UK service sector growth hits four-month high, but car sales slump – as it happened

Graeme Wearden

from on 2017-05-04 13:43 (#2N9XY)

Britain's dominant services sector has posted its strongest growth of the year

Earlier

2.43pm BST

Time for a quick recap.

1) Britain's economy looks healthier than a few days ago. Growth in the dominant service sector has hit a four-month high this morning, following similar strong data from the manufacturing and construction sector this week.

Who's more popular in France - Obama or Farage?

There's been no let-up in the rout in crude oil today. The benchmark WTI contract is down close to 2.5% this afternoon while Brent has slumped below $50. Both contracts trading at their lowest levels since late November last year, just after OPEC and other major producers agreed to their 1.8 million barrel per day output cut. Today's sell-off accelerated after Russia said that there's no decision to date on extending the production cut beyond June.

#BREAKING Brent crude oil drops through $50 a barrel and hits new low for 2017 of $49.69 #OOTT #OPEC pic.twitter.com/DkyI75MIzZ

2.37pm BST

Over in New York, the stock market has opened cautiously as traders await another vote in Congress over healthcare.

The Dow Jones industrial average is up just 20 points, or 0.1%.

US stocks open slightly higher after strong earnings; Wall Street awaits health care vote https://t.co/cNrRVw9eGR pic.twitter.com/7g6ZWmWknd

2.18pm BST

Here's more reaction to today's decent UK service sector data, from Kathleen Brooks of City Index:

The UK service sector has caught up with the manufacturing sector, and today's PMI data for April suggests that the UK economy will rebound once more in Q2, after a disappointing start to the year. This has been greeted by a bounce higher in the pound, although GBP/USD hasn't been able to sustain gains above 1.2900 so far.

As we move into election season, the UK economy is playing into Theresa May's hands, which could help to reduce political uncertainty as we lead up to the General Election next month. This is significant for UK assets, particularly the pound, which has been very sensitive to UK political risk post-Brexit. Thus, an easy win for Theresa May next month combined with a pick-up in UK economic data could help GBP/USD break through the 1.30 barrier in the coming weeks. As we lead up to the election on June 8th June, UK economic data will be just as important as the polls for traders to keep an eye on.

2.17pm BST

The oil price is taking a kicking today, hitting its lowest level since last December.

Brent crude is down 1.9% at $49.84, a five-month low, while US oil fell below $47 per barrel.

OIL https://t.co/z5Zk7tczag pic.twitter.com/2a0EW48ZJv

U.S. data showed crude inventories fell 930,000 barrels in the week to April 28, against analysts' expectations for a decrease of 2.3 million barrels. Stocks have steadily declined for the last four weeks, but at 527.8 million barrels they are just 7 million barrels off a record high.

Here's one I made earlier - #Oil down on lower than expected drop in U.S. inventories https://t.co/QP7l2q9hhr @ReutersCommods #OOTT pic.twitter.com/F4ZOgwQs37

1.56pm BST

Two pieces of US economic data just flashed up.

1) America's trade deficit was smaller than expected in March. The gap between US imports and exports came in at $43.7bn, close to February's $43.8bn, and lower than the $44.5bn expected.

*U.S. MARCH TRADE GAP LITTLE CHANGED AT $43.7B; EST. $44.5B

BREAKING: US weekly jobless claims total 238,000 vs 247,000 estimate https://t.co/rlSba4Ttca

1.24pm BST

Optimism over Sunday's French election continues to bubble through Europe's financial markets today.

The euro has risen almost half a cent against the US dollar to $1.0922, and French bonds have also strengthened.

Day after, debate verdict ever more severe for Le Pen. Cab driver, backed Mi(C)lenchon, planned to abstain Sun, now for Macron: 'It's over.'

Barclays will have extra Sales and Trading staff in our offices in New York, London and Singapore, in order to help our clients navigate through any ensuing market volatility as the French election second round results come in."

12.48pm BST

As the eurozone basks in the sun of nascent economic recovery, in Athens prime minister Alexis Tsipras has been blasting Greece's euro zone partners (and IMF) for their unfriendly behaviour towards the bloc's weakest link.

"The lenders are not our friends. And nor did they become our friends in June 2015, or May 2016 or now.

"And that is not just a moral judgement. It is the reality. On the one hand, lenders want to secure the money that they loaned Greece, on the other they want [to impose] a particular model and strategy of organising the economy. This model very often clashes with the one that we want for the country, for the economy, to cover social needs."

Multi-bill to be voted by #Greek parliament on May 16, counter-measures to be included on amendments giving opposition ability to vote them

12.17pm BST

City traders are continuing to thump Next, following the retailer's downbeat trading update this morning (details here).

Here's the full story:

Nearly 500m wiped off value of Next as it warns of 'challenging' market & cuts forecasts;neglected wardrobe staples https://t.co/JpN7GpGDgy

11.59am BST

Today's car registration figures also show that sales of diesel-powered cars plunged by 27% year-on-year in April.

Buyers have been spooked by the planned introduction of a toxin tax on diesel cars and the London Mayor Sadiq Khan announcing an additional charge on polluting diesel vehicles entering central London.

"Theresa May then showed her disdain for diesel by hinting that the Government is considering introducing a scrappage scheme to incentivise drivers to trade in older diesel vehicles."

11.37am BST

Here's our news story about the sharp fall in car sales in April:

11.29am BST

This chart highlights how UK services firms hiked their prices in April, as the inflationary impact of the weaker pound ripples through the economy.

10.50am BST

We've also got fresh evidence that Britain's housing market is slowing.

UK mortgage approvals fell in March from 68k to 67k. Second consecutive monthly fall signals further slowdown in house price growth to come. pic.twitter.com/9zfCAkQMP4

10.10am BST

The UK services sector had a "stellar" April, says Duncan Brock of Chartered Institute of Procurement & Supply.

However, growth is being driven by orders from other companies - rather than the public, he adds:

"A supportive economic backdrop helped to boost the UK service sector, with resilient demand reported both at home and from abroad. Going full steam ahead with staff hires rising at one of the fastest rates since last summer, this relieved capacity pressures and provides a signal that service providers anticipate additional growth in the coming months.

"The driver of growth came primarily from business clients, as consumers took a back seat, uneasy about rising costs for essentials such as food, fuel and energy which rose at the fastest rate since July 2008.

"Although the services PMI beat expectations, some of the details give pause for thought. Input costs continue to point to higher inflation in the months ahead, a factor that is likely to weigh on consumers. Furthermore, although firms' optimism about the year ahead is still positive, it fell for the third consecutive month.

"Nevertheless, the figures continue to point to the economy expanding in the current quarter, something that will provide the PM with some comfort going into the General Election and the Brexit negotiations soon after. However, an interesting nuance in the data at the moment is that surveys signal a greater sense of growth than the hard data - though markets are unlikely to be bothered this.

9.48am BST

But there's bad news too..... service sector companies are hiking prices at the fastest race since July 2008.

Firms argue that they had to raise prices, because they've been hit by higher costs themselves.

UK service providers indicated a strong rise in input costs during April, despite the rate of inflation easing to a seven-month low. This was mostly linked to higher utility bills, full costs, salary payments and food prices. As a result, average prices charged by services firms increased at a robust pace that was the fastest recorded since July 2008.

9.44am BST

We've now had a hat-trick of good UK economic data this week, as economist Rupert Seggins tweets:

UK economy appears not to have gotten the memo from Q1. Big jump in output growth across all sectors according to latest PMIs. pic.twitter.com/qwZFvXQIGn

9.41am BST

Britain's economy seems to have picked up speed, after growth slowed to just 0.3% in January-March.

Chris Williamson, Chief Business Economist at IHS Markit, says:

"The upturn in the services PMI rounds off a hat- trick of good news after upside surprises to both the manufacturing and construction PMIs. The three surveys collectively point to GDP growing at a rate of 0.6% at the start of the second quarter.

"While we expect consumer spending to slacken in coming months, with the April survey highlighting continued weakness in sectors such as hotels, restaurants and other household-facing businesses, there's good reason to believe that at least 0.4% GDP growth can be achieved in the second quarter as a whole.

9.36am BST

Breaking! Growth in Britain's service sector has hit a four-month high.

Markit's Service Sector PMI has jumped to 55.8 in April, up from 55.0 in March, and the highest reading this year.

9.29am BST

Eek! UK new car registrations tumbled by almost 20% in April as new tax changes hit the sector.

That includes a 28% slide in private car sales, suggesting that consumer are reining themselves in.

With the rush to register new cars and avoid VED tax rises before the end of March, as well as fewer selling days due to the later Easter, April was always going to be much slower. It's important to note that the market remains at record levels as customers still see many benefits in purchasing a new car. We therefore expect demand to stabilise over the year as the turbulence created by these tax changes decreases."

April's 28.4%y/y fall in private car reg. is mainly due to aVED on Apr 1. Even so, sales in 2017 so far are down 2.2%; trend clearly down: pic.twitter.com/i0Nh7oRRv6

9.14am BST

April's strong PMIs suggest that the eurozone recovery picked up speed last month, says Chris Williamson, Chief Business Economist at IHS Markit said:

"With the final reading coming in slightly above the earlier flash estimate, the PMI surveys portray an economy that is growing at an encouragingly robust pace and that risks are moving from the downside to a more balanced situation.

"The April Eurozone PMI is historically consistent with a GDP growth rate of 0.7%, with similar rates of expansion signalled for both Germany and France. Even faster gains are being indicated in Spain and Ireland and Italy is also seeing growth perk up, highlighting the increasingly broad-based nature of the current upturn.

9.07am BST

Boom! The eurozone's private sector has just reported its strongest growth since the debt crisis began in 2011.

Markit's 'composite output index', which tracks thousands of companies across the region, has jumped to 56.8 in April, up from 56.4 in March.

Underpinning growth of economic activity was a strong increase in incoming new business. New orders rose for the twenty-ninth month running, with the rate of expansion staying close to March's high.

The outlook for the economy also remained relatively bright in April, with business optimism about levels of output in one year's time staying close to March's series-record high. Rising backlogs of work also suggested that new order growth was sufficiently robust to test capacity and provide a buffer of incomplete work.

Although the rate of job creation slowed, it was still one of the best seen over the past decade. Accelerated workforce growth in Spain and Ireland partly offset slower increases in Germany and Italy.

More healthy news on #Eurozone as #PMI shows Apr #services expansion at 72-month high; services & manufacturing output also at 72-month high

8.55am BST

Ditto Germany.

Its services PMI has hit a two-month low of 55.4, down from 55.6 in March. That's better than the earlier 'flash' estimate and still shows solid growth.

*GERMANY APRIL SERVICES PMI FALLS TO 55.4; PRELIM. 54.7

8.55am BST

France's services PMI has missed forecasts, but remains comfortably in 'growth' territory (ie, over 50).

*FRANCE APRIL SERVICES PMI FALLS TO 56.7; PRELIM. 57.7

8.54am BST

Wow! Italy's service sector grew at its fastest pace in almost a decade.

The Italian services PMI has jumped to 56.2, showing pretty strong growth, up from 52.9 in March.

The strong growth was driven by rising demand, which also led to the creation of more jobs as capacity pressures intensified.

Italian services PMI at *56.2* (!!!) in April, fastest since August 2007. #Euroboom2017 pic.twitter.com/RM6DhEZ935

8.51am BST

Optimism that Emmanuel Macron will beat Marine Le Pen to the French presidency is pushing shares higher, says Kathleen Brooks of City Index.

She writes:

French Presidential favourite Macron was considered to have outperformed Marine Le Pen in the final Presidential debate in France last night.

This has helped to boost equity markets in Europe and we have also seen a drop in French bond yields, suggesting that political risk premia is falling sharply ahead of the second round of the French election on Sunday.

Two-thirds of Melenchon voters found Macron more convincing yesterday, says @franceinter.

Possible composition of the next French parliament according to opinionway's latest poll. pic.twitter.com/ZN6BLd68vF

8.47am BST

8.42am BST

Oli(C)! Spain's services sector has posted strong growth last month.

April survey data pointed to further sharp monthly rises in activity and new business in the Spanish service sector. Higher workloads encouraged firms to expand their operating capacity, and to this end employment increased to the greatest extent in nine months.

Companies generally expect these trends to be sustained, supporting further optimism around the 12-month outlook.

#PMI (up to 57.8 from 57.4) shows #Spain #services expansion up to 20-month high in April. Healthy new business. Jobs growth at 9-month high

8.36am BST

Over in Paris, the CAC 40 index has hit its highest level since 2008.

French bonds are also rallying, after Emmanuel Macron was judged to have outperformed Marine Le Pen in a notably ill-tempered and hostile TV debate last night:

#France 10y risk spread over Germany drops to lowest since Nov2016 as Macron has survived TV debate. pic.twitter.com/GTVcXMjXoP

8.35am BST

High street chain Next has cut its growth and profit forecasts, in the latest sign that Britain's retail sector is struggling.

The UK consumer environment remains challenging, particularly in the clothing and homeware markets, and real wage growth is now close to zero.

8.21am BST

Banking giant HSBC has also beaten City expectations.

"This is a good set of results. The increase in adjusted profit was driven by strong performances in three of our four global businesses.

Global Banking and Markets had a great quarter; Commercial Banking delivered higher revenue from our liquidity and cash management activities; and Retail Banking and Wealth Management was supported by rising interest rates and renewed customer investment appetite.

8.12am BST

Oil firm Royal Dutch Shell is leading the rally in London, up 3%, after beating analyst forecasts.

8.06am BST

European stock markets have risen at the start of trading, helped by the fall in the pound and the euro against the US dollar overnight.

In London, the FTSE 100 has gained 0.5%, while Germany's DAX rose 0.2% to a fresh all-time high

Europe open pic.twitter.com/prt4SvpLVc

8.02am BST

Ireland has got Service Sector PMI day off to a good start.

Growth in Ireland's service sector hit a 10-month high in April, according to Investec's monthly report.

7.50am BST

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

There's a more optimistic mood in the City this morning, after America's central bank gave an upbeat assessment of the US economy last night.

...carefully crafted to acknowledge what the FOMC suggested were 'transitory' weaknesses in personal consumption and core inflation, while placing particular emphasis on the pick-up in business investment and the strength of the labour market.

Markets pricing in an almost near-certainty that #Fed will raise rates in Jun. Probability for June meeting was 70% before today's decision. pic.twitter.com/Kp9L3k1yTr

Europe opening calls
FTSE +26 points at 7260
DAX +28 points at 12555
CAC +14 points at 5315
Euro Stoxx +4 points at 3590

For both Spain and Italy, we expect the services reading to improve on March. That, coupled with Tuesday's higher manufacturing PMI would leave the composite PMI higher in both, consistent with the picture for the wider euro area that the improved Q1 sentiment has been sustained into Q2.

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