UK GDP REPORT RELEASED
Newsflash: the UK economy stagnated in April, a blow to Rishi Sunak’s declare that it has turned a nook.
UK GDP was unchanged month-on-month in April, new information from the Office for National Statistics reveals, following progress of 0.4% in March.
That is in line with City expectations, and reveals the economy struggled to take care of momentum in April after leaving recession in the primary quarter of 2024.
Although the providers sector grew, there was a contraction in manufacturing (which embody manufacturing) and throughout the development sector.
Key occasions
The oil value has gained round 1% at this time, displaying it wasn’t dragged down by the UK’s financial stagnation or the prospect of a glut by the tip of the last decade.
Poll: Bank of England to chop charges in August
City economists broadly anticipate the Bank of England to chop UK rates of interest in August, a brand new ballot has discovered.
Reuters requested 65 economists for their expectations and all however two predicted the BoE will begin slicing rates of interest in August.
Most of them anticipate at the least another discount this yr.
But, disappointingly for Rishi Sunak, all of them anticipate the Bank to go away rates of interest on maintain at its June assembly, subsequent Thursday.
Fatih Birol, the pinnacle of the IEA, has means that the excess in provide over the subsequent decade ought to immediate oil corporations to reassess their methods:
IEA CHIEF FATIH BIROL SAYS SUPPLY SURPLUS THIS DECADE SHOULD MAKE OIL COMPANIES EXAMINE THEIR STRATEGIES
— First Squawk (@FirstSquawk) June 12, 2024
EU to place tariffs of as much as 38% on Chinese electrical autos as commerce struggle looms
Lisa O’Carroll
Over in Europe, a commerce struggle might be brewing after the EU has notified Beijing that it intends to impose tariffs of as much as 38% on imports of Chinese electrical autos.
The transfer will set off duties of greater than €2bn (£1.7bn) a yr, and will probably be utilized provisionally from subsequent month in line with World Trade Organization guidelines, which give China 4 weeks to problem any proof the EU supplies to justify the levies on imported EVs.
The transfer follows a nine-month investigation into alleged unfair state subsidies into Chinese battery electrical autos (BEVs) together with prime manufacturers corresponding to BYD and Geely, which half owns the Swedish model Polestar, and Shanghai’s SAIC, which owns the British model MG.
The EU stated in an announcement at this time:
“The provisional findings of the EU anti-subsidy investigation indicate that the entire BEV value chain benefits heavily from unfair subsidies in China, and that the influx of subsidised Chinese imports at artificially low prices therefore presents a threat of clearly foreseeable and imminent injury to EU industry.”
IEA: Oil glut looms with demand set to peak by finish of decade
In the power sector, the world is on track for a serious oil surplus later this decade, in response to the International Energy Agency.
In its newest month-to-month report, the IEA – the power watchdog – predicts that progress in international oil demand will gradual in the approaching years as “energy transitions advance”.
At the identical time, international oil manufacturing is ready to ramp up, easing market strains and pushing spare capability in direction of ranges unseen exterior of the Covid disaster, it estimates.
The international economy consumed round 102 million barrels of oil per day final yr. The IEA predicts this international demand will “level off” close to 106 million barrels per day in direction of the tip of this decade.
It says:
Based on at this time’s insurance policies and market tendencies, robust demand from fast-growing economies in Asia, in addition to from the aviation and petrochemicals sectors, is ready to drive oil use increased in the approaching years, the report finds.
But these positive aspects will more and more be offset by components corresponding to rising electrical automotive gross sales, gasoline effectivity enhancements in typical autos, declining use of oil for electrical energy era in the Middle East, and structural financial shifts.
At the identical time, the IEA provides, there will probably be “a surge in global oil production capacity” led by the US and different producers in the Americas corresponding to Argentina, Brazil, Canada and Guyana.
The IEA predicts complete provide capability will hit 114 million bpd by 2030, which it calls “a staggering 8 million barrels per day above projected global demand”.
This, the IEA provides, might have important penalties for oil markets – together with for producer economies in Opec, in addition to for the US shale trade.
Rob Wood, chief UK economist at Pantheon Macroeconomics, reckons the chances of an August rate of interest lower have dipped following at this time’s progress report:
“These growth data further complicate the MPC’s upcoming interest rate decisions. Rate-setters will keep rates on hold in June, but now a cut in August looks a little less likely.”
UK GDP stagnated in April, following progress of 0.4% in March, matching market expectations. On a rolling three-month foundation, GDP rose 0.7% in the three months to April #GDP pic.twitter.com/YZ9dWylndK
— CBI Economics (@CBI_Economics) June 12, 2024
Services output rose 0.2% by way of April, pushed by an enlargement in the data & communication {and professional} providers sub-sectors. But this was offset by a 0.9% fall in manufacturing, and a 1.4% fall in building as April’s wet climate dampened exercise. #GDP pic.twitter.com/HFgTZD7DIe
— CBI Economics (@CBI_Economics) June 12, 2024
Dutch financial institution ING are optimistic the UK economy will develop in the present quarter, though not fairly as rapidly as in Q1 (when it expanded by 0.6%).
ING’s developed markets economist, James Smith, says:
It could also be exhausting to pick a lot in the best way of a development from the UK GDP figures proper now at an trade degree, however the economy does appear to have constructed up steam up to now this yr. We anticipate 0.4-0.5% GDP progress in the second quarter
FTSE 100 rises regardless of GDP disappointment
The UK progress slowdown in April hasn’t dented the temper in the inventory market this morning.
The FTSE 100 share index has jumped by 0.8%, or 63 factors, to 8210, recovering most of its losses yesterday after Wall Street hit report highs final night time.
Pest management agency Rentokil are the highest riser, up 12%, following experiences that activist investor Nelson Peltz’s Trian Partners have taken a stake in the business.
AJ Bell funding director Russ Mould factors out that Peltz (Brooklyn Beckham’s father-in-law) has turned his consideration to Rentokil after dropping a battle with Disney:
Mould says:
Having didn’t catch a mouse at Disney, Nelson Peltz is now chasing rats at Rentokil. Shares in pest management specialist Rentokil surged because it emerged activist investor Nelson Peltz’s Trian car had acquired a stake in the business.
“Now a prime 10 shareholder in the agency, Peltz is prone to pursue an enormous shake-up of an organization which has struggled in comparability with its US peer Rollins, each in share value phrases and monetary efficiency.
“Given Rentokil does a large chunk of its business across the Atlantic this could include a push to shift its primary listing to the US, which would be another blow to the prestige of London as a listing venue. Trian pursued a similar approach with Ferguson which made the move in 2022.”
UK banks are additionally rising, with Lloyds up 1.9%, whereas retailer Marks & Spencer are up 2%
Here’s a neat thread of the important thing factors from at this time’s UK GDP report, from James Smith of Resolution Foundation:
Output was flat in April after robust readings in the primary three months of the 2024, weaker than even latest historic averages. pic.twitter.com/PZNvLvLQwW
— JamesSmithRF (@JamesSmithRF) June 12, 2024
The image right here is certainly one of first rate (if not spectacular) progress in the all-important service sector, with contractions in manufacturing (ONS level to weak prescription drugs) and building (affected by the climate in April). pic.twitter.com/2PSSD8SWVZ
— JamesSmithRF (@JamesSmithRF) June 12, 2024
Digging into that broad sectoral image you may see that providers progress was pushed down by very weak retail gross sales in April (they have been down 2.3% in April). Business providers (significantly ICT this month) proceed to be the principle driver of progress. pic.twitter.com/K78OJVwSbO
— JamesSmithRF (@JamesSmithRF) June 12, 2024
Where can we go from right here? Well, the PMIs (a key indicator of the short-term progress outlook) have weakened in May, suggesting momentum from Q1 has not been totally maintained. Next Friday’s June PMI will probably be one to observe carefully… pic.twitter.com/xiUBW2Fj4b
— JamesSmithRF (@JamesSmithRF) June 12, 2024
The huge image, Smith provides, is the UK’s weak productiveness during the last 14 years:
The UK’s report on headline GDP progress is avg amongst G7 international locations since 2010 (when the Conservatives got here to energy). But progress in inhabitants and hours labored flatter this image, and it’s the UK’s weak productiveness progress – weaker than all in G7 bar Italy – that stands out. pic.twitter.com/M6WMKNctU6
— JamesSmithRF (@JamesSmithRF) June 12, 2024
When the UK progress report was launched at 7am, we flagged that production output fell in April, by 0.9%.
This fall was pushed by a 1.4% drop in manufacturing output – and that was principally attributable to a 6.1% fall in manufacturing of primary pharmaceutical merchandise and pharmaceutical preparations.
Pharmaceuticals had grown 7.6% in March, so clearly it’s a unstable a part of the economy.
April’s stagnation is, hopefully, a blip in the UK’s financial restoration from final yr’s brief, shallow recession, City economists say.
Philip Shaw of Investec says that poor climate was “at least partly” the reason for the economy stalling in April, including:
This follows a run of firmer outturns over Q1 this yr (Jan +0.3% m/m, Feb +0.2%, Mar +0.4%), ensuing in progress over the quarter of 0.6% because the economy escaped a really delicate recession over H2 final yr.
We contemplate although that April’s numbers symbolize a blip in the restoration story relatively than the beginning of a brand new downturn and that exercise will crank up a gear or two over the approaching months because the particular unfavorable components disappear.
Tom Pugh, the chief economist at audit, tax and consulting agency RSM UK, suggests the drop in progress in April is “a bump on the upward path”, relatively than a return to stagnation.
Pugh explains:
Overall, at this time’s information reinforces our view that This fall final yr will symbolize the nadir of a very painful interval of stagnation for the UK economy.
But Q1 represented a turning level.
The weak point in April is only a small bump in the street. Interest price cuts are prone to come in the summer time, progress ought to proceed in the primary half of this yr, and decide up additional after the summer time and into 2025. Indeed, we’re anticipating progress to common 0.3% q/q over the subsequent yr, a a lot stronger efficiency than the final 5.
The Conservative Party level out that the economy did develop in the February-April quarter (as flagged earlier).
They’re additionally sticking to the PM’s declare the economy is popping a nook (regardless of April’s stagnation resembling a cul-de-sac relatively than a motorway).
A Conservative Party spokesman says:
“Today’s figures present our economy grew by 0.7% in the three months to April.
There is extra to do, however the economy is popping a nook and inflation is again all the way down to regular.
This election is alternative. Under the Conservatives, we will hold the economy rising with our clear plan to chop taxes on work, houses and pensions, or we will threat all that progress with Labour’s £2,094 of tax rises on each working household.”
Reminder: Sir Keir Starmer has rejected that tax rise declare as “absolute garbage”:
In one other signal of financial weak point, furnishings retailer DFS has issued its second revenue warning of the yr this morning.
DFS blamed a lot of the drop on delays to deliveries and better transport prices brought on by the Red Sea disaster.
It informed shareholders that the upholstery market is “very weak” and that since its final monetary outcomes in March:
…shopper demand in the upholstery sector has remained difficult and Red Sea routing points have endured ensuing in delays to buyer deliveries and better freight prices.
DFS, which owns 118 outlets throughout the UK, stated it anticipated pre-tax earnings of £10m-£12m for the yr ending 30 June 2024, properly down on the £20m-£25m predicted in March.