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Pound hits two-year low after UK economy contracts in second quarter – as it happened

This article is more than 4 years old
 Updated 
Fri 9 Aug 2019 10.28 EDTFirst published on Fri 9 Aug 2019 03.02 EDT
Welding work being undertaken at a shipyard in Lowestoft, Suffolk.
Welding work being undertaken at a shipyard in Lowestoft, Suffolk. Photograph: Si Barber/BLOOMBERG NEWS
Welding work being undertaken at a shipyard in Lowestoft, Suffolk. Photograph: Si Barber/BLOOMBERG NEWS

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So it’s official: the UK economy contracted by 0.2% in the second quarter – a worse performance than stagnation predicted on average by economists beforehand.

Sterling hit new two-year lows against the US dollar on Friday because of the shock, and economists’ attention is turning now to whether the UK is currently in recession.

Matthew Oxenford, Europe analyst at the Economist Intelligence Unit, said:

The next two quarters are likely to be marked by significant uncertainty over Brexit, and this slow rate of growth makes it more likely that the UK will enter a recession, especially in the event of a no-deal exit from the EU on 31 October.

Business investment in the second quarter of 2019 was about 13% lower than it would have been had the pre-referendum trend (from 2010 onwards) continued, according to Berenberg economists. That would weigh on future growth, they said:

The persistent threat of a hard Brexit since June 2016 has weighed heavily on the risk appetite of UK businesses. Unsurprisingly, investment has fared badly.

Berenberg asked whether there is a “Brexit vote gap” in UK business investment.
Berenberg asked whether there is a “Brexit vote gap” in UK business investment. Photograph: Berenberg

Somewhat ironically, the latest Brexit deadline could actually save the UK from a technical recession (two quarters of contraction) as companies build up stocks once more.

The same force “boosted” growth in the first three months of the year, but don’t pop the champagne: as Friday’s data demonstrates, any sugar rush is very temporary.

#NIESR quarterly #UK #GDP tracker puts growth around 0.2% quarter-on-quarter in third quarter following 0.2% q/q contraction in Q2. We currently expect Q3 growth of 0.3% q/q assuming that some renewed stockbuilding starts during the quarter ahead of 31 October #Brexit deadline https://t.co/VBhcEwLtif

— Howard Archer (@HowardArcherUK) August 9, 2019

The data put pressure on the government, according to David Owen, chief European economist at Jefferies. He said:

If the need arrives, the next Bank of England governor has to be able to say truth to power, especially when it comes to issues surrounding financial stability and if, like 1976, there is a run on sterling.

And buckle up for another Italian election. Milan’s FTSE MIB index fell by

Imogen Bachra, European rates strategist at NatWest Markets, said the investment bank has stopped buying Italian government bonds. Yields (which move inversely to prices) on Italian government debt rose steeply on Friday to hit the highest in a month.

But Mario Draghi and Christine Lagarde, the current and future heads of the European Central Bank, will prevent a more major Italian debt sell-off with more quantitative easing bond buying, she added:

New elections are now a base case. Markets were not blindsided and have been increasingly pricing election risk, but this is still a step change.

The threat of fresh elections will worry markets, but significant widening should be contained by quantitative easing expectations as markets weigh-up the additional political uncertainty against the prospect of the end of this almost-worst-case government.

Thanks for following our coverage of business, economics and markets today. Join us as ever on Monday. JJ

Sky News reports that the government has agreed to provide financial support to British Steel potentially worth £300m in a bid to secure its future.

Ministers at the business department have signed off on a deal that will allow Ataer, a subsidiary of the Turkish military pension fund, a formal period of exclusivity for its offer of about £70m, Sky reported.

Nodding donkey pumping units work at one of the oil wells at the BP-operated Wytch Farm site. Photograph: Matt Cardy/Getty Images

The world’s demand for oil is growing at the slowest rate since the financial crisis over fears of a global economic slowdown, the International Energy Agency (IEA) said.

The agency said fears about the economic impact of the US trade war with China have caused oil prices to slide despite flaring tensions in the Middle East which would typically cause markets to spike.

You can read more from the Guardian’s Jillian Ambrose here:

Shares on Wall Street have fallen at the opening bell in New York.

The Nasdaq lost 0.5% in early trade, while the S&P 500 lost 0.3% and the Dow Jones industrial average dipped by 0.2%.

Mark Read, CEO of WPP Group, the largest global advertising and public relations agency, poses for a portrait at their offices in London. Photograph: Toby Melville/Reuters

Here’s some more on the FTSE 100’s largest riser, WPP. Shares are up by 7.5%.

The advertising firm beat City forecasts, sparking investor hopes that a three-year plan to rejuvenate the beleaguered advertising giant is starting to pay off.

The company, which has been struggling to recover from a string of client losses after the sudden departure of Sir Martin Sorrell last year, limited its revenue decline to 1.4% in the second quarter. This was less than half the fall expected by City, and the rare bit of good news for investors sent WPP’s shares up more than 7%, outperforming the wider FTSE, which was down 0.3%.

Here’s more from the Guardian’s Mark Sweney:

There is a “significant risk” of the UK falling into recession when figures come out in November, according to the influential National Institute of Economic and Social Research (Niesr).

Their forecasts, based on the latest data, suggest that the economy will grow in the the July-September period by 0.2% – meaning the economy would be flat in the middle of the year, not in recession.

However, Garry Young, Niesr’s director of macroeconomic modelling and forecasting, said:

Economic growth in the United Kingdom was negative in the second quarter of 2019 and is set to remain weak in the third quarter in the face of a global slowdown and continuing Brexit-related uncertainty.

Our latest estimate implies that there is a significant risk that the economy is already in a recession that began in April, and the clear possibility of a more material downturn should there be a no-deal Brexit.

Our #NIESRGDP Tracker is out- UK economic #growth grinds to a halt as #Brexit #uncertainty and a global slowdown bite - read our analysis here:https://t.co/AwAQZ2uysn

— NIESR (@NIESRorg) August 9, 2019


Summer is cancelled – at least, it is if you happen to be a special adviser to Boris Johnson’s government.

Johnson’s chief of staff cancelled all leave for government advisers until 31 October in a missive on Thursday night, raising further speculation the government is planning for a forced snap election in the aftermath of the UK leaving the EU with no deal.

Special advisers, or spads, as they are not very affectionately known, will be compensated on a “case-by-case basis” if they have already booked time off. The email to spads said:

There is serious work to be done between now and October 31st and we should be focused on the job.

More here from the Guardian’s Jessica Elgot:

BDO Northern Ireland, Harland and Wolff’s administrators, have said several potential bidders have expressed an interest in buying the crisis-hit Belfast shipyard. Photograph: Liam McBurney/PA

Historic shipyard Harland and Wolff ceased trading on Monday. The Guardian’s Rory Carroll has spoken to workers at the site where Titanic was built.

Job losses have already started. In a statement on Friday, the administrators said some workers have been offered redundancy and have taken it. Others have been laid off until Friday 16 August but are not being paid because the yard has “insufficient funds to cover the current running costs of the business”. The lay-offs, they said, provide a few more days to look for a buyer.

They added: “A number of interested parties/potential bidders have come forward since our appointment and we are expediently following up on these inquiries in an effort to seek a viable commercial solution. This is our focus and we are working closely with interested parties and stakeholders with the aim of securing a positive outcome.”

Yet if a buyer can’t be found it could end centuries of shipbuilding, the industry that put Belfast on the map.

You can read the whole piece here:

Bayer shares rise after report of settlement for 18,000 lawsuits

Shares in German chemicals and pharmaceuticals giant Bayer surged as investors reacted to reports the firm is considering a settlement worth billions of dollars for lawsuits over the controversial weedkiller glyphosate. Photograph: Josh Edelson/AFP/Getty Images

Bayer shares are up by more than 3% after a report that the German company has proposed to pay up to $8bn (£6.6bn) to settle more than 18,000 US lawsuits related to its weedkiller Roundup.

Bayer acquired Roundup and other glyphosate-based weedkillers as part of its $63bn takeover of Monsanto last year, but the acquisition proved disastrous as a California court ruled that Monsanto should have told customers about alleged cancer risks.

Bayer shares have lost more than a third, or roughly €30bn (£28bn), in market value since August last year, Reuters reported.

Losses for the pound are gaining momentum as the US wakes up.

The new low for today against the US dollar is $1.2061. The next low point is a fair way down, at $1.1979.

Today’s euro low is €1.0770. Two years ago, on 29 August 2017, it traded as low as €1.0743. Anything below that level would be quite something: the worst since October 2009, the depths of the financial crisis.

An aerial view over Nissi Beach in Cyprus. Photograph: Dmitrii Melnikov/Alamy Stock Photo

Holidaymakers are always in the firing line of downward currency moves so imagine the feeling if your whole business relies on buying services abroad.

That’s the sinking feeling that travel operator On The Beach has been feeling today, after it warned on profits. Shares in the FTSE-listed firm are down by 15%.

Here’s a surprising fact from Reuters: Unlike travel groups such as Tui and Thomas Cook, On The Beach does not hedge against currency fluctuations, meaning hotel rooms booked in euros are becoming more expensive for customers who take the hit.

With the increased likelihood of a no-deal Brexit, sterling has significantly devalued.

This [...] leads to a significant increase in On The Beach prices versus full-risk competitors with currency hedges.

Chancellor Sajid Javid has been talking to the BBC in the aftermath of the GDP figures. He said:

No one will be surprised by today’s figures [...] The important thing is that the fundamentals of the economy remain strong.

He added that he is not frightened or worried about a no-deal Brexit, and he is comfortable that the UK can handle leaving without a deal.

However, there is still more to do to prepare for that situation, he said.

Sterling hits 31-month low against the US dollar, two-year low against the euro

The sterling sell-off on currency markets has steepened: the pound is now below $1.21 against the US dollar and below €1.08 against the euro.

That represents a daily decline of 0.5% against the euro, and 0.3% against the dollar: lows of €1.0784 and $1.2078 respectively.

Sterling has weakened markedly against the US dollar over the past five years. Photograph: Refinitiv

Thank you to Carlito1996 in the comments for dredging this link up from way back in the mists of time – 21 June 2016, just before the Brexit referendum: Boris Johnson promising to apologise if a Brexit vote led to a recession.

Two major caveats: the original question was slightly imprecise, so the new prime minister may have been referring to forecasts of an immediate recession following a vote in favour of leaving. And the UK has not reached recession, and many economists do not expect it to.

Nevertheless, Johnson’s video is worth a watch. His promise came in response to a caller to radio station LBC, who asked the former mayor of London: “If we Brexit and we go into recession, would you have the political courage, to go on TV … and say sorry, I made it wrong and I apologise?”

Of course I will [...] I’m not certain what my political career holds anyway. This is far more important than any individual political career.

Meanwhile, Facebook is reportedly in talks with news publishers to offer “millions of dollars” for the rights to publish their material on its site.

The move follows years of criticism over its growing monopolization of online advertising to the detriment of the struggling news industry.

The Wall Street Journal reported last night that Facebook representatives had told news executives that they’d pay as much as $3m (£2.5m) a year to license stories, headlines and other material.

You can read more here:

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