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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Volkswagen considering German plant closures and job cuts; UK factories report fastest growth in over two years – as it happened

Rightmove REA (Organization) REA Group China Caixin (Organization) United Kingdom
A Volkswagen production line at its headquarters in Wolfsburg, Germany.
A Volkswagen production line at its headquarters in Wolfsburg, Germany. Photograph: Fabian Bimmer/Reuters

Rolls-Royce shares drop as Cathay Pacific inspects Airbus A350 fleet amid engine issues

A late PS: Shares in jet engine maker Rolls-Royce have dropped by almost 6% in late trading, after airline Cathay Pacific detected problems with several engine components.

Cathay Pacific has been forced to cancel some flights as it conducts a “precautionary” inspection of its entire Airbus SE A350 fleet.

Bloomberg has the details:

The Hong Kong-based airline, among the biggest operators of the European planemaker’s marquee jet, said it identified an engine component failure on an A350 aircraft that was forced to return from its flight to Zurich on Monday. A subsequent check of the fleet uncovered “a number of the same engine components that need to be replaced,” Cathay said in a statement.

The company didn’t specify the issue it had found on the engine, which is made by Rolls-Royce Holdings Plc. Representatives for Rolls-Royce didn’t immediately respond to requests for comment, while Airbus referred to the engine maker and the airline for comment.

More here.

Closing post

Time for a recap.

Volkswagen’s new cost-cutting push is a blow to chancellor Scholtz, who is already reeling from the success of the far-right Alternative für Deutschland in a state election last weekend.

Kathleen Brooks, research director at XTB, says:

On Monday, Volkswagen, one of Germany’s largest companies, announced that it would cut costs and it may have to close factories in Germany for the first time.

The company is trying to end the pact with unions that would have protected jobs by 2029. This could add to economic pressure, dent confidence, increase unemployment and add to the pressure on Olaf Scholtz’s government. The market reaction has been mild so far, but it could dent sentiment towards German stocks.

Shares in Volkswagen have hit a one-month high today, after it said it was considering unprecedented factory closures.

They’re up 2.2% today at €98.30, the highest since 2 August.

VW brand chief Thomas Schaefer has said in a statement that the company was in a difficult position:

“The situation is extremely tense and cannot be overcome by simple cost-cutting measures.”

Reuters reports that Volkswagen considers one large vehicle plant and one component factory in Germany to be obsolete.

That’s according to the carmaker’s works council, which is vowing “fierce resistance” to the executive board’s plans.

VW considers shutting factories in Germany and cutting jobs

Over in Germany, carmarket Volkswagen is considering making unprecented factory closures in its home market, as it tries to cut costs.

The company says it can no longer rule out plant closures in Germany – something it hasn’t done before in its history.

According to Bloomberg, Volkswagen is also considering trying its pact with unions to avoid any job cuts until 2029.

VW chief executive officer Oliver Blume said in a statement that the market was getting “tougher”.

“The economic environment has become even tougher and new players are pushing into Europe.

“Germany as a business location is falling further behind in terms of competitiveness.”

Daniela Cavallo, chair of the council that represents VW’s workers, has told employees that VW is considering shutting factories in Germany and cutting jobs.

In a note circulated to employees, reported by the Financial Times, Cavallo explained that VW brand chief executive Thomas Schäfer had on Monday “admitted” that planned savings had fallen short.

Cavallo added:

“As a result, the executive board is now questioning German plants, the VW in-house collective wage agreements and the job security programme running until the end of 2029.”

Updated

HP to keep pursuing $4bn damages claim after Mike Lynch's yacht death

Hewlett Packard is planning to pursue its $4bn damages claim against the estate of British tech tycoon Mike Lynch, who died when his superyacht sank last month.

HP said in a statement on Monday:

“It is HPE’s intention to follow the proceedings through to their conclusion,”

HP has claimed that it lost more than $4bn after it acquired software firm Autonomy, accusing co-founder Lynch of an elaborate fraud that inflated its value.

In 2022, HP won a civil fraud case against Lynch, with a high court judge ruling that he duped the US firm into paying £8.2bn for his software firm Autonomy.

But in June, Lynch was cleared of fraud following a lengthy trial in the US.

Over in Norway, electric-car registrations have hit a record high, even as demand slips in other countries.

About 94% of the 11,114 cars sold in August were electric, the Norwegian Road Federation, or OFV, reported on Monday.

OFV director Oyvind Solberg Thorsen said:

“If this trend continues, we will soon achieve the target of having 100% zero-emissions fleet in 2025,”

Norway’s EV boom has been driven by generous tax incentives, as well as perks such as use of bus lanes and parking benefits, Bloomberg reports.

August’s EV sales were led by Tesla Inc.’s Model Y – more than 2,000 Model Ys were sold in August, taking a 19% share of the markets.

Norwegians don’t appear concerned that Elon Musk’s right-wing rhetoric, and endorsement of Donald Trump, might be making the Tesla brand toxic:

Data last week showed that battery-electric vehicles continued to lose market share across Europe, with drivers choosing hybrids instead.

Lloyds isn’t the only bank to experience technical problems today (seemingly due to a glitch with Microsoft’s Azure).

Virgin Money apologised to customers who struggled to view their transactions through online banking.

It posted on X:

“We’re aware that some customers are having issues with our mobile banking app and internet banking service this morning with customers not being able to view their transactions.”

Updated

Technical problem with MS Azure now 'mitigated'

Microsoft reports that a problem affecting its Azure platform today – which may have had a knock-on impact on consumer services – has been “mitigated”.

Updated

Lloyds Bank hit by app problems

Lloyds Bank has apologised to customers after online banking issues have left some unable to view their recent transactions.

According to the website DownDetector, more than 650 Lloyds outages were reported on Monday morning.

A spokeswoman for Lloyds said:

“We know some of our customers are having issues viewing their recent transactions and our app may be running slower than usual.

“We’re sorry about this and we’re working to have everything back to normal soon.”

There have also been reports of problems using Microsoft’s Azure portal in the UK. Downdetector says this could be the cause of “the multiple issues reported by UK consumers”.

Updated

UK mortgage rates have continued to slip lower.

Data provider Moneyfacts reports:

  • The average 2-year fixed residential mortgage rate today is 5.56%. This is down from 5.57% the previous working day.

  • The average 5-year fixed residential mortgage rate today is 5.20%. This is down from 5.21% the previous working day.

Over in Pakistan, inflation has fallen into single-digits for the first time in almost three years.

Consumer price inflation across Pakistan fell to 9.64% in August, down from 11.09% in July, the lowest rate since autumn 2021.

This could help Pakistan’s central bank to cut interest rates, easing pressure on households who face higher taxes on farm incomes, and higher electricity prices, through a loan deal agreed with the International Monetary Fund.

UK heading for "above-average growth", predicts Peel Hunt

UK investment bank Peel Hunt have an upbeat take on the UK economy, saying there are three reasons for optimism: healthy balance sheets in the private sector; improving economic fundamentals; and stable politics.

In a new research note, they say:

  • The UK positioned for a protracted period of above-average growth, benefiting from increasing business investment, improving consumer demand, stabilising inflation and lower interest rates.

  • The new government not only brings political stability and clarity, but also has a firm growth agenda. This is evident from the Pensions review and the FCA’s competitiveness review, which we see as the start of a comprehensive change in approach.

  • The mood change in the UK is palpable, which should bring stronger earnings growth and increased investor appetite.

NeoEnergy to ‘materially slow down’ North Sea operations after tax increases

NeoEnergy, an independent oil company operating in the North Sea, has decided to scale back its investment in the area – blaming recent tax rises.

NeoEnergy says the UK government has announced “a number of measures” in recent weeks which have materially increased the level of uncertainty in the UK’s oil and gas sector.

These include a consultation on new environmental guidance in relation to oil and gas projects, which won’t conclude before spring 2025, and plans to raise the windfall tax on North Sea producers from 35% to 38%.

Neo says:

Against this uncertain backdrop, NEO and its 100% owner HitecVision, have taken the decision to materially slow down investment activities across all development assets in its portfolio.

This will affect the Buchan Horst redevelopment, off the coast of Aberdeen.

Labour have also pledged to end new North Sea exploration licences.

Updated

August’s UK Manufacturing PMI suggests that activity in the sector is recovering strongly and the economy is in a reasonable strong shape, says Professor Costas Milas, of the University of Liverpool’s management school.

And that could take pressure off the Bank of England to lower interest rates soon.

Professor Milas explains:

To understand the implications of this for UK interest rates today and in the near future, one needs to look at the wider context of the latest wage increases. This LSE Business Review blog of mine finds that the latest public sector wage settlements will push up wages in the private (including manufacturing, of course) sector also and eventually add to some inflationary pressures by mid-2025.

The implication for the BoE is that interest rates should be kept at 5% in September and, from there onwards, the BoE should resist the pace of interest rate cuts financial markets currently expect (markets expect a 4.2% Bank Rate for 2025Q3).

REA Group’s interest in Rightmove could reflect expectations that the housing market will strengthen as the Labour government cracks on with plans to boost housebuilding.

Russ Mould, investment analyst at AJ Bell, explains:

The UK property market is traditionally vibrant under normal economic circumstances. Once you consider the new Labour government has pro-housing policies and a strategy firmly focused on improving the UK economy, there is the potential for Rightmove’s earnings to be much stronger in time.

“REA could take a long-term view and buy the business now while sentiment is patchy and pay much less than if it had bought at the peak of the property market.

Mould also suggests we could see a bidding war for Rightmove:

“Rightmove is a unique asset on the UK stock market and shareholders are unlikely to accept the first bid that comes along. It is the dominant property portal in the UK and should command a premium takeout price.

Shareholders might be frustrated at the recent share price performance, but if they’ve stuck around for the past year then they’ve clearly got their eye on the long-term prize, otherwise they would have jumped ship by now.

UK manufacturing PMI strengthens: What the experts say

August brought solid growth for UK manufacturers despite ongoing export challenges, reports Mike Thornton, national head of manufacturing at RSM UK:

“The manufacturing PMI saw solid growth in August increasing to 52.5, the highest level since June 2022. This upward trend, combined with an increase in the employment index to 52.5, signals real confidence as businesses invest in resource and capacity in expectation for a strong pipeline of work.

The backlogs of work index has recovered and reached an equilibrium between demand and output. As output has been increasing month on month since the start of the year, albeit with some slight monthly fluctuations, the overall trend demonstrates the sector’s recovery is driven by new orders coming in, rather than running through backlogs of work.

However, this demand is coming from domestic markets, as new export orders have ticked down sharply, which could be due to geopolitical tensions, shipping challenges, and a downturn in activity in key markets, including the Eurozone and China.”

Boudewijn Driedonks, partner at McKinsey & Company, points out that the UK’s factory sector is doing rather better than its eurozone counterparts (as covered earlier):

“UK manufacturing expanded for the fourth consecutive month. The rise to 52.5 on the S&P Global PMI is a bullish sign for UK GDP, as it hits its fastest rate of growth in over two years. Underlying results show that strong domestic demand and destocking compensated for weak demand from overseas, including the Eurozone and China.

And, that business confidence has increased. This month’s results also provide good news for job creation, which showed an increase. Less positively, input prices are still on the rise, as are output prices, although this is somewhat easing”.

“The Eurozone’s trend is quite the contrary, with opposite results on virtually all dimensions except for inflation. Manufacturing in August remained under pressure with the Eurozone PMI staying steady at 45.8, continuing its contraction. It was a story of two tales with Greece, Spain and Ireland showing growth and Italy virtually holding steady, whilst its two largest manufacturing hubs, France and Germany, both suffered setbacks to drag down the Eurozone as a whole. France saw a 7-month low, and Germany saw a 5-month low.

Worryingly, supplier performance continued to deteriorate in August, leaving UK factories waiting for materials.

This is due to the ongoing Red Sea crisis, longer shipment times from China, freight shortages and vendor capacity issues, S&P Global reports.

UK factories report strongest month in over two years

Britain’s manufacturing sector grew at the fastest pace in over two years in August, new data confirms.

The UK manufacturing PMI, which tracks activity across the sector, has hit a 26-month high last month.

The recoveries in output, new orders and employment continued in August, data provider S&P Global reports, lifting the PMI to 52.5 in August, up from 52.1 in July (and matching the flash estimate from mid-August).

Manufacturers also benefitted from easing price pressures, with the rates of inflation in input costs and selling prices both slowing.

Activity was driven by higher domestic demand, while new export orders decreased for the thirty-first consecutive month.

The report suggests that the UK manufacturing sector boosted economic growth last month, despite concerns that the recovery is slowing after a strong first half of the year.

Rob Dobson, director at S&P Global Market Intelligence, explains:

The upturn is broadbased across manufacturing, with the investment goods sector the stand-out performer.

The upturn continues to be driven by the domestic market, which is helping to compensate for lost export orders. The trend in export orders a key cause for concern, with new business from overseas having fallen continuously since early in 2022.

UK manufacturers are experiencing difficulties in securing new contract wins overseas due to weaker demand from Europe, a slowdown in mainland China, freight delays, competitiveness issues, high shipping costs, global conflicts and political uncertainty.

Many of these issues are also impeding imports which, while benefiting domestic suppliers, is causing supply chain-related production constraints as witnessed by a further marked lengthening of supplier delivery times.

Updated

Looking back at Rightmove….analysts at Jefferies point out there aren’t many cross-border synergies between it and Australian potential-suitor REA Group.

In a research note this morning, Jefferies asks “What can REA bring to Rightmove?”, saying:

Cross-border synergies are de minimis in this business model. Value creation will therefore be a function of REA bringing strategic and execution insights to what is already a tightly managed business.

Notwithstanding, it is worth crediting REA with being a strong operator in Australia, having taken revenue share from the #2 player DHG in the last six years. REA has a world-class product development team, having introduced several depth products in the past. In addition, REA has a strong mortgage broking business, Mortgage Choice, and has done commercial RE and rentals for a long time; mortgages, commercial and rental services are Rightmove’s Strategic Growth Areas

Updated

Eurozone manufacturing "going downhill, and fast"

Just in: Eurozone manufacturing remains in contraction, weighed down by Germany and France.

The latest healthcheck on the eurozone’s factory sector confirms that activity continued to contract in August.

The HCOB Eurozone Manufacturing PMI, has come in at 45.8 in August, for the third month running. Although it’s slightly higher than the ‘flash’ reading of 45.6, it shows the sector contracted again.

Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, says:

“Things are going downhill, and fast. The manufacturing sector has been stuck in a rut, with business conditions worsening at the same solid pace for three straight months, pushing the recession to a gruelling 26 months and counting. New orders, both domestic and international, are slowing down even more, dashing any short-term hopes for a rebound.

Adding insult to injury, input prices have been creeping up again since June. There is a silver lining insofar as companies managed to pass some of these higher costs onto their customers in August.

France’s manufacturing PMI hit a seven-month low, while Germany’s was the lowest in five months.

FTSE 100 slides away from record high

Despite Rightmove surging by over 20%, London’s blue-chip stock index is slightly lower this morning.

The FTSE 100 has dropped by 11 points, or 0.13%, to 8366.

Last Thursday it closed at 8,380 points, its highest finishing level since 21 May.

The Footsie has recovered from its plunge in early August, and not too far from the all-time high of 8,474.41 on 15 May.

If Rightmove were taken over, it would join a list of UK companies who have recently fallen to overseas suitors.

In recent months, UK cybersecurity firm Darktrace agreed to be taken over by US private equity firm Thoma Bravo, packaging firm DS Smith is being acquired by Tennessee-based International Paper, and online investment platform Hargreaves Lansdown has agreed a £5.4bn takeover by a group of private equity companies.

Richard Hunter, head of markets at interactive investor, says the UK market is becoming a ‘hunting ground’:

Given cheap valuations on a historical basis as well as in comparison to many developed markets elsewhere, the UK has inevitably become something of a hunting ground.

The latest potential target in the premier index is Rightmove, after comments from Australia’s REA Group that it was considering making an offer having identified a “transformational opportunity” in combining the two online property websites. After a delayed start to enable price equilibrium, Rightmove shares opened up by around 24% as investors await further details of a concrete bid.

Updated

Rea Group’s interest in Rightmove could be a sign that the UK property sector is heading for brighter times.

Jessica Pok, analyst at Peel Hunt, says falling interest rates could support the housing market (meaning more business for Rightmove):

It does not come as a surprise to us today that Rightmove has become an acquisition target, given the rating has been subdued for some time due to the negative sentiment on the UK housing market and concerns over competitive threats from CoStar/OnTheMarket.

However, our belief, reflected by the takeover interest, is that the shares look attractive, given the stability of its core classifieds business and the growth opportunities in other revenue streams such as Mortgages, Commercial RE and Rental under the new CEO. On top of that, with declining rates, we believe the UK property market has scope for improvement as we move into 2025.

Pok has a price target for Rightmove of 630p, which was a healthy premium on last week’s levels around 550p – before this morning’s jump higher.

Updated

Rightmove shares jump 25%

Shares in Rightmove have surged by around 25% at the start of trading in London!

They’ve jumped as high as 696p, after REA Group revealed it was considering a takeover approach (see earlier post).

That’s their highest level since March 2022, up from 555p on Friday night.

That lifts Rightmove’s value to around £5.5bn, up from £4.34bn on Friday night, as the City tries to assess how much REA Group might need to offer to acquire it.

Updated

Anxiety over demand from China is weighing on the oil price today.

Brent crude has dropped by 0.66% to $76.43 per barrel, the lowest in over a week.

Founded in a garage in Melbourne, REA Group has become Australia’s largest property website with operations across the country as well as in India and south-east Asia, PA Media points out.

According to its website, it employs more than 2,800 people.

If REA Group succeeded with a takeover of Rightmove, it would create an online estate agent with top positions in the Australian and UK property market.

REA argues there are “clear similarities” between the two businesses – both hold leading market positions in the residential business, for example, and “highly aligned cultural values”.

Updated

Shares in REA Group have fallen by 5.5% on the Australian stock market today, as traders react to its interest in Rightmove.

Murdoch's REA Group considers Rightmove takeover

Rupert Murdoch’s property listings company is considering a swoop on UK housing portal Rightmove.

Australia’s REA Group, which is majority-owned by News Corp, says it sees an opportunity to create a “global and diversified digital property company” by acquiring Rightmove.

It is considering a possible cash and share offer for Rightmove, the FTSE-listed company, which was valued at around £4.34bn on Friday night.

REA told the City this morning:

“REA has a long history of growth and has demonstrated a track record of building businesses over decades to create globally leading platforms that have transformed the way people experience property.

With an acquisition of Rightmove, REA would look to enhance the UK property experience for buyers, sellers and renters, supporting Rightmove’s vision “to give everyone the belief they can make their move” while positively contributing to the property market ecosystem with investment and innovation.”

Updated

Introduction: China's manufacturers report drop in export orders

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

Chinese firms have been hit by a drop in exports orders, suggesting weakening demand from overseas as the crucial Christmas goods shipment period gets underway.

The latest survey of China’s manufacturers, from Caixin, released this morning shows that export orders were “subdued” last month, falling marginally for the first time this year amid reports of deteriorating external conditions.

The survey, which tracks small and medium-sized firms, also suggests that conditions in China’s manufacturing sector improved in August.

Price pressures eased as some factories benefitted from lower raw material costs, and confidence levels rose to a three-month high.

This lifted the Caixin/S&P Global manufacturing purchasing managers’ index (PMI) up to 50.4 in August, from 49.8 in July, and above the 50-point mark showing stagnation.

Dr Wang Zhe, senior economist at Caixin Insight Group, says:

“Demand picked up as total new orders resumed growth, with stronger demand for intermediate goods. Exports declined for the first time in eight months, dragged particularly by weakening demand for consumer products, pushing the corresponding indicator to the lowest since November.

So, a mixed picture. As was China’s official PMI, released by the National Bureau of Statistics on Saturday.

It found that China’s manufacturing activity sank to a six-month low in August as factory gate prices tumbled and owners struggled for orders.

The NBS’s purchasing managers’ index slipped to 49.1 from 49.4 in July, its sixth straight decline in a row.

We’ll find out this morning how UK and eurozone factories perfomed last month.

The agenda

  • 9am BST: Eurozone manufacturing PMI for August

  • 9.30am BST: UK manufacturing PMI for August

  • 11am BST: Ireland’s GDP and GNP report for Q2 2024

Updated

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