UK economy slumps into stagnation as Brexit uncertainty hits demand – business live

UK service sector barely expanded last month, as political uncertainty wounds the economy


Just in: Activist investor Edward Bramson has submitted an application to become a board member of Barclays — in what should be a popcorn moment for the City.

The board of Sherborne Investors (Guernsey) C Limited has been informed by the Investment Manager that Sherborne Investors Management LP submitted, yesterday, an ordinary resolution to Barclays PLC to be considered at Barclays’ Annual General Meeting, which is expected to be held on 2 May 2019, for the purpose of appointing Mr. Edward Bramson to the board of directors of Barclays.

The City has shrugged off the deluge of disappointing data.

The FTSE 100 is still on track to hit a three-month closing high, up currently up 88 points at 7,122.

What a day for this to happen…Ocado, hours after announcing full year results, says it had halt work at its Andover warehouse this morning after a fire broke out. Thankfully no one hurt.

In stark contrast to Monday’s torpid trading, the European markets let rip on Tuesday, bounding higher despite some worrisome data out of the region.

Led by BP, the FTSE shot up more than 100 points as the day went on, striking 7130-plus levels last seen in early November. This as sterling fell a further 0.3% against the dollar, taking it to a 2 week low that’s perilously close to $1.30, and 0.2% against the euro as the services PMI, which came in at a comatose 50.1, completed a hat-trick of Brexit-burdened data out of the UK.

There’s lots of media reaction to today’s weak service sector data .

Delphine Strauss of the Financial Times says the slowdown shows that Brexit is biting.

Growth in the UK services sector nearly ground to a halt in the first month of the year, with political uncertainty leading clients to delay decisions on new projects and hold off placing orders.

Britain’s dominant services sector came to a virtual standstill last month as companies began to cut staff numbers for the first time in six years, according to a closely watched survey that has hit the value of the pound.

The latest snapshot index on services compiled by IHS Markit and the Chartered Institute of Procurement & Supply generated a reading of 50.1 in January, down from 51.2 in December and perilously close to the 50 mark that separates growth from contraction.

The report follows disappointing Markit surveys on manufacturing and construction for January and comes just days before the Bank of England publishes its latest policy decision on Feb. 7. The central bank, which has long warned of the damage from Brexit to investment, will also publish new forecasts for growth and inflation.

The services report showed that new business volumes declined for the first time in 2 1/2 years, employment fell and optimism in the sector was close to the lowest levels in a decade.

Asif Abdullah, analyst at Scotiabank, is also concerned by the services slowdown:

UK services PMI slowed meaningfully. Services are the backbone of UK economy. Their economy is less sensitive to manufacturing than other European majors. #UnitedKingdom #PMI

PMI says UK service sector struggling

Reasons for concern: 2008, 2013 it was an accurate early warning

Reasons for caution: July 2016 gave a false signal

Today’s survey of the UK service sector is “seriously disappointing”, says Howard Archer of the EY Item Club.

He says:

The services PMI pointed to the sector essentially stagnating in January as it was at the weakest level since July 2016 (which was in the immediate aftermath of the UK’s referendum vote to leave the EU) and at the second lowest level since December 2012. Subdued business and consumer spending weighed on services activity in January.

Heightened Brexit uncertainty was reported to be affecting clients’ business investment decisions.

The pound has hit a two-week low, as traders respond to the worrying slowdown in UK company growth last month.

Sterling has lost a third of a cent against the US dollar this morning, down to $1.30,

“Today’s weak reading adds to the downward pressure currently exerted on sterling as fears of an economic slowdown in the face of Brexit uncertainty begin to surface.

While the data will feed some short-term volatility to the pound, focus will remain on Westminster as the main engine behind long term sterling strength as Brexit plays out.”

Here’s a word cloud derived from UK PMI respondent companies’ concerns about the year ahead in January

James Knightley of ING fears that Britain’s economy could actually be contracting.

Having inspected January’s PMI report, he says:

The UK’s purchasing managers indicator surveys suggests that the economy is stagnating as we approach Brexit day. With no deal in sight, business and consumer caution will only intensify, risking a 1Q contraction.

Worryingly, the employment component also dropped into contraction territory and business optimism is near decade lows.

It is clear that business is worried and with the Brexit uncertainty set to continue, the risk is that activity softens further – firms will become increasingly risk averse and implement contingency Brexit planning. With all sectors of the UK economy now feeling pain, it is imperative the government and the House of Commons get a grip on Brexit.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, says January was a bleak month for services companies.

“The sector had the January blues last month, as employment dropped for the first time in over six years, and new order levels fell into contraction territory.

“At the risk of sounding like a broken record, Brexit uncertainty continues to be at the heart of the malaise as clients delayed orders and consumers were deeply reluctant to spend under the continuing cloud of hesitation, indecision and ambiguity.

Today’s PMI report is based on interviews with purchasing managers across the UK.

They tell Markit how their company is faring – whether sales are up or down, how the order book is looking, and whether they’ve taken on staff or laid them off. Those findings are turned into an index, showing if activity rose, fell, or was unchanged.

January’s PMI surveys suggest that the UK economy could be stalling, or even worse, says Chris Williamson, chief business economist at IHS Markit.

He blames Brexit uncertainty, and the wider slowdown in the global economy [as we’ve already seen in France, Italy, Ireland and Australia today]

“Service sector growth ground almost to a halt in January, matching similar disappointing news in the manufacturing and construction sectors. The last three months have seen the economy slip into its weakest growth spell for six years, and indicate that GDP likely stagnated at the start of 2019 after eking out modest growth of just 0.1% in the fourth quarter.

“With the exception of July 2016, when demand contracted briefly following the surprise Brexit vote, service providers suffered the largest drop in new business since April 2009 as customers tightened their belts.

We learned last week that UK manufacturing growth hit a three-month low in January. Yesterday, we saw that construction output had hit a 10-month low.

And now we know that the services sector, which makes up three-quarters of the economy, barely grew at all.

Unpromising is an understatement….

Unpromising UK services PMI
• Employment falls for 1st time since 2012
• New orders falls for 1st time since July 2016
• New export business at fastest pace since records started in Sept 2014

NEWSFLASH: Britain’s dominant service sector has fallen to the brink of stagnation.

Data firm Markit has reported that growth fizzled out last month, with new orders decline for the first time in two-and-a-half years.

Survey respondents overwhelmingly linked the slowdown in business activity growth to heightened political uncertainty at the start of 2019.

A number of service providers reported that Brexit-related concerns had dampened client demand and resulted in delayed decision making on new projects

Back in the UK, car sales have suffered another decline.

Car registrations fell by 1.6% year-on-year in January, to 161,013 units. That’s a weak start to 2019, following two years of falling sales.

Mike Hawes, SMMT Chief Executive: ‘It’s encouraging to see car registrations in January broadly on par with a year ago as the latest high tech models and deals attracted buyers into showrooms’

British new car registrations dip -1.6% in January but demand for electrified models surges.

“These figures, and recent news from Nissan in Sunderland, highlight the damaging effect of uncertainty on the industry. The entire sector is screaming out for a resolution, with all eyes on Parliament in the hope of some clarity on the way forward. Until we have this, the current scene is set to stay.

“However, once we have a new way forward on this issue, there remain other issues that will continue to exist from consumer confusion around fuel type to a global market slowdown. During this period, the opportunity is there for dealers to demonstrate their expertise and reassurance to customers. This will be key in bolstering bottom lines over the coming months. Having the right stock is vital, and the right after-sales support will support bottom lines as we begin a cold winter”

France could soon be on the brink of recession, Markit fears:

#GDP in #France on course to decline in Q1 as PMI registers largest decline in service sector output for nearly five years in January, driving overall business activity down at steepest rate since Nov 2014

Despite worries about a recession, Germany is outperforming its major eurozone neighbours, points out Emanuele Canegrati of BPPrime.

Germany’s business activity growth has accelerated for first time in four months in Jan but inflows of new work has risen the least since June 2015 , according to @IHSMarkitPMI A bittersweet result for Germany which, in any case, has avoided recession. @graemewearden

Germany’s Sector PMI has fallen to 53.0 in Jan, from previous 53.1 (exp. 53.1), still in expansion territory

Newsflash: Eurozone private sector growth has hit its weakest level since mid-2013.

The monthly euro area PMI survey, which tracks activity across the economy, has come in at just 51.0 for January. That’s barely above stagnation.

Output in France was down for a second successive month, and at the fastest rate in over four years. Meanwhile, Italian private sector output deteriorated for the third time in four months and to the greatest degree in over five years.

Manufacturing was the primary source of output weakness during January. Whilst service sector growth was unchanged since December at around a four-year low, production in manufacturing rose only slightly and at the weakest rate in over five- and-a-half years of growth.

“The eurozone has started 2019 on flat note, with growth close to stagnation amid falling demand for goods and services. The PMI indicates that GDP is growing at a quarterly rate of just 0.1%, setting the scene for the region’s worst quarter since 2013. Such a weak start to the year would mean the current consensus forecast for 1.5% GDP growth in 2019 is likely to be revised lower, and hence lead to more dovish signals from the ECB.

“What started as a manufacturing and export-led slowdown has shown increasing signs of infecting the service sector. The manufacturing PMI numbers are indicative of the goods-producing sector slipping into recession, while growth in services is now running at its lowest for four years. Worst may be yet to come: new orders received by factories are declining at the steepest rate for nearly six years and new business inflows into the service sector have stalled. Demand is consequently falling to an extent not seen since mid-2013.

Despite all the gloom swirling this morning, European stock markets are rallying.

The FTSE 100 has jumped by 60 points, or 0.85%, to 07,095 points, extending its recent rally. That’s a two-month high, and on track for its highest close in three months.

Things are looking bad for Italy:

#Italy‘s recession deepened in January as the #PMI showed business activity contracting at an increased rate. Expect #GDP to fall again in Q1

More bad news – France’s services sector also shrank last month (any PMI reading below 50 shows a contraction).

France Services PMI (Jan) comes in at 47.8, prev: 49

Oof! Italy’s services sector contracted last month, according to the latest survey of purchasing managers.

Italy Services PMI (Jan) declines to 49.7 from 50.5.

Japan has defied the worries about the services sector, by posting faster growth last month.

However, a weak manufacturing performance has provided something else to worry about:

Japan’s services PMI suggested that activity held up well at the start of the year. But with manufacturers hit by weaker external demand, the composite PMI points to modest growth at best in January:

In a rare piece of (mostly) good retail news, most of music chain HMV has been rescued from collapse.

Related: HMV bought by Canadian music store mogul Doug Putman

Ireland’s services sector has also entered a trough.

Growth has now weakened for four months running, hitting its lowest rate since May 2013 in January.

The January AIB Services PMI signals a somewhat slower start to 2019 for the economy, after the robust rate of expansion recorded in the past number of years.

It suggests that growth in the Irish economy is likely to slow this year, which is hardly surprising given the loss of momentum in the global economy in recent times.

Commonweath Bank of Australia says its regular survey of Australian services activity has dropped to its lowest point since the survey started in May 2016.

It warns:

The Australian service sector shifted down a gear at the start of the year as a slower upturn in new work weighed on business activity. Steady international demand supported the expansion, but domestic markets slowed. Hiring growth also eased. However, optimism in the year ahead was sustained while backlogs accumulated at a solid pace. Inflationary pressures meanwhile moderated noticeably at the beginning of 2019.

While month-to-month outcomes can be volatile, particularly over the Christmas/New Year period, falling new orders and sales suggest that the weakening domestic and global economic backdrop are weighing on confidence and activity.

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

A splurge of data from services companies around the globe today are likely to confirm that the world economy stumbled into 2019.

[REPORT] Consumers’ inflation expectations hit record low; Services sector activity hits 4-year lows #ausbiz #ausecon

Last week’s manufacturing PMI’s showed little sign of a pickup in January, apart from a decent number from Spain, and today’s services numbers might well be similarly disappointing. We already had a sneak preview of the French and German numbers at the end of last month and the French numbers were particularly awful, disrupted to some extent by the “gilet jaunes” protests, coming in at 47.5, almost a 5-year low, and down from 49 in December, having cratered from 55.1 in November.

In Italy the services sector is expected to have stagnated in January, coming in at 50, and in the process inviting further scrutiny of the Italian governments growth expectations, which continue to look spectacularly heroic, as well as being even more unachievable as each day passes. It can only be a matter of time before the market refocuses its attention on the likelihood of the Italian government running back into conflict with the EU about its fiscal plans.

#FTSE100 called +20pts at 7055

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