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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Fitch: Autumn statement shows fiscal challenge of Brexit vote – business live

The world’s largest Christmas tree made of 1700 red spruce and with a height of 45 meters, at the Christmas market in Dortmund, Germany.
The world’s largest Christmas tree made of 1700 red spruce and with a height of 45 meters, at the Christmas market in Dortmund, Germany. Photograph: Imago / Barcroft Images

Market end day flat in Thanksgiving torpor

Thank goodness that’s over.

The day after a UK budget or autumn statement is often quiet in the market, as political reaction tends to dominate. Today’s been extra slow, thanks to our US cousins’ turkey-related activities.

So European stock markets have sloped lazily to the close of play.

The FTSE 100 finished 0.17% higher at 6829, with mining stocks among the risers but National Grid and easyJet both losing 2.3%.

The smaller FSTE 250 shed 0.18% -- dragged down by Countywide, which shed 12.5% after today’s profits warning.

But Dominos Pizza had a good day, finishing 3% higher after hiking its long-store expansion total to 1,600, from 1,200. Britain’s love affair with takeaway pizza clearly isn’t over.

Elsewhere, Italy was the worst-performing major index -- worries over the constitutional referendum, and its banking sector, linger.

.

Conner Campbell of SpreadEx points out that today’s flurry of German data didn’t move the markets much:

The Eurozone indices were pretty drab this Thursday, the DAX and CAC managing a meagre 0.1% increase as the day went on. The impact of Germany’s measly 0.2% growth in Q3 seems to have been mitigated by a decent pair of business and consumer climate readings from the country; while they failed to improve month-on-month, the figures from the Ifo and Gfk at least suggest Germany wasn’t too bothered by the US election result.

The good news, though, is that Friday should be more exciting; we get the second estimate of UK growth in Q3, plus Black Friday retail action. GW

Fitch: Autumn statement shows negative impact of Brexit vote

Rating agency Fitch has just declared that Philip Hammond’s autumn statement shows that Britain’s economy will suffer from the vote to leave the EU.

In its first official reaction, Fitch says that the forecasts and spending plans outlined yesterday show that the task of bringing Britain’s debts under control has become even harder.

It also warned that Britain will suffer slower growth and weaker productivity if Brexit leads to new curbs on migrations (a point the OBR also made yesterday).

Fitch says:

The Chancellor’s Autumn Statement underlines the challenges for the UK government to stabilise the public debt trajectory in the context of heightened economic uncertainty following the Brexit vote, Fitch Ratings says.

Official forecasts by the Office for Budget Responsibility (OBR) point to a substantially lower path for economic growth compared to the pre-referendum projections underpinning the March budget. The OBR expects GDP growth to be cumulatively 1.4pp lower over its forecast period to 2021. Consumer price inflation will be higher due to a weaker exchange rate. The OBR also believes potential growth in the UK economy will be lower due to a combination of lower assumed productivity and falling net migration.

The official forecasts appear consistent with our view that the vote to leave the European Union in the referendum on 23 June will have a negative impact on the UK economy and public finances, as lower growth translates to lower expected tax receipts and higher spending on transfers.

Fitch says this justifies its decision to downgrade Britain’s credit rating to AA, the second highest rating, after the referendum.

The agency also welcomes Hammond’s decision to ditch the budget surplus target this parliament, and only try to get the deficit down to 2% of GDP.

We think this increases medium-term fiscal flexibility, and the OBR’s latest projections indicate that these new objectives will be met, and that the public sector debt ratio will peak in FY18. However, even if the public debt ratio peaks in the near term, any subsequent decline is likely to be slow, and the UK will still have one of the highest debt ratios among highly rated (AAA and AA) sovereigns.

You can catch up with all the news, analysis and comment on the autumn statement here, in our comprehensive guide

The IFS has also highlighted that pensions are being relatively protected in the autumn statement....

...while families on low incomes will be squeezed hard this parliament:

The IFS is presenting its autumn statement verdict now:

IFS warns of biggest squeeze on pay for 70 years

Here we go...

Workers in Britain face the biggest squeeze on their pay for 70 years as a Brexit blow to the economy knocks wage growth and stokes inflation

That’s the official verdict from the Institute for Fiscal Studies’s analysis of the UK’s government’s latest tax and spending plans.

Having picked over Philip Hammond’s autumn statement, the IFS said real wages in the UK - pay adjusted for inflation - will still be below their 2008 level in 2021.

Paul Johnson, the thinktank’s director, says its the worst squeeze since the 1930s:

“One cannot stress how dreadful that is - more than a decade without real earnings growth. We have certainly not seen a period remotely like it in the last 70 years.”

This is the second dire warning of the day -- this morning, the Resolution Foundation warned that the living standards squeeze will actually worsen over the next five years.

Newsflash: The Institute for Fiscal Studies is delivering its verdict on the autumn statement right now! And it’s a stinker....

We’ll have full details in a moment...

Shares in Countrywide Holdings have fallen to a record low after the estate agent hit investors with a profits warning.

It admitted that sales in London have slumped by 29% in the last quarter, blaming the Brexit effect and the recent hike in stamp duty.

This sent Countrywide shares sliding; they’re currently down 12.5% at 169p, following yesterday’s 6% slide (due to the government’s new clampdown on letting fees)

Anyone who took part in Countrywide’s stock market flotation in April 2013, at 350p per share, must be fuming.

Countrywide itself fears that market conditions will stay tough; especially given the uncertainty over Britain’s exit from the EU.

Finance chief Jim Clarks says:

“No one can really show them what the future is. There’s a real lack of clarity on what post-Brexit Britain looks like.”

Updated

Consumer confidence in Germany has inched up this month, according to the latest healthcheck from GfK.

GfK reports that Germans are “more optimistic about overall economic prospects”, and a little more willing to spend.

That broadly matches the calm mood among business leaders this month (see earlier).

But there’s a proviso.... the data was mainly collected before the US Presidential Election, so we can’t see if Trump’s victory has caused any worries.

Europe’s stock markets are showing all the verve and vigour of a Thanksgiving turkey today.

Britain’s FTSE 100 has dipped by 24 points to 6793; it’s been bobbing around these levels for a couple of weeks now.

Trading across the channel is just as languid - maybe traders are resentful that their US counterparts get the day off.

European stock markets this lunchtime

Chris Beauchamp of IG blames American festivities for the lull:

The usual Thanksgiving calm has descended across markets, as European investors reconcile themselves to a day of low volumes and quiet trading.

With the US out of the picture currencies such as sterling and the euro have managed to recover and move higher, and while stock markets have recovered from yesterday’s lows there is still a sensation that there is not much more than hope to support valuations at current levels.

This chart shows how German bosses have taken the triple-whammy of Brexit, Trump and lower growth in their stride this month.

Turkey raises interest rates to 8%

Newsflash from Ankara: Turkey’s central bank has hiked its benchmark interest rate to 8%, from 7.5%.

The overnight lending rate has also been raised, to 8.5% from 8.25%.

This looks like an attempt to prop up the Turkish lira, which has fallen to record lows against the US dollar recently.

If so, it has done the trick - the lira has jumped by almost 1%.

But it won’t please president Recep Tayyip Erdogan, who yesterday urged the central bank to cut borrowing costs. (weakening the lira)

According to the FT, Ergodan declared:

I am calling on lenders: please reduce interest rates to reasonable levels. Look at unemployment in the country. If we want growth, we need employment, investment and competition. Unemployment is above 11 percent; is this what this country deserves?

The pound has crept to a two-month high against a basket of currencies today, helped by a 0.4% rise against the US dollar to $1.247.

Traders continue to yesterday’s autumn statement in their stride. It’s remarkable really -- Philip Hammond abandoned the goal of eliminating the deficit this parliament, and the City just shrugged.

The key message seems to be that investors actually like the idea of borrowing to invest -- if the alternative is growth-defeating austerity.

But it’s still early days -- especially as Britain’s national debt is heading over £1.9 trillion, or 90% of GDP.

Kit Juckes of Societe Generale says sterling looks vulnerable,

The Autumn Statement saw more modest downward revisions to growth forecasts than expected, but the cumulative upward revision to the budget deficit path is GBP 122bn by 2020/21. That is more relevant for the Gilt market than for the pound, but there will be heightened concerns about the UK’s credit rating. A lower £/$ exchange rate is likely

People visit the Christmas market at Gendarmenmarkt square in Berlin last night.
People visit the Christmas market at Gendarmenmarkt square in Berlin last night. Photograph: Fabrizio Bensch/Reuters

The euro is bobbing around its lowest level against the pound since mid-September this morning, at around 84.8p (having hit 92p in October)

David Swann, head of pricing at Travelex, says its a boon for anyone fancing a trip to a German market (and frankly, it looks more fun than Black Friday).

“The euro is today at a 72 day low against the pound.

This is good news for people planning a trip to Europe and businesses importing goods. People planning to buy their Christmas gifts at a European market can now get approximately 30 euros more when changing £500 than they would have done three weeks ago.

There is of course a negative impact on companies exporting goods and services to Europe, who will now be seen as more expensive.”

Wooden Christmas ornaments at the Alexanderplatz market in Berlin.
Wooden Christmas ornaments at the Alexanderplatz market in Berlin. Photograph: Sean Gallup/Getty Images

German business climate stable despite Trump victory

Just in: German business optimism has dropped slightly, as corporate leaders watch Britain’s exit from the EU and Donald Trump’s US election victory.

The IFO Institute reports that its business expectations index has dipped to 105.5 from 105.9 in October.

But businesses also reported that trading has improved in November; sending IFO’s current conditions up to 115.6 from 115.1 in October.

This left IFO’s main business climate index unchanged for the month.

The slowdown in growth in the third quarter of 2016 doesn’t seem to have hurt confidence.

Indeed, IFO thinks that German growth could rebound to +0.5% in October-December, from 0.2% in April-June.

IFO chief Clemens Fuest says:

“Confidence in the German economy continues to be good

The German economy seems to be unfazed by the election ofDonald Trump as U.S. president.”

Chancellor Philip Hammond

Philip Hammond has just defended the Office for Budget Responsibility following criticism over its latest economic forecasts.

Some pro-Leave campaigners aren’t happy that the independent watchdog has warned that Brexit will cost £58bn over the next five years.

Hammond has been quizzed about it on the Today programme. This is from Andrew Sparrow’s Politics Liveblog:

Q: Are you saying you don’t believe the OBR forecasts? The Telegraph says you take these forecasts with a pinch of salt.

Hammond says forecasting is not a precise science. The OBR itself says there is a large degree of uncertainty. The government should not ignore these forecasts. It should include them in the range of possibilities for which it plans. It should not ignore the strengths of the economy. And it is right to keep something aside.

Q: You seem to be distancing yourself from the forecasts.

There is a wide degree of uncertainty, says Hammond.

Q: So it may be tosh?

Hammond says there are many factors causing uncertainty.

Paul Johnson, director of the Institute for Fiscal Studies, has given an early verdict on yesterday’s autumn statement.

He told BBC Radio 4’s Today Programme that:

Philip Hammond has decided to spend more. He’s made a very clear choice about how he wants to spend more. He’s not given any more money to the NHS or social care, he has not unwound most of the cuts to benefit spending, so there’s no jam today, but he has increased quite a lot - and this really is I think quite significant - he has increased infrastructure spending, spending on research and development as a way of investing in the economy and hoping that that in improves growth in the longer run. So he’s investing in the future rather than helping people in the short term.

We’re looking at about a 10% growth in investment spending, we’re looking at capital spending by the government close to or a little bit above actually what the Labour party was aiming for at the end of its period in office, before the financial crisis hit and the level of investment spending that we have here is well above the average for the last 30 years or so. So on all those measures, actually for once the reality comes close to matching the rhetoric. Investment spending has been relatively protected and these are quite big increases over the next five years.

The IFS will give its formal response at lunchtime

Bloomberg flags up that Germany’s growth rate has hit a one-year low:

Germany’s economic growth was supported by domestic demand last quarter as a slump in exports slowed the expansion to its weakest pace in a year.

Government spending climbed 1% and private consumption rose 0.4% in the three months through September, while exports contracted 0.4%, the Federal Statistics Office in Wiesbaden said on Thursday.

Capital investment stagnated as spending on machinery fell. Gross domestic product rose by a seasonally-adjusted 0.2% in the three months through September, in line with a November 15 estimate.

We also have confirmation that Spain’s economy grew by 0.7% in the third quarter of 2006.

That’s a slight slowdown on Q2’s 0.8% growth, but much faster than the eurozone average of 0.3%.

Updated

Donald Trump’s plans to spend $1trn on rebuilding America’s infrastructure is also pushing the euro down against the US dollar.

Kathleen Brooks of City Index explains:

The prospect of fiscal largesse under a Donald Trump Presidency, and a multi billion stimulus plan, potentially as early as next year, is a key driver of the stronger dollar right now, as it could free up the Fed to hike interest rates in 2017 at a faster pace than most in the market (60%) think is likely.

And that could possibly trigger wild swings in the bond market in 2017, if fiscal stimulus supplants monetary stimulus (ie, bond prices might fall, pushing borrowing costs higher).

Euro hits 20-month low

The euro has fallen to its lowest level against the US dollar since March 2015 in early trading.

The single currency has dropped by 0.25% at the open to $1.052, a 20-month low.

The confirmation that German growth slowed to just 0.2% in the last three months hasn’t helped the euro.

Traders are also getting anxious about next month’s Italian constitutional referendum; votes look poised to reject prime minister Matteo Renzi’s electoral reforms, which might trigger his resignation.

But a currency trade has two sides, and the euro is also coming up against a resurgent dollar, as traders continue to bet on higher US interest rates and inflation.

The markets now reckon there’s a 100% chance that US interest rates will be hiked next month.

Last night, the minutes of the Federal Reserve’s last meeting showed policymakers are confident that the US economy is strong enough to cope with higher borrowing costs soon.

So the dollar is also at an eight-month high against the yen, and slightly higher against the pound at $1.242.

The agenda: German slowdown confirmed as exports fall

German Chancellor Angela Merkel standing in front of the newly erected Christmas tree at the Chancellory yesterday.
German Chancellor Angela Merkel standing in front of the newly erected Christmas tree at the Chancellory yesterday. Photograph: John Macdougall/AFP/Getty Images

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Today we’re looking at Germany, with a string of economic data from Europe’s largest economy.

New GDP figures have just confirmed that German growth halved to just 0.2% in the July-September quarter, in line with the initial estimate earlier this month.

German growth

Today’s detailed data shows that net trade dragged Germany back - wiping 0.3% off the growth rate. German exports fell by 0.4% during the quarter, suggesting a weakening in global trade, while imports rose by 0.2%.

The figures would have been worse without state spending - which added 0.2% to the growth rate. That’s partly thanks to authorities investing to help migrants who have arrived in the country in the last year.

Domestic spending also picked up, by 0.4%, showing that consumers spend more in the shops -- understandably, given that German unemployment is at a record low.

So, some of this data is quite encouraging, given the loud calls for Germany to boost consumption to help the wider euro economy. But the drop in exports is a worry.

Naeem Aslam, chief market analyst at Think Markets, comments:

The German economic data released today has shown that domestic demand has picked up during the third quarter- a sign of improving demand. Having said that the German final GDP number came in line with the forecast of 0.2%.

More encouraging signs were in the public spending and construction investment. Given that Germany is very much export based economy, and the export number dropped by 0.4%, it shows that global growth is still weak.

Two more surveys should help us see what’s going on:

  • 9am GMT: German IFO survey of business confidence
  • Noon GMT: German GfK consumer confidence survey

Also coming up today:

The financial markets may be quiet, as it’s Thanksgiving in America.

City traders should still be digesting yesterday’s UK autumn statement, and the news that Britain will be borrowing £122bn more than previously planned over the next five years.

The pound actually rallied yesterday, after chancellor Philip Hammond tore up the old goal of fiscal consolidation and pledged to borrow to invest.

Paresh Davdra of RationalFX says investors like the sound of Hammond’s new direction for post-Brexit Britain, with an emphasis on investment in infrastructure, housing, and boosting the UK’s productivity.

The pound rose slightly during the announcement, with high value investments such as funding local growth in the north and midlands, as well as funds for innovation and productivity, striking a positive note with the markets.

However this optimism did not last long as the uncertainty that still remains over the future of the UK’s economy due to Brexit still appears too great for the pound to escape.

Today the IFS thinktank gives its verdict on Hammond’s plans. Our Politics team will probably take the lead, but we’ll watch for financial reaction.

On the corporate news front, Domino’s Pizza, Mothercare and estate agent Countrywide are all reporting results.

Updated

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