UK service sector growth slows, productivity stumbles and car sales slide - as it happened

Graeme Wearden

from on 2017-07-05 15:09 (#2VPK2)

Business optimism hits second-lowest level since 2011, as service sector firms are buffeted by Brexit-related worries

UK productivity has fallen again
UK service sector growth slowed in June
Firms hit by rising costs...and struggle to find workers
UK car sales fall for third month running
Scotland avoids recession
Sainsbury's criticised over Fairtrade plans
But....the eurozone just posted its best quarter since 2011

4.09pm BST

OK, time for a recap.

A flurry of disappointing data have fuelled fears that Britain's economy is struggling to gain momentum.

UK service providers indicated another slowdown in business activity growth during June, which largely reflected the weakest upturn in new work since September 2016.

Survey respondents commented on subdued business and consumer confidence, alongside some instances of delayed decision- making around the election.

Falling confidence in the service sector is compounded by the weakness in manufacturing reported on Monday.

Rising prices will always slow consumption but it was hoped the advantage of a weaker currency to manufacturing would be a positive offset.

"Productivity shouldn't be used as a buzzword simply to keep businesses happy.

There have been signals from Government that we are likely to see an end to austerity and therefore a possible increase in public spending. With the economy still in a fragile state, it's imperative that any increased expenditure is allocated to areas that will help to drive economic growth - infrastructure, training, and fiscal stimulus."

#Eurozone economy enjoyed best quarter for over 6 years during Q2; final Composite #PMI Output Index at 56.3 in Jun https://t.co/u1trgAVHxR pic.twitter.com/nd8SdpJw6I

4.04pm BST

Newsflash from Washington: the International Monetary Fund has warned world leaders to avoid 'myopic' trade policies.

It looks like a none-too-subtle jab at president Trump, ahead of the G20 leaders meeting later this week.

3.56pm BST

Greece's summer of discontent is hearing up.

3.21pm BST

Newsflash: US factory orders shrank by 0.8% in May, a worse performance than expected.

That's the second monthly decline, after April's 0.3% decline. It suggests America's manufacturing sector may be slowing.

US factory orders decline 0.8% in May. This after Durable Goods fell 1.1%. #Economy not looking good.

3.06pm BST

American investors looking at Ireland as a beachhead into the European market believe the Trump administration may have more impact on their decision making than Brexit.

"The positive results are an indication of just how important Ireland's stable economic and political environment have become for investors.

The twin challenges of both Brexit and a new US Administration have presented investors with much to think about.

2.23pm BST

The government will be worried by the disappointing slide in UK productivity, which shank by 0.5% in the first three months of this year.

Poor productivity usually leads to lacklustre growth, and ultimately weaker tax receipts; not ideal, if you're facing pressure to abandon austerity and end the public sector pay freeze.

What will worry ministers almost as much are the sectoral and regional breakdowns provided by the ONS.

It reports that in the manufacturing sector, output per hour actually improved by 0.2% during the quarter.

Productivity in the UK has suffered its first quarterly fall since the last three months of 2015. Words from me herehttps://t.co/ld1s6XvMf0

2.20pm BST

If you're just tuning in, here's our news story about the slowdown in UK service sector growth:

Slowing growth across Britain's services companies in June completed a "triple whammy" of disappointing economic news this week that also saw growth in the construction and manufacturing industries fade in response to Brexit uncertainty and weak consumer confidence.

Activity in the services industry, which accounts for almost 80% of economic activity, fell to a four-month low in June, dragging down the all-sector IHS Markit/CIPS purchasing managers index (PMI) from 54.5 in May to 53.9 in June, the lowest since February.

Some analysts said the weak set of figures indicated a broad softening in activity across the economy that was likely to dent the enthusiasm of Bank of England policymakers who have proposed increasing interest rates.

Earlier this week, monetary policy committee members Michael Saunders and Ian McCafferty said persistent inflation and strong employment growth needed to be calmed by higher interest rates. Chief economist Andy Haldane recently indicated that he could vote for a rise later this year should the economy continue to expand.

1.45pm BST

Supermarket chain Sainsbury is facing criticism at its Annual General Meeting today, after it decided to replace fair trade teabags with a new "Fairly Traded" label.

Last week, Sainsbury announced it is introducing its own in-house certification scheme, set new ethical standards and introducing a different way to pay farmers.

Shareholders challenging Sains on pilot of stopping Fairtrade tea own label.

Lady from Cafod: concern Sains starting direction that will undermine Fairtrade and lead to plethora of standards, confusion for shoppers

Coupe: Sains has tried working with Fairtrade and found not able to dev system with best economic, social, env outcomes for money investing

Coupe suggesting Fairtrade out of date: "it might have been fit for purpose 25 yrs ago but we are in a new world with new technology"

"Fairtrade is a lifeline for many of the most vulnerable communities helping them educate their children and provide vital healthcare.

"Sainsbury's is removing what little control some of the poorest tea farmers and producers have on how they spend the money they make, shifting decisions to a committee far away in London. This power grab turns an effective trade partnership into old school charitable grants. We urge Sainsbury's to stick with the gold standard Fairtrade mark, which is trusted around the world."

1.21pm BST

Newsflash: JP Morgan is taking its ball home, rather than battling to take control of Britain's Worldpay.

In a brief statement, JP Morgan says that it doesn't intend to bid for the company:

JP Morgan Chase & Co. ("J.P. Morgan") notes the announcement by Worldpay Group plc ("Worldpay") on 4 July 2017. In response to an invitation from Worldpay, J.P. Morgan was at a very early stage in considering whether or not to make an offer or the terms of any offer for Worldpay.

Following preliminary considerations, J.P. Morgan hereby announces that it does not intend to make an offer for Worldpay. J.P. Morgan continues to hold Worldpay in high regard.

12.58pm BST

Just in: UK payments firm Worldpay has agreed to be taken over by US rival Vantiv in a 7.7bn deal.

Yesterday, FTSE 100-listed Worldpay revealed that it had received two separate bids, one from Vantiv and one from JP Morgan.

12.38pm BST

The Scottish economy has avoided a recession after the latest GDP figures showed growth of 0.8% in the last quarter to March 2017.

Alarm about its prospects had deepened after the economy shrank by 0.2% in the previous quarter, leaving Scotland's economy trailing that of the UK as a whole. But the economy has bounced back in January-March.

Scottish economy grew by 0.8% in first quarter of 2017 - compared to UK growth in same quarter of 0.2%. https://t.co/0srD0HzHmE

Part of Q1 GDP growth in Scotland down to resumption of steel production at Dalzell - saved with the help of @scotgov intervention.

"Growth rates in Scotland have been low for several years and what growth there has been has in part resulted from hard pressed workers building up more debt and exhausting their savings. This is clearly unsustainable.

"If steps are not taken to boost investment and demand and to prevent irresponsible private lending from destabilising the economy, another crash and recession is just round the corner."

12.11pm BST

Sam Hill, Royal Bank of Canada's senior UK Economist, agrees that business confidence has been dented by the maelstrom in UK politics.

On this week's PMI reports, he says:

The mid-month surveys will have been conducted in a period of political uncertainty, following the hung parliament general election result and the start of formal Brexit negotiations.

This may have contributed to an easing in the business expectations components of the surveys. For example, there was a 4.4-point drop in that part of the service PMI, leaving it 1.3 standard deviations below the long-run average.

11.50am BST

Here's some food for thought, from Scott Corfe, chief economist at the Social Market Foundation:

The UK's productivity problem: if we were at trend a full-time (Mon-Fri) worker could take Friday pm off and still produce 8% more each week pic.twitter.com/1OOKazO7YV

11.25am BST

The slowdown in UK service sector growth in June was "disappointing, but hardly surprising", says Howard Archer, chief economist at the EY Item Club.

"Following on from weaker manufacturing and construction surveys, the softer services PMI points to an already fragile economy struggling in June as heightened uncertainties about the UK outlook fuel business and consumer caution."

Uncertainty appears to have caused some companies to limit or delay spending. Meanwhile, consumer-facing services companies continue to be hampered by squeezed purchasing power.

10.56am BST

The fall in UK productivity last quarter should send alarm bells ringing in Westminster, says Ian Brinkley, acting chief economist at the CIPD:

"Today's figures should act as a very sharp reminder to Government that Brexit is not the only challenge facing the UK. Unless more is done to tackle the nation's low productivity, people's wages and living standards will continue to fall and the UK will be ill-equipped to compete once we do leave the EU.

"Government must urgently review its productivity plan and ensure that its industrial strategy includes a much stronger focus on boosting investment in skills and efforts to boost managerial quality in partnership with employers, professional bodies and unions at a national, sector and local level."

"As the UK's productivity continues to fall,it's crucial that organisations invest in talent.

The current skills gap is holding back business growth. Employers are struggling to recruit workers with the right skills and are paying inflated salaries and enhanced recruitment costs as a result.

UK productivity is (once again) back below the level it was pre-crash. We're heading for an entire decade of stalled growth. pic.twitter.com/uqqRHBPCre

To people who are asked to work ever harder for low wages, being told that the UK has a productivity problem feels like a slap in the face

10.33am BST

I hate to bring even more bad news... but Britain's productivity has fallen.

UK labour productivity, as measured by output per hour, declined by 0.5% in the first three months of this year, according to new figures from the Office for National Statistics.

UK productivity edges back down below Q4 2007 peak in Q1 2017. Full lost decade almost here... pic.twitter.com/RbR9kLTW8f

10.21am BST

Guardian Business has launched a daily email.

Besides the key news headlines that you'd expect, there's an at-a-glance agenda of the day's main events, insightful opinion pieces and a quality feature to sink your teeth into each day.

10.21am BST

Duncan Brock of the Chartered Institute of Procurement & Supply blames political uncertainty for the drop in UK service sector growth last month.

"A creeping doubt appears to be the cause of this month's below par performance as the UK's departure from the EU and the unpredictable political climate continues to impact on consumers and businesses alike.

"Strong growth in new orders and overall activity was destabilised by a reduction in business optimism, which fell to one of the lowest levels since 2011.

10.19am BST

Despite the slowdown, service sector companies kept hiring staff last month.

However... some reported that it was difficult to find workers with the skills they need.

10.18am BST

In another blow, UK service sector companies were hit by a steep increase in their costs in June.

Markit explains:

Greater operating costs were linked to a combination of rising staff salaries and increased raw material prices (particularly food and imported items).

Survey respondents noted that intense competition for new work continued to place pressure on pricing power. Reflecting this, the latest rise in average prices charged by service providers was the slowest since July 2016.

10.05am BST

Ed Conway of Sky News says this morning's data paints a worrying picture of the UK economy:

Poor economic tidings today: car sales dropping, services sector weakening, productivity falling. Paints picture of a stuttering economy

Shorter PMIs: UK economic momentum is slowing, Eurozone accelerating.

Many businesses may have delayed investment decisions in the face of an ambiguous political landscape.

"The continued rise in inflation and the general uncertainty is denting consumer confidence which may impact on demand. The question remains as to how much businesses will be looking to invest during the rest of the year to help stimulate demand.

9.56am BST

This week's disappointing PMI surveys suggest that the UK economy will slow over the summer, warns Chris Williamson of Markit.

Here's his take on this morning's data:

"A slowing in services sector growth completes a triple-whammy of disappointing PMI survey readings. Although the three PMI surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it's clear that the economy heads into the third quarter losing momentum.

"With business optimism having been hit by the intensification of political uncertainty following the general election and commencement of Brexit negotiations, at the same time that households are battling against rising inflation, the indications are that the economy's resilience is being tested.

9.53am BST

The service sector slowdown is the third piece of disappointing UK economic news this week.

A reminder:

9.44am BST

Worryingly, today's report also shows that UK business optimism has fallen to its weakest level since last summer's EU referendum.

Markit says:

Aside from the post-referendum dip last summer, the level of business optimism was the weakest since December 2011.

Survey respondents cited anxiety related to the Brexit negotiations, alongside worries about the general economic outlook and heightened political uncertainty.

9.42am BST

Breaking: Growth in Britain's service sector has slowed to its lowest in four months, according to data firm Markit.

Service sector companies, who make up around of the 80% of the UK economy, have reported that they experienced subdued business and consumer confidence in June.

The slowdown in business activity growth in June was linked to a softer rise in incoming new work across the service economy. Moreover, the latest increase in new work was the weakest for nine months.

Anecdotal evidence cited Brexit-related risk aversion and heightened economic uncertainty as key factors holding back client spending.

9.32am BST

Graham Hiscott, business editor of the Mirror, says weakening consumer spending is hitting the car industry:

New cars sales fell for the third month in a row, with demand for diesels diving 14.7%, says @SMMT. More evidence of consumer slowdown.

#SMMT report #UK new #car sales down 4.8% y/y in Jun. Third successive fall after strong Q1 when some sales brought forward by VED changes

9.29am BST

Car sales to UK individuals, rather than businesses, shrank by nearly 8% in June.

Sam Tombs of Pantheon Economics predicts further falls in the month ahead.

UK private new car sales down 7.8% y/y in June and down 4.8% y/y in H1 overall. The slump in consumer confidence signals further falls ahead pic.twitter.com/wdue5GRXIw

9.25am BST

Diesel car sales fell particularly sharply last month, by almost 15%.

Chris Giles of the FT says the figures are a concern:

New car sales beginning to look rather sickly pic.twitter.com/zhY0JaIZMi

9.18am BST

Breaking: UK car sales have fallen for the third month running.

Car registrations declined by 4.8% in June, new figures from the Society of Motor Manufacturers and Traders show. That means that sales so far this year are down by 1.1%, following steeper falls in April and May.

"As forecast, demand for new cars has started to cool following five consecutive years of solid growth but the numbers are still strong and the first half of the year is the second biggest on record.

Provided consumer and business confidence holds, we expect demand to remain at a similarly high level over the coming months.

9.08am BST

9.06am BST

It's official: The eurozone private sector has posted its best quarter since 2011, despite a slight slowdown in June.

That's according to this morning's service sector data from Markit, plus manufacturing surveys released on Monday.

The dip in the PMI in June certainly doesn't look like the start of a slowdown. Growth of new orders accelerated very slightly to reach the second- highest in just over six years, and companies are struggling to satisfy this increase in demand.

"Operating capacity is being strained despite the region seeing the best spell of employment growth for a decade in recent months.

8.59am BST

Germany's service sector growth slowed to a five-month low in June:

#Germany Markit Services PMI Final at 54 https://t.co/67ci1U6XhK pic.twitter.com/lh3NnjLW0J

8.58am BST

French firms are still basking in the afterglow of Emmanuel Macron's victory.

France's services PMI has hit 56.9 for June, only slightly down on May's 70-month high of 57.2. Firms reported a jump in new business, which meant they hired new staff at the fastest rate since March 2008.

"As was the case in May, employment was a key talking point in June, with the rate of job creation the sharpest in over nine years. Robust client demand and a strong degree of optimism are likely to lead to further jobs growth over the coming months."

8.53am BST

Italy is next.... and its service sector growth has also slowed.

The Italian services PMI has dropped to 53.6, down from 55.1 in May. That's lower than expected, but still firmly in 'expansion' territory.

8.50am BST

After a rollicking couple of years, Ireland's service sector took a little breather last month.

The Irish Services PMI came in at 57.6 in June, a seven-month low, down from 59.5 in May. But that's still a pretty impressive figures, with firms reporting that new orders kept rising as client demand picked up.

8.33am BST

In the City, shares in housebuilder Persimmon have jumped by 3.5% to the top of the FTSE 100 leaderboard after posting strong financial results this morning.

"We have continued to experience good levels of customer demand" with the market taking the snap UK general election in its stride.

Consumer confidence remains resilient and compelling mortgage rates continue to offer good support to new home buyers."

8.21am BST

Oli(C)! Spain's service sector has just posted its fastest growth in almost two years, as its recovery continues to build.

The Spanish Services PMI has jumped to 58.3, up from 57.3 in May - a level showing strong growth. That's the best reading since August 2015.

"The Spanish service sector ended the first half of 2017 with a flourish, with PMI data for June signalling the strongest increases in output and new orders for almost two years and employment growth picking up as well.

Firms also took advantage of strong demand conditions to raise their selling prices and provide a welcome boost to profit margins. Companies see little reason to doubt the sustainability of the upturn at present, reflected in our business confidence data remaining around the highest seen over the past two years.

8.13am BST

This morning's UK service sector report will be "critical" for sterling, says Kathleen Brooks of City Index:

A weaker than expected services sector PMI could see GBP/USD lose more momentum, which ironically may be good for the FTSE 100.

This pair fell sharply on Monday after the worse than expected manufacturing PMI report for June, since the services report is more relevant for the UK economy then the pound reaction could be bigger if we get another data miss.

8.09am BST

Overnight, we've seen that China's service sector slowed as firms were hit by subdued demand.

The China Caixin services purchasing managers' index (PMI) dropped to 51.6, from May's 52.8 (a four-month high).

Signs of slower growth in #China services activity adds to sluggish manufacturing output. Services #PMI at 51.6. https://t.co/XNMKefyrsP pic.twitter.com/zRHlfnRGrK

8.00am BST

Reuters has jumped the gun, and is reporting that 'preliminary data' shows that UK car sales fell again last month.

British new car registrations fell by around 5% last month year-on-year and overall sales for the first six months of the year dropped by 1%, according to preliminary data from an industry body.

The Society of Motor Manufacturers and Traders will release the full numbers at 0800 GMT [9am UK time].

UK new car sales drop around five percent in June - preliminary data https://t.co/JeE2Wm6vWM pic.twitter.com/eMPI4lMPSx

7.34am BST

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

Britain's service sector makes up around 80% of the economy, from hotels and restaurants to haulage firms, accountants, and IT companies. So investors are nervously waiting to discover how they fared in June, and if last month's general election had any impact.

As with the earlier manufacturing and construction surveys, we expect to see some pull back in the services PMI this month; to 53.5 from 53.8 previously as the uncertainty caused by the general election result impacts on the predominantly domestically-focused sector.

Even allowing for the weaker readings in the other sectors, an outcome in line with that expectation would still leave our PMI-based indicator pointing to GDP growth of 0.4% q/q though it would also reinforce the signals from those other sectors of the economy losing some momentum at the end of the quarter.

Watching the #UK #PMIservices at 9:30am London time. #GBPUSD pic.twitter.com/hI5c9EFdlp

Source	RSS or Atom Feed
Feed Location	http://feeds.theguardian.com/theguardian/business/economics/rss
Feed Title
Feed Link	http://feeds.theguardian.com/