UK inflation slows, as UK and eurozone businesses return to growth in March – as it happened

Julia Kollewe

from on 2021-03-24 15:13 (#5FQEK)

3.13pm GMT

Wall Street has been in and out of the red this week, as easing bond yields prompted investors to pile back into technology stocks, away from energy and financial stocks, whose fortunes are more closely linked to the economy.

Today, the Dow Jones is 335 points ahead, a gain of 1%, at 32,758, while the S&P 500 has gained 27 points, or 0.7%, to 3,937 and the Nasdaq is 10 points up at 13,238.

#Eurozone consumer confidence rose appreciably in March to 11-month high. European Commission "flash" indicator improved to -10.8 in March from -14.8 in February, -15.5 in January & -17.6 in November.

2.55pm GMT

US Treasury secretary Janet Yellen and Fed chairman Jerome Powell are continuing their testimony before US Congress (from yesterday) -- you can watch live here.

LIVE: Fed Chair Powell and Treasury Sec. Yellen appear before Congress to address the economic response to Covid-19 https://t.co/xSXgHQg95g

Powell is doubling down, saying the rise in bond yields reflects an improved outlook. He also repeats that he would be concerned if it were not an orderly process or if conditions tightened enough to threaten the recovery.

2.39pm GMT

GSK has fired Moncef Slaoui -- who served as scientific head of the US vaccine programme Operation Warp Speed during the Trump administration -- as chairman of its venture Galvani Bioelectronics. An investigation by a law firm, commissioned by GSK, found that he sexually harassed a GSK employee several years ago.

He is the former head of GSK's vaccines department, and worked for the drugmaker for 30 years.

The board of directors of GlaxoSmithKline, the majority shareholder of Galvani Bioelectronics, today announced the termination of Moncef Slaoui as chair of the Galvani board of directors, effective immediately.

The termination follows the receipt of a letter containing allegations of sexual harassment and inappropriate conduct towards an employee of GSK by Dr. Slaoui, which occurred several years ago when he was an employee of GSK. Upon receipt of the letter, the GSK Board immediately initiated an investigation with an experienced law firm to investigate the allegations. The investigation of Dr. Slaoui's conduct substantiated the allegations and is ongoing.

2.26pm GMT

In the markets, German 10-year government bond yields fell to a five-week low today, as traders worried over tighter lockdown restrictions (extended until 18 April) to contain a fresh wave of Covid-19 infections. This has encouraged a return to safe-haven bonds (and when prices rise, yields fall).

Germany's 10-year Bund yield (the effective interest rate) fell to -0.360%.

2.07pm GMT

Flash #PMI data pointed to another substantial increase in business activity across the US in March. Growth was driven largely by services, however, as input shortages and supply delays limited the manufacturing expansion. Read more: https://t.co/T0dWByoQwA pic.twitter.com/4WXiGm3Nym

2.05pm GMT

Service firms recorded the steepest increase in new business for almost three years amid stronger client demand and looser coronavirus restrictions. The combined increase in manufacturing and service sector new orders was the strongest since September 2014.

Chris Williamson, chief business economist at IHS Markit, said

Another impressive expansion of business activity in March ended the economy's strongest quarter since 2014. The vaccine roll-out, the reopening of the economy and an additional $1.9 trillion of stimulus all helped lift demand to an extent not seen for over six years, buoying growth of orders for both goods and services to multi-year highs.

Producers were increasingly unable to keep pace with demand, however, due mainly to supply chain disruptions and delays. Higher prices have ensued, with rates of both input cost and selling price inflation running far above anything previously seen in the survey's history.

1.51pm GMT

US business activity continued to expand in March, powered by service sector firms, while input shortages (such as materials, PPE and fuel) and supplier delays held back factory output, according to the flash PMI surveys from IHS Markit.

Adjusted for seasonal factors, the IHS Markit flash US composite PMI output index posted 59.1 in March, down slightly from 59.5 in February, to signal the second-fastest private sector upturn for six years.

1.40pm GMT

Wall Street has opened higher ahead of the Markit business surveys, which are due in just over five minutes.

1.38pm GMT

James Knightley, chief international economist at ING, has looked at the US durable goods figures.

Virtually all February data has disappointed as winter storms and cold conditions took their toll on supply chains and kept people inside. Today's durable goods report was no different, but the data will all bounce strongly for March given massive fiscal stimulus and record low customer inventories.

Bad weather is likely to have been a key factor here with all sectors witnessing declines aside from electrical equipment (+0.2% MoM). If you were experiencing slower production due to storm disruption you obviously need to order less for the next month. ISM orders figures remain very firm so March should rebound strongly on more seasonal weather patterns.

The fall in durable goods orders in February was mainly due to the disruption caused by the severe winter storms, which we already know weighed heavily on manufacturing output last month. The latest surveys point to a rebound in March and suggest that business equipment investment growth is set to remain unusually strong.

12.48pm GMT

In Germany, chancellor Angela Merkel's cabinet has approved an extra budget of 60bn, as the government battles a third wave of coronavirus infections caused by more infectious variants. This will lift new borrowing to a record high of more than 240bn this year, according to a government official, Reuters reported.

12.45pm GMT

Excluding transport, durable goods orders fell by 0.9%.

Durable goods orders unexpectedly fell in February, when they were down 1.1 percent on the month following a 3.5 percent increase in January. Econoday's consensus forecast was for a 0.8 percent advance. pic.twitter.com/rCegqQ2Mil

12.35pm GMT

Orders for US durable goods unexpectedly fell in February, by 1.1% while economists had expected a 0.5% increase.

Chief currency analyst Adam Button at Forexlive says:

This is a soft report and the first big miss in awhile but the market reaction has been minimal. This is the first decline since last April so the market is likely to forgive it, especially if the Markit manufacturing survey at 1345 GMT is strong.

US February prelim durable goods orders -1.1% vs +0.5% expected https://t.co/tGgyCdvudd

12.30pm GMT

Some thoughts on the John Lewis closures...

Of the eight John Lewis stores that are closing, the biggest (at 102,00 sq ft) and also the most remote is in Aberdeen - 120 miles from the Waitrose in Stirling or 127 miles from John Lewis in Edinburgh. JLP will become non-existent if you live in north-east Scotland.

The closure of 8 John Lewis stores is quite a blow, especially for Yorkshire.
Sheffield's JL has been there since 1940 and employs 299 staff. The large At Home York is also closing & employs 209

There will surely be lots of questions about strategy in the recent past. York was a new-build store opened in 2014. Peterborough completed a 21m refurb only recently. And Sheffield City Council agreed a deal to keep John Lewis there just months ago, paying the company 3m. pic.twitter.com/ji7yd3VRVC

12.24pm GMT

A law firm representing the UK owners of Mercedes-Benz cars has started formal legal action seeking compensation from the German marque for allegedly installing illegal emissions cheating devices on its diesel cars, writes my colleague Jasper Jolly.

Hagens Berman, a US law firm, filed particulars of the claim at London's high court on Tuesday alleging that Daimler, Mercedes-Benz's owner, put defeat devices" that artificially lowered emissions when the car detected it was being tested.

11.37am GMT

John Lewis has confirmed plans to close eight more outlets, including department stores in York, Peterborough, Sheffield and Aberdeen, with the potential loss of almost 1,500 jobs, reports our retail correspondent Sarah Butler.

The company, which reported it first ever full-year loss earlier this month, said it would also close four at home' stores, in Ashford, Basingstoke, Chester and Tunbridge Wells, as well as the four city centre department stores.

11.32am GMT

Taiwan has ridden out the coronavirus pandemic mostly unscathed, while Britain has been crippled economically and in human terms - a tale of two island nations, told by Emma Graham-Harrison and Helen Davidson in Taipei.

Taiwan's leaders, helped perhaps by having an epidemiologist as vice-president, perhaps by its experience of the outbreak of the Sars coronavirus in 2003, recognised the terrible threat posed by Covid-19, even as the earliest data trickled in. They decided the only way to protect their country, its people and economy, was to keep the virus out.

10.55am GMT

Almost 60,000 frontline workers at BT will receive a special bonus of 1,500 from the company in recognition of their work during the coronavirus pandemic, writes Joanna Partridge.

The telecoms group said that it would give 59,000 of its staff a 1,000 cash bonus, which they will receive in June.

10.52am GMT

Joshua Mahony, senior market analyst at the online trading platform IG, has looked at the market moves.

European markets are on the back foot in early trade despite the helping hand a weaker currency and impressive PMI numbers might provide. Instead, we are seeing a continued focus on the potential impact a third wave could have upon market sentiment, with the reflation trade coming into question as a result.

Declines in Treasury yields over the course of this week signal a shift in tactics, with confidence of a straight-forward recovery certainly on the wane. Instead, we have seen traders head for the havens on the prospect of fresh lockdowns and prolonged restrictions, driving assets such as the dollar, yen, gold, and bonds higher.

10.31am GMT

In Germany, chancellor Angela Merkel has made a U-turn on the planned strict five-day Easter shutdown during a hastily-arranged video conference with the heads of Germany's 16 states, Bloomberg and other news agencies report.

Merkel backs off Easter shutdown as pandemic tension mounts https://t.co/c0S49hdPnW via @ArneDelfs @iaindrogers pic.twitter.com/0RP499MBm6

10.14am GMT

The latest PMI readings bode well for the UK economy, according to analysts.

Dean Turner, economist at UBS Global Wealth Management, says:

The notable take from this morning's PMI figures is the surge in services, overtaking the manufacturing index for the first time since the start of the pandemic. Nevertheless, the manufacturing sector continues to perform well although export sales are still struggling, probably a reflection of the ongoing Brexit adjustment, alongside the well telegraphed problems with supply chains globally.

It is also clear from the survey that the prospect of easing restrictions buoyed sentiment, as new work increased, and businesses reported rising forward bookings from domestic consumers.

Today's bumper survey results indicate that UK growth should boom as the benefits of the successful vaccine rollout start to shine through into rising economic optimism, new orders and hiring. With huge amounts of pent up savings and with everyone desperate to return to normality once restrictions are lifted, business optimism in the service sector increased to the highest level since 2004.

With UK equities still below their pre-Covid levels and reasonably valued, we would expect the strong rebound in economic growth, suggested by today's numbers, to drive company profits and equities higher over the next year.

10.02am GMT

In the markets, sterling has fallen to its lowest level against the dollar in almost seven weeks, after the surprise fall in UK inflation to 0.4% in February. The pound is trading at $1.3721, down 0.24%, after dropping to $1.3675 earlier, the lowest since 5 February.

This contrasts with the pound's rally to above $1.42 in February, fuelled by Britian's successful vaccination campaign.

9.50am GMT

Bert Colijn, senior eurozone economist at ING, has looked more closely at the flash PMI readings for the eurozone. Like others, he thinks that despite the improvement this month, the economic rebound won't happen until later this year, given that new coronavirus lockdowns have been declared across Europe.

The PMI jumped to above 50 for the first time since September. This indicates that first-quarter GDP could be better than expected. With lockdowns being extended into the second quarter though, we do expect the rapid economic rebound to take off later.

9.44am GMT

Chris Williamson, chief business economist at IHS Markit, said:

The UK economy rebounded from two months of decline in March, with business activity growing at its fastest rate since last August as children returned to schools, businesses prepared for the reopening of the economy and the vaccine roll-out boosted confidence.

Companies reported an influx of new orders on a scale exceeded only once in almost four years, and business expectations for growth in the year ahead surged to the highest since comparable data were first available in 2012. Employment consequently rose for the first time since the pandemic struck as firms expanded capacity in response to the new inflows of work and brighter outlook.

9.35am GMT

Business activity in the UK also returned in growth in March, led by the fastest increase in service activity since August, according to the latest PMI data compiled by IHS Markit and CIPS.

This was fuelled by a rise in new orders for the first time since September 2020, which firms attributed to a rebound in sales ahead of easing lockdown measures, alongside stronger consumer confidence and a surge in demand for residential property services.

Flash March #PMI shows joint #UK #manufacturing & #services output up sharply to 7-month high after slight February contraction & large January drop despite ongoing #lockdown; joint output index at 56.6 (49.6 in Feb). Services PMI at 56.8 (49.5); manufacturing PMI at 57.9 (55.1

9.28am GMT

Rory Fennessy, assistant economist at Oxford Economics, notes that the eurozone's Flash PMIs surprised to the upside in March. The composite PMI rose solidly from 48.8 to 52.5, well above the consensus expectation of 49.1.

There were also PMI gains across sectors, with the manufacturing PMI rising from 57.9 to 62.4, while the services PMI rose from 45.7 to 48.8. In Germany and France, the flash PMIs also recorded broad-based increases.

Today's such strong readings are surprising given the fact activity still remains markedly subdued in the eurozone in Q1, but it does pose some small upside risks to our forecast.

However, with France and Germany reimposing lockdown measures over the last few days, and other countries extending containment measures across the bloc, economic activity will not recover strongly until the latter half of this year.

9.12am GMT

Eurozone business activity returned to growth in March, fuelled by a survey record increase in manufacturing output as global demand continued to revive from the pandemic, the flash estimates from IHS Markit show.

Markit reports #PMI shows #German joint #services & #manufacturing output growth at 37-month high in Feb while #France contracted least for 7 months. Rest of#Eurozone saw a modest return to growth for the
first time since last July (composite index at 50.6
vs 48.2 in February) https://t.co/NpamtNkXE4

9.09am GMT

One of the UK's top fund managers has revealed it will not invest in the meal delivery firm Deliveroo when it floats on the stock market in early April, partly because of the way the company treats its workers, writes my colleague Joanna Partridge.

David Cumming, the chief investment officer for equities at Aviva Investors, part of the UK's largest insurance company, said there was a combination of investment risk and social issues that affect our judgment whether the shares are a buy or not".

9.07am GMT

The Harry Potter publisher Bloomsbury says profits for 2020 will be much higher than expected because book purchases soared during the pandemic, when people were unable to go out much.

Its chief executive Nigel Newton said:

The popularity of reading during lockdown is a ray of sunshine in an otherwise very dark last year.

8.41am GMT

In other news this morning, more than 11,000 shops permanently disappeared from high streets, shopping centres and retail parks in Great Britain last year, with independent retailers and villages faring far better than chain stores and city centres.

8.36am GMT

Germany enjoyed a strong upturn in business activity in March, according to the PMI surveys from IHS Markit.

8.31am GMT

Here is our full story on inflation:

The surprise fall in CPI inflation, which displays the disinflationary effect from Covid-19 lockdowns, will delay the rebound to 2.0% and perhaps prompt the markets to reconsider their view that interest rates will rise next year.

he can say that the fading drag from lockdowns and a rebound in energy inflation will soon lift inflation much closer to 2.0% in April. That said, we doubt inflation will be persistently above 2.0% until 2023, so don't expect rate hikes for a long time yet.

8.28am GMT

Returning to UK inflation... Howard Archer, chief economic adviser to the forecasting group EY Item Club, says:

February's is highly likely to mark inflation's low point. The EY Item Club expects inflation to move markedly higher over the coming months.

Unfavourable base effects resulting from the fall in oil prices in early 2020 will have an upward impact, magnified by the recent rise in oil prices to one-year highs. Energy prices for millions of consumers will rise in April after the price cap was raised. After a challenging Q1, an expected progressive firming of the economic recovery from early-2021 will also have some upward impact on inflation.

8.19am GMT

The first flash PMI readings for France are out.

March flash #French #PMI shows #services & #manufacturing output fell at reduced rate despite ongoing restrictions composite index up to 3-month high of 49.5 (47.0 in Feb). Services activity contracted less as PMI at 47.8 (45.6); manufacturing growing faster as PMI at 58.8 (56.1)

8.15am GMT

The latest news on coronavirus vaccines has added to the apprehensive mood in markets. Hong Kong has suspended use of the BioNTech-Pfizer vaccine, after its Chinese distributor informed the city that one batch had defective bottle lids.

8.07am GMT

European stock markets have fallen again, as traders fret about rising infection rates across Europe, which have prompted new Covid-19 lockdowns in Italy, France, Germany, Poland, to name a few.

7.58am GMT

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, reckons that the sharp fall in inflation due to retailers slashing prices is only temporary.

The sharp fall in CPI inflation in February reflected clothing retailers slashing prices, because the lockdown has left them with excess stock. Prices will snap back, as they have after previous lockdowns (chart). No reason to doubt that CPI inflation will be c.2% by end year pic.twitter.com/oCCqKKt4QB

#UK consumer price #inflation unexpectedly fell back to a 3-month low of 0.4% in February from 0.7% in January. Consensus had been for a small rise to 0.8%. Inflation primarily brought down in February by prices for clothing, second hand cars and games, toys and hobbies

7.55am GMT

Clothing and footwear prices fell 1.5% between January and February - the biggest monthly drop since at least 1988, according to Bloomberg.

Jonathan Athow, ONS deputy national statistician for economic statistics, explains:

A fall in clothing prices helped to ease inflation in February, traditionally a month where we would see these prices rise, but the impact of the pandemic has disrupted standard seasonal patterns.

7.23am GMT

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

UK inflation slowed to 0.4% in February from 0.7% the month before, according to the Office for National Statistics. City economists had expected a slight uptick to 0.8%.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose 0.7% in the 12 months to February 2021. This is down from 0.9% in January 2021 https://t.co/vEYpUbVPQp pic.twitter.com/PBKdX2xvax

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