I think that’s all for today.
Here’s our news stories on the House of Fraser store closure plan:
After suffering technical problems that delayed that start of trading by an hour, Britain’s stock exchange has ended the day calmly.
The FTSE 100 just closed eight points lower at 7,704 points.
Retailers had a mixed day; Marks & Spencer lost 1.1% while Next dipped by 0.4%.
Oil companies had a better day, though, with BP the top riser (up 2.2%).
Fiona Cincotta, senior market analyst at City Index, explains why energy stocks were in demand:
Oil rallied hard across the session, jumping 1.5% and recouping losses from the previous session. Buyers came flooding back into the oil market as concerns over supply issues in Venezuela overshadow fears that OPEC could be on the verge of easing oil production cuts.
With 2 weeks remaining until the OPEC meeting in Vienna, we are expecting an increase in volatility as investors weigh up the probability of an increase in production against the increasing supply problems in Venezuela and Iran. Oil stocks such as BP and Shell traced the price of oil higher.
Here’s some instant reaction to Dave Ramsden’s views on the UK economy:
BoE's Ramsden states that the MPC's view is that the economic slowdown in Q1 was temporary and appears to have been borne out of recent data $GBP
— DailyFX Team Live (@DailyFXTeam) June 7, 2018
Relatively hawkish from Ramsden.
— stewart hampton (@stewhampton) June 7, 2018
The pound has crept a little higher, up 0.15% at $1.343, but frankly sterling has been volatile all day (as Theresa May and David Davis have tried to hammer out an agreement on Britain’s Brexit backstop plan).
Bank of England deputy hints at August rate rise
Newsflash: A senior Bank of England policymaker has declared that the UK economy is emerging from its recent soft patch.
Deputy governor Dave Ramsden is telling an audience in London that recent data supports the bank’s view that the slowdown earlier this year was temporary.
The Bank’s Monetary Policy Committee (MPC) resisted raising interest rates in May, and Ramsden’s comments suggest a rate rise could come in August.
Ramsden says:
“It is still early days. We are still only two thirds of the way through the second quarter, less far through the second quarter data cycle, and only a month has passed since our last MPC meeting.
“Even so, the data we have had so far suggests our interpretation of the slowdown in the first quarter as temporary looks to be being borne out. Consumer confidence and consumer credit both picked up in the latest data, as did retail sales and several business surveys. That included the latest services PMI (purchasing managers’ index) output balance, representing 80% of the economy. So far at least our May judgement looks on track.
“Looking ahead, my central expectation for the economy is in line with the MPC’s best collective judgement as expressed in our inflation report forecasts. Global growth still looks solid, albeit a bit less rosy than it did before. The labour market is still robust. I expect GDP growth to resume at a steady but unspectacular pace and demand to continue to rotate away from consumption and towards trade and investment.”
Ramsden is seen as a dovish member of the MPC, having opposed last November’s rate hike.
Another reason why landlords are unhappy about House of Fraser’s move:
Years ago, House of Fraser did a sale and leaseback on a great chunk of its estate.
— Adam Parsons (@AdamParsons1) June 7, 2018
Now it wants a CVA to cut its rent bill to the people who bought its shops.
Cue plenty of anger in the property business...
House of Fraser’s attempt to use a Company Voluntary Arrangement (CVA) to close 31 stores and cut the rent on some others will annoy some landlords.
Matthew Weaver, partner at Radcliffe Chambers, explains why property owners are losing patience with this legal manoeuvre:
Landlords are becoming restless in the face of numerous CVAs proposed and entered into by retailers in which they are faced with significant decreases in the rent being charged and, in some instances, closure of stores which still have significant lease periods left on them – thereby reducing or removing income for the landlords. Typically, landlords of profitable stores are treated reasonably well in CVA proposals but those of loss-making stores are offered very little. This flexibility to treat different landlords differently (i.e. repaying the majority of some landlord debts under a CVA but very little of other landlord debts) has angered landlords generally as has the fact that CVA proposals often treat other creditors (suppliers for example) much better and do not impact on the rights of secured creditors (such as banks or other funders).
In addition, other businesses (most notably Next) have indicated that they are now sick and tired of competitor businesses using CVAs to reduce overheads, giving them an obvious competitive advantage. Next has stated that it will begin to negotiate a “CVA clause” into its new leases whereby its rent will be reduced in keeping with any reduction under a CVA of a business trading nearby to their stores. This will only increase the anger of landlords.
There is a view that retailers are using CVAs to gain a commercial advantage and there is a growing air of cynicism about them. This is not helped by the subsequent administration or liquidation of a number of high-profile retailers that have entered into CVAs which have failed, asking the question of whether the CVA was ever an appropriate step to attempt in the first place.
Plymouth City Council are disappointed that their local store faces the axe:
#Plymouth's Council leader Tudor Evans speaks out about House of Fraser announcement: "Clearly a blow for #Plymouth to have this store on the list...but we need to find out more about the proposal." https://t.co/yYXAoMvy7A pic.twitter.com/QkJ7kEMZTD
— PCC (@plymouthcc) June 7, 2018
One male shopper on Oxford Street tells us:
“It’s a bit of a shock.”
He hoped that the newly refurbished House of Fraser store near Victoria station in London would stay open.
“I don’t really do online shopping. I like the personal touch.”
Otherwise he said he would probably switch to Debenhams or John Lewis.
Christopher Scott, who hates shopping and had come to House of Fraser’s Oxford Street shop for his “one big shopping trip of the year” was indifferent to the store closure, although he added:
“I got a winter coat from House of Fraser [in the past]. It’s quite good.”
But he was also wary of online shopping, saying clothes often don’t fit if you don’t try them on.
The view on Oxford Street
Shoppers at House of Fraser’s Oxford Street branch say they were shocked and saddened to hear of the flagship store’s closure.
Pamela Emmanuel, who has a House of Fraser loyalty card and has been shopping there for more than 20 years, told us:
“I’m shocked that they are closing this one because it is Oxford Street. There are still so many people that don’t do online shopping. I like to come and try things on.”
She said she had an inkling when the department store stopped selling the Petite range of clothes that she liked, and could not get an appointment at the nail bar which she thought was shutting.
Lala Ahmadova, who has been shopping at House of Fraser since she moved to London from Azerbaijan 10 years ago, said:
“It’s sad people are going to lose their jobs. It’s something like BHS – it’s another shop that has been here for a long time.”
She said the retailer sells some brands that you cannot buy elsewhere on the high street, such as Hallhuber womenswear and Timberland Kids.
House of Fraser employs 990 people directly and through its concessions at the two London stores that are due to be shut, in Oxford Street and the City.
A member of staff working in beauty knew about the store closure but said he had not been told about his future.
Jeanne Bateman from Norwich said:
“I’m a big high street shopper. I’m very sad to see so many big high street names closing down. I feel sorry for us the shopper, and very sorry for the people who work here.”
Her daughter Catherine Wilamowska agreed, although she added that because she lives in a small village she does all her shopping online.
Another regular House of Fraser shopper, Sille Jeeawon, said: “I will be very sad. I like what they sell.”
She said she would go to Debenhams once the Oxford Street shop shuts its doors.
Updated
Shoppers in Birkenhead, Merseyside, are unhappy that their local House of Fraser is earmarked for closure.
Doreen Gibson, 81, from Greasby, Wirral, told the Press Association that she and her friends would miss the department store badly – and blamed young shoppers for buying on the Internet...
“We’ve been coming here every two weeks for 25 years. We meet our friends and have a coffee in the restaurant and a bit of shopping.
“It is devastating. They are all shopping online now, all the younger ones, that’s what’s ruining it all. Some people still like to go and see what they are going to buy.
“Honestly, it’s really, really terrible news.”
Updated
After crunching the numbers, we can report that at least 35,00 jobs are at risk - or already cut - across Britain’s retailers and restaurant chains since the start of this year:
In Edinburgh, shoppers say e-commerce hurt House of Fraser
Despite the Father’s Day offers that are heavily advertised in the street-level window displays, the Frasers store in Edinburgh was quiet on Thursday morning, as the unexpectedly warm weather encouraged shoppers outdoors, my colleague Libby Brooks reports.
Staff at the store, one of two owned by the retailer on Princes Street, the city’s main thoroughfare, had been told not to speak to the media.
Each till point has issued with contact details for the press office at headquarters, but many staff privately expressed shock at the news that the store would be closed in early 2019, affected 127 jobs, with some close to tears.
Others expressed anger that, although the proposed closure of 31 stores was already public knowledge, they had heard about the closure of their own store from the morning news bulletins rather than from management.
One described an “atmosphere” in the days leading up to the announcement, but remained surprised at the decision.
Window-shopping with his partner on a day trip from Fife, David Bell said that if upmarket retailers like Frasers and its sister store Jenners along the street were failing to make a profit, then it was further evidence that shoppers were moving online.
“The high streets are suffering everywhere, even Kirkcaldy where we’re from has so many closures. In a place like Frasers they are charging 50% more than you’d pay online and they still can’t make a profit. Shopping online is not just convenient, it’s so much cheaper.”
Looking up at the prime site on the corner of Princes Street, opposite the Waldorf Astoria, he asked:
“What will they do with the building now? It’s been here forever but I can’t think who would want to take it over.”
In the Pride of Scots gift shop next door to Frasers, Abdul Manan blamed the location of the store for poor footfall.
“People don’t come to this end of the street. It’s really the wrong location. They go further up Princes Street, where the Scott Monument is. Jenners is in a really good spot.”
Here are a few of the House of Fraser stores facing the axe, if the company’s creditors approve its restructuring plan.
AA shareholders angry over executive pay...and potholes
Another UK company, the AA, is facing its shareholders at its annual general meeting.
Investors are angry about the pay packages handed to bosses, and demanding (in vain) answers about the dismissal of the former chairman.
Some more mundane issues are also on the agenda, as my colleague Rob Davies reports from the AGM:
At the AA annual meeting, chairman John Leach has said the company will not be answering any questions about former chairman Bob Mackenzie, who is suing the company for £225m after he was sacked over an assault on a colleague at a country hotel.
Despite finance chief Martin Clarke having voluntarily given up a bonus earlier this year, 24% of voting shareholders have rejected the company’s pay policy, although not all votes are in yet.
Chairman John Leach says some shareholders are concerned about the uncertainty around performance conditions attached to company bonus plans.
In the absence of any questions on Bob Mackenzie, one shareholder has raised two equally scintillating matters. The first is a request that the motor industry sue the government over the impact of potholes. The second is that there be gluten-free biscuits at future AGMs.
Updated
One of House of Fraser’s (many) problems is a failure to engage with millennials.
Amelia Brophy, head of data products at YouGov, explains how the chain has lagged behind nimbler retail rivals, and failed to impress younger shoppers:
“YouGov BrandIndex data underlines how House of Fraser’s brand perception has declined over the past year. Its Impression score (whether someone has a favourable impression of the brand) among the general public has declined from +23 last May to +19 now. Its score among younger consumers, those in the 18-34 age bracket, is even lower, at +17.
This is been mirrored by shifts in the brand’s Quality score, which, among the general public has fallen from +32 to +29.
However, the key is the brand’s Value score, particularly among younger customers. Overall, it has a rating of just +1, way behind online rivals that have outflanked it. Among 18-24s its score is -4, well below other stores such as H&M (+31), Asos (+27) and Boohoo (+14).”
Updated
Patrick O’Brien, UK research director at GlobalData Retail, reckons Marks & Spencer could benefit from House of Fraser’s retrenchment:
M&S stands to gain most, in terms of clothing sales, from House of Fraser closures, followed by Debenhams pic.twitter.com/xgkDzRRp4T
— Patrick O'Brien (@pat_gdretail) June 7, 2018
M&S is also cutting back on stores, with more than 100 expected to close over the next few years.
Typo alert: That last headline should have said ‘Poundworld’, of course, not ‘Poundland’. Now fixed, sorry for any confusion....
Poundworld could fall into administration soon
It’s turning into another black day for UK retail, with reports that budget chain Poundworld is on the brink of administration.
Poundworld could file for administration today, putting more than 5,000 jobs at risk across the UK.
The company, which made a loss of £17m last year, has been trying to find a buyer for some time, but without success. It has 355 stores, and faces a quarterly rent bill in less than three weeks.
Press Association has more details:
Sources told PA that the notice will give Poundworld time to structure a deal, which could be undertaken through a pre-pack administration, with private equity firm R Capital, former owner of Little Chef.
The administration will be handled by Poundworld’s advisers Deloitte.
Poundworld, which is owned by TPG Capital, had previously rejected offers to sell through a pre-pack but all options are now being considered.
Sky News’s Mark Kleinman also fears that Poundworld will join the swelling ranks of UK retailers forced into administration.
Revealed: Prospect of rescue deal for Poundworld receding, with former Little Chef-owner Rcapital in last-ditch talks that have no better than a 50-50 chance of success, I'm told. Notice of intention to appoint administrator likely to be filed today. https://t.co/bwDJ3YXIud
— Mark Kleinman (@MarkKleinmanSky) June 7, 2018
Updated
The Labour Party have accused the government of neglecting Britain’s struggling retail sector, while it struggled to get to grips with Brexit.
Rebecca Long Bailey MP, Shadow Business Secretary, points out that more than tens of thousands jobs are being lost this year:
“In the first three months of this year 21,000 jobs were lost in the retail sector. Today another 6000 jobs are at risk as House of Fraser confirms store closures across the UK.
“While the Cabinet is in chaos over Brexit their lack of focus on our high streets is leading to mass job losses, failing one of the biggest employers and industrial sectors in the UK, which is why Labour has called on the Business Secretary to publish a retail sector strategy to safeguard jobs.
“The next Labour government will support retail by placing it at the heart of our industrial strategy. It’s time for the Tories to step up to the challenge of rescuing our high streets.”
This is #HouseOfFraser in Worcester this morning. The store is one of 31 out of 59 across the country which are to close pic.twitter.com/oOWPsgFhNI
— BBC H and W (@bbchw) June 7, 2018
Updated
The rising use of CVAs by cash-strapped retailers is hurting Britain’s landlords, warns Daniel Stern, commercial property litigator at Manchester-based law firm Slater Heelis.
Stern says there is a ‘rescue culture’ at the heart of insolvency regimes, allowing retailers to go into administration, shed unprofitable operations, and then emerge stronger.
“Only 75 per cent of a company’s creditors need to approve a CVA which is then legally binding on all unsecured creditors, including landlords, regardless of whether the landlord agreed the proposal.
“This effectively means property owners must accept lower rents to help a tenant avoid financial collapse. As landlords are often pension and investment funds this is having a knock-on effect on the ordinary man in the street.
The Huffington Post have helpfully listed the 28 House of Fraser stores that are staying open if the CVA is agreed.
They are: Gateshead Metro Centre, Huddersfield, Leeds, Manchester, Nottingham, Sheffield Meadowhall, Sutton Coldfield, Bluewater, Croydon, London City, London Victoria, London Westfield, Richmond, West Thurrock Lakeside, Bath, Bristol, Cheltenham, Cirencester, Exeter, Guildford, Maidstone, Norwich, Reading The Oracle, Rushden Lakes, Edinburgh (Jenners), Glasgow, Loch Lomond Shores (Jenners), and Belfast.
Victor Garcia Capdevila of credit rating agency Moody’s believes the store closure plan should give House of Fraser some breathing room to tackle its problems.
Capdevila says:
“Store closures will allow House of Fraser to reduce its rent bill and exit long-dated lease agreements in unprofitable locations.
This should facilitate and accelerate the transformation of the company into a more effective multi-channel retailer while alleviating liquidity challenges that have necessitated cash injections from its owner over the past few months.”
Moody’s currently has a Caa1 rating on House of Fraser’s debt. That’s a ‘junk’ rating, implying a substantial risk that the company might not repay its borrowings [Caa1 is the 17th highest rating, only four above default].
House of Fraser says it has put another £1m into its pension fund to secure the backing of its pension trustees for its CVA restructuring plan.
In other news, Britain’s housing market is still in sluggish mode, according to the latest survey.
House prices rose 1.5% in May from the month before, following a sharp drop of 3.1% in April, says Halifax, Britain’s biggest mortgage lender, which is part of Lloyds Banking Group. The average price of a home is now £224,439.
This means prices grew just 0.2% in the three months to May from the previous quarter, while the annual rate slowed to 1.9% from 2.2%.
Russell Galley, managing director of Halifax, said:
“Both of these measures have fallen since reaching a recent peak, in the final months of last year. These latest price changes reflect a relatively subdued UK housing market. After a sharp rise in January, mortgage approvals have softened in the past three months.
Whilst both newly agreed sales and new buyer enquiries are showing signs of stabilisation having fallen in recent months.”
The Cardiff branch of House of Fraser, which is earmarked for closure in today’s plan, is opening late today (presumably because staff are being briefed about the situation?).
House of Fraser in Cardiff delays opening today ... pic.twitter.com/Pl4VTjQNCT
— Allie Hodgkins-Brown (@AllieHBNews) June 7, 2018
This store is one of the biggest department stores in Wales. It dates back to the 1850s, when James Howell opened a department store there. Howells was acquired by the House of Fraser group in the 1970s.
Updated
The store closures announcement is awful news for thousands of House of Fraser staff.
Some will have discovered their job is being eliminated as they headed to work this morning.
Four stores in the West Midlands are closing, for example, as Simon Penfold of the Birmingham Express and Star explains:
It will mean more than 1,100 people losing their jobs across the West Midlands. The Beatties store in Wolverhampton employs 279, 150 work at Telford, 83 at Shrewsbury and 688 at the House of Fraser store in Birmingham.
Some staff learned of the news through Twitter before they even got to work today.
Full story: Store closures are another blow to UK high streets
Here’s our retail correspondent Sarah Butler on today’s news:
House of Fraser is to close 31 stores, more than half of its UK chain, putting a further 6,000 retail jobs at risk and dealing another hammer blow to British high streets.
The struggling department store group’s Oxford Street flagship in London and outlets in cities including Birmingham, Cardiff and Edinburgh are among those facing closure. The drastic cuts form part of a rescue plan that will also lead to the company moving out of its head offices in London and Glasgow.
The 31 outlets would close by early next year under a company voluntary arrangement, a form of insolvency that enables a business to rearrange deals with landlords. Creditors are set to vote on the deal, which includes reducing rents by 25% at 10 other stores, on 22 June.
The House of Fraser chairman, Frank Slevin, said: “The retail industry is undergoing fundamental change and House of Fraser urgently needs to adapt to this fast-changing landscape in order to give it a future and allow it to thrive. Our legacy store estate has created an unsustainable cost base, which, without restructuring, presents an existential threat to the business.
“So while closing stores is a very difficult decision, especially given the length of relationship House of Fraser has with all its locations, there should be no doubt that it is absolutely necessary if we are to continue to trade and be competitive.”
More here:
Updated
House of Fraser’s creditors will vote on today’s proposal on 22 June.
As well as shutting 31 department stores, the company also wants to shave 25% off the rent of another 16 stores.
If landlords agree, then these 16 stores (plus another 10) will remain open and keep trading, the company says.
Updated
Back to House of Fraser.... and ITV News’ Joel Hills reports that some landlords will oppose the plan to shut 31 stores.
Not so long ago House of Fraser was busy flogging its department stores on “sale and leaseback” deals to the same landlords it now wants to accept heavy losses. There’s anger out there. One landlord has told me they’ll vote against CVA and “take my chances in administration”.
— Joel Hills (@ITVJoel) June 7, 2018
London stock market fails to open
Back in the City, London’s stock market failed to open at 8am.
The London Stock Exchange are blaming ‘technical’ issues, and have just managed to get trading running.
It’s a highly unusual development - the last such outage occurred in 2011 (updated).
Hopefully we’ll find out what went wrong soon....
Updated
Alex Williamson, chief executive of House of Fraser, has promised to support the 6,000 staff who could lose their jobs:
“Today’s announcement is one of the most important in this company’s 169-year history.
“We, as a management team, have a responsibility to take necessary steps to ensure House of Fraser’s survival, which is why we are making these proposals.
I would like to offer my heartfelt thanks to all my colleagues at House of Fraser for working tirelessly throughout this difficult period. We are fully committed to supporting those personally affected by the proposals.
Updated
Assuming today’s plan is approved, the 31 stores earmarked for closure up and down the country will shut in early 2019.
John Pal, retail expert at Alliance Manchester Business School, says retailers such as House of Fraser are facing a ‘perfect storm’.
Rising business rates, competition from internet rivals, and over-capacity on the high street are making some stores unviable.
Pal says:
“News that House of Fraser is to close stores comes as no surprise as many retailers grapple with stagnating sales and increasing running costs.
Once the training budget has been cut, over-time slashed and overall headcount reduced, in both head offices and in stores, it’s time to focus on the big costs of which stores are a main one.
Expert: House of Fraser faces 'massive' task
Richard Lim, chief executive, Retail Economics says today’s store closures reflect the move away from high street stores and onto internet shopping:
“News that House of Fraser is to shut its Oxford Street store and 30 others is a huge statement of intent. The closure of such an iconic flagship store signals the massive restructuring task at hand.
“Department stores are incredibly expensive to operate and the last few years have seen costs spiraling upwards from business rates, rents and National Living Wage. These traditional retail business models that hold huge fixed costs are simply becoming unsustainable for some retailers.
“The announcement to close such a significant number of stores highlights the unyielding shift towards online shopping and the overcapacity concerns faced by a significant proportion of the market. The retailer will need to push forward right-sizing initiatives and utilise any excess space to sweat assets more effectively in a move become fit-for-purpose in today’s digital age.
Economics journalist Dharshini David agrees that UK retailers are suffering from ‘desperate’ times:
House of Fraser restructuring plans = shutting half stores inc Oxford Store flagship, marking relegation from retail premier league, & interesting move given Chinese owners wish to woo international market. Sign of desperate times
— Dharshini David (@DharshiniDavid) June 7, 2018
Today’s grim announcement follows weeks of talks between House of Fraser’s owners - China’s C. Banner - and its lenders and landlords.
House of Fraser needs 70 per cent of its creditors – including landlords – to back the plan filed this morning. If they don’t, then the entire company would probably collapse into administration.
That would put 17,000 jobs at risk across its 59 stores.
Frank Slevin, chairman of House of Fraser, say the company needs to shut more than half its stores, or face collapsing altogether.
“The retail industry is undergoing fundamental change and House of Fraser urgently needs to adapt to this fast-changing landscape in order to give it a future and allow it to thrive.
“Our legacy store estate has created an unsustainable cost base, which without restructuring, presents an existential threat to the business.
“So whilst closing stores is a very difficult decision, especially given the length of relationship House of Fraser has with all its locations, there should be no doubt that it is absolutely necessary if we are to continue to trade and be competitive.”
KPMG: Deal will keep House of Fraser alive
House of Fraser is shutting these 31 stores under a company voluntary arrangement.
It’s effectively a deal between a struggling firm and its creditors under which underperforming stores are shed.
Under the CVA, House of Fraser is looking to cut the rent on these 31 stores to just 30% for the next seven months - and then shut them down.
Accountancy firm KPMG is managing the process.
Will Wright, restructuring partner at KPMG, says a CVA is needed to keep House of Fraser operating in today’s tough retail environment.
“The CVAs proposed by House of Fraser give the business a vital lifeline to avoid administration by renegotiating the lease terms of its UK-wide property portfolio, as part of a wider restructuring.
The business has been impacted by the mounting pressures facing the UK high street, with the declining profitability of certain stores exacerbated by costly legacy leases which were originally negotiated many years ago. With trading conditions unlikely to materially improve in the short term, the future of House of Fraser is at significant risk unless steps to restructure the business both financially and operationally are taken.”
Updated
6,000 jobs at risk as House of Fraser shuts 31 stores
NEWSFLASH: Retail chain House of Fraser has announced plans to shut more than half of its UK and Ireland stores, in a move that will cost up to 6,000 jobs.
House of Fraser is planning to close 31 of its 59 stores across the UK and Ireland, under a restructuring plan filed at the Court of Session in Edinburgh this morning.
The list of stores includes House of Fraser’s flagship site on London’s Oxford Street, as well as at towns and cities across the country.
Here’s the list of stores that will close over the next few months:
Altrincham, Aylesbury, Birkenhead, Birmingham, Bournemouth, Camberley, Cardiff, Carlisle, Chichester, Cirencester, Cwmbran, Darlington, Doncaster, Edinburgh Frasers, Epsom, Grimsby, High Wycombe, Hull, Leamington Spa, Lincoln, London Oxford Street, London King William Street, Middlesbrough, Milton Keynes, Plymouth, Shrewsbury, Skipton, Swindon, Telford, Wolverhampton, Worcester.
More to follow....
Updated
Back in the UK, Thames Water is handing £65m to customers as part of a £120m package of penalties for failing to tackle leaks:
Germany’s economy ministry is trying to sound upbeat - pointing out that the country’s factories still have a decent backlog of orders to plough through:
“To what extent uncertainties play a role, especially from the external environment, is difficult to assess.
However, the order backlog in the manufacturing sector is still very high.”
Carsten Brzeski, ING’s chief economist for Germany, is disappointed by the 2.5% decline in German factory orders last month.
He agrees that it suggests Germany’s economy has weakened this year.
Normally, an increase in new orders after three consecutive drops looks as safe a bet as predicting tomorrow’s sunrise. However, it seems that today the sun did not rise for German industry. It will get harder and harder to explain these monthly drops with one-offs like the weather or the timing of holidays. In fact, evidence is piling up that the soft patch at the start of the year has been more serious than previously thought.
For the time being, we remain cautiously positive. In absolute terms, order books are still richly filled, assured production is high and inventories have been reduced recently. All boding well for industrial activity in the coming months. However, today’s disappointing new orders reading sends a clear warning that nothing should be taken for granted.
The agenda: German factory orders slide; UK house price figures
Good morning , and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
German factory have suffered their fourth drop in monthly orders in a row, raising fresh fears over the strength of Europe’s largest economy.
Industrial orders slumped by 2.5% in April, new figures from the Federal Statistics Office (Destatis) show. On an annual basis, order numbers in April were 0.1% lower than in April 2017.
Ouch! German factory orders just turned negative YoY. pic.twitter.com/m3vwlmofjY
— jeroen blokland (@jsblokland) June 7, 2018
March’s data has been revised down too, to show a 1.1% drop in demand.
The decline was driven by a 4.8% drop in domestic orders, while new orders from Germany’s eurozone neighbours tumbled by almost 10%, Destatis reports.
Capital goods orders (for machinery etc) fell by 5.6% month-on-month in April, while consumer goods orders fell by 2.2%. Intermediate goods orders rose by 2.5%, though.
The data is much worse than expected - economists had forecast a 0.8% rise in orders for goods with “Made In Germany” stamped proudly on them.
This decline suggests that the German economy has made a faltering start to 2018, perhaps dragged back by fears of a trade war triggered by Donald Trump’s tariffs.
Experts are warning that Germany’s factories have made a ‘horrible’ start to the second quarter of 2018 - a worrying sign for its economy, and the wider global economy too.
German factory orders tumbling by -2.5% m/m in April makes for a horrible start to Q2. Core orders at -1.7% were equally downbeat continuing the string of weak hard data. A material bounce-back from the 0.3% q/q GDP growth in Q1 is becoming ever more questionable.
— Oliver Rakau (@OliverRakau) June 7, 2018
🇩🇪🇸🇪 Order intake to the German manufacturing industry down four consecutive months. Hmm...🤔 pic.twitter.com/rNWQTAaQbs
— Torbjörn Isaksson (@TorbjrnIsaksson) June 7, 2018
More details and reaction to follow...
Also coming up today
The demise of UK outsourcing and construction group Carillion is going to cost taxpayers more than £150m, according to an official report. The lawyers and accountants clearing up the mess will bank around £70m, though!
The Halifax bank will release its latest survey of the UK housing market this morning. Last month it reported a 3.1% monthly decline; today’s figures could show a recovery.
We also get updated eurozone growth figures for the first quarter.
The UK’s FTSE 100 is expected to open higher, following a strong day on New York last night.
Jasper Lawler of London Capital Group explains:
Risk on in Wall Street, transferred to a solid session in Asia and is seen lifting European markets into the opening bell.
Despite talks of retaliation measures from US allies on trade tariffs, which in the words of the World Bank, risks sending the global economy back to a state similar to that 10 years ago, global equity markets continue bounding higher.
The agenda
- 8.30am BST: Halifax survey of UK house prices in May
- 10am: Latest estimate of eurozone GDP in the first quarter of 2018
- 4pm BST: Bank of England deputy governor Dave Ramsden speaks at the Barclays Inflation Conference, London
Updated
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