Bank of England policymaker warns that consumer slowdown will 'intensify' - as it happened
Latest survey of Britain's service sector beats forecasts, but consumer-focused companies may struggle this year
- Wall Street jumps on US jobs figures but services disappoints
- Greek PM pushes for emergency summit
- UK service sector beats forecasts
- GDP growth may have slowed to 0.4% last quarter
- British car sales at record high
- Eurozone business growth hits highest since 2011
5.37pm BST
Wall Street may be bouncing higher in the wake of better than expected jobs data, but the picture was more mixed in Europe. US investors shrugged off concerns about President Trump's meeting with his Chinese counterpart Xi Jinping, while the ADP employment data suggested a better than expected outcome from Friday's non-farm payroll numbers. In the UK, the FTSE 100 moved ahead but the German and French markets fell back. The final scores showed:
4.28pm BST
UK interest rates could start to rise in the second quarter of next year despite continuing uncertainty over the outlook for the country's economy, says Jonathan Loynes at Capital Economics:
Market expectations for the future path of UK interest rates have continued to nudge lower in recent days in response to evidence that the economy's growth rate has slowed a bit in the first quarter and some dovish noises from policymakers...The implied timing of the first 25bp hike in rates - derived from overnight indexed swaps (OIS) - has shifted back from late 2018 earlier in the month to the middle of 2019. This has pushed 10-year gilt yields down to six-month lows of just above 1%.
As MPC member Gertjan Vlieghe stressed on Wednesday, there certainly are some good reasons for the MPC to tread cautiously. While the economy has proved resilient to the vote for Brexit, the outlook is very uncertain and there are signs that growth has started to slow as higher inflation pinches households' spending power. Meanwhile there are few signs as yet that the inflationary effects of the post-referendum drop in the pound are feeding through into broader price pressures. There is also a danger that a premature policy tightening would push the pound sharply higher and hence halt the rebalancing of the economy towards the external sector.
But we think the markets have gone too far in pushing rate hikes out beyond next year. After all, the current unprecedentedly loose policy stance was initiated to prevent the 2008 recession from turning into a 1930s style depression and enhanced to mitigate the expected damage from of the vote for Brexit. Yet with depression risks having long receded, there is a strong case for scaling back the emergency stimulus. This case will become clearer if, as we expect, the economy continues to confound the worst fears of the impact of Brexit.
Accordingly, our central forecast is now for Bank Rate to start to rise in the second quarter of next year and then climb to about 1.25% by the end of 2019. ..This would be an earlier and rather faster rise than the markets and most forecasters are anticipating. We would stress that such a path for interest rates would primarily reflect a fairly healthy economy rather than serious inflation worries. Nonetheless, it is likely to put at least some upward pressure on gilt yields. We forecast the 10-year yield to rise to 1.5% by the end of this year and to 2.5% by the end of next year.
4.03pm BST
US crude stocks unexpectedly rose last week, taking some of the shine off oil prices.
Crude inventories rose by 1.6m barrels to 535.5m, according to the Energy Information Administration, compared to expectations of a 100,000 decline. Brent, which had been as high at $55 a barrel earlier, lost some of its gains and is currently at $54.32, still up 0.28% on the day.
3.54pm BST
In the current US market resurgence, the Nasdaq Composite has just hit a new record high of 5929, two days after the previous one.
3.41pm BST
Despite the slightly disappointing service sector figures, Wall Street has continued its positive mood, with the Dow Jones Industrial Average now up around 180 points. Connor Campbell, financial analyst at Spreadex, said:
Mixed signals from the US economy couldn't prevent the Dow Jones from finally bursting back into life this afternoon.
Having been trapped between 20600 and 20700 for the past fortnight the Dow awoke from its slumber in style this Wednesday, rising 180 points to hit its highest level since the first Trump healthcare doubts entered the market on March 21. It helped that the dollar was fairly quiet after the bell; though it took 0.6% off the Japanese yen, it made minimal headway against the euro and lost 0.3% against sterling.
3.38pm BST
And here is more detail on what the ISM respondents have been saying:
3.26pm BST
Despite the ISM figures coming in shy of expectations, they still show an economy heading in the right direction (any reading above 50 indicates expansion). The Institute said:
The majority of respondents' comments indicate a positive outlook on business conditions and the overall economy. There were several comments about the uncertainty of future government policies on health care, trade and immigration, and the potential impact on business.
3.06pm BST
The other US services survey has also fallen short of expectations.
The Institute for Supply Management's non-manufacturing PMI came in at 55.2 in March, below forecasts of 57 and down on the 57.6 figure in February. This is the lowest level since October last year.
ISM Non-Manufacturing disappoints, seeing US bonds lift off their lows in the wake of the figure. pic.twitter.com/VyS4LB4EjJ
ISM non Man 55.2 vs 57 exp employment 51.6 vs 55.2 prior, Prices paid 53.5 vs 57.7 prior, new orders 58.9 vs 61.2 prior
2.47pm BST
And here is the first US service sector report, and it is slightly disappointing.
Markit's final service sector PMI index for March came in at 52.8, down from an initial estimate of 52.9 and the 53.8 recorded in February.
#UnitedStates Markit Services PMI Final at 52.8 https://t.co/Q5hI4IC5uw pic.twitter.com/1rVmA6Ic7k
#UnitedStates Markit Composite PMI Final at 53 https://t.co/gRGwp54zfj pic.twitter.com/SPaW73zqKd
2.44pm BST
Ahead of two separate snapshots of the US service sector and following better than expected jobs numbers, American stock markets are heading higher.
The Dow Jones Industrial Average is up 88 points or 0.43% while the S&P 500 opened 0.33% higher and the Nasdaq Composite added 0.23%. US markets had been undermined recently by concerns that President Trump's proposed tax and spending reforms could be stymied in the wake of his healthcare defeat.
ADP came in at 263,000 - miles above the 180,000 expected. The ADP number isn't a good predictor of the actual non-farm payroll number. However, it can give a "heads-up" for a big surprise, up or down. So today's reading suggests we should get a strong reading on Friday.
Despite a long run of strong jobs numbers there are some concerns that US economic growth isn't as robust as it should be. Survey data such as Consumer Confidence, ISM Manufacturing and Non-Manufacturing PMIs may be robust, but "hard data" (with the exception of employment numbers) like Durable Goods, Retail Sales, Construction Spending, Vehicle Sales and Factory Orders have all disappointed recently. This is happening as the Fed proceeds to tighten monetary policy and even hints of starting to wind down its balance sheet later this year.
2.21pm BST
One of the Bank of England's interest rate-setters has warned that the consumer slowdown in the UK will 'intensify' this year.
The consumer slowdown, which initially did not materialise, now appears to be underway. Given the hit to real income from a mix of subdued wage growth and rising inflation, I think the slowdown is more likely to intensify than fade away.
It is possible that the absence of a sharp reaction was due to the fact that firms have generally taken a benign view of the impact on their business of possible future changes in the UK-EU relationship. It is also possible that uncertainty about these changes is substantial, but the changes have been too far away to have a marked effect spending decisions so far.
As the time horizon now shortens, a more material reaction of spending in response to uncertainty might still occur. Much will depend on the detail of the final agreement, which might not be known until late in the negotiations.
1.35pm BST
There are important developments in Greece today too, as European Council president Donald Tusk visits Athens.
"But this endless negotiation must come to an end."
"Some people are trying to hurt our recovery and bring a negative scenario back to the table for Greece and Europe during a sensitive time,"
"This is the only positive result for Greece and for the whole [EU] community.
"There is no political and substantial alternative.
1.24pm BST
Newsflash: America's companies created many more jobs than expected last month.
The monthly ADP report shows that the US private sector created 263,000 new jobs in March, more more than the 185,000 which Wall Street expected.
STRONG ADP. 263,000 jobs created in March vs. expectations of 185,000. (Though weirdly a significant downward revision to last month)
Very strong ADP print, bodes well for Friday's NFP report. ISM Services due up later today. https://t.co/t0OnW8oPTQ https://t.co/h3aMqv6Prz
12.31pm BST
And here's economics editor Larry Elliott on today's UK productivity figures:
Related: Weak productivity leaves UK trailing other G7 nations
11.55am BST
Here's our news story about March's record-breaking UK car sales figures:
Related: UK new car sales speed to record high
11.37am BST
We have more car news....but this time, it's about strike action not rising sales.
"BMW's refusal to talk about affordable options to keep the pension scheme open means a sizable chunk of its UK workforce will be taking strike action for the first time in the coming weeks.
"Bosses in the UK and BMW's headquarters in Munich cannot feign surprise that it's come to this point. Unite has repeatedly warned of the anger their insistence to railroad through the pension scheme's closure would generate and the resulting industrial action.
Breaking - BMW Mini workers in Oxford announce five days of strike action https://t.co/MdvyXWlUuW
11.12am BST
In other news, UK productivity has crept higher, but is still much lower than in other G7 countries.
New figures from the Office for National Statistics show that economic output per hour rose by 0.4% in October-December, up from 0.2% in July-September. It's a sign that the economy was more productive at the end of 2016.
UK Output per hour growth 0.4% in Q4 2016: up from 0.2% previous quarter: https://t.co/Mlo7EhK0vI pic.twitter.com/G068nW9dYP
And here's UK unit labour costs. pic.twitter.com/y16nB7TtV4
10.31am BST
Jeremy Cook, chief economist at the international payments company, World First, fears that the UK economy is entering choppier water.
Here's his take on today's service sector report:
"While the headline index number may have rebounded from a 5 month low in February, there is little to be enamoured with in this reading of the UK's most important sector; consumers are under pressure, services sector companies that cater to them are weaker and margins are likely being pressured further.
Average prices are at the highest level in 8.5 years and whilst some consumer resilience is allowing some of this to be passed on in higher prices on the shelves we have to think that that consumer resilience will give way before the business need to keep prices raised does. In the short term, this means a turning of the screw for the man in the street and a poor outlook for High St profits. This sector makes up the majority of the UK economy and the prognosis is poor."
Activity rose to its best level in three months and was a very strong rebound from the five-month low of February.
Prices are rising - largely due to input inflation - while job creation has slowed a little. Financial services was most resilient sector while consumer-oriented sectors struggled - evidence that chimes with data suggesting consumers might be about to pull back on some discretionary spending as inflation squeezes incomes. Inflation is overtaking wages and that means one thing - lower aggregate demand.
The key point is that the UK continues to enjoy a broad based expansion in output, and we strongly expect it to continue.
Services activity has been particularly led by the consumer-facing sectors. Looking ahead, we suspect that consumer services activity will be increasingly pressurized by consumers' purchasing power weakening over the coming months as inflation rises appreciably and earnings growth is muted.
This is likely to cause some consumers to cut back on their discretionary spending, including on services.
10.25am BST
'Services' is a broad measure, covering around four-fifths of the UK economy.
And today's report shows that consumer-focused sectors had a tough March, while the City powered on.
Within the service sector, the worst performance so far this year has been seen in consumer- oriented sectors, notably hotels and restaurants, as well as personal consumer services (which include businesses such as sports centres, gyms and hairdressers). The greatest resilience has been seen in financial services.
10.12am BST
Economists Rupert Seggins has helpfully tweeted more details of the PMI reports:
Latest PMIs show UK economy ticking along in Q1. Slight slowdown on Q4 last year. But all sectors continued to grow. Services still leading. pic.twitter.com/WHAzrf8kF5
The UK economy since June according to the PMIs. This is not a bad picture at all. Indications for Q1 are continued growth across the board. pic.twitter.com/68aqKsSyNU
10.07am BST
Unexpectedly strong UK services #PMI, tops all forecasts in Reuters poll.
But signals weaker jobs growth, selling prices rocket at 2008 pace pic.twitter.com/QrCf0tBQZR
10.05am BST
The news that Britain's service sector grew faster than expected in March has boosted the pound.
Sterling jumped by half a cent against the US dollar to $1.248, as traders welcomed the pick-up in activity in Britain's dominant sector.
"Today's services PMI figure has bucked the trend of weak data seen on Monday and Tuesday, paving the way for the pound to make its long-awaited recovery.
"Despite underwhelming manufacturing and construction data, the services sector is a key component of the UK economy and today's number is very encouraging."
9.56am BST
Despite beating forecasts, March's UK PMI report does include some worrying signs.
For starters, UK service sector firms created fewer new jobs than in February, with new hiring hitting its slowest pace since August 2016.
A combination of rising workloads and softer employment growth contributed to a renewed accumulation of backlogs across the service economy. Some firms noted that squeezed margins and rising wage bills had led to the non- replacement of voluntary leavers.
This was overwhelmingly linked to higher input costs during recent months. Survey respondents also noted that resilient demand had provided scope to pass on some of their increased costs to clients
9.43am BST
Breaking: Britain's service sector has posted its strongest growth of the year, after suffering a slowdown over the winter.
Data firm IHS Markit reports that business activity growth hit a three-month high in March, driven by a pick-up in new work.
"The survey data indicate that UK business activity growth regained some momentum after having slipped to a five-month low in February, but the upturn fails to change the picture of an economy that slowed in the first quarter.
"The relative weakness of the PMI survey data compared to that seen at the turn of the year suggests the economy will have grown by 0.4% in the first quarter, markedly lower than the 0.7% expansion seen in the fourth quarter of last year.
9.34am BST
Wow! Britain's car market has just enjoyed its strongest month ever.
Car registrations surged by 8.4% year-on-year in March, to 562,337, according to new figures from the Society of Motor Manufacturers and Traders (SMMT).
This bumper performance probably means we will see a slowdown in April, exacerbated by the fact there are fewer selling days this year given Easter timing. Looking ahead to the rest of the year, we still expect the market to cool only slightly given broader political uncertainties as there are still attractive deals on offer."
9.15am BST
Bloomberg's Maxime Sbaihi flags up how the eurozone had a good quarter:
Euro-area's (final) #PMI surveys in Q1: composite UP, services UP, manufacturing UP, employment UP, new orders UP, output prices UP
9.12am BST
Boom! The eurozone's private sector has posted its best quarter since the start of the financial crisis.
Data firm Markit reports that Eurozone output and new order growth accelerated to near six-year records in March.
"This is a broad-based upturn among the euro's largest members, with 0.6% growth signalled for both Germany and France, while Spain looks set to have enjoyed 0.8-0.9% growth in the first quarter, according to the PMI data. Growth has also perked up in Italy during the first quarter despite a slight pull-back in March, with the surveys indicating a 0.3-0.4% expansion.
"Most welcome for a region still suffering near- double digit unemployment is a rise in the survey's employment index to its highest for almost a decade, suggesting we should expect to see the jobless rate fall further in coming months.
9.00am BST
Another good month for Germany:
German Mar Markit Services PMI comes in at 55.6 (f'cast 55.6) vs 55.6 in Feb
8.59am BST
We have good news from France; its private sector has posted its fastest growth in 70 months.
#France composite PMI down from flash reading but still at 70-month high of 56.8 ttp://bit.ly/2oBEBl6 pic.twitter.com/sB0WM7ZUbZ
8.56am BST
Italy's services sector has slowed a little, with its PMI dipping to 52.9, from 54.1
8.49am BST
European markets are muted this morning, as investors digest the news that North Korea fired a ballistic missile into the Sea of Japan overnight.
Related: US says it has 'spoken enough about North Korea' after new missile launch
Keeping the peace in Asia is just another item on the agenda which will be important for both leaders to talk about.
North Korea tested another missile last night and this has increased tensions over in Asia. This will also add another dimension to President Trump and President Xi's meeting. The US Secretary of State, Rex Tillerson, has already made the US' position clear by signalling that the US will not tolerate such activities.
8.33am BST
Zing! The second first healthcheck on the eurozone has arrived, and it's a belter.
In response to rising input costs, companies increased their output prices. Moreover, the rate of charge inflation accelerated to the fastest since July 2007. Four of the six monitored sectors saw output prices rise, led by Post & Telecommunications. The Financial Services and Hotels & Restaurants categories were the only two to post declines.
Spanish Services PMI showing continued strength.#spain #economics #europe #eurusd pic.twitter.com/7FJFSMV9HQ
8.22am BST
March was a very kind month for the Swedish economy.
8.20am BST
Ireland's service sector has recorded another strong month, although growth did slow slightly.
The increase was recorded amid greater volumes of new work and reports of an improved economic environment.
#PMI shows #irish #services expansion slowing to 2017-low in March but still substantial (index down to 59.1 from 60.6 in Feb & 61.0 in Jan)
8.14am BST
Overnight, we've learned that Japan's service sector grew at its fastest pace in 19 months in March.
Growth is broad-based. Both the manufacturing and service sectors are enjoying upturns, supported by firm demand for goods and services.
With capacity pressures subsequently intensifying, this is having a positive spillover into the labour market. Jobs continued to be added at a solid pace in March.
8.03am 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 almost 80% of the economy, from financial firms in the City of London to restaurants and tourist attractions around the country.
We expect some weakening in the March services PMIs for Spain and Italy today.
Good morning world. Just a reminder that President Xi is visiting "Finland first", "USA second". Cold climate, warm reception. #smiley
Note ensemble of flags during the official visit of President Xi in Finland. We are part of the EU, and proud of it. pic.twitter.com/TpQKYCJxbH
Our European opening calls:$FTSE 7333 up 11
$DAX 12287 up 5
$CAC 5105 up 4$IBEX 10335 down 27$MIB 20252 down 6