in a row, raising hopes that consumers will see some relief from the cost of living crisis.
The Bank of England is expected to raise interest rates again this month, from 5.25pc to 5.5pc.
But Martin Beck, chief economic advisor to the EY Item Club, said signs of slowing growth and easing inflation will put pressure on officials to hold rates instead.
He added: “For sure, the Monetary Policy Committee’s focus in its forthcoming September rate decision is likely to remain on measures of inflation persistence in the official pay and services inflation data.
“But growing evidence of a weakening economy and disinflationary pressure mean the possibility that the MPC will choose to keep rates unchanged is looking more plausible.”
At the same time Europe’s factories are braced for a deepening slump as orders from customers plunged, indicating the economic crunch, led by Germany, is far from over.
The purchasing managers’ index is up from 42.7 in July, but is still well below the crucial 50-level.
Germany is deepest in contractionary territory, with its powerful industrial base recording a score of 39.1. Italy’s 45.4, France’s 46.0 and Spain’s 46.5 are also well below 50 and so indicate the manufacturing sectors of all four major eurozone economies are shrinking.
New orders are falling at one of the fastest paces on record, with domestic and export demand dropping sharply, while factories are rapidly working through backlogs of previous orders.
There were 222 reports of crimes relating to Ulez cameras recorded in the month leading to its expansion across London, according to data released by the Metropolitan Police.
Previous figures released in August showed there had been 288 reports since the force began collecting the data in early April, taking the current total released on Friday to 510.
The figures include approximately 159 reports of cameras being stolen and 351 cameras being damaged.
The actual number of cameras affected may be higher as one report can represent multiple offences.
London Mayor Sadiq Khan’s Ultra Low Emission Zone expanded across all of the capital’s boroughs on Tuesday.
In a statement, the Metropolitan Police said:
[We have] and will continue to take criminal activity in relation to Ulez seriously and have deployed considerable resources to our operation.
To date, Met investigations have led to the arrest of two individuals, one charged and bailed for trial to June 2024 and the other discontinued by the CPS.
We continue to monitor Anti-Ulez protests, as we do for all potential public order matters, to consider if bespoke policing plans are required. Some events have seen between 200 and 300 people attending.
Unemployment in the US rose in August to its highest level in 18 months, putting pressure on the Federal Reserve to stop raising interest rates.
Deputy economics editor Tim Wallace has the details:
The pound edged up against the dollar, reflecting traders’ expectations of fewer rate rises from the Fed.
Employment rose by 187,000 in the month, according to the Bureau of Labour Statistics, but this was not enough to stop the unemployment rate from rising from 3.5pc in July to 3.8pc in August, as jobs figures for June and July were revised down significantly and participation in the labour force jumped sharply as more people returned to look for work.
It estimates that 6.4m people are currently unemployed in the world’s largest economy.
Average hourly earnings rose 4.3pc on the year, indicating pay growth is slowing down.
James Knightley, economist at ING, said it “suggests the Fed’s work is done”.
“This increase in the participation rate is what the Fed wants to see and at 62.8pc, it has risen nicely since a year ago when it stood at 62.1pc and should help to keep wage pressures in check,” he said.
“With inflation set to continue slowing, the Fed is surely not hiking interest rates in September and is unlikely to do so in November either.”
Ian Shepherdson at Pantheon Macroeconomics said the economy is going to start slowing, in part because interest rates are combining with other costs for households, as pandemic support schemes come to an end.
“The cash flow hit from the restart of student loan payments is already under way, before the October deadline,” he said. “It’s probably not a coincidence that restaurant diner numbers began to soften in late July, just as payments to the Education Department began to rise rapidly.
“We remain of the view that the Fed is done, and that the next move will be an easing, as soon as next March.”
Janet Mui at RBC Brewin Dolphin said the Fed may be able to achieve a “soft landing”, defusing inflation without causing a recession.
“The Federal Reserve will look at the data and think its tightening policy stance is working as intended,” she said.
“The Fed may see additional rate increases as putting unnecessary stress on the economy as inflation is heading in the right direction. Indeed, bond markets think the Fed is done with hiking rates and they are pricing in about a 1pc rate cut over the course of 2024.”
City workers aren’t the only ones being ordered back to their desks. Civil servants face a crackdown on working from home as ministers plan the end of the “Tuesday to Thursday” office culture in Whitehall.
Downing Street is preparing to issue new guidance to all Government departments ordering them to make sure more staff return to their desks.
It will target mandarins who regularly choose to log in remotely on Mondays and Fridays, a trend that has prompted growing alarm in No 10.
Nick Gutteridge, political correspondent, has the exclusive…
The owner of Louis Vuitton, Christian Dior and Tiffany briefly lost its place as Europe’s most valuable company.
LVMH, which is run by the world’s second richest man, Bernard Arnault, was briefly surpassed by Danish pharmaceutical giant Novo Nordisk during trading today.
Novo’s market capitalisation surged to $421bn during early trading, overtaking LVMH’s $420.97bn. However, the French luxury goods giant regained its spot soon after.
It marked a brief end to LVMH’s reign, having held the top spot for two and a half years.
Novo Nordisk has been boosted by its weight loss drugs.
The FTSE 100 has closed the week in the green, after receiving a boost from oil majors and miners.
The blue-chip index rose 0.34pc to finish at 7,464.54. The FTSE 250 midcap index closed down 0.37pc at 18,536.90.
Oil and gas stocks climbed 1.94pc today, while mining majors Anglo American, Glencore and Rio Titno Mining stocks helped lift the FTSE 100.
The commodity-heavy index also benefited from China’s announcement of more economic stimulus for the world’s second largest economy.
Meanwhile, the price of crude oil has surged as supply cuts tighten the crude market and US interest rates look increasingly likely to hold at current levels.
The performance marks a recovery from yesterday’s session, which saw the FTSE 100 snap a six-day winning stream after closing in the red. It has added 1.79pc this week.
Workers at the Atomic Weapons Establishment (AWE) will vote on whether to begin industrial action in a dispute over pay, according to trade union Prospect.
Union members at the Berkshire-based agency, which supports and maintains Britain’s nuclear warheads, will be balloted during the next two weeks.
Prospect said AWE recently became an arms-length body of the Ministry of Defence with freedom on pay awards but has refused to negotiate, and had presented a “full and final” offer of 6pc.
Mike Clancy, general secretary of Prospect, said:
Several years of deteriorating workforce engagement and stagnating real-terms pay has left workers at AWE with no option but to move once again towards industrial action.
The lack of proper engagement has been typified by management presenting the offer as a done deal, with no rationale given for the number, nor any space for negotiation.
Staff are struggling with the basic costs of living which is simply unbelievable in the organisation that is building and maintaining our nuclear deterrent.
This is not a workforce that can bear a high level of churn while safely functioning – the jobs require too high a degree of training.
If the MoD and AWE don’t think again and make a pay offer that reflects the still rocketing cost of living, there is a real risk that AWE will struggle to recruit and retain the skills that it needs.
Europe’s biggest copper producer has warned it may face hundreds of millions of euros in losses after being hit by a massive theft.
Senior business reporter James Warrington reports:
Shares in Hamburg-based Aurubis dropped as much as 18pc after the company said it had found significant discrepancies in stockpiles and shipments of scrap metal linked to its recycling business.
Bosses believe some of its suppliers have manipulated details about the scrap metal they provided and have been working with employees in the company’s sampling department to cover it up.
Aurubis, which produces around 1.1m tonnes of copper sheets per year, said that while the exact cost of the theft could not be determined, it could not rule out losses in the low hundred-million-euro range.
As a result, the company said it would not meet its profits forecast of between €450m (£400m) and €550m for the year.
Steelmaker Salzgitter, which owns 30pc of Aurubis, has also suspended its results guidance for the financial year.
Click here to read on…
That’s your lot from me this week. My colleague Adam Mawardi will make sure you stay informed as you head toward the weekend.
There’s just time to mention they key measure of US factory activity, which shrank less in August compared to the previous month in a hopeful sign that the malaise in manufacturing is no longer deepening.
The Institute for Supply Management’s manufacturing index edged up to a six-month high of 47.6, from 46.4 in July, according to data released today. Readings below 50 indicate contraction.
The group’s survey was helped by an increase in the production index to a three-month high of 50, as well as improvements in measures of employment and supplier deliveries.
ISM Mfg PMI at 47.6 in August vs 46.4 in July. S&P Global Mfg PMI in same boat, 47.9 in August. Leading indicators of manufacturing activity still under water. Below 50 breakeven indicative of contracting conditions. Forward-looking ISM new orders slipped back to 46.8 from 47.3. pic.twitter.com/aPHYczClwa
Germany will be the only G7 economy to shrink in 2023, according to Moody’s, a prediction shared by the International Monetary Fund.
Senior economics reporter Eir Nolsøe has the latest:
Ratings agency Moody’s expects the German economy to emerge from this year 0.3pc smaller than previously.
The firm said that disappointing growth in the three months ending in June had prompted it to downgrade the outlook for Europe’s largest economy.
The British economy is meanwhile expected to eke out growth of 0.2pc after doing better than expected.
US oil has climbed above $85 a barrel for the first time since November as supply cuts tighten the crude market and US interest rates look increasingly likely to hold at current levels.
Crude prices have surged over the summer as production curbs, primarily from Saudi Arabia and Russia, boosted the market a time when demand usually rises.
China’s efforts to ramp up economic stimulus and robust economic data from the US have also supported the rally.
West Texas Intermediate have risen 2pc. Brent, the international benchmark, also climbed 1.7pc above $88.
Prices also gained as US jobs data indicated wages were rising slower than forecast, taking the pressure off the Federal Reserve to hike interest rates. The price of oil rises with a weaker dollar.
The boss of the owner of Boots has stepped down after less than three years at the helm of the high street stalwart amid a sizeable transformation plan.
Walgreens Boots Alliance confirmed Rosalind Brewer’s exit after the board of directors “mutually agreed” to her resignation effective on Thursday.
Ginger Graham, who currently serves as Walgreen Boots Alliance’s lead independent director, has been named interim chief executive. Ms Brewer said:
I am grateful to have had the opportunity to lead Walgreens Boots Alliance and to work alongside such talented and dedicated colleagues.
I am confident that WBA is on track to be a leading consumer-centric healthcare company, serving thousands of communities across the country.
The company, which trades as Walgreens in the US and Boots in the UK, has shifted its focus from providing medicines to get people through illnesses, to helping its customers avoid them.
It has included a major series of acquisitions aimed to put the company at the forefront of preventative care.
Company shares have been under heavy pressure as Walgreens attempts to transform itself. The stock has tumbled nearly 54pc since the start of 2022.
Wall Street’s main indexes opened higher after a keenly awaited report showed the US unemployment rate rose in August and wage growth slowed, spurring expectations that the Federal Reserve could pause its interest rate rises.
The Dow Jones Industrial Average rose 154.33 points, or 0.4pc, at the open to 34,876.24.
The S&P 500 opened higher by 22.94 points, or 0.5pc, at 4,530.60, while the Nasdaq Composite gained 95 points, or 0.7pc, to 14,129.96 at the opening bell.
The pound will plummet this year as Britain grapples with falling house prices and rising unemployment, according to analysts.
Sterling will fall against the dollar to $1.22 by the end of October, which would be the lowest since March, according to investment bank Nomura.
It would mark a 3.7pc drop from its current level just below $1.27.
It comes as Nationwide revealed that house prices have fallen by 5.3pc since their peak in August last year, with Capital Economics predicting prices will slump 10.5pc from that level by the middle of next year.
Nomura analysts said it is rare for the pound to rally when house prices suffer and that sterling also traditionally suffers when the global economy weakens and unemployment rises.
In a note to investors, Nomura FX strategist Jordan Rochester said: “It’s rare to have GBP perform well, when it’s housing market is like this over the past 15yrs…another reason why GBP could head towards 1.22.”
Amazon has been accused of ignoring a “glaring conflict of interest” when awarding hundreds of millions of dollars in rocket contracts to a company owned by Jeff Bezos.
Our senior technology reporter Matthew Field has the details:
A lawsuit filed by an Amazon shareholder accuses the e-commerce giant’s board of acting “in bad faith” after handing a contract to Mr Bezos’s rocket company, Blue Origin, after less than 40 minutes of discussion.
Amazon is planning to launch a vast network of more than 3,000 satellites that will provide internet access around the world.
As part of the plan, it must contract rocket companies to fire its satellites into space.
Amazon has already paid about $1.7bn to three companies, including $585m to Mr Bezos’s Blue Origin. Its other contracts are with France’s Arianespace and United Launch Alliance.
The Cleveland Bakers and Teamsters Pension Fund, which is bringing the lawsuit, said the rocket launch contract was the “second largest” in Amazon’s history, after its $13.7bn takeover of Whole Foods.
Read what the legal claim alleges.
After US unemployment increased to its highest level since early last year, Neil Birrell, chief investment officer at Premier Miton Investors, said:
While the US payrolls number came in exactly as expected, the average earnings number came in below expectations and is currently at levels not seen since early last year.
There is probably not too much to read into the data but it’s likely that markets will see this as a sign that peak rates will arrive sooner.
The Fed will take heart and see this as a positive, although it’s what they say and do about it that really matters.
The pound has gained against the dollar as US unemployment increased and the American economy added only slightly more jobs than expected.
Sterling has risen 0.2pc to tip above $1.27 as markets interpreted the figures as indicating the US Federal Reserve will not raise interest rates higher from their present range of 5.25pc to 5.5pc.
The world’s biggest economy added 187,000 jobs in August, according to the Labor Department, as wage growth slipped and the jobless rate rose to 3.8pc.
Wall Street is expected to open higher, while the yield on US Treasuries has fallen, lowering government borrowing costs.
Stock futures rising. Short-term rates falling. pic.twitter.com/3OBVNWVn6s
The US added 187,000 jobs in July, ahead of expectations of 170,000, with the unemployment rate rising to 3.8pc, according to the Labor Department.
Wall Street markets have risen in premarket trading as the data indicates that interest rates are working in cooling the US economy, meaning the US Federal Reserve may not increase rates later this month.
BREAKING! US nonfarm #payrolls increased by 187K, slightly more than expected. Last month revised down to 157K (187K)#Unemployment rate UP to 3.8% from 3.5%. pic.twitter.com/dBZROF7Gpj
Private investment needs to increase by two-thirds for the UK to reach net zero by 2050, researchers have said.
The Government must provide the right incentives to attract investors to create “a virtuous circle that stimulates further innovation and technological advancements”, according to a report released by trade association Energy UK in partnership with Oxford Economics.
In the Path to Prosperity paper, researchers forecast how different scenarios for reaching net zero could benefit or negatively impact the economy in the long-term.
They found that the most ambitious scenario – referred to as Net Zero Transformation – will deliver the greatest benefits in terms of boosting the economy.
They said the UK gross domestic product (GDP) could be 6.4pc or £240bn higher by 2050 compared to the baseline scenario, which reflects the current state of play.
Shell sold its household energy business to Octopus after injecting £1.2bn into the loss-making division to help it cope with rocketing gas and electricity prices last year.
Bosses have cut back on renewables investments as the company focused on oil and gas, doubling down on making profits from fossil fuels in June as it promised investors a 15pc dividend increase and stock buybacks of at least $5bn in the second half of 2023.
Following the announcement of the sale to Octopus Energy, Shell Energy executive vice-president Steve Hill said:
This agreement follows the announcement during our Capital Markets Day to divest our home energy retail business in Europe.
To drive performance, discipline and simplification, we are prioritising countries, projects, and routes to market where we can deliver the most value.
We will work closely with Octopus to ensure a seamless transition and continued high standards of customer service.
Electricity and gas supplier Octopus has acquired Shell’s energy business in the UK and Germany in a deal that threatens British Gas’s supremacy over the national market.
The deal takes the company a step closer to overtaking the iconic Centrica-owned brand as the UK’s largest supplier.
Octopus has taken on another 1.4m household energy customers as part of the deal, taking its total customer base to 6.5m homes, around one million behind British Gas.
The Bank of England’s chief economist has compared last year’s bond market crisis caused by Liz Truss’s mini-Budget to being by a river of crocodiles.
Huw Pill said the turmoil “was not a comfortable experience” after the former prime minister’s unorthodox plan for unfunded tax cuts spooked investors and forced the Bank to intervene in debt markets.
Mr Pill said: “That episode felt like we were by a river with lots of crocodiles in, and we were dipping our toe into the river.”
The mini-Budget triggered a plunge in the value of the pound and UK government bonds, sparking a funding crisis in one corner of the pensions industry until the Bank of England stepped in.
During the panel session in South Africa, Mr Pill also commented on Ms Truss’s decision to freeze out the UK’s fiscal watchdog, the Office for Budget Responsibility, from its usual role of overseeing major statements from the Treasury. He said:
The challenge in developed markets may be having hopefully built the right institutions, ensuring that the political process respects [them].
That episode was one where that organisation, that institution, was cut out and I think brought into question the wider institutional structure within which macroeconomic policy in general, including monetary policy, operated.
The pound has held steady as data showed that interest rate rises are beginning to weigh on housing and manufacturing.
Sterling was last flat against the dollar at $1.26 and was little changed against the euro, with the single currency last buying 85p.
British factories suffered their weakest month since the first Covid lockdown, the S&P Global/CIPS UK manufacturing purchasing managers’ index showed, with orders shrinking dramatically due to the rise in interest rates.
Meanwhile, Britain’s housing market is also starting to feel the pinch from previous rate hikes, with house prices suffering their biggest annual decline since July 2009, according to mortgage lender Nationwide.
However, the value of the pound may have held up as official figures showed the economy fared better than previously thought through the pandemic.
Martin Beck, chief economic advisor to the EY Item Club, said: “Growing evidence of a weakening economy and disinflationary pressure mean the possibility that the (Bank of England’s) MPC (Monetary Policy Committee) will choose to keep rates unchanged is looking more plausible.”
The Bank has raised interest rates 14 times since December 2021 to 5.25pc, its highest level in 15 years.
Markets still expect another increase this month to 5.5pc as underlying price pressures have been slow to fall.
Hundreds of Scottish Water staff have backed strike action amid claims the organisation attempted to force through changes to pay and conditions without agreement.
Unison consulted members on taking industrial action and found 82pc are willing to do so unless proposed changes to their pay and grading are withdrawn and a better salary offer is put forward.
Unite held a consultative ballot among its members at the firm and found 92pc are willing to walk out, a figure the union says means around 500 staff are prepared to strike.
Both unions are now calling on Scottish Water to engage in talks on improved terms that reflect the cost-of-living crisis and allow what Unison termed “proper transparency” in the negotiations.
It comes after the GMB union on Thursday accused Scottish Water of acting in “bad faith”, claiming the firm contacted staff directly to set out a pay offer linked to a new grading structure.
US stock indexes are higher in premarket trading ahead of a reading that could show job growth slowed in August, wrapping up a week packed with data impacting the Federal Reserve’s next decision on interest rates.
The Labor Department’s closely watched nonfarm payrolls report for August is due at 1.30pm UK time.
The unemployment rate is forecast to remain unchanged at 3.5pc, while non-farm payrolls is seen at 170,000 additions last month, down from 187,000 in July.
Tim Waterer, chief market analyst at KCM Trade said: “There have been indicators that the US jobs market is finally starting to lose some of its tightness, and if the NFP print confirms this trend, it will be one less thing for the FOMC to worry about.”
The Nasdaq index ended higher on Thursday after the key PCE inflation reading matched estimates, supporting hopes of the Fed hitting a pause on its market-punishing tightening campaign.
Money markets see an 89pc chance of a rate-hike pause in the September policy meeting and a 56pc chance of a pause in the November meeting, according to the CME FedWatch Tool.
Broadcom fell 4.4pc premarket as the chipmaker projected current-quarter revenue below expectations on softening enterprise demand.
In premarket trading, the Dow Jones Industrial Average and S&P 500 were up 0.3pc, with the Nasdaq 100 up 0.2pc.
The UK economy is actually larger than it was before the pandemic it has emerged after the Office for National Statistics revised its growth figures for the Covid years.
Our senior economics reporter Eir Nolsøe has the latest:
The UK was believed to be the only G7 economy that was still smaller than before Covid.
But the ONS said that in fact it already overtook its pre-Covid size at the end of 2021.
GDP is now believed to have been 0.6pc higher than before the pandemic in the final three months of 2021, whereas previously it was thought to have been 1.2pc smaller.
Oil is heading for the biggest weekly gain since April as Russia signalled it would extend export cuts and China fired another salvo of state support to bolster the economy in the world’s largest crude importer.
Brent crude, the international benchmark, has gained 1pc today to nearly $88 a barrel, with US-produced West Texas Intermediate up for a seventh day to more than $84 a barrel, which would be the longest such run since January.
Russia said that further details on production cuts made in tandem with the country’s Opec+ partners will be announced next week.
Additional support for crude prices has come from speculation that the Federal Reserve may not need to deliver further interest rate hikes as inflation cools off.
Meanwhile China is ramping up efforts to stimulate its own economy.
Keshav Lohiya, founder of consultant Oilytics, said: “Everything looks rosy for the oil complex and flat prices look poised to break $90+ to the upside right now. The question is what can derail it.”
Commuters have criticised the “appalling” disruption to their journeys caused by the Aslef union’s latest walkout.
Sherry Hosein, 58, and her 78-year-old mother Sandra have been forced to take a coach from Victoria after their train from St Pancras railway station to Herne Bay in Kent was cancelled.
Ms Hosein, of Fort William, Scotland, said: “My mum’s 78 and obviously not having enough notice about it (the strike) we could have changed dates but after a certain point you can’t because you are not entitled to a refund of your money, so that’s a bit annoying not having more notice.”
Speaking at Euston station, Rohan Shukla, 26, of Watford, said:
I am travelling to Watford Junction so if there’s a direct train then it would take me about 20 minutes from here, whereas today it takes just less than an hour, which on a working day I think that’s completely appalling.
We all want to be paid more, we are all humans after all but I think there are better ways of going about it than such frequency of strikes. My problem isn’t against strikes but the frequency.
As manufacturing in the UK suffered its deepest contractions since the first Covid lockdown, capping 13 months of contraction, Make UK senior economist Fhaheen Khan said:
Today’s data indicates manufacturing production has hit the brakes as slowing demand takes hold of business activity.
It is no longer just high inflation that is eroding spending power, but combined with higher interest rates depleting our willingness to spend has made for an unpalatable cocktail.
Manufacturers are now acting by cutting jobs and investment as the backlog of work starts to dry leading to an inevitable downturn in economic activity soon.
Policy makers and rate setters will need to be wary of the cost of higher unemployment given prices remain elevated for many consumers and the loss of incomes will hurt many if we take this too far.
Chris Barlow, partner at MHA, believes that another Bank of England interest rate rise would further damage confidence within the manufacturing sector.
His comments come after the rate of contraction in the UK’s manufacturing sector was at its worst since the first Covid lockdown. He said:
A September rate increase could harm manufacturers already grappling with successive interest rate rises, high energy costs, recent corporation tax increases and reductions in the rates available for claiming R&D tax credits, despite recent more positive sector trends.
Manufacturing, which makes up 9.4pc of GDP, requires sustained government support to avert setbacks. Assistance is essential to maintain momentum and economic alignment.
To address the perilous state of manufacturing we really need the forward-looking industrial strategy so many have asked for, for so long. The upcoming autumn statement should include measures like lowering the 25pc corporation tax rate and reversing R&D cuts, especially for SMEs.
Tesla has slashed the price of its premium cars in the US and China as it unveiled the first refresh of its popular Model 3.
Elon Musk’s electric car company rolled out steep price cuts of its Model S and X cars and reduced the price of its full self-driving feature by between $3,000 and $12,000.
It marks the latest round of price cuts in recent months, which have taken their toll on the company’s profit margins as it tries to boost sales.
Meanwhile, the new iteration of the Model 3 comes with a slimmer, sportier look and a single-charge range of 377 miles. It will have a bigger-than-expected price tag of 259,900 yuan ($35,800) in China – 12pc more than the older version.
Dave Atkinson, head of manufacturing at Lloyds Bank, says:
August’s data shows manufacturers continue to be impacted by a cocktail of economic challenges – from persistent inflation to restrained consumer spending – which is leaving a sour taste for the sector.
We’re still seeing many manufacturers looking to the future, however, by investing in technology, such as intelligent automation to help them combat ongoing skills shortages.
On top of that, the further reduction to the energy price cap announced last week should have a positive knock-on effect for consumer confidence, which would begin to address the current lag and hopefully paint a brighter picture for manufacturers in the months ahead.
The UK manufacturing sector suffered the worst slowdown since the first Covid lockdown in August as output and new orders fell sharply.
The S&P Global/CIPS PMI stood at 43 last month, down from 45.3 in July and its lowest level since May 2020.
The downturn took a further turn for the worse in August as production volumes decreased for the sixth straight month amid rising interest rates, the cost of living crisis and an uncertain outlook.
August saw the #UK manufacturing sector sink into a deeper downturn (#PMI at 43.0; Jul: 45.3), with rates of contraction in output and new orders among the steepest registered outside of the global financial crisis and pandemic. Read more: https://t.co/qMn1MLURm6
Europe’s factories are braced for a deepening slump as orders from customers plunged, indicating the economic crunch, led by Germany, is far from over.
Our deputy economics editor Tim Wallace has the details:
The purchasing managers’ index (PMI), an influential survey of businesses, came in at 43.5 for August, according to S&P Global.
This is up from 42.7 in July, but is still well below the 50-level which marks the boundary between expansion and contraction. Germany is deepest in contractionary territory, with its powerful industrial base recording a score of 39.1.
Italy’s 45.4, France’s 46.0 and Spain’s 46.5 are also well below 50 and so indicate the manufacturing sectors of all four major eurozone economies are shrinking.
New orders are falling at one of the fastest paces on record, with domestic and export demand dropping sharply, while factories are rapidly working through backlogs of previous orders, which bodes ill for future output.
New orders at #Eurozone manufacturers fell at one of the fastest rates in 26 years in August, latest #PMI data showed, leading to rapid depletions of backlogs and production levels. Goods prices also continued to decline. Read more: https://t.co/bvq4k30EPX @HCOB_Economics pic.twitter.com/SGxVHYtMJ9
Superdry said extreme weather events across the UK and Europe hurt sales for its spring-summer collection.
The fashion retailer, which mainly sell sweatshirts, hoodies and jackets, posted an annual loss as shoppers opted for lower-cost alternatives, it revealed days after its shares were briefly suspended following a delay to the publishing of its accounts.
The Cheltenham-based company said a delayed recovery in wholesale markets and the return to normal rent and business rates impacted profitability, resulting in an adjusted pre-tax loss of £21.7m in the year to April 29.
Revenues increased by 2.1pc to £622.5m but robust retail growth of 14.6pc was offset by a 19.1pc decline in its wholesale business as it continues to be impacted by a more cautious outlook from partners.
Revenue for its first quarter that ended in July tumbled 18.4pc, hurt by lower demand for its spring/summer collection due to extreme weather across Europe and a later start to its end-of-season sale. Founder and chief executive Julian Dunkerton said:
This has been a difficult year for the business and the market conditions have been extremely challenging, especially in wholesale.
We’ve looked closely at how we operate and have taken decisive actions to improve our position, rebuild liquidity, and recapitalise our balance sheet, through careful preservation of cash and a re-engineered cost base.
Superdry shares, which remain suspended, have lost more than half their value this year.
The FTSE 100 opened higher amid a boost from heavyweight oil and miner stocks as China unveiled more economic stimulus for the world’s second largest economy.
The UK’s blue chip index has risen 0.5pc in early trading, while the midcap FTSE 250 has dipped 0.1pc.
Oil and gas stocks rose 1.7pc, while industrial metal miners added 0.7pc.
The sectors tracked optimism around China’s upbeat economic readings and efforts to shore up investor sentiment.
A private survey showed China’s factory activity surprisingly returned to expansion in August. The country’s central bank said it will cut the amount of foreign exchange that financial institutions must hold as reserves for the first time this year.
Insurer Direct Line fell 1.8pc after it agreed to review overcharging of existing home and motor customers totalling about £30m for policy renewals, the Financial Conduct Authority said.
Global market participants are now awaiting a key jobs report from the United States, which will help gauge the Federal Reserve’s next move on interest rates.
Aslef general secretary Mick Whelan has told ministers to “come around the table with a realistic offer for pay for our members and give them the due respect they deserve”.
Speaking at a picket line in Euston, north London, the head of the union representing train drivers told PA: “The feedback we get – and we talk to drivers every day – is that they’re in it for the long haul, you’ve got to remember some of our members, when we get to the end of this year, will be five years without a pay rise, so there’s no sign of any weakening or any lack of resolve and our members in many cases want to go harder and faster.”
He said he does not currently see an end point to the dispute, adding:
Look, we’ve done 14 pay deals in the last 12 months. This is purely a political response to the dispute. Only when the ministers take the reins off the train operating companies will this get resolved.
And let’s remember we don’t actually work for the Government, we work for private companies that are declaring hundreds of millions of pounds in profits and paying their shareholders dividends, while not giving the people who work for them a pay rise.
Also we’ve seen the slash-and-burn nature of what’s going on with the closure of ticket offices and elsewhere.
This is a Government trying to send the railways into managed decline.
The boss of the rail industry body representing train operators has said it is the “taxpayer that’s on the hook” as he was questioned about why companies receive Government payments even when services do not run because of strikes.
Rail passengers face fresh travel chaos today because of another strike by drivers in the long-running dispute over pay, which will cripple services across the country.
The 24-hour walkout by members of Aslef will severely affect timetables, with trains starting later and finishing earlier than usual, with some areas having no trains all day.
Robert Nisbet, director of regions and nations at the Rail Delivery Group, told BBC Radio 4’s Today programme: “Since the pandemic, what has happened is the Government takes all of the revenue and effectively the train-operating companies are operating on fixed-term contracts.”
He went on: “There are elements of the fixed fee which will be paid out whatever, there are extra bonuses that are paid for performance measures.
“So if we don’t meet those performance measures, which happens during strikes, then that will not be paid.”
When it was put to Mr Nisbet that operators have “no financial incentive to solve this crisis”, he replied: “The financial incentive is this: it’s the taxpayer that’s on the hook here.”
Direct Line has said it will pay out around £30m in compensation to customers who were overcharged when they renewed their motor or home insurance.
The insurer said it would be reviewing its past policies after admitting to an “error” in implementing the financial watchdog’s new pricing rules.
Existing insurance customers were charged more for their renewal than they would have done if they were a new customer with Direct Line, the Financial Conduct Authority (FCA) said.
Direct Line said it expects the total payments to affected policyholders to be in the region of £30m.
The FTSE 100 has bounced back after ending a six day winning streak on Thursday as China stepped up efforts to support its housing sector and stabilise the yuan.
The internationally-focused index has climbed 0.3pc to 7,457.55 while the midcap FTSE 250 has slipped 0.1pc to 18,593.35.
Chris Druce, senior research analyst at estate agent Knight Frank, said the Bank of England’s next interest rate decision “and the messaging around it, will be a key moment for the UK housing market”.
If, as believed, we are near the peak of the rate-rising cycle we can expect buyer confidence to improve in the second half of this year, after a challenging period that has seen people’s spending power reduced and activity slow.
Surety about rates will allow buyers to plan more effectively, although affordability will continue to be stretched and we expect pressure on pricing and transaction volumes to continue through this year and next.
However, demand should prove more resilient than expected given the shock-absorber effect of strong wage growth, lockdown savings, the availability of longer mortgage terms, flexibility from lenders and the popularity of fixed-rate deals in recent years.
Tomer Aboody, director of property lender MT Finance, added: “Constant interest rate rises are making affordability difficult for buyers who are trying to move, with many having little option but to wait until rates settle.”
House prices have fallen by 5.3pc since their August peak last year, according to Nationwide, but economists have warned the figure could double.
Andrew Wishart, senior property economist, at Capital Economics, said:
With mortgage rates likely to remain around current levels for another 12 months, we expect prices to continue to fall until mid-2024, taking the total drop in house prices since their August 2022 peak from 5.3pc now to 10.5pc.
Following the drop in mortgage approvals in July, the 0.8pc month-on-month fall in house prices in August provided further evidence that the renewed increase in mortgage rates is now taking its toll on the housing market.
With mortgage rates set to remain between 5.5pc and 6pc for the next 12 months, and second-hand supply on the market becoming less tight, we think the August data marks the start of a significant further drop in house prices.
Indeed the RICS survey, which is the best leading indicator of house prices, is consistent with house prices falling by a similar amount month-on-month for the next five months at least.
Emma Jones, managing director of mortgage broker When The Bank Says No, said that higher mortgage rates “are hitting the property market for six” as Nationwide revealed the steep drop in house prices.
She said: “The Nationwide August house price report shows the full impact of the new mortgage environment we’re in and it’s brutal.”
David Stirling, an independent financial adviser at Mint Mortgage & Protection, called the latest data “simply dire”.
Christian Duncan, managing director of the Manchester Mortgage Centre, said:
These latest figures from the Nationwide highlight in no uncertain terms the impact of the new rate era we find ourselves in.
With mortgage rates now significantly higher, the property market is under phenomenal pressure at the moment.
But while home movers are very cautious, we are still seeing first-time buyer enquiries come in from across the UK.
The fall in mortgage affordability and the end of Help to Buy has forced many buyers to change their aspirations and seek smaller properties, according to Nationwide’s chief economist Robert Gardner. He said:
For owner-occupiers buying with a mortgage, there has also been a modest shift in the type of properties being purchased.
While transactions are lower than pre-pandemic levels across all property types, the biggest decline has been in detached houses.
There are signs that buyers are looking towards smaller, less expensive properties, with flats seeing a smaller decline.
This shift may, in part, reflect the ending of the Help to Buy scheme, which helped those with a smaller deposit purchase a newly built home.
Flats have also remained relatively more affordable; average prices have risen by only 13pc since the onset of the pandemic, compared with 23pc for detached properties.
The number of completed housing transactions was nearly 20pc below pre-pandemic levels in the first half of the year, according to Nationwide.
Completions were around 40pc lower than in the first half of 2021 – although that reflects the boost to activity from pandemic-related shifts in housing preferences, the stamp duty holiday and ultra-low borrowing costs.
Nationwide’s chief economist Robert Gardner said:
An examination of the composition of transactions reveals that cash purchases, though down from the 2021 highs, have been remarkably resilient, while purchases involving a mortgage have slowed much more sharply, as shown in the chart below.
Home mover completions (with a mortgage) in the first half of 2023 were 33pc lower than 2019 levels, whilst first-time buyer numbers were around 25pc lower.
Buy-to-let purchases involving a mortgage were nearly 30pc below pre-pandemic levels. By contrast, cash purchases were actually up 2pc.
The relative weakness of mortgage activity reflects mounting affordability pressures as a result of the sharp rise in mortgage rates since last autumn, which would not have affected cash buyers.
Indeed, a first-time buyer earning the average wage and buying a typical first-time buyer property with a 20pc deposit would now see their monthly mortgage payment absorb over 40pc of their take-home pay (with a mortgage rate of 6pc) – well above the long run average of around 29pc.
The drop in house prices deepened last month to the leave the market at its weakest since 2009 as mortgage approvals plummeted.
Homeowners saw the value of their bricks and mortar drop by 5.3pc in the year to August, according to the Nationwide house price index, wiping £14,600 off their value over the last year.
Compared to the previous month, prices were down 0.8pc as the market contends with 14 consecutive interest rate rises by the Bank of England to 5.5pc.
The survey found that the value of a typical house fell to £259,153, compared to £260,828 the month earlier, leaving prices 5.3pc lower than when prices peaked in August last year.
Robert Gardner, Nationwide’s chief economist, said:
The softening is not surprising, given the extent of the rise in borrowing costs in recent months, which has resulted in activity in the housing market running well below pre-pandemic levels.
For example, mortgage approvals have been around 20pc below the 2019 average in recent months and mortgage application data suggests the weakness has been maintained more recently.
Nevertheless, a relatively soft landing is still achievable, providing broader economic conditions evolve in line with our (and most other forecasters’) expectations.
In particular, unemployment is expected to remain low (below 5pc) and the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs, given the high proportion on fixed rates, and where affordability testing should ensure that those needing to refinance can afford the higher payments.
While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time, especially if mortgage rates moderate once Bank Rate peaks.
Thanks for joining me. House prices dropped to their weakest level since 2009 in the year to August, according to lender Nationwide.
Property values contracted by 5.3pc following a decline of 3.8pc in July.
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Stocks in Asia rose as China rolled out more stimulus to aid its ailing economy and as traders awaited today’s US jobs figures.
Mainland China shares climbed after closing the month over 5pc lower, with financial and real estate stocks leading the gains. The Hong Kong stock market is shut amid what may be the strongest storm to hit the city in at least five years.
Meanwhile, Japan’s Topix Index is set for is best weekly advance since October as companies’ profits rose 11.6pc on an annual basis in the second quarter.
However, data also showed that Japanese businesses cut their spending for the first time in five quarters, an outcome that may prompt a downward revision to second-quarter economic growth data.
Wall Street stocks closed lower, marking a downbeat conclusion to the market’s first losing month since February.
The S&P 500 fell 0.2pc to close at 4,507.66, snapping a four-day winning streak.
The Dow Jones Industrial Average dropped 0.5pc to 34,721.91. The Nasdaq Composite dipped 0.1pc to 14,034.97.
The yield on the 10-year Treasury slipped to 4.10pc from 4.11pc late Wednesday. The yield on the 2-year Treasury, which tracks expectations for the Fed, edged lower to 4.85pc from 4.88pc late Wednesday.