Markets jittery over North Korea as UK trade deficit widens - as it happened

All the day's economic and financial news, including new UK industrial production and trade figures

• Dow follows other global markets lower
• Gold at two-month high, Korean won at one-month low
• Latest: Markets fall as investors worry about North Korea
• EIU: Trump's rhetoric makes war more likely
• UK trade data misses forecasts
• Weak pound isn't helping Britain's economy
• North Korea details Guam strike plan and calls Trump 'bereft of reason'

5.54pm BST

The increasingly tense confrontation between the US and North Korea has again sent investors fleeing from equities and into safer areas such as gold and government bonds. It was a down day across Europe, while Wall Street was also suffering from the growing uncertainty. David Madden, market analyst at CMC Markets UK, said:

The showdown between the two nations has scared off many investors. Whenever dealers hear the word 'war' they usually run for the hills, and that is exactly what we have seen today. While tensions are running high, traders will be reluctant to be long...

US equity markets are holding up better than their European equivalents, but a global story like this will shake investors out of the stock markets. US equities, and in particular, the Dow Jones had a great run recently and the political uncertainly between the two countries has encouraged profit taking.

4.34pm BST

Meanwhile the Vix volatility index has jumped 27% on the North Korea situation, hitting a three month high of 14.2.

4.26pm BST

The fall in the FTSE 100 is due in the most part to the global concerns following the growing tensions between the US and North Korea, but there are other factors.

For a start, some 40 points of the current 114 point or 1.52% decline is due to companies being quoted ex-dividend. Then there is the widening UK trade deficit, as well as news that the NIESR think tank had edged its growth forecast lower.

The housing market decline evident within London over recent months appears to be spreading across the country, with the latest report from RICS highlighting a slowdown in sales. Yesterday's report from the London School of Economics and VATT suggested the recent stamp duty changes are having a significant negative effect on housing transactions, and today we are seeing that borne out in the RICS data. The continued slowdown we are seeing in house price growth and housing sales is proving a drag on the housebuilder sector, with Barratt Developments and Taylor Wimpey suffering heavily today.

3.30pm BST

The market slide is continuing, as investors flee to safer areas given the tensions between the US and North Korea. Connor Campbell, financial analyst at Spreadex, said:

The US open did nothing to dispel the day's tremulous trading, instead causing the European indices to intensify their own losses.

The Dow Jones plunged more than half a percent after the bell, wiping off 130 points to leave the index teetering just above 21900. That's its worst price since the end of July, raising questions of whether this is the end of the Dow's recent record run, or just a brief diversion until the US/North Korea situation cools and a parade of proper, Grade A data arrives (for example, next week is looking pretty jam-packed).

2.59pm BST

Opec has forecast higher demand for crude in 2018, and said a rise in the oil price suggested its moves to curb the glut of supply could be having an effect.

In its monthly report, the oil producers organisation said demand next year would reach 32.42m barrels a day, up 220,000 from its previous prediction.

2.38pm BST

US markets have opened lower, with investors nervy amid the rhetoric from the US and North Korea.

The Dow Jones Industrial Average is down 79 points or 0.36% in early trading, pushing it back below the 22,000 level, while the S&P 500 opened down 0.43% and the Nasdaq Composite 0.65% lower.

2.29pm BST

Also from the US, producer price inflation came in weaker than expected, another suggestion that any imminent rate rise from the Federal Reserve is unlikely. James Knightley, chief international economist at ING Bank, said:

US PPI comes in well below expectations, suggesting that there is little need for imminent additional policy tightening. Nonetheless, we still see some potential for higher inflation to year end.

The US PPI report for July is surprisingly low, falling 0.1% month on month (consensus was looking for a 0.1% rise), which brings the year on year rate down to 1.9% from 2%. The market and ourselves had been looking for 2.2% or 2.3% year on year reading. Core (excluding food and energy) similarly fell one tenth of a point.

1.43pm BST

Newsflash from America: The number of US citizens filing new claims for unemployment benefit has risen slightly.

Around 244,000 new 'initial jobless' claims were filed last week, up from 241,000 in the previous seven days.

1.14pm BST

Newsflash: Britain's economy only grew by 0.2% in the last three months, according to the latest estimate from The National Institute Of Economic and Social Research Research.

If NIESR are right, that means that growth slowed in July, following 0.3% growth in April-June.

"We estimate that economic growth decelerated to 0.2 per cent in the three months to July, compared with 0.3 per cent in the second quarter of 2017. The service sector, which was the main driver for economic growth in the second quarter, appears to have slowed. We see a modest recovery in the second half of this year in response to strengthening global growth and a weaker currency, but on the flip side, consumer spending is likely to be weighed down by weak wage growth and investment spending held back by Brexit-related uncertainty.

Further out, we see quarterly economic growth strengthen somewhat to 0.4-0.5 per cent as the economy rebalances away from domestic demand and towards net trade. Economic growth however, remains below its long-run average growth rate of 0.6 per cent because of subdued productivity growth".

1.05pm BST

Mike Jakeman, global analyst at the Economist Intelligence Unit. argues that there is only a small chance that the United States and North Korea end up going to war.

"Rhetoric between the US and the North has intensified over the past year, as evidence has mounted that North Korea is capable of attaching a miniaturised warhead to the top of an intercontinental missile. US intelligence agencies now believe North Korea can do this. The remaining challenge for the North is manufacturing a warhead that can survive the heat of re-entering the earth's atmosphere from space. However, North Korea's complete dedication to its nuclear programme, combined with the accelerating progress of recent months, means that this final hurdle is likely to be cleared shortly.

Mr Trump believes that the previous US policy of "strategic patience" failed because it permitted the development of the North's missiles and warheads. But there is little indication that his bellicose rhetoric is intimidating North Korea's supreme leader, Kim Jong-un. Indeed, so far as Kim Jong-un is strengthened by evidence of the US's threat to the North, it cements him in his position and justifies his own aggression.

12.44pm BST

The 2% jump in British exports to Europe in April-June shows why we need a full trade deal with the EU after Brexit, says the Institute of Directors.

Nice analysis of UK trade figures from @AllieRenison pic.twitter.com/sdkBkWbYHp

11.50am BST

The US stock market is expected to fall when it opens in three hours time.

New York traders will probably be cautious, following North Korea's dismissal of Donald Trump's 'fire and fury' threat, as a 'load of nonsense'.

U.S. stocks set up for another day of losses as North Korean tensions simmer https://t.co/qrnMyu0sW0

In tense situation like this, equity markets are move lower exceptionally fast, and investors don't want to be caught on the wrong side of the markets, so they are getting out now.

Traders would require nerves of steel to starting buying into the stock market now, given standoff between the US and North Korea.

11.26am BST

Damian Green, the UK's first secretary of state and effectively deputy prime minister, has urged the US government to use United Nation's processes to resolve the North Korea crisis after President Donald Trump threatened "fire and fury" against the Pyongyang regime.

"I think the sensible way for people to proceed now is to work through the UN process: that's what the British government has been supporting and will continue to support.

"We think that over the past months the North Korean government has not been behaving properly and I hope they respond to pressure from the UN."

"It's obviously in all our interests to make sure that nothing escalates. We are very strongly in support of the UN process, which has and continues to put pressure on North Korea to stop acting in an irresponsible way and we will continue strongly to support the UN process which will I hope help to deescalate tensions."

.@DamianGreen watches a performance from members of @SCOmusic, who will benefit from 10m #EdinburghCityDeal funding with a new concert hall pic.twitter.com/FHbb8LjHyc

11.20am BST

Britain's exports to the EU jumped by 2% in the last three months, but exports to non-EU countries actually fell by 1.4%, according to today's trade data.

"As with the extra 350m a week for the NHS, the export boom dreamed up by the Brexiteers is nowhere to be seen.

"The fall in the pound since the referendum has not given a significant boost to UK exporters, but has instead driven up the cost of imports for both businesses and consumers.

11.07am BST

The selloff in the financial markets is accelerating, as nervousness over the North Korean situation continues to grip trading floors.

Britain's FTSE 100 has now slid by 80 points, or 1%, and other indices are all in the red too.

For now, tensions are high, yet in all likeliness we will see this intensity simmer down somewhat, with both sides standing to lose more than they would gain from military action.

10.51am BST

Howard Archer, Chief Economic Advisor to the EY ITEM Club, is also disappointed by Britain's trade data:

A fall in exports and rise in imports caused the monthly trade deficit to nearly double. And, a deficit of 8.9bn in the second quarter of 2017 suggests that net trade made no contribution to growth in the quarter.

Evidence of rebalancing, at least in the 'hard' data, remains absent."

10.27am BST

No sign of Britain's economy rebalancing here....

Biggest monthly fall in UK goods export volumes in July since Brexit vote #macrobond pic.twitter.com/Fgu4OI8aSe

10.25am BST

Ranko Berich, Head of Market Analysis at Monex Europe, fears that Britain's trade gap will get worse before it gets better.

He says:

"The export-driven pickup in manufacturing, hoped for by some, has yet to materialise in the UK, despite survey data from the sector remaining reasonably optimistic. Instead, Manufacturing Production remained flat on the month while the goods trade balance fell further into negatives.

"Following a large currency shock, the sort we saw in the aftermath of the referendum, adjustments in trade balance typically follow a "J-Curve", at first getting worse before they improve. Of course, it's a long way from economic theory to reality and the length of this adjustment process is highly variable and difficult to predict, but June's data suggest we're not quite at the bottom yet, to say the least."

10.17am BST

In theory, a weak currency ought to help a country's exporters and improve its trade figures.

But today's data show that this isn't really happening in Britain, as it continues to consume more goods and services than it sells to the rest of the world.

"The sharp deterioration in the UK's net trade position in June was disappointing, and means the trade deficit in the second quarter of this year came in slightly higher than in the previous quarter. Taken together with the recent jump in the current account deficit, signals the continued weakness of the UK's external position. The widening in the UK trade deficit in June was largely driven by a sharp rise in imports.

"Businesses continue to report that the slump in the value of sterling since the EU referendum remains something of a double-edged sword, as many exporters are also importers, and so face higher input costs due to the weakening currency. While stronger global economic growth may help to boost the UK's export performance over the second half of the year, it is unlikely to be sufficient to prevent an overall weakening in growth.

10.07am BST

Ms Lee Hopley, chief economist at EEF, the manufacturers' organisation, warns there are "scant signs" in today's data that net trade could give Britain's economy a growth burst.

Ben Wright of the Daily Telegraph agrees that the goods trade figures are bad:

The UK's goods-trade deficit bowled a googly in June: widened to 12.7bn. Exports -0.7%; imports +3.3%.

10.02am BST

The ONS has also reported that UK manufacturing output was flat in June, meeting City forecasts.

However, the wider measure of industrial production jumped by 0.5% in the month - beating expectations.

9.59am BST

Economist Rupert Seggins reminds us that Britain hasn't achieved a trade surplus in almost 20 years.....

UK trade. Last quarterly:

Trade surplus: 1997 Q3

Goods surplus: 1982 Q4

Services deficit: 1966 Q1 pic.twitter.com/DSo0P8jKOL

9.49am BST

Britain's worsening trade gap was driven a 4.9% slump in the volume of goods exported in June.

That's the worst performance since June 2016, the month of the Brexit referendum.

9.43am BST

Newsflash! Britain's trade deficit WIDENED by 2bn in June, dashing hopes that the gap between imports and exports might have narrowed.

The UK's total trade deficit in goods and services hit 4.6bn in June, up from a (downwardly revised) 2.5bn in May. That's the widest deficit in nine months.

This was mainly due to an increase in imports of both goods and services of 1.7 billion.

Of this, imports of goods contributed 0.6 billion, with imports in machinery and transport equipment (specifically mechanical machinery, aircraft and road vehicles) from EU countries up by 0.5 billion.

June goods trade deficit: -12.7 billion (-11 billion expected)

Next time!

9.30am BST

The pound has fallen back through the $1.30 mark this morning, to a three-week low of $1.2952.

That's partly because the dollar is strengthening, as investors look for safe havens.

9.16am BST

The news that North Korea was formulating an attack on Guam sent shares down across Asia.

Sam Chi Yung of South China Financial Holdings said:

"The North Korea situation is still unstable and investors are controlling risk and taking profit after recent gains."

Asia stocks fall as N. Korea angst continues to provide an excuse or opportunity for further profit taking. Won drops while Gold almost unch pic.twitter.com/kYtHRqjv9q

9.08am BST

One of Donald Trump's assistants, Sebastian Gorka, spoke about the situation on Radio 4 today:

"Donald Trump has been unequivocal: he will use any appropriate measures to protect the United States and her citizens.

We do not telegraph our future scenarios and how we are going to react," he said. "If you show players around a table your poker hand, you will lose that game. It is not a good idea in cards, it is a very bad idea in geopolitics."

AFP Graphic on the detailed #NorthKorea plan to target the area around US territory of #Guam pic.twitter.com/HZneKhOmIW

8.58am BST

European stock markets have also added to yesterday's losses in early trading.

The French, German and UK markets are all in the red in early trading.

The FTSE suffered another sharp fall at the open, as the latest developments in the US/North Korea situation weighed on its commodity stocks.....

It appears that Pyongyang's detailed strike plan against Guam has created a sour backdrop to trading.

8.39am BST

The growing tensions between North Korea and the United States are continuing to weigh on the financial markets today.

Reuters: N.KOREA SAYS U.S. PRESIDENT DONALD TRUMP'S "FIRE AND FURY" COMMENTS ARE "LOAD OF NONSENSE" -KCNA

The response from Pyongyang was its most public and detailed threat to date, and evidently meant to goad the US president.

Trump had "let out a load of nonsense about 'fire and fury' failing to grasp the ongoing grave situation. This is extremely getting on the nerves of the infuriated Hwasong artillerymen of the KPA."

Related: North Korea details Guam strike plan and calls Trump 'bereft of reason'

The escalation of the rhetoric between the US and North Korea is keeping market participants on their toes and with no fresh economic reports the price action is dictated by the headlines.

8.13am BST

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

Today we discover whether the weak pound is helping Britain's factories, and making a dent in her trade deficit.

Trade volume growth appears to be moving in the right direction, with exports up 3.8% 3m/3m in May 2017, and imports growing more slowly at 2.8%. And the surveys back up anecdotal evidence that UK exports are responding to sterling weakness.

However, so far, this has done little to reduce the trade deficit in absolute terms. We expect another relatively hefty deficit in June.