Closing summary
OK, time for a recap.
A flurry of disappointing data have fuelled fears that Britain’s economy is struggling to gain momentum.
Growth in the service sector slowed to a four-month low in June, with companies blaming political uncertainty created by the general election and Brexit.
Firms warned that they are facing higher costs, and struggling to find enough skilled workers.
Markit, which compiled the report, says:
UK service providers indicated another slowdown in business activity growth during June, which largely reflected the weakest upturn in new work since September 2016.
Survey respondents commented on subdued business and consumer confidence, alongside some instances of delayed decision- making around the election.
City experts say the figures show that the economy is faltering, just as Europe strengthens.
Jasper Lawler of London Capital Group summed up the mood:
Falling confidence in the service sector is compounded by the weakness in manufacturing reported on Monday.
Rising prices will always slow consumption but it was hoped the advantage of a weaker currency to manufacturing would be a positive offset.
Sterling managed to wind back some of its early loses because in the bigger picture, expectations are building that the Bank of England’s next move will be to lift rates.
In another blow, productivity across the UK has dropped by 0.5%, taking it back below the pre-crisis level, and highlighting the underlying weakness of the economy.
ICAEW public sector director Ross Campbell says the government needs to act carefully to boost productivity.
“Productivity shouldn’t be used as a buzzword simply to keep businesses happy.
There have been signals from Government that we are likely to see an end to austerity and therefore a possible increase in public spending. With the economy still in a fragile state, it’s imperative that any increased expenditure is allocated to areas that will help to drive economic growth - infrastructure, training, and fiscal stimulus.”
UK car sales have dropped for the third month running, falling by 4.8% in June.
The industry body, the SMMT, blamed recent tax changes that encouraged people to buy new cars before April. However, economists say the slide shows consumers are cutting back.
It’s quite a contrast with the eurozone, where private sector companies have posted their strongest quarter in six years. Companies in Germany, France, Spain and Italy all reporting solid expansion last month.
#Eurozone economy enjoyed best quarter for over 6 years during Q2; final Composite #PMI Output Index at 56.3 in Jun https://t.co/u1trgAVHxR pic.twitter.com/nd8SdpJw6I
— Markit Economics (@MarkitEconomics) July 5, 2017
In happier news, Scotland has avoided falling into recession. New figures show that Scottish GDP expanded by 0.8% during the first three months of 2017. Union leaders, though, warn that the growth is build on underpaid workers.
In other news...
Sainsbury’s has faced criticism at its AGM for abandoning Fairtrade tea; campaigners have warned that the whole Fairtrade movement could suffer.
UK payments giant Worldpay has agreed terms of a takeover by US rival Vantiv. Worldpay’s shares have slumped by 8.5% since the news broke, on disappointment that a bidding war with JP Morgan won’t take place.
That’s probably all for today. Thanks for reading and for all the comments. GW
IMF: World leaders must avoid protectionism
Newsflash from Washington: the International Monetary Fund has warned world leaders to avoid ‘myopic’ trade policies.
It looks like a none-too-subtle jab at president Trump, ahead of the G20 leaders meeting later this week.
Greece’s summer of discontent is hearing up.
After striking rubbish collectors, guards at Greece’s plethora of archaeological sites and museums are gearing up for a fight with prime minister Alexis Tsipras’ government.
Helena Smith reports from Athens.
Culture ministry employees seconded to guard museums and archaeological sites announced they will walk off the job Thursday to press demands for better work conditions, including permanent positions. The strike, at the height of the tourist season, will keep all sites and museums closed including Athens’ most visited monument, the 5th century BC Acropolis.
In a statement, the employees’ union said it wanted the Greek prime minister “to immediately realise his promise” to hire 200 extra guards at sites where understaffing was leading “with mathematical precision” to either closure or safety issues.
The Acropolis and other gems are expected to remained closed for several hours on Thursday morning.
Culture ministry budgets have suffered greatly under the cuts demanded by international creditors keeping Greece’s debt-stricken economy afloat. The leftist-led government, though sympathetic to the plight of employees who are also demanding overtime, is stuck between a rock and hard place in terms of satisfying demands that run counter to the tough strictures of creditors.
US factory orders miss expectations
Newsflash: US factory orders shrank by 0.8% in May, a worse performance than expected.
That’s the second monthly decline, after April’s 0.3% decline. It suggests America’s manufacturing sector may be slowing.
US factory orders decline 0.8% in May. This after Durable Goods fell 1.1%. #Economy not looking good.
— Daryl Montgomery (@nyinvesting) July 5, 2017
American investors looking at Ireland as a beachhead into the European market believe the Trump administration may have more impact on their decision making than Brexit.
That’s according to Republic’s Industrial Development Authority (IDA) today.
Marking the news that more than 11,000 new jobs were created by IDA-backed foreign direct investments in the first half of this year, the IDA’s CEO Martin Shanahan said “geopolitical instability is the main threat that clients see” affecting their business performances in Ireland over the next two to three years.
Referring to the upturning in FDI jobs in Ireland, Shanahan said:
“The positive results are an indication of just how important Ireland’s stable economic and political environment have become for investors.
The twin challenges of both Brexit and a new US Administration have presented investors with much to think about.
Indications suggest that investors believe that the new US administration may have more of an impact than Brexit.”
The government will be worried by the disappointing slide in UK productivity, which shank by 0.5% in the first three months of this year.
Poor productivity usually leads to lacklustre growth, and ultimately weaker tax receipts; not ideal, if you’re facing pressure to abandon austerity and end the public sector pay freeze.
Sky News’s Ian King has a good take:
What will worry ministers almost as much are the sectoral and regional breakdowns provided by the ONS.
It reports that in the manufacturing sector, output per hour actually improved by 0.2% during the quarter.
However, in the services sector, output per hour fell by 0.6%.
This has a bigger impact overall because the services sector accounts for around four-fifths of all UK economic activity.
On a more encouraging front, productivity in the public sector was 3% higher in 2016 than in 2010, suggesting that the public sector has become more efficient in the face of spending cuts in some sectors.
The regional and industry differences present a mixed picture.
London and the South East remain the most productive parts of the UK, thanks to the high levels of financial services activity there, a factor that has helped make Scotland more productive than some other parts of the UK economy.
The North East of England, a region long associated with industrial stagnation, also scores relatively highly thanks to high levels of what the ONS calls “non-manufacturing production”.
But other parts of the economy, notably Wales and Northern Ireland, score poorly.
Productivity in the UK has suffered its first quarterly fall since the last three months of 2015. Words from me herehttps://t.co/ld1s6XvMf0
— Ian King (@IanKingSky) July 5, 2017
If you’re just tuning in, here’s our news story about the slowdown in UK service sector growth:
Slowing growth across Britain’s services companies in June completed a “triple whammy” of disappointing economic news this week that also saw growth in the construction and manufacturing industries fade in response to Brexit uncertainty and weak consumer confidence.
Activity in the services industry, which accounts for almost 80% of economic activity, fell to a four-month low in June, dragging down the all-sector IHS Markit/CIPS purchasing managers index (PMI) from 54.5 in May to 53.9 in June, the lowest since February.
Some analysts said the weak set of figures indicated a broad softening in activity across the economy that was likely to dent the enthusiasm of Bank of England policymakers who have proposed increasing interest rates.
Earlier this week, monetary policy committee members Michael Saunders and Ian McCafferty said persistent inflation and strong employment growth needed to be calmed by higher interest rates. Chief economist Andy Haldane recently indicated that he could vote for a rise later this year should the economy continue to expand.
Chris Williamson, Markit’s chief business economist, said: “A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings.
“Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it’s clear that the economy heads into the third quarter losing momentum.”
And here’s the full story:
Fairtrade protests at Sainsbury's AGM
Supermarket chain Sainsbury is facing criticism at its Annual General Meeting today, after it decided to replace fair trade teabags with a new “Fairly Traded” label.
Last week, Sainsbury announced it is introducing its own in-house certification scheme, set new ethical standards and introducing a different way to pay farmers.
Campaigners are warning today that the move risks undermining the whole Fairtrade movement; the well-respected ethical certification scheme which was set up to give farmers in developing nations a better deal, and protect workers rights in some of the poorest parts of the world
My colleague Sarah Butler is tweeting from the AGM in London:
Shareholders challenging Sains on pilot of stopping Fairtrade tea own label.
— Sarah Butler (@whatbutlersaw) July 5, 2017
Lady from Cafod: concern Sains starting direction that will undermine Fairtrade and lead to plethora of standards, confusion for shoppers
— Sarah Butler (@whatbutlersaw) July 5, 2017
But chief executive Mike Coupe is defending the decision, claiming fair trade needs a reboot:
Coupe: Sains has tried working with Fairtrade and found not able to dev system with best economic, social, env outcomes for money investing
— Sarah Butler (@whatbutlersaw) July 5, 2017
Coupe suggesting Fairtrade out of date: "it might have been fit for purpose 25 yrs ago but we are in a new world with new technology"
— Sarah Butler (@whatbutlersaw) July 5, 2017
Oxfam has organised a protest outside the AGM, involving ‘human teabags’ in an attempt to sway shareholders and board members.
Matthew Spencer, Oxfam’s Campaigns, Policy and Influencing Director, argues that Sainsbury’s ‘fairer trade’ plan will give tea farmers a worse deal:
“Fairtrade is a lifeline for many of the most vulnerable communities helping them educate their children and provide vital healthcare.
“Sainsbury’s is removing what little control some of the poorest tea farmers and producers have on how they spend the money they make, shifting decisions to a committee far away in London. This power grab turns an effective trade partnership into old school charitable grants. We urge Sainsbury’s to stick with the gold standard Fairtrade mark, which is trusted around the world.”
JP Morgan pulls out of Worldpay battle
Newsflash: JP Morgan is taking its ball home, rather than battling to take control of Britain’s Worldpay.
In a brief statement, JP Morgan says that it doesn’t intend to bid for the company:
JP Morgan Chase & Co. (“J.P. Morgan”) notes the announcement by Worldpay Group plc (“Worldpay”) on 4 July 2017. In response to an invitation from Worldpay, J.P. Morgan was at a very early stage in considering whether or not to make an offer or the terms of any offer for Worldpay.
Following preliminary considerations, J.P. Morgan hereby announces that it does not intend to make an offer for Worldpay. J.P. Morgan continues to hold Worldpay in high regard.
This leaves the field clear for Vantiv to complete its offer of 385p per share, announced a few minute ago.
And shares in Worldpay have just fallen back to 383p, down 6% today, as the prospect of a juicy bidding war withers away.
Just in: UK payments firm Worldpay has agreed to be taken over by US rival Vantiv in a £7.7bn deal.
Yesterday, FTSE 100-listed Worldpay revealed that it had received two separate bids, one from Vantiv and one from JP Morgan.
The Vantiv deal (terms here) values Worldpay at £3.85 per share (including a 5p dividend), which is a 19% premium on their value on Monday.
However... Worldpay’s shares are trading around 406p right now, indicating that the City believe there could be a bidding war.
Updated
Scotland dodges recession as growth outstrips rest of UK
The Scottish economy has avoided a recession after the latest GDP figures showed growth of 0.8% in the last quarter to March 2017.
Alarm about its prospects had deepened after the economy shrank by 0.2% in the previous quarter, leaving Scotland’s economy trailing that of the UK as a whole. But the economy has bounced back in January-March.
Nicola Sturgeon, the first minister, tweeted that the country’s economy outperformed the UK’s 0.2% for the last quarter.
Scottish economy grew by 0.8% in first quarter of 2017 - compared to UK growth in same quarter of 0.2%. https://t.co/0srD0HzHmE
— Nicola Sturgeon (@NicolaSturgeon) July 5, 2017
With Scotland’s construction sector still contracting, a 4% growth in manufacturing and 3.1% growth in production help lift the overall figures, with chemicals including refined petroleum, and metals, driving those up.
Sturgeon said that the Scottish government’s intervention to help save the Dalzell steel plant had helped boost GDP.
Part of Q1 GDP growth in Scotland down to resumption of steel production at Dalzell - saved with the help of @scotgov intervention.
— Nicola Sturgeon (@NicolaSturgeon) July 5, 2017
However, on an annualised basis Scotland’s growth stood at 0.7%, still lagging substantially behind the UK’s.
Economists at the Fraser of Allander Institute said last week this sluggish growth was due to wider problems with Scotland’s economy, and not just the effects of the slump in oil prices.
John McLaren, an economist with Scottish Trends, said the latest figures showed Scottish growth had reached 1.2% over the past two years against 3.5% for the UK as a whole.
Grahame Smith, general secretary of the Scottish TUC, said more urgent and substantial action was need to boost the economy, including scrapping the public sector pay cap.
Smith argues:
“Growth rates in Scotland have been low for several years and what growth there has been has in part resulted from hard pressed workers building up more debt and exhausting their savings. This is clearly unsustainable.
“If steps are not taken to boost investment and demand and to prevent irresponsible private lending from destabilising the economy, another crash and recession is just round the corner.”
Sam Hill, Royal Bank of Canada’s senior UK Economist, agrees that business confidence has been dented by the maelstrom in UK politics.
On this week’s PMI reports, he says:
The mid-month surveys will have been conducted in a period of political uncertainty, following the hung parliament general election result and the start of formal Brexit negotiations.
This may have contributed to an easing in the business expectations components of the surveys. For example, there was a 4.4-point drop in that part of the service PMI, leaving it 1.3 standard deviations below the long-run average.
RBC predicts that the UK economy grew by 0.4% in the April-June quarter.
That would be an improvement on the first quarter, when growth slowed to 0.2%, but still below trend.
Here’s some food for thought, from Scott Corfe, chief economist at the Social Market Foundation:
The UK’s productivity problem: if we were at trend a full-time (Mon-Fri) worker could take Friday pm off and still produce 8% more each week pic.twitter.com/1OOKazO7YV
— Scott Corfe (@ScottCorfe) July 5, 2017
The slowdown in UK service sector growth in June was “disappointing, but hardly surprising”, says Howard Archer, chief economist at the EY Item Club.
“Following on from weaker manufacturing and construction surveys, the softer services PMI points to an already fragile economy struggling in June as heightened uncertainties about the UK outlook fuel business and consumer caution.”
Archer singles out the fall in new business growth, to a nine-month low, as a particular concern:
Uncertainty appears to have caused some companies to limit or delay spending. Meanwhile, consumer-facing services companies continue to be hampered by squeezed purchasing power.
The fall in UK productivity last quarter should send alarm bells ringing in Westminster, says Ian Brinkley, acting chief economist at the CIPD:
“Today’s figures should act as a very sharp reminder to Government that Brexit is not the only challenge facing the UK. Unless more is done to tackle the nation’s low productivity, people’s wages and living standards will continue to fall and the UK will be ill-equipped to compete once we do leave the EU.
“Government must urgently review its productivity plan and ensure that its industrial strategy includes a much stronger focus on boosting investment in skills and efforts to boost managerial quality in partnership with employers, professional bodies and unions at a national, sector and local level.”
Steve Hill, external engagement director at The Open University, argues that better staff training is the key:
“As the UK’s productivity continues to fall,it’s crucial that organisations invest in talent.
The current skills gap is holding back business growth. Employers are struggling to recruit workers with the right skills and are paying inflated salaries and enhanced recruitment costs as a result.
“The Apprenticeship Levy presents an opportunity for organisations to build better skills from within, developing a more efficient, engaged and productive workforce. Faced with a shrinking talent pool, organisations need agile and adaptable workers who can embrace change and meet new challenges.”
Ian Jones of the Press Association shows how productivity has been stagnant for a decade:
UK productivity is (once again) back below the level it was pre-crash. We're heading for an entire decade of stalled growth. pic.twitter.com/uqqRHBPCre
— Ian Jones (@ian_a_jones) July 5, 2017
This is from BBC personal finance correspondent Simon Gompertz:
To people who are asked to work ever harder for low wages, being told that the UK has a productivity problem feels like a slap in the face
— Simon Gompertz (@gompertz) July 5, 2017
UK productivity falls
I hate to bring even more bad news... but Britain’s productivity has fallen.
UK labour productivity, as measured by output per hour, declined by 0.5% in the first three months of this year, according to new figures from the Office for National Statistics.
It’s the first fall since the end of 2015, and it highlights the underlying problems in the UK economy.
Productivity in the services sector shrank by 0.6%, wiping out the benefits of a 0.2% rise in manufacturing productivity.
As this chart shows, productivity has been persistently, and disappointing, weak since the financial crisis:
Britain’s productivity is much weaker than the US, France or Germany, as our workers have to put in more hours to achieve the same economic output.
It’s called the “productivity puzzle”, because economist can’t agree what’s caused it.
One factor is that more people are being employed in low-paid, insecure jobs, where they produce relatively little economic output. Another theory is that companies have resisted buying expensive machinery that would boost productivity, preferring to employ more people instead.
Whatever the reason, it suggests that something rather nasty happened to the UK economy a decade ago when the financial crisis struck./
UK productivity edges back down below Q4 2007 peak in Q1 2017. Full lost decade almost here... pic.twitter.com/RbR9kLTW8f
— Ben Chu (@BenChu_) July 5, 2017
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Duncan Brock of the Chartered Institute of Procurement & Supply blames political uncertainty for the drop in UK service sector growth last month.
“A creeping doubt appears to be the cause of this month’s below par performance as the UK’s departure from the EU and the unpredictable political climate continues to impact on consumers and businesses alike.
“Strong growth in new orders and overall activity was destabilised by a reduction in business optimism, which fell to one of the lowest levels since 2011.
Despite the slowdown, service sector companies kept hiring staff last month.
However... some reported that it was difficult to find workers with the skills they need.
In another blow, UK service sector companies were hit by a steep increase in their costs in June.
Markit explains:
Greater operating costs were linked to a combination of rising staff salaries and increased raw material prices (particularly food and imported items).
Survey respondents noted that intense competition for new work continued to place pressure on pricing power. Reflecting this, the latest rise in average prices charged by service providers was the slowest since July 2016.
Service sector slowdown: Snap reaction
Ed Conway of Sky News says this morning’s data paints a worrying picture of the UK economy:
Poor economic tidings today: car sales dropping, services sector weakening, productivity falling. Paints picture of a stuttering economy
— Ed Conway (@EdConwaySky) July 5, 2017
Duncan Weldon of Resolution Group points out that Britain’s economy is lagging, just as the eurozone posts its best quarter in six years:
Shorter PMIs: UK economic momentum is slowing, Eurozone accelerating.
— Duncan Weldon (@DuncanWeldon) July 5, 2017
Chris Sood-Nicholls, managing director and head of global services at Lloyds Bank Commercial Banking, says the “uncertain political backdrop” is hurting UK firms:
Many businesses may have delayed investment decisions in the face of an ambiguous political landscape.
“The continued rise in inflation and the general uncertainty is denting consumer confidence which may impact on demand. The question remains as to how much businesses will be looking to invest during the rest of the year to help stimulate demand.
Markit: UK's economic resilience is being tested
This week’s disappointing PMI surveys suggest that the UK economy will slow over the summer, warns Chris Williamson of Markit.
Here’s his take on this morning’s data:
“A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings. Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it’s clear that the economy heads into the third quarter losing momentum.
“With business optimism having been hit by the intensification of political uncertainty following the general election and commencement of Brexit negotiations, at the same time that households are battling against rising inflation, the indications are that the economy’s resilience is being tested.
“There are pockets of growth, notably in financial services and business services, but the overall picture is one of business spending, investment and exports failing to provide sufficient impetus to fully offset the consumer slowdown.
“Given the deterioration in the forward-looking indicators, such as business optimism and order book growth, the risks are tilted towards the economy slowing in the third quarter.”
A hattrick of bad PMIs
The service sector slowdown is the third piece of disappointing UK economic news this week.
A reminder:
- Monday: UK manufacturing PMI dropped to 54.3, from 56.3
- Tuesday: UK construction PMI dropped to 54.8, from 56.0
- Wednesday: UK services PMI drops to 53.4, from 53.8
Now, all those PMI figures are over 50, which indicates that Britain’s private sector kept growing.
But there are some chunky falls, particularly in the factor data, which suggest June wasn’t a great month for the economy -- especially as we know that car sales fell too....
Business optimism hit by Brexit blues
Worryingly, today’s report also shows that UK business optimism has fallen to its weakest level since last summer’s EU referendum.
Markit says:
Aside from the post-referendum dip last summer, the level of business optimism was the weakest since December 2011.
Survey respondents cited anxiety related to the Brexit negotiations, alongside worries about the general economic outlook and heightened political uncertainty.
Updated
UK service sector growth hits four-month low
Breaking: Growth in Britain’s service sector has slowed to its lowest in four months, according to data firm Markit.
Service sector companies, who make up around of the 80% of the UK economy, have reported that they experienced subdued business and consumer confidence in June.
Some blamed delayed decision-making due to June’s general election, and the uncertainty over Britain’s exit from the European Union.
This pulled the UK Services PMI down to 53.4, down from 53.8 in May.
That’s still over the 50-point mark that signals if the sector is expanding or contracting.
Many firms reported that new business growth slowed in June; a sign that political uncertainty is hitting the economy.
Markit says:
The slowdown in business activity growth in June was linked to a softer rise in incoming new work across the service economy. Moreover, the latest increase in new work was the weakest for nine months.
Anecdotal evidence cited Brexit-related risk aversion and heightened economic uncertainty as key factors holding back client spending.
More to follow....
Updated
Graham Hiscott, business editor of the Mirror, says weakening consumer spending is hitting the car industry:
New cars sales fell for the third month in a row, with demand for diesels diving 14.7%, says @SMMT. More evidence of consumer slowdown.
— Graham Hiscott (@Grahamhiscott) July 5, 2017
Howard Archer of the EY Item Club agrees that April’s tax changes are a factor (there’s a good explanation here on Auto Express)
#SMMT report #UK new #car sales down 4.8% y/y in Jun. Third successive fall after strong Q1 when some sales brought forward by VED changes
— Howard Archer (@HowardArcherUK) July 5, 2017
Car sales to UK individuals, rather than businesses, shrank by nearly 8% in June.
Sam Tombs of Pantheon Economics predicts further falls in the month ahead.
He’s tweeted a graph, showing how consumer confidence can be a leading indicator for the car market (he’s shifted the consumer confidence figures ahead by six months)
UK private new car sales down 7.8% y/y in June and down 4.8% y/y in H1 overall. The slump in consumer confidence signals further falls ahead pic.twitter.com/wdue5GRXIw
— Samuel Tombs (@samueltombs) July 5, 2017
Diesel car sales fell particularly sharply last month, by almost 15%.
Chris Giles of the FT says the figures are a concern:
New car sales beginning to look rather sickly pic.twitter.com/zhY0JaIZMi
— Chris Giles (@ChrisGiles_) July 5, 2017
UK car sales fall again
Breaking: UK car sales have fallen for the third month running.
Car registrations declined by 4.8% in June, new figures from the Society of Motor Manufacturers and Traders show. That means that sales so far this year are down by 1.1%, following steeper falls in April and May.
The SMMT blames recent tax changes for the fall. It says there was “market turbulence’ as drivers rushed to buy vehicles in March before new vehicle excise duty changes pushed up the cost of running many cars.
Mike Hawes, SMMT Chief Executive, says the drop in car sales isn’t a cause for alarm.
“As forecast, demand for new cars has started to cool following five consecutive years of solid growth but the numbers are still strong and the first half of the year is the second biggest on record.
Provided consumer and business confidence holds, we expect demand to remain at a similarly high level over the coming months.
But... this decline may be a signal that consumers are being more cautious, or struggling to cope with rising inflation.
I’ll pull some more reaction together now.
Eurozone service sector growth slows, but still strong
It’s official: The eurozone private sector has posted its best quarter since 2011, despite a slight slowdown in June.
That’s according to this morning’s service sector data from Markit, plus manufacturing surveys released on Monday.
Markit reports that its service sector PMI dropped to 55.4 last month, down from 56.3 in May.
That drags the ‘composite PMI’, covering the whole private sector, down to 56.3 from 56.8.
That’s comfortably over the 50 point mark that separates expansion from contraction. Firms reported that new work kept rolling in, boosting business confidence and leading to strong job creation.
Chris Williamson of Markit says the figure suggest the eurozone economy grew by an “impressive” 0.7% in the second quarter of this year.
The dip in the PMI in June certainly doesn’t look like the start of a slowdown. Growth of new orders accelerated very slightly to reach the second- highest in just over six years, and companies are struggling to satisfy this increase in demand.
“Operating capacity is being strained despite the region seeing the best spell of employment growth for a decade in recent months.
“Rising demand is also boosting firms’ pricing power, both for goods and services. While price pressures have cooled since earlier in the year, linked mainly to lower global commodity prices, this is still the strongest period of inflationary pressure that the region has seen for six years.
Germany’s service sector growth slowed to a five-month low in June:
#Germany Markit Services PMI Final at 54 https://t.co/67ci1U6XhK pic.twitter.com/lh3NnjLW0J
— Trading Economics (@tEconomics) July 5, 2017
French firms are still basking in the afterglow of Emmanuel Macron’s victory.
France’s services PMI has hit 56.9 for June, only slightly down on May’s 70-month high of 57.2. Firms reported a jump in new business, which meant they hired new staff at the fastest rate since March 2008.
Alex Gill of Markit says the future looks positive for France:
“As was the case in May, employment was a key talking point in June, with the rate of job creation the sharpest in over nine years. Robust client demand and a strong degree of optimism are likely to lead to further jobs growth over the coming months.”
Italy is next.... and its service sector growth has also slowed.
The Italian services PMI has dropped to 53.6, down from 55.1 in May. That’s lower than expected, but still firmly in ‘expansion’ territory.
After a rollicking couple of years, Ireland’s service sector took a little breather last month.
The Irish Services PMI came in at 57.6 in June, a seven-month low, down from 59.5 in May. But that’s still a pretty impressive figures, with firms reporting that new orders kept rising as client demand picked up.
In the City, shares in housebuilder Persimmon have jumped by 3.5% to the top of the FTSE 100 leaderboard after posting strong financial results this morning.
Persimmon completed 8% more houses in the first half of 2017 than a year ago, and grew its revenues by 12%.
The company, which is Britain’s second-largest builder, bullishly told shareholders that business is pretty good:
“We have continued to experience good levels of customer demand… with the market taking the snap UK general election in its stride.
Consumer confidence remains resilient and compelling mortgage rates continue to offer good support to new home buyers.”
Spanish service sector growth hits 22-month high
Olé! Spain’s service sector has just posted its fastest growth in almost two years, as its recovery continues to build.
The Spanish Services PMI has jumped to 58.3, up from 57.3 in May - a level showing strong growth. That’s the best reading since August 2015.
Spanish firms reported that growth in new business accelerated, job creation was the fastest in a year, and business optimism was high.
Encouragingly, almost a quarter of the firms surveyed said they’d taken on extra staff in June, partly because they’re optimistic about their future workload.
That could help to pull down Spain’s jobless rate - the second highest in the eurozone, after Greece.
Andrew Harker, Senior Economist at IHS Markit, says the
“The Spanish service sector ended the first half of 2017 with a flourish, with PMI data for June signalling the strongest increases in output and new orders for almost two years and employment growth picking up as well.
Firms also took advantage of strong demand conditions to raise their selling prices and provide a welcome boost to profit margins. Companies see little reason to doubt the sustainability of the upturn at present, reflected in our business confidence data remaining around the highest seen over the past two years.
This morning’s UK service sector report will be “critical” for sterling, says Kathleen Brooks of City Index:
A weaker than expected services sector PMI could see GBP/USD lose more momentum, which ironically may be good for the FTSE 100.
This pair fell sharply on Monday after the worse than expected manufacturing PMI report for June, since the services report is more relevant for the UK economy then the pound reaction could be bigger if we get another data miss.
Overnight, we’ve seen that China’s service sector slowed as firms were hit by subdued demand.
The China Caixin services purchasing managers’ index (PMI) dropped to 51.6, from May’s 52.8 (a four-month high).
Some businesses reported a drop in new orders, suggesting Beijing efforts to clamp down on cheap credit may be cooling the economy.
Signs of slower growth in #China services activity adds to sluggish manufacturing output. Services #PMI at 51.6. https://t.co/XNMKefyrsP pic.twitter.com/zRHlfnRGrK
— Markit Economics (@MarkitEconomics) July 5, 2017
Reuters has jumped the gun, and is reporting that ‘preliminary data’ shows that UK car sales fell again last month.
They write:
British new car registrations fell by around 5% last month year-on-year and overall sales for the first six months of the year dropped by 1%, according to preliminary data from an industry body.
The Society of Motor Manufacturers and Traders will release the full numbers at 0800 GMT [9am UK time].
UK new car sales drop around five percent in June - preliminary data https://t.co/JeE2Wm6vWM pic.twitter.com/eMPI4lMPSx
— Reuters UK (@ReutersUK) July 5, 2017
Updated
The agenda: UK economy in focus
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Britain’s service sector makes up around 80% of the economy, from hotels and restaurants to haulage firms, accountants, and IT companies. So investors are nervously waiting to discover how they fared in June, and if last month’s general election had any impact.
Data firm Markit’s monthly service sector PMI, due at 9,30am, is expected to drop to 53.5 from 53.8 in May.
That would show that growth slowed last month, (50 being the cut-off point between expansion and contraction), and reinforce concerns that the economy is suffering from political uncertainty.
RBC Capital Markets say:
As with the earlier manufacturing and construction surveys, we expect to see some pull back in the services PMI this month; to 53.5 from 53.8 previously as the uncertainty caused by the general election result impacts on the predominantly domestically-focused sector.
Even allowing for the weaker readings in the other sectors, an outcome in line with that expectation would still leave our PMI-based indicator pointing to GDP growth of 0.4% q/q though it would also reinforce the signals from those other sectors of the economy losing some momentum at the end of the quarter.
The PMIs are calculated by asking purchasing managers across the country how their business is performing, so it’s a useful snapshot of the situation. Given the size of the service sector, it could shift the pound - which is hovering around $1.291 his morning.
Watching the #UK #PMIservices at 9:30am London time. #GBPUSD pic.twitter.com/hI5c9EFdlp
— Ipek Ozkardeskaya (@IpekOzkardeskay) July 5, 2017
There’s also a flurry of other service sector reports from around the world today, including several European countries during the next couple of hours.
City investors are also bracing for the latest UK car sales figures, due this morning. Sales fell in April and May (partly due to tax changes) so June’s figure are nervously awaited.
A third fall would fuel fears that consumers are cutting back on big-ticket items (and perhaps show that the Bank of England should hold fire on interest rates).
On the corporate front, online supermarket chain Ocado and housebuilding group Persimmon are reporting results to the City.
The agenda:
- 9am BST: Eurozone service sector PMI for June
- 9am BST: UK car sales figures for June
- 9.30am BST: UK service sector PMI for June
- 10am BST: Eurozone retail sales for May
- 3pm BST: US factory orders for May
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