This isn’t how Theresa May would like her first conference as Tory leader to be remembered.
But it appears that the slump in the pound vs the euro this week means Britain has fallen to sixth place in the list of the world’s biggest economies, behind our old friends France.
The FT’s Chris Giles has crunched the numbers, and explains:
International Monetary Fund estimates of the size of economies in 2016 puts the UK at £1,932bn with France weighing in at €2,228bn, putting the UK ahead so long as a pound buys more than €1.153.
At the start of the week, the prime minister, chancellor, foreign secretary and Brexit secretary all boasted that Britain would get a good deal in EU talks because Britain was the fifth-largest economy in the world. At that stage their words could be justified with sterling worth €1.16 at the end of last week.
The paradox of the tough talk — with suggestions that Britain will leave the single market and clamp down heavily on immigration — has been to pull the rug from under sterling, leaving it at a post-Brexit low of €1.14 on Wednesday and below the point at which it is the fifth-largest economy.
The pound is currently hovering around €1.134, having hit a five-year low this morning.
The encouraging service sector PMI has given the poor old pound a bit of relief.
Sterling has now struggled back from its early morning selloff, and is now back around $1.2740 against the US dollar.
We’ve now had three months worth of PMI data, since the UK referendum.
And they suggest that the economy did deteriorate in July, before bouncing back in August and September.
David Noble, CEO at the Chartered Institute of Procurement & Supply, is also encouraged by September’s service sector report.
Policymakers were offered much-needed positive news for September after the recent Brexit upheaval, as the service sector reported the fastest increase in new business since February this year. Though the overall activity index still remained below its long-term average and had dipped slightly compared to August, it reflected a modest revival of fortunes for services businesses.
But although firms took on more workers in September, “disquiet” around Brexit still remains, Noble says:
The sector concentrated on stabilising rather than forging ahead with confidence, as optimism stayed below the long- term average.”
Fears that Britain could be falling into recession have faded, following today’s service sector data.
Chris Williamson, chief business economist at IHS Markit, believes the UK has regained “modest growth momentum”
“Across the three sectors [Services, Construction and Manufacturing] the pace of economic growth signalled was the strongest since January, fuelling greater job creation as companies shrugged off short-term Brexit worries and enjoyed the benefits of a weaker currency.
“The improvement suggests the economy has regained a growth rate of approximately 0.3% after recovering from the initial shock of the EU referendum in late-June. If July’s low is included, the PMI surveys point to a mere 0.1% expansion of GDP in the third quarter, but this probably overstates the weakening in the rate of growth.
UK Services sector beats forecasts
Breaking: Britain’s services sector grew faster than expected last month, as firms shake off the shock of June’s Eu referendum.
The Service Sector PMI, produced by data firm Markit, has come in at 52.6.
That shows slightly slower growth than August (52.9), but comfortably ahead of estimates.
Markit reports that:
- Activity rises but growth rate eases slightly
- New business grows at fastest rate since February
- Largest input cost rise since February 2013
Service sector firms reported that new business rose at the fastest pace since February, as customer enquiries picked up and confidence recovered.
There was also “rising demand from overseas clients” linked to the weak pound.
However, there are also worries that the slump in sterling is driving up import costs.
The UK service sector continued to recover from July’s EU referendum-induced shock,
However, future expectations remained very low by historical standards and the survey recorded the sharpest increase in service sector input prices in over three-and-a-half years.
More to follow….
Britain’s car industry seems to have ridden out the Brexit storm, so far anyway.
New car registrations in the UK rose 1.6% in September to hit a new record, according to new data from the Society of Motor Manufacturers and Traders.
But SMMT chief executive Mike Hawes warns that the industry could yet be damaged:
“The ability of the market to maintain this record level of demand will depend on the ability of government to overcome political uncertainty and safeguard the conditions that underpin consumer appetite”
Report: Hard Brexit could cost 70,000 City jobs
How bad would a ‘Hard Brexit’ be?
Well, according to a new report, 70,000 financial services jobs could be lost if the UK leaves the single market. Up to £10bn of tax revenue could be wiped out too — if British firms lost the ability to sell services across the European single market.
The key is whether Britain retains its ‘passporting’ rights, which currently allow City firms to operate in every EU country without separate licences or offices on the ground.
The report, by consultancy group Oliver Wyman for TheCityUK lobby group, says that Britain would only suffer a ‘modest reduction’ in activity, if it retained access to the single market.
In this scenario, revenues are predicted to decline by up to £2BN (2% of total wholesale and international business), 4,000 jobs would be at risk, and tax revenues would fall by less than £0.5BN per annum.
However, losing access to the single market would be much more serious …
Under conditions where the UK moves to a third country arrangement with the EU, without any regulatory equivalence and its relationship with the EU is defined by terms set out under the World Trade Organization, up to 50% of EU-related activity (£20BN in revenue) and an estimated 35,000 jobs could be at risk, along with £5BN of tax revenues per annum.
When taking into consideration the knock-on impact to the whole financial services ecosystem – the possibility of shifting of entire business units, or the closure of lines of business due to increased costs it could almost double the effect of Brexit.
The Conservatives are promising a hard line on immigration — so it’s hard to see how they can restrict the movement of people into the UK, while retaining the movement of capital out of it…
Eurozone private sector growth hits 20-month low
Just in: growth in the eurozone’s private sector slowed in September, suggesting Europe’s economy may have hit a soft patch.
The monthly Eurozone Service sector PMI, from Markit, has dropped to 52.2, from 52.8 in August. That shows the slowest growth in activity since December 2014.
And the wider ‘composite’ measure, including manufacturing, shows growth slowed to its weakest since January 2015.
Growth picked up in France (hurrah!), but dipped in Germany, Ireland and Spain (boo)
It’s fairly unusual for a party conference to move the currency markets.
But there’s no doubt that the news from the Conservative’s meet-up in Birmingham this week has weakened the pound.
Jeremy Cook of World First, the currency trading firm, says:
It’s another day and another set of fresh post-Brexit lows for sterling against the majority of its trade partners. Trade weighted sterling has been lower than it is now – following the UK’s withdrawal from the ERM in the early 90s and as the Global Financial Crisis hit in 2008 – but Britain’s exporters must be praying that this Conservative Party Conference lasts another 6 weeks.
Has Tesco turned the corner? Shares in the supermarket chain have jumped by 8% this morning, after its latest financial results.
Investors are cheering a chunk rise in operating profits (but not in pre-tax levels), from £372m to £515m, and sales growth across the business. On the downside, the pension deficit has more than doubled this year….
Britain’s currency has effectively been devalued by 15% against major rivals since June 23rd.
Some analysts are predicting the pound could suffer further shunts downwards, as the EU exit negotiations begin in earnest.
In today’s Financial Times, Koon Chow, macro and forex strategist at UBP, says:
“The pound’s drop is likely to be a series of spaced out depreciations, with the trigger for weakness being each piece of new information on the economic sacrifice that the UK government is willing to take on the path to Brexit.”
London’s stock market has also dropped in early trading, even through a weak pound is good for some companies.
The FTSE 100 index, which nearly hit a record high yesterday, has dropped by 18 points to 7056.
And the UK-focused FTSE 250 has also dipped by around 0.2%
Analyst: Brexit fears may be bone deep
Sterling is continuing its “slippery decline” this week as ongoing Brexit uncertainties haunt investor attraction towards the currency.
So says FXTM research analyst Lukman Otunuga, who reckons investors aren’t taking comfort from recent solid economic data.
Brexit jitters may be bone deep consequently ensuring the Sterling remains depressed until the article 50 invoke date.
Although sentiment towards the UK economy continues to be uplifted as domestic data repeatedly beats, the persistent uncertainty and unknowns over how the Brexit negotiations will take place have seriously soured investor appetite towards the Sterling.
This chart shows how sterling has hit new 31-year lows this morning, below $1.27.
The pound has now lost almost three cents against the US dollar this week (and it’s only Wednesday morning).
Theresa May knocked the wind out of sterling on Sunday, when she announced she’d trigger article 50 in March 2017, raising the chances of a hard break from the EU.
The pound is falling again….
Fears over Britain’s looming exit from the European Union are hitting the pound again this morning.
Sterling has slipped to a fresh 31-year low against the US dollar, falling below $1.27 for the first time since 1985.
The pound is currently changing hands at $1.26932, down 0.25% today, extending yesterday’s selloff.
Sterling has also slid to a new five-year low against the euro in the last few minutes. It’s now worth just €1.1321, meaning one euro is worth 88.3p.
So what’s happening?
Simply put, the pound is being rattled by worries about a ‘hard Brexit’. That could see UK firms lose access to the single market as the government priorities control over immigration.
The agenda: UK service sector in focus
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Two down, one to go. After solid data from Britain’s manufacturing and construction sector this week, it’s time to find out how the services sector performed in September.
Markit’s services report, released at 9.30am, is expected to show steady growth. Economists expect the PMI to come in at 52.1, down from 52.9 in August. That would show another month of solid growth, despite the shock of the Brexit vote in June.
And given that the manufacturing and construction PMIs both beat forecasts this week, perhaps services will do to.
Analysts at RBC Capital Markets suspect we MAY learn that Britain’s economy is growing faster than thought.
The September Markit/CIPS services PMI for the UK is due this morning. So far both the manufacturing and construction sector PMIs have surprised very clearly to the upside.
A repeat in the services sector would reinforce the upside risks to our Q3 GDP growth forecast of -0.1% q/q which materialised after last week’s strong news on output in the service sector in July.
The eurozone’s service sector gets its own healthcheck too, at 9am.
Also coming up today…
The International Monetary Fund will release its Global Financial Stability Report at 1.45pm BST, highlighting the main dangers to the world economy.
The Eurozone sovereign debt markets could be lively, following a report that the European Central Bank has been considering whether to ‘taper’ its bond-buying stimulus programme.
Supermarket chain Tesco is reporting results this morning; profits are down by a quarter, but like-for-like sales are up 0.6% in the last six months.
And Ben Broadbent, deputy governor of the Bank of England, is giving a speech at 9.30am in London.
We’ll be tracking all the main events through the day…