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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden (until 2pm) and Nick Fletcher

UK growth revised up; Unilever vows to unlock value – as it happened

The City of London financial district.
The City of London financial district. Photograph: Leon Neal/AFP/Getty Images

European markets edge higher

It was far from convincing, but most European markets managed to end the day in positive territory.

News that François Bayrou was not standing in the French presidential election, and would support rival Emmanuel Macron, gave a lift to the euro, with investors betting that this meant a win for the anti-EU candidate Marine Le Pen could be less likely.

The surge in Unilever’s shares also gave some support to markets. The final scores showed:

  • The FTSE 100 finished up 27.42 points or 0.38% at 7302.25
  • Germany’s Dax rose 0.26% to 11,998.59 having earlier breached the 12,000 barrier for the first time since April 2015
  • France’s Cac climbed 0.15% to 4895.88
  • italy’s FTSE MIB fell 0.83% to 18,884.90
  • Spain’s Ibex slipped 0.88% to 9477.2

On Wall Street, the Dow Jones Industrial Average has recovered from its early falls and has hit a new peak of 20,766, up 23 points.

On that note, it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.

Unilever shares have ended as the day’s biggest riser in the FTSE 100, following news of their plans to boost shareholder value in the wake of the rejected bid from Kraft Heinz.

The shares ended up 5.7% at £37/91, just shy of the record close of £37.97 on Friday when the Kraft bid emerged.

Inflationary pressures are building in the economy, and here are more signs of that. Ada, Vaughan reports:

Britain’s big six energy suppliers are under pressure to pass on more price hikes to consumers’ energy bills, the industry trade body has warned.

Npower, EDF and Scottish Power have already announced price rises for millions of customers, blaming a mix of rising wholesale costs, installation of smart meters and government policies paid for through bills. British Gas has frozen prices until August, while SSE and E.ON have yet to declare their intentions.

The chief executive of Energy UK, which represents most of the 40-plus energy suppliers, told MPs on Wednesday that the rises were justified.

“It is plain that we have seen increases in wholesale prices over the last 12 months or so, and we can see going out into the future there are continuing pressures there,” said Lawrence Slade. He said month-ahead wholesale gas prices for March were 100% higher than last year, and electricity was up 69%.

The full story is here:

Meawhile British Gas owner Centrica is due to report results on Thursday, and here’s a quick preview:

Back with Unilever, and the company’s shares are now up 5.5%, making it the biggest riser in the FTSE 100. The rise follows its announcement it is acting to boost shareholder value following the rejected bid from Kraft Heinz. Rob Davies writes:

Unilever has upgraded profit margin expectations and announced a “comprehensive review of options” to improve value for shareholders in an apparent effort to shore itself up against a renewed bid from the US food group Kraft Heinz.

The Anglo-Dutch company knocked back a £115bn bid from Kraft on Friday, and 48 hours later its US rival withdrew its bid, with both sides saying talks had ended “amicably”.

Kraft is now blocked from renewing its interest for six months under the UK’s takeover code, while Unilever has expressed confidence in the support it has from long-term investors.

But management, led by the chief executive, Paul Polman, is thought to have been surprised that Unilever could be seen as an acquisition target and released two statements outlining plans to ensure shareholders wouldn’t be tempted by further takeover bids.

In a statement to the stock market, the company said it was “conducting a comprehensive review of options available to accelerate delivery of value for the benefit of our shareholders”.

“The events of the last week have highlighted the need to capture more quickly the value we see in Unilever. We expect the review to be completed by early April, after which we will communicate further.”

The announcement is likely to revive suggestions that Unilever could look to sell its struggling standalone spreads business.

The company could also examine ways to boost the company’s share price by stepping up efforts to squeeze costs, a strategy that would make a renewed tilt by Kraft Heinz more expensive if successful.

The full story is here:

US house sales hit ten year high

Some strong housing figures from the US will increase expectations that the Federal Reserve will raise interest rates before too long.

Existing home sales climbed by 3.3% in January to a seasonally adjusted annual rate of 5.69m units, a ten year high and well above the 5.54m expected by economists. The December figure was revised up from 5.49m to 5.51m. Demand for housing is being supported by a strong employment market, with buyers undeterred by higher prices and mortgage rates.

Lawrence Yun, the chief economist at the National Association of Realtors which released the figures, said:

Much of the country saw robust sales activity last month as strong hiring and improved consumer confidence at the end of last year appear to have sparked considerable interest in buying a home. Market challenges remain, but the housing market is off to a prosperous start as homebuyers staved off inventory levels that are far from adequate and deteriorating affordability conditions.

Updated

Wall Street opens lower

After consistently hitting new peaks in recent days, US markets have slipped back as investors pause for breath.

The Dow Jones Industrial Average is down 44 points or 0.21% while the S&P 500 and Nasdaq Composite both opened slightly lower. A dip in oil prices sent energy stocks lower, while there was some profit taking ahead of the latest Federal Reserve minutes.

Alasdair Pal of Reuters is tweeting about the Unilever news:

Updated

Unilever hikes profit guidance

A second announcement from Unilever just hit the City -- saying it is on track to hit the higher end of its profitability guidance

The company say:

The management of Unilever now expects Core Operating Margin improvement for 2017 to be at the upper end of its 40-80 basis points guidance.

Unilever’s shares have jumped by 3%, following its pledge to unlock more value....

Unilever vows to 'accelerate delivery of value'

Hello.... consumer good firm Unilever has just issued an intriguing statement to the City.

It says:

Unilever is conducting a comprehensive review of options available to accelerate delivery of value for the benefit of our shareholders. The events of the last week have highlighted the need to capture more quickly the value we see in Unilever.

We expect the review to be completed by early April, after which we will communicate further.

What does this mean? Almost certainly, the Anglo-Dutch giant is planning to cut costs, and possibly selloff non-core divisions (maybe the spreads arm?), before Kraft Heinz can come back with a better takeover offer in six month’s time.

Even though Unilever managed to defy Kraft Heinz’s first takeover approach last week, the company’s management must be disconcerted by the whole affair.

And although Unilever’s major shareholders remained loyal to CEO Paul Polman, some must be wondering if their investment should be sweated a little...

UK to set out approach to foreign takeovers

Newsflash: Britain’s government is drawing up proposals for how it could intervene when a foreign company tries to buy a UK firm.

It’s a timely move, with Unilever having just told Kraft Heinz where it can stick its £114bn takeover offer.

Business secretary Greg Clark made the pledge during a speech at the EEF’s annual conference in London today, telling delegates that:

“We will be setting out some proposals in the weeks ahead.”

Clark was also quizzed on Brexit, but didn’t shed much new light on the government’s strategy:

Business investment suffers first annual fall since 2009

Business investment in the UK fell by 1.5% during 2016, a decline of £2.7bn, according to new ONS figures.

That’s the first annual decrease in business investment since 2009, after the financial crisis.

The ONS says firms cut their investment in buildings, machinery, and information and communication technology.

TUC General Secretary Frances O’Grady fears the knock-on impact on productivity, employment and wages.

“It’s very worrying to see that business investment is already falling with the challenges of Brexit ahead. If this trend continues, working people will pay the price through weaker wages and fewer jobs.

“Despite a modest boost to public investment last year, UK investment still lags behind the world’s leading industrial nations. With private sector investment in retreat, the Chancellor must focus on closing the gap with our competitors in next month’s budget. This would help protect jobs and wages, and it would give a much needed boost to business confidence.”

This chart shows how business investment has been lacklustre recently.

UK business investment since 2008

Updated

The momentum in the UK economy at the turn of the year continues to surprise to the upside, says Sam Hill of Royal Bank of Canada.

But he expects growth to slow in the current quarter, to around +0.4%, because:

...higher inflation and Brexit uncertainty present on-going headwinds to consumer spending and business investment, which the erratic contribution from the external sector is unlikely to compensate for.

Ben Chu of the Independent has created a handy graph, showing how business investment has tailed off:

The weak pound helped to cushion Britain from the Brexit vote shock, says Nancy Curtin, Chief Investment Officer at Close Brothers Asset management.

“The improved GDP revision for the final quarter of 2016 confirms that it was business as usual for the UK economy, despite the UK’s momentous vote to leave the EU. The lower pound appears to have acted as shock absorber and continues to aid industrial activity and exports. The UK is also in a fortunate position of capitalising on any pick up in global growth given that 70% of its market is international.

GDP: Some more charts

Britain’s economic growth was less impressive when you adjust for population changes.

GDP rose by 0.5% on a per-head basis in the last quarter, and is now 1.8% above its pre-crisis peak in 2008.

UK GDP per capita

Overall, Britain’s economy is 8.6% larger than before the financial crisis struck - making it one of the better-performing G7 economies.

G7 GDP rates

PwC: Britain growing steadily since Brexit vote

John Hawksworth, chief economist at PwC, has a good take on today’s GDP report:

“Today’s revised GDP data were a mixed bag of good and bad news, but this doesn’t change the big picture that the UK continued to grow steadily during the six months following the Brexit vote.

“Estimated fourth quarter GDP growth was marked up slightly from 0.6% to 0.7% due primarily to stronger estimated growth in manufacturing. This was linked also to a combination of stronger export growth on the back of a more competitive pound and a gradually strengthening world economy.

“Consumer spending growth also remained solid in the fourth quarter as a whole, although the latest retail sales figures suggest that this has shown signs of tailing off in December and January.

“Less positively, estimated annual GDP growth in 2016 was revised down from 2% to 1.8%, pushing the UK slightly below Germany (1.9%) in the G7 growth league, though the difference is well within the margin of error on any such early GDP estimates.

“The main reason for the downward revision seems to have been weaker North Sea oil and gas production during the first half of 2016; however, this is a sector-specific trend that does not really reflect the underlying strength of the UK economy. Excluding oil and gas output, estimated UK GDP growth might actually have been revised up in 2016.

Reuters have also spotted that Britain has lost its crown as the world’s fastest growing major economy:

Today’s growth report shows that fears of an immediate recession if Britain voted to leave the EU were misplaced.

But...the fall in business investment is a concern, says Ian Kernohan, Economist at Royal London Asset Management:

“Far from slowing down after the vote to leave the EU, GDP growth actually picked up in the second half of the year. However, there were some signs that Brexit uncertainty is starting to have some impact on the corporate sector, with business investment down during the last three months, combined with slower growth in consumer spending.

UK no longer fastest-growing G7 economy

Britain appears to have lost its claim to be the fastest-growing major economy.

Despite the strong expansion in Q4, growth for 2016 as a whole has been revised down to 1.8%, from 2%.

That’s slower than Germany, which grew by 1.9% last year, but still ahead of the US which only managed 1.6% growth.

Now, all those numbers could also be revised in the future. But right now, chancellor Philip Hammond won’t be able to boast about the fastest growth in the G7 when he gives next month’s budget speech.

Darren Morgan, head of GDP at the ONS, has warned that consumer spending has tailed off in recent months.

Overall, the dominant services sector continued to grow steadily, due in part to continued growth in consumer spending, although retail showed some signs of weakness in the last couple of months of 2016, which has continued into January 2017.

Sam Tombs of Pantheon Economics is concerned that Britons are spending beyond their means....

Experts react to UK GDP report

The City has given today’s growth report a rather muted reception.

Jeremy Cook, chief economist at the international payments company, World First, says that last year’s growth figures are rather ancient history.

“UK GDP may have gained some momentum into the end of 2016 but recent news from UK seems to have shown that that momentum has been lost in the early weeks of 2017.

Services growth is set to slow, buffeted by rising inflation and slowing real wage gains and a consumer that is not waving but drowning, business investment remains poor given uncertainty over the negotiations between the UK and the EU following the Brexit vote last summer and while trade was stronger on the quarter this is purely a function of the devaluation of the pound

Several economists are concerned by the fall in UK business spending (or ‘gross fixed capital formation’) in the last quarter.

Duncan Weldon, head of research at Resolution Group explains why it might be a problem:

Jo Michell, economist lecturer at Bristol Business School, is also concerned by the 1% drop in business spending:

Danielle Haralambous of the Economist Intelligence Unit points out that Britain’s pharmaceuticals sector had a good quarter:

Overall, manufacturing output surged by 1.2% during the quarter. Here’s Ms Lee Hopley, chief economist at EEF, the manufacturers’ organisation:

“The UK economy performed more strongly that first estimated at the end of 2016, aided by a particularly solid quarter for manufacturing growth.

The resilience of the UK economy, particularly in the latter part of 2016 has been supported by a robust support from net trade and a rapid post-referendum recovery on consumer’s confidence to keep spending.

But...

“The UK economy is rarely without its weak points and at the end of 2016 it was business investment. Capital expenditure by businesses saw a contraction in the final months of last year contributing the first year-on-year contraction in business investment since 2009. It’s too soon to declare this an worrying omen for 2017, especially as more recent survey indicators have been signalling a more positive trend.

But..in a worrying signal, UK business investment fell by 1% in the last quarter.

The ONS reports that there was “a slowdown within business investment” in the last three months of 2016. This was driven by subdued growth within the “ICT equipment and other machinery and equipment” assets.

As this chart shows, Britain’s economy has just posted its fastest quarterly growth in a year.

UK

Net trade boosts UK growth

Today’s report shows that net trade helped to drive Britain’s economic growth in the last quarter 0f 2016.

Net trade added 1.3 percentage points to the UK growth rate in October to December, says the ONS. That reverses a 1.2% decline in the third quarter.

UK growth revised up to 0.7%

Breaking! Britain economy grew faster than expected in the final three months of 2016!

GDP expanded by 0.7% in the October-December quarter, according to new estimates from the Office for National Statistics, up from 0.6%.

That’s because industrial output was stronger than expected -- growing by 0.3%, not flat as first thought. Construction output has been revised up to 0.2%, from 0.1%.

The figures also show that the service sector drove the recovery, by expanding by 0.8% (in line with initial forecasts)

But it’s not all good news.... Q4 year-on-year growth has been revised down to 2.0%, from 2.2%.

More to follow...

Updated

It’s possible, although unlikely, that Britain’s growth rate for the last quarter could be revised higher in a few minutes, from 0.6% to 0.7%.

Analysts at Royal Bank of Canada say:

The first estimate of Q4 GDP growth was 0.6% q/q in real terms. Since then we have learnt that favourable revisions to industrial production added 0.04ppts to headline GDP growth with marginally positive news in the construction sector too. This clearly means the prospect of an upward revision to GDP needs to be considered.

However, as a central case our forecast is that Q4 GDP is confirmed at 0.6% q/q, as the preliminary estimate had an index level which translated into 0.56% to two decimal places. So, even with the known upward revisions it still isn’t sufficient to turn into an upgrade to 0.7% q/q.

Economist Shaun Richards agrees that an upgrade is possible:

Newsflash: German business confidence has risen this month, according to the IFO thinktank.

IFO’s business confidence index index has unexpected come in at 111.0, beating forecasts, and ahead of 109.9 in January.

The euro has now fallen its lowest level against a basket of currencies since last november, says Kit Juckes of Societe Generale.

He says:

Political risk is beginning to the Euro in earnest, reflected by the Euro’s trade-weighted value reaching the lowest levels since the US Presidential election, and the OAT/Bund spread reaching the widest levels since then as well. Looking further back, we last had an OAT/Bund spread this wide in November 2012.

OAT/Bund spread = the difference between France and Germany’s borrowing costs.

Kit also predicts further weakness as the French election approaches.

Bloomberg have now been tracking the implied probability of the main candidates winning from Oddschecker for just over a month and Marine le Pen’s odds have risen steadily over that period while Emmanuel Macron and François Fillon’s have varied more. The net result is that all three are virtually level-pegging now. So much uncertainty with 9 weeks to go until the first round of the election means we will probably see nervousness persist, and undermine the Euro across the board.

Updated

Housebuilder Barratt is also having a good morning, after it reported a 9% jump in profits for the last year.

A Lloyds sign.

London’s stock market is rising in early trading, led by Lloyds Banking Group.

Lloyds shares have gained almost 4% after it reported profits had more than doubled to £4.2bn over the last year.

Lloyds told the City that:

“Our performance is inextricably linked to the health of theUK economy which has been more resilient than the market expected post referendum.”

Lloyds army of small shareholders will share a payout of over £2bn; the bank will pay a special 0.5p dividend per share, on top of a 2.55p ordinary dividend.

Boom! The German DAX share index has hit 12,000 points for the first time since April 2015.

Shares in German exporters are up, thanks to the weak euro (which makes them more competitive). Industrial giant Thyssenkrupp is leading the charge, up 4.6% after agreeing to sell its Brazilian steel business.

Worries over the French election are also driving investors into the safety of German debt.

This has pushed the interest rate on two-year bonds to a fresh record low of -0.87% this morning.

That means investors are paying more than the face value of the bonds, so they’ll make a loss if they hold them to maturity (although they can sell them to the European Central Bank’s stimulus programme instead)

Pound hits 2017 high against the euro

The pound has his a two-month high against the euro, as European political worries weigh on the single currency.

Sterling has gained half a eurocent to €1.188 for the first time since 21 December, meaning one euro now only buys 84.17p.

The pound vs the euro over the last year
The pound vs the euro over the last year Photograph: Thomson Reuters

The euro is also losing ground against the US dollar; down 0.25% at $1.0507.

The euro’s weakness shows that mounting concern that Marine Le Pen could become the next president of France, and potentially trigger the country’s exit from the single currency.

Kathleen Brooks of City Index believes that as Le Pen victory could be curtains for the euro.

No one seems optimistic about the political future. Marine Le Pen in France is now the front-runner to win the first round of the French Presidential election, and her prospects are also improving for the second round.

This has caused the spread between French and German yields to surge, and we expect this to continue. Political risk also weighed on the EUR/USD, which managed to hold above key 1.0500 support but still looks vulnerable as victory for Eurosceptic Le Pen could spell the end for the single currency.

The agenda: UK growth report coming up

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

We’re about to get a more detailed look at how Britain’s economy performed in the last quarter.

Updated GDP figures, due at 9.30am, will probably confirm that the economy expanded by a robust 0.6% in October to December - driven by the service sector.

This second-estimate of GDP will also outline outline how government spending, household consumption, business investment and trade fared over the quarter - so it’s rather more comprehensive than the preliminary report issued a month ago.

Overall, it will show whether Britain’s economy is really taking the Brexit vote in its stride, or if consumers and businesses are starting to trim back.

Michael Hewson of CMC Markets explains:

The weakness of the pound is expected to help exports contribute 2%, while imports are expected to fall from 1.4% to 0.5%.

Services are still expected to provide the majority of the expansion at 0.8%, though a little worryingly business investment is expected to stall.

Also coming up today

At 9am, the latest IFO survey of German confidence is released - showing how firms in Europe’s largest economy feel about current conditions, and future prospects.

A ‘flash’ estimate of eurozone inflation for February is published at 10am GMT. Economists predict at consumer prices rose by 1.8% annually, matching January’s figure.

We’re getting financial results from Lloyds Banking Group, recruitment firm Hays, housebuilder Barratt Homes, outsourcing group Serco, and high-end confectioner Hotel Chocolat.

The good news for Lloyds shareholders is that the bank has posted its biggest profits in a decade, as it finally puts the trauma of the financial crisis behind it. There’s a special dividend in the offing too....

America’s central bank, the Federal Reserve, will release the minutes of its last meeting at 7pm GMT (2pm East Coast). They may contain hints on how close the Fed is to raising interest rates next month.

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

Updated

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