UK economy 'stronger than expected' in February; ECB holds interest rates - as it happened

Graeme Wearden

from Economics | The Guardian on 2019-04-10 16:06 (#4CV6Z)

Britain's economy expanded by 0.2% in February, better than expected, thanks to a burst in manufacturing output

Latest: Mario Draghi explains why ECB left borrowing costs unchanged
Breaking: UK economy grew by 0.2% in February
Economy expanded by 0.3% in last quarter
Manufacturing output surged
What the experts say

5.06pm BST

Finally, the FTSE 100 index of top UK-listed shares has closed down three points at 7,421.

Other European markets had a brighter day, with Germany's DAX index gaining 0.5%. That's thanks to the weaker euro, which dipped after ECB chief Mario Draghi struck a cautious, dovish tone at his press conference today.

3.38pm BST

Time for a recap.

Fears that the Brexit crisis could drive the UK into a recession have eased today. New GDP figures showed that the British economy grew by 0.2% in December-February, as factory demand surged on the back of pre-Brexit stockpiling.

Draghi are keeping all options on the table.
- overall Draghi on the soft side today, but overall not changing the grand scheme of ECB narrative currently.
- tiering is not off the table. Def. part of their discussion.

3.07pm BST

Back in the UK, the NIESR thinktank has predicted that Britain's economy grew by 0.4% in the first three months of 2019.

That's based on this morning's official GDP report for February, and 'soft data' from March.

"The latest ONS data was better than we had expected, but recent survey evidence suggests that economic growth is likely to continue at a fairly modest pace for the first half of this year.

This reflects the impact of Brexit-related uncertainty and slower growth in the global economy outside of the United States. The near-term outlook for the UK economy continues to depend on the outcome of the Brexit negotiations".

2.28pm BST

Draghi is then asked about Italy's weak economy, after Rome slashed its 2019 growth forecast from 1% to just 0.2%.

He says the move isn't a surprise, and shows the need to boost growth in Italy...... without pushing up borrowing costs (that's a criticism of its populist government, which spooked investors last year with its budget plans).

Draghi on Italy: "The data on the Italian economy didn't come as a surprise. There have been already downgrades in the forecasts. So from this viewpoint it is not a surprise" (1/3) #Draghi #ECB

Draghi: "It is quite clear the priority is to restore growth and employment. Italy knows how to do it." (2/3) #Draghi #ECB

Draghi: "It is very important that these priorities are pursued without causing an increase in interest rates, because increases in interest rates are contractionary. That should be the aim of economic policy there." (3/3) #Draghi #ECB

2.20pm BST

Q: Might you intervene and promote the merits of European Union in the run-up to European parliamentary elections?

Draghi say that central banks don't usually get involved in elections (with good reason!), and it wouldn't be right to intervene.

Draghi: Central banks don't usually intervene in the political debate. On occasion the ECB can defend the European framework and point out ways to complete it and remedy weaknesses.

2.05pm BST

The risk of the eurozone falling into recession remains low, insists Mario Draghi, despite his earlier warning about weak economic data.

1.59pm BST

Piet P.H. Christiansen of Danske Bank agrees that Mario Draghi sounds cautiously dovish today.

Draghi is overall on the soft side today. The assessment in inflation and growth are on the marginal soft side, i.e. more policy driven easing stance than data.
TLTRO modalities will depend on the economic outlook and bank lending details

1.57pm BST

Donald Trump's threats to impose tariffs on exports have hurt confidence in the eurozone, Draghi claims.

Draghi now referencing Trump threats. Just shows how much power Don's twitter has. One tweet on auto tariffs, along with those previously postulated, and that's it for Eurozone growth.

Draghi on Trump's protectionist threats: "Between words and deeds there is often a big gulf". Ouch! #Draghi #ECB

1.56pm BST

Asked about inflation expectations, president Draghi suggests that headline inflation may fall in the coming months.

That's quite a dovish statement, likely to weigh on the euro.

1.48pm BST

Draghi seems determined not to commit any news today.

Asked about the upcoming TLTROs (cheap loans to eurozone banks), he says it's "too early" to decide their terms.

1.45pm BST

Mario Draghi ends his statement with his traditional call for more structural reforms in the euro area, and a renewed push to strengthen monetary union.

He makes this plea at every meeting, which gives you a clue about how much attention politicians pay to it.

1.42pm BST

Striking a cautious note, Mario Draghi says that the risks to the eurozone economy remain tilted to the downside.

This has weakened the euro, and pushed investors into safe-haven German government debt, sending its price up and interest rate down:

Mario Draghi speaks. German bunds listen. pic.twitter.com/5Ua1UROroA

1.41pm BST

Draghi is now explaining that labour cost pressures in the eurozone have strengthened and broadened.

Good news for workers!

Draghi: wage pressures have strengthened

1.39pm BST

Mario Draghi warns that information received since the ECB's last meeting has confirmed that eurozone growth has slowed.

He blamed external factors (perhaps US-China trade wars, or Brexit?), plus specific problems in certain countries and sectors.

#Draghi says #ECB stands ready to adjust all monetary policy instruments as necessary. Says information since March meeting confirms slower growth. Says some domestic factors dampening Eurozone growth starting to fade but global headwinds continue to weigh

1.37pm BST

Over in Frankfurt, ECB president Mario Draghi is holding a press conference following today's governing council meeting.

He confirms that the European Central Bank will leave interest rates on hold until at least the end of 2019.

1.23pm BST

Back in the markets, the prospect of a takeover bid has sent shares in outsourcing firm G4S surging by almost 30%.

G4S's treatment of its 570,000 staff, or ability to stop its vans being hijacked by armed gangs, might not win any awards, but City sources say that under different management it could be a cash machine.

Headlines dubbing it "incompetent", "amateurish" and "irresponsible" haven't put the Canadians off, says the man in the City boozer who gets it right three times out of five, making him more reliable than G4S.

1.10pm BST

City reaction to the European Central Bank's interest rate decision is muted.

Naeem Aslam, chief market analyst of Think Markets, says:

The ECB left the powder dry once again and the reason that the Euro is still in the positive territory is because a lot of bad news was already baked into the price.

So, the ECB had to make significant changes to its monetary policy to push the euro lower (which we have not seen). All eyes will be on Draghi now, and if he adopts overly pessimistic tone, we could see the euro moving lower against the dollar

The most boring central bank acts soporific once again. The fact that the ECB sees 'rates a present levels at least through the end of 2019' should dampen any optimistic views on the Euro!

Does the @ecb think it's August or something?

12.54pm BST

Newsflash: The European Central Bank has pledged to leave interest rates unchanged until at least the end of 2019.

At today's meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.

The Governing Council expects the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

Monetary policy decisions https://t.co/JXLNGkOx96

12.50pm BST

The BBC's Katie Hile has a tasty example of Brexit stockpiling - a London bakery which has been stacking up on cream cheese in case of supply problems:

What's going on with #Brexit stockpiling? We've been to @lolascupcakes in Harlesden where they've spent more than 30k and ordered 10 times their usual order of German cream cheese. Have a watch @BBCNews at 1pm @BBCBusiness @KatyAustinNews pic.twitter.com/r3VPzRdXD8

12.32pm BST

Britain has suffered a slump in exports to countries outside the EU -- helping to worsen the UK's persistent trade gap with the rest of the world.

The total trade deficit (both goods and services) widened by 5.5bn in the three months to February 2019, data released this morning shows.

Exports to non-EU countries decreased 3.1 billion, while imports from non-EU countries increased 2.1 billion in the three months to February 2019. Falling exports to non-EU countries were due largely to falling exports of fuels, and machinery and transport equipment.

Exports of fuels fell 1.2 billion while exports of machinery and transport equipment fell 1.1 billion, 1.0 billion of which was a result of falling car exports.

12.13pm BST

The NIESR thinktank (which will release its own GDP forecasts later today) says UK growth looks "modest":

The latest ONS #GDP data was better than we had expected, but recent survey evidence suggests that the #economicgrowth is likely to continue at a fairly modest pace for the first half of this year. Look out for our new #NIESRGDP Tracker at at 2pm...

11.41am BST

John Hawksworth, chief economist at PwC, believes that stockpiling, and solid consumer demand, have helped Britain's economy survive the political deadlock over Brexit.

Here's his take on today's growth report:

"Despite ongoing uncertainty over Brexit, the UK economy held up relatively well in February, with GDP growth of 0.2% compared to January. Services continued to grow at a moderate pace, while manufacturing output seems to have been boosted to some degree by pre-Brexit stockpiling since January.

The underlying trend over the past three months has been for GDP growth at an annualised rate of just over 1%. This is below trend and well down on the buoyant growth rates seen last summer, but there are no signs that Brexit-related uncertainty has pushed the economy as a whole into recession.

11.34am BST

Take note, borrowers. Economist Sam Tombs of City firm Pantheon suspects today's GDP report increases the chances of a Bank of England interest rate rise during 2019.

"Resilience puts renewed pressure on the #MPC to hike rates this year." @samueltombs on U.K. #GDP, February #PantheonMacro

11.24am BST

Despite growing in February, Britain's construction output has shrunk by 0.6% over the last quarter.

Clive Docwra, managing director of construction consulting and design agency McBains, fears the sector will keep struggling this year.

"Given the continuing "will-we, won't we" saga of when the UK will be leaving the EU, today's figures buck the trend we were expecting. However, although there was moderate growth in February, the general trend is of slowing growth since mid-2018.

"Indeed, the long term outlook is even gloomier as a weak UK economy, volatile pound and worries over the long term impact of Brexit mean caution from investors is the watchword, as evidenced by a fall in private commercial new work. We expect that will translate into a continued, more serious, contraction for the sector over the coming months."

0.6% fall in construction output in the three months to February 2019. Both all new work (-0.4%) and repair & maintenance (-1.0%) saw decreases https://t.co/qJHYTd0hOW pic.twitter.com/MJeHWJBU8m

10.53am BST

Once again the initial estimate of #GDP was stronger than the survey evidence had suggested, providing a reassuring sign that up to February at least, the economy weathered the #Brexit chaos and overseas slowdown well. pic.twitter.com/mJWoKLqFdH

10.52am BST

Andy Bruce of Reuters has spotted fresh signs that Britain's financial services sector is struggling:

Hardly controversial to say that finance has struggled since the Brexit vote.

On 3m/3m basis, it's been 22 months since the sector saw growth pic.twitter.com/HYSWXn1zil

10.50am BST

Despite Brexit stockpiling, Britain's manufacturing sector is still smaller than before the financial crisis, points out Newsnight's Ben Chu:

Level of UK manufacturing output still lower than it was more than 10 years ago. #lostdecade pic.twitter.com/m2gioCqODC

UK manufacturing grew by 0.9% in February according to the @ONS today. But the level of output STILL remains below where it was 11 years ago.... pic.twitter.com/bB7ItsoADx

10.35am BST

John McDonnell MP, the shadow chancellor, isn't impressed by the UK's 0.3% growth over the last quarter, saying:

"These weak growth figures are a direct result of this Government's Brexit bungling and long-running economic mismanagement.

"The Tories lack both competence and vision on the economy, as yesterday's double downgrade by the IMF confirms.

10.27am BST

Theresa May doesn't have much firepower as she faces EU leaders in Brussels tonight, to plead for another Brexit extension.

Today's GDP report, though, may strengthen her hand, argues Professor Costas Milas of Liverpool University.

Stockpiling or not, today's GDP reading suggests the economy grew at an annual rate of approximately 1.56% on a three-month rolling basis (between December 2018 and February 2019) which is slightly higher than the 1.49% forecast made by the Bank of England for 2019 Q1. The further good news is that ONS has revised upwards growth rates for 2018.

This suggests a 'carry over' effect which should tempt the Bank of England revise upwards its 1.2% forecast for 2019 as a whole. Mrs May should make the most of it. Indeed, she can legitimately warn her critics from Brussels: "Back my efforts to secure extra time to sort out the Brexit mess or today's relatively healthy economic performance will become a thing of the past in case snap elections and/or a disorderly Brexit gets in our way".

10.18am BST

The news that Britain's economy expanded by 0.2% in February has been cautiously welcomed by economists.

Ian Stewart, chief economist at Deloitte, says the UK is showing a steely streak:

"The UK is proving more resilient than expected in the face of a global slowdown and Brexit headwinds. The pace of growth could be choppy, but the UK is likely to grow at about the same pace as the euro area this year."

"Today's figures provide a glimmer of hope that the UK economy has gained some momentum at the start 2019, despite the effects of a slowing global economy and crippling uncertainty. Cebr forecasts that the UK economy will grow by 1.2% over 2019, assuming that a modified version of the withdrawal agreement is passed in the coming weeks.

However, risks to this forecast are stacked to the downside, with a resolution this year to the current parliamentary gridlock by no means a given."

"While the positive performance of manufacturing will come as a relief after months of concern survey anecdotal evidence suggests that the results may, once again, be due to no-deal Brexit contingency planning, stockpiling and declining export demand for UK goods rather than a sign the economic fundamentals are sound.

This, along with the increasing global economic slowdown again reinforces why British businesses need certainty on what form of Brexit the country is headed for. Business are trying to standstill until the Brexit fog clears but in doing so they are actually going backwards."

10.10am BST

*UNITED KINGDOM FEB 2019 GDP ESTIMATE MM DECREASE TO 0.2 % VS. PREV 0.5 % -BBG. ... Despite the uncertain outlook, pretty reasonable data. Anyway, the U.K. stockpiles for an event, called Brexit...So don't get too overexcited ! @graemewearden #Brexit $GBP

10.10am BST

As monthly GDP figure are rather volatile, you get a better picture of the UK economy by looking at the rolling three-month data.

It shows that growth peaked last summer (thanks to good weather, some World Cup excitement), before slowing in the second half of 2018. 2019 hasn't been too impressive so far either:

9.54am BST

The ONS's head of GDP, Rob Kent-Smith, says:

"GDP growth remained modest in the latest three months. Services again drove the economy, with a continued strong performance in IT.

"Manufacturing also continued to recover after weakness at the end of last year with the often-erratic pharmaceutical industry, chemicals and alcohol performing well in recent months."

9.49am BST

Britain's services companies, which makes up around three-quarters of the economy, didn't sparkle in February.

Service sector GDP only rose by 0.1% during the month, down from 0.3% in January.

9.41am BST

This chart from today's GDP report shows how UK manufacturing output has accelerated this year, as the threat of supply chain disruption has intensified.

9.39am BST

Brexit stockpiling by nervous companies appears to have driven UK growth last month.

Industrial production jumped by 0.6% during February, driven by a 0.9% surge in manufacturing, today's GDP report says.

Following a period of contraction, output in production and manufacturing has risen for the second month in a row, the latter driven by domestic demand. Manufacturing is now at its highest level since April 2008....

This was driven by pharmaceuticals, food products (including beverages) and chemicals, although it was partially offset by a fall in motor vehicle production.

9.33am BST

On an annual basis, the UK economy expanded by 2.0% in the last quarter -- the best results since late 2017.

9.31am BST

Newsflash: Britain's economy grew by 0.2% in February, better than many City economists had expected.

Over the last quarter, GDP grew by 0.3%.

9.28am BST

In the markets, Britain's FTSE 100 index of top shares is becalmed this morning as traders wait for February's growth report, and any Brexit developments.

Other European markets are a little higher.

9.19am BST

Stand By Your Desks! UK GDP for February is due in 10 minutes and having gone -0.4% and then 0.5% it is erratic. One possible hint is that production numbers for Italy and France earlier have been strongish, will the UK be the same?

9.18am BST

In a welcome boost, France and Italy have both reported a jump in factory production this morning - up 0.5% and 0.8% in February respectively.

Good news for Eurozone industrial production, which rises +0.4% MoM in France, much more than expected -0.5% and jumps +0.8% in Italy, well above the expected -0.5%, hinting 1Q 2019 could be better than analysts' forecasts @graemewearden

9.06am BST

Marc Ostwald of ADM Investor Services says Britain's service sector will determine whether the UK economy was strong or weak in February.

Today's rather moot (given Brexit risks) run of data is projected to show monthly GDP stalling (flat month on month) after unexpectedly jumping 0.5% m/m in January, leaving the 3 month/3 month measure unchanged at 0.2% q/q, and as ever much will depend on the Index of Services which will likely slow from 0.3% in January.

Industrial Production and Manufacturing Output will also likely slow to 0.1% m/m and 0.2% m/m respectively after unexpected strength in January, though base effects from last year's 'beast from the East' implies y/y rates improving modestly, but remaining negative at -0.8% and -0.6%.

8.53am BST

Transport group Stagecoach has suffered the indignity of being disqualified from the race to control three UK rail franchises.

8.41am BST

Shares in UK pharmaceuticals firm Indivior are plunging this morning, after the firm was charged with fraudulently boosting demand for its opioid drug.

A US grand jury says Indivior illegally, and wrongly, told healthcare providers that its Suboxone Film, which contains the opioid buprenorphine, was better and safer than similar drugs.

"Indivior illegally obtained billions of dollars in revenue from Suboxone Film prescriptions by deceiving health care providers and health care benefit programs into believing that Suboxone Film is safer and less susceptible to diversion and abuse than other, similar drugs."

"Indivior has never deliberately diverted its product. The government claims that the company aided the careless and clinically unwarranted prescribing by doctors of SUBOXONE(R) products to too many people or in too high doses.

To the contrary, we have engaged in an extensive education campaign to teach doctors about recommended SUBOXONE(R) dosing limits and patient caps and have developed a process to identify concerning prescribers, going beyond what the law requires.

8.16am BST

Tesco chief Dave Lewis is in cheery mood this morning, after reporting that profits jumped by a third last year.

"After four years we have met or are about to meet the vast majority of our turnaround goals. "I'm very confident that we will complete the journey in 2019/20."

8.02am BST

Today's UK GDP report comes at a critical time for the global economy.

Last night, Italy's government slashed its 2019 growth forecast to just 0.2% - down from 1%. That means Rome is certain to miss its budget deficit target, teeing up a new clash with Brussels.

7.50am BST

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

Today we discover how Britain's economy performed in February, in the face of Brexit gridlock and weakness in the global economy.

"Underlying our forecast are small gains in services and IP offset by a contraction in construction.

Data in the coming months is likely to be choppy, and we would read little into a single month's observation until Brexit uncertainty wanes."

Mario Draghi and his fellow policymakers are expected to sit on their hands this month, with little room to maneuver amid significant headwinds.

While political tensions in France and Brexit uncertainties are beyond the central bank's control, these factors have been highlighted by the IMF as putting downward pressure on growth, leaving the ECB to bide for time and watch how these risks manifest into the real economy.

Tesco Fy sales up by 11.2% to 63.9bn while profits have jumped by 28% to 1.7bn -beating forecasts with the best results under Dave Lewis

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