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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

UK economy ‘at risk of stalling’ after February slowdown; growth worries hit oil – as it happened

United Kingdom Darren Morgan Elon Musk Parag Agrawal Office for National Statistics Twitter Inc.
People walking along Westminster Bridge.
People walking along Westminster Bridge. [This caption was amended on 11 April 2022 to correct the name of the bridge.] Photograph: Christopher Walls/SOPA Images/REX/Shutterstock

And finally, most European stock markets finished the day in the red, with the UK’s FTSE 100 losing 51 points or 0.67% to close at 7618 points.

Germany’s DAX dipped by 0.6%, but France’s CAC edged up 0.1%.

Craig Erlam of OANDA says it was a relatively timid start to the week.

Compared to what we’ve become accustomed to, of course. Interestingly, the CAC is the only major index in the green after the weekend’s first-round election, which saw Emmanuel Macron and Marine Le Pen progress to the second round in a couple of weeks.

The run-off between the two candidates is looking to be far closer than five years ago when Macron scooped two-thirds of the vote. While there is still plenty that could not bring themselves to vote for Le Pen as we saw in 2017, her softened image appears to have swayed others and while pols still favour Macron, some fall within the margin of error that makes Le Pen a realistic victor this time around.

While that would no doubt be bad news for Europe, it seems markets aren’t particularly concerned if today’s trading is anything to go by. Some have chosen to compare a Le Pen victory to Brexit and Trump, two events that were deemed to be a negative for stock markets before the vote but did not turn out to be so over time. Perhaps lessons have been learned.

On that note, goodnight. GW

Afternoon summary

Here’s a round-up of today’s main stories:

UK economic growth slowed by more than expected in February as a slump in car manufacturing undermined a sharp recovery in holiday bookings after the easing of Covid travel restrictions.

Russia’s finance minister has said the country will take legal action if it’s forced to default on its external debt by Western sanctions.

Finance minister Anton Siluanov also told Russian newspaper Izvestia that Moscow would halt bond sales this year due to ‘cosmic’ prices.

State-owned Russian Railways has been ruled in default on a bond after missing an interest payment last month, as sanctions hamper Russia’s ability to make financial payments.

The Brent crude oil price has dropped below $100/barrel, down 3.5%, on concerns that China’s Covid-19 lockdowns will hit energy demand.

The UK’s cost of living squeeeze has tightened, with the state pension and benefits rising just 3.1%, well behind inflation which is likely to hit 8% this spring.

Ukraine’s economy is on course to contract by almost half this year as the Russian invasion and the impact of a “deep humanitarian crisis” takes its toll, the World Bank has said.

With a blockade of Black Sea ports in the south of Ukraine and the havoc caused to industry in the east, the war-torn country’s GDP is projected to shrink by about 45% in 2022.

Elon Musk has performed a U-turn and will not join Twitter’s board, a week after the world’s richest man took a surprise take in the social media company.

Homebuyers wanting to take out a mortgage could soon struggle to get the size of loan they need, as banks begin taking into account the cost of living crisis when calculating how much they can lend.

The chemicals and energy company Ineos has offered to drill a shale gas test site in the UK to demonstrate that fracking can be done safely, as the country wrestles with high energy prices.

More flights were cancelled on Monday as airlines and airports struggled to cope with the big Easter getaway, and Heathrow said it was increasing resourcing as fast as possible to deal with rising passenger numbers.

Updated

Elon Musk seems to have deleted several tweets, including one of the ‘hand on mouth’ emoji this morning after his decision not to join Twitter’s board.

Some from over the weekend have also vanished, including his thoughts on removing ads and giving an authentication checkmark for Twitter subscribers (although some of the discussion is still here).

Reuters points out that the board seat u-turn opens the possibility for Musk to take a larger position and potentially make an all-out bid, as CFRA Research analyst Angelo Zino wrote in a client note, adding:

“We had thought the equity cap and board seat was originally intended to handcuff Musk in many respects and think he is unlikely the type of individual who will now just sell his stake and walk away.”

Shares in Twitter have jumped 2.5% in early US trading, after Elon Musk’s surprise decision not to join the company’s board.

After opening lower, shares are rallying after Elon Musk filed a new amendment to his filing with the SEC.

The new filing confirms that Musk is not joining Twitter’s board (this morning’s unexpected news).

It also states that Musk holds his 9.1% stake in Twitter for investment purposes, and may buy or sell stock from time to time.

Any sales or purchases will depend on Musk’s “evaluation of numerous factors”, including:

...the price levels of the Common Stock, general market and economic conditions, ongoing evaluation of the Issuer’s business, financial condition, operations and prospects, the relative attractiveness of alternative business and investment opportunities, investor’s need for liquidity, and other future developments.

Previously, Musk had agreed not to take his stake above 14.9%, as part of the deal to join Twitter’s board.

The amended filing also states that Musk may express his views about Twitter’s business, products and services to the Board, its management team and/or the public through social media or other channels.

No surprise there, given the Tesla CEO’s flurry of tweets and polls about how Twitter could be changed.

Oil prices slid today as lockdowns in China sparked demand fears, says CNBC:

“The spread of Covid in China is the most bearish item affecting the market,” said Andy Lipow, president at Lipow Oil Associates. “If [Covid] spreads throughout China resulting in a significant number of lockdowns, the impact on oil markets could be substantial.”

China is the world’s largest oil importer, and the Shanghai area consumes roughly 4% of the country’s crude, according to Lipow.

The potential hit to demand comes as the supply side of the equation has been front and center given Russia’s role as a key oil and gas producer and exporter.

Oil hit by growth worries

The oil price has dropped by over 3% today, on concerns that the latest Covid-19 lockdowns in China will hit energy demand.

Brent crude has dropped to $99.18 per barrel, down from almost $103 per barrel on Friday night.

The Brent crude oil price this year
The Brent crude oil price this year Photograph: Refinitiv

Analysts at SP Angel Energy explain:

Crude oil prices fell over the weekend on concerns that China’s tough actions to arrest its recent Covid outbreak may impact near-term demand for longer than initially expected.

China’s largest Covid-19 outbreak in two years has led to an extended lockdown in Shanghai, leading to severe supply chain disruptions. Economic surveys have shown that China’s service sector shrank last month.

Shanghai authorities have said they will start easing lockdown in some areas on Monday, despite reporting a record of more than 25,000 new Covid cases in the country’s most populous city and one of its most significant financial centres.

Our China affairs correspondent Vincent Ni reports:

Frustration has continued to grow across Shanghai. Online, harrowing tales of residents unable to access medical resources on time have been shared multiple times.

Affected residents posted pleas for help with medical facilities and complaints about difficulties in buying food. They ranged from well-connected celebrities to working-class citizens.

The Bank of Israel has raised interest rates for the first time in three and a half years, by more than expected, as it tried to combat rising inflation.

Israel’s central bank lifted its key rate to 0.35%, from an alltime low of 0.1% where it had been cut early in the pandemic.

Most economists had expected a smaller rise of 15 basis points (to 0.25%), but the Bank has taken a more hawkish line after inflation hit 11-year highs of 3.5% in February.

The UK’s weak growth of just 0.1% in February highlights how the economic recovery will slow sharply this year as inflation and the Ukraine war hit growth.

Sam Miley, senior economist at the CEBR thinktank, explains:

February’s slowdown in growth aligns with Cebr’s outlook for the economy across 2022 as a whole.

Though output was always set to show slower growth in 2022 than 2021 due to differing base effects, the expected slowdown has now taken on a more negative tone due to several emerging trends within the economy. Amongst these are the emerging cost-of-living crisis and the impacts of the conflict in Ukraine.

For the former, the combination of rising inflation and slowing wage growth means that real spending power is set to reduce significantly, putting downward pressure on the consumption element of GDP. The conflict in Ukraine feeds into these consumer impacts, notably through the increased price of oil and other commodities, while also impacting the UK economy through supply chain disruption and general uncertainty.

UK GDP forecasts
UK GDP forecasts Photograph: CEBR

Overall, Cebr expects GDP to grow by just 3.1% in 2022, much slower than the 7.4% expansion in 2021 when the economy was recovering from 2020’s slump.

China’s factory gate prices rose more than expected in March, official data released earlier today showed.

The producer price index, which tracks the prices charged by manufacturers, gained 8.3% from a year earlier. Although that’s down from 8.8% in February, it is above estimate of an 8.1% increase.

It highlights that supply chain bottlenecks, rising commodity prices and production disruption from Covid-19 outbreaks are pushing up costs, which have been feeding through to consumers.

Russia to halt bond sales and threatens legal action if it defaults

Russian Finance Minister Anton Siluanov.
Russian Finance Minister Anton Siluanov. Photograph: Evgenia Novozhenina/Reuters

Russia will take legal action if it’s forced to default on its external debt, finance minister Anton Siluanov has told Russian newspaper Izvestia.

In an interview with Izvestia, Siluanov also said that Russia would halt its bond sales for the rest of the year, due to prohibitive borrowing costs. The borrowing cost would be “cosmic”, Siluanov said.

Last week, Russia was unable to make over $600m debt repayments to bond holders in US dollars becuase the US Treasury blocked the payments. That prompted Moscow to set aside roubles instead, which could potentially be classed as Russia’s first default since 1998.

Rating agency S&P Global Ratings cut its rating on Russia to “selective default” on Friday night, saying it didn’t expect it would be able to convert the rubles into dollars within a 30-day grace period.

Siluanov accused the West of trying to artificially create a man-made default, saying Russia tried in good faith to make the payment.

“Of course, we will sue, because we have taken all the necessary steps to ensure that investors receive their payments.

“It will not be an easy process. We will have to very actively prove our case, despite all the difficulties.”

The Kremlin has also insisted today that Russia had the resources to pay its debt so there was no objective reason for a default.

Kremlin spokesman Dmitry Peskov told reporters.

“There can only be a technical, man-made default.

“There are no objective reasons for such a default. Russia has everything it needs to fulfil all its obligations.”

State-owned Russian Railways has been ruled in default on a bond after missing an interest payment last month, as sanctions hamper Russia’s ability to make financial payments.

It’s thought to be the first time that a Russia-originated debt instruments has been officially classified as defaulted since the country’s invasion of Ukraine.

The EMEA Credit Derivatives Determinations Committee, whose members include some of the world’s biggest investment banks, said on Monday it had decided a “failure to pay” credit event has occurred on Swiss franc loan participation notes linked to state-owned Russian Railways.

The decision, after a grace period ran out, means that contracts insuring the company’s debt against default will be triggered, and holders will now wait to see how much will be paid, says Bloomberg, adding:

State-owned Russian Railways attempted to pay the bond coupon, but it failed to reach holders due to “legal and regulatory compliance obligations within the correspondent banking network.”

Reuters has more details:

The loan participation notes due 2026 were issued by RZD Capital to finance a loan of 250 million Swiss francs ($268m) to Russian Railways.

Western sanctions against Russia following the Ukraine invasion, which Russia says is a “special military operation”, have imposed strains on the Russian economy and raised questions about the possible default of many bonds issued by Russian corporations.

In turn this has raised the possibility of substantial writeoffs by Western lenders to Russia. Bank of America, Goldman Sachs International and JPMorgan Chase Bank are some of the committee members who voted “yes” to the question on whether a failure to pay event occured on these assets. The committee met on April 8.

Russian Railways said it had attempted to make interest payments due March 14 but was unable to due to “legal and regulatory compliance obligations within the correspondent banking network,” according to an official notice posted by the SIX Swiss Exchange and referenced in the request to the committee.

The NIESR economic thinktank have predicted that UK growth will stall in the April-June quarter, with a small contraction in the production sector.

Here’s their take on today’s UK GDP report:

  • February’s growth underperformed expectations at 0.1%, despite positive contributions from the hospitality, travel agency and recreation sectors, which continued to normalise after Covid-19. Our final forecast for the first quarter of 2022 is for growth of 1.0%.

  • The 3.8% month-on-month decline in healthcare output reflects a reduction in Covid-related activity. Falls in retail and manufacturing, on the other hand, may reflect the rising cost of consumer and producer goods even before the war in Ukraine began.

  • Our initial nowcast for the second quarter of 2022 is for GDP unchanged from the first quarter, with a small quarter-on-quarter fall in production and a small rise in construction.

European stock markets are slightly lower today, amid worries about slowing growth and rising inflation.

In London the FTSE 100 index has dipped by 12 points or 0.15% to 7657, having closed at eight-week highs on Friday.

Germany’s DAX is 0.5% lower, while the pan-European Stoxx 600 is down 0.4%.

But France’s CAC has gained 0.5%, after Emmanual Macron topped Sunday’s first round of the French presidential election with 27.6% of the vote, ahead of Marine Le Pen with 23.4%., That sets up a run-off second round poll in two weeks.

Hard-left leader Jean-Luc Mélenchon came in third, with a higher-than-forecast 22% of the vote, and the choice of his voters is now a key factor as Macron and Le Pen look to win support from the smaller candidates.

Our Paris correspondent Angelique Chrisafis reported:

Mélenchon immediately gave a speech in Paris shouting three times: “Do not give a single vote to Marine Le Pen!” to huge cheers.

The majority of his leftwing supporters five years ago opted to vote for Macron in the second round simply to keep out Le Pen. But polls this time have suggested that a number of them may be tempted to vote Le Pen in protest against Macron.

French stocks had come under pressure last week, as polls showed Le Pen had narrowed the gap with Macron.

RBC Capital Markets say there were some small surprises in the voting:

Firstly, the gap between Macron and Le Pen at a little over 4pp, was at the upper end of the range suggested by the immediate pre-election polls.

Secondly, hard-left candidate Jean-Luc Mélenchon who finished third, received a somewhat larger share of the vote than the pre-election polls would have suggested, while Valérie Pécresse (The Republicans) and Anne Hidalgo (Socialist Party), the candidates of the two “traditional” parties of government performed worse than expected receiving just under 5% and 2% of the vote respectively.

With the first round now complete, the focus will turn to the second-round run-off between Macron and Le Pen. From a markets perspective, a second Macron term would likely be viewed as representing stability and continuity, and taken as the most benign outcome. By contrast a Le Pen victory, would likely be taken very negatively by the market given her Eurosceptic leanings.

UK airlines are continuing to cancel dozens of flights today as they struggle with staff shortages, as demand jumps over the Easter holidays.

PA Media have the details:

British Airways axed at least 64 domestic or European flights to or from Heathrow.

Affected UK routes were between the west London airport and Aberdeen, Edinburgh, Manchester and Newcastle.

Among the international routes affected were services to and from Berlin, Dublin, Geneva, Paris and Stockholm.

British Airways said passengers were given advanced warning of the cancellations.

The airline decided last month it would reduce its schedule until the end of May to limit the need to cancel flights at short notice due to staff shortages.

It has focused on routes with multiple daily flights, meaning passengers can be offered alternative departures on the same day they booked.

EasyJet cancelled at least 25 flights to or from Gatwick, affecting routes between the West Sussex airport and Amsterdam, Copenhagen, Glasgow and Milan.

The low-cost carrier said cancellations are being made “in advance to give customers the ability to rebook on to alternative flights”.

Philip Shaw of Investec warns that UK growth will be patchy over the rest of the year, after 0.8% growth in January and 0.1% in February.

  • At this stage we see no need for a material change to our 2022 GDP forecast of 4.0% this year. This might convey a false impression that the economy will remain solid through the remainder of the year. However we would stress that the full calendar year numbers can hide a multitude of sins and the great majority of the heavy lifting to get to this forecast has been done by robust growth at the turn of the year. Indeed we estimate that if the economy were to remain flat between March and December, annual GDP growth would still register 3.7%.

  • Instead we envisage the pattern of growth becoming patchy over the remainder of the year. This principally reflects the fact that surging energy and food prices plus higher taxes will put strains on household incomes. In addition, the additional Jubilee holiday in June will also drag on growth in the middle of the year. The GDP figures that have been recorded over the first couple of months of the year are likely to be about as good as they will get over 2022.

Heathrow Airport has recorded its busiest month since the start of the coronavirus pandemic, my colleague Mark Sweney reports:

Heathrow says it is increasing resources as fast as possible, as March proved to be the busiest month for passengers at the UK’s biggest airport since the pandemic began.

The west London airport, which is aiming to hire 12,000 staff to cope with an expected summer holiday boom, admitted that resources were “stretched” as a surge in bookings creates long delays over the Easter holiday period.

“Following a very weak January and February, passenger numbers in March were the highest since the start of the pandemic, following the government’s removal of all travel restrictions, making the UK the first country in the world to do so,” the airport said.

More reaction to the UK GDP report:

Experts: UK economy is at risk of stalling after February slowdown

The UK economy is at risk of stalling, or contracting, in the months ahead, as the cost of living crisis weighs on growth, economists are warning today.

The disappointing 0.1% rise in GDP in February shows that the economy is fragile, as households face the worst cost of living squeeze in decades.

Ruth Gregory of Capital Economics says the economic recovery following December’s Omicron-induced fall in GDP stalled in February:

The news that the economy was hardly growing at all in February suggests the economy had a little less momentum in Q1 than we had previously thought, and increases the risk of a contraction in GDP in the coming months as the squeeze on household real incomes intensifies.

Thomas Pugh, economist at RSM UK, predicts growth will slow sharply through 2022:

‘The 0.1% m/m rise in GDP in February suggests growth in Q1 is set to come in at around 1% q/q. However, the cost-of-living crisis and supply chain disruption mean growth is set to slow sharply.

Indeed, our forecasts suggest GDP growth will average just 0.1% in each of the remaining three quarters of this year – so while we aren’t currently forecasting a recession, it would not take much of a rise in oil prices or a disruption in supply chains to push the UK into one.

Pugh points out the economy kept bouncing back from the disruption caused by the omicron virus, with output in consumer-facing services growing by 0.7% in February.

But February may be the last month with a positive sign in front of its economic growth figure for a while, Pugh warns:

Surging fuel prices, slumping business and consumer confidence and supply chain disruptions will start to be felt from March and will really kick into gear in April when consumer energy prices rose by 54%.

ING’s James Smith forecast a small contraction in the April-June quarter:

Putting that together, we expect first-quarter GDP to come in at roughly 1% before turning negative in the second quarter.

We expect a small contraction of -0.2/-0.3%, though for now, the jury’s out on whether that evolves into a technical recession (requiring a subsequent fall in GDP in the third quarter).

Danni Hewson, AJ Bell financial analyst, writes that the economy was limping along in February:

“It was the month the UK was supposed to start “living with covid” but if February is an indication of what that life will look like, the UK economy is in trouble. There was growth, but barely, the scaling back of covid testing programmes and with the booster boost long gone the economy was left limping, further hampered by a car industry still plagued by chip shortages and spiralling costs. And that was before Russia invaded Ukraine, pushing up prices of crucial metals even further, snarling up supply chains once again and sending energy costs into the stratosphere.

“A downbeat production sector means a greater reliance on services for growth and with the cost-of-living crisis only just really baring its teeth there is concern that this month’s anaemic growth might be as good as it gets for a while.

“And the service sector had it fair share of problems in February not least from staff sickness and the triple ravages of February storms. Businesses as disparate as accountants and beauticians said their trade had been impacted by the blustery weather which kept people safely indoors. The strong winds also delayed building work though fencing services got a late month surge in demand as the country dealt with the destruction.

James Smith of Resolution Foundation warns that there are more headwinds ahead:

Here’s Kate Nicholls, CEO of UKHospitality, on the UK GDP report:

On the GDP figures, chancellor of the exchequer, Rishi Sunak said:

“I welcome the positive growth seen across the economy in February, which continues to recover from the pandemic, boosted by the support we provided.

“Russia’s invasion of Ukraine is creating additional economic uncertainty here in the UK, but it is right that we are responding robustly against Putin’s unprovoked invasion.

“We are supporting families with the cost of living with £22bn of support this financial year, and building a high productivity, low tax economy, including through a tax cut worth up to £1,000 for half a million small businesses.”

But shadow chancellor Rachel Reeves warns that more action is needed on the cost of living crisis, with the energy price cap having jumped 54% this month:

Full story: UK economy slows more than expected as car production slumps

UK growth slowed more than expected in February amid a slump in car manufacturing, despite a sharp recovery in overseas holiday bookings after the easing of Covid restrictions.

The Office for National Statistics said gross domestic product rose by only 0.1% in February, down from a monthly growth rate of 0.8% in January when the economy was recovering from the coronavirus Omicron variant.

City economists had forecast a monthly growth rate of 0.3%. Overall, the economy was 1.5% bigger than its pre-pandemic level in February.

Raising questions over the strength of the economy before Russia’s invasion of Ukraine in late February, manufacturing slumped as car producers continued to struggle with sourcing parts amid global supply chain disruption and shortages of vital components.

More here:

The three storms which hit the UK in mid-February weigned on the construction sector, leading to the 0.1% drop in output.

The ONS reports that Storms Dudley, Eunice and Franklin caused delays at construction sites, and led some projects to be suspended.

This was because more working days were lost on sites and premises than normal for this time of the year. However, some businesses reported a positive impact as they picked up repair and maintenance work caused from storm damage.

UK construction output, to February
UK construction output, to February Photograph: ONS

Updated

ING: Expect negative GDP in April after free Covid testing scrapped

UK growth slowed in February because falling health spending counterbalanced the bounces as Omicron restrictions were lifted, says James Smith of ING (corrected).

Firstly – and not that surprisingly – consumer services recorded a strong bounce in what was really the first month of ‘business as usual’ again after Omicron. The bulk of Covid-19 restrictions (including work from home guidelines) had stopped, and card spending at social venues returned to comparable pre-virus levels. Both hospitality and arts/entertainment/recreation bounced by almost 9% compared to January – led by tourism-facing industries, according to the ONS.

Acting in the opposite direction was health spending, which fell by close to 5%. This category has been driven almost solely by fluctuations in Covid testing levels and vaccine activity over the past year or so. Indeed even including the latest fall, monthly GDP is still over 1% higher than it would have been had health spending hypothetically stayed flat through the pandemic.

UK GDP analysis

Health spending is likely to be the number one driver of these GDP figures over the next couple of months, Smith adds:

That’s especially true for April’s figures, given that the NHS stopped free mass testing for the general public at the end of March. In other words, expect a negative GDP figure for April.

Updated

The drop in activity at NHS Test and Trace and Covid-19 vaccination programmes knocked 1.1 percentage points from the UK’s gross domestic product (GDP) growth in February, the ONS reports:

This was driven by large falls in both NHS Test and Trace (falling 47%) and the vaccination programmes (falling 65%).

It is important to note, though, that this follows particularly high levels of activity in December and January reflecting the vaccination booster campaign and high rates of infection from Omicron.

UK GDP: February 2022
UK GDP: February 2022 Photograph: ONS

Economist Samuel Tombs of Pantheon Macroeconomics says health output could keep dropping for some months:

Updated

Alpesh Paleja, CBI Lead Economist, warns that the government isn’t doing enough to help firms to cope with the cost of living squeeze and disruption caused by the Ukraine war.

“Following the bounce at the start of the year, it’s no surprise that economic growth slowed in February. Near-term challenges to the outlook have ramped up since, with a growing cost-of-living crunch set to weigh on growth.

“Businesses are also grappling with headwinds from the Ukraine conflict, which is exacerbating cost pressures and supply chain disruption.

“It’s clear that growth impetus remains underwhelming. While the Government took some steps to sustain confidence in our economy in the Spring Statement, they don’t do enough to tackle the current challenges facing firms.

“The only enduring response to these is a relentless campaign for economic growth and productivity, through measures such as capital allowances, R&D reforms and a revised apprenticeship levy.”

The UK is entering a ‘prolonged period’ of much weaker growth as the cost of living crisis hits the economy, warns Suren Thiru, head of economics at the British Chambers of Commerce.

“While economic output continued to rebound in February, the significant slowdown in growth indicates that the UK economy was losing steam even before the impact of Russia’s invasion of Ukraine.

“Tourism-related industries and accommodation services recorded the strongest improvements in the month as the end of Plan B restrictions, and reduced concerns over Omicron, supported activity. However, this was mostly offset by a significant drop in NHS Test and Trace services and vaccine activity as well as declines in industrial and construction output.

“February’s slowdown is likely to be the start of a prolonged period of considerably weaker growth as rising inflation, surging energy bills and higher taxes increasingly damages key drivers of UK output, including consumer spending and business investment.

Updated

GDP: the key charts

UK GDP, February 2022
UK GDP, February 2022 Photograph: ONS
UK GDP to February 2022
UK GDP to February 2022 Photograph: ONS
UK GDP February
UK GDP February Photograph: ONS

Darren Morgan, director of economic statistics for the ONS, says UK manufacuturing output ‘fell notably’ in February as firms continued to struggle to obtain parts.

But the easing of travel restrictions lifted the travel sector, Morgan explains.

Introduction: UK growth slower than expected in February

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

UK economic growth slowed by more than expected in February, with Britain’s industrial output dropping as manufacturers struggled to obtain parts.

UK GDP rose by just 0.1% in February, new figures from the Office for National Statistics shows, with activity at Covid-19 Test and Trace and vaccination rollout programmes dipping.

That followed 0.8% growth in January, and is below the 0.3% February growth which economists expected. It leaves the economy around 1.5% larger than two years earlier, just before the UK’s first lockdowns.

The ONS reports that the services sector was the main contributor to growth in February, expanding by 0.2%, after England’s ‘Plan B’ restrictions were lifted at the end of January.

Ths was driven by tourism-related industries, after the scrapping of coronavirus testing for double-vaccinated travellers arriving in the UK from mid-February, in time for the half-term holidays.

The ‘travel agency, tour operator and other reservation services’ sector saw a 33% rise in activity, and accommodation grew 23%.

But human health activities dropped (down 5.1%), due to a fall in activity at NHS Test and Trace and vaccination activity after a busy December and January.

The production sector suffered a 0.6% drop in activity, while construction dipped by 0.1%.

Manufacturing was the main driver of negative growth in the production sector , falling by 0.4% in February 2022, the ONS says.

Car production, which has suffered from the shortage of semiconductors, saw output fall over 5%.

Contractions of 5.4% in manufacture of transport equipment (driven entirely by the fall in manufacture of cars), 4.3% in manufacture of computer, electronic and optical products, and 5.0% in manufacture of chemicals and chemical products were slightly offset by manufacture of basic pharmaceutical products and pharmaceutical preparations, which saw growth of 9.8%.

It leaves monthly GDP 1.5% above its pre-Covid-19 levels of February 2020.

Services is now 2.1% above its pre-coronavirus level, while construction is 1.1% above and production is 1.9% below, the ONS reports.





Also this morning, Elon Musk has decided not to join Twitter’s board of directors, in a U-turn just days after becoming its biggest shareholder.

Twitter’s chief executive, Parag Agrawal, says he believes the moves is for the best.

We have and will always value input from our shareholders whether they are on our board or not. Elon is our biggest shareholder and we will remain open to his input.”

There will be distractions ahead, but our goals and priorities remain unchanged.

Musk has tweeted a hand-over-mouth emoji following Agrawal’s announcement.

He’s been outlining various ways in which Twitter could (in his view) improve the services, including adding an edit button to tweets and criticising its moderation policies.

Europen stock markets are on track to open lower:

The agenda

  • 7am BST: UK GDP and trade report for February
  • 11am BST: NIESR Monthly GDP Tracker for March
  • 2pm BST: Russian foreign trade data for February
  • 2pm BST: Bank of Israel’s interest rate decision

Updated

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