All the day’s economic and financial news, including a new healthcheck on Britain’s dominant service sector
- Latest: UK service sector slowed last month
- UK services PMI drops to 53.2 in August, from 53.8
- Data suggests growth of just 0.3% in Q3
- UK car registrations also fell in August
Earlier:
Dollar drops as Brainard gives dovish speech
There is a notable disconnect between signs that the economy is in the neighborhood of full employment and a string of lower-than-projected inflation readings, especially since inflation has come in stubbornly below target for five years…
Sustainably achieving our inflation objective is especially important, given the apparent persistently low level of the neutral rate and the resulting limited room for maneuver above the effective lower bound.
Drama has been in short supply across Europe’s stock markets so far today.
The French and German indices are up a bit, while London’s FTSE 100 has dipped slightly into the red.
Surprisingly sterling wasn’t too bothered about the dip, instead rising 0.2% against both the dollar, weakened by the North Korea issue, and the euro, which is facing the uncertainty of Thursday’s ECB meeting.
This meant the FTSE lost whatever meagre momentum it had after the bell, the index slipping 0.1% to loiter just above 7400.
We have seen this scenario before where tensions rise and stocks fall, followed by no new developments, and then equities bounce back.
The situation is still ongoing, so today’s positive move could be down to short covering and a bit of bargain hunting. In tense times while these, not many investors would buy into the market for the long haul.
Obviously it’s good news that British service sector companies took on more staff in August (as mentioned earlier).
But, it also highlights a wider problem. Unless this hiring creates extra growth, then the UK economy will simply become more unproductive (as we’ll have more people cranking out the same amount of output).
Weak composite UK PMI + strong employment PMI = Markit telling us that Q3 UK productivity is probably going to fall. Yay. pic.twitter.com/57KQTPP2Le
Most of England has Poland / Romania / Mezzogiorno levels of capital per worker (in services) https://t.co/pwaxhcnnQO pic.twitter.com/uQUqLSZyo0
City economists are in agreement – the slowdown in Britain’s service sector last month is a worry.
Here’s some reaction:
“Unlike the manufacturing PMI which beat expectations, today’s services PMI dropped to an 11-month low, with respondents noting the heightened uncertainty about the economic outlook weighing on growth. The numbers are consistent with the economy continuing to make modest progress in the current quarter.
“The most interesting aspect of the report was the reference to cost pressure and the outlook for hiring which accelerated for the third consecutive month. As unemployment is already low, this adds to the concerns that labour shortages could start to push wages higher in the months ahead. With this in mind, today’s figures could make the Monetary Policy Committee sit up and take note.
“Together with manufacturing and construction PMIs, today’s services number indicates a quarterly UK GDP rate of 0.3% – and slowing all the time. Brexit uncertainty, higher costs and lower investment are slowing UK output to a chronic crawl. The summer months may have been warm but the recessional risks for the UK economy are only increasing as we move into Autumn.”
“Though the UK’s services sector continues to expand, August’s reading suggests it’s doing so at a worryingly slow pace.
“We’ve not seen such sluggish growth since last September and, although the services sector may not have the potential to dampen GDP as much as manufacturing could, Q3 looks in trouble of coming in below expectations.
Andy Bruce of Reuters has tweeted a nice chart, showing how the UK services PMI is too low to justify an interest rate hike.
UK services PMI – moving further away from Bank of England rate hike territory pic.twitter.com/M7aTsXhGNJ
The pound has dipped a little, to $1.2920, following today’s services sector PMI.
Naeem Aslam of Think Markets says traders are dialling back their expectations for future interest rate rises.
The services PMI data has shown that the UK’s economy is losing its steam and this means that the Bank of England would have to continue its support. The services PMI data fell short of forecast and traders have pushed the sell button on the back of this….
The Brexit negotiations are going nowhere and this is weighing on the economy and momentum is gradually losing its strength.
The UK urgently needs a credible ‘transition plan’ for life after Brexit to restore confidence among companies, tweets Julian Jessop of the Institute of Economic Affairs.
UK services #PMI reports #Brexit uncertainty weighing on the sector (same message from #construction survey yesterday). Growth at 11mth low.
No #despiteBrexit hashtag today, unfortunately. But data underline case for credible transition plan soon to restore business confidence.
In summary, UK economy still sluggish – but no recession. (Still not quite good enough though for #despiteBrexit hashtag.) https://t.co/MFZ989bCQu
Duncan Brock, of the Chartered Institute of Procurement & Supply, warns that some UK services companies were “paralysed by economic hesitancy” in August.
Others, though, shrugged off the uncertainty and pressed on with new product launches.
“A slowdown month as the services sector comes off the boil, challenged by a general unwillingness to spend and invest, alongside fragility in confidence amongst consumers as a result of Brexit.
It’s not all bad news, though.
UK service sector companies created more jobs for the third month running in August, at the fastest rate since the start of 2016.
UK employment PMI hit its highest level in 2 years in August: higher than any point from 1998 to 2013 and implying 500,000 new jobs a year. pic.twitter.com/j6A0WNlt20
Today’s service sector report, combined with earlier (strong) manufacturing and (weak) construction data for August, suggests that the UK economy will only grow by 0.3% this quarter.
Markit’s Chris Williamson says:
“A summer slowdown was evident in the economy as the August PMI surveys showed slower rates of expansion in services and construction offsetting an improved performance in the manufacturing sector. The resulting overall expansion was the weakest for six months.
Although the latest two months’ data put the economy on course for another 0.3% expansion in the third quarter, momentum is being gradually lost.
“Robust manufacturing growth means the economy may be rebalancing towards goods production, aided by the weaker pound, but the slowdowns in services and construction send warning signals about the health of the economy.
“The overall level of optimism also remained subdued, mainly linked to Brexit uncertainty, close to levels that have previously been indicative of the economy stalling or even contracting.
The all-sector UK PMI slipped from 53.9 in July to 53.8 in Aug, lowest since Feb and the 2nd-lowest in 11 months. But signals +0.3% Q3 GDP pic.twitter.com/Qs7QQ6iuXk
Customer-facing companies such as hotels, restaurants, cinemas, hairdressers and gyms suffered the weakest growth last month, Markit says.
Breaking! In another blow to the UK economy, growth in its dominant services sector has fallen to its lowest rate in almost a year.
Data firm Markit reports that business activity in August rose at the weakest rate since last September.
Chris Bosworth, director of strategy at Close Brothers Motor Finance, says the drop in UK car sales in August isn’t a big surprise.
August is a notoriously testing month for new car registrations as consumers divert their spending toward family activities and holidays, so these figures shouldn’t come as a complete shock to the industry.
“With Brexit negotiations well underway and the government announcing radical changes to the sale of fossil fuelled cars, the motor industry is entering a wave of prolonged uncertainty. This will likely have an impact on consumer spending habits. The Bank of England has already announced that car finance deals have eased as a result.
“In fact, 5.5 million British motorists say Brexit has already had a direct impact on their car purchasing plans and has made them more likely to purchase a used car or to hold off their purchase altogether – all of which can have a knock-on effect on the industry and the wider economy. That said, now that the new car registration plates have been released, we expect consumers will splash out on new cars over the next month, keeping in line with the annual trend.”
Diesel bore the brunt of the sales decline in August, the SMMT says:
Demand for petrol hybrid and pure electric battery powered cars increased substantially, up 74.9% and 62.5%, while plug-in hybrid registrations rose 38.5%. Conventional petrols grew 3.8% and diesels fell -21.3%.
Breaking! Britain’s car industry has suffered its fifth monthly fall in sales.
New car registrations shrank by 6.4% in August, extending a sales decline that began in April and has fuelled worries over the UK economy.
August is typically a quiet month for the new car market as consumers and businesses delay purchases until the arrival of the new number plate in September. With the new 67-plate now available and a range of new models in showrooms, we anticipate the continuation of what are historically high levels of demand.
Just in: Growth across the eurozone’s service sector has hit a seven-month low, but remains robust.
Markit’s euro-area services PMI has come in at 54.7, down from July’s 55.4, and below the ‘flash reading’ of 54.9 released in late August.
IHS Markit Eurozone Composite PMI Summary: pic.twitter.com/D0iQHRl81g
Lego says its overall performance in the first half of 2017 was “mixed”, explaining why it is cutting so many jobs.
Revenues declined in established markets such as the United States and in parts of Europe, but it achieved double-digit growth in China
Crumbs. Lego is planning to cut around 1,400 jobs, after suffering a 5% drop in revenues this year.
In a statement, LEGO Group Chairman Jørgen Vig Knudstorp says:
“We are disappointed by the decline in revenue in our established markets, and we have taken steps to address this.
“We are very sorry to make changes which may interfere with the lives of many of our colleagues. Our colleagues put so much passion into their work every day and we are deeply grateful for that.
Unfortunately, it is essential for us to make these tough decisions.”
Bad news from the bricks economy….
LEGO Group revenue declined five percent in first half of 2017 https://t.co/dugfDyC2OY
The Group now prepares to reset the company to deliver on its long-term ambition to reach more children all over the world with LEGO® experiences.
Oh dear. Reuters is reporting that UK car sales took another fall in August.
They’ve crunched through some ‘preliminary data’, and report demand declined for the fifth month in a row.:
British new car sales fell by between 6 and 7 percent year-on-year in August, according to preliminary data released by an industry body on Tuesday.
New car registrations have fallen year-on-year in April, May, June and July, the longest run of declines since 2011, according to data from the Society of Motor Manufacturers andTraders (SMMT).
August was a rough month for Indian companies, it appears.
New tax changes and the controversial demonetization policy both hurt growth, according to the latest PMI reports.
#India services remain affected by GST policy in August, with #PMI at 47.5, up from 45.9 in July. More here: https://t.co/wNwMwTdC0F pic.twitter.com/KXNvaPNm8D
“The underlying trend for services is one of uncertainty. Businesses are holding back on investment, leading to falls in employment. At the same time, input costs are increasing and firms are unable to fully pass these on due to competitive pressures. It’s not all doom and gloom, however, as activity, new business and employment showed much slower rates of reduction than those noted in the prior survey period.”
China’s private sector is growing at its fastest rate in six months, according to new data released overnight.
The recovery in both manufacturing and services has led the economic outlook to continue to improve. But we need to closely watch whether the recent rises in input costs will weigh on corporate profits and fuel inflation.”
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today we get a flurry of service data from around the world will show how the global economy fared last month.
In July we saw a nice uptick to 53.8, after a bit of a slowdown in June, and it is expected that we might see some softening in August back to 53.5, though it wouldn’t be a surprise if we did outperform, particularly in areas that support travel, leisure and tourism.
Our European opening calls:$FTSE 7421 +0.13%
$DAX 12136 +0.28%
$CAC 5115 +0.22%$IBEX 10260 +0.17%$MIB 21849 +0.27%
Looking ahead, highlights include Eurozone and UK service PMIs, US factory orders, Fed’s Brainard, Kashkari and Kaplan