Brexit hangover leaves UK nursing worst monthly contraction since 2016 - business live

Graeme Wearden

from Economics | The Guardian on 2019-06-10 14:13 (#4GVMA)

Britain's economy shrank by 0.4% in April as car factories shut down in case of a hard Brexit, and stockpiling boost faded

Latest: UK economy shrank 0.4% in April
ONS: Brexit uncertainty hit growth
Biggest fall in monthly GDP since 2016
Car production plunged amid Brexit shutdowns
Factory output contracted sharply
Services stalled; construction also down

3.13pm BST

Time for a recap

The UK economy has posted its weakest monthly growth figures in three years, as a 'Brexit hangover' hits demand.

This morning's #GDP and #manufacturing data out of the #UK shows the impact of prolonged #Brexit uncertainty. GDP had the biggest monthly drop since 2016, while manufacturing output saw the largest decline since 2002. pic.twitter.com/k9NxphoMfH

"GDP growth showed some weakening across the latest 3 months, with the economy shrinking in the month of April mainly due to a dramatic fall in car production, with uncertainty ahead of the UK's original EU departure date leading to planned shutdowns.

"There was also widespread weakness across manufacturing in April, as the boost from the early completion of orders ahead of the UK's original EU departure date has faded."

"The whole country is hurting while the Tory leadership candidates compete on tax cuts for high earners.

"With GDP going backwards over two consecutive months, this government is resembling a business entering administration.

2.42pm BST

Wall Street has shrugged off Donald Trump's new threat to impose tariffs on Mexico.

Stocks are rising in early trading, pushing the Dow Jones industrial average up by 163 points to 26,147.

2.13pm BST

As well as Brexit, the UK economy has been weighted down by recent trade tensions, with America and China's tit-for-tat tariffs dampening global growth.

So... UK bosses (particularly manufacturers) won't be pleased to hear that Donald Trump is threatening to impose tariffs on Mexico, just a couple of days after suspending this threat.

We have fully signed and documented another very important part of the Immigration and Security deal with Mexico, one that the U.S. has been asking about getting for many years. It will be revealed in the not too distant future and will need a vote by Mexico's Legislative body!..

....We do not anticipate a problem with the vote but, if for any reason the approval is not forthcoming, Tariffs will be reinstated!

1.39pm BST

Economist Josie Dent of the CEBR thinktank fears that the unwinding of Brexit stockpiling will weigh on growth for some time:

Today's data paints a sobering picture. Unless the economy makes a significant comeback, we are likely to see negative growth in the three months to May.

However, early indicators suggest that this is unlikely, as manufactures are using up goods they stockpiled in the first three months of the year instead of producing new ones"

1.10pm BST

Ouch! NIESR, the think tank, has warned that the UK economy may shrink by 0.2% in the current quarter.

That would put Britain half-way into a Brexit-induced recession.

"The UK economy is on course to contract by 0.2% in the second quarter.

The latest GDP data were weaker than expected, partly reflecting shifts in production around the original Brexit departure date, including a 24% fall in car manufacturing.

OUT NOW! UK #economy slows as stockpiling boost fades - Our latest #NIESRGDP tracker suggests that shifts in #production around original #Brexit date are adding to underlying Brexit-related #uncertainty - Read the analysis in full https://t.co/hvTnEFp5F4

12.45pm BST

Here's my colleague Richard Partington on April's UK GDP report:

The British economy shrank in April amid a dramatic decline in car production ahead of the original Brexit deadline, according to official figures.

According to the Office for National Statistics, gross domestic product (GDP) plunged by 0.4% in April from a month earlier as factories across the country launched a wave of planned shutdowns to avoid any disruption that could have been unleashed by a no-deal Brexit.

12.16pm BST

GDP measures all the economic activity in an economy (or at least it tries to).

But it doesn't measure more important things -- quality of life, happiness, and mental health.

The focus on GDP masks what's really going on. The economy described by the growth figures released this morning does not reflect the reality for most people, who do not feel the effect of rising GDP on their daily lives. GDP can continue to grow while wages stagnate, housing remains unaffordable, life expectancy stalls and the planet heats up. Growth in GDP isn't spread evenly: the UK is right at the top of the league table of regional inequality, with a huge proportion of the country's economic activity concentrated in London and the south-east.

11.22am BST

Britain's April downturn shows that the public should get a final say on Brexit, argues Labour MP Wes Streeting.

Streeting, who supports the People's Vote campaign, says:

Brexit is already causing serious and lasting harm to our economy. News that the economy contracted in April shows the seriousness of the crisis and the extremely high stakes for jobs, investment and public services.

British industry is feeling the strain, with British steel and car manufacturing on the brink. And the threat of a destructive No Deal now hangs over every decision facing businesses small and large across the country. They know that WTO terms are the worst trading terms in the world and that No Deal threatens a new economic crisis.

11.20am BST

Although manufacturing slumped by almost 4% in April, it actually grew in the February-April quarter.

That suggests factories were racing to stockpile goods and fulfil orders before the end of March, in case they lost access to European markets, only to relapse panting for air in April after the Brexit extension was agreed.

Services grew 0.2% in the 3-months to April, with manufacturing growing 1.2% and construction growing 0.4% https://t.co/X6ufvY1TBF pic.twitter.com/OP4WERoqS9

11.10am BST

Agathe Demarais of the Economist Intelligence Unit agrees that Brexit hurt the UK economy in April:

UK April data shows #Brexit drag on economy
ai GDP contracted for second consecutive month, by 0.4%
ai 3.9% drop in manufacturing, largest since 2002
ai 24% slump in car production as manufacturers prepared for potential no-deal #Brexit by bringing forward annual shutdowns

11.09am BST

The Independent's Ben Chapman points out that today's GDP report is much worse than economists expected:

The UK economy shrank 0.4 per cent in April as the Brexit paralysis took hold following the proposed deadline for departure from the EU.

The latest monthly fall was four times larger than analysts had forecast and marked the second consecutive month of contraction for the UK's economy after a 0.1 per cent drop in March.

And so it came to pass. The UK economy shrank by 0.4% in April. Of course, this has absolutely nothing to do with Brexit. https://t.co/NWBuNxB5aB

10.53am BST

The slide in UK manufacturing in April shows the dangers of Brexit uncertainty, warns TUC General Secretary Frances O'Grady:

"Industry is paying the price for the government's Brexit chaos.

"This is the biggest decline in car production since 1974. With plants like Ford Bridgend already closing, it's time to get serious about the scale of the threat facing our economy.

10.50am BST

Reuters has spotted that UK transport production fell at its fastest rate in over 40 years in April, as car plants held their annual shutdowns early.

10.37am BST

Output from Britain's car-making sector slumped by 24% in April, the ONS says.

That's because bosses took the decision to move planned shutdowns to April, in case the UK crashed out of the EU without a deal at the end of March.

UK GDP weak, as manufacturing output drops. pic.twitter.com/YndzKP3MQC

10.25am BST

Economist Rupert Seggins argues that the slowdown in Britain's service sector (which makes up three-quarters of the economy) is more serious than the slump in manufacturing.

1. UK GDP grew 0.3%q/q in the 3 months to Apr, includes monthly falls in Mar & Apr following a strong Feb. Big story will be manufacturing, driven by a 24%m/m fall in vehicle output in Apr (shutdown, not stockpiling-related), but more important is the continuing services slowdown pic.twitter.com/CXsEVXNiI0

2. Not so much stockpiling as shutdown, the manufacturing sector was hit by a record 24%m/m fall in cehicle output in Apr. For the 3 months as a whole, overall manufacturing grew 1.2%q/q, with a 5.5%q/q increase in pharma & 2.6%q/q increase in food. pic.twitter.com/sxF0SZTTXW

3. Can we fix it? UK construction output growth of 0.4%q/q in the 3 months to April was mainly driven by non-housing repairs & maintenance, although there was also 3.6%q/q growth in infrastructure construction. pic.twitter.com/7t7jVxe3vy

4. The bigger story IMHO. UK services output growth has slowed from 0.6%q/q in the 3 months to Jul-18 to 0.2%q/q in 3 months to Apr-19. Biggest sector contributions to this are: wholesale & retail, transport & storage, admin & support services and accomodation & food services. pic.twitter.com/NpOCsFfqLY

10.18am BST

Yael Selfin, Chief Economist at KPMG UK, fears that the UK faces many more months o weak growth:

"The hangover that's followed the UK's original exit date is proving stronger than anticipated. Today's figures signal the UK economy is likely to experience more subdued growth for the rest of the year, marred by Brexit uncertainty.

"The significant drop in car manufacturing, and in broader manufacturing activity at the start of Q2, point at more than just a reversal of the stock building effect seen as businesses prepared for an expected Brexit in March.

10.14am BST

Ruth Gregory of Capital Economics fears that the UK economy could stall, or even shrink, in the current quarter.

She says the contraction in April shows that the "Brexit hangover" was bigger than feared, telling clients:

The deluge of activity data suggested that the economy got off to a bad start in Q2. Indeed, the economy shrank by 0.4% m/m in April, the second monthly contraction in a row. This meant that the 3m/3m rate slowed to 0.3% (consensus 0.4%), following Q1's 0.5% gain. The sectoral breakdown of growth made for pretty discouraging reading too. Construction contracted in April by 0.4% m/m, while services output only managed to stagnate. The surprise was just how sharply manufacturing output plunged. It fell by 3.9% m/m.

Admittedly, a couple of temporary factors dragged on growth in April. The first is the unwinding of the stockpiling boost - which saw firms increasing their stocks in Q1 to protect themselves against a possible no deal Brexit on 29th March. The other is the decision by car manufacturers to bring forward their annual production shutdowns from August to April in case of a no deal, which resulted in a 24% m/m drop in vehicle production - the biggest monthly fall since records began. Given the sector's weight in GDP (1.5%), this knocked a chunky 0.2ppts off overall GDP. That will come back in May.

9.59am BST

The slide in growth in April shows that Brexit uncertainty is hurting the UK economy, says Alessandro Capuano of Fineco Bank:

After a resilient start to the year fuelled by Brexit stockpiling efforts, maintaining that momentum is proving to be a challenge.

Last week we saw the first red signs following gloomy reports on the manufacturing and construction industries. Following a positive first-quarter mainly driven by an increase in inventory build-up, Q2 2019 is proving to be rather disappointing.

9.57am BST

Here's some expert reaction to the news that Britain's economy stumbled in April:

UK economy shrank by 0.4% in April. That's the weakest monthly growth rate in three years. ONS puts it down to a "dramatic fall in car production" amid uncertainty about Brexit policy. Quarterly growth rate still in positive territory https://t.co/lTykz9OHc7

A real deluge of bad news for British economy today: GDP down -0.4% MoM, much worse than expected -0.1%; industrial production plunges -2.7%, while analysts expected-0.7%; manifacturing production down -3.9% (exp. -1.1%). It seems that #brexit is taking its tool.

Moreover, this will force the gov to strongly reduce their forecasts on 2019 growth. @graemewearden

We need to be careful about the 0.4 % contraction in April GDP (temporary car plant closures), just as wise people were careful with strong performance in Feb and March. pic.twitter.com/SOlJRRQrWx

9.54am BST

Monthly GDP figures can be erratic, so it's sensible to look at the quarterly growth figures too.

They show that the UK economy grew by 0.3% over the February-April period (despite contracting in both March and April).

9.50am BST

9.47am BST

The ONS's head of GDP, Rob Kent-Smith, has confirmed that the UK economy suffered from car plant shutdowns in April.

He also points out that factories slowed their stockpiling activities, after the UK's Brexit date was pushed back to 31 October.

"There was also widespread weakness across manufacturing in April, as the boost from the early completion of orders ahead of the UK's original EU departure date has faded."

0.3% growth in GDP in the 3-months to April https://t.co/n3mqUifXEF pic.twitter.com/PWDU66NEuG

9.41am BST

Britain's services sector stagnated in April, with no growth at all.

The construction industry also had a bad month, with output down 0.4%.

9.36am BST

UK manufacturing suffered a sharp contraction in April, today's GDP report shows.

Industrial production declined by 2.7% during the month, with manufacturing shrinking by an alarming 3.9%.

9.32am BST

BREAKING: Britain's economy shrank by 0.4% in April, new figures from the Office for National Statistics show.

That's its biggest monthly fall since March 2016, and follows a 0.1% contraction on March.

9.28am BST

The US stock market is expected to follow Asia and Europe higher.

The Dow Jones industrial average is up 110 points in the futures market (actual trading begins in five hours).

Including tonight's bump, Dow futures now +2% in the last three days. Mi(C)xico deal adding to the enthusiasm. Chatter about China talks resuming #stocks #ChinaTradeTalks pic.twitter.com/aB4F1s4OKj

Markets are blowing small celebratory bubbles this morning as late on Friday the US announced a deal with Mexico to ensure that tariffs don't get imposed today as planned.

However there was some subsequent confusion as Mr Trump tweeted that Mexico has agreed to buy "large" amounts of agricultural products from the US as part of the deal. This didn't seem to be anywhere in the accord released and sources close to the negotiations suggested on Bloomberg that there weren't any additional side deals planned. So a bit puzzling but there will be relief that the tariffs have been avoided and perhaps some might believe it shows Trump's propensity to strike deals after brinkmanship.

9.15am BST

Holiday news: troubled tour operator Thomas Cook has confirmed that it's in talks with China's Fosun, its largest shareholder.

9.02am BST

This morning's optimism doesn't extend to Neil Woodford.

Shares in Woodford's publicly-traded fund, Woodford Patient Capital Trust, have hit a fresh record low this morning, down another 5% below 60p for the first time.

a@ST_Moneya(C) nails it.
All made money but investors. pic.twitter.com/IBPxhoEb3Z

"Investors encouraged by Hargreaves to plough money into the #Woodford Equity Income fund on launch have lost 91 for every 10,000 put in, yet also forked out 455 in fees. Woodford pocketed 240 of that; Hargreaves creamed off the other 215" https://t.co/2piKLB6Q43

8.46am BST

Britain's FTSE 100 has hit a five-week high in early trading.

The blue-chip index has gained 40 points to 7,370, its highest level since early May.

8.39am BST

European stock markets have all begun the week strongly.

It's a sea of green as stocks rebound on Trump's Mexican fix. Investors are relieved at Mexico and the US coming to an agreement to avoid the latter slapping the former with tariffs, and this sent equity futures north.

This may only embolden Mr Trump to use tariffs as policy tool for the pursuit of non-economic interests. As previously suggested, the EU could be next - maybe to get the 2% defence spending target.

8.09am BST

Commodity prices are also rallying this morning, after the US stepped back from hitting Mexico with new tariffs.

The copper price has gained 0.6% to $5,831 per tonne, having fallen for the last eight weeks in a row. Nickel (1.3%) and lead (+1.2%) are also higher this morning.

7.54am BST

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

The biggest weekend news was Trump's Friday night tweet (and a formal joint US-MX statement) announcing an agreement which suspends Trump's tariffs threat on Mexico for now.

Reading through the details, Mexico basically re-committed to existing promises (and maintained its own red line of rejecting safe third-country status) - aka Trump blinked. The reaction in Asia has been positive.

If President Obama made the deals that I have made, both at the Border and for the Economy, the Corrupt Media would be hailing them as Incredible, & a National Holiday would be immediately declared. With me, despite our record setting Economy and all that I have done, no credit!

European Opening Calls:#FTSE 7367 +0.47%#DAX 12113 +0.56%#CAC 5385 +0.39%#MIB 20469 +0.53%#IBEX 9273 +0.40%

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