Another reason to worry….
Marina Mensah-Afoakwah, senior economist at the CEBR think tank, also blame Brexit for the UK’s slowing economy:
“Today’s data show that the UK economy has continued its slowdown into Autumn, as business and consumer confidence take a hit amidst Brexit uncertainty.
She also points out that the service sector provided most of the growth in the last few months, while manufacturing contracted last month:
October’s GDP growth was mainly driven by services. Rolling three-month growth in the sector was 0.3% in October, which contributed 0.23 percentage points to overall GDP growth. This was largely as a result of growth in IT and professional services, which grew by 1.7% and 1.3% respectively. Construction also contributed positive growth, up 1.2% in October.
However, the manufacturing sector saw no growth at all in the three months to October, mainly due to a decline in the pharmaceutical industry. While in the three months to October growth in the manufacturing industry was flat, monthly figures for October show that sector actually contracted by 0.9%.
Economist Rupert Seggins has analysed today’s growth figures, and pulled out some key points:
BCC: Brexit uncertainty is hurting the economy
The British Chambers of Commerce, which represents UK firms, has no doubt what to blame for the slowdown — BREXIT.
Suren Thiru, head of economics at the BCC, says rising cost pressures (due to the weak pound) and the “drag effect of persistent Brexit uncertainty” is taking its toll on the UK economy.
“The slowdown on the underlying three-month measure of GDP was largely driven by weaker service sector growth as car sales fell. That said, the service sector still made the largest contribution to overall economic activity, with manufacturing and construction adding little to overall UK growth.
Thiru also warns that UK factories are suffering from higher import costs:
“The widening in the UK’s trade deficit is a concern and reflects a sharp rise in goods imports. Trading conditions for UK exporters are deteriorating amid moderating global growth and uncertainty over Brexit.
Businesses continue to report that the persistent weakness in sterling is hurting as much as its helping, with the weakening currency raising input costs.
UK trade gap widens
In another blow, Britain’s trade gap with the rest of the world has widened.
The ONS reports that the total trade deficit in goods and services widened by £3.1bn in August-October to £10.3bn.
Britain’s goods deficit widened by £1.7bn during the quarter, as imports increased £3.6 billion, while exports increased by a lesser £1.9 billion.
The traditional services surplus shrank by £1.3bn, due to a £1bn fall in exports and £0.3bn increase in imports.
The ONS says:
Trade in unspecified goods (including non-monetary gold) and chemicals had the largest widening effect on the goods deficit, which was partially offset by trade in cars in the three months to October 2018.
The UK’s trade in goods deficit with the EU has actually narrowed over the last year, by £2.8bn,.
However, this was wiped out by a £3.2bn increase in the deficit with non-EU countries.
UK growth slows: snap reaction
Geoff Tily, senior economist at the TUC, is concerned that the UK has barely posted any growth since the summer:
Howard Archer of EY Item Club has summed up the data:
Naeem Aslam of Think Markets blames the Brexit saga for the slowdown:
There is no doubt that the UK’s economic data has deteriorated and the confidence has shattered among entrepreneurs. The ongoing Brexit saga has created nothing but the bad environment.
This chart shows how the UK’s growth rate has petered out, as the bumper consumer spending boost in July drops out of the data.
[Each data point compares a three-month growth period to the previous quarter]
Rob Kent-Smith, head of national accounts at the ONS, says the UK economy has weakened this autumn:
“GDP growth slowed going into the autumn after a strong summer, with a softening in services sector growth mainly due to a fall in car sales. This was offset by a strong showing from IT and accountancy.
“Manufacturing saw no growth at all in the latest three months, mainly due to a decline in the often-erratic pharmaceutical industry.
Construction, while slowing slightly, continued its recent solid performance with growth in housebuilding and infrastructure.”
Britain’s economy has now barely grown over the last three months.
Today’s growth report shows that GDP was flat in August and September, before inching up by 0.1% in October
UK growth rate slow as manufacturing stumbles
Newsflash: the UK economy only grew by 0.1% in October, as manufacturing stumbles.
This dragged the UK’s quarterly growth rate down to just 0.4%, from 0.6% in July-September.
In a worrying sign, the Office for National Statistics also reported that manufacturing output shrank by 0.9% in October, the worst performance since March 2016. That’s a surprise, as we thought factories were busy stockpiling in case of a hard Brexit…
The service sector grew by 0.2% in October, the ONS adds, while construction shrank by 0.2%.
More to follow….
Over in Japan, prosecutors in Japan have charged Carlos Ghosn with under-reporting his income — three weeks after the former Nissan chairman was dramatically arrested.
And in another twist, prosecutors also indicted Nissan for filing false financial statements. That could leave other senior executives facing tough question, such as CEO Hiroto Saikawa, who was scathing about Ghosn’s performance after his arrest.
Brexit anxiety is also bubbling in the markets today, as investors prepare for MPs to (probably) reject Theresa May’s deal tomorrow.
The government is on track for a stonking defeat (assuming the vote goes ahead), meaning there’s plenty of chatter about leadership bids, no-confidence votes, and general elections.
Shares in UK-focused companies such as house builders and retailers are among the top fallers in London this morning. And sterling is bobbing around $1.27, a whole five cents lower than in late September.
Neil Wilson of Markets.com says
Given the way political risk is starting to be priced into the market, we could see further losses if, or rather when, the prime minister loses her Brexit vote.
Whilst a weaker pound could offer some support, a very high political risk premium would tend to trump that and drag the market lower. Investors will have to start, if they haven’t already, price in the risk of a General Election and Labour-led government.
In another twist, Europe’s top court has ruled that the UK can unilaterally stop the Brexit process, and remain in the EU on the same terms….
Shares in UK outsourcing firm Interserve have cratered by three-quarters this morning, to just 6p, as the government contractor battles to negotiate its second rescue deal this year.
The heavily indebted group, which has thousands of government contracts such as cleaning hospitals and serving school meals, said the rescue plan would mean substantial losses for current shareholders as the banks that have lent Interserve more than £600m take control of the company. It hopes to wrap up a deal early next year.
Interserve’s shares plunged to 6p in early trading, giving it a market value of less than £9m. At its peak in 2014, the shares were worth more than 700p.
Europe opens in the red
European stock markets have followed Asia’s lead, dropping by around 0.6% in early trading.
That takes them back towards last Thursday’s two-year lows, wiping out some of Friday’s rally.
Italian FTSE MIB has lost almost 1%, leading the selloff, as investors show little appetite for risk.
Kit Juckes of Societe Generale says “geopolitics has taken over.”
The US ambassador to China has been summoned by Beijing in protest at the arrest of Huawei’s CFO, and that’s driving sentiment across Asia.
Hopes of fruitful trade negotiations have taken a beating since the optimism that was around a week ago when the Buenos Aires G20 meeting prompted hope of a rally into the end of the year for equities.
Today’s losses have dragged the Australian stock market to a two-year low (a milestone which Britain’s FTSE 100 struck last week).
Stock markets have also been hit by the news that Japan has suffered its worst contraction in four years.
Revised GDP figures show that the Japanese economy shrank by 0.6% in July-September, or 2.5% on an annualised basis, worse than first estimated.
Growth shrank as companies slashed spending, as the US-China trade war hurt demand for exports.
Japan was also hit by several natural disasters during the quarter, including Typhoon Jebi (the worst in 25 years) and a destructive earthquake in Hokkaido. This forced factories to cut production.
Artjom Hatsaturjants of Accendo Markets says Japan’s contraction is “adding further fuel to the fire that set the stock markets red”.
The agenda: Markets keep falling; UK growth data coming up
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s a new week, but the same old story. Global financial markets are sliding amid worries about trade war tensions and the health of the global economy.
Asia-Pacific stock markets have slumped today, taking their cue from Wall Street where shares closed in the red on Friday night (the Dow surrendered another 558 points).
Japan’s Nikkei has shed more than 2%, China’s Shanghai Composite has lost 0.8%, while Australia’s S&P/ASX 200 is the real laggard, down almost 2.3%.
Stephen Innes of trading firm OANDA says investors have been left “battered, bruised and running for cover” after last week’s losses, which dragged European stocks down to a two-year low.
A high level of circumspection continues to engulf the global market.
Another day another reason to sell risk. Equity markets remain in a world of pain with everyone in search of a very elusive silver lining, or even Santa for that matter.
Bloomberg argues that investors are spooked:
To Nader Naeimi, a Sydney-based fund manager at AMP Capital Investors Ltd., the recent market weakness has been “narrative based” as opposed to “fundamentally based,” and investors are in a “get-me-out-of-here mood.”
With every single market in the red, Asia’s benchmark MSCI Asia Pacific Index has erased November’s 2.7 percent climb and is heading to its lowest level since end-October.
We’re expecting a weak start in Europe too, with Britain’s FTSE 100 expected to dip by 0.5%.
The arrest of Huawei’s chief financial officer last week continues to worry the market.
Investors fear that the truce agreed between Washington and Beijing will fracture, as China demands Meng Wanzhou’s immediate release.
As Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo, puts it:.
“The biggest concerns for equity markets currently is the U.S.-China trade conflict and the Huawei incident.
The trade theme will preoccupy the markets through the 90-day truce period between the United States and China, waiting for any signs of concession between the parties.”
Also coming up today
New GDP data will show how the UK’s economy is faring. Economists predict growth of just 0.1%.
- 9.30am GMT: UK GDP for October 2018
- 9.30am GMT: UK trade, manufacturing and services
- 3pm GMT: US JOLTS survey of job openings
Read more from source here…