Get all your news in one place.
100’s of premium titles.
One app.
Start reading
The Guardian - UK
The Guardian - UK
Business
Graeme Wearden (until 3.15pm) and Nick Fletcher

Trump doubles Turkish tariffs as lira plunges to record lows - as it happened

Turkish President Recep Tayyip Erdogan greeting the crowd during his meeting in Bayburt today
Turkish President Recep Tayyip Erdogan greeting the crowd during his meeting in Bayburt today Photograph: Anadolu Agency/Getty Images

European markets hit by Turkish problems

The Turkish lira was already under pressure this week on concerns about the country’s economy, but Donald Trump’s tweet threatening to double tariffs on steel and aluminium sent the currency tumbling to new lows. The fallout saw European markets fall sharply, with investors worried about contagion effects, particularly on banks exposed to the Turkish currency. The escalation of yet another trade dispute hit not only European and emerging markets but Wall Street as well. The final scores in Europe showed:

  • The FTSE 100 fell 74.76 points or 0.97% to 7667.01
  • Germany’s Dax dropped 1.99% to 12,424.35
  • France’s Cac closed 1.59% lower at 5414.68
  • Italy’s FTSE MIB finished down 2.51% at 21,090.78
  • Spain’s Ibex ended 1.56% lower at 9602.1
  • In Greece, the Athens market lost 1.45% to 743.73

On Wall Street, the Dow Jones Industrial Average is currently down 191 points or 0.75%.

On the currency markets the Turkish lira, down 20% at one point, is 15.6% lower.

The pound is also under pressure, as continuing Brexit concerns outweighed improving growth figures (although manufacturing moved into recession). Against the dollar sterling is down 0.6% at $1.2742 but it improved 0.5% to €1.1183 against a euro which has been weakened by worries about European banks’ exposure to Turkey.

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

Here’s our story on Turkey’s problems:

Turkey’s unfolding economic crisis has deepened further after Donald Trump announced he is doubling US import tariffs on Turkish steel and aluminium, stoking the country’s currency freefall and rattling financial markets.

The Turkish lira plunged by more than 20% against the dollar after the president announced the move, amid a widening dispute between Washington and Ankara over the imprisonment of the US pastor Andrew Brunson.

Pressure has been applied on the country in recent days to stage an emergency interest rate rise to avert further economic damage.

Revealing an increase in US taxes on Turkish steel imports to 50% and on aluminium to 20%, the president tweeted: “Our relations with Turkey are not good at this time!”

The full report is here:

The fallout from Turkey is unlikely to be felt too strongly elsewhere despite fears of contagion, says John Higgins at Capital Economics:

Our view is that Turkey’s problems will continue to mount in the face of excessively loose monetary and fiscal policy...Despite a vague acknowledgement by the country’s finance minister of the need for somewhat tighter policy, Friday’s plan was devoid of detail and followed an anti-market diatribe from President Erdogan.

We don’t think that Turkey’s growing difficulties will cause a lot of trouble elsewhere, though. This includes in other emerging markets [EMs], which tend to have limited trade and financial ties with, as well as smaller current account deficits than, Turkey. Meanwhile, the fragilities in Turkey’s banking sector that are now grabbing attention are more acute than in most other EMs.

Having said all of this, Turkey’s woes are another headwind facing EMs that has arisen in the past few months: China’s economy is now slowing, EMs are now tightening monetary policy and the trade war is escalating. So the situation in Turkey could worsen sentiment towards EMs and also strengthens our view that EM growth will weaken.

Of course, investors are also worried about the implications of Turkey’s problems for the euro-zone’s banking system and economy. But while these concerns add to the long list of recent headwinds for the euro, neither the overall exposure of banks in the euro-zone to Turkey nor the direct links between the region’s economy and the country is large.

This is also the case for the wider world. The exposure of US and UK banks to Turkey is negligible. And Turkey’s economy accounts for just one percent of the global economy at market exchange rates.

Heading into the market close in Europe, and investors have taken fright at the Turkish problems, with worries about contagion uppermost in their minds. David Madden, market analyst at CMC Markets UK, says:

European stock markets have been rocked by the plunge in the Turkish lira. The European Central Bank (ECB) warned that a number of eurozone banks might be exposed to the sharp decline in the Turkish lira.

A number of Spanish, French and Italian banks are connected to Turkey in the form of foreign denominated loans, and if the Turkish borrowers haven’t hedged their exposure it might spark defaults. Should European banks incur write-downs on account of the Turkish currency crisis, investment sentiment is likely to be weak. Many financial institutions in Europe have their own non-performing loans to contend with, and they could be facing a similar situation in Turkey.

Reuters’ Jamie McGeever has put today’s fall in the Turkish lira into context:

Here’s Bloomberg’s energy editor on Turkish steel exports, which will now be hit by the new Trump tariffs:

Erdogan is now repeating his previous pleas to buy lira:

The situation for Turkey looks bleak and it is entirely of its own making, says Jan Dehn, head of research at investment manager Ashmore Group:

The situation unfolding in Turkey is fluid, but essentially unsurprising. Any emerging market investor who has done even a modicum of due diligence will be aware of the monetary policy problems Turkey has been running for years. President Erdogan’s consistent pressure on the central bank to keep interest rates low – a product of his erroneous belief that high interest rates lead to inflation – has brought Turkey’s macroeconomic situation into serious imbalance, hence placing the country in a vulnerable position. The chickens have now come home to roost.

US President Donald Trump has, in typical fashion, wasted no time in exploiting a minor diplomatic spat over an American pastor jailed in Turkey to add insult to Turkey’s largely self-inflicted injuries by slapping tariffs on Turkey – which will further exacerbate today’s slide.

The outlook for Turkey from here remains bleak. Ten years of macroeconomic mismanagement will take a long time to fix even if Turkey begins to follow sensible economic policies from here on out. A recession, and possibly a banking crisis, now look extremely likely. Does Erdogan understand how serious the situation has become? Does he suffer from the ‘dictator problem’, in which his advisers are scared to give him bad news and prudent advice? One thing seems clear now: if Erdogan continues to blame ‘the economic war’ and the ‘interest rate lobby’ then the outlook is even more complicated and any macroeconomic improvement less plausible.

We remain underweight Turkey as we have done for some time, but it’s important to remember that this is almost entirely a self-inflicted Turkish issue. No other emerging market country has a president who believes higher rates cause inflation. Investor sentiment towards EM more widely can temporary weaken, which is normal in periods of risk aversion, but such price action is not justified. If asset prices decline in other EMs just because Turkey does not have its house in order this should be viewed as a buying opportunity and exploited ruthlessly.

Earlier Turkey’s finance minister - and Erdogan’s son-in-law had also tried to ease fears about the country’s economy, including concerns about the central bank’s independence. Associated Press reports:

In a bid to ease investor concerns about Turkey’s economic policy, the country’s finance minister says the government will safeguard the independence of the central bank.

Treasury and Finance Minister Berat Albayrak on Friday also vowed sustainable and healthy economic growth as well as “strong struggle” against inflation, which currently stands at close to 16 percent.

Albayrak was speaking at a conference where he outlined his ministry’s “new economic policy” as the currency plunged, raising questions about the country’s financial stability.

He said: “One of our principles will be ensuring the full independence of monetary policy.”

Investors are worried about the president’s unorthodox economic policies, pressure exerted on the central bank, and a dispute with the United States that has led to sanctions.

Before his second speech and after Donald Trump’s speech, Erdogan was reportedly in contact with Russia:

Erdogan says ignore foreign exchange prices

Turkish president Erdogan is making a second speech at the moment.

He is currently talking about infrastructure spending, including better roads and tunnels.

He says forget the lira, forget currencies and talks about being in love with the Turkish people.

Updated

Neil Wilson, chief market analyst at Markets.com, also sees echoes of the Greek troubles:

If you’re looking for a black swan event, this could be it, although we must stress that so the panic is very much confined to Turkey. Nevertheless, ghosts of Greece are still vivid in the memory for European investors and today is the first sign that the problem with Turkey’s larger dollar debts is no longer confined to its borders.

Three summers ago, Greece was forced to impose capital controls to prevent a run on its banks, as its future in the eurozone hung in the balance.

Gavin Friend, senior market strategist at National Australia Bank, believes Turkey could soon be forced into similar measures:

“Though hiking rates would be the market’s preferred option for Turkey to stem this crisis and help deal with inflation this seems unlikely given what we heard from President Erdogan today.

If we assume IMF assistance is out of the question from both sides, that leaves capital controls. That is problematic given Turkey’s need for foreign inflows - but of course they won’t be coming for now and stemming the flow the other way is the issue. This won’t help in building trust between Turkey and international investors.

Why Turkey is facing a financial crisis

Paul McNamara, investment director at asset management firm GAM, has written a fine explanation of the causes of Turkey’s economic woes:

“We think that Turkey has a toxic combination of a weak external position (current account deficit), excessive private sector debt and a high level of foreign funding in the banking system. This is coming to a head as a much-needed demand slowdown is causing asset quality problems in the banks. The role of construction in the economy for example is comparable with that in Spain or Ireland ahead of the European bust.

“We think the Turks have exhausted the possibilities of rate hikes, and are backed into a corner by their inadequate level of currency reserves (the IMF thinks that Turkey has the least adequate level of reserves of the major EM economies. The country’s politics are also a problem with the President’s son-in-law as Finance Minister and perception of political interference with the “independent” Central Bank.

“Today’s developments have been very negative: President Erdogan made a belligerent speech with no reference to the need of a change of course. Finance Minister Albayrak made a content-free speech full of consultant platitudes. Finally, US President Trump doubled tariffs on Turkish metal exports – this is likely symbolic, but symbolising a lack of US support for the Ankara regime.

“Our strongly-held negative view on Turkey remains intact and we have not covered any risk.”

People look at foreign exchange rates in Ankara, Turkey, today.
People look at foreign exchange rates in Ankara, Turkey, today. Photograph: Adem Altan/AFP/Getty Images

Turkey’s deepening currency crisis is sending fear sweeping through the financial markets.

All the main European stock markets are in the red, led by financial shares.

Italy’s benchmark stock index has sunk by 3% today. Germany’s DAX has shed 2%, while Britain’s FTSE 100 is down 60 points, or 0.8%.

Several European banks have significant operations in Turkey, such as Spain’s BBVA, Italy’s UniCredit and France’s BNP Paribas.

Unicredit’s shares have fallen by 5.6%, closely followed by BBVA (-5.4%) Deutsche Bank (-5.3%), ING (-5%) and BNP Paribas (-4.2%)

According to the Financial Times, the European Central Bank is worried that Turkish borrowers might not be hedged against the lira’s weakness and begin to default on foreign currency loans.

Those loans make up about 40% of the Turkish banking sector’s assets, and are now a lot more expensive to repay following the lira’s tumble.

Turkey’s currency crisis could force president Erdogan to impose capital controls, or seek help from the International Monetary Fund, says Brad Bechtel of investment bank Jefferies:

Turkey has a handful of options including seeking an IMF program, capital controls, rate hikes, yield to American demands or do nothing and so far the only option he seems to be leaning towards is do nothing.

His stubborn stance against the US and twisted view of the IMF combined with a fear of higher interest rates make the situation untenable. The complete loss of credibility in the central bank was the final shoe to drop and spark for the latest rout we’ve seen in the currency. Until decisive action is taken, they will continue to spiral out of control.

Turkey is now suffering one of the most painful and intense currency crises in many years:

The Turkish lira is plunging to new record lows following Donald Trump’s tweet.

It’s now down 18% (!!) today, at over 6.5 lira to the dollar, compared with 5.5 lira last night.

That means the currency has lost nearly a third of its value this week. A truly shocking plunge, suggesting Turkey’s economy is getting into serious trouble.

Trump doubles Turkish tariffs

NEWSFLASH: Donald Trump has announced he’s doubling the tariffs on Turkish steel and aluminium imports, as the diplomatic row between Turkey and the US deepens.

Trump announced the move in a tweet, claiming it was in response to the lira’s recent slump.

This further intensifies the battle between the two countries over US pastor Andrew Brunson, who is currently imprisoned over terrorism charges.

The moves comes shortly after Turkey’s president claimed there was a campaign to harm Turkey by weakening the lira.

Trump’s move has sent the lira sliding deeper into trouble. It’s now down almost 14% today at 6.3 lira to the dollar (a month ago it traded at 4.8).

Turkish president Erdogan vows to win economic war

Turkey’s currency crisis has deepened today, as president Erdogan attempting to calm the situation with a defiant address to the nation.

After watching the lira fall to record lows in recent days, Erdogan declared that Turkey is facing an “economic war’, which he vowed not to lose.

Erdogan also urged Turkish citizens to help, by swapping any foreign currency for lira to help stem its losses.

If there’s anyone who has dollars, gold or euros under their pillow, I am asking them to take them to the bank and exchange them for Turkish lira.

Turkish assets have been slumping in recent days, for several reasons

1) A standoff with the U.S. over a detained American pastor that Turkey, a NATO ally, has put on trial for espionage and terror-related charges linked to a failed coup attempt in the country two years ago. Washington has imposed financial sanctions on two Turkish ministers and warned of additional measures unless the pastor is released

2) Investors are worried about the Erdogan’s economic policies since his election win in June. He has long pushed the Turkish central banks to cut interest rates, claiming this would lower inflation (most economists take the opposite view).

The lira has slumped by around 10% today, extending yesterday’s deep losses.

Paul Greer, portfolio manager at Fidelity International, argues that Turkey actually needs a massive interest rate hike of perhaps 10 percentage points, to restore market confidence.

However, such a move would also probably drag Turkey into recession.

Greer says:

“Turkey’s macro challenges are numerous and well known - an overheating economy, a sizable external financing requirement, an outsized structural current account deficit, persistent double digit inflation, low net FX reserves and a large private sector debt burden. As a result of this, investor confidence in President Erdogan’s regime has been waning for much of the past year but key cabinet changes made after the June 24th elections have been particularly damaging for sentiment.....

“While Turkey’s fundamental challenges are numerous, there are plenty of straightforward textbook solutions which, if implemented, can halt the downward spiral of investor confidence and asset prices. An aggressive interest rate hike from the Central Bank would be a good start, something of the order of +1,000bp that Argentina delivered back in May would be appropriate at this juncture. This would help slow the economy, probably into a recession, which would help crunch the relentless demand for imports and thereby alleviate some of the current account deficit problem.

Updated

Full story: UK manufacturing in recession despite faster GDP growth

Here’s our economics correspondent Richard Partington on today’s GDP figures:

Warmer weather helped the British economy grow at a faster pace in the three months to the end of June, despite official figures revealing the manufacturing sector slumped into recession for the first time since the Brexit vote.

The Office for National Statistics said GDP increased by 0.4% in the second quarter from a rate of 0.2% in the previous three months, helped by stronger retail sales and good weather enabling the construction industry to make-up lost ground from the heavy snow earlier this year.

The better news for the economy comes after the Bank of England lifted interest rates to 0.75% last week, their highest level since the financial crisis a decade ago.

Philip Hammond, the chancellor, said: “We are working hard to build a stronger, fairer economy – dealing with the deficit, helping people into work, and cutting taxes for individuals and businesses.”

Service industries experienced robust growth of 0.5% in the second quarter, with the retail and wholesale sectors providing the strongest contribution, helped by the warm weather tempting shoppers back to the high street.

However, the latest snapshot from the ONS painted an increasingly lopsided picture for economic growth, with Britain reliant on the services sector amid a downturn for factory output. There were also indications of slowing growth in June, with the ONS revealing May was the strongest month of the second quarter.

More here:

Hammond hints at Amazon tax

Philip Hammond, Chancellor of the Exchequer.
Philip Hammond, Chancellor of the Exchequer. Photograph: Dinendra Haria/REX/Shutterstock

Philip Hammond also dropped a loud hint that the UK government could push for new taxes on online retailers:

Asked about House of Fraser’s lurch into administration today, and the wider problems in the high street, he told Sky News that:

We want to ensure that the high street remains resilient, and that we also make sure that taxation is fair between businesses doing business the traditional way, and those doing business online.

That requires us to renegotiate international tax treaties because many of the big online businesses are international companies.

The EU has been talking about a tax on online platform businesses, based on the value generated.

Hammond: Brexit uncertainty isn't helping.

Chancellor of the exchequer, Philip Hammond, has blamed Britain’s slow growth in recent quarters on Brexit uncertainty.

Speaking in Coventry today, Hammond told reporters that:

“Clearly that uncertainty is having a depressing effect on economic growth.”

Hammond has been pushing for a ‘soft Brexit’, under which Britain maintained close links with the European Union. Back in January, he called for “continued cross-border flow of ideas, goods, services, people and capital”, annoying cabinet colleagues who favour a hard break with the EU.

The TUC make a very important point -- if you adjust for population increases, Britain’s growth has been extremely poor since the financial crisis.

UK growth per capita

TUC General Secretary Frances O’Grady blames weak investment over the last decade, which has meant earnings growth has been poor too:

“The latest figures cap a dismal decade for the economy. But we should not accept weak growth as the new normal – it’s the result of bad management of the economy. There has been too little investment and a failure to focus on getting wages rising.

“If we want a stronger decade ahead, the UK must catch up with the levels investment we see in other OECD nations. And the government must put action to get wages rising at the heart of its plans.”


Rebecca Long-Bailey MP

However...Rebecca Long Bailey MP, Labour’s Shadow Business Secretary, is concerned that Sports Direct now has control of House of Fraser.

She argues that the UK must reform its business rates system, to help high street chains compete with online retailers.

‘It is unforgivable that the Conservatives have stood by and done nothing while tens of thousands of jobs have been put at risk. Their inaction has prepared the ground for the likes of Mike Ashley, notorious for his company’s poor treatment of workers, to hoover up businesses.

Staff will undoubtedly be concerned about what the sale means for their wages and conditions.

“How many more of our most recognisable high street brands have to go under before the Prime Minister steps up and addresses the broken business rates system which is turning our high streets into ghost towns?

Financial experts are pleased that House of Fraser has been saved from the abyss by Sports Direct - even though we don’t know Mike Ashley’s long-term plans for the retailer.

Simon Underwood, business recovery partner at accountancy firm, Menzies LLP, says it’s a “welcome outcome”:

“This is possibly the best news from the High Street this year and a positive indicator for other ailing retailers.

“House of Fraser is a strong brand and this £90m bid from Sports Direct owner Mike Ashley means many of its stores will be saved and its operations streamlined.

The fate of the remaining stores is uncertain - some may be sold off separately and others will be closed. The new owners will bring a timely injection of cash, ensuring a future for the various concessions and providing a more stable platform for the business to restructure its operations.

“In a very fast-moving set of circumstances, this is a welcome outcome for both House of Fraser and UK consumers. It shows that there is light at the end of the tunnel and at least for the moment, a mainstay of the British High Street has been saved from the brink.”

Michael Mulligan, insolvency specialist at Shakespeare Martineau, thinks it’s good news for suppliers and staff:

“Now that Sports Direct has acquired the House of Fraser brand – including all of the stock in the business - it will allow continued operation with a likely focus on the flagship stores.

“This will be welcome news not only for suppliers who rely on House of Fraser for their livelihoods, but also for all employees involved.

“This is yet another significant High Street rescue mission and the crisis shows no sign of abating. With interest rates rising and less money in the pocket of the UK consumer, more household names may be at risk.”

Britain’s economy is still “struggling to gain momentum” despite growing faster in April-June, says Mike Jakeman, senior economist at PwC,

“The improvement was partly driven by one-off events, such as higher consumer spending on food and drink around the World Cup, the heatwave and the Royal Wedding. However, there was also some evidence that hot weather and wall-to-wall football deterred shoppers from buying goods other than food or drink. The net effect was that household consumption grew at the same pace as in Q1.

“Instead, the acceleration was driven by investment, which rebounded after a very poor first quarter, but only to the level seen at the end of 2017. Brexit-related uncertainty is still deterring large, export-focused firms from committing to investment plans. Net trade also subtracted from growth for the first time since late 2016, as a result of weaker exports of cars and planes.

Professor Costas Milas of the University of Liverpool says today’s UK GDP report is rather mixed:

Although the 0.4 quarter on quarter per cent growth for 2018Q2 is in line with expectations, the annual growth reading of 1.3 per cent is slightly lower than that the 1.41 per cent estimate (based on market interest rate expectations) by BoE policymakers and even lower than the 1.5 per cent ‘trend growth´ considered by the Bank as our new economic ‘norm’.

So does that mean that the Bank of England was wrong to raise interest rates to 0.75% last week? Not at all, he explains:

What BoE policymakers have decided to do is store up interest rate ‘ammunition’ should Brexit-related developments over the next few months require deep interest rate cuts to revive the economy.

It is vital that financial markets and traders see all this so that selling pressure on the sterling currency recedes.

Sam Tombs of Pantheon Economics makes an important point -- the slump in sterling since the Brexit vote has not healed the UK’s trade woes:

Anthony Gillham, head of investment at City firm Quilter Investors, isn’t very impressed with today’s growth report.

He warns that the UK is still ‘playing catch-up’ after slowing last winter.

“While growth has improved slightly, it does so from a low starting point. Over the medium term, UK growth has been thoroughly unspectacular, with the domestic economy expanding at a slower pace than most developed countries.

So with the pound at a 13-month low this morning, Gillham warns that imports will become more expensive....

“There is a real risk of stagflation on the horizon, with the recent interest rate hike failing to address the fall in the pound, and the sentiment of Mark Carney and Liam Fox even talking the value of Sterling to its lowest point against the dollar in a year. The UK finds itself in a difficult situation where the Bank of England is hiking rates to try and keep a lid on import costs that drive up inflation, but it is doing so against the backdrop of weak economic growth.

“The general climate of uncertainty that pervades is discouraging households form making big ticket purchases, while business investment is also stifled as a result of CEOs feeling cautious about starting big projects before they have more certainty about the UK’s future relationship with European trading partners.

UK GDP by quarter

BCC: UK trade gap is disappointing

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), says Britain’s growth rate remains lacklustre.

He’s particularly concerned by today’s trade figures, saying:

“The higher growth in the second quarter was largely due to stronger service sector output, which helped offset a contraction in industrial output and a widening trade deficit. While there was pick-up in construction output, the improvement was from a low base, and the sector continues to add little to overall UK growth.

“The widening of the UK’s trade deficit in the quarter is disappointing, and reflects both a decline in goods exports and a rise in imported goods. The deterioration in the UK’s net trade position is further confirmation that we are still some way from achieving a rebalancing of our economy.

These charts show how Britain’s trade deficit widened last quarter, and how it became MORE reliant on trade with the EU over the last year:

UK trade data
UK trade data

Updated

UK economic growth is still “way below the gains we were used to before the financial crisis” says Rob Hodgson, Head of Wealth Management at GWM Investment Management.

Economics journalist Dharshini David agrees that 0.4% growth isn’t something to shout about

John McDonnell MP, Labour’s Shadow Chancellor, says the economy is suffering from Brexit uncertainty, and years of government cutbacks:

“More than eight years of unnecessary ideologically-driven austerity has created an economy unable to cope with the instability brought about by the Tories’ mismanagement of the Brexit negotiations.

The result is low growth and stagnant pay. “Grow this anaemic, councils are going bankrupt and the NHS is now in permanent crisis while holidaymakers are being hit by the Tories’ falling pound.

Labour will bring stability to the economy and rising living standards with long term stable planning and investment and by securing a Brexit deal that puts jobs and the economy first.”

Chancellor Philip Hammond has tweeted:

Back on GDP, and this chart shows how Britain’s manufacturers had a tough few months:

Sports Direct swoops on House of Fraser

Newsflash: Sports Direct has bought House of Fraser for £90m, just a couple of hours after it fell into administration.

The retailer, run by Mike Ashley, is acquiring all of the group’s 51 stores, and its stock. It’s not clear what this means for the company’s 17,000 staff, though.

In a statement, it says:

Sports Direct International plc (“the Company” or “the Group”) announces the acquisition of the business and assets of House of Fraser from the administrators of House of Fraser Limited, House of Fraser (Stores) Limited and James Beattie Limited, the House of Fraser group’s main operating companies (the “Operating Companies”), for a cash consideration of £90 million (the “Transaction”).

Pursuant to the Transaction, the Group has acquired all of the UK stores of House of Fraser, the House of Fraser brand and all of the stock in the business.

For the year ended 28 January 2017 (the last date to which statutory accounts are available for the parent company of the Operating Companies and prior to the appointment of the administrators), the House of Fraser group had gross assets of £946.3m and made £14.7m net profit.

GDP: the key charts

Although Britain’s growth rate picked up in the last quarter, it has been modest for the last 18 months:

UK GDP

Here’s the breakdown sector-by-sector, confirming that Britain relied on its service sector for growth in the last three months, with construction also making a positive contribution.

UK GDP by sector

Updated

ONS: UK trade deficit has worsened

Here’s Rob-Kent Smith, head of national accounts at the ONS, on today’s data:

“The economy picked up a little in the second quarter with both retail sales and construction helped by the good weather and rebounding from the effects of the snow earlier in the year.

However, manufacturing continued to fall back from its high point at the end of last year and underlying growth remained modest by historical standards.

“The UK’s trade deficit noticeably worsened as exports of cars and planes declined sharply while imports rose.”

Updated

Britain’s trade gap has worsened, as the country continues to import much more than it exports to the rest of the world.

The total UK trade deficit widened by £4.7bn to £8.6bn in the three months to June 2018, due mainly to falling goods exports and rising goods imports.

Manufacturing falls into recession

Britain’s service sector drove growth in the last quarter, growing by 0.5%.

The construction sector also had a good quarter, expanding by 0.9%.

But the industrial sector shrank by 0.8% in April-June. That includes a 0.9% contraction across the UK manufacturing base.

That means UK manufacturing is now in recession....

UK ECONOMY GREW BY 0.4%

Breaking! The UK economy grew by 0.4% in the second quarter of 2018.

That’s up from 0.2% in the first three months of the year, as the economy got back up to speed after the bad wintery weather.

More to follow!

Updated

Sterling hits 13-month low

The pound has fallen to a fresh 13-month low against the US dollar this morning.

Sterling shed three quarters of a cent in nervy trading to hit $1.2740, its lowest level since June 2017.

This means that the pound has shed 10% of its value since April, as worries over a hard Brexit have intensified.

The pound against the US dollar since 2017
The pound against the US dollar since 2017 Photograph: Thomson Reuters

But today’s falls are also due to the US dollar’s strength. Nervous traders are piling into the dollar, in the face of a mounting financial crisis in Turkey.

The Turkish lira has gone through the floor this morning, tumbling a staggering 12%.

Turkey’s finance minister (who happens to be the president’s son in law) is due to unveil “a new economic model” on Friday, which will include plans to cut the country’s budget deficit.

Investors, though, are losing faith - and increasingly alarmed about the central bank’s independence.

As Charlie Robertson of Renaissance Capital puts it:

“The markets have lost confidence in the triumvirate of President Erdogan, his son-in-law as finance minister and the [central bank’s] ability to act as it needs to.”

Overnight, we’ve learned that Japan’s economy expanded by 0.5%, thanks to a pick- up in consumer spending. Can the UK match it?

Michael Hewson of CMC Markets predicts that the UK economy rebounded strongly in the last quarter:

A decent recovery across construction, manufacturing and services is expected to show 0.4% growth, with the timing of Easter, a Royal Wedding and warm weather set to paint a decent picture of economic activity.

In an hour we discover if he’s right....

Retail expert Nick Bubb thinks some parts of House of Fraser can still be saved, saying:

Hopes of a “pre-pack” deal to salvage parts of the business (with Sports Direct?) still seem high…

The House of Fraser store in Edinburgh, Scotland.
The House of Fraser store in Edinburgh, Scotland. Photograph: Murdo Macleod for the Guardian

The House of Fraser story is moving fast.

Sky News are reporting that Mike Ashley, founder of Sports Direct, is close to agreeing a deal to take control of the company.

It’s not clear, though, how many of the company’s stores he would take on.

Frank Slevin, chairman of House of Fraser, says he’s hopeful that the company’s future will be sorted out soon.

He told investors this morning:

“This has been an extraordinarily challenging six months in which the business has delivered so many critical elements of the turnaround plan.

Despite the very recent termination of the transaction between Cenbest and C.Banner, I am confident House of Fraser is close to securing its future.”

House of Fraser appoints administrators

High street chain House of Fraser has confirmed it is appointing administrators after negotiations between investors and creditors failed to reach a “solvent solution.”

The retail chain, which employs over 17,000 people, has been forced to turn to Ernst & Young as administrators after days of negotiations with billionaire tycoons Mike Ashley and Philip Day, and the retail turnaround fund Alteri Investors.

The company’s 59 stores are all set to open as usual on Friday, while EY attempts to arrange a sale. Some 31 stores were previously earmarked for closure under an earlier restructuring plan, so HoF’s staff now face fresh uncertainty.

In a statement to investors, the company says:

Court hearings are expected to take place at 7:30 am today, at which orders will be sought appointing individuals from Ernst & Young LLP as administrators of each of the Operating Companies with immediate effect.

Significant progress has been made towards completing a sale of the Group’s business and assets. The proposed administrators are expected to continue to progress those discussions with a view to concluding a transaction shortly after their appointment.

My colleague Sean Farrell explains how HoF could now be broken up:

The group needs about £50m after C.banner, the Hong Kong-listed owner of Hamleys, pulled out of plans to raise £70m to invest in House of Fraser.

Most industry experts expected any rescue to involve putting House of Fraser into administration to allow a new investor to buy its most attractive stores without taking on loss-making sites. Plum locations include shops in Glasgow as well as Bluewater in Kent, Manchester, Belfast and Meadowhall in Sheffield.

The agenda: UK growth figures expected to show growth rebounding

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

Today we discover how Britain’s economy is faring, when growth figures for the second quarter of 2018 are released.

Economists expect that GDP increased by 0.4% in April-June, as businesses got back up to speed after the Beast from the East hit growth.

If they’re right, this would mean the economy grew twice as fast as in the first quarter of the year. But it’s still lacklustre growth in historic terms, extending the generally weak growth since the Brexit referendum in 2016

Laith Khalaf, senior analyst at Hargreaves Lansdown, says growth should have picked up in the last few months - even though consumer confidence is subdued.

The second quarter was altogether brighter, with good weather, a Royal Wedding and the World Cup all driving consumer behaviour. The latest ONS retail sales data suggests that food and drink sales have been positively impacted by the sunshine and the football, while spending in pubs also increased by 9.5% year on year in June according to Barclaycard’s consumer analysis.

Not all parts of the UK economy have been making hay in the sunshine however, with big ticket items particularly under pressure. Household appliance sales fell 14.8% in the year to June according to Barclaycard, and the football combined with the warm weather led to a June drop in sales for non-food retailers according to the ONS.

Also coming up today...

Department chain House of Fraser is fighting for survival, after days of increasingly frantic rescue talks to secure new funding for the company.

The company is going into administration, following all-night talks with potential bidders such as Mike Ashley, the owner of Sports Direct, Philip Day, the owner of Edinburgh Woollen Mill, and restructuring expert Alteri.

The agenda:

  • 9.30am BST: UK growth figures for the second quarter of 2018
  • 9.30am BST: UK trade and industrial production data for June
  • 1.30pm BST: US inflation figures for July

Updated

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Jack Osbourne recalls the morning his father Ozzy Osbourne died
Describing the final hours of the Black Sabbath frontman’s life as calm and routine, Jack Osbourne has recalled the morning his father Ozzy Osbourne died.
BANG Premier
BANG Premier
IshowSpeed breaks silence on rumors about having children after MrBeast baby joke during livestream confuses fans online
IshowSpeed shut down rumors saying he already has children during a March 4, 2026 livestream. The YouTuber explained that he plans to become a parent around the age of 26, not now. The speculation started after Jimmy “MrBeast” Donaldson jokingly said Speed was having a baby during a February livestream…
The Times of India
The Times of India
The world was rooting for Britney Spears when she broke free — now concerns are growing over her very public spiral
IN FOCUS: When Spears was released from her conservatorship in November 2021, her fans celebrated in the streets. Less than five years on, the pop superstar’s DUI arrest comes amid growing concern for her wellbeing, writes Kevin E G Perry
The Independent UK
The Independent UK
Jamie Lee Curtis says The Bear is ending with season 5 but admits she may have "completely blown" an under-wraps announcement
The Bear season 5 is expected to air this year
Total Film
Total Film
Boba Fett star all but confirms his Star Wars bounty hunter won't show up in The Mandalorian and Grogu: "[I’m] shelved, that’s all, like a jar of peaches"
Don't expect Boba Fett to show up in The Mandalorian and Grogu
Total Film
Total Film
I Was Stoked For New ACOTAR News, But Sarah J. Maas’ Comments About The TV Series Have Been An Emotional Rollercoaster
ACOTAR fans are definitely feeling a lot right now.
Cinemablend
Cinemablend
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.
Download on the AppStore Get it on Google Play