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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Pound tumbles as UK factory growth slows; RBS criticised over branch closures - as it happened

A steel worker taking iron samples at the Corus Steelworks at Port Talbot South Wales.
A steel worker taking iron samples at the Corus Steelworks at Port Talbot South Wales. Photograph: Alamy Stock Photo

And finally.... RBS’s decision to shut 162 branches across the country has caused a stir in Westminster

Jonathan Reynolds MP, Labour’s Shadow City Minister, is concerned that customer will be left without a local branch - an issue brought into the spotlight by TSB’s tech breakdown.

Reynolds says:

“It’s extremely disappointing to see RBS closing yet more branches and putting more jobs at risk.

“These closures and job losses are devastating for RBS staff and the communities they serve. Concrete plans must be put in place to ensure vulnerable customers do not suffer as a result.

“Under a Labour government, there would be mandatory consultation around the closure of bank branches which includes the regulator. We cannot abandon communities by leaving them without the basic banking infrastructure they need.”

Conservative MP Nicky Morgan is also concerned that some customers will lose access to banking services.

Morgan, who chairs the Treasury committee (which will grill TSB tomorrow), says:

“In recent years, retail banks have made decisions to shrink their branch network on the grounds that more people are banking online. But branches remain vital for many, particularly vulnerable people and those in rural areas.

“As a result of RBS’ decision, there is a risk of increased levels of financial exclusion. It’s important for the Government to monitor this trend. If financial exclusion is increasing, the Government may be required to intervene.”

Afternoon summary: Sterling takes a pounding

Time for a recap:

The pound has fallen sharply to its lowest level since mid-January, as fresh signs of economic weakness undermine the case for raising UK interest rates.

Sterling has shed almost one and a half cents to $1.3633, a fall of 1%.

The pound vs the US dollar over the last year.
The pound vs the US dollar over the last year. Photograph: Thomson Reuters

The selloff came after output in Britain’s manufacturing sector slumped to a 17-month low in April. A new survey of business chiefs found that production, new business and employment growth across the industry slowed.

The Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) fell to 53.9, from 54.9, and closer to the 50-point mar recorded in March.

Economists were expecting a figure of 54.8. A reading above 50 indicates growth.

Rob Dobson, director at IHS Markit, said the UK manufacturing sector lost further steam last month.

“While adverse weather was partly to blame in February and March, there are no excuses for April’s disappointing performance.”

Duncan Johnston, UK manufacturing industry leader at Deloitte, says:

“UK Manufacturing PMI fell further than expected in April 2018. Having been resilient in the first quarter of 2018 this turning point shows a marked decline in manufacturing confidence. Output increased more slowly and new orders arrived at a slower rate than in Q1.

“Falling order backlogs mean that optimism is likely to remain lower for some months. However, on the positive side growth remained above the long-term average of 51.7 and represents almost two years of continuous growth in manufacturing output. Production rose due to strong customer confidence, new products and increased capacity.

“In the coming months, manufacturers need to measure their decisions on increased investment and hiring of staff against these signs of a slowing in output growth.”

In another sign of weakness, consumer credit slowed sharply in March, adding to speculation that the Bank of England will leave interest rates on hold this month.

Influencial investor Mohamed El-Erian of Allianz said weak data is dragging the pound down.

The threat of a trade war was also blamed for hurting business confidence.

On that front.... European politicians are unhappy that they’ve only been given a one-month extension to avoid new US tariffs on steel and aluminium.

France, Germany, the UK and the European Commission are both pushing for a permanent extension, after president Trump decided to delay tariffs until June - while negotiations continue.

In other news:

  • Royal Bank of Scotland has announced the closure of 162 stores, with the loss of nearly 800 jobs.

The slump in the pound has only given the London stock market a small lift. The FTSE 100 had gained 0.2%, while other European markets are closed for May Day.

Wall Street has fallen in early trading, as investors brace for Apple’s earnings after the closing bell

Just in: Growth in America’s manufacturing sector slowed a little last month, but remained robust, according to the latest data from the Institute for Supply Management.

A rival survey from Markit is equally upbeat:

McDonnell backs McDonald's workers over May Day strike

Workers at fast food chain McDonalds have received the backing of Labour’s shadow chancellor as they protest against working conditions.

McDonald’s staff at five restaurants walked out today, as part of their ongoing campain for union recognition and a minimum wage of £10 per hour.

The workers, as Manchester, Cambridge, Crayford in south-east London, and two branches in Watford, formed picket lines outside branches. They chose May Day - or International Workers’ Day - as an ideal time to fight their “exploitative” contracts.

John McDonnell, Labour’s shadow chancellor, says he backs the protests.

He has written to McDonald’s CEO, Steve Easterbrook, to say that the striking workers are behaving in a “fair and reasonable” way.

McDonnell says:

I believe that every worker deserves what these workers are calling for:

1. A real living wage of at least £10 an hour,

2. Security in work and a choice of fixed hours,

3. The right not to be discriminated against on the basis of Age,

4. And the right to form a trade union and for that union to be recognised by your company.

The BFAWU, which supports workers organizing in McDonalds, have informed me that there are allegations that McDonalds is pursuing what could be described as union busting policies and possibly acting illegally in its treatment of workers joining its union.

I am writing to request that you investigate these claims seriously in order to ensure any anti union practices are not being undertaken.

Labour MP Chris Ruane is alarmed that Royal Bank of Scotland are planning to close 162 branches:

Banking expert Ian Fraser isn’t convinced by RBS’s claim that its branches overlap too much:

Sky News’s Adam Parsons has a good theory about what’s going on:

Newsflash: Royal Bank of Scotland has announced it is shutting 162 branches, with the loss of almost 800 jobs.

It’s all because RBS is no longer spinning off its Williams & Glyn business as a separate entity with 300 branches.

An RBS spokesperson said:

“We are no longer launching Williams & Glyn as a challenger bank, and we now have two branch networks operating in close proximity to each other; NatWest and Royal Bank of Scotland, in England & Wales.

As a result we have had to review our overall branch footprint in England and Wales and we’ve made the difficult decision to close a number of Royal Bank of Scotland branches.

Customers of Royal Bank of Scotland in England & Wales will be able to use NatWest branches instead for their everyday banking needs.

RBS is also hoping that customers will move towards using online and mobile banking, although the ongoing crisis at TSB may have deterred some late adopters from making the switch.

Here’s our economics editor Larry Elliott on the slowdown in factory growth...and what it means for UK interest rates.

A group of environmental activists have just disrupted Barclay’s annual general meeting in London.

A group of climate change protesters stormed the meeting, and were forcibly removed after urging Barclays to stop financing environmentally damaging fossil fuel projects.

They chanted: “keep it in the ground” and “no more fossil fuel finance” , and then:

“Barclays bank, we said no! Fossil fuels have got to go!

A student network called People & Planet have said they were behind the protest.

Separately, a 22-year old activist called Ocean Hyland spoke at the AGM - and asked Barclays to reconsider financing a pipeline carrying oil from the tar sands in Alberta through British Columbia to the coast.

Hyland’s nation, Tsleil Waututh, believe the Kinder Morgan pipeline will cause environmental damage.

She explained:

“If built, Kinder Morgan’s project will increase tanker traffic in the inlet 7 fold, bringing with it increased risks of oil spills and pollution. It will also enable the expansion of the Alberta Oil Sands which, in turn will accelerate climate change.

And that is why The Tsleil Waututh Nation will do whatever it takes to stop the Kinder Morgan project.

It’s been a bruising AGM for Barclays, with shareholders accusing CEO Jes Staley of being “irrevocably tarnished” and ask why he hasn’t resigned over the whistleblowing scandal for which he was fined last year.

Updated

A final decision on whether to allow Rupert Murdoch’s 21 Century Fox to buy Sky is close.....

In another worrying sign, UK consumer credit growth slowed sharply in March.

Phillip Inman, economics writer, explains that it could show that people are less confident about economic prospects:

“Consumers cut back sharply on their unsecured borrowing in March. The total borrowed on credit cards dropped from £700m in February to £100m in March, while the total borrowed for other forms of unsecured debt, primarily car loans and overdrafts, fell from £1bn to £100m

The dramatic decline in consumer borrowing follows a clampdown by the chief financial regulator, the Financial Conduct Authority, on bank lending to consumers, which grew by 10% or more on average between 2014 and 2017.

But uncertainty surrounding the Brexit talks is also understood to have played a large role in consumer’s turning away from extra borrowing to fund big ticket purchases like cars and furniture.

The average growth rate in total unsecured lending fell to 0.1% month on month in March, which dragged down the year on year figure to 8.6% from 9.4% in February.

Peter Tutton, head of policy at the debt charity StepChange, fears the accumulation of debt in recent years, especially by poorer households, remained a problem despite the recent slowdown.

He said:

“A decade on from the financial crisis, we must not lose sight of the impact of sustained pressure on already stretched household budgets in coping with the rising daily cost of living. We estimate that severe problem debt currently affects some 3.4 million people in the UK, so tackling and preventing vulnerable households from falling into problem debt should be high on the policymakers’ agenda.

“While the financial system may not be at risk of history repeating itself in terms of systemic failure, at household finances level the risks are all too real.

He said regulators and lenders needed to reduce the number of people inadvertently “trapped in a vicious cycle persistent problem debt” by reviewing who is offered a loan, while the government must support affordable alternatives to affordable credit.

The CBI, which represents British business leaders, says Donald Trump has kicked the (steel) can down the road.

Ben Digby, international director at the CBI, says there is some relief that Europe was given a one-month exemption on steel tariffs - but a permanent deal is still needed.

“Businesses urgently need to know what would have to happen for the exemption to become permanent, to properly reflect the close trading relationship between the USA and the UK - the UK is the largest foreign investor in America, and British companies support over 1 million jobs in the USA, from Alaska to New York.

“Prolonging the uncertainty around these tariffs is a lose-lose for all concerned – it damages prosperity on both sides of the Atlantic. Firms cannot continue making investment decisions based on short-term uncertain deadlines, and we will continue to work closely with the U.S. Administration to protect British trade, jobs and growth.”

The French flag

Getting back to the US tariffs.... and the French government have issued a statement reiterating the EU’s displeasure at Trump’s decision.

Paris warns that they will not open talks over wider trade terms unless he gives the bloc a permanent dispensation from tariffs on steel and aluminium.

Jean-Yves Le Drian, the French foreign minister, and Bruno Le Maire, the finance minister said in a joint statement:

“The French Government takes note of the decision announced by the US authorities regarding the new temporary exemption of one month given to the EU on prices of aluminium and steel. We support the positions expressed by the European Commission.

“France will continue to advocate that the EU has a full exemption permanent and unconditioned. There is no reason that the EU is subject to unilateral increases in tariffs on steel and aluminum. France and the European Union are US allies. They are not the cause of global overcapacity in aluminum and steel and fully respect all the rules of the WTO.

“The EU must remain united and solid as it has done in recent weeks.

“We agree that there is an overcapacity problem in the steel industry and aluminum. We are ready to work with the United States and our other partners to make quick and appropriate solutions. But we can do it calmly until we are certain to be exempted permanently from the threat of unilateral tariff increases.”

Britain’s factories has suffered from the threat of a global trade war, says Stephen Cooper, head of industrial manufacturing at KPMG.

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

“The implications of the postponed US steel tariffs will also be in the back of manufacturers’ minds. Trade wars are never welcome and whilst it’s helpful that the decision has been delayed, this is another example of uncertainty, with other geopolitical risks such as Brexit, which is not good for business confidence.

Pound slides after weak factory data

Sterling has slumped to a three-month low against the US dollar following April’s disappointing manufacturing data.

The pound has shed a whole cent, and is languishing around $1.367, its weakest level since mid-January.

City investors are concluding that the Bank of England is rather unlikely to raise interest rates this month, with so many signs that growth is slowing.

Lee Hopley, chief economist at EEF, the manufacturers’ organisation, is also concerned by the slowdown at UK factories.

“The further slowdown in the rate of expansion in manufacturing activity suggests that the weaker official data seen last week wasn’t a temporary aberration.

A weaker start to the second quarter with a more subdued pace of growth in new overseas business perhaps reflects concerns about the erection of new barriers to trade, the recent pick up in Sterling and a softer growth patch at the start of the year in European markets.

Some snap reaction to the slowdown at Britain’s factories last month:

Business optimism among UK factory bosses has dipped to a five-month low, according to Markit’s survey.

It blames “concerns about Brexit, trade barriers and the overall economic climate”.

Britain’s consumer goods industry had a particularly unimpressive April, says Duncan Brock of the Chartered Institute of Procurement & Supply:

“Any hopes for an improvement to last month’s steady if unremarkable pace were dashed in April as new order growth was the slowest for ten months and the consumer goods sector was particularly hit reporting the first job losses since February 2017 and the fastest drop in hiring for six and a half years.

“It was left to stronger levels of export orders from Europe and the US to provide some succour to manufacturers as concerns over potential rate rises resulted in less client spending overall. This meant manufacturers were adrift with the highest growth of stock levels for ten months on the one hand but struggling to get key raw materials on the other. Higher demand and competition from other firms meant shortages returned to beset companies trying to cope with challenging delivery times as suppliers failed to complete.

UK factory growth hits 17-month low

The slowdown in Britain’s economy has gathered pace, with growth in the manufacturing sector hitting its lowest rate since autumn 2016.

Data firm Markit reports that factory output, new orders and job creation all rose at a slower pace in April - partly due to an easing in demand from overseas.

This pulled Markit’s UK manufacturing PMI down to 53.9, from 54.9 in March (any reading over 50 shows growth).

UK manufacturing PMI

It’s a blow, especially after overall economic growth slowed to near stagnation in January-March this year.

Rob Dobson, director at IHS Markit, says it’s a disappointing result which can’t be blamed on bad weather.

“While adverse weather was partly to blame in February and March, there are no excuses for April’s disappointing performance, making the chances of a near term hike in interest rates by the Bank of England look increasingly remote.

“On this footing, the sector is unlikely to see any improvement on the near-stagnant performance signalled by the opening quarter’s GDP numbers.

I’ll pull together more reaction now.

Updated

Newsflash: UK factory growth has hit a 17-month low.

More to follow.....

Back in the UK, Sainsbury’s chastened CEO won’t be breaking into song when he sees the latest supermarket sales figures.

Data firm Kantar reports that Sainsbury’s only grew its sales by 0.2% in the last 12 weeks. Tesco managed 2.1% growth, Morrisons achieved 2.2%, while Asda’s sales were up by 1.4%.

Such a weak performance by Sainsbury highlights why Coupe has decided to merge with Asda, in the hope of cutting costs and boosting profits.

Media news:

Germany’s government has called for European countries should receive a permanent exemption from America’s tariffs on aluminium and steel.

Echoing the comments from the EU, Berlin argues a deal needs to be reached when Europe’s new extension expires in a month’s time.

Deputy government spokeswoman Martina Fietz says.

Neither the European Union nor the United States can have an interest in an escalation (in tensions) in trade relation.

Rather, both the U.S. and the EU would benefit from further deepening trade relations.”

Australia’s stock market has hit a two-month high, driven by relief that Canberra has reached an “agreement-in-principle” with Washington to avoid steel and aluminium tariffs.

The ASX 200 rose 0.5% to its highest level since the end of February, as Australia’s prime minister, Malcolm Turnbull, hailed the “unbreakable friendship” with America.

Jasper Lawler of London Capital Group says last night’s announcement has reassured investors.

Trump deciding to extend the deadline for his steel and aluminium tariffs helped lift Australian shares to a 7-week high overnight. This is encouraging news and supports the notion that the tariffs are just a negotiating stance by Trump, who in fact has no intention of implementing them.

That said, there is still plenty of uncertainty over the US – China trading relations and the US - Iran nuclear deal to keep investors on edge.

Labour MP Bill Esterson is also unimpressed:

EU: Trump is prolonging the uncertainty

Over in Brussels, there’s real disappointment that Europe hasn’t been given a full exemption from Trump’s steel and aluminium tariffs.

The European Commission feels that the EU should have been given the same treatment as Australia, Argentina and Brazil.

Instead, this new 30-day extension just creates more uncertainty, it feels

An EU spokesperson says:

“The US decision prolongs market uncertainty, which is already affecting business decisions. The EU should be fully and permanently exempted from these measures, as they cannot be justified on the grounds of national security.

“Overcapacity in the steel and aluminium sectors does not originate in the EU. On the contrary, the EU has over the past months engaged at all possible levels with the US and other partners to find a solution to this issue.

“The EU has also consistently indicated its willingness to discuss current market access issues of interest to both sides, but has also made clear that, as a longstanding partner and friend of the US, we will not negotiate under threat. Any future transatlantic work programme has to be balanced and mutually beneficial.

Updated

The UK Government has welcomed the news that Europe has been given an extra month’s exemption on steel tariffs -- and said it hopes to make the relief permanent.

A Department for International Trade spokesman warned that the tariffs could hurt global growth, saying:

“We remain concerned about the impact of these tariffs on global trade and will continue to work with the EU on a multilateral solution to the global problem of overcapacity, as well as to manage the impact on domestic markets.”

The agenda: Trumps steps back from trade wars

President Donald Trump yesterday
President Donald Trump yesterday Photograph: Carolyn Kaster/AP

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

In a dramatic twist, Donald Trump has stepped back from launching a trade war that could have destabilised the global economy and hurt growth.

Overnight, the US president reached “agreements in principle’ with Argentina, Australia, and Brazil to exempt them from the steel and aluminium tariffs announced earlier this year.

And it what could be a narrow escape for Britain’s steel industry, the US administration has postponed the decision on whether to slap tariffs on EU imports for another month.

In a last-minute twist worthy of Trump’s time on The Apprentice, the White House announced it had:

....reached agreements in principle with Argentina, Australia, and Brazil with respect to steel and aluminium, the details of which will be finalized shortly.

The Administration is also extending negotiations with Canada, Mexico, and the European Union for a final 30 days.”

The decision came just hours before 25% penalty on steel imports into America, and 15% on aluminium, would have come into force.

Our Washington correspondent David Smith explains that Trump’s decision delays a trade war with Europe -- at least for another few weeks.

Trump, who ran on a nationalist “America first” agenda, claims the tariffs are needed to protect American metal producers from unfair competition and enhance national security amid a worldwide oversupply of steel and aluminum largely blamed on excess production in China.

At a joint press conference with Merkel at the White House last week, the president said: “We need a reciprocal relationship, which we don’t have ... We’re working on it and we want to make it more fair and the chancellor wants to make it more fair.”

But the move threatens to spark a trade war that could cause turmoil in financial markets. The EU – which is the biggest US trading partner – has warned that, if it is subject to tariffs on the 6.4bn euros’ ($7.7bn) worth of the metals it exports annually to the US, it will retaliate with its own tariffs on 2.8bn euros’ ($3.4bn) worth of US goods imported into Europe including Harley-Davidson motorcycles, Levi’s jeans and Kentucky bourbon.

We’ll be tracking reaction to the move today.

Also coming up...

Data firm Markit is releasing its healthcheck on Britain’s factory sector. April’s manufacturing PMI may show that growth weakened last month.

In the City, oil giant BP has just posted a 71% jump in profits, thanks to rising crude prices. Takeaway ordering chain Just Eat is also reporting results - with revenues up 49% in the first three months of 2018.

There could be drama at Barclays annual general meeting; corporate raider Ed Bramson may show up and call for the bank to be shaken up.

We’ll also be tracking any developments the Sainsbury-Asda merger, which took an unusual twist last night when Sainsbury CEO Mike Coupe was caught singing on camera.

It’s a remarkable gaffe, especially given concerns that the deal will hurt suppliers and cost jobs.

Here’s the agenda

  • 9.30am BST: UK manufacturing PMI for April
  • 10am BST: Treasury committee holds hearing on digital currencies

Updated

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