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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Oil hits $90 per barrel as Saudi Arabia and Russia extend production cuts; UK business activity falls – as it happened

United Kingdom United States Andrew Griffith Barclays FCA Sarah Pritchard Barclaycard Wilko
The production facility of Saudi Aramco's Shaybah oilfield.
The production facility of Saudi Aramco's Shaybah oilfield. Photograph: Ahmed Jadallah/Reuters

Afternoon summary

A quick recap:

The oil price has hit $90 per barrel for the first time this year, as Saudi Arabia and Russia announce they will extend their voluntary production cuts until December.

The move risks pushing up fuel prices, undermining efforts to cool inflation….

….at a time when petrol prices have hit their highest level of the year.

Britain’s private sector economy shrank in August, for the first time since January, as firms were hit by higher interest rates and weak demand.

But car sales have risen for the 13th month running, with electric vehicles taking 20% of the market in August.

Fears about the health of the global economy have intensified following downbeat news about service sector activity in China and the eurozone, as well as the UK.

The discount chain B&M has struck a deal to buy 51 Wilko stores for up to £13m as the stricken retailer’s administrators rush to seal last-minute deals with the fate of thousands of jobs hanging in the balance.

But…. the GMB union has said that administrators for Wilko have confirmed they will make 1,332 workers redundant and close 52 stores, with workers being informed at the latest by 10am on Wednesday.

Birmingham city council, the largest local authority in the country, has in effect declared itself bankrupt after issuing a section 114 notice, signalling that it does not have the resources to balance its budget.

More than half of shoppers fear that they have fallen victim to “skimpflation”, the practice in which basic items are reduced in quality but not in price.

UK chip designer Arm will be valued at up to $52bn when it floats on the US stock market, a new regulatory filing shows.

The success of the weightloss drug Wegovy has helped its Danish manufacturer to overtake the French luxury group LVMH as Europe’s most valuable company.

Updated

PA: Administrators have confirmed 1,332 further redundancies at Wilko, says GMB

The GMB Union has said that administrators for Wilko have confirmed they will make 1,332 workers redundant and close 52 stores, with workers being informed at the latest by 10am on Wednesday, PA Media reports.

It said that 24 of these sites will close on Tuesday September 12, and the remaining 28 will be closed two days later. This will lead to 1,016 redundancies, GMB said.

The job losses also include 299 at the company’s two warehouses. These workers will be invited to a meeting on Wednesday after which they will be allowed to go home, GMB said.

There will be a further 17 redundancies among the company’s digital team at its support centre.

The GMB also said that PwC is still working with a bidder for Wilko “who has made an offer for a significant part of business”.

It added:

“Whilst there remains a possibility that this fails to deliver, we are working extremely hard and doing everything we can to help it over the line.”

Updated

Birmingham city council’s declaration of financial distress today will hurt the community it serves, warns insolvency specialist Tom Davey, director and co-founder at litigation finance broker Factor Risk Management.

He explains:

“The ‘effective bankruptcy’ of Birmingham City Council reveals how the shockwaves of the financial restrictions imposed by the UK government after the 2008 financial crisis are still reverberating.

“As with the RAAC enforced school closures, known risks are left until it is too late, and councils are left in a dire financial state. We have seen this with not only Birmingham, but also with the recent section 114 notice issued by Woking Borough Council.

“This is a story where there are few winners. Stripping back funding to all but the most essential needs, the community will suffer as the local authority runs out of money, and increased pressure is placed on already under-funded and over-stretched services.”

The jump in the oil price today is “bad news on the inflation front”, says Michael Hewson of CMC Markets, and bad for consumers in general.

He adds:

We’re already seeing the impact of this trend in higher input prices in today’s PMI numbers pointing to the prospect that inflation is likely to remain sticky in the weeks and months ahead.

Here’s George Pavel, general manager at Capex.com Middle East on today’s surge in the oil price after Russia and Saudi Arabia extended their production cuts for the remainder of the year.

The strategy has sustained the market’s climb until now and has lifted prices from this year’s dip. As a result, crude prices could continue to see new highs this year even though traders could continue to monitor the demand side. In this regard, the market was briefly under pressure earlier in the day as traders reacted to a series of weaker-than-expected data in Europe and China.

In the Eurozone, PMI figures showed a faster-than-expected decline in economic activity which could affect demand expectations from the area. The eurozone continues to see weak economic growth and high inflation and remains exposed to the ECB’s monetary policy. The European Central Bank could raise interest rates again to fight inflation and could affect demand for oil in the process.

In China, services PMI figures showed a slowdown in activity levels, adding to the concerns about the Chinese economic recovery and its impact on oil demand. Traders could remain focused on any new measures from the Chinese government to boost the economy.

More economic news: Orders at US factories have plunged, ending a run of four monthly gains.

Orders for US manufactured goods fell by 2.1% in July, the Commerce Department says.

That’s slightly better than the 2.3% expected by economists, but still indicates a weakening of demand.

Orders for long-lasting, or durable, goods fell by 5.2%.

Shares in oil giants listed in London have pushed higher too.

BP has gained almost 2%, making it the top riser on the FTSE 100 index, while Shell are 1.3% higher.

US crude oil has also jumped since Saudia Arabia and Russia pledged to extend their production cuts until December.

NYMex light crude is up almost 2% at $87.21 per barrel.

Oil hits $90/barrel as Saudi Arabia and Russia extends cuts

The oil price has hit its highest level of the year, as Saudi Arabia and Russia announce they will extend their voluntary production cuts until December.

Brent crude is up 1.6% at $90.40 per barrel, the highest level since last November.

The Brent crude oil price
The Brent crude oil price over the last year Photograph: Refinitiv

According to a source in the Saudi energy ministry, the Kingdom will extend the voluntary cut of one million barrels per day, which began in July. It has already been extended to cover August and September, and is now being extended for another three months.

It means Saudi Arabia will produce around 9 million barrels of oil per day in October, November, and December.

The source added that this voluntary cut decision will be reviewed monthly to consider deepening the cut or increasing production. The move is meant to “reinforce the precautionary efforts” made by OPEC countries and their allies to balance the oil markets, they say.

Russia will extend its voluntary reduction in oil exports by 300,000 barrels per day (bpd) until the end of the year “to maintain stability and balance” on oil markets, Deputy Prime Minister Alexander Novak said in a statement today.

Rising oil prices will alarm central bankers, as they try to battle inflation, and could push up the cost of fuel higher, above the highs seen this week (see earlier post).

Updated

Pump price of unleaded petrol climbs to highest level this year

The price of petrol on UK forecourts has risen to its highest level so far this year, in a blow to drivers, reports PA Media.

The average pump price of a litre of unleaded petrol stood at 151.7p as of September 4, up from 150.7p the previous week.

It is the seventh weekly jump in a row.

The rise is being driven by an increase in the cost of oil, which has gone up by nearly 12 US dollars a barrel since the start of July to more than 88 US dollars, due to producing group Opec+ reducing its supply.

This has caused the wholesale cost of fuel – what retailers pay – to go up, which in turn has been passed on to drivers.

The average price of a litre of unleaded petrol is now at its highest level since the end of December 2022 and has increased by 9p since early June.

But it is still some way below the peak of 191.6p reached in July 2022.

The average price of diesel has also been rising in recent weeks, climbing from 144.6p a litre in mid-July to 154.7p as of Monday.

All figures have been published by the Department for Energy Security and Net Zero.

The pound dropped to its lowest level since mid-June today, amid concerns over the economic outlook.

Sterling lost almost one cent against the US dollar at one stage, hitting $1.253, a 12-week low.

Concerns about a global economic contraction led by China are hitting the pound today, says Samer Hasn, market analyst at XS.com.

This weakness in the Sterling today came with more negative data coming out of China.

Today, we witnessed the services PMI figures for the month of August, as we saw the slowest pace of growth in service activities in China since December last year, with a reading of 51.8, which was below expectations of 53.6. While the services sector figures came after the manufacturing PMI numbers we saw last week, which came at the highest levels since last February and outperformed expectations that were predicting a continued contraction in manufacturing activities.

The UK has paid a record high interest rate today, as it turned to investors to borrow £5bn for the next 40 years, Reuters reports.

Here’s the details:

Britain sold £5bn of a British 40-year government bond at a record-high yield on Tuesday, despite attracting more than £59bn pounds in orders from investors during the syndication sale process.

The United Kingdom Debt Management Office said the gilt would pay a yield of 4.6562%. This is the highest yield ever across British government bond syndications dating back to 2005, reflecting the sharp rise in borrowing costs over the past year as the Bank of England hiked rates above 5% to curb inflation.

The previous record was set in June 2009, when £7bn of 25-year gilts sold with a yield of 4.646%.

Regular gilt auctions, which sell smaller volumes of gilts, usually with shorter maturities, have seen even higher yields in recent months.

Arm targets valuation of up to $52bn in IPO

Chip designer Arm is pressing on with its plans to float on the New York stock market, but will raise less than its owner Softbank had hoped.

Arm has filed an amended document with the SEC which shows that it aims to sell 95.5m shares, at a price of between $47 and $51. That would raise up to $4.87bn for Softbank.

Softbank would hold over 90% of Arm’s shares after the IPO, indicating the Cambridge-based semiconductor designer would be valued at between $48bn and $52bn.

That’s a substantial cut from the $64bn value which Softbank had put on Arm last month when it bought the 25% that it did not already own from Saudi Arabia’s Vision Fund.

Even at this lower valuation, Arm could still be the biggest initial public offering of the year so far. And it will also deliver a fees bonanza for bankers handling the deal.

According to Bloomberg, the investment banks working on Arm’s initial public offering are set to share 2% of the funds raised by Softbank, implying they could receive around $100m of fees.

Arm’s amended F-1 filing also shows that many major clients, or ‘cornerstone investors’, have expressed interest in buying Arm shares in the IPO. This includes Advanced Micro Devices, Apple, Cadence Design System, Google International, Intel, MediaTek, Nvidia, Samsung, Synopsys and TSMC Partners.

Updated

Chancellor Jeremy Hunt has told MPs he will deliver an autumn statement on November 22.

Last month, Hunt played down the prospect of pre-election tax cuts, despite the UK borrowing less than expected in July.

He now faces the prospect of increased spending to tackle the school crumbling concrete crisis.

The UK wasn’t the only economy to struggle last month.

Germany’s service sector slipped back into contraction in August after having grown throughout the first seven months of the year, according to the latest poll of purchasing managers.

German businesses were hit by weakening demand, and strong inflationary pressures, at a time when its economy has not grown for the last nine months.

G20 urged to increase taxes on the rich

Developed and emerging economies must use a summit this weekend to forge an international agreement to increase wealth taxes on the global rich, campaigners have said.

In an open letter to the G20 before its meeting in Delhi, the group of almost 300 millionaires, economists and politicians say urgent action is needed to prevent extreme wealth “corroding our collective future”.

The letter, whose signatories include the Disney heiress Abigail Disney and the artists Brian Eno and Richard Curtis, urges the G20 to demonstrate the same global cooperation it showed in ensuring multinational companies pay a minimum level of tax to agree collectively to tax wealth.

More here:

B&M deal is a "small glimmer of hope” for Wilko staff

Today’s sale of 51 stores to B&M offers “a small glimmer of hope” for the Wilko employees at the sites to be acquired, says Jeremy Whiteson, restructuring and insolvency partner at law firm Fladgate.

While reports so far have not confirmed the position of employees, if B&M wants to continue to operate a similar business from these sites, it is likely that contracts of employees engaged at those sites will be automatically transferred to the buyer as a matter of law. That is the effect of the “TUPE regulations”- a piece of employee protection legislation.

“If the regulations apply (which can be a difficult analysis based on which assets are acquired and the buyers plans for the site), employees would be kept in employment on the same terms as they had with Wilko.

But employees at other Wilko sites remain in the dark about their future, Whiteson adds:

“Unfortunately, the B&M deal is less likely to offer any benefit for employees based at other locations. Although, as other bidders are continuing discussions, it is possible that other sites are yet to be acquired.

“As no remaining bidders seem to be interested in taking the whole chain, the reality may be that the worst performing stores, and the employees based at them, are facing a difficult future.”

Full story: B&M strikes deal to buy 51 Wilko stores for up to £13m

The discount chain B&M has struck a deal to buy 51 Wilko stores for up to £13m as the stricken retailer’s administrators rush to seal last-minute deals with the fate of thousands of jobs hanging in the balance, my colleague Mark Sweney reports.

B&M, one of the UK’s most successful discount retailers with a market value of £5bn and 1,100 outlets nationwide and in France, said it would acquire “up to 51” Wilko sites for a “maximum aggregate consideration” of £13m.

B&M is one of a number of suitors hoping to snap up parts of Wilko’s 400-store chain that fit their own expansion plans.

Administrators at PwC are also in talks with other potential suitors including Poundland, Home Bargains and The Range about saving some of Wilko’s stores. More here:

FCA launches review of treatment of Politically Exposed Persons

The FCA has warned it will take “prompt action” if a fresh review finds that UK banks are treating politicians and their families unfairly, by denying accounts or running excessive checks on their transactions.

The regulator made the comments as it formally launched its review into rules surrounding the treatment of politically-exposed persons (PEPs).

While the review was originally set in motion by the passing of the Financial Services and Markets Bill in June, attention ballooned in July when former Ukip leader Nigel Farage had a spat with NatWest over a decision to close his accounts at its exclusive private bank, Coutts.

Banks are currently required to closely monitor the accounts and transactions of PEPs, who include MPs, peers, leaders of UK political parties and senior ranking military officers, as well as their family members and close associates.

But the FCA’s newly-launched review will consider how firms are applying the definition of PEPs, whether they are conducting proportionate risk assessments and applying due diligence and monitoring accounts “in line with risk”. It will also look at how banks are deciding to reject or close accounts for PEPs, how they are communicating those decisions, and whether they are keeping their PEP controls under review to “ensure they remain appropriate.”

The FCA is expected to share its findings by June 2024, after which the FCA will decide whether whether it needs to update its guidance

In the interim, the regulator could deploy a deeper probe into an individual banks’ practices, apply additional supervision, or – if it finds serious serious harm – could apply its enforcement powers which go as far as fines.

The terms of the review were published hours after one of the FCA’s executive directors, Sarah Pritchard, wrote in the Telegraph warning that banks which wrongly deny accounts to politicians and their families face the prospect of being fined.

Analyst reaction to Wilko store sale

Orwa Mohamad, analyst at Third Bridge, reckons B&M may have cherrypicked the most profitable of Wilko’s stores by buying 50 today (see earlier post), saying:

“B&M’s ambition to get to 950 has been given a significant boost by the potential cherry picking of Wilko’s best stores, i.e. the ones that are most profitable.”

“B&M’s general focus on out-of-town locations means it can incorporate many of Wilko’s high street stores and locations with limited cannibalisation impact.”

“From an assortment perspective, there’s a high degree of crossover between Wilko & B&M in households, garden, toys, accessories. Quite often, Wilko & B&M sell the same product, meaning consumers have a strong incentive to continue frequenting those stores regardless of the banner.”

Updated

Global financial watchdog warns of ‘further challenges and shocks’ ahead

The world’s most powerful financial watchdog has warned of “further challenges and shocks” in the months ahead.

Klaas Knot, chair of the Financial Stability Board, has told leaders of the G20 countries that high interest rates are undermining economic recoveries.

In a letter to the G20 ahead of their summit in New Delhi this week, Knot points out that relatively strong and persistent inflation has seen financial conditions tighten and interest rates rise strongly in many jurisdictions over the past year.

Higher borrowing costs, and a slowing growth outlook, could impair the capacity of borrowers to service the historically high stock of outstanding global debt, creating challenges for both bank and non-bank lenders, he fears.

Knot says:

The global economic recovery is losing momentum, and the effects of the rise in interest rates in major economies are increasingly being felt.

And he reminds them of the problems in the banking sector earlier this year, which led to the collapse or rescue of several US regional lenders, and the takeover of Credit Suisse by UBS.

The individual cases of banking sector stress earlier this year were a stark reminder of the speed with which vulnerabilities can be exposed in the current environment. The FSB is committed to learning lessons from this event.

At the same time, it is encouraging – and a testament to the G20 reforms since the GFC [Great Financial Crisis] – that the strains faced by individual banks did not cascade into a full-blown crisis.

Knot concluded by warning:

There will certainly be further challenges and shocks facing the global financial system in the months and years to come.

This chart, from this morning’s UK PMI report, shows how UK business activity fell for the first time since January:

UK PMI report for August 2023

Here’s EY Item Club on the news that UK private sector activity declined last month:

  • August’s services Purchasing Managers’ Index (PMI) pointed to a contraction in UK private sector activity. The EY ITEM Club still thinks GDP is likely to grow modestly in Q3 as the drags from some idiosyncratic factors fade. But today’s evidence of a decline in new orders suggests that the long-term outlook is gloomy.

  • Cost and price pressures eased again. Recent upside surprises in the official pay data mean another 25bps rate rise at this month’s Monetary Policy Committee (MPC) meeting remains likely, if not certain. But today’s more dovish survey results reinforce the EY ITEM Club’s view that the current rate rising cycle is close to a halt.

Birmingham City Council issues Section 114 notice as it enters financial distress

Another UK council has declared itself to be in financial distress.

Birmingham Council has issued a Section 114 notice this morning, which is the last resort for financially struggling councils and an admission that it cannot balance its books.

A Section 114 notice requires the authority to stop all but the essential spending needed to provide vital services, pay staff and meet its legal duties, while it works out a way of stabilising its finances.

The Birmingham Mail has more details:

The news is a massive blow to the council, its staff and the city’s residents. It comes after a desperate attempt by officers to resolve the catastrophic financial straits the Labour-run council finds itself in.

A massive equal pay liability - thought to now top £1 billion - along with the costs of putting right a disastrous IT implementation programme, and the rising costs of meeting demand for adult social care, the housing crisis and children’s services, have all taken their toll.

Last December, Thurrock council formally declared effective bankruptcy when it issued a Section 114 notice, while Woking Council issued its own Section 114 in June, having run up a £1.2bn deficit.

Updated

B&M buys up to 51 Wilko stores for £13 million

Newsflash: discount retail group B&M European Value Retail has confirmed that it has agreed to buy up to 51 Wilko stores, at cost of up to £13m.

The move comes after Wilko fell into administration last month, with insolvency experts from PwC spending recent weeks seeking to hammer out a rescue deal for the historic retailer.

In a statement to the City, B&M says:

The consideration is fully funded from existing cash reserves and the acquisition is not expected to be conditional on any regulatory clearances.

An update on the timing of these new store openings will be provided in the H1 interim results announcement on 9 November 2023.

This follows reports this morning (see here) that hopes of a broader rescue deal for Wilko involving Doug Putman, the owner of HMV, were faltering, as some key suppliers want outstanding debts repaid upfront.

Updated

The slowdown in the UK economy last month may make it harder for jobseekers to find roles as the winter approaches.

Dr John Glen, chief economist at the Chartered Institute of Procurement & Supply (CIPS), explains:

Capacity opened up at the greatest level for three years as backlogs declined, so staff hiring was more muted, reducing job seeker opportunities as prospects for the UK economy become colder

Glen also warns that the increase in interest rates to a 15-year high is hurting the economy.

“August painted a concerning picture of the services sector as the cooling economic effects of higher interest rates started to impact on spending and confidence, reducing the number of new orders at the fastest rate since last December.

This combined with punishing costs of living and doing business, mainly due to higher energy bills, fuel prices and salary inflation, meant supply chain managers voiced their disquiet at the direction of travel for the service sector which fell into contraction this month.

Though the sector’s shrinkage was marginal, the hesitation to commit is likely to be the landscape for the next few months as the UK economy becomes a riskier environment for domestic and overseas business alike and competition amongst service providers intensifies.

UK businesses hit by fastest slowdown since January

The UK private sector has shrunk for the first time since January, with firms hit by weakening activity as higher interest rates hit demand.

The latest survey of UK purchasing managers, just released, shows that the UK services sector shrank slightly in August, due to weaker business and consumer spending.

New orders fell, as higher borrowing costs hit client demand.

This pulled the S&P Global / CIPS UK Services PMI down to 49.5 in August, down from 51.5 in July and the lowest since January. Any reading below 50 indicates a contraction.

This follows a sharp fall in the manufacturing PMI last Friday, which raised fears that the UK could be falling into recession.

Overall, there was a “marginal” reduction in private sector output during August, with the composite PMI dropping to 48.6 from 50.8 in July.

Tim Moore, economics director at S&P Global Market Intelligence, explains:

“Service providers saw customer spending reverse course during August as higher borrowing costs, subdued business confidence, and stretched household finances all acted to curtail sales opportunities.

After a modest recovery over the past six months, service sector businesses are now clearly feeling the impact of rising interest rates on client demand. Worries about the broader business climate also dampened spending in August, with firms suggesting that faltering UK economic growth and sticky inflation were weighing on the outlook.

Adding to signs of reduced pressure on business capacity, the latest survey indicated that backlogs of work decreased at the fastest pace for over three years. Service providers appear to have gently put the brake on staff hiring, with job creation easing to its lowest since March.

Updated

The chairman of supermarket Asda says UK consumers are thinking very hard about spending on so-called big ticket items.

Stuart Rose told LBC radio this morning that:

“There is no doubt about it, public confidence is down, people are thoughtful about spending money because they have to be, people are very thoughtful about big ticket spending.”

Sky: B&M swoops on 50 Wilko stores as Putman rescue deal falters

Sky News are reporting that B&M European Value Retail is poised to swoop on scores of Wilko stores as hopes falter of a broader rescue deal involving the HMV owner.

They say:

Sky News has learnt that B&M could announce the acquisition of around 50 Wilko shops as soon as Tuesday morning, with the chain’s administrators said by industry sources to be on the brink of announcing the first closures from its estate.

One retail executive said that Doug Putman, who had been edging towards a rescue deal in recent days, was now engaged in talks about reshaping the transaction to incorporate approximately 200 stores.

Mr Putman is said to have encountered difficulties during talks with Wilko suppliers despite having provisionally secured financing from Gordon Brothers for a deal to acquire about 300 stores.

Reminder, we reported last night that some of Wilko’s key suppliers want outstanding debts repaid upfront to guarantee continuing to provide products to the chain, which is hampering efforts to agree a deal.

Updated

New car market enters second year of growth as August registrations rise 24.4%.

It’s official: UK new car registrations rose by 24.4% year-on-year in August, as the new car market enters second year of growth.

The Society of Motor Manufacturers and Traders (SMMT) has reported that 85,657 new vehicles were registered last month, almost 16,800 more than a year earlier. It’s the 13th monthly rise in sales in a row, as expected (see opening post).

But, that still leaves the market around 7.5% below its pre-pandemic levels.

Battery electric cars took their highest monthly market share for the year, accounting for 20.1% of new cars reaching the road – with 17,243 BEVs registered in August.

The SMMT explains:

Demand for electrified vehicles continued to grow, accounting for almost four in 10 (37.8%) new cars reaching the road.

Battery electric vehicle uptake swelled by 72.3% to secure a 20.1% market share, an August record and the highest recorded since last December.

Plug-in hybrid uptake also rose significantly, by 70.0%, to account for 7.7% of new registrations. Hybrid volumes remained relatively stable with a 6.8% increase, comprising 10.0% of the market.

Sales of diesel cars were down 18% to 3,647, while perol registrations rose almost 10% to 34,756.

Eurozone output shrinks at fastest rate in nearly three years

Just in: output in the eurozone economy declined at the fastest rate in nearly three years in August, as services activity across the region declined.

The latest survey of eurozone purchasing managers, just released by S&P Global shows that activity fell at the fastest rate since November 2020.

The declined was broad-based, with service sector activity shrinking for the first time in 2023. New orders also dropped the most since late-2020, prompting companies to completing outstanding work at the fastest rate in over three years.

Worryingly, input price inflation accelerated for the first time since September 2022, as firms paid more for their raw materials and other costs.

But the average increase in prices charged for goods and services was the slowest in two-and-a-half years.

FTSE 100 drops in early trading

Shares have opened lower in London, as the slowdown in China’s service sector worries investors.

The blue-chip FTSE 100 index is down 56 points, or 0.75%, at 7397 points this morning.

Susannah Streeter head of money and markets at Hargreaves Lansdown, explains:

Sentiment has turned downbeat again on China as fresh brushstrokes are painted on the picture of its slowing economy. The closely watched Caixin PMI data showed growth in the services sector decelerating by more than expected.

Services had been a brighter spot in the economy, with hopes that consumers would continue to spend on trips out and education, but demand is turning more sluggish with any stimulus efforts to spur spending not hitting the mark.

UK retailers such as B&M (-5.5%), Ocado (-3.3%), Tesco (-2.8%) and Sainsbury (-2.2%) are also in the fallers.

Victoria Scholar, Head of Investment at interactive investor, says:

“European markets have opened in the red, taking their cues from a weaker session overnight in Asia. The FTSE 100 is under pressure dragged down by Ashtead Group after the equipment rental company cut its annual UK revenue growth forecast.

Retail stocks like B&M Europe Value Retail, Tesco and Sainsbury’s are also near the bottom of the basket amid a busy day for economic data in the sector with retail sales and consumer spending figures out this morning.

Updated

Growth in China’s service sector has slowed to the lowest rate since Beijing ended its Covid-19 lockdowns at the end of last year.

Official data this morning shows that China’s services activity expanded at the slowest pace in eight months in August, as companies were hit by weak demand.

That’s according to the Caixin/S&P Global services purchasing managers’ index (PMI), which dropped to 51.8 in August from 54.1 in July.

It’s the lowest reading since last December when COVID-19 confined many consumers to their homes, and closer to the 50-point mark which shows stagnation.

This has hit the Australian dollar, as it indicates that there could be weaker demand for commodities from China.

Updated

How Guardian highlighted rising Skimpflation problem

My colleague Hilary Osborne has been investigating the growing problem of Skimpflation for some time.

Back in July, she highlighted how supermarkets and manufacturers have been quietly changing recipes and reducing the size of some products to keep shelf prices down.

Examples of this new unwelcome trend include:

  • Morrisons Guacamole The ingredients used to include 80% avocado and 5% red onion but now show 77% avocado and an unspecified amount of onion.

  • Aldi Specially Selected Pesto Rosso 190g This used to contain 33% extra virgin olive oil and 26% rehydrated sun-dried tomatoes; now it is 27% extra virgin olive oil and 23% rehydrated sun-dried tomatoes.

  • Tesco Soft Extra Large Tissues These had been 300mm x 260mm but measured 280mm x 235mm in Guardian Money’s test.

  • Tesco Springforce Jumbo Kitchen Towel Sheets used to be 210mm x 210mm but are now 195mm x 200mm, according to our test.

  • Aldi Bramwells Real Mayonnaise It used to list 9% egg yolk but now lists 6% egg and 1.5% egg yolk.

  • Bertolli, Morrisons and Sainsbury’s olive oil spreads In these spreads, too, 21% olive oil has been reduced to 10%.

More here:

Updated

Over in Australia, the boss of airline Qantas is leaving his job immediately — two months earlier than planned — following a series of embarrassing revelations about the company, including allegations it sold tickets for flights that had already been canceled.

Chief Executive Alan Joyce said that after 15 years running the national carrier he was bringing forward his planned retirement date.

Joyce, who had been due to leave in November, said

“In the last few weeks, the focus on Qantas and events of the past make it clear to me that the company needs to move ahead with its renewal as a priority.

“The best thing I can do under these circumstances is to bring forward my retirement and hand over to Vanessa [Hudson, Qantas’s managing director] and the new management team now, knowing they will do an excellent job.”

Ele Clark, Which? retail editor, has warned food producers that they risk undermining customer trust by engaging in skimpflation:

“Shoppers might spot a smaller pack size or higher price before they get to the till, but they’re unlikely to notice a recipe change until they’ve bought the product and sampled it.

“Quietly altering recipes to cut costs at a time when many people have a lot less to spend won’t help rebuild dwindling trust in the food sector, so it’s important that manufacturers and supermarkets are upfront about changes to popular products – that way customers can make an informed choice.”

FT: More than one in eight UK bank branches to close this year

Speaking of banks….More than one in eight UK bank branches that were open at the start of 2023 will have closed by December, the Financial Times reports this morning.

This means that almost three-fifths of the network will have vanished since 2015, making banking harder for customers in more rural areas or who haven’t embraced electronic banking.

“A closed bank branch doesn’t just mean one less place to withdraw or deposit cash locally,” said Sam Richardson, deputy editor of consumer rights magazine Which? Money.

“[It] also makes getting access to face-to-face banking services harder — something that is particularly important for more vulnerable customers.”

Financial Times analysis, based on data from ATM provider LINK, shows that a total of 636 bank branches are due to close by the end of this year, with 424 having closed so far.

Some 42 more have already been announced for 2024.

Updated

Banks that wrongly deny accounts to politicians face fines, watchdog warns

An executive at the Financial Conduct Authority (FCA) has warned banks that the regulator will take action if they wrongly deny politicians or their families access to services.

Following the row over Nigel Farage’s bank account at Coutts, FCA executive director Sarah Pritchard said they are reviewing whether financial institutions are being “proportionate” in their risk assessments of politically exposed persons (PEPs).

Writing in the Daily Telegraph today, Pritchard says the FCA will take action if it finds that banks and others are “more tick-box than risk-based” in their approach to PEPs.

She explains:

The UK is one of more than 200 countries and jurisdictions that have signed up to additional financial checks on senior figures in public life, known as Politically Exposed Persons. Here, Parliament has written those standards into law.

In response to these requirements, it is necessary and proportionate for banks to ask those with power for more information about sources of wealth and financial connections, for example. But an appropriate level of inquiry should not feel like the financial equivalent of someone rifling through your bin. We have heard that often it has, particularly for the families of political figures.

City minister Andrew Griffith has welcomed the move:

Britain’s retailers have received a boost from consumers making themselves beach-ready by increasing their spending on skincare and makeup before their summer holidays, despite the cost of living crisis.

The British Retail Consortium (BRC) said sales of health and beauty products helped drive up spending on the high street as shoppers made the most of brief spells of sunshine in August, although squeezed consumers were holding back elsewhere.

Separate figures from Barclays showed that pharmacy and health and beauty stores benefited from pre-holiday purchases, with a 5.2% rise in sales likely due to holidaymakers buying suncream and other toiletries for trips away.

The BRC said total sales rose by 4.1% compared with a year earlier, above the annual average growth rate, to recover from a disappointing month in July. However, much of the rise was the result of high inflation pushing up the value of goods being sold, masking weaker sales volumes.

Consumers hit by ‘skimpflation’ in quality of supermarket food and drink

UK consumers are suffering from a bout of “Skimpflation”, as manufacturers downgrade the ingredients in certain food and drink products.

Over half the Brits surveyed by Barclaycard reported that some of the food and drink products they buy have been downgraded in terms of quality or the quantity of premium ingredients, yet still cost the same or more than they used to.

Within this group, the most frequently cited skimpflation examples include crisps (44 per cent), sweets and chocolate (43 per cent), and cakes and biscuits (36 per cent).

A fifth also feel takeaways (22 per cent) and restaurant meals (20 per cent) are decreasing in quality without a corresponding fall in price.

Barclaycard also report that this ongoing trend also extends to non-food products, such as clothing, toilet paper and toiletries and cosmetics.

Food and non-food producers have been hit by rising input costs over the last 18 months, prompting them to turn to cheaper raw materials.

They’ve also been cutting the size of some items – the practice known as “Shrinkflation”. Chocolate, crisps and packs of biscuits remain the top products identified as being impacted by this ongoing trend.

Barclays also reports that consumer card spending grew 2.8% year-on-year in August. That’s below the rate of inflation (6.8% in July), indicating that shoppers bought less.

Esme Harwood, director at Barclays, explains:

“The rainy weather impacted high street and hospitality venues in August, but Brits were still keen to spend on memorable summer experiences. The huge Box Office success of ‘Barbie’ and ‘Oppenheimer’ meant entertainment enjoyed another strong month, while holidays abroad boosted international travel and pharmacy, health & beauty stores.

“Shrinkflation – and now “skimpflation” – are increasing concerns for value-seeking shoppers. However, Brits’ confidence in their household finances is unwavering, suggesting they remain resilient in the face of these inflationary pressures.”

Updated

Introduction: UK car sales rise for 13th month running

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

UK car sales have now climbed for more than a year, despite the cost of living squeeze, as motorists shift to electric vehicles.

Data due this morning is expected to show that new car registrations in Britain rose for the 13th consecutive month in August, rising more than 20% from a year earlier.

That’s according to preliminary industry data from the Society of Motor Manufacturers and Traders (SMMT), with the final data due at 9am.

A growing number of those cars will be EVs from China – its share of the European electric car market has more than doubled in less than two years.

My colleague Jasper Jolly explains:

The UK is the largest market in Europe for Chinese electric car brands, accounting for almost a third of sales in 2023 so far, according to data from Schmidt Automotive Research on the 18 largest European car markets. About 5% of all new car sales in the UK were from Chinese brands in the first seven months of 2023, a market share second only to Sweden.

Sales are accelerating: Chinese carmakers sold almost the same number of electric cars in Europe in the first seven months of 2023 as they did in the entirety of 2022.

Chinese brands have long struggled to break into Europe because of a reputation for lower-quality cars. However, some analysts believe the advent of new battery electric technology has wiped the slate clean for Chinese brands, and sales are booming.

Also coming up today

The latest surveys of purchasing managers at UK service sector companies, and across the eurozone.

We’ll be tracking the situation at stricken UK retailer Wilko, which fell into administration last month.

It emerged last night that a rescue deal to save the majority of Wilko’s stores has been put at risk as some key suppliers want outstanding debts repaid upfront to guarantee continuing to provide products to the chain.

Investors will be digesting Australia’s central bank’s latest meeting overnight, where it left interest rates on hold again:

The agenda

  • 9am BST: UK car sales report for August

  • 9.00am BST: Eurozone service sector PMI report for August

  • 9.30am BST: UK service sector PMI report for August

  • 10am BST: Eurozone PPI survey of producer prices

  • 10.30am BST: South Africa’s Q2 2023 GDP report

  • 3pm BST: US factory orders for July

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