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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Oil price tumbles after Opec deal; UK growth unexpectedly downgraded - as it happened

Thee City of London financial district.
Thee City of London financial district. Photograph: Bloomberg/Bloomberg via Getty Images

European stock markets have lagged behind their US counterparts.

While New York’s S&P 500 hit another record high, most continental bourses ended the day in the red.

The FTSE 100 finished a little higher, though, partly due the pound weakening after this morning’s poor GDP figures.

European markets today

Chris Beauchamp of IG says:

UK and European markets have essentially traded in a sideways fashion for most of the week, and today is no exception.

While US markets clock up new highs Europe remains becalmed, despite the fact that European data has been much stronger of late than its US counterpart. Across the Atlantic, Amazon and Google find themselves locked in a race for $1000; tech firms continue to leave the old economy far behind, with momentum continuing to drive the sector higher. In a bull market, you buy the strongest performing assets – with the Nasdaq 100 nearly a fifth higher year-to-date, it is clear that momentum lies here, leaving the staid S&P 500 and FTSE 100 far behind.

And that’s all for tonight. Thanks for reading and commenting. GW

Another former Greek prime minister, George Papandreou, has rushed to visit Lucas Papademos in hospital.

Eurocrisis followers may remember that Papandreou was succeeded by Papademos, when his administration was replaced by a government of national unity in late 2011 after seeking its second bailout.

Updated

The current governor of the Bank of Greece, Yannis Stournaras, is visiting his predecessor in hospital now.

Stournaras told reporters that the letter bomb attack on Lucas Papademos was “cowardly”, the Kathimerini newspaper reports.

The 4% plunge in the oil price tonight shows that Opec hasn’t done enough to curb crude stockpiles.

Nizam Hamid, ETF Strategist in Europe at wealth manager WisdomTree, says:

“Opec’s long-awaited meeting has disappointed investors, with oil prices giving up recent gains after members dashed expectations of deeper cuts to production and merely reiterated the status quo.

“The falls may provide a buying opportunity for investors who believe in the long-term story for oil, but they also highlight the environment of heightened volatility which the commodity is facing.

“With supply side dynamics undergoing a fundamental shift thanks to the impact of US shale, only decisive action from Opec will boost prices from current levels, and so far investors have not been satisfied that Opec is tackling the issue aggressively enough.”

It’s good news for countries who import oil, of course. Car drivers might not see such sharp price rises at the forecourt....

Greek TV are reporting that Lucas Papademos’s injuries are not life-threatening, following this afternoon’s explosion.

The ex-PM has been taken to a hospital in Athens.

Oil is tumbling

The oil selloff is accelerating -- Brent crude is now down almost 4.5% at $51.60 per barrel.

That shows that the markets aren’t impressed by the plan to extend existing output cuts for another nine months.

Neil Wilson of ETX Capital says investors are disappointed that Opec didn’t agree deeper production cuts:

OPEC members had a chance today but bottled it. A nine-month extension just isn’t enough to really lift oil prices as we’ll continue to see US shale fill the gap. Having said they’d do whatever it takes, OPEC is looking a bit toothless now.

Instead of deepening cuts they are continuing to tinker at the margins by curbing production by around 1.8m barrels/day along with several non-OPEC members. It also looks like no new non-OPEC members are joining the curbs, which would have helped.

Greek former PM injured

Newsflash from Athens: There are reports that a bomb has gone off inside the car of former Greek prime minister Lucas Papademos.

Greek police say that Papademos and his driver have both been injured, but we don’t have any more details. One report says it was a letter bomb.

Papademos, who was also Greek central bank chief and a ECB vice-president, was installed as interim PM in 2011 after Greece signed up for a €130bn bailout.

Letter bombs have been sent to several senior figures from the eurozone crisis in recent months, including German finance minister Wolfgang Schaeuble. One exploded at the International Monetary Fund’s headquarters in Paris in March, injuring a member of staff.

Updated

Oil falls as Opec agrees deal

Oil prices are on the slide, following the news that Opec and non-Opec members have agreed to extend their production cuts until March 2018.

Brent crude is down 2% at $52.82, while New York crude has dropped by 2.7%, below $50 per barrel.

Traders may be concluding that the deal won’t succeed in propping prices up, as US shale producers can boost their own output.

Delegates are briefing reporters in Vienna that a nine-month extension has been agreed, by Opec and non-Opec members.

That means oil producers will continue to cut 1.8 million barrels per day off their combined output.

Updated

Energy reporters are racing around the Opec headquarter again, as the official announcement from oil cartel is imminent.

Another day, another record high on Wall Street

Over in New York, the S&P 500 has hit a fresh record high in early trading.

The technology-focused Nasdaq is also hitting all-time record levels

Traders aren’t worried by the prospect that US interest rates will rise next month.

Chris Beauchamp of IG says:

Traders arrived at their desks this morning having seen the Fed minutes warn of overvaluations in asset prices, and hint at further policy tightening later in the year, and yet were confronted with new record highs in the S&P 500 and the MSCI world index, while the US dollar is under pressure again. What an odd world we live in.

Reuters are also reporting that Opec has agreed to curb supply levels for another months:

OPEC decided on Thursday to extend cuts in oil output by nine months to March 2018, OPEC delegates said, as the producer group battles a global glut of crude after seeing prices halve and revenues drop sharply in the past three years.

The cuts are likely to be shared again by a dozen non-members led by top oil producer Russia, which reduced output in tandem with the Organization of the Petroleum Exporting Countries from January.

OPEC’s cuts have helped to push oil back above $50 a barrel this year, giving a fiscal boost to producers, many of which rely heavily on energy revenues and have had to burn through foreign-currency reserves to plug holes in their budgets.

Newsflash from Vienna: The Opec meeting has finished.

The cartel are now being joined by non-Opec countries, to discuss whether they would also support today’s rumoured deal to cut supplies for another nine months.

Updated

Dutch bank ING don’t think Opec’s supply cuts will work, as America’s shale industry (which won’t be part of the deal) can boost its own production levels.

A US flag.

The latest US trade data is a little disappointing.

America’s trade deficit has widened, to $67.5bn in April from $65.0bn. That’s because exports shrank by 0.9%, with US firms selling fewer cars and consumer goods overseas. Imports rose by 0.7%.

That suggests that America’s economy may not be rebounding as strongly as hoped from its weak first quarter.

But...the latest jobs data is more encouraging.

The number of Americans filing new claims for unemployment benefit rose by 1,000 last week, to 234,000. That’s lower than the 237,000 which Wall Street had expected, and close to its lowest levels in decades.

Oil price falls as Opec agrees deal

Back over in Vienna, Opec ministers have been hammering out an agreement to extend their existing production cuts.

There’s nothing official yet, but the word on the ground is that the cartel will keep its current supply cuts for another nine months, through to March 2018.

That’s what investors had largely expected....

...so the markets have shown their contrary nature, by sending the oil price down a bit.

Brent crude is now down 1% at $53.43 per barrel, a whole dollar per barrel less than this morning.

That’s partly due to our old friend ‘buy the news, sell the rumour’.

But there’s also some disappointment that Opec didn’t agree deeper cuts. Instead, they’re sticking to the 1.8m barrel a day deal first agreed in late November extended to March 2018.

George Buckley, UK economist at Nomura, is concerned that Britain’s growth rate is now lagging behind European rivals.

He writes:

This is the first time in a year that UK growth failed to outpace that of the euro area (on average over the past 3-4 years the UK has grown a couple of tenths per quarter more strongly than the euro area).

While UK real GDP is broadly the same as that of Germany relative to where it was at the start of 2008, Germany has produced its 8.5% increase in aggregate output over that period with no change in its population, compared a 6% rise in UK headcount (though the UK has experienced a more sizable rise in its dependency ratio). On a per capita basis, UK GDP did not expand at all in the first quarter of this year (in separate figures also published today official net migration fell to its lowest in three years – 248k in 2016).

Builders on a building site.

Housebuilding was a bright spot amidst the gloom spread by the unexpected downward revision to UK GDP today.

The Department for Communities and Local Government said 43,170 new houses were started in England between January and March, up 3% on the previous quarter and up 21% on a year earlier. The number of completed houses rose to 39,520, 9% higher than the previous quarter and 21% higher than a year ago.

Housing starts totalled 162,880 in the year to March, up 15% on the previous year, while completions rose 6% to 147,960.

Andy Frankish of Mortgage Advice Bureau says more is needed:

“Yes, the latest figures do indicate a marginal increase and we can see the signs of recovery starting in 2013, demonstrating the impact of the introduction of Help To Buy, which could suggest an element of cautious optimism that the industry has perhaps ‘turned the corner’ following the trough of 2009.

But if we are to reach the 200,000+ new build homes needed each year in England, there is still more momentum required.”

Britain’s weak growth means there’s even less chance of UK interest rates rising soon, despite inflation surging over the Bank of England’s 2% target.

Royal Bank of Canada’s Sam Hill reckons borrowing costs will remain at record lows until early next year.

The Bank of England’s ‘backcast’ has 0.4% q/q in for Q1, so this revised outturn of 0.2% q/q is marginal downside news for policymakers. In our view, this GDP report reinforces the existing case for not responding to above-target inflation.

Indeed, we continue to see the risk that the slowdown in activity becomes more entrenched and ultimately results in monetary policy being loosened in Q1 2018.

The next government needs to boost investment and drive up wages, says TUC General Secretary Frances O’Grady.

Here’s her take on the slowdown in UK growth in the last quarter:

“This is a very worrying sign of the squeeze that families are feeling. Prices are rising faster than earnings, and households are getting deeper into debt.

“The next government will inherit an economy that needs serious attention. An urgent priority must be to reverse the current fall in living standards. The minimum wage must go up faster, and the pay restrictions on public servants like nurses, firefighters and midwives must be ended.

“It is also vital for Britain to increase investment in communities where good jobs are in short supply. More investment is needed in skills, transport links, broadband, decent homes and high quality public services.”

The TUC has published analysis this morning (Thursday) showing that unsecured debt per UK household will reach a record high this year of £13,900. This exceeds the pre-crisis peak of £13,300 in 2007.

Uncertainty over Britain’s looming exit from the European Union may have hit the economy, says ING’s James Knightley:

UK lagging behind Europe

Today’s growth downgrade means that Britain was one of the worst-performing advanced economies in the first three months of this year.

Only Italy and America did as badly as the UK; they also grew by around 0.2% in Q1 2017.

France expanded by 0.3%, Japan managed 0.5%, while Germany posted healthy growth of 0.6% and Spain’s GDP surged by 0.8%.

The Eurozone and the EU both grew by 0.5%.

UK growth vs Europe

Updated

Sky News’s Ed Conway has dug into today’s GDP data, and discovered that things are even worse than we thought.

The UK actually grew by just 0.18% during Q1 (which was rounded up to 0.2%), which is the worst performance in over four years.

John Hawksworth, chief economist at PwC, is concerned by the sharp slowdown in UK growth.

“Today’s GDP data indicate that the economy slowed even more than previously estimated in the first quarter of 2017, as consumer spending power was squeezed by rising prices.

Excluding population growth, real GDP per head - the broadest measure of living standards in the economy - flatlined in the first quarter.

“Estimated GDP growth in Q1 2017 was revised down from 0.3% to 0.2% and further detail was released confirming that the slowdown was focused on consumer spending and related industry sectors such as retailing, hotels and restaurants, transport and communications.

But he does spot some reasons for optimism- including the rise in business investment, and higher government spending too.

CHARTS: How Britain's economy is weak on a per-capita basis

Matt Whittaker of the Resolution Foundation confirms that Britain’s growth rate was ZERO in the last quarter, once you adjust for population increases.

He also shows how Britain’s growth since the financial crisis is rather less impressive on a per-capita basis (ie, growth per person).

Updated

Today’s growth report also shows that public sector workers are suffering the biggest impact from rising inflation (which hit 2.7% in April), as their wages are lagging behind the private sector.

The ONS says:

Compensation of employees, which includes wages and salaries and employers’ social contributions, showed positive growth of 0.6% seasonally adjusted in Quarter 1 2017.

Non-seasonally adjusted, growth was chiefly driven by strong positive growth in private sector wages and salaries, in turn driven by bonus payments typically made at Quarter 1 and a smaller fall in growth in private sector jobs than seen in previous Quarter 1s’. This was partially offset by a small fall in public sector wages and salaries.

Here’s a handy chart showing how net trade (red) had a negative impact on growth in January-to-March:

UK growth weakens: What the experts say

Britain’s economy is suffering from the squeeze on real wages, as inflation overtakes earnings, says Ms Lee Hopley, chief economist at EEF, the manufacturers’ organisation.

She explains:

“While the downward revision may have been unexpected, the reasons behind the weakness surely aren’t. Sluggish household spending growth, a consequence of the squeeze on real incomes starting to kick in, and some pull back on export growth after an impressive end to last year.

“We expect the consumer weakness to persist as wage growth falls further behind rising prices, but there should be some turnaround on the trade front, driven by a brighter outlook in the rest of the world. For those on the hunt for some good news in the data it was to be found in the investment numbers. Business investment picked up at the start of this year and some big revisions to investment at the end of last year mean the investment picture isn’t as dire as first thought. Still, we’ll need to see this rebound continue and strengthen if for longer-term productivity prospects to improve.”

Ian Stewart, chief economist at Deloitte, also blames the rising cost of living:

“Just as expected higher inflation is squeezing incomes and spending.

High inflation is hitting consumers, but a weak pound and a recovering global economy are helping businesses. UK growth is likely to tilt away from the consumer towards exports, manufacturing and investment this year. This should keep the UK economy growing at a similar rate to last year.”

Only one City economist expected Britain’s growth rate to be revised down to 0.2% today, says Reuters’ Ross Finlay.

Suren Thiru, head of economics at the British Chamber of Commerce, is disappointed that Britain’s net trade was so weak last quarter, despite the weak pound:

The FT’s Sarah O’Connor flags up that Britain’s productivity crisis is even worse than we thought (figures last week showed a fall of 0.5%, but today’s figures suggest an even darker picture).

But economist Rupert Seggins is encouraged that business investment rose (by 1.2%), despite the Brexit uncertainty.

Updated

UK economy stagnant on per-head basis

Britain’s economy didn’t grow at all in the last quarter, if you account for the increase in population.

Today’s new figures show that GDP on a per-capita basis was flat in Q1 2017, compared to the final three months of 2016.

So while the economy got a bit bigger, individuals didn’t actually feel the benefit.

UK GDP per capita

The bad news is that net trade took a big bite out of Britain’s growth rate.

Net trade wiped 1.4 percentage points off the growth rate, dashing hopes that the weaker pound would be a massive boost to exporters.

The ONS says.

Within net trade, there has been a rise in total imports, which have contributed negatively to UK GDP, with a notable contribution from transport equipment, machinery and chemicals.

And adjusting for inflation, household spending in the first quarter of 2017 rose by just 0.3%. That’s the smallest amount since the final three months of 2014 -- underlining how inflation is hurting.

The good news is that businesses invested more in new plants and machinery at the start of this year.

Gross fixed capital formation (GFCF) increased by 1.2% compared with Quarter 4 2016, today’s GDP report shows.

Why UK growth was revised down

Today’s growth figures confirm that UK households were hit by the impact of higher inflation, due to the weak pound.

The Office for National Statistics explains:

UK GDP growth slowed to 0.2% in Quarter 1 2017 as consumer facing industries such as retail and accommodation fell and household spending slowed. This was partly due to rising prices.

Construction and manufacturing also showed little growth, while business services & finance continued to grow strongly.

UK growth revised down

NEWSFLASH: Britain’s economic growth in the first quarter of this year was even weake than we thought.

Growth has been revised down to just 0.2% for January to March, down from the first estimate of 0.3%.

That’s the weakest growth since the first three month of 2016, and shows that the economy is less robust then we thought.

UK GDP
UK GDP Photograph: ONS

The ONS now believes that the UK service sector grew by just 0.2%, not the 0.3% first expected.

Industrial output has been revised down too, from +0.3% to +0.1%.

More details and reaction to follow!

As expected, Iraq is also backing a nine-month extension:

Saudi: 9-month deal is 'highly likely'

Saudi Arabia’s oil minister says that a nine-month cuts extension is ‘highly likely’ to be agreed today.

Khalid al-Falih adds that he doesn’t expect any deeper cuts, though. That implies that the current agreement to shave 1.8m barrels-per-day off global outlook would be extended

Updated

Oil ministers speak as Opec meeting begins

And we’re off! A flurry of comments are hitting the wires as Opec ministers speak to reports.

Kuwait’s energy minister says he expects a nine-month extensions to the current output cut deal, but doesn’t expect any deeper cuts.

Here’s a snap from inside the Opec meeting, via Algerian energy minister Noureddine Bouterfa.

No pushing at the back, please.

The journalists sent to Vienna to cover today’s meeting are getting hot under the collar, literally.

They’ve been queuing, more-or-less patiently, in a stairwell for around an hour - waiting to be allowed into the opening session.

These Opec meetings can get quite frenzied, as reporters compete to hear from oil ministers. Last November’s gathering was particularly heated - several ornaments were broken amid media scrums, and one reporter briefly lost her shoe.

Updated

Some City analysts are sceptical about whether Opec can really influence the oil price, as many producers - such as America - aren’t part of the cartel.

Marc Ostwald of ADM Investor Services says the markets “fully” expect a nine-month extension to the current deal.

Many are wondering if the group has any rabbits to pull of its hat to mitigate the risk of a buy the rumour, sell the fact reaction.

It is not actually certain that the extension will be 9 months rather than six, even if the noises have been in that direction, or if any other Non-OPEC countries do sign up, they are at best likely to be very marginal producers such as Tajikistan, and per se more an optical addition than ‘game changers’

Oil ministers are arriving at the Opec HQ now. There’s a live webcast from the hotel here.

Three Opec delegates have told Reuters that a nine-month output extension is the “most likely scenario”. One says that a one-year extension (to June 2018) is an option.

Reuters’ Amanda Cooper has the details:

Updated

Here’s the full agenda of the Opec meeting (timings are in CEST, so knock off an hour for BST).

Opec

Some background. Last November, Opec and non-Opec members agreed to cut their combined output by around 1.8 million barrels per day through the first six months of this year.

That deal did drive the oil price over $50 per barrel, but any hopes (or fears) that prices would push higher have been dashed (or allayed).

As this chart shows, the oil price actually dipped back in recent weeks, before rallying on hopes that the deal will be extended today.

Queues are forming outside Opec’s headquarters in the Austrian capital, ahead of today’s meeting:

Oil price rallies as Opec meeting begins

The oil price is jumping this morning, on predictions that Opec will extend its existing output cuts today.

Brent crude has gained almost 1% to $54.45 per barrel, and New York crude is up 0.75% at $51.75 per barrel.

That underlines how the markets expect the oil cartel to agree to pump less oil at today’s meeting.

Nigeria’s oil minister has bolstered hopes of a nine-month extension -- and possibly even longer:

Barclays analysts have argued that a mere six-month extension would be a blunder, as it would expire at the end of this year - when oil demand is weak.

Extending the deal into 2018 would mean that Opec members would ramp up output when demand is strengthening.

The agenda: Opec meeting and UK GDP report

The headquarters of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria.
The headquarters of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, Austria. Photograph: Leonhard Foeger/Reuters

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

All eyes are on Vienna this morning as energy ministers from the Opec oil cartel meet.

On the agenda: whether or not to extend the oil production cuts deal which was agreed six months ago.

Oil analysts broadly expect an extension to be hammered out – as the alternative would spook the markets and send prices spiralling down. But the big issue is how long for.

Saudi Arabia (Opec’s biggest member) is pushing for a nine-month extension, and Iraq backed this plan earlier this week.

But there have been whispers that Opec might only extend oil output cuts by a mere six months, or could go the whole hog with a 12 month deal. So there’s all to play for in Vienna today.

Kathleen Brooks of City Index predicts that the Saudi’s will get their way:

The oil cartel meets today, and the market is expecting it to extend the period of production cuts by an extra nine months, through to March 2018. This has been widely signalled after Russia (a non-Opec member) and Saudi Arabia said that they would support an extension of the cuts last week.

There is a very small chance that some of the smaller, struggling members of Opec, including Venezuela and Nigeria, may resist the prospect of further cuts, overall we think that Saudi Arabia will ultimately get what it wants from this meeting.

Mike van Dulken of Accendo Markets says Opec should be wary of disappointing the markets:

Also coming up today:

We’re about to get fresh information on how the British economy performed in the first three months of this year.

The second estimate of UK GDP will reveal how business investment, net trade, personal spending and government spending changed over the quarter.

The City predict that consumer spending took a dive, as rising inflation hits shoppers.

Royal Bank of Canada say:

It is expected that a much more modest contribution from the consumer will be behind the lower growth figure, as real household disposable incomes have been hit by rising prices.

The Office for National Statistics is also expected to confirm that GDP only rose by a modest 0.3% in January-to-March, down from 0.7% in October-December.

  • 9am BST: Opec opening session begins in Vienna
  • 9.30am BST: Second estimate of UK GDP released
  • 1.30pm BST: US trade balance for April
  • 1.30pm BST: US weekly jobless figures
  • 4pm BST: Opec press conference

We’ll be tracking all the main events through the day...

Updated

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