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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Hammond says Brexit has hit confidence as UK economy shrinks sharply – as it happened

London’s financial district.
New survey shows that UK businesses have suffered their worst month since 2009 Photograph: Andy Rain/EPA

That’s a good moment to wrap up for the day, and indeed the week.

Here’s our full news story about the worrying slide in UK business confidence, activity and new orders this month:

We’ll be back next week with more rolling coverage of the twists and turns in the economy, the financial markets and more. Thanks, and have a good weekend. GW

Our economics editor, Larry Elliott, fears that the UK economy might be in even worse shape than the PMI show.

That’s because today’s ‘flash’ survey doesn’t include the construction industry, which has probably also taken a Brexit hit. The full PMIs, released in a couple of weeks, will give a fuller picture.

Larry adds:

The abrupt and large fall in both orders and output reported by IHS Markit and the CIPS clearly makes a recession in the second half of 2016 a real risk. Similar results for August and September would suggest a 0.4% contraction in the economy in the third quarter. It only takes two successive quarters of contraction to constitute a technical recession.

More here:

Newsflash from America: The US manufacturing sector has grown at its fastest pace in a year, suggesting the Brexit vote has not caused any problems.

The US manufacturing PMI has jumped to 52.9, from 51.3 in June, the highest figure since last October (any figure over 5o shows growth).

Quite a contrast with the UK’s manufacturing PMI, which dived from 52.1 in June to just 49.1 this month.

I’m sure you’ll all score full marks on our new Brexit quiz.....

It’s now a month since the UK’s EU referendum, so my colleague Martin Belam has taken a look at the economic, financial and social impact of that historic vote:

And Ben Chu of the Independent has calculated that the taxpayer’s stake in two British banks has shrunk by £6bn:

John McDonnell
John McDonnell Photograph: Sky News

Shadow chancellor John McDonnell says the government needs to take action now to combat the slowdown gripping the UK economy.

Speaking on Sky News, McDonnell says Philip Hammond shouldn’t wait until the autumn statement to scrap the government’s fiscal plans.

I think he needs to get back here now, scrap the fiscal framework that is failing at the moment, and start the investment that is needed.

Right now, government departments are pausing investment decisions and implementing austerity measures, at a time when the economy needs more help, McDonnell adds.

And finally...

Oops, Faisal hadn’t finished explaining the wonders of the PMI report....

Back to the grim UK PMI report... and Faisal Islam of Sky News has tweeted why this survey is worth taking seriously:

It’s also worth noting that Markit survey purchasing managers at over 1,200 UK firms each month; this is a serious report.

Christine Lagarde’s lawyer says she is confident of proving her innocence over the Tapie case.

Lagarde to face trial over Tapie case

Breaking news from France: The head of the International Monetary Fund, Christine Lagarde, has lost her final attempt to avoid appearing in court over a long-running financial scandal.

Reuters has the details:

France’s highest appeals court ruled on Friday that IMF chief Christine Lagarde must stand trial for her role in a €400m payout as French finance minister in 2008 to businessman Bernard Tapie.

The court rejected her appeal against a judge’s order in December for her to stand trial at the Cour de Justice de la Repulique, a special court that tries ministers for crimes in office.

Here’s some background on the Tapie affair:

Some mild optimism from the Resolution Group’s Duncan Weldon:

Ranko Berich, head of market analysis at City firm Monex Europe, also fears that Britain is heading into recession.

Here’s his take on this morning’s PMI survey:

“The report makes for grim reading and suggests that the shock to the economy will be severe compared to others on record.

Composite Output and New Orders, which include data for other sectors of the economy, registered their steepest ever recorded falls. Although an increase in manufacturing export business offers a ray of hope, it’s difficult to see how this report points to anything other than a recession in the immediate future.

“The question now is just how deep and sustained this slump in output will prove. With services activity and new orders falling at their quickest rate in seven years the risk of businesses delaying investment and hiring is very significant. If the slump is extended or worsens into August and July, even the reduced forecasts we’ve recently seen for growth in 2016 will start to look optimistic.

Philip Hammond: Brexit vote has dented business confidence

Chancellor Philip Hammond in China today
Chancellor Philip Hammond in China today Photograph: Sky News

Sky News’s economics editor Ed Conway has collared chancellor Philip Hammond in China, and got him to comment on today’s PMI survey.

Hammond says the PMI shows that business sentiment has suffered from the Brexit vote.

It tells us that people’s confidence, businesses’ confidence has been dented. They’re not sure, there’re in a position of uncertainty now.

Our job is to restore as much certainty as we can, as quickly as we can.

That means reaching agreements with European partners, and also striking deals with other countries such as China, the chancellor says.

[reminder: He’s hoping to drum up some investment opportunities during his trip to Beijing, before arriving at the G20 meeting of finance ministers and central bankers this weekend].

Philip Hammond also repeated that he could “reset fiscal policy” in the autumn statement later this year, once the government has a clearer picture of the UK economy after the Brexit vote.

We are clear that we are going to support the economy over this period, so we can take advantage of the opportunities that the referendum gives us in the medium and long term.

Updated

The pound is sliding deeper into the red, as investors digest the news that Britain’s companies have suffered their worst month since the financial crisis.

Sterling is now down 1% against the US dollar at $1.31, down from $1.323 overnight.

The pound vs the US dollar today
The pound vs the US dollar today Photograph: Thomson Reuters

Some traders are pricing in a cut in UK interest rates in August, and perhaps a wide-ranging stimulus package to help the economy.

Encouragingly, Markit also found that companies become less gloomy as July unfolded.

The rapid political changes that saw Theresa May installed as prime minister last week may have reassure business leaders, according to Markit’s Chris Williamson.

The slump in the UK PMI, from 52.4 to just 47.7, shows that UK businesses are gripped by Brexit uncertainty.

Zach Witton, deputy chief economist at EEF, the manufacturers’ organisation, says Westminster needs to take action, fast.

“The very sharp pause in activity indicates that manufacturers have reacted to the shock of the referendum result by adopting a wait-and-see approach.

A key question is how long this will be sustained, as a failure to restart activity will have implications for their appetite for investment and recruitment, and thus have an implication for the real economy. The uncertainty surrounding the outlook for manufacturing highlights that there is potential for the Government to shore up confidence in the coming months.”

Updated

It’s not ALL bad news, though.

UK manufacturers have reported the biggest jump in new exports in two years, Markit says.

That suggests the slump in the pound since the referendum is providing a boost, making exports more competitive:

Service companies are worryingly gloomy

Perhaps the most alarming part of today’s survey is that service sector companies are extremely downbeat about economic prospects.

Markit’s business expectations index has slumped by its largest amount on record, back to levels last seen during the financial crisis:

UK service sector expectations

This implies service sector firms will be cautious about taking on new staff or launching new projects in the coming months.

Today’s report is vindication for those Remain campaigners who warned against Brexit, argues journalist Sunny Hundal:

Markit’s PMI surveys have undermined the notion that the rest of Europe would suffer as badly as the UK from the Brexit vote.

While Britain appears to be shrinking, France’s economy was quite resilient and German private sector growth hit its highest level of the year (see earlier post).

Ferdinando Giugliano of the La Republica newspaper tweets the key numbers:

Joshua Mahony, Market Analyst at IG, reckons Europe is actually benefitting from the uncertainty:

Today has shown a stark contrast between Eurozone and UK economic fortunes in the wake of the EU referendum, with the negative impact felt after the vote largely isolated to the UK.

There is perhaps a feeling amongst the likes of France and German that the vote is a case of the UK shooting itself in the foot, with a significant amount of business expected to leave the UK in favour of Frankfurt, Paris and Dublin.

There is no surprise that the eurozone services PMI readings have shown particular strength, with the French services sector taking on extra staff to the greatest extent since 2008 as UK based firms look to become less London centric.

Updated

Jake Trask, currency analyst at UKForex, also fears that Britain is heading into recession.

“The first clear evidence of the economic damage done by the UK’s decision to leave the EU was shown today. The Flash UK Services PMI missed the target by some distance, posting a worrying 47.4 – far lower than the 49 expected by economists.

“The figure was the worst since April 2009, when the country was still shaken by the fallout from the global financial crisis.

Labour MP: Parliament must wake up to the crisis

Chris Leslie MP, a former shadow chancellor, has called for MPs on both sides of the House of Commons to pay attention to the PMI survey:

This chart shows just how quickly the UK economy has gone into reverse this month; in the biggest one-month fall ever:

(50 is the cut-off point between growth and contraction)

Analyst: A truly abysmal picture of the UK economy

Neil Wilson of ETX Capital says the UK PMI survey is “truly abysmal”, and suggests that the EU referendum vote has - as feared - hit the economy.

“Today’s super-weak PMI is the first hard evidence that Brexit has already had an impact on the UK economy. There was a sharp fall in activity in July and it now looks like the Bank of England has the data it needs to launch fresh easing at its next meeting at the start of August.

Quite simply, the UK economy contracted at the fastest pace since the start of 2009, when the global financial crisis plunged us into recession.

The readings suggest we are heading for a recession again and it is almost certain the BoE will pull the trigger on aggressive stimulus to boost aggregate demand.

UK economy hit by Brexit: What the experts say

Sam Tombs of Pantheon Economics says today’s PMI report is ‘woeful’, and should prompt the Bank of England to cut interest rates.

Rupert Harrison of investment management group Blackrock is also concerned (Harrison is a former advisor to chancellor George Osborne)

Reuters’ Jamie McGeever says Britain appears to be heading into recession:

The pound has fallen by over half a cent against the US dollar, as traders react to the news that Britain’s economy appears to be shrinking.

It’s dropped from $1.323 to $1.317.

Updated

David Noble, CEO at the Chartered Institute of Procurement & Supply, says Markit’s report paints a pretty worrying picture.

He also warns that the weak pound has driven up the cost of imported materials:

“The UK economy has suffered sharp falls in output and new orders following the EU referendum as uncertainty has taken hold. The overall pace of decline was the strongest since early-2009.

“Weaker sterling has driven a steep rise in input prices for manufacturers but there is a glimmer of positivity with the new exchange rate encouraging a rise in export orders. However, with a subdued global economy, it is not yet clear whether these opportunities will materialise in the long term.

This chart shows how British services and manufacturing have both suffered a plunge in output this month:

UK PMI

UK ECONOMY HIT HARD BY BREXIT VOTE

Breaking: Britain’s economy is shrinking at the fastest pace since the financial crisis, as the Brexit vote hits confidence and spending.

Data firm Markit reports that services and manufacturing sectors have both suffered a big hit this month. They are contracting at the fastest pace since 2009, as output and new orders fall across the sector.

Many firms blamed uncertainty caused by June’s EU referendum.

It suggests that the UK economy is shrinking, at a quarterly rate of 0.4%.

Markit economist Chris Williamson says:

“July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early-2009.

“The downturn, whether manifesting itself in order book cancellations, a lack of new orders or the postponement or halting of projects, was most commonly attributed in one way or another to ‘Brexit’.

Markit's flash composite PMI

Here’s the details (any reading below 50 shows a contraction):

  • Flash UK PMI Composite Output Index at 47.7 (52.4 in June). 87-month low.
  • Flash UK Services PMI Activity Index at 47.4 (52.3 in June). 88-month low.
  • Flash UK Manufacturing PMI at 49.1 (52.1 in June). 41-month low.
  • Flash UK Manufacturing PMI Output Index at 49.1 (52.9 in June). 40-month low.

Reaction to follow....

Updated

The City is on tenterhooks, as we await Markit’s first healthcheck on the UK economy since the Brexit vote....

Brexit fears hit eurozone growth

Despite Germany’s robust performance, eurozone growth has edged down to its lowest in one-and-a-half year low in July.

That’s the verdict from Markit’s ‘flash’ assessment of the euro economy, which has dropped to 52.9 this month from 53.1 in June. That still shows growth, but at the slowest rate since January 2015.

Markit’s Chris Williamson says the eurozone was “surprisingly resilient”, but is concerned that the Brexit vote has caused some damage:

Business confidence about the outlook in the service sector has deteriorated to the worst for just over one-and-a-half years, linked primarily to the political and economic instability induced by the UK referendum, pointing to near-term downside risks for an already-lacklustre eurozone economy.

“Policymakers will be reassured by the resilience of the PMI in the immediate aftermath of the Brexit vote, but the fragility of the recovery leaves plenty of room for speculation about further stimulus later in the year.”

Economist Rupert Seggins shows the key points:

UK property company shares are sliding this morning.

Upmarket London estate agent Foxtons have shed almost 5%, and rival real estate firm Countrywide have tumbled almost 8%.

That’s partly due to LSL Property’s Brexit-induced profit warning this morning. But it’s also triggered by a survey from Hometrack, showing that London will bear the brunt of the property slowdown.

Back in the UK.... supermarket chain Sainsbury has been given the green light to take control of the Argos chain.

Here’s an audio clip of chancellor Philip Hammond revealing that he might ‘reset’ UK fiscal policy this autumn.

Thanks to my colleague Matthew Weaver, who is running our Politics Live blog today:

This morning’s economic data is a case of ‘so far, so good’, with Germany’s private sector growing at its fastest pace this year.

Germany’s private sector has shrugged off the Brexit shock.

Market’s German PMI reports, just released, show that manufacturers and service companies kept growing this month - faster than expected.

Updated

UK property firm issues Brexit profit warning

An estate agent’s ‘Sold’ sign outside a property.

Ouch! Shares in UK property firm LSL have slumped by a fifth after it warned that the Brexit vote will hit its profits this year.

LSL, which owns the Your Move chain, has told the City that trading slowed in the run-up to the referendum, and has worsened since as consumer uncertainty has increased.

It no longer expects to hit its targets this year, and warns that full year group operating profit will be “significantly lower” than previously expected.

Shares have tumbled by 21% in early trading.

The French flag

The first of today’s PMI surveys are out...and they show that France’s private sector was flat this month, after shrinking a little in June.

The French composite PMI rose to 50.0in July - the point separating expansion and contraction - up from 49.6 in June.

Markit chief economist Chris Williamson says it’s a decent figure, given everything France has been through recently:

“In the face of the terrorist attack [in Nice] and the Brexit vote, to have the index coming up to 50.0 in a stable economy is perhaps a good result.”

Sam Tombs of Pantheon Economics fears that today’s UK PMIs will show Britain’s economy is contracting this month.

IMF chief Christine Lagarde has called for the uncertainty surrounding Britain’s Brexit vote to be removed as soon as possible.

Speaking to reporters after meeting China’s Premier Li Keqiang, Lagarde also blamed the EU referendum for making the IMF downgrade its global growth forecasts this week.

Hammond: We might reset fiscal policy

Chancellor Philip Hammond has dropped a clear hint that he’ll tear up his predecessor’s tax and spending plans.

During his first overseas visit since becoming Britain’s finance minister, Hammond said that he might have to “reset” fiscal policy when he delivers the autumn statement later this year.

The scale of such a ‘reset’ will depend on how Britain’s economy responds to the Brexit vote. George Osborne’s goal of a budget surplus by the end of the parliament already appears doomed.

Hammond is planning to use his China trip to promote British business opportunities, especially the City. He’ll be telling his hosts that Britain is still open for business.

Updated

UK PMI reports will show Brexit impact

We’ll get the first clear glimpse of how Britain’s economy has fared since the EU referendum this morning.

Markit’s Purchasing Managers Index survey, due at 9.30am, will show if UK manufacturers, construction firms and services companies expanded or contracted in the last few weeks.

The PMI measures activity, output and employment levels, and economists fear they will show the UK economy took a hit after the surprise win for the Leave campaign.

Analysts at RBC Capital Markets explains:

Markit is releasing a special one-off ‘flash’ version of the July UK PMIs today based on ~70% of the normal responses.

The UK PMIs were already drifting lower even ahead of the referendum. Now they are expected to dip below the breakeven level of 50. In the case of services, that would be the first contractionary reading since late 2012.

But...the initial response may evolve as respondents get more political certainty. We will need to see the August PMI surveys in early September to get a more definitive view of the impact on UK activity.

Ipek Ozkardeskaya of London Capital Group warns that the pound could take a hit, if he PMIs are disappointing:

The Agenda: MPs blast Sports Direct; G20 meeting in China

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

There’s lots on the agenda to keep us busy today.

First up, MPs have delivered a withering verdict on Mike Ashley’s Sports Direct empire, warning that conditions are more suited to a Victorian workhouse than a 21st century retail chain.

Eight months after a Guardian investigation, the business, innovation and skills (BIS) select committee concluded that Ashley treated his workers like commodities, not human beings.

They condemned the company’s ‘six strikes and you’re out’ policy, and the use of thousands of zero-hour contracts which left staff in a precarious state.

It’s a pretty devastating verdict on Ashley, who admitted to MPs last month that Sports Direct had failed to pay the minimum wage due to searching staff in their own time.

Luke Primarolo, the regional officer at Unite, says other companies have lessons to learn too:

“Sports Direct is by no means the only company to engage people on such terms.

What this highlights is a wider issue of real work today. The government needs to seriously consider what legislation needs to be put in place to protect people from exploitation.”

Here’s the full story:

Second, finance ministers and central bankers have headed to China for a G20 meeting. Britain’s decision to leave the European Union will be high on the agenda.

Philip Hammond, the UK’s new chancellor, is holding meetings with his Chinese counterparts right now.

Thirdly, we get new PMI surveys showing the state of the European economy this month. Excitingly, this will include a rare ‘flash’ assessment of Britain’s private sector in the first few weeks after the Brexit vote.

Here’s the timings:

  • 8am: French flash PMI for July
  • 9.30am: German flash PMI for July
  • 9am: Eurozone flash PMI for July
  • 9.30am: UK flash PMI for July

European markets are expected to take a breather, as investors ponder whether central banks will deliver more stimulus to fight a downturn.

Updated

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