Shortages hit US services firms, German factories and UK builders; Didi shares tumble after crackdown – as it happened

Graeme Wearden

from Economics | The Guardian on 2021-07-06 16:58 (#5KXMN)

Office for Budget Responsibility says UK debt will rise to pay for decarbonisation, and early action would limit the bill

Latest: Didi shares tumble after crackdown
Fiscal watchdog shows early action on net zero transition vital
UK national debt rises by 21% of GDP by 2050 in early action' scenario, but by another 23% if action delayed
Rishi Sunak faces 10bn black hole in health, education and transport
OBR: national debt more vulnerable to rising inflation
World is becoming riskier place

5.49pm BST

Time to wrap up. Here's the main points.

Britain's fiscal watchdog has warned that the pandemic, the climate crisis and the UK national debt's exposure to higher interest rates are all large and potentially catastrophic sources of fiscal risks".

The @OBR_UK takes things a step further to answer the Q, what might net-zero mean for UK public spending & public sector net debt as a % of GDP

Its central "early action" scenario says debt would be 21% higher with net-zero by 2050, which it compares to the impact of Covid pic.twitter.com/46Q9dokjIv

In an alternative scenario, where the UK reaches net-zero while maintaining public spending and holding car tax revenues steady, public sector debt is actually *lower* than in the @OBR_UK baseline pathway

("early action" vs "investment included & motoring maintained") pic.twitter.com/tM0Pq7vibm

US ISM Services cools from all-time high to still-strong 60.1 (-3.9pt) in June

Business Activity 60.4% (-5.8pt)
New Orders 62.1% (-1.8pt)
Employment 49.3% (-6pt)
Supplier Deliveries 68.5% (-1.9pt)

"Challenges w/ materials shortages, inflation, logistics & employment" pic.twitter.com/PlhEFEAijM

Spoos new lows pic.twitter.com/war5Hq7UK2

5.28pm BST

The dollar is also rallying today, pushing the pound down almost three-quarters of a cent to $1.3775.

coming up on the half-way point of the US day and the $USD has already put in quite the move

working on a morning star formation with a really strong reversal on shorter tf's

touched 92 overnight and has then been bid most of the day pic.twitter.com/XpudK8HzXb

5.09pm BST

Back in London, the FTSE 100 index has closed 64 points lower at 7100, down 0.9%.

Energy stocks, mining companies and financial stocks were the worst performing sectors, with consumer cyclicals also lower.

4.46pm BST

The New York stock market is showing losses, as investors move into US government bonds, and major tech stocks.

The S&P 500 index, which covers a broad swathe of the US market, is down 0.5% at 4,328 points, away from its latest record high.

Nasdaq barely hanging on; Dow Industrials and S&P 500 not doing so hot to start the shortened trading week pic.twitter.com/Fy5JwPQbux

10-year yield @ 1.38% pic.twitter.com/Drqh95koD3

4.33pm BST

The oil price has now fallen sharply as investors fret about Opec+'s failure to reach a supply deal.

US crude, which reached its highest level since 2014 this morning, is now down 2% at $73.50 per barrel, while Brent crude is down 3% at $74.68, away from near three-year highs.

Oil has retreated sharply in the wake of the post-OPEC spike. It looks like the market is more worried about a potential crisis at the cartel than it likes the lack of fresh supply coming on in H2. WTI tests the 200-hour SMA at $74 where it finding a little support.

A break could see $72. Traders seem concerned that the speculative positioning could be unwound in the coming days if the OPEC+ deal were to start to unravel, ultimately leading to more crude and a less stable oil market.

#Oil now down for the day. Brent -1.6%. Drop happened soon after US traders got back from holiday. Maybe they think #OPEC+ will reach solve its dispute and increase supply in August? @TheTerminal pic.twitter.com/91v8akjGH9

4.18pm BST

Collapse in the ISM services PMI (60.1 from 64) highlights a particular weakness in the employment picture. Both manufacturing and services employment back in contraction territory pic.twitter.com/riW7TRpF4O

4.13pm BST

Growth across the US service sector slowed last month as shortages of raw material and labor hit the economy.

The Institute for Supply Management says its non-manufacturing activity index fell to 60.1 last month from a record high of 64.0 in May.

The rate of expansion in the services sector remains strong, despite the slight pullback in the rate of growth from the previous month's all-time high.

Challenges with materials shortages, inflation, logistics and employment resources continue to be an impediment to business conditions,".

"The drop in the ISM services index in June suggests shortages and price increases are becoming an increasing drag on hiring and economic activity. ... We suspect the risks to our once well above-consensus forecast of 6.5% growth this year now lie to the downside." @CapEconUS

3.53pm BST

Shares in other China tech companies facing cybersecurity investigations are also sliding.

The Cyberspace Administration of China (CAC) opened a cybersecurity review into several other companies as well as Didi, to prevent national data security risks" as the crackdown on the country's technology sector continues.

China's Internet regulator has placed two more U.S.-listed companies, after ride-hailing giant Didi Chuxing, under national-security review; now, Full Truck Alliance ('Uber for trucks') and Boss Zhipin (recruitment) also seem to be in trouble!(?)

U.S.-listed shares of China companies drop on fears of more crackdowns https://t.co/gPc3IaDzJ6

3.06pm BST

The value of Didi, the China ride-hailing company, has plunged by over a fifth after Beijing's cyberspace regulators announced a crackdown against the company

Didi slumped by around 22% in early Wall Street trading to around $12, below the $14 at which it raised $4.4bn in its IPO just last week.

$didi opened gap down 24% pic.twitter.com/ADc4VJXBcz

DIDI SINKS 24% TO $11.77 AT OPEN, FALLS BELOW IPO PRICE

earnestly rectify and reform existing problems, and to conscientiously ensure the personal information security of the numerous users".

Didi Global plunges 25% at the open, falling below IPO price, as China conducts a "cybersecurity review" of the company https://t.co/e8o0vPLumv pic.twitter.com/f6RNEKbXD5

Some observers believe the move against Didi is part of a continuing crackdown by the Chinese authorities on what was once a loosely regulated technology sector. It follows government actions in recent months aimed at the online marketplace Alibaba, and social networks Tencent and Bytedance, the parent company of TikTok.

The government has also been ramping up its efforts to safeguard the nation's data security and cybersecurity. In April, a dozen government agencies issued cybersecurity review measures, requiring critical information infrastructure operators to conduct network security reviews for technology products and services they procure that are relevant to national security or have the potential to be.

2.39pm BST

Deutsche Bank have warned that the balance of risks facing the global economy is slightly more negative.

In its latest House View, Deutsche says that recent weeks have seen the global recovery motor along as expected, supported by the vaccine rollouts and a further easing of restrictions.

With vaccination rollouts now in an advanced phase across many developed countries, one of the biggest questions soon will be the extent to which governments and citizens are prepared to live with the virus.

That answer will have crucial implications for the shape of the recovery and the new steady-state we're heading to. Watch the U.K. if it fully lifts restrictions in two weeks, with still high case numbers, for clues to the global picture.

Deutsche Bank: balance of risks facing global economy now slightly more negative given continued global reach of delta variant and reaction to the FOMC

2.09pm BST

Sainsbury's has enjoyed a boost in sales of beer and other home socialising staples during the Euro 2020 football tournament, but said it was struggling to keep up with the extra demand.

The supermarket chain was selling 17 packs of beer a second on Saturday as England fans stocked up for the quarter-final match against Ukraine.

1.50pm BST

In another step in the UK's long journey to net zero, Vauxhall owner Stellantis has announced that it will invest 100m to build electric cars and vans at Ellesmere Port, in Cheshire.

The move will make it the first large plant in the UK dedicated exclusively to electric vehicles.

It will build four electric vans and their passenger car equivalents at the UK factory under Stellantis's Vauxhall, Opel, Peugeot and Citroen brands, replacing the Astra family car which will be built in Germany instead.

1.39pm BST

Rishi Sunak will need to spend an additional 10bn each year on public services to deal with the continuing fallout from the Covid-19 pandemic after this year, the Treasury's tax and spending watchdog has said.

The Office for Budget Responsibility (OBR) said the chancellor faced unfunded spending commitments across three vital government departments over the coming three years from the lasting effects of the pandemic.

1.22pm BST

The fiscal cost of acting early, or even late, on the transition to net zero pale into insignificance compared to the cost of completely unmitigated climate change, the OBR adds.

It has modeled the fiscal risks from an extreme, unmitigated climate scenario, in which increasing CO2 emissions cause average UK temperatures to rise by around 4C by the end of this century.

A true current policy' fiscal scenario that incorporates only actions underpinned by firm policies that have already been announced would therefore lie somewhere between this illustration of catastrophic unmitigated warming and the early action scenario.

Introducing the policies necessary to meet the climate targets that are set out in legislation in the UK and increasingly being adopted elsewhere would shift the current policy' outcome further away from the catastrophic scenario. But this is very much still work in progress.

12.40pm BST

The fiscal cost of achieving net zero by 2050 will be twice as high if the UK government delays taking action until 2030, rather than acting fast now, the UK's fiscal watchdog says.

The Office for Budget Responsibility's fiscal risks report shows taking early action to decarbonise the economy has a smaller net impact on the UK's finances than Covid-19 or the 2008 financial crisis.

The total cost to society of achieving net zero could be significant, with 42 billion a year of investment required to decarbonise power generation, household & commercial heating, and manufacturing. #OBRfiscalrisks pic.twitter.com/UmmJzr5QJj

The #OBRfiscalrisks report draws on @theCCCuk and @bankofengland scenarios to estimate the net fiscal impact of reaching net zero by 2050. An early action scenario adds 21% to the debt/GDP ratio - a lot, but less than either the 2020 pandemic or the 2008 financial crisis. pic.twitter.com/hND7n2thLc

The price of this delay is a doubling of the total fiscal cost of the transition.

The economic and fiscal consequences of getting to net zero are uncertain, and there are choices about how much of the cost is borne by the state vs. households and businesses. We therefore consider alternative scenarios and sensitivities and their effect on debt. #OBRfiscalrisks pic.twitter.com/TL7AeECufL

Policy settings are crucial to the long-term fiscal impact of getting to net zero. Debt falls below our baseline if net zero transition costs are funded from within existing public investment plans and fuel duty is replaced by another tax on motoring. pic.twitter.com/yAx2S52tbT

The shift from fossil-fuel-driven to electric vehicles, on the other hand, offers the prospect of both lower emissions and financial savings thanks to lower running costs. This may be one reason why take up of electric cars has consistently outpaced our forecasts. pic.twitter.com/t571WiQJpT

Fewer fossil-fuel-driven cars, which will be banned from sale in 2030, will erode 35 billion a year (1.5% of GDP) of fuel duty and VED receipts. This could be, temporarily, offset by taxing carbon more heavily, which could also help pay for some of the transition costs. pic.twitter.com/ZNUpmtd7ml

The Government has committed to achieving net zero by 2050. Since 1990, the UK has cut its CO2 emissions by 243 million tonnes, more than any other G7 economy and faster than the EU average. #OBRfiscalrisks pic.twitter.com/urzK7VtSTz

But the UK will need to cut emissions by another 365 million tonnes over the next 30 years to reach net zero emissions by 2050. The reductions will need to come mainly from decarbonising power, industry, buildings, and transport.#OBRfiscalrisks pic.twitter.com/5La0QXZRya

OBR central scenario says costs of net zero are negative until early 2030s.

Says overall cost of transition to Net Zero could double if action gets delayed by a decade.

New OBR forecast suggests total cost of moving to Net Zero by 2050 of 1.4 trillion - although savings could offset that by almost 1.1 trillion pic.twitter.com/F4TdSKtEw7

This is useful in the OBR report out today. Significant costs for early action on climate change (which can be mitigated by green tax measures - though need more debate around fairness), but the cost of late action is vast. pic.twitter.com/gv2AlFS635

@OBR_UK FRR includes climate as 1 of 3 major risks to public finances. Acknowledges need to include nature in govt balance sheets of assets and liabilities when thinking about fiscal risks and LT fiscal sustainability. Briefing at 11am https://t.co/ZHb4GPEJx5

11.40am BST

The OBR are now running through the report:

OBR director Richard Hughes uses this OECD data to suggest the NHS went into the pandemic very stretched relative to many other countries' health systems... https://t.co/ApCOzia7IA pic.twitter.com/y2dsfX22gU

Richard Hughes, the @OBR_UK director, is talking about its long term scarring judgement - crucial for the Chancellor's fiscal room for manouvre... pic.twitter.com/su6Pt8Ubxo

#lessons for dealing with catastrophic #risks - top 5 highlighted by Richard Hughes, chair @OBR_UK pic.twitter.com/ZZSDfCLHVF

10.58am BST

The OBR has also examined the risks which rising interest rates would pose to UK government debt -- and shows that this would be much less of a risk if it was accompanied by a stronger economy and rising productivity.

It has produced several scenarios to see whether the UK's 2trn+ national debt, or around 100% of GDP, is sustainable if the cost of borrowing increased to historically more normal levels.

The Government's elevated debt stock is both a product of past fiscal risks and a source of future risks to the public finances. Two-thirds of the 80% of GDP increase in debt since 2000 happened in the wake of the 2008 financial crisis and 2020 pandemic. pic.twitter.com/CA9ahxEMTd

That drive up the effective interest rate paid on government debt, pushing borrowing up to almost 7% of GDP in 2050-51. Without the offsetting gain from faster growth, debt hits 139 per cent of GDP by 2050-51, its highest level since 1954-55.

[A] temporary burst of inflation has only a modest impact on the debt-to-GDP ratio, which initially falls more quickly than the baseline mainly due to primary spending being held constant in cash terms. By 2050-51, debt reaches 95 per cent of GDP, just 2 per cent of GDP below the baseline.

With a persistent rise in inflation, there is a marginal improvement in the debt-to-GDP ratio in the first 13 years as inflation erodes the real value of the nominal debt (though again moderated by the shortening of the effective maturity of debt). But in the long run, the debt-to-GDP ratio actually rises to 107 per cent of GDP by 2050-51 (10 per cent of GDP above the baseline) as a result of the extra inflation risk premium being paid on the government's borrowing.

Despite the stock of debt reaching its highest level since the early 1960s, the cost of servicing that debt remains near historical lows thanks to falling interest rates.#OBRfiscalrisks pic.twitter.com/x0GXTDNmfw

This leads to a vicious circle where rising debt raises borrowing costs, which in turn increase the rate at which debt rises. In this scenario, an adverse shock, similar in magnitude to that experienced in the financial crisis, and a loss of investor confidence lead to a sterling depreciation and a rise in the risk premium on gilts.

The adverse feedback loop between higher debt and higher gilt rates leads to steadily rising interest costs, with the debt-to-GDP ratio increasing in every year. By 2029-30, the average gilt rate hits 10 per cent - a rate last seen in 1991.

But there are no guarantees that interest rates will remain low, so in Chapter 4, we test the impact of different factors that could push up government borrowing costs.#OBRfiscalrisks https://t.co/Lg08Z0CJIU pic.twitter.com/WkPyfn7cNB

The scenarios illustrate the greater sensitivity of public debt to future changes in its cost since pre-financial crisis, as a result of both the almost trebling in the stock of debt as well as the shortening of the effective maturity of that debt. pic.twitter.com/FrsgN8efY1

10.40am BST

The OBR warns that the UK faces a 10bn per year shortfall in spending on health, education and transport following the pandemic.

These potential unfunded legacy costs of the pandemic" represent a material risk to the public spending outlook, the fiscal watchdog warns.

Departmental spending plans make no provision for virus-related spending beyond this financial year. Instead, spending totals from 2022-23 onwards were cut by 14 billion a year in Spending Review 2020 and the 2021 March Budget relative to the sustained rises in departmental spending planned pre-pandemic.

At the same time, overall public spending is still forecast to be higher as a share of GDP in the medium term than it was pre-pandemic.

Potential unfunded legacy costs of the pandemic for public services pose a key risk to the fiscal outlook. Considering just selected pressures in three key areas, the Government could face spending pressures of around 10 billion a year on average in the next three years. pic.twitter.com/C4jcMXbhZP

10.26am BST

The pandemic has caused the largest and most synchronised peacetime shocks the world economy has faced since the Great Depression of the 1930s, the OBR points out...

The global economic downturn brought about by the pandemic has been the worst since the Great Depression of the 1930s. World GDP fell by 3.3% and almost 90% of economies experienced a decline in output in 2020.#OBRfiscalrisks pic.twitter.com/3dYcLUpkeT

The UK experienced one of the deepest recessions among advanced economies, with output falling almost 10% in 2020. This was due to being relatively hard hit by the virus, spending more time under stricter restrictions, and our large share of social consumption in output. pic.twitter.com/F4pMTBLzdj

However, the economy also proved to be surprisingly adaptable and resilient as the pandemic unfolded, with each successive lockdown taking less off output.#OBRfiscalrisks pic.twitter.com/1z44oawZjw

This economic resilience was thanks in part to a fiscal policy response unprecedented in scale and scope in peacetime. According to IMF, the UK's rescue package amounted to 354 billion in total and was the third largest among 35 advanced economies after the US & New Zealand. pic.twitter.com/Lc79faCnVM

10.21am BST

The arrival of two once in a century' events since 2000 suggests that the risks facing advance economies are rising, the UK's Office for Budget Responsibility warns.

That includes extreme weather, pandemics, and cyber attacks, they say, in today's Fiscal Risks report:

The arrival of two major economic shocks in quick succession need not constitute a trend, but there are reasons to believe that advanced economies may be increasingly exposed to large, and potentially catastrophic, risks. While the threat of armed conflict between states appears to have diminished in this century, the past twenty years have seen an increase in the frequency, severity, and cost of other major risk events, from extreme weather events to infectious disease outbreaks to cyberattacks.

And estimates from major insurers and others of the amount of global GDP at risk from these and other potentially catastrophic risks have been rising steadily. This appears to reflect a combination of the increased frequency and severity of some anthropogenic risks (such as climate change and cyberattacks), growing numbers of people living and working in greater proximity to the sources of those risks (such as floodplains and isolated ecosystems), and deepening global interconnectedness (through travel, trade, finance, and the internet).

As countries' exposure to large, and potentially catastrophic, risks increases, so do the associated risks to their public finances. This is because such risks are not only more disruptive to the economies that generate governments' revenues but also because they are more likely to overwhelm private risk management and insurance mechanisms, prompting governments to step in as insurer of last resort.

This may be particularly true in an era when economic shocks are more severe, financial institutions and firms are more leveraged, and monetary policy is more constrained.

10.02am BST

Britain's Office for Budget Responsibility has published its report into the fiscal risks facing the UK public finances, and their long-term fiscal sustainability.

And it warns that the UK faces three large, and potentially catastrophic, sources of fiscal risks" - the pandemic, the climate crisis, and the UK's public debt (which is now over 2trn, or around 100% of GDP), and its exposure to higher interest rates (as flagged earlier).

After the second once in a century' shock in just two decades, our third Fiscal risks report focuses on three large, and potentially catastrophic, sources of fiscal risks. The pandemic could leave 10 billion per year in spending pressures and long-term economic scars.

While unmitigated climate change would spell disaster, the net fiscal costs of moving to net zero emissions by 2050 could be comparatively modest.

2021 Fiscal risks report published - more highlights and charts to follow #OBRfiscalrisks

Data and supporting documents are now available on our website: https://t.co/Lg08Z0CJIU pic.twitter.com/h7c24bQ9Sr

Just two decades into this century, the UK has already experienced two once in a century' economic shocks - the 2008 financial crisis and the 2020 coronavirus pandemic.

These two shocks triggered the two largest post-war recessions, accounted for successive peacetime government borrowing records, and added over 1 trillion (50 per cent of GDP) to public debt - taking it above 100 per cent of GDP for the first time since 1960. While these shocks have very different origins, impacts, and likely legacies, both offer a stark reminder of the importance of understanding risk to effective fiscal forecasting and policymaking.

There is a high degree of uncertainty concerning both their timing and associated costs. They are characterised by non-linearities or snowball effects' in which costs can escalate dramatically from the point of crystallisation.

And they are global in nature, with the potential for rapid contagion across countries. Governments seeking to manage these threats must thus weigh the known costs of early action to mitigate these risks against the uncertain costs of dealing with the fallout when they crystallise. They must also weigh the limited but more deliverable benefits of acting unilaterally against the greater but more elusive gains from acting globally.

9.43am BST

Britain's construction industry has posted its fastest growth in 24 years last month, led by a jump in demand for new homes and commercial property.

But builders were also hit by supply chain delays and inflationary pressures, with raw materials rising at a record pace.

The IHS Markit/CIPS UK Construction PMI in June was 66.3 (50=no monthly change) compared to May (64.2) so accelerating construction growth (strongest in 24 years) whilst activity has now risen for 12 of the last 13 months...#ukconstruction #ukhousing https://t.co/8jS5rKmlML pic.twitter.com/yQnHEDOly3

... & in the breakdown of the IHS Markit/CIPS UK Construction PMI in June, house building was the strongest sector (rising at its fastest rate since November 2003) whilst commercial was also strong & accelerated & civils rose but at a slowing rate...#ukconstruction #ukhousing pic.twitter.com/5rqH6KXTSW

June data signalled another rapid increase in UK construction output as housing, commercial and civil engineering activity all expanded at a brisk pace. The headline index signalled the fastest rise in business activity across the construction sector for 24 years. Total new orders expanded at one of the strongest rates since the summer of 2007, mostly reflecting robust demand for residential projects and a boost to commercial work from the reopening UK economy.

Supply chains once again struggled to keep up with demand for construction products and materials, with lead times lengthening to the greatest extent since the survey began in April 1997. Survey respondents widely reported delays due to low stocks of building materials, shortages of transport capacity and long wait times for items sourced from abroad.

9.34am BST

US crude oil has hit its highest level in over six years, after the Opec+ group failed to agree a plan to lift production yesterday.

US crude, or WTI, hit $76.98 per barrel this morning, its highest since November 2014.

Oil rises to the highest level in more than six years in New York after OPEC+ failed to agree on a production increase https://t.co/cUSV51MuoA

Oil Nations Again Fail to Reach Deal as U.A.E. Demands Higher Quota
Monday's meeting never got started after attempts to mediate the dispute failed to make progress ... @NYTimes https://t.co/ijEKgrggAY

WTI crude is back at levels not seen since November 2014.#inflation pic.twitter.com/2O9lqIma7q

9.19am BST

Supermarket chain J Sainsbury has beaten City forecasts, at a time when private equity firms are circling rival Morrisons.

Sales of grocery, general merchandise and clothing were all higher than our expectations throughout the quarter. Grocery sales benefited from higher in-home consumption due to continued COVID-19 restrictions.

'The weekly shop has become a style slot for Sainsbury's shoppers with a surge in clothing sales at the grocer. You might have thought that after months of being only able to browse the clothing aisles of supermarkets, customers would have sought shops elsewhere for inspiration. Instead those wanting a fashion fix have clearly stayed faithful, piling TU ranges high in trollies, with sales up 57% over the 16 week period.

Gaining customer loyalty has been the name of the game for Sainsbury's and it's paying off. The company is winning market share, and crucially hanging onto new shoppers who tried out the delivery services for the first time during the pandemic. Investment in its online platform continues to pay off with sales up 29 % year on year during the quarter and up 142 % on a two-year basis.

I'm not going to speculate on where things are in the wider sector," CEO Simon Roberts told reporters in reference to three suitors pursuing rival Morrisons.

We're very focused on our plan. We laid out a (strategic) plan in November to really deliver improvements for our customers and improve the value that we can create for our shareholders," he said after Sainsbury's updated on first quarter trading.

8.59am BST

Ocado, the online grocer, has reported a 20% increase in retail sales and hailed a permanent shift in grocery shopping in the Covid-19 pandemic.

Retail revenues climbed by 19.8% to 1.2bn in the six months to 30 May, and Ocado cut its half-year loss before tax to 23.6m from 40.6m. At the end of the period, Ocado was serving 777,000 active customers, a 22% increase year on year.

Ocado half year revenue up 21% but still loss making

More important to investors is the fact it has finally signed a new customer for its technology - Auchan Retail in Spain for the Alcampo brand.

Ocado has been criticised over the past year for not striking enough new deals

8.52am BST

Richard Hughes, head of the Office for Budget Responsibility, has spoken on Radio 4's Today Programme, ahead of the OBR's fiscal risks report at 9.30am.

Asked about the threat of rising inflation, Hughes argued that it will be temporary.

Our own forecast expects that the inflation increase that we see to be a temporary phenomenon driven by an adjustment to the economy back to its normal levels of activity, and we don't expect that to persist over the long term - but actually inflation to return to its longer-run target of 2%.

Triple Lock uprating due to 8% earnings anomaly" forecast to coast 3 billion in payments to pensioners, says OBR's chief Richard Hughes to @bbcnickrobinson on Today... and already no provision for 10bn of ongoing annual extra post pandemic spending...

Office for Budget Responsibility Chair Richard Hughes says wages are coming roaring back" this year - but warns this could mean the pensions bill rockets by a whopping 3bn because of the triple lock #today

OBR Chair Richard Hughes warns the government is facing a 10bn a year spending black hole (caused by NHS backlog, education catch up, and massive transport bailouts and plummeting passenger numbers) #today

8.32am BST

Thomas Gitzel, an economist at VP bank, also says the shortage of raw materials is a factor behind the drop in orders.

Reuters has the details:

If companies are unable to process orders due to a lack of input materials, orders will not be placed at all," he said.

However, he noted it was also likely that strong pandemic demand for goods such as furniture and healthcare products - which had to be produced by German machinery - was also slowing down and would return to more normal levels.

8.21am BST

Some early reaction:

Factory Orders for #Germany in May "Grim, but still consistent with rising output, eventually; turnover data point to soft output data for May." @ClausVistesen #PantheonMacro

OUCH! German factory orders unexpectedly fell by 3.7% in May, worse than all estimates in a Bloomberg survey. Export demand for cars slumped. pic.twitter.com/R2QX0r47AS

8.18am BST

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

German factories have suffered their steepest fall in orders since the first lockdown, in a sign that the global recovery is uneven as supply problems hit economies.

#Manufacturing in May 2021: new orders down -3.7 % on the previous month. https://t.co/3s3e4wsukn pic.twitter.com/33VbdnKtJk

Orders fell 3.7%, worse than all estimates in a Bloomberg survey. The Economy Ministry said the slump was driven by weak export demand for cars following a steep rise the previous month. Domestic orders rose 0.9%.

German companies are battling with unprecedented supply-chain problems as a result of a sudden surge in global activity following the end of coronavirus lockdowns, a trend which is also driving up prices amid competition for inputs and raw materials. While some of those bottlenecks may have started to ease, it's likely to take time for disruptions to pass.

German manufacturers unexpectedly see a slump in demand, led by weak car exports https://t.co/NugcXM2cUE

German May factory orders disappointed sharply relative to consensus (not as much to me though, OE: -1.2%). A near 10% plunge in car orders was the key driver, but there was also weakness in related supplying sectors. 1/2 https://t.co/MBTZiZNcr5

Global supply shortages play a key role, but that is likely reinforced by the restocking boom easing. Tmr's industrial production data is alos likely to disappoint (Consensus: +0.5) given the 0.5% fall in turnover. The recovery will heavily rely on services over the summer. 2/2

German industry & especially the auto sector is sitting on a mountain of orders despite the sharp fall in new orders reported today for May. Once supply restrictions ease, production will be ramped up fairly quickly. But the timing of that bounce may only materialize towards Q4. pic.twitter.com/WKn1h6fopJ

There were two bright spots in today's dismal factory order report out of Germany: Consumer goods orders rose further in May pointing to good chance of part of excess savings stock being released. And domestic investment goods orders point to a swift rebound in domestic capex. pic.twitter.com/mdFdjsXuxM

[CHART]ASX Energy names in focus this morning after oil prices surged to their highest levels in almost 3 years
after OPEC+ abandoned its meeting without a deal, leaving the oil market facing tight supplies &
rising oil prices. Brent crude rose 1.3% to around US$77.16. Bloomberg pic.twitter.com/VJLrN72HS6

Our 2021 Fiscal risks report will be published at 9.30am tomorrow

Our third #OBRfiscalrisks report will focus on 3 major risks to the public finances: the coronavirus pandemic, climate change and government debt.

Follow us tomorrow for highlights and charts pic.twitter.com/QUJ4uhny7q

The exact government support is unlikely to be disclosed, but could run to around 10% of the total investment, which is believed to be between 300m and 400m. The Stellantis announcement will follow news this week that Nissan is to build a 1bn battery gigafactory in Sunderland, believed to be with a subsidy package from the UK taxpayer of around 100m.

Here () is what we know so far about the Stellantis electric van to be made at Ellesmere Port.

In unrelated news, I'm on the 07.07 train to Liverpool...
https://t.co/4Oht3lzP7e

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