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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Brexit recession feared as UK corporate confidence slumps – as it happened

The City of London.
The City of London. Photograph: Bloomberg/Bloomberg via Getty Images

European stock markets close in the red

The stock markets never really burst into life today. And now they’ve closed, slightly in the red.

The FTSE 100 closed down 10 points at 6670, while the FSTE 250 index shed 0.3%.

European markets were pretty mixed, while Italy’s FSTE MIB shed another 1% as worries over its banking sector build up.

Europe’s leading stock markets tonight.
Europe’s leading stock markets tonight. Photograph: Thomson Reuters

The pound has dipped this afternoon too, now down 0.5% at $1.3182.

City investors have mainly been watching events unfold at Downing Street, as David Cameron tenders his resignation to the Queen.

Chris Beauchamp of IG reports:

Today will be remembered for political considerations more than anything, with Cameron vacating No.10 in exchange for the UK’s second female Prime Minister. Arguably it was the appointment of Ms May that sparked this week’s sterling resurgence, for which holiday makers will be thanking Andrea Leadsom.

After all the political dramatics of late, it feels as though we have reached a conclusion with the appointment of Theresa May.

Tomorrow, we’ll be staring at the Bank of England instead, to see if UK interest rates are cut to fresh record lows.

British Chancellor of the Exchequer George Osborne leaving 11 Downing Street today -- will be be replaced before Thursday?
British chancellor of the exchequer George Osborne leaving 11 Downing Street today – will ge be replaced before Thursday? Photograph: Justin Tallis/AFP/Getty Images

Speculation continues to swirl that Phillip Hammond will be Britain’s next chancellor (see earlier).

Thee other top jobs could go to high-flying Conservative women, though, such as energy secretary Amber Rudd and development secretary Justine Greening:

Our politics liveblog has all the details:

Updated

Brexit blamed as Bank of Canada cuts growth forecasts

TOPSHOT - An Ukrainian guard of honour soldier holds a Canadian flag during a welcoming ceremony ahead of Ukrainian President Petro Poroshenko and Prime Minister of Canada Justin Trudeau’s meeting in Kiev on June 11, 2016, during Justin Trudeau first official two-days visit in Ukraine. / AFP PHOTO / SERGEI SUPINSKYSERGEI SUPINSKY/AFP/Getty Images

Just in: The Bank of Canada has slashed its growth forecast, and put some of the blame on Britain’s vote to leave the EU.

The BoC now only expects the Canadian economy to expand by 1.3% this year, down from 1.7% just three months ago - before the EU referendum spooked the global economy.

And it estimates that Brexit will wipe 0.1% off Canadian growth, as confidence, trade links and financial conditions all suffer.

In a statement, the BoC warns:

In the wake of Brexit, global markets have materially re-priced a number of asset classes. Financial conditions, already accommodative, have become even more so....

Overall, the risks to the profile for inflation are roughly balanced, although the implications of the Brexit vote are highly uncertain and difficult to forecast.

The BoC also left interest rates on hold, at the current record low of 0.5%.

Here’s a handy box with more details:

Bank of Canada rate decision

Updated

US shares hit new record highs

Boom! The US stock market has hit fresh record highs at the start of trading in New York.

The Dow Jones index reached 18,382 points for the first time, while the S&P 500 index also hit a new intra-day high.

Wall Street share prices
The opening of Wall Street on Wednesday. Photograph: Bloomberg

Brexit fears seem to have been pushed to one side, for the moment, as traders lick their lips and expect more stimulus measures from the Bank of England and the Bank of Japan.

Updated

If he is appointed chancellor, Philip Hammond’s first act will probably be ditching George Osborne’s target of a fiscal surplus by the end of the parliament (once he’s shaken paws with Larry the cat).

“Balancing the books” is another casualty of the Brexit vote. With Britain sliding towards recession, the sensible move is to relax fiscal policy and nurse the economy into better health.

Some Tories are now talking about borrowing to invest in the future, which is sensible, given that investors will pay to lend to Britain. But it’s quite a turnaround from 2015, when Labour was damned as fiscally irresponsible for such notions.

Updated

George Osborne’s tenure as chancellor may soon be over ...

Updated

The pound’s tumble after the Brexit vote last month has come at a very bad time for British holidaymakers.

Sterling has lost about 10% against the US dollar, hitting a 31-year low. It is down a similar amount against the euro, at €1.197.

At least, that’s the value on my Reuters terminal. Out in the real world, you’ll get rather less.

Updated

UK economy "to shrink 1% in 2017"

Investment bank Credit Suisse has sounded the alarm, predicting that Britain will slide into recession next year.

Its economics team have predicted that UK GDP will contract by 1% in 2017, as the impact of the Brexit vote hits confidence and business spending.

Credit Suisse said:

We fear that, ahead of the referendum, two of the best lead indicators for UK growth – service PMI new orders and vacancy growth – were already consistent with a mild recession.

This chart shows its forecasts: the two dots showing slowing growth this year, and a contraction next year.

Credit Suisse chart

And it cites five reasons why:

  1. Companies have no Brexit contingency plans. About half of Britain’s FTSE 350 companies did not have a plan for a leave campaign victory, they say.
  2. Exports to the EU are going to be “discriminated against”. The services sector could be singled out, particularly the financial industry.
  3. People are going to stop investing in Britain. Foreign direct investment could easily halve as overseas investors shy away from the UK.
  4. Companies have stockpiled goods. GDP data shows that firms built up their inventories in the first quarter of 2016 – a recession will make it harder to sell those goods.
  5. The UK consumer “was not prepared for a shock”. Household savings are low, so people might cut back on their spending drastically once the economy slows.

Other economists are a little less pessimistic, though; the consensus is that the economy will grow by 0.5% in 2017, down from almost 2% before the referendum.

Updated

A group of economists who backed the leave campaign have said Theresa May should embrace quitting the single market.

They argue that this would allow Britain to enjoy the benefits of free trade with Europe and the rest of the world.

Economists for Brexit, a group of economists who campaigned for the UK to leave the EU, warned that article 50 negotiations with Brussels to extract concessions for British businesses would be undermined without the real threat of abandoning the EU customs union.

At a press conference held by the 13-strong group at the Institute of Directors in London, Gerald Lyons said an EU-lite policy “would not be the best economically and is likely to disappoint the electorate”.

Updated

One of the UK property funds that banned investors from taking money out after the Brexit vote has lifted the suspension.

Aberdeen Asset Management announced the move this morning, eight days after being forced to gate its fund after a flood of redemption requests.

It has already cut the value of the fund, which invests in supermarkets, offices and warehouses, by 17%.

Aberdeen’s chief executive, Martin Gilbert, is warning that the value of the fund could be volatile for a while as the market adjusts to the consequences of Brexit.

Investors should be aware that the price may be adjusted on a daily basis to reflect the fund’s requirement to provide liquidity and the need to protect all investors.

Aberdeen, along with several other property trusts, is now trying to sell real estate assets to generate funds to repay investors. It’s a tough market: Sky News reported last night that commercial property prices have fallen by 10%-15%.

Updated

Will Bank of England give sterling a shunt?

City analysts are predicting that the pound may suffer fresh losses soon, perhaps as early as tomorrow, when the Bank of England announces its decision on UK interest rates.

Sterling is currently rising for the fifth day running, but Paresh Davdra of RationalFX reckons that the “Theresa May bounce” might not last long.

Although recent political events have boosted the pound somewhat, it is important to remember that the UK is not out of the woods yet.

The monetary policy committee decision to take place tomorrow will ultimately determine the short-term future of the currency – a fall in interest rates will, in turn, mean a tumbling pound. With 80% predicting a reduced bank rate tomorrow, it is likely sterling has not yet escaped the Brexit haze.

Of course, the Bank of England may decide not to cut interest rates at the moment.

Jeremy Cook, the chief economist at World First, reckons that the UK’s central bank should hold fire until the consequences of Brexit are clear:

Updated

More drama in the bond market. Britain has sold more than £1bn of inflation-linked bonds at a negative interest rate.

Here’s the proof:

As with Germany’s bond sale, it means that investors are worried about growth prospects and don’t fancy putting their money into riskier assets.

OK, it also means that they don’t expect Britain to default. But that’s never a realistic danger, as the UK controls its own currency (so can print as many pounds as it needs to pay off its debts).

Updated

The German nation flag.

Newsflash from Germany: investors have just paid for the chance to lend to Berlin’s government for the next decade.

The German debt management office auctioned a 10-year bund this morning and found that buyers were prepared to pay more than the face value of the debt. That’s a first.

That means that they are guaranteed to make a loss when the bond is repaid in 2026 – unless the buyer can sell it on at an even higher price.

It’s a sign that investors are looking for safe places for their money, and anticipating little growth or inflation in the next few years.

Updated

A traders' screen in the City.

London’s stock market is remarkably subdued this morning.

The FTSE 100 is basically flat, while the smaller FTE 250 index has dipped by 0.3%.

Investors are waiting for Theresa May’s imminent accession to the premiership, and to see who gets the crucial role of chancellor in her new cabinet.

Shares in housebuilders have fallen, after Barratt Development told shareholders it is “reassessing land approvals” to protect itself from the impact of the EU referendum outcome.

FTSE 100 biggest fallers
The four biggest fallers on the FTSE 100 are housebuilders. Photograph: Thomson Reuters

Updated

The Financial Times economics editor, Chris Giles, flags up that students graduating next summer may suffer from Brexit uncertainty:

He also shows that consumer confidence has been knocked back.

Updated

More gloom. Two-thirds of the companies that took part in Credit Suisse’s survey are planning to postpone or reduce spending in the UK in the next six months.

As this chart shows, Brexit has overtaken the Chinese economy and emerging markets as the most concerning issue for companies.

Credit Suisse corporate spending survey
Credit Suisse corporate spending survey. Photograph: Credit Suisse

Updated

Brexit hits UK hiring and spending

Take note, Tim Martin.

A new survey of UK corporate chiefs has shown that – as feared – the Brexit vote has hurt business confidence, badly.

Credit Suisse says corporate sentiment has “deteriorated out of all recognition” since 23 June. For the first time since 2013, more companiesexpect to cut spending, rather than raise it.

Research shows that some businesses have trimmed hiring and spending plans already.

Many others have put their plans on hold until they have clarity on the UK’s relationship with the EU.

Perhaps this is why Mark Carney warned that Brexit was the biggest single threat to UK financial stability?

Updated

Shares in discount chain Poundland have rocketed up after it agreed to be taken over by South Africa’s Steinhoff this morning.

The deal values Poundland at £597m, a chunky figure, but one that is worth about 10% less in global terms following the Brexit vote.

Weak sterling makes UK companies more attractive to overseas buyers, so we could see a spike in mergers and takeovers.

Updated

Sterling lifted by Theresa May

The pound is pushing higher today, thanks to the prospect of Theresa May taking the reins of power.

Sterling rose above $1.33 against the US dollar for the first time in more than a week, extending its best rally in two (turbulent) months.

May’s promise to make a success of Brexit has reassured investors, who fear years of uncertainty over the UK’s relationship with the EU.

But Britain still faces a lot of upheaval.

Christopher Vecchio, a currency analyst at DailyFX, worries that businesses will cut back until the picture is clearer.

Her leadership means a faster pace to Brexit and the triggering of article 50, but faster is a relative term. She will certainly be faster and more aggressive compared to Cameron, but she will still have to work through parliament to gain a majority vote to trigger article 50. And, while it is true that the majority of parliament is of her party [331 out of 650 MPs], there were many Tories who were not for Brexit. She would have to rally not just other parties, but hers as well. A difficult task ahead indeed, with 463 MPs having said they were for remain, versus the 150 MPs who said they were for leave ahead of the June 23 vote.

Needless to stay, the path to Brexit is all but clear, even as May emerges from the UK political fracas as the next prime minister. The state and structure of the UK’s relationship in the EU won’t be clear for a long while, and businesses simply can’t afford to wait that long. Markets may be calmer today, but a lack of political clarity in the UK will weigh on the British pound, which now has implications for risk markets globally.”

Updated

Martin: Brexit is a new Magna Carta

City results statements are usually pretty dry. But Wetherspoon has bucked the trend today by including a long declamation from Tim Martin on the EU referendum.

Following his attack on the pre-referendum Brexit warnings, Martin outlines how the vote to leave the EU is a moment of democratic renewal, nay, a new Magna Carta (!) for the modern age that will see democracy reborn.

For example ...

On the specifics, Martin takes the familiar leave campaign line that Europe is bound to make a good trade deal with Britain as we are such a key customer. He also hopes that tariffs with non-EU countries will fall – apparently these are pushing up the cost of Wetherspoon’s wine.

He concludes by echoing George Orwell and Franklin D Roosevelt – not the usual FTSE 250 fare.

Democracy, prosperity and freedom are inextricably linked. The EU is heading down an increasingly autocratic path, which has already caused severe economic problems in most of southern Europe, and risks further contagion on the continent. Brexit is a modern Magna Carta, reasserting democratic control in the UK. It is up to UK citizens now to participate in formulating policies based on free trade with Europe and the world, an enterprise economy and sensible immigration policies, with parliamentary control.

As one US president said, ‘we have nothing to fear but fear itself’. But Big Brother in Brussels is no longer in charge. The world is our oyster, provided we think clearly, debate strongly and prevent the paranoia and hyperbole of the referendum process from clouding our judgement.

Such oratory is wasted in the City. Perhaps Tim Martin should run for parliament ...

Updated

JD Wetherspoon attacks Lagarde, Carney, Osborne ...

Tim Martin.

Tim Martin, the chairman and founder of pub group JD Wetherspoon, has launched a stinging attack on the “doom-mongering” from economists and global organisations ahead of the EU referendum.

Martin used his company’s latest financial results to dismiss warnings of economic disaster following the Brexit vote last month, which he claims were over the top.

He singles out the IMF managing director, Christine Lagarde, who reckoned that the consequences of Brexit would be “pretty bad, to very, very bad”, and the Bank of England governor, Mark Carney, who is facing criticism from leave-supporting MPs for voicing his worries about Brexit.

Martin also criticises the chancellor, George Osborne, for threatening a punishment budget, concluding:

“Unbeknown to most voters, one of the ‘architects’ of the remain campaign, which devised the above approach, was Peter Mandelson, who worked closely with Cameron, Osborne and others.

In my opinion, the above individuals and organisations are either dishonest, or they have a poor understanding of economics, since democracy and prosperity are closely linked, and the EU is clearly undemocratic. By voting to restore democracy in the UK, I believe the UK’s economic prospects will improve, although it is quite possible that the unprecedented and irresponsible doom-mongering, outlined above, may lead to some kind of slowdown.

In spite of the dire warnings above, Wetherspoon trade strengthened slightly in recent weeks and we consequently anticipate a modestly improved outcome for this financial year. Caution should be exercised in extrapolating current levels of sales growth for future years.

Punchy stuff. I’d be wary, though, of using Wetherspoon’s trading figures as the definitive measure of economic conditions. There’s more to the economy than pints and curries.

For the record, Wetherspoon’s like-for-like sales are up by 4% in the past 11 weeks.

Updated

Introduction: May day brings calm to the markets

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

There’s a sense of stability in the City this morning, as the Brexit angst of recent weeks ebbs.

With Theresa May set to become Britain’s new prime minister by dusk, investors have a little more certainty about the UK’s political situation. So the pound is continuing to rally, while the FTSE 100 is expected to open near the 11-month high set this week.

We’re also getting financial results from fashion group Burberry, pub chain JD Wetherspoon and building group Barratt Developments.

The Poundland discount chain is being acquired by South African retail group Steinhoff in a £597m deal.

Updated

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