Get all your news in one place.
100’s of premium titles.
One app.
Start reading
The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Factory slump drags UK near stagnation; US private sector shrinks; eurozone ‘heads into recession’ – as it happened

United States Euro Europe Gas Prices Natural Gas US Dollar
UK manufacturers report a sharp and accelerated fall in production during August
UK manufacturers report a sharp and accelerated fall in production during August Photograph: David Davies/PA

A late PS: Sales of new US homes fell in July for the sixth time this year, to the slowest pace since early 2016. Another sign of slowing growth…

Afternoon summary

Time to wrap up, after a day of disappointing economic data, and warnings that the UK and Europe faces a grim winter as the energy crisis.

The slump in UK factory activity shows that Britain’s economy remains weak, while there were outright contractions this month in the US, the eurozone, and in Australia and Japan.

Recession fears are on the rise on both sides of the Atlantic, a day after European gas prices closed at record highs, pushing the euro below parity with the US dollar.

And with global trade stagnating, JP Morgan predicting the pound could sink to $1.14, and pubs and brewers pleading for help with energy bills, there’s plenty to worry about.

Here’s today’s main stories:

The Bank of England could be forced to raise interest rates to 4% from as early as next year to combat soaring inflation, despite the growing risk of recession amid the cost of living crisis.

City traders are betting the central bank will more than double the cost of borrowing from 1.75% in response to inflation at the highest levels for more than 40 years.

In a development that will heap renewed pressure on mortgage holders, the Bank’s key base rate is expected to reach 4% by May 2023, according to the path implied by financial markets.

Here’s the full story:

A key mortgage rate has already hit 4% for the first time in nine years, as we reported yesterday.

The financial data provider Moneyfacts said the average new two-year fixed rate had increased by 0.14% since the start of this month, and now stood at 4.09%.

Global trade growth is stagnating too, according to the latest data from the World Trade Organisation.

Its global goods barameter has come in at 100.0 points, showing merchandise trade is steady.

The WTO says the reading suggests that:

…global goods trade continued to grow in the second quarter of 2022 but that the pace of growth was slower than in Q1 and is likely to remain weak in the second half of the year.

WTO global trade indicator
WTO global trade indicator Photograph: WTO

The US dollar has been hit by the suprise slump in US business activity this month:

This has lifted the euro back towards parity with the dollar, and the pound has gained 0.8 of a cent to $1.184.

Today’s US Service sector PMI report is weaker than expected:

The slump in the S&P Global composite PMI for the US to 45.0 in August, from 47.7, leaves it at a level consistent with a deep recession.

So says Paul Ashworth, chief US economist at Capital Economics, who explains:

Based on the historical relationship, it suggests GDP should be contracting at a 3% annualised pace.

Ashworth also sees signs that “disinflationary pressure” is building:

The supplier delivery times and stocks of finished goods indices both hit 21-month highs, while the input prices index hit a 19-month low.

US private sector output falls at fastest rate since 2020

Ouch. US private sector output has fallen at a faster rate this month, as American services companies are hit by weak client demand.

Output across US companies fell at the fastest rate since May 2020 in August, according to S&P Global’s flash survey of purchasing managers.

The reduction in output was broadbased, with manufacturers and service providers registering lower activity. Service sector firms recorded the steeper rate of decline, as activity fell sharply, while goods producers saw a modest drop in output.

Firms were hit by a range of problems – from material shortages and delivery delays to the recent hikes in US interest rates and strong inflationary pressures which hit customer demand.

This pulled the headline Flash US PMI Composite Output Index down to just 45.0 in August, down from 47.7 in July.

That shows the second successive monthly decrease in total business activity.

The service sector was notable weak, with its PMI sinking to just 44.1 (50 would show stagnation).

The PMI report shows “further disconcerting signs” for the health of the US private sector, says Siân Jones, Senior Economist at S&P Global Market Intelligence:

Demand conditions were dampened again, sparked by the impact of interest rate hikes and strong inflationary pressures on customer spending, which weighed on activity.

Gathering clouds spread across the private sector as services new orders returned to contractionary territory, mirroring the subdued demand conditions seen at their manufacturing counterparts.

Excluding the period between March and May 2020, the fall in total output was the steepest seen since the series began nearly 13 years ago.

Lower new order inflows and continued efforts to rein in spending led to the slowest uptick in employment for almost a year. Reports of challenges finding suitable candidates started to be countered by those companies noting that voluntary leavers would not be replaced with any immediacy due to uncertainty regarding demand over the coming months.

Updated

UK energy crisis could knock pound to $1.14, JPMorgan warns

The UK’s energy crisis could push the pound towards the 35-year lows seen early in the Covid-19 pandemic, analysts fear.

JPMorgan Private Bank has predicted that sterling could drop as low as $1.14, a level briefly seen as the UK headed into its first lockdown.

Bloomberg has the story:

Already down 13% against the greenback so far this year, the UK currency is starting to reflect concerns that higher gas prices will fan inflation as economic growth contracts, said Sam Zief, head of global FX strategy at JPMorgan Private Bank.

A pound at $1.14 is “absolutely within reach if gas prices continue to do what they are doing,” Zief said in an interview.

The surge in inflation, already over 10%, will hit UK household finances, while the threat of shortages could slow economic activity, with factories already struggling this month.

Sterling hit its lowest level since March 2020 this morning, below $1.18 against the US dollar.

Back on 20th March 2020 it dropped to just above $1.14, as the pandemic fuelled a rush into US dollars. That was the lowest level since the mid-1980s.

The pound vs the US dollar since the 1980s
The pound vs the US dollar since the 1980s Photograph: Refinitiv

Wall Street has opened cautiously, with the main indices pretty flat.

Investors are awaiting to hear from Federal Reserve chair Jerome Powell on Friday, at the Jackson Hole economic symposium. Powell could take a hawkish line on inflation, and reiterate the Fed’s determination to keep raising interest rate to cool prices.

Stocks are down in London today, with the blue-chip FTSE 100 off 46 points or 0.6% at 7487.

A Macy's department store in Doral, Florida.
A Macy's department store in Doral, Florida. Photograph: Wilfredo Lee/AP

US department store chain Macy’s has cut its outlook for the year as it braces for consumers to cut back, leaving it with a glut of unsold stock.

Macy’s beat Wall Street forecasts for revenues and profits in the last quarter, but also lowered its full-year forecast.

The company fears that consumer spending on discretionary items like apparel will weaken, as high inflation hits household budgets.

“The consumer is not as healthy as they were in prior quarters,” chief financial officer Adrian Mitchell told analysts on a conference call.

“We have seen declining retail traffic in areas of weakening apparel sales over the quarter as the consumer faces higher costs on essential goods, particularly grocery.”

One upside amid the gloom:

Eurozone PMI hints at a eurozone economy in contraction

The eurozone is “heading towards recession quickly if it’s not already in one”.

That’s the verdict from ING today, after private sector activity fell in France, Germany and the wider eurozone this month (according to this morning’s PMI reports).

ING’s Bert Colijn explains:

The composite PMI fell from 49.9 to 49.2. Anything under 50 indicates falling business activity, so the survey is hinting at a contraction that started in the third quarter. This is consistent with our forecasts, and the colour that the survey gives on the weakness is not pretty.

The manufacturing output PMI ticked up a bit in August but remained deep in contraction territory at 46.5. New orders continue to fall and inventory build-up is very strong, which reflects the squeeze in demand that the eurozone economy is currently experiencing.

The services PMI fell rapidly in August to a level indicating stagnation in activity at 50.2. Demand also weakened for the service sector as the post-pandemic rebound in consumer spending on services is fading rapidly.

US natural gas prices have hit their highest level in over a decade, as the scramble for supplies pushed up costs on both sides of the Atlantic:

Back in the financial markets, the euro remains below parity with the US dollar, after hitting 20-year lows today.

The record energy prices, which are threatening to push the eurozone into recession, are keeping the euro low.

UK energy supplier So Energy says the government must increase its cost of living support, to help households cope with the “once in a generation energy bill”.

Ahead of Friday’s energy cap announcement, So Energy proposes:

  • The £400 Energy Bill Support Scheme for all households to be doubled to £800

  • The £150 Warm Homes Discount for vulnerable customers to be quadrupled to £600

Cornwall Insight has predicted Ofgem’s cap will rise to £3,553 for an average annual bill from October 1, from £1,971 at present.

Even more worryingly, it’s expected to jump again in 2023 – first to £4,649 in January, then to £5,341 from April.

First auction of a Russian oligarch’s detained superyacht held today

The 236.22ft /72m custom motor yacht 'AXIOMA'.
The 236.22ft /72m custom motor yacht 'Axioma'. Photograph: Pete Jenkins/Alamy

An auction of a £65m superyacht of a Russian oligarch has received 63 bids.

The 72.5-metre Axioma was auctioned by the Gibraltar government today, making it the first luxury vessel to be sold off since restrictions were imposed on hundreds of rich Russians after Vladimir Putin’s invasion of Ukraine.

Gibralter’s Admiralty Marshal’s office says 63 sealed bids were received by the deadline of midday today, adding:

The successful bidder will be selected by the Admiralty Marshal but details of the bidder and the value of the offer will remain confidential.

Details about the sale value of the vessel will be made available once the transaction has been completed which could take place in approximately 10 to 14 days.

As our wealth correspondent Rupert Neate reported last week, the superyacht is not being sold for the benefit of the Ukrainian people, but for JP Morgan.

The investment bank filed a legal claim that the yacht’s billionaire owner, Dmitry Pumpyansky, owes it more than $20m (£17m).

JP Morgan said the fact the billionaire had been subjected to sanctions meant the terms of the loan had been breached because it legally could not accept loan repayments from Pumpyansky’s holding company Pyrene Investments. It asked the Gibraltar courts to detain and sell the yacht.

More factory news: car manufacturer Nissan is to stop the production of cylinder heads on site at its plant in Sunderland, northern England, from early 2024.

The move will end more than 30 years of cylinder production at Sunderland, and will come when a contract to make cylinder heads for Renault combustion engines expires.

Fortunately, it shouldn’t result in job losses, Nissan adds:

“From early 2024, Nissan Sunderland Plant will cease production of cylinder heads on site.

We do not expect this to result in job losses, and are working with staff as we redeploy them to other parts of the business.”

Ryanair has nudged up its passenger target for this year, after boosting its winter capacity, Reuters reports.

The budget airline expects to grow traffic to 166.5m passengers in the year to the end of March, up from a previous target of 165m after adding to its UK winter capacity.

Europe’s largest airline by passenger numbers said it had added more than 1 million seats to and from 20 UK airports. Yesterday, rival IAG-owned British Airways cut its winter schedule, by axing 10,000 more flights to and from Heathrow.

Ryanair flew 97 million passengers in its last financial year and a record 149 million before the COVID-19 pandemic struck.

The oil price has risen, a day after Saudi Arabia hinted that the Opec cartel could cut production.

Brent crude has gained 1.5% today to $98 per barrel, the highest in over a week.

Oil has been slipping over the last few months, on expectations that demand would weaken as major economies slowed. Brent hit $125/barrel in June, but fell as low as $92 last week.

Opec and its allies have been raising production, reversing their Covid-19 cuts, under pressure from the White House to help bring down gasoline prices.

But Bloomberg reported yesterday that Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said “extreme” volatility and lack of liquidity mean the futures market is increasingly disconnected from fundamentals, meaning OPEC+ may be forced to cut production.

Prince Abdulaziz argued that futures prices don’t reflect the underlying fundamentals of supply and demand, which may require the group to tighten production when it meets next month to consider output targets.

UK factory output falls for first time since Feb 2021, reports CBI

The latest survey of UK factories by the CBI has confirmed that the sector is slowing.

British industrial output fell over the past three months for the first time since February 2021, according to the CBI’s ‘industrial trends’ report.

Firms also reported a drop in new business, with the order book balance hitting its lowest since April 2021.

This mirrors the message from this morning’s PMI survey, which showed a surprisingly sharp drop in factory activity this month.

CBI economist Alpesh Paleja says:

“With expectations for future growth subdued, steps will need to be taken to shore-up confidence in the short to medium term – particularly supporting vulnerable firms and consumers with energy price rises,”

UK customers face ‘catastrophic winter’ as energy costs soar, says EDF retail boss

The UK faces a “dramatic and catastrophic winter for customers” as energy prices soar, according to a stark warning from the head of EDF Energy’s retail business.

Philippe Commaret, the energy firm’s managing director for customers, called for extra government intervention, including help for households to insulate their homes and a VAT cut for small businesses as prices jump to record levels.

Prices for gas and electricity, which had already shot up around the world as economies recovered from coronavirus pandemic lockdowns, have been sent soaring by Russia’s invasion of Ukraine, with Russia using its control over European gas supplies to try to gain political leverage.

“We face, despite the support the government has already announced, a dramatic and catastrophic winter for customers,” Commaret told BBC Radio 4’s Today programme.

“In January, half of the UK households might be in fuel poverty.”

Here’s the full story:

No let-up in Europe’s energy crunch:

UK pubs and brewers call for urgent help on energy bills

A closed pub in Shepton Mallet, England, last month. Since the year 2000, a quarter of pubs have closed in the UK, totalling more than 13,000 locations.
A closed pub in Shepton Mallet, England, last month. Since the year 2000, a quarter of pubs have closed in the UK, totalling more than 13,000 locations. Photograph: Matt Cardy/Getty Images

Britain’s pubs and brewers are calling for more help to handle soaring energy prices.

A survey by industry trade title The Morning Advertiser has found that three-quarters of pub operators cannot afford the jump in energy bills; more than 65% said they’d seen their utility costs increase by over 100%.

Heath Ball, MD of The Frisco Group, which operates three pubs across the South East of England, warns that the UK could see ‘mass pub and restaurant closures’ unless the government provides more help.

“This energy bill crisis comes on the back of the most testing of times as businesses try and recover from the Covid crisis and I think it poses an even greater threat to the survival of pubs.

Brits face the prospect of losing thousands of pubs if something isn’t done soon to help.”

The brewing industry also faces soaring energy prices, alongside higher raw material costs.

The Society of Independent Brewers (SIBA) and the Campaign for Real Ale (CAMRA) have written to chancellor Nadhim Zahawi, calling for an urgent cap on energy prices for small businesses, and grants for renewable technology to help firms reduce energy use.

SIBA chairman Roy Allkin says:

“With energy bills soaring we are calling on Government to back British beer and help independent brewers with an energy price cap for small businesses, and to offer grants and incentives for the many businesses looking to brew with more green energy.

It is also vital that the Governments plan to tempt people back to the pub with a new discounted draught duty rate is extended to the smaller twenty and thirty litre containers used by small brewers, or risk Global lager brands being the only ones who benefit.

The discounted draught duty rate was announced in October’s budget, followed by a photocall with then-chancellor Rishi Sunak and PM Boris Johnson posing with 30-litre kegs that didn’t actually qualify for the saving.

Back in the travel sector, Gatwick has been forced to cancel some flights at the last minute, just hours after declaring it was ‘business as usual’ (see earlier post).

The airport has blamed the disruption on staff sickness, leading to late-notice absence in its air traffic control tower.

Sky News reports that around 26 EasyJet flights to and from Gatwick to be cancelled at the last minute.

Today’s PMI reports show that the UK fared better than France and Germany, which both recorded drops in private sector activity this month.

But the UK could soon follow them into contraction, warns Matthew Ryan, head of market strategy at global financial services firm Ebury:

The UK’s cost of living crisis is set to get worse before it gets better, and with energy prices continuing to march to fresh highs, it seems increasingly likely that a sharp slowdown, and a potentially protracted recession, may be on the horizon.

“That said, we note that UK economic data continues to hold up slightly better than in the Euro Area, which appears fragile in light of the bloc’s higher sensitivity to the ongoing energy crisis in Europe.

Paul Dales of Capital Economics says:

Even though the S&P Global/CIPS composite flash PMI stayed above the no-change level of 50.0 in August, it probably won’t be long before it joins other indications suggesting that the [UK] economy is already in recession.

The fall in the new export orders balance, from 46.4 to 40.5, suggests that weak overseas demand is taking a toll on UK companies, Dales adds.

Updated

August’s PMI report shows that UK businesses are facing a slew of worries, from rising prices and slowing demand to the strike at Felixstowe port.

Dr John Glen, CIPS Chief Economist, explains:

Supply chain managers reported client reluctance to spend as the cost of living and the cost of doing business remained at elevated levels and both domestic and export orders were affected. In turn, job creation took a hit with the weakest rise for 17 months as confidence dropped amongst manufacturers to the lowest for over two years.

Makers began to re-think their capacity-building strategies under challenging economic conditions and placing a question mark over whether they should continue hiring.

Service companies had a better month, but only marginally as new order levels were sustained and optimism remained that customers would continue to buy throughout the year. However, this may reverse quite quickly.

There are many concerns keeping private sector business owners awake at night, such as disruptions to supply chains from war, the highest inflation in the UK for almost 50 years, the impact of higher interest rates and now port disruptions in the UK to name a few.”

Factory slump leaves UK economy near stagnation in August

Just in: A slump in factory output has dragged the UK private sector to near stagnation this month.

Growth in Britain’s private sector slowed to a crawl in August as factory output fell and growth in the larger services sector slowed, according to the latest survey of purchasing managers at UK firms.

Companies reported muted customer demand as well as shortages of both labour and inputs, adding to signs that a downturn is looming.

The closely-watched flash UK composite PMI, which tracks the private sector economy, fell to an 18-month low of 50.9, down from July’s 52.1, near to stagnation.

UK manufacturers reported the sharpest fall in production since May 2020, when the economy was in its first Covid-19 lockdown. Factories blamed reduced customer demand, the delayed delivery of inputs and labour shortages.

The Flash UK manufacturing PMI sank to just 46.0, a 27-month low, down from 52.1 (A reading below 50 shows activity fell).

That will add to concerns that the UK is sliding towards recession, after the economy contracted in the April-June quarter.

Annabel Fiddes, economics associate director at S&P Global Market Intelligence said:

“The UK private sector moved closer to stagnation in August, as mild growth of activity across the service sector only just offset a deepening downturn at manufacturers.

Waning customer demand amid the weaker economic outlook, and shortages of both staff and inputs, were reported to have hit goods producers hard, with firms registering the quickest drops in output and new work since May 2020.

Excluding the initial phase of the pandemic in early-2020, the reduction in manufacturing output was the quickest seen since the start of 2009. Meanwhile, the service sector registered the weakest increase in activity since the recovery began in early 2021.

Updated

Polish chemicals group Grupa Azoty is temporarily halting production of some key products including nitrogen fertilizers due to record gas prices.

The move illustrates how soaring energy prices are leading to ‘demand destruction’ (where it simply isn’t economical for a factory to operate).

Reuters has the details:

The current situation in the natural gas market, which determines the profitability of production, is exceptional, completely independent of the company and impossible to forsee,” the company said in a regulatory filing on Monday.

Grupa Azoty said it would carry out investment processes and maintenance during the standstill and would continue to produce catalyzers, polyamide film, humic acid, thermoplastic starch and concentrated nitric acid.

Shares in Grupa Azoty have dropped 4% today, and are down a fifth over the last month.

With business growth in both France and Germany shrinking this month, it’s no surprise that the wider eurozone has struggled in August too.

Eurozone business activity contracted for the second month running as the service sector growth ground to a near-halt.

S&P’s Global Flash PMI, just released, fell to its lowest since February 2021 as the cost of living crisis forced consumers to cut spending and supply constraints hurt manufacturers, leaving factories in a downturn.

The eurozone PMI Composite Output Index came in at an 18-month low of 49.2, down from July’s 49.9 (which showed a marginal contraction).

Andrew Harker, economics director at S&P Global Market Intelligence, said the eurozone economy appears to be shrinking, and that firms face a struggle over the rest of the year.

“The latest PMI data for the eurozone point to an economy in contraction during the third quarter of the year.

Cost of living pressures mean that the recovery in the service sector following the lifting of pandemic restrictions has ebbed away, while manufacturing remained mired in contraction in August, seeing another record accumulation of stocks of finished goods as firms were unable to shift products in a falling demand environment. This glut of inventories suggests little prospect of an improvement in manufacturing production any time soon.

“Declining output is now being seen across a range of sectors, from basic materials and autos firms through to tourism and real estate companies as economic weakness becomes more broad based in nature.

Updated

Downturn in German private sector economy deepens in August

The downturn in Germany’s private sector economy has deepened too.

The Flash Germany PMI Composite Output Index has fallen to just 47.6 this month, from July’s 48.1.

That indicates German’s private sector is contracting at the fastest rate in 26 months, with manufacturing output and services activity both dropping.

German companies blamed the deepening downturn on rising uncertainty, high inflation and rising interest rates, all of which weighed notably on demand.

New business fell for the third month running, while new export sales fell at the fastest rate in over two years.

The PMI data “paint a bleak picture of the German economy”, says Phil Smith, Economics Associate Director at S&P Global Market Intelligence:

Continued weakness in manufacturing is being compounded by a slowdown in the service sector, with surveyed businesses reporting a growing strain on demand from high inflation and increased interest rates.

“The slowdown in the economy is increasingly taking a toll on firms’ hiring activity, with employment growth easing to its weakest for almost a year-and-a-half in August. A first fall in backlogs of work for more than two years points to capacity pressures across Germany’s private sector economy starting to ease and represents a downside risk to job creation going forward.

“Positively, August’s data provided evidence of a further easing of both supply side constraints and cost increases, which helped to lift business confidence from July’s recent low. However, with the threat of an energy crisis still looming large, the outlook remains riddled with uncertainty.”

Here’s the details (any reading below 50 shows a contraction).

  • Flash Germany PMI Composite Output Index at 47.6 (July: 48.1). 26-month low.

  • Flash Germany Services PMI Activity Index at 48.2 (July: 49.7). 18-month low.

  • Flash Germany Manufacturing Output Index at 46.4 (July: 45.0). 2-month high.

  • Flash Germany Manufacturing PMI at 49.8 (July: 49.3). 2-month high.

French economy shrinks for first time in a year and a half

The French economy contracted in August for the first time since Covid disruption hit the eurozone’s second-largest economy 18 months ago.

Data provider S&P Global reports that French private sector activity is falling this month, driven by a downturn in manufacturing and slower service sector growth.

Falling demand hit output, with purchasing managers at French firms reporting the biggest drop in new business since November 2020.

High inflation and a waning post-Covid boost to demand has led businesses and consumers to cut back on discretionary spending.

This led to a slowdown in employment growth, and knocked business confidence to its lowest in almost two years.

French flash PMI to August
French flash PMI to August Photograph: S&P Global

Here’s the details:

  • Flash France PMI Composite Output Index at 49.8 (Jul: 51.7). 18-month low.

  • Flash France Services PMI Activity Index at 51.0 (Jul: 53.2). 16-month low.

  • Flash France Manufacturing Output Index at 44.4 (Jul: 44.6). 27-month low.

  • Flash France Manufacturing PMI at 49.0 (Jul: 49.5). 27-month low.

Joe Hayes, senior economist at S&P Global Market Intelligence, warned that high inflation is hitting France’s economy:

European economies look set for a challenging run into year-end and France is no exception.

High inflation has squeezed purchasing power among consumers and businesses alike, although we saw further signs to suggest we have passed peak price pressures.

Nevertheless, inflation remains elevated and businesses reported more and more clients being deterred from placing orders due to the current price level. The downward trend in the France PMI may well persist now demand for goods and services is falling.”

Australia has racked up its first fall in private sector output since January – another sign that the global economy weakened this month.

The flash Australia PMI Composite Output Index dropped to 49.8 this month, down from July’s 51.1, and the first contraction in seven months.

Australia’s services sector saw a drop in activity, while manufacturing output growth slowed.

Australia’s central bank has raised interest rates four times this year, including its biggest hike in 30 years earlier this month, which could now be curbing demand.

Laura Denman, economist at S&P Global Market Intelligence, explains:

“A renewed contraction in Australia’s private sector economy indicates that recent interest rate hikes made by the RBA, as well as sustained inflationary pressures, have begun to take a toll on overall demand levels. Should new order growth remain subdued, this may help reduce demand-pull inflation factors, but survey data continue to highlight the supply issues that remain prevalent globally, which will continue to keep price levels elevated for the foreseeable.

As such, the RBA will likely continue along its rate-hiking path, which bodes ill for the wider economy given the latest survey data highlight clear signs of underlying weakness.”

Japan's private sector output falls for the first time in six months

Japan’s private sector output has fallen for the first time in six months, as companies were hit by rising costs of energy and raw materials, and weakening global demand.

The au Jibun Bank Flash Japan Composite PMI, which measures activity across the manufacturing and services sectors, has dropped to 48.9 this month, from July’s 50.2 final. Any reading below 50 shows a contraction.

Activity in the services sector fell for the first time in five months, while Japan’s factory activity growth slowed to a 19-month low in August as output and new order declines deepened.

Usamah Bhatti, economist at S&P Global Market Intelligence, adds:

“Business confidence eased to the joint-lowest for five months during August amid the growing economic headwinds.

The strongest concerns among Japanese private sector firms were the impact of the Ukraine war, inflationary pressures due to rising raw material and energy costs, and a global economic slowdown.”

Gatwick to end summer capacity cap and returns to profitability

Gatwick South Terminal in June.
Gatwick South Terminal in June. Photograph: Stephen Jones/PA

Britain’s second biggest airport has returned to profit, thanks to the easing of travel restrictions this year.

And in a boost to passengers, Gatwick says it doesn’t need to extend capacity curbs beyond the end of August as it returns to its usual business operations.

Gatwick made an EBITDA profit of £148.3m in the first half of 2022, and a profit after tax of £50.6m.

That’s a turnaround on 2021, when Gatwick reported a £244.6m loss for first six months and negative EBITDA at -£50.2m.

It also lifted its passenger forecast despite the travel chaos that disrupted many holidays, and now expects 32.8m passengers in 2022.

However, Gatwick also warned that inflationary pressures on costs, and passenger demand for the winter season may impact these forecasts.

Gatwick adds that it doesn’t plan any “further moderation of flying programmes”, having recruited over 400 new security staff to reduce delays. Back in June, it cut its summer capacity to avoid the last-minute cancellations that wrecked some holidays over the Jubilee and half-term break.

Stewart Wingate, chief executive officer of Gatwick Airport said demand has ‘bounced back’:

“We still have some considerable way to go, but strong demand has fast-tracked Gatwick’s recovery from the pandemic, particularly in the last quarter since all UK travel restrictions were removed. Air traffic volumes have reflected this strong passenger demand and have bounced back to around 75% of pre-COVID levels.

“The unprecedented growth in traffic lead to short term operational issues in June, however our decisive early action to limit the airport’s capacity in the crucial school holiday period of July and August has ensured passengers have experienced reliable flight timetables over the summer months.

We are now very much operating business as usual and do not see any reason to extend the capacity declaration.”

Updated

Key event

John Healey MP, the UK’s shadow defence secretary, has warned the country is facing “economic warfare”, with the energy crisis linked to the war in Ukraine.

He told LBC that the surge in energy prices is partly caused by the “economic warfare that Russia has been waging on Europe.”

Healey explained:

“It’s no coincidence that in the year before they invaded Ukraine, they cut the supply of gas to Europe over those 12 months by half - forcing up prices, putting on pressure and it’s part of what military specialists would say [is] a form of hybrid warfare and aggression.”

The opposition Labour Party are also calling for Britain’s price cap to be frozen over the winter, rather than be lifted by an estimated 80% in October.

Healey said:

“People are facing a winter emergency crisis over the next six months ... the crisis is immediate, the need for action is urgent, and we’ve said we would freeze it over the winter so that we would stop the energy price cap rising as it will be announced on Friday.

Energy crisis: UK expands gas emergency exercise ahead of winter

The UK’s National Grid has doubled the size of its regular emergency planning drill, at a time when fears of energy supply shortages are rising.

The emergency gas shortage planning exercise, in which various scenarious including electricity rationing are war-gamed, will run for four days instead of the usual two, the BBC reports this morning.

Here’s the details:

The government insists there is no risk to UK energy supplies and consumers should not panic.

But industry say ministers need to do more to secure supplies this winter.

The National Grid exercise, which gets under way next month, will involve government agencies, regulators, lobby groups and major energy firms.

Called Exercise Degree, it will simulate scenarios in which a loss of gas supply triggers an emergency situation for the UK’s energy system.

The BBC also reports that business Secretary Kwasi Kwarteng does not appear to have sought any advice from government officials on the possibility of rationing energy - a BBC Freedom of Information request found he had not done so before the end of June.

Pound hits lowest since March 2020

Sterling is also under pressure against the US dollar this morning.

The pound has dropped by almost half a cent to $1.172 against the dollar, the weakest since March 2020 (when the Covid-19 pandemic rocked global markets).

The pound vs the US dollar
The pound vs the US dollar Photograph: Refinitiv

Britain’s surging energy costs and weakening economy have weighed on the pound, with families facing rocketing energy bills.

As Jane Foley, head of FX strategy at Rabobank in London, explained yesterday:

“The weak UK growth outlook continues to weigh on the pound. News that Ofgem is set to announce on Friday that UK average annual household energy bills are likely to rise to more than £3,500 pounds reinforces the headwinds facing consumers.”

Why European natural gas prices hit new record high

European gas prices are being driven higher by concerns over supplies from Russia (Gazprom has cut flows through Nord Stream 1 pipeline this summer), and also rising demand.

On the latter point, James Huckstepp, head of EMEA gas analytics at S&P Global Commodity Insights, explains:

The recent hot, dry, and relatively still (non-windy) weather is as bullish as it gets for summer gas demand.

This translates to high air-conditioning load, low hydro-generation (along with other nuclear and coal fired generation issues that come along with low-river levels), and then relatively low wind generation.

Regarding price-driven demand destruction—although it is visible both in the data and anecdotally—this may have plateaued for the time being.

European gas prices
European gas prices Photograph: Platts of S&P Global Commodity Insights

Introduction: euro at two-decade low

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

The euro has sunk to a fresh two-decade low as surging gas prices fuel concerns over the eurozone economy.

The single currency has dropped as low as $0.991 against the US dollar this morning, its weakest point since 2002, as fears of a European recession and more aggressive US interest rate rises both rattle the markets.

The euro vs the US dollar over the last 20 years
The euro vs the US dollar over the last 20 years Photograph: Refinitiv

The euro came under renewed pressure as wholesale energy prices rocketed on Monday, after Russia announced it would halt natural gas supplies to Europe via the Nord Stream 1 pipeline for three days at the end of the month, for maintenance.

Last night, the benchmark European gas price settled at its highest closing price on record, having surged during August on fears that Moscow is squeezing energy supplies.

Europe’s benchmark electricity price jumped more than 25% on Monday to pass €700 per megawatt-hour for the first time, around 14 times the seasonal average over the past five years.

Jim Reid of Deutsche Bank told clients that the energy crisis had intensified.

Starting in Europe, the energy crisis intensified yet further, after news over the weekend that Nord Stream would be shut for maintenance at the end of the month introduced fresh fears it would not re-open.

European natural gas prices ratcheted +14.59% higher to €280/MWH, a record high. German power prices surged +18.60% to another record as well, closing at €663 and breaching €700/MWH intraday for the first time ever.

This summer’s heatwaves have already strained Europe’s energy supplies. Such high prices will hurt households badly, while disruption during the winter months could be devastating for business activity.

Tapas Strickland, a director of economics at National Australia Bank, says:

“Europe’s dire energy situation suggests the peak of inflation is not here yet and the risk remains that high inflation is sticky for longer without further aggressive central bank action.

“No surprise then to see the dollar at near multi-decade highs against a falling euro and British pound.”

While energy shortage fears hit the euro, the dollar is in demand. Traders are anticipating the Federal Reserve will continue to lift US interest rates to battle inflation, despite the slowdown in the global economy.

Traders on the floor of the New York Stock Exchange last night.
Traders on the floor of the New York Stock Exchange last night. Photograph: Brendan McDermid/Reuters

Wall Street saw its worst day since June last night, with the Dow Jones Industrial Average dropping 2% as the summer rally fizzled out.

Also coming up today

The latest surveys of purchasing managers across Europe will show the damage caused by soaring energy prices and extreme weather this summer, including low water levels on the Rhine.

August’s flash purchasing managers surveys are expected to show that eurozone factories shrank again this month, while the services sector struggled.

Michael Hewson of CMC Markets has the details:

Surging energy prices, along with sharply declining water levels on the Rhine have cut the rug out from the manufacturing sector in Germany with today’s August flash PMI expected to see a further decline from 49.3 to 48, while services activity is also expected to slip further from 49.7 to 49.

In France the picture isn’t any better, although the services sector is benefitting from a bit of a tourism boost, however the forest fires could well pull economic activity here down quite a lot more. In manufacturing economic activity is likely to slip to 49, from 49.5, while services could slip from 53.2 by a lot more than the 53 that is currently being forecast.

In the UK, the picture is slightly better, but the PMI survey could show a slowdown in growth.

With August being a slow period due to holidays, we could well start to see economic activity on the PMI level start to slide into contraction territory, from 52.1 for manufacturing in July and from 52.6 for services in July.

The agenda

  • 9am BST: Eurozone flash manufacturing and services PMI survey for August

  • 9.30am BST: UK flash manufacturing and services PMI survey for August

  • 11am BST: CBI survey of industrial trends

  • 2.45pm BST: US flash manufacturing and services PMI survey for August

  • 3pm BST: Eurozone consumer confidence survey for August

  • 3pm BST: US new home sales for July

Updated

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
YouTuber Rosanna Pansino smokes cannabis grown from her father’s ashes
Influencer lights joint in first episode of podcast to honor dying wish of father, who appeared in videos as Papa Pizza
The Guardian - US
The Guardian - US
Kim Kardashian posts video testing Tesla Optimus AI robot and Cybercab: 'There's no driver?'
Kardashian posted a video playing rock-paper-scissors with Optimus, a human-sized AI robot that Musk has promised “can babysit your kids” or help around the house.
Fortune
Fortune
Country diary: The redwings have arrived – but why are they so skittish?
Monsal Dale, Derbyshire: Of the five common thrushes that call Britain home, these are the most unpredictable and least approachable
The Guardian - UK
The Guardian - UK
"Right to repair" comes for the McFlurry
The new rule came just one day before Donald Trump promised to repair the machines while in office
Salon
Salon
‘We’re humanizing Manson’: docuseries adds depth to a notorious criminal
The makers of Making Manson have found a wealth of new audio footage that adds texture to an infamous figure without absolving him of his terrible crimes
The Guardian - US
The Guardian - US
Man Inherits $5 Bill From Grandmother, Gets Shocked When Offered $400K For It: Here's Why It's Valuable
A man inherited a $5 bill from his grandmother with a printing error. Experts believe it could be worth hundreds of thousands of dollars.
International Business Times UK
International Business Times UK
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.
Download on the AppStore Get it on Google Play