It is not just the United Kingdom that is struggling.
The German economy showed some signs of slowdown due to the decline in production in April, while the services sector was better supported, according to the latest PMI data.
The Bundesbank estimates that an energy ban on Russia following its invasion of Ukraine (which is still under discussion) could push Europe’s largest economy into recession.
The pound fell 1.1% to an 18-month low after a drop in retail sales
The pound fell more than 1% to its weakest level since the end of 2020, after a sharp drop in UK retail sales showed the impact of the cost of living crisis driven by rising fuel and food prices.
Combined with weaker data from S&P Global’s business survey and Gfk’s decline in consumer confidence, the figures have led to expectations that the Bank of England will raise interest rates less aggressively.
Meanwhile, US Federal Reserve Chairman Jerome Powell nearly sealed the 50-point increase in interest rates in May, saying it was “absolutely important” to curb inflation. And money markets are pricing with a more aggressive rise in interest rates from the European Central Bank, following hawkish comments from central bank officials on Thursday and better-than-expected PMI figures for the eurozone today.
Sterling traded 1.1% lower against the dollar at 1.2887 dollars and 0.77% lower against the euro at 1.1925 euros.
Nick Fowley, a Daily FX strategist, tweeted:
The crisis of consumer confidence in the United Kingdom: the first sign of problems, said Calum Pickering, a senior economist at Berenberg Bank.
Confidence surveys, published well before official economic statistics, often provide the first indication when something is changing in the mainstream economy. For this reason, we should not overlook the recent batch of consumer confidence data for the United Kingdom. In a number of measures of current sentiment and expectations, data in April are close to or above their lowest levels in the survey.
As our chart shows, the signal sent by the current level of confidence is ambiguous: real consumption is likely to decline at the moment, as the UK is plagued by rising inflation and global supply challenges that have been exacerbated by Putin’s war and blocking China. The key question is whether the shock will last long enough to cause a recession. With an unusually uncertain short-term perspective, it is not easy to answer. The data show, at a minimum, that investors must be prepared for a bad outcome.
The decline in consumer confidence often signals a delay Photo: Berenberg Bank
He added:
The Bank of England has a strong attachment: after reacting late to rising prices, the BoE (along with the US Federal Reserve) is now chasing rising inflation with a series of interest rate hikes. A fourth such increase seems likely at the upcoming meeting on May 5 – when politicians will raise the bank’s interest rate by another 25 basis points to 1.0%. Although the BoE has no choice but to respond to the jump in inflation, it is clearly at risk of policy error, continuing to tighten as the risk of recession increases.
Consumer demand for fewer products amid declining confidence will lower prices and reduce the risk of persistent over-inflation. If workers fear a recession, they may simply be happy to keep their jobs and not impose any previous advantage in wage negotiations. Inflation will be higher than expected in the short term due to Putin’s war, but the jump may be followed by a period of disinflation below 2% for some time thereafter.
In the worst case scenario, the BoE may unknowingly drag on into a recession that is already under way, as well as react to a problem with inflation that may disappear mostly on its own.
India and the United Kingdom will continue negotiations on a bilateral free trade agreement, said Boris Johnson and Indian Prime Minister Narendra Modi, after the United Kingdom made it clear that it was ready to make immigration part of any deal, said our political editor Heather Stewart of Delhi. .
The couple seems to differ on how quickly an agreement can be reached – Johnson speculated that it could be ready for the Diwali Festival in late October, but Modi indicated the end of the year.
Johnson said: “As the next round of talks begins here next week, we are telling our negotiators to do so by Diwali in October.
Modi said there was good progress and we decided to make every effort to conclude the FTA [free trade agreement] by the end of this year”. Three rounds of negotiations have already taken place.
European stocks are falling as traders prepare to raise interest rates further after hawkish comments from central bank officials.
The FTSE 100 index in London fell by about 0.6% to 7583, while European indices fell by more than 1%. The pan-European Stoxx 600 fell 1%.
US Federal Reserve Chairman Jerome Powell said yesterday that the increase in interest rates by half a point (50 basis points) “will be on the table” when the bank meets on May 3-4. The comments came after European Central Bank Vice President Luis de Gindos backed the termination of the central bank’s bond-buying program in July and said he could raise interest rates this month, in September or later.
Money markets are now priced at nearly 85 basis points from the ECB’s interest rate hike this year, instead of 70 basis points early Thursday before ECB officials speak. They set pricing at 25 basis points by July. The latest euro area PMI data were better than expected and showed an increase in growth and inflationary pressures in April.
Meanwhile, the governor of the Bank of England, Andrew Bailey, has been more cautious, and recent grim data on retail sales and business surveys on the impact of high inflation and the cost-of-living crisis suggest the bank could rise by a quarter rather than a quarter. half. point of its meeting in May.
Here’s our full story of the March decline in UK retail:
Updated at 11:18 BST
Dean Turner, an economist at UBS Global Wealth Management, said:
A disappointing set of PMIs, amid very weak retail sales, underscores that shrinking living costs are hitting economic activity hard. Meanwhile, price pressures continue, but there is some evidence that companies that pass them on to consumers are beginning to have a negative impact on demand, offsetting the push from the end of covid restrictions.
Growth in the second quarter is likely to be weaker than in the first three months of the year, as the push to reopen covid has subsided. And to be clear, the PMI level shows an economy that is still growing. However, the loss of momentum here and in the data more generally highlights the risk of economic downturns in the current quarter. However, we still believe that the Bank of England will continue to raise interest rates next month, but they are likely to stop sooner than markets currently expect.
Sterling sold data this morning, falling to a 17-month low against the dollar. We are still seeing the pound higher this year as a lot of bad news is already in the price. However, this is likely to be a difficult period for the pound in the short term.
The PMI of services in the United Kingdom fell sharply from a 10-month high in March, while the index of new orders fell to 54.6 from 60.4 in February. The slowdown has also led companies to slow down their hiring pace; the employment index fell to 55.8 – its lowest level since April 2021 – from 58.4 in March.
PMI in manufacturing remained broadly unchanged after a sharp decline in March, but as the output index improved, the new orders index fell to just 51.2, its lowest level since June 2020, while employment growth also slowed. , said Gabriela Dickens, senior economist at the UK Pantheon Macroeconomics. She said:
PMI data for April add to the evidence that the sharp decline in real household disposable income is beginning to halt the economic recovery.
UK exporters are beginning to be hit by declining demand from key trading partners; the balance of new export orders fell to 47.3 from 49.4 and remained below its eurozone counterpart for the sixteenth consecutive month.
Meanwhile, manufacturing and service companies are becoming increasingly concerned about the prospects for demand amid growing real income pressures; The index of future production of composite PMI fell to an 18-month low of 68.0 from 72.2.
April data for the United Kingdom show the slowest expansion in 3 months with #PMI at 57.6 (March: 60.9). Record inflationary pressures and the war in Ukraine weighed on customer demand in both the manufacturing and services sectors. Read more: pic.twitter.com/eHJUd1Zhad
– IHS Markit PMI @ (@IHSMarkitPMI) April 22, 2022
Record inflation and the war in Ukraine hit demand in the United Kingdom
Record inflationary pressures and the war in Ukraine hit UK private sector demand in April, with a closely monitored study showing the slowest rise in new orders to date in 2022.
Data for April show a much slower pace of recovery in the UK economy, according to rapid business research by S&P Global. The companies mainly noted that the cost of living crisis and economic uncertainty stemming from the war in Ukraine have affected customer demand.
Service providers have suffered a significant loss of momentum as the shift in escalating costs offsets the consumer cost boost from the end of Covid-19’s restrictions. Manufacturers have also struggled to increase orders as their production costs have risen, with the latest increase in factory entrance prices being by far the fastest in history.
Main findings:
- Flash UK PMI Composite Output Index at 57.6 (Mar: 60.9). 3-month minimum.
- Flash UK Services PMI Business Activity Index at 58.3 (Mar: 62.6). 3-month minimum.
- Flash UK Manufacturing Output Index at 53.8 (Mar: 51.8). 2-month maximum.
- Flash UK Manufacturing PMI at 55.3 (Mar: 55.2). 2-month maximum.
Updated at 10.46 BST
Bert Colleen, senior economist for the eurozone at ING, reviewed the PMI data.
For the time being, consumers are ignoring the contraction in purchasing power, as the effects of reopening are stimulating the growth of the services sector while production is cooling. We now …
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