OECD slashes UK growth forecasts and warns on Brexit – as it happened
World economy would suffer spillovers if Britain votes to leave the EU, warns Paris-based thinktank in new economic forecasts
- Mixed signals from US manufacturing surveys
- OECD says Brexit is as bad as Chinese crash
- UK growth forecast slashed to 1.7% this year, from 2.1%
- Labour: Government plan is failing
- Eurozone factory growth slows
5.59pm BST
Downbeat manufacturing data from around the globe, warnings from the OECD about the outlook and the repercussions of Brexit, and continuing concerns about a US rate rise have combined to get the new month off to an uninspiring start for investors. European markets have closed lower across the board but have come off their worst levels after a slight recovery in the oil price on hopes of an output agreement at Thursday's Opec meeting. The final scores showed:
5.37pm BST
After the individual PMIs, the global index shows manufacturing stagnating:
Global manufacturing sector stagnates in May, with J.P.Morgan Global Manufacturing #PMI down to 50.0 (50.1 in April) https://t.co/ZPVoBhTgs9
The May PMI data suggest that the global manufacturing sector remains in a low gear. Indices for output, new orders and the headline PMI were all at, or barely above, the stagnation mark. The move up in the finished goods inventory index suggests manufacturers are still working to realign stocks with demand.
5.34pm BST
Of course, there are always conflicting reports ahead of any meeting of oil producers:
#WSJ #OPEC Members Remain Deeply Divided on Prospect of Limits
4.28pm BST
Oil prices have recovered from earlier losses following a Reuters report that Opec ministers meeting in Vienna on Thursday are likely to consider a new ceiling on output.
After falling as low as $48.65 a barrel, Brent crude is now up 0.12% at $49.95.
#OOTT #OIL | #OPEC MAY CONSIDER NEW OIL OUTPUT CEILING AT THURS MTG: RTRS
REUTERS CITES 4 OPEC SOURCES ON NEW CEILING CONSIDERATION
As a reminder, Russia will not be at the OPEC meeting and is no longer seeking a production freeze
3.36pm BST
But the ISM manufactuing numbers are not essential for the Federal Reserve in its interest rate deliberations, said James Smith at ING Bank:
The ISM Manufacturing index surprised on the upside, ticking up from 50.8 to 51.3, rather than down to 50.3 as had been expected following a raft of weak regional surveys. Looking beneath the headline though, the headline was lifted solely by a large pick-up in the supplier deliveries index. Aside from that, most other components remained roughly where they were last time around... Overall though, the index remains only tentatively within growth territory (ie above 50), but crucially, this is a much better position than where it was around the turn of the year.
For the Federal Open Market Committee though, the ISM numbers are not essential in timing the next rate hike. Attention is now heavily centred on Friday's labour report. In advance of this, some emphasis is likely to be put on the employment components of this, and to a greater extent the non-manufacturing ISM, although we'd note that neither are tightly correlated with non-farm payrolls. In any case, the employment component of the manufacturing ISM remained flat this time around.
We think that the risk of an above consensus non-farm payrolls (NFP) reading (currently at 160,000) is higher than a sub-consensus one. Although we tend to agree that job creation may be slowing as the economy reaches a point close to full employment, we feel that the month-on-month volatility in the headline NFP means that something at or above what we consider to be the underlying trend (around 185,000) is reasonably likely. Never-the-less, we feel that this element of the labour report is not critical to the FOMC's thinking at present. The Fed's labour market "tick-box" has effectively already been ticked (and arguably has for several months) and the key now lies with the activity data, which has improved slightly after a weak first quarter. Thus, we feel that the answer to the June/July/September debate now lies with chair Yellen (who speaks next week) and we currently think that July is the most likely timing for the next hike.
3.29pm BST
Both sets of US manufacturing figures may have come in better than expected but still show signs of weakness, said Connor Campbell at Spreadex:
Both the Markit and ISM PMIs surpassed expectations (at 50.7 and 51.3 respectively), though the performance from the former still points to a slowdown month-on-month while the latter is hardly a world-beating number, being lower than the Eurozone's own stagnant growth.
It is hard to tell whether the Dow's negative start to the session stemmed from a) the general malaise that engulfed Europe this morning, b) the better than forecast PMIs giving a bit of extra heft to the Fed hawks or c) the fact that the manufacturing figures are still worryingly weak.
3.14pm BST
And there's more for the US Federal Reserve to consider ahead of this month's meeting, when a rate rise has still not been ruled out.
US construction spending fell 1.8% in April, the largest monthly decline since January 2011. March's figure was revised up from a 0.5% rise to a 1.5% increase.
3.06pm BST
ISM vs Markit disconnect hitting epic proportions
3.04pm BST
However there is a more positive sign from the ISM manufacturing survey.
The manufacturing activity index came in at 51.3 in May, well ahead of expectations of a figure of 51.3, and ahead of April's 50.8.
2.58pm BST
The manufacturing PMI provides another sign of a slowing US economy, says Chris Williamson, chief economist at Markit. He said:
The survey data indicate that factory output fell in May at its fastest rate since 2009, suggesting that manufacturing is acting as a severe drag on the economy in the second quarter.
Payroll numbers are under pressure as factories worry about slower order book growth, in part linked to falling export demand but also as a result of growing uncertainty surrounding the presidential election.
For those looking for a rebound in the economy after the lacklustre start to the year, the deteriorating trend in manufacturing is not going to provide any comfort.
2.49pm BST
US manufacturing growth slowed slightly in May from the previous month, according to the latest Markit index.
The final manufacturing PMI came in at 50.7, better than the preliminary estimate of 50.5, but down on the 50.8 recorded in April. Markit said this was the lowest level since September 2009.
#UnitedStates Markit Manufacturing PMI Final at 50.7 https://t.co/tZxpcT4gBf pic.twitter.com/WnEx156SkP
Markit: Weakest manufacturing performance for over six-and-a-half years https://t.co/GFVIEDZz9p
2.38pm BST
As forecast, US markets have started the trading day in negative territory.
Falling oil prices and weak Chinese and European manufacturing data have combined to unsettle investors, who are already nervous at the prospect of another US interest rate rise. There is also caution ahead of Thursday's European Central Bank meeting, and the US non-farm payroll numbers a day later.
2.23pm BST
Wall Street is expected to follow Europe's lead, and selloff when trading begins shortly.
Dow looking set for a -80 start in ten minutes time, at 17,707 - 1 week low.
2.22pm BST
Over in Greece it's been an eventful day in parliament where MPs have voted overwhelmingly to rescind a law that would have allowed them to have holdings in offshore companies.
In a roll call vote deputies dropped a law that many - ironically - had failed to see when endorsing a 7,500-page multi-bill of creditor-mandated reforms ten days ago. The clause, revealed by a Sunday's proto Thema newspaper, had caused prime minister Alexis Tsipras' leftist led coalition extraordinary embarrassment.
#Greece parliament overwhelmingly passes clause prohibiting ministers & MPs from owning foreign-domiciled corporations. #vouli
2.08pm BST
Brazilians have woken up to the news that they face an even deeper recession than expected.
"The deep recession is set to continue in 2016 and in 2017 against the backdrop of high political uncertainty and ongoing corruption revelations that are undermining consumer and business confidence, leading to a continuous contraction in domestic demand.
"As the economy shrinks, unemployment is set to rise further."
1.59pm BST
Attendees at the OECD's Forum in Paris haven't lost their enthusiasm for free trade:
"We're definitely in the @OECD right now!" #oecdwk pic.twitter.com/bwZfm9ecDb
1.55pm BST
In other news....the London Stock Exchange Group has just revealed that more than a thousands jobs could be lost through its merger with Germany's Deutsche Birse.
In a prospectus to investors, the LSEG explains that 1,250 positions will be eliminated across the combined group once the a20bn deal is approved (assuming nothing derails it).
LSE-Deutsche Birse merger to result in 1,250 job cuts across the combined group, according to prospectus
1,250 job reductions after LSE-Deutsche Birse merger 'mostly on technology side' over 3 years, spread betw Frankfurt, London & other cities
1.42pm BST
Here are the biggest fallers on the FTSE 100 today:
Related: House price inflation slows after stamp duty increase
1.37pm BST
European stock markets are heading deeper into the red, as the OECD's Brexit warning continue to haunt investors.
"Equities are nursing losses this morning as yesterday's breakdowns from comfortable consolidation/uptrends yesterday gather pace.
This comes after a revival of geopolitical risk (Brexit poll) and a raft of mixed data from across the globe (run of poor US manufacturing; China and Eurozone PMIs failing to inspire; UK Consumers delaying borrowing).
1.24pm BST
Here's Larry Elliott's news story about the OECD's latest warning about Brexit, and its new economic forecasts.
Related: Brexit could spread shockwaves through global economy, says OECD
12.15pm BST
Brexit uncertainty has also hurt some UK factories, according to a new survey.
One in three manufacturers polled by Markit said June's referendum has had a detrimental, or very detrimental, effect on their business, while half reported no impact.
11.37am BST
The prime minister has also tweeted about the OECD's report:
OECD is right to warn leaving Europe would have "negative consequences" for our economy. That means lost jobs and higher prices. #StrongerIn
11.32am BST
The opposition Labour party have swiftly seized on the news that the OECD has slashed its UK growth forecasts, from 2.1% to 1.7% this year.
Shadow chancellor John McDonnell says:
"Today's OECD report once again shows the absolute failure of the Chancellor's economic policy. Not only has productivity slumped, but the OECD also highlight the risk of further bubbles in the housing market whilst housebuilding continues at too low a level. Further proof that George Osborne's recovery is built on sand.
"With the OECD forecasting a dramatic shock to the whole economy from a Tory Brexit, it's clear we can't risk failed Tory economic policy any more. We need a serious commitment from this government to invest in infrastructure and housing, backed up by a real industrial strategy to place the economy on a sound foundation and build the high-tech, high-wage economy of the future."
OECD report once again shows the absolute failure of the Chancellor's economic policy @johnmcdonnellMP https://t.co/yR7Fzrv7wD
10.53am BST
Pro-Brexit campaigners often argue that it's impossible to say exactly how the UK economy would perform outside of the EU.
After all, the government can't get its annual forecasts right, so how can we accurately project growth over a longer horizon?
10.44am BST
The pound has just weakened to a two-week low against the US dollar, at $1.4439, after another opinion poll hit the wires:
*U.K. POLL ON EU SHOWS 41% REMAIN, 41% LEAVE: YOUGOV/TIMES
10.43am BST
You can see the full report from the OECD here.
10.27am BST
Amid the flurry of figures from the OECD, this one stands out.
After Brexit, UK GDP would be 3% lower by 2020, while the European Union's economy would be 1% smaller, according to the Paris-based thinktank.
10.20am BST
The OECD is adamant that this month's EU referendum has already hurt the British economy.
In its report on the UK (online here), it says:
Growth has slowed, and is projected to be 13/4 per cent in 2016. Uncertainty about the outcome of the end-June 2016 referendum, which could lead to an exit of the United Kingdom from the European Union (Brexit), has undermined growth.
This projection assumes that the United Kingdom remains in the European Union, in which case growth is projected to pick up in the second half of 2016 and then stabilise in 2017.....
The outcome of the referendum is a major risk for the economy. A vote for Brexit would heighten uncertainty, raise the cost of finance and hamper investment.
Here's the full section on the UK from the @oecd's latest Economic Outlook (pdf): https://t.co/KMog9WlbZJ
10.14am BST
Another chart showing how the OECD fears the impact of Britain leaving the EU:
"#Brexit cuts #GDP.. not just an economic risk for #UK but for the global economy" @CLMannEcon @OECD #forecast pic.twitter.com/049jh4DkZD
10.11am BST
This chart highlights how pessimistic the OECD is about growth in advanced economies:
10.05am BST
Brexit fears are also driving up the cost of insuring against a plunge in the value of the pound.
Sterling volatility has jumped to the highest level in more than seven years after a Guardian poll showed the Brexit camp is in the lead ahead of this month's EU referendum.
10.00am BST
Will Straw, executive director of the Britain Stronger In Europe campaign, says voters should take the OECD's Brexit warning seriously:
Another respected economic institution warns of 'negative shock' if we leave EU with GDP down 3% https://t.co/bGnM20ZLPf #StrongerIn #OECD
OECD economic outlook presented by SG @A_Gurria- UK economy will be 5% smaller in 2030 if Brexit #StrongerIn
9.56am BST
The OECD is presenting its new Economic Outlook report in Paris right now:
Collective action and enhanced productivity essential to get out of slow growth trap Angel Gurria presenting OECD Outlook @oecd #oecdwk
#Oedcwk "Because we can, we should,
because we should, we will." Angel Gurria SG @OECD pic.twitter.com/hGylA7tX8h
Wages growing < than productivity + income ineq increasing = policymakers are breaking their promises to young people @OECD Mann #OECDForum
9.54am BST
The youngest and oldest in society will suffer most if the world economy does not pick up pace, fears the OECD.
Catherine Mann explains that governments will find it harder and harder to meet "fundamental promises", such as jobs opportunity and pensions.
"If we don't take action to boost productivity and potential growth, both younger and older generations will be worse off.
The consequences of policy inaction will be low career prospects for today's youth, who have suffered so much already from the crisis, and lower retirement income for future pensioners."
9.51am BST
The OECD is urging governments across the globe to boost their spending, to spur growth.
Their chief economist Catherine Mann says there is an "urgent" need to use fiscal firepower to boost demand.
"The longer the global economy remains in the low-growth trap, the more difficult it will be to break the negative feedback loops."
9.46am BST
In a gloomy update, the OECD has also lowered its growth forecast for the 34 countries who make up its 'club' to 1.8% this year and 2.1% in 2017.
That's down from 2.2% and 2.3% six months ago.
OECD: US 2016 Forecast Cuts To 1.8% (Prev 2%)
- China Seen Growing 6.5% In 2016, 6.2% In 2017
- Russian Seen Contracting 1.7% In 2016
9.36am BST
Breaking: The OECD has slashed its forecast for UK growth this year to just 1.7%.
That's down from an estimate of 2.1% three months ago, and much weaker than the 2.3% growth recorded in 2015.
OECD cuts UK GDP forecast to 1.7% from 2.1% in Feb; Brexit weighs. Uncertainty also evident in weak mortgage approvals and consumer credit
Catherine Mann, chief economist at the OECD said the uncertainty caused by the referendum came at a time when the global economy was caught in a low-growth trap.
"Spillovers could be significant to other countries", Mann said as she predicted that the world economy would grow by 3% in 2016 and by 3.3% in 2017 - forecasts that have remained unchanged since its last health check three months ago.
9.13am BST
Breaking: Growth across Europe's manufacturing base has slowed to its slowest rate since February, leaving factories in near-stagnation.
The eurozone factory PMI, produced by data firm Markit, has dropped to 51.5 for May, down from 51.7 in April, closer to the 50-point mark that shows no growth at all.
"Manufacturing in the euro area remained stuck in a state of near-stagnation in May, failing to break out of the slow growth phase that has plagued producers since February.
"The disappointing performance of manufacturing adds to suspicions that the pace of eurozone economic growth in the second quarter has cooled after a surprisingly brisk start to the year based on the latest estimate of GDP.
9.05am BST
Switzerland's economy has grown much less strongly than expected, reinforcing the OECD's concerns about growth.
8.48am BST
New factory data from Ireland suggest that its economy may have been hit as Brexit uncertainty drifts over the Irish Sea.
The Irish manufacturing PMI fell to 51.5 in May from 52.6 in April.
We expect that at least some of the weakness relates to that event [the EU vote] and other international uncertainties.
With momentum appearing to be building behind the 'Remain' campaign, sterling has recently begun to strengthen against the single currency, which augurs well for the near-term outlook for many Irish exporters.
8.39am BST
Angel Gurria's fears over the global economy may have hurt sentiment in the City.
London's FTSE 100 has fallen by 40 points, or 0.6%, to a one-week low of 6,195 points.
China set the tone this Wednesday, the country's continually limp manufacturing PMIs (the government-released figure remained at 50.1 while the Caixin reading slumped to a 3 month low of 49.2) an unwanted reminder of the global weaknesses circling the market like vultures. Along that theme the OECD also chimed in with a worldwide warning this morning, Angel Gurria stating that 'conditions are very difficult' due to sluggish global growth.
So not exactly the best backdrop to begin the month against, especially with June's investor-concerning Fed meeting and UK EU referendum rapidly approaching.
8.17am BST
Angel Gurria adds that the OECD is also concerned that Britain could vote to leave the EU in this month's referendum.
It is a threat to the global economy, he tells Bloomberg TV, but particularly to the people of the UK.
8.13am BST
Angel Gurria also warns that more must be done to fight inequality, calling it the defining issue of our time.
8.02am BST
The global economy is struggling, due to weak trade and problems in emerging markets.
That's according to the head of the Organisation for Economic Cooperation and Development.
Trade is growing at 2% to 3%, it should be growing at 7%.
Only five times in the last 50 years has trade been growing below the rate of growth of the GDP of the world. On those 5 occasions, there been a very serious deceleration, even a recession.
7.30am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
In Europe, while France has continued to underachieve in its manufacturing sector, with the recent fuel blockades unlikely to help matters in the coming weeks, a reading of 48.3 is expected here, we have seen the latest German, Spain and Italian numbers hold above the 50 levels quite comfortably, though they have been slowing on a month on month basis.
Spain and Italy are expected to show readings of 52.6, 53.5, both down on April, while German activity has started to improve with a reading of 52.5 expected, up from 51.8.
Related: Economy is growing faster than expected at 3.1%, but news is not all good
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