Pound plunges amid political chaos
The political meltdown in Westminster over Brexit and Theresa May’s leadership has led to the pound’s longest losing streak against the euro since the creation of the latter currency two decades ago. With the prospect of tougher no-deal advocates taking over as prime minister, sterling has recorded the steepest losses among major world currencies over recent weeks. The pound has dropped from more than €1.17 to less than €1.14, and against the dollar, from more than $1.32 to less than $1.27 – its lowest level since February.
US-China trade war rattles stock markets
Financial markets around the world have sold off sharply over the past month amid a rise in tensions between the US and China over trade. Donald Trump’s administration raised the stakes by ramping up US tariffs from 10% to 25% on $200bn of Chinese imports, as talks between the two countries risked falling apart. Tensions have continued to rumble on after the US blacklisted the Chinese telecoms company Huawei, with tech companies in several countries, including Google, Intel and Panasonic, freezing out Huawei’s products as a consequence. The FTSE 100 has fallen by more than 2% to trade at about 7,270.
Better than forecast
Inflation increase puts squeeze on households
UK inflation edged back above the government’s 2% target in April as dearer energy bills and the cost of transport put a renewed squeeze on British households. According to the Office for National Statistics the consumer prices index edged higher to 2.1%, up from 1.9% in March. City economists had forecast a rate of 2.2%. However, analysts said they did not expect inflation to increase much more this year. While household bills for electricity and gas rose as utility firms took advantage of the government raising the cap on energy costs, core inflation, which strips out volatile components, remained unchanged at 1.8%
Worse than forecast
Goods trade deficit hits record high
Britain continued to import more goods than it exported in March, as companies rushed to stockpile components and raw materials in case of a no-deal Brexit. The trade deficit, the gap between the value of imports and exports, narrowed to £5.4bn in March, down from £6.2bn in February, but was still much larger than forecast by City economists. Analysts said the trade deficit should narrow in future, as firms were now likely to run down their inventories rather than place new orders with overseas suppliers. In an indication of the scale of the rush to stockpile goods, the trade deficit for the first three months of 2019 hit £18.3bn, a record high for any quarter and up from £9.4bn in the last quarter of 2018.
Better than forecast
Brexit delay fuels rise in business activity
The Brexit delay agreed by Theresa May with the EU in April helped private-sector business activity to rebound modestly in April, after a no-deal withdrawal was avoided, at least for now. Britain’s dominant services sector, which accounts for four-fifths of the economy, returned to growth from contraction a month earlier. The IHS Markit Cips purchasing managers index for the sector, which includes hotels, banks and restaurants, rose to 50.5 from 49.7 on the month. Anything above 50.0 represents economic growth. However, analysts said the PMI indices suggested GDP growth remained close to stalling point in April. Output in the manufacturing sector also fell back, after intense stockpiling activity in March before the original Brexit deadline. Economists believe factory output could fall further in future, as firms run down their stockpiles rather than place new orders.
Worse than forecast
Wage growth stalls despite record employment
Wage growth unexpectedly fell in March. This was despite the unemployment rate falling again to its lowest level in more than 40 years, a signal that Brexit uncertainty could have discouraged employers from raising workers’ pay. According to the ONS, total pay growth, including bonuses, cooled to 3.2% on the year in the three months to March, down from 3.5% in the three months to February. Analysts blamed the lack of clarity over the UK’s future trading relationship with the EU for a rise in self-employment, amid a reluctance by companies to hire staff on a permanent basis. Self-employment returned to its record high of 15.1% of all jobs, last seen in 2017, while of the 99,000 quarterly increase in workers in March, just over 90% were self-employed.
Better than forecast
Warm weather boosts online shopping
Britain’s shoppers notched up the fastest quarterly growth in online sales on record in the three months to April. While boosting the economy, the figures showed the issues facing the high street, where sales are falling. Economists had forecast a drop in retail sales on the month in April, however combined, overall sales online and in physical shops stayed flat compared with the previous month. Department stores reported falling sales, in a sign of the stress for some bricks-and-mortar shops. Despite difficulties for some retailers, analysts said consumers appeared to have shrugged off concerns over Brexit and kept on spending, and warm weather over the Easter weekend had helped to increase sales.
Worse than forecast
Government borrowing falls
Government borrowing in April, the first month of the new financial year, came in at almost the same level as a year ago. The budget deficit, the shortfall between state spending and revenue from taxes, was £5.83bn, slightly higher than the £5.80bn forecast by City economists. Although the lowest public borrowing level in the month of April since 2007, the latest figures suggest improvements have come to an end, but that the level of borrowing is now at a lower level.
Worse than forecast
Brexit delay fails to reboot housing market
The number of new homes put up for sale in April slid to the lowest levels since mid-2016, in a sign that homeowners remain concerned about the potential impact of the UK leaving the EU on the value of their properties. According to the Royal Institution of Chartered Surveyors sentiment survey, the balance between surveyors saying that house prices would rise to those seeing a fall remained unchanged at -23%. City economists had forecast a slight improvement to -22%. Official government numbers suggest average prices in the UK crawled higher by 0.6% in February compared with a year earlier – the smallest rise since September 2012.
And another thing we’ve learned this month … US-China trade war hits the global economy
Trump raising the stakes in the US-China trade dispute has significant implications for the strength of the global economy, including Britain as it prepares to leave the EU. Economists warn the trade imbroglio has already hit imports and exports around the world, with an impact for global growth and business investment. The OECD warned this month that further intensification would knock as much as 0.7% off the level of global GDP by 2021-22. At a moment of fragile economic growth at home, economists said the faltering strength of the world economy was bad for Britain. Analysts also fear a further fall in export demand, compounding a hit from the loss of EU contracts for UK firms amid the political chaos over Brexit. The UK is also attempting to forge new trade deals outside the EU at an increasingly difficult time for international trade.
