UK factories suffer worst slump since 2012 amid Brexit crisis – as it happened
Rolling coverage of the latest economic and financial news, as British manufacturers suffer falling orders
- Latest: UK manufacturing PMI weakest in seven years
- Business confidence slumps as output falls again
- Expert: There's a creeping dread of no-deal Brexit
- Pound falls through $1.21
2.47pm BST
Time for a quick recap
Related: UK factory output dives to seven-year low as Brexit fears rise
2.11pm BST
Back in the financial markets, Argentinian assets are slumping after the country imposed restrictions on companies and individuals from accessing the currency markets.
As explained earlier, the Argentinian government imposed currency controls overnight, after the peso plunged by a quarter during August.
Argentina's benchmark international 2028 dollar bonds dropped more than 2 cents to a new low of 36.58 cents, according to Refinitiv data. Bonds maturing in 2023 and 2038 recorded similar losses.
Argentina's euro-denominated sovereign bonds also suffered hefty losses to hit record lows on Monday. The 2022 bond dropped 9.2 cents to 35.8 cents while the 2027 issue tumbled 7.5 cents to 33.218 cents, according to Refinitiv data.
1.41pm BST
This chart from Sky News shows how the UK factory sector has been shrinking for several months (at least according to the PMI surveys)
12.47pm BST
The euro is also weakening today, hurt by economic worries.
The euro plunged to a 16-month low on Monday as the impact of Washington and Beijing's trade war on the European economy dominated investor sentiment. https://t.co/kRWOmBS0C2
12.11pm BST
Make UK, which represents UK manufacturers, is deeply concerned by the tumble in August's factory PMI.
Their chief economist, Seamus Nevin, says such a large slump in new orders hasn't been seen since the financial crisis a decade ago:
"The unprecedented economic and political uncertainty in the UK, as fears of a crash out Brexit grow, is continuing to seriously undermine the performance of UK manufacturing. Business confidence has now fallen to an all-time low and consumer purchases, which have driven what little economic growth we have seen recently, has also now worsened.
"Employment in the sector fell at one of the fastest rates for almost seven years, and capital investments have shrunk too.
12.06pm BST
Ugh. UK manufacturing output drops to 7yr low in Aug. Orders, exports, optimism and employment all down. Manufacturing sector now almost certainly in recession. Question now is whether the rest of the economy is too... pic.twitter.com/qo5JCR17XE
11.29am BST
The slide in the pound has pushed the FTSE 100 share index up to a one-month high.
11.07am BST
Britain's factory sector is underperforming most of Europe. But Germany, on the brink of recession, is doing even worse.
The German manufacturing PM was just 43.5, which means an even sharper contraction than the UK's 47.4 (reminder, 50=stagnation).
Best you can say about UK manufacturing right now is that it's not as bad as Germany -- and that's not saying much.
UK clearly underperforming other European markets. Not just a global problem - #Brexit is clearly a factor for PMI survey respondents. pic.twitter.com/Bn1YP43Qrp
10.56am BST
The pound has fallen sharply this morning, hit by the weak factory data and the political crisis in Westminster.
Sterling has shed three-quarters of a cent against the US dollar to $1.2080, a two-week low.
The headline PMI reading fell to 47.4, its weakest since July 2012. New orders declined at the fastest clip in seven years. And crucially confidence is on the floor, with manufacturers as pessimistic as they have ever been.
Uncertainty over the outcome of Brexit is certainly a drag on sentiment but we should be hopeful that this will be resolved presently.
The data for the UK economy may well now get worse before it gets better. We need to assess the Services PMI on Wednesday for more clues about whether Q3 could herald a contraction. And as consistently stated, it also makes the next move for the Bank of England down, not up.
Related: Johnson could sacrifice majority by withdrawing whip from rebel MPs
10.19am BST
Analysts at Nordea Markets say today's UK factory PMI is terrible, and could force the Bank of England to cut interest rates:
Terrible PMI Manufacturing from UK again..
If it wasn't because BoE was paralyzed by the lack of Brexit clarity they would have eased BIG TIME by now.
Why aren't we talking more about BoE easing prospects? $GBP
Link to FX weekly -> https://t.co/C9W9qY0ygj pic.twitter.com/vVwhjrQDyo
In line with our model, another decline in UK manufacturing #PMI
Our model indicates some stabilization in September before we should see a clear rebound in October due to stockpiling ahead of #Brexit deadline.
However, if not for stock building, the PMIs suggest recession! pic.twitter.com/Ho9JbC9gsN
10.12am BST
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, says Britain's factories are struggling badly, as fears of a disorderly Brexit hurt the sector.
Here's his take on the news that UK factory growth slumped to a seven-year low last month:
"The sector's illness took a turn for the worse in August with the sharpest decline in domestic and export orders for seven years. Investment continued to peter out and heightened concerns about the UK's political situation and the strength of the global economy acted as a drag on activity.
"As some clients from the Eurozone continued to move their supply chains away from the UK, declining orders from the US and Asia dashed any hopes of redemption, resulting in the sharpest fall in business optimism since at least 2012.
10.04am BST
Incidentally, PMI stands for Purchasing Managers Index. Markit contacts a wide range of senior staff responsible for spending decisions, to gauge how their business is performing. More here.
10.02am BST
In theory, a cheaper currency should boost exports. But today's PMI survey shows that British factories aren't getting much benefit from the weak pound.
Rob Dobson, Director at IHS Markit, points out that a cheap currency also hurts factories, as it pushes up their import costs.
"Demand from domestic and export markets both weakened in August, with new export business suffering the sharpest fall in seven years. The global economic slowdown was the main factor weighing on new work received from Europe, the USA and Asia. There was also a further impact from some EU-based clients routing supply chains away from the UK due to Brexit.
"The further downturn in export orders occurred despite a weakening in the sterling exchange at the start of the month. This was felt on the costs front though, with 80% of companies providing a reason for higher purchase prices making at least some reference to the exchange rate. The current high degree of market uncertainty, both at home and abroad, and currency volatility will need to reduce significantly if UK manufacturing is to make any positive strides towards recovery in the coming months."
10.01am BST
Panmure Gordon's Simon French points out that factories around the world are struggling, but there are signs of stabilisation in Europe and China:
7-year low in UK manufacturing PMI is largely in line with wider global manufacturing picture - however whilst EU & Chinese PMIs have begun to stabilise in recent months the UK (and US) remain on a downward trajectory: https://t.co/KiVgTmVAT6 pic.twitter.com/lBvUFmYbgA
9.54am BST
Danske Bank say British factories are suffering from a range of problems - with Brexit acting as a nasty supply shock.
UK PMI manufacturing fell in August and new export orders are at the lowest since 2012#Tradewar, global & European slowdown and Brexit uncertainties are weighing on demand#Brexit is already a negative supply shock pic.twitter.com/5zN4jaw2Oa
9.44am BST
UK Manufacturing PMI at 7-year low in August, falling to 47.4 (July - 48.0) and signalling a solid downturn in the goods-producing sector as uncertainty hits domestic and export markets. Read more here: https://t.co/ZklTvuwBM1 pic.twitter.com/jizEArmWkj
9.41am BST
In a blow to Britain's industrial heartland, UK factories shed staff last month as fears of a no-deal Brexit grew.
Markit reports:
Manufacturing employment fell at one of the fastest rates over the past six-and-a-half years in August.
Job cuts were driven by cost saving initiatives (including reorganisations and redundancies), slower economic growth and the continued impact of Brexit uncertainty.
9.36am BST
Newsflash: Britain's factory sector is shrinking at its fastest rate in seven years, as the Brexit crisis hurts the UK economy.
Data firm Markit reports that new orders tumbled last month, with activity sliding at its fastest pace since 2012.
The level of new export business contracted at the fastest rate in over seven years in August. Ongoing global trade tensions, slower world economic growth and Brexit uncertainty were all mentioned by manufacturers as factors contributing to reduced overseas demand. There were reports that some EU-based clients were routing supply chains away from the UK due to Brexit.
9.19am BST
Newsflash: Europe's factory sector has shrunk for seven months in a row, as Germany continues to suffer economic problems.
Data firm Markit has reported that its eurozone manufacturing PMI was 47.0 in August. Any reading below 50 shows a contraction, so this means factories have been shrinking since last December.
"Prices are falling as companies offer discounts in the face of disappointingly weak demand, and payroll numbers are being culled at one of the steepest rates seen over the past six years as companies increasingly seek to cut costs in the uncertain trading environment.
"Trade wars and tariffs remain the biggest concerns among producers, and the escalation of global trade war tensions in August encouraged further risk aversion.
8.52am BST
Jim Reid of Deutsche Bank predicts more fireworks from Argentina this week, telling clients:
It will also be worth keeping an eye on Argentina this week after capital controls were put in place over the weekend to help them stem the large losses of reserves towards the end of last week after a more than 25% decline in the peso over the last month after primary elections showed that the relatively market friendly government has little chance of retaining power in full elections next month.
8.49am BST
Argentina's imposition of currency controls comes just a week after Greece lifted its own restrictions on moving money around.
Elso Lignos of Royal Bank of Canada says:
In Argentina, things are set to get worse with weekend news the government is re-imposing capital controls (lifted by Macri) and is seeking a "voluntary re-profiling" of its debt.
Meanwhile Greece has come full circle, lifting its capital controls after four years.
8.33am BST
This chart shows just the peso has weakened in recent years, before taking a huge plunge last month:
8.30am BST
There should be some red faces in the City over Argentina's economic crisis.
Two years ago, investors scrambled to buy a new 100-year bond issued by president Macri's government, ignoring Argentina's track record of debt problems.
Amazing how little time it took for #Argentina to go from issuing an oversubscribed 100-year bond to currency controls and seeking a "voluntary re-profiling" of debt payments-all this under an IMF arrangement.The large depletion of reserves will add to the intense growth concerns https://t.co/RZdrpFeFqe
8.25am BST
An IMF spokesperson has said the Fund will analyze the details of Argentina's "capital flow management measures", adding:
"Staff will remain in close contact with the authorities in the period ahead and the fund will continue to stand with Argentina during these challenging times."
8.19am BST
Argentina's new currency controls are an embarrassing u-turn for President Mauricio Macri, who had billed himself as a reformer.
Macri had previously lifted many protectionist practices of his predecessor, Cristina Fernandez de Kirchner, points out Reuters:
After opposition candidate Alberto Fernandez and Fernandez de Kirchner, who is now his vice presidential candidate, pulled off a stunning upset in the Aug. 11 primary vote, bonds, stocks and the peso currency plummeted on market fears over a potential return to the interventionist policies of Fernandez de Kirchner's previous government.
Macri's government and the central bank are trying to stabilize the economy as the Oct. 27 presidential election looms, for which Fernandez is now the front-runner.
Investors had been expecting some form of capital controls. But some fear that the move could jeopardise the IMF's latest disbursement of its $57bn bailout programme secured by Argentina during a currency crisis last year, with a $5.4bn tranche due by the end of September.
"How is the IMF supposed to disburse the last tranche into this environment?" asked Ed Al-Hussainy, an analyst at Columbia Threadneedle, noting it is a "massive moral hazard".
Argentina fell into recession under President Mauricio Macri in 2018. The country faces rising unemployment and one of the world's highest inflation rates - running at over 55%.
Fearing a default, some Argentines withdrew their savings from banks at the end of August.
Buenos Aires said on Wednesday that it was extending the maturity of many of its government bonds, in other words, telling lenders they would be getting their money back further into the future than they were expecting.
S&P said this amounted to a default - making it the ninth time Argentina has reneged on its debts and the third time this century.
7.48am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
"...a series of extraordinary measures to ensure the normal functioning of the economy, to sustain the level of activity and employment and protect the consumers."
Argentina imposes capital controls as reserves drain away.
Read more: https://t.co/ZUp4dv1IqE pic.twitter.com/JM744CiwJx