Closing summary
Time for a recap.
Britain has been hit by a flurry of weak economic data, that undermines confidence that its economy is recovering from its winter slowdown.
New figures show that:
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UK manufacturing output fell by 1.4% in March, the worst performance since 2012
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The trade gap widened to a 19-month high, at £5.3bn
- Construction output posted another quarter-on-quarter decline.
Economists warned that Brexit uncertainty may now be biting, making it harder for UK firms to win new business abroad.
The drop in manufacturing output was driven by weaker demand for steel and electrical machinery.
My colleague Larry Elliott says the figures are troubling:
The manufacturing figures from the Office for National Statistics are troubling for three reasons. First, surveys had suggested a much better performance. Second, the 0.5% drop in production in the three months ending in April makes forecasts of a strong bounce-back from tepid growth in early 2018 look premature.
Third, even if signs are correct that consumer spending is picking up because of falling inflation, the UK will have reverted to its old pattern of growth after a short interlude in which activity was better balanced.
The markets have shrugged off last weekend’s fractious and unconstructive G7 meeting, which saw Donald Trump fall out spectacularly with Canada’s Justin Trudeau in a post-meeting tweet storm.
Trump has now declared that trade should be truly reciprocal, as he continues to criticise other nations for their tariffs even as he threatens more of his own.
European stock markets are all up in late trading, led by Italian optimism that its new government will not consider leaving the eurozone.
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FTSE 100: Up 50 points or 0.66% at 7731 points
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German DAX: Up 53 points or 0.4% at 12,819 points
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French CAC: Up 23 points or 0.4% at 5,473
- Italy’s FTSE MIB: Up 738 points or 3.4% at 22,094
EURO ZONE BANKS INDEX EXTENDS GAINS, UP 2.9 PCT AND SET FOR BEST DAY SINCE JULY 3 2017
— *Walter Bloomberg (@DeItaOne) June 11, 2018
European car companies have taken a hit, though, due to fears they could be hit by new US tariffs.
And it’s been another rough day for the UK retail sector, with discount chain Poundworld falling into administration. More than 5,000 jobs are on the line.
That’s probably all for today, thanks for reading and commenting. GW
Shares in European carmakers have fallen today, amid concerns that they could be dragged into a trade war between the US and Europe.
Over the weekend, Donald Trump suggested he could impose tariffs on auto imports, using the same ‘national security’ argument he’s already used for steel.
Trump told reporters that there’s an economic justification for tariffs:
“It’s economic. It’s the balance sheet. To have a great military, you need a great balance sheet.”
Any new tariffs could make it uncompetitive for European carmakers to sell cars in the US, which explains why shares are under pressure today:
However, several European carmakers including Fiat Chrysler and BMW actually have factories in America, building cars for export. New tariffs could encourage manufacturers to make more cars in the US, or it could force them to move production to cheaper sites.
Greece has won more plaudits today as Athens’ leftist-led government unveiled a multi-bill of “urgent” reforms before the Greek parliament.
The move officially launches the countdown to bailout exit in August, Helena Smith reports from Athens.
As Greece’s deputy finance minister Giorgos Chouliarakis formally presented the reforms before MPs - saying their passage would finally permit the country to exit international bailout oversight and successfully complete talks on the key issue of debt relief – Athens received what amounted to some of the highest praise, yet, from the euro group chairman himself.
After almost a decade of being dependent on international bailout funds, Greece was ready to stand on its feet again, said Mario Centeno, president of the group of euro area finance ministers.
“Greece is a different country today,” the Portuguese finance minister told a conference in Lisbon.
“Greece has the conditions to take on its own hands the process of its economic and social development, within the euro framework, and can always count on European solidarity if it sticks to the path of internal responsibility.”
The high praise came as Chouliarakis said it was vital the draft bill outlining further pension cuts, labour market reforms and privatisations in the energy domain, was voted on this week so that Greece could complete its final review by creditors in time for the next euro group meeting on June 21.
That is when Athens not only hopes to take stock of a new €12b aid disbursement – it’s last as a bailout programme recipient – but could finally embark on meaningful debt relief talks, he said. Greece’s €320bn debt mountain is by far the biggest in Europe making economic recovery impossible if it is not reduced.
Chouliarakis told MPs:
“Completion of the fourth and last review of the economic adjustment programme will permit the Euro group on the 21 June to discuss, conclude and decide on a packet of measures for the reduction of Greek debt. Consequently it should be obvious to all why the legislation is of urgent character.”
Greece’s staggering debt pile will also be the focus of talks today between German chancellor Angela Merkel and International Monetary Fund chief Christine Lagarde today.
Updated
Ding ding! Wall Street has opened calmly, as US traders take the G7 meeting in their stride.
The Dow Jones industrial average is 22 points higher, or 0.1%, with the S&P 500 and the Nasdaq also in the green (just).
Craig Erlam of trading firm OANDA says investors aren’t surprised that Donald Trump fell out (badly) with other world leaders in Quebec.
The mood in financial markets is relatively upbeat at the start of a very busy week, as investors shrug off the G7 meeting which didn’t exactly go to plan as Donald Trump rejected the prepared communique and left early.
While everyone will have hoped for a better outcome from the meeting, I don’t think anyone is surprised given Trump’s views on trade and his combative approach to the country’s allies on the issue. Perhaps it was the expectation that this was a likely outcome that has led to investors shrugging it off and turning their attention to something more interesting, and there’s certainly plenty for them to focus on in the coming days.
Newsflash: Jaguar Land Rover is moving the production of its Land Rover Discovery SUV vehicle to Slovakia, from Solihull in the UK.
JLR says it will retool its Solihull plant to handle a new generation of electric, petrol and diesel models. But there could still be job cuts at the plant, close to Birmingham in the Midlands, as the changes are made.
Kaye Wiggins of Bloomberg has more details:
Discovery production will be moved from the beginning of 2019, meaning job cuts at the Solihull plant are possible before it ramps up staffing again, the people said.
The investment, totaling hundreds of millions of pounds, according to the people, could cut both ways. While some agency-employed plant workers may lose their jobs, the decision to build electric cars at Solihull marks a major commitment to U.K. manufacturing amid uncertainty over Brexit.
Breaking: Jaguar Land Rover to move all production of its Discovery to Slovakia and re-tool its Solihull plant for a new generation of electric cars https://t.co/TPCxFX3JTx
— Kaye Wiggins (@kayewiggins) June 11, 2018
European stock markets are holding onto this morning’s gains, as traders scamper from their desks for a quick lunchbreak (or spill sandwich crumbs on their keyboards).
The European-wide Stoxx 600 is up 0.4%, thanks to rallies in London and in Italy.
Italian stocks are buoyant after finance minister Giovanni Tria has insisted that Italy remained committed to the euro.
Investors are putting the G7 meeting behind them, and concentrating on the imminent Trump-Kim summit in Singapore.
Artjom Hatsaturjants, research analyst at Accendo Markets, says.
“The FTSE has made a strong start for the week, with bullishness back in vogue in spite of a geopolitical dust-up at the weekend’s G7 Summit in Canada.
Investors appear to be writing off President Trump’s bickering with his colleagues as same old, same old (start in attack dog mode, dial back rhetoric later), perhaps more interested in the Singapore summit with North Korean leader Kim Jong Un.
UK building firms are suffering from Brexit uncertainty and the weakness of the UK pound, says Michael Thirkettle, chief executive of construction consulting and design agency McBains.
As mentioned earlier, construction output shrank by 3,4% in the three months to April. Almost every part of the sector suffered:
Today’s figures also show that total construction new orders fell by 4.6% in the first three months of this year, which will drag on output in the coming months.
Thirkettle says:
“Today’s statistics prove the construction sector is still in troubled waters with continuing uncertainties, borne from Brexit, and the poor value of sterling impacting on the cost of imported materials, meaning many UK companies are delaying investment decisions.
“The real test, however, will be in the months to come, given the uncertainty over issues like Brexit that have impacted on UK companies’ commitment to new projects over the last two years.”
UK economy grew by 0.2% in the last quarter
Yet more disappointing news: the UK economy only grew by 0.2% in the last three months, from March to May.
That’s according to the latest estimate from the National Institute of Economic and Social Research (NIESR).
It’s better than the 0.1% recorded in the first three months, but it dashes hopes of a healthy rebound from the winter slowdown. Economists had pencilled in growth of 0.3%.
Amit Kara, NIESR’s head of UK macroeconomic forecasting, says the UK is only growing half as fast as its potential growth rate, partly due to the snow in March.
Economic growth has slowed materially since the start of this year and it continues to remain weak. One reason for sluggish growth is the disruption caused by severe weather in March, particularly to the construction sector.
The latest data also shows a notable slowdown in manufacturing sector output that appears to be driven by both domestic and external conditions. By contrast, the retail sector and the dominant services sector may be recovering.
The economic "bounce back" from the first three months of the year isn't quite as bouncy as some expected. @NIESR says growth March-May a "weak" 0.2%
— Kamal Ahmed (@bbckamal) June 11, 2018
At Poundworld in Hyde in Tameside, Greater Manchester, shoppers were dismayed to hear of the chain’s demise, reports my colleague Helen Pidd.
“Oh what a shame,” said Sylvia Andrew, 61, who had just paid a pound for a dummy security camera to protect her hen house.
“If someone comes to nick my chickens they’re not to know it’s not real. If you put two AA batteries in a light flashes.”.
Currently signed off sick, she counts every penny, explaining:
“At Poundworld you get two Pears soaps for £1. It’s £1.50 at the supermarket.”
Joanne Betts, 48, a carer, had just bought four packets of Glow sticks for £1 each and some bin bags.
She told us:
“I didn’t think a place like this would close. I’ m in every week buying things I don’t need.”
Inside, shoppers could spend a pound on anything from flip-flops to rat poison or packets of Aunt Bessie’s yorkshire pudding mix.
One of Poundworld’s problems may have been its competitors. Next door to its Hyde store is Bodyworks, a discount cosmetic outlet. Next to that is B&M Bargains, a northern chain which recently announced plans to open 45 stores down south. Add to that the Quality Save in the precinct, the Iceland in the shopping centre carpark and a branch of Yorkshire frozen food retailer Jack Fulton and it’s clear bargain hunters are spoiled for choice.
The slide in the pound today is pushing shares higher in London (as a weaker currency is good for exporters).
The FTSE 100 is now up 70 points today at 7750, as City traders continue to shrug off the G7 mess.
Poundworld joins ranks of retail casualties
Newsflash: UK discount chain Poundworld has gone into administration, putting 5,100 jobs at risk.
This is the latest in a string of retail failures this year, following the collapse of Toys R Us and Maplin.
My colleague Rob Davies explains how last-ditch rescue talks to save the firm failed:
Poundworld, which has a chain of 335 shops, filed a notice of intention to appoint an administrator last Thursday, giving it temporary protection from its creditors.
But plans to find a buyer for the business have now been abandoned, although the administrators are likely to seek buyers for parcels of stores.
But two potential rescue buyouts have fallen through, with private equity firms Rcapital and Alteri Partners both walking away after talks with current owners TPG Capital.
Updated
All this weak economic data is bad for the pound.
Sterling has shed half a cent against the US dollar to $1.335. It’s down a similar amount against the euro, to €1.134.
The pound falls after U.K. manufacturing output data is lower than expected https://t.co/j9onszO1Uj pic.twitter.com/tNOL8VY341
— Bloomberg (@business) June 11, 2018
The 1.4% tumble in UK manufacturing output in April has come as a nasty shock to economists, who had expected a small rise. It undermines hopes that the UK economy was bouncing back from its slowdown last winter.
Brexit could be partly responsible for the drop in UK manufacturing output last month.
Economics journalist Dharshini Davis suspects that firms may find it harder to win business, because of the uncertainty over trading relations after March 2019.
shock drop in manufacturing output (drops 1.4% on month, biggest fall for 5yrs) contradicts survey evidence and Bank of England hopes for rebound at start Q2. Underlines fragility of economy. Chances of summer rate rise recede?
— Dharshini David (@DharshiniDavid) June 11, 2018
plunge in manufacturing output in April comes as export volumes see biggest drop since end-2016.... Brexit concerns leading to UK firms being chopped out of supply chains already?
— Dharshini David (@DharshiniDavid) June 11, 2018
BCC: Trade war fears are hurting
Suren Thiru, head of economics at the British Chambers of Commerce (BCC), fears that trade war fears are already hurting UK exporters.
Here’s his take on Britain’s widening trade gap:
“The deterioration in the UK’s trade position in April is a concern and means that the UK’s trade deficit remains significantly higher than the historical average. This deterioration largely reflects a marked decline in exports in the month.
It is possible that the UK is now moving past the recent sweet spot for exporters, with growth in key markets moderating and the impact of the post-EU referendum slump in sterling, which has helped some exporters, subsiding. The possibility of an escalating trade war has added to the downside risks for exporters.
“More must be done to support UK exporters by addressing longstanding issues, from the lack of practical support for exporters to chronic skills shortages.”
This morning’s economic data paints a rather grim picture of the UK economy.
Here’s the ONS’s head of national accounts, Rob Kent-Smith:
“Manufacturing fell in the three months to April with electrical machinery and steel for infrastructure projects seeing reduced production. International demand continued to slow and the domestic market remained subdued. However, oil and gas production grew strongly in the aftermath of the Forties pipeline closure at the end of last year.
“While construction output saw a small bounceback in April after a poor start to the year, over the longer-term this sector continues to contract with significant falls across most types of work.
“Construction orders fell for a second successive quarter after recent boosts from large rail projects. However, new housing orders reached their highest level since before the economic downturn.
“The trade deficit widened as exports fell by more than imports, with exports of goods and services both declining. Exports of machinery, aircraft and pharmaceuticals all saw notable falls.”
Make that a triple-dose of bad news!
UK construction output fell by 3.3% year-on-year in April. That’s the fourth drop in a row, and the longest negative run since May 2013.
UK trade gap swells
In a double-dose of bad news, Britain’s trade gap with the rest of the world has worsened.
The total UK trade deficit widened by £1.9bn to £9.7bn in the three months to April 2018, due mainly to falling exports of both goods and services.
- Goods exports fell £3.1 billion, due mainly to falls in exports of machinery, pharmaceuticals and aircraft, while services exports also fell £2.5 billion in the three months to April 2018.
- Falling volumes was the main reason for the declines in exports of machinery, pharmaceuticals and aircraft in the three months to April 2018 as price movements were relatively small.
- The UK’s trade in goods deficit improved £0.6 billion with countries outside of the EU and worsened £1.2 billion with countries inside the EU in the three months to April 2018.
In April alone, the trade gap widened to nearly £5.3bn. Britain ran a surplus of £8.7bn on services, but that was more than wiped out by a £14bn deficit in goods.
Awful batch of UK economic data. Industrial and manufacturing output plunge in April and trade deficit widens to £14 billion, the second widest deficit on record. pic.twitter.com/CczseULL5R
— Jamie McGeever (@ReutersJamie) June 11, 2018
Total industrial production in the UK fell by 0.8% last month, dragged down by that worrying 1.4% slide in manufacturing. Energy production fell by 2%, thanks to the warmer weather.
UK industrial output falls
NEWSFLASH: Britain’s manufacturers have suffered their biggest monthly fall in over five years -- raising new worries about the strength of the economy.
UK manufacturing output fell by 1.4% in April 2018, new figures from the Office for National Statistics show.
That’s the biggest monthly fall since October 2012, when it shrank by 1.8%.
The ONE warns:
There is widespread weakness with 9 of the 13 sub-sectors decreasing and this is a continuation of the recent slowdown in this sector.
Over the last three months, manufacturing output has now fallen by 0.5% - the worst performance since May 2017.
The ONS blames “decreases in electrical equipment (9.4%), and basic metals and metal products (1.8%).”
More to follow....
Updated
Donald Trump told fellow G7 members that America was tired of other countries imposing unfair tariffs. The data, though, don’t back this up.
According to the World Bank, the average tariff on goods traded between countries has now fallen to 2.9%, thanks to various trade deals.
G7 countries actually have lower tariffs -- at just 1.6% for goods coming into the UK, France, Germany or the US.
Apropos #Trump refusing to sign #G7 text, let’s remind our American friends about the average trade #tariffs for all goods (weighted) that G7 countries apply, according to 2016 World Bank data:
— Robert Falkner (@robert_falkner) June 11, 2018
Canada: 0.8 %
Japan: 1.4 %
France: 1.6%
Germany: 1.6%
UK: 1.6%
and the US: 1.6%
Of course, there are still significant tariffs on some goods - such as milk imports into China, or tobacco imports into the US.
But by unilaterally slapping tariffs on steel imports, Trump risks driving up the global tariff burden.
Germany: G7 commotion will bring EU together
Germany’s economy minister has said the G7 meeting has bolstered unity among European Union members.
Peter Altmaier told reports in Brussels that:
“The commotion at the G7 summit in Canada has brought the European Union closer together.
It is important we show unity at all levels.”
Four EU members took part in the G7 meeting - Germany, France, Italy and the UK.
Like Canada, the EU is expected to hit back at America with a range of retaliatory tariffs on July 1st, in response to the US tariffs on steel and aluminium imports.
Chancellor Angela Merkel took an unusually blunt line, saying that Trump’s decision to withdraw from the G7 communique by tweet was sobering and depressing.
She told the ARD broadcaster that:
“We won’t allow ourselves be ripped off again and again. We will act too.
Canadian dollar weakens after G7
The Canadian dollar is dropping this morning, in the face of deteriorating relations between Washington and Ottawa.
The loonie (as it’s known in financial circles) has shed 0.3% against the greenback to C$1.296.
That’s a modest fall, following Trump’s claim that Canadian PM Trudeau was “very dishonest and weak.”
Trump is particularly angry about Canadian milk, where domestic subsidies and high tariffs protect Canada’s farmers from the vicissitudes of the dairy market.
But that centralised ‘supply management’ system does seem to work; it avoids both bankruptcies and gluts by guaranteeing farmers a decent price. Trudeau is determined to support it.
Updated
Ding! European stock markets are open, and rallying despite the lack of progress at the G7 meeting.
In London the FTSE 100 has gained 35 points, or almost 0.5%, with similar gains in Frankfurt and Paris. Spain’s IBEX has jumped by over 1%.
European markets open on firm footing today:#FTSE 100 +0.42%#DAX 30 +0.59%#CAC 40 +0.36% #IBEX 35 +1.11%
— IC Markets (@IC_Markets) June 11, 2018
Traders are jittery about the acrimony seen in Canada last weekend, says Mike van Dulken of Accendo Markets, but also hopeful of progress in Singapore.
Van Dulken explains:
Thankfully, there is more optimism about the US President’s meeting with North Korean leader Kim Jong Un in Singapore.
Potential for a meaningful discussions about de-nuclearisation on the Korean peninsula could diffuse some of the tensions between US and North Korea, improve the global mood and gain Trump some brownie points after this weekend’s events at the G7.
South Korea’s stock market has led the rally in Asia today, on hopes that Donald Trump’s next summit will be more productive than his last one.
The Kospi index has gained 0.75% as traders prepared for the historic Trump-Kim meeting tomorrow. There are also gains in Japan and India, although China’s benchmark index has dropped into the red.
David Madden of CMC Markets says investors are hoping for a breakthrough:
The US President left the G7 summit early in order to prepare for his meeting with Kim Jong Un, the North Korean leader. The meeting will take place today in Singapore. There has been a bit of toing and froing about the meeting, but now it seems as if it is finally going ahead.
Last summer there were some volatile sessions on global stock markets on account of the heightened tensions between the US and North Korea because of the regime’s nuclear weapons programme. The meeting between the two leaders could greatly improve political relations around the world.
Updated
Trump tweets...
President Trump has launched another tirade at the rest of the G7, as he prepared for his summit with North Korea’s Kim Jong-un in Singapore on Tuesday:
Fair Trade is now to be called Fool Trade if it is not Reciprocal. According to a Canada release, they make almost 100 Billion Dollars in Trade with U.S. (guess they were bragging and got caught!). Minimum is 17B. Tax Dairy from us at 270%. Then Justin acts hurt when called out!
— Donald J. Trump (@realDonaldTrump) June 11, 2018
Why should I, as President of the United States, allow countries to continue to make Massive Trade Surpluses, as they have for decades, while our Farmers, Workers & Taxpayers have such a big and unfair price to pay? Not fair to the PEOPLE of America! $800 Billion Trade Deficit...
— Donald J. Trump (@realDonaldTrump) June 11, 2018
....And add to that the fact that the U.S. pays close to the entire cost of NATO-protecting many of these same countries that rip us off on Trade (they pay only a fraction of the cost-and laugh!). The European Union had a $151 Billion Surplus-should pay much more for Military!
— Donald J. Trump (@realDonaldTrump) June 11, 2018
....Germany pays 1% (slowly) of GDP towards NATO, while we pay 4% of a MUCH larger GDP. Does anybody believe that makes sense? We protect Europe (which is good) at great financial loss, and then get unfairly clobbered on Trade. Change is coming!
— Donald J. Trump (@realDonaldTrump) June 11, 2018
Sorry, we cannot let our friends, or enemies, take advantage of us on Trade anymore. We must put the American worker first!
— Donald J. Trump (@realDonaldTrump) June 11, 2018
The agenda: Markets shrug off G7 debacle; UK trade data due
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It was a bad weekend for fans of the rules-based international order, as the meeting of top world leaders struggled to meet even the lowest expectations.
Relations between America and the rest of the G7 look worse than ever, after Donald Trump left the meeting early, refused to sign the official communique, and accused his host Justin Trudeau of making ‘false statements’.
Getting all the adults in one room is meant to deliver progress and resolve differences, but not this time. Instead, the G7 has taken another step backwards, with Trump accusing the rest of the world of treating America like a ‘Piggy Bank’.
So, the US is sticking to its new tariffs on steel and aluminium, and Canada is vowing to hit back with its retaliatory tariffs on US goods from July 1 – despite being accused of treachery by Trump’s economic advisor.
The scale of the debacle suggests that the alliances and structures build up over the last 70 years are now creaking alarmingly, raising the dangers of a full-blown trade war.
The financial markets, though, are remarkably unconcerned by events in Quebec.
Asian stocks have risen overnight, with Japan’s Nikkei gaining 0.5%. European markets are expected to rally too; Britain’s FTSE 100 is expected to creep higher today too.
#FTSE100 called +16pts at 7697 pic.twitter.com/SKbmPNDxqH
— Mike van Dulken (@Accendo_Mike) June 11, 2018
Neil Wilson of Markets.com says investors are shrugging off the G7
“Markets appear able to shake off geopolitical risks with stocks showing firmness in the face of a pretty torrid weekend for free trade. Asian shares have risen and futures point to the FTSE opening up around 0.2%, with smaller rises for the DAX and CAC.
After a stormy G7 meeting, the US seems to have turned its back on its allies and is prepared to ratchet up the pressure on trade. Ostensibly this should not be good for risk, though markets appear deaf at present to such rumbings. This is brinkmanship that may ultimately end up working to the advantage of the US; but it is also likely to depress investor sentiment, and therefore growth through the second part of 2018.
Nevertheless, expectations coming into the event were exceptionally low and so there has been little negative reaction in the markets so far.
On the economics front, we get new UK industrial production and trade figures today - plus a new estimate of how the British economy fared in the last three months.
The agenda:
- 9.30am BST: UK industrial production data for April
- 9.30am BST: UK trade balance for April
- Noon BST: NIESR thinktank’s estimate of UK growth in March-May
