UK economy hit by ‘renewed signs of stress’ as growth slows; pound at six-month low – business live

Retail sales volumes fell in the year to September for a fifth month running, new data just released by the CBI shows.

Around 34% of retailers reported that sales volumes were lower than last year, while just 20% said volumes were up.

That gave a balance of 14% of retailers saying retail sales volumes were down in September, an improvement on the 44% balance in the year to August.

Suppliers also reported that orders dropped this month, with retailers expecting to cut back on orders in October too.

Martin Sartorius, CBI principal economist, says:

“There are some elements of optimism in our survey with retailers expecting the recent fall in sales to continue to ease. Last week’s lower than expected inflation figures, which in turn will ease pressure on household budgets, will also give retailers some hope going into the crucial autumn and winter trading period.

“However, higher oil and fuel prices could mean sticky inflation is with us for a while longer. There is an opportunity in the forthcoming Autumn Statement for policy makers to create a business environment for growth – whether it’s through an investment-focused tax regime or helping firms find or reskill the staff they need through a reformed Apprenticeship Levy.”

The pound has hit its lowest level against the US dollar in six months.

Sterling touched $1.221 this morning, the lowest since 24 March.

The pound is being hit by the UK economy’s weakness, after Friday’s poor PMI report fuelled recession worries.

But its also about the dollar’s strength – as traders anticipate US interest rates will be higher for longer, just as the Bank of England pauses its interest rate rises.

Stephen Innes, managing partner at SPI Asset Management, says:

The Fed’s updated projections suggest that the US Dollar will remain strong due to a robust economy and labour market. If the current run of robust economic activity persists, the Fed is on record they will raise rates and delay rate cuts. This could weaken the Euro and Sterling, especially with the continent’s Central Bank policy heading in the opposite direction.

The Fed’s policy reversal bar is high, but market concerns may arise if the anticipated economic “pothole” happens. A more balanced global growth outlook is needed, which requires European and Chinese economic activity to pick up.

Anxiety over China’s economy has helped to knock shares lower in London this morning.

The FTSE 100 index has dropped by 62 points, or 0.8%, to 7621 points. Mining companies are among the fallers, with copper producer Antofagasta (-3.3%), Rio Tinto (-3.2%) and Anglo American (-3%) among the fallers.

Gambling firm Entain’s shares are now down 9.5% after it warned this morning that online net gambling revenues will be lower than expected.

Evergrande’s struggle to restructure its debts (see earlier post), and concerns that US interest rates will remain higher for longer than hoped, are hitting equities.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says:

The deep problems in the Chinese property sector have bubbled to the surface again provoking fresh unease about the structural faults running though the world’s second largest economy.

The sprawling real estate giant Evergrande has run into a roadblock in its attempts to restructure its debt, with expectations of new restructured debt being issued now scuppered by an ongoing official investigation into its major subsidiary, Hengda.

There had been hopes that intricate financial engineering will stop the property sectors woes from overflowing to other sectors, but doubts have crept back in about the long-term effectiveness of this tinkering.

Just in: EU antitrust regulators have blocked Booking Holdings’ proposed takeover of Swedish rival ETraveli Group.

The European Commission, which acts as the competition watchdog in the 27-country European Union, has ruled that the €1.63bn deal would have strengthened Booking’s dominance in the market for hotel online travel agencies (OTA).

That could have led to higher costs for hotels and consumers, the EC feared.

It explains:

Booking is the leading hotel OTA [online travel agency] while eTraveli is one of the main providers of flight OTA services in Europe.

Booking is also active in the market for metasearch services (‘MSS’) mainly through its price comparison platform KAYAK.

Shares in troubled Chinese property developer Evergrande have tumbled over 20% today, after its debt restructuring plan hit a roadblock.

Evergrande disappointed investors by revealing that it is unable to issue new debt, due to an ongoing investigation into its main domestic subsidiary, Hengda Real Estate Group.

This has thrown a spanner into Evergrande’s efforts to persuade creditors to approve a debt restructuring plan, following its filing for bankrupcy protection in 2021.

Evergrande’s problems have raised concerns over China’s property sector, reports Russ Mould, investment director at AJ Bell:

“China is set to go down in history as being 2023’s biggest disappointment for investors. Having started the year in everyone’s good books amid expectations of a big economic rebound, the Asian superpower has failed to deliver. Economic growth has become a struggle compared to the levels it generated a decade ago and government stimulus initiatives have lacked bite,” says

“The property sector has been at the centre of the country’s troubles and it’s going from bad to worse. Evergrande is back centre stage after saying it was struggling with its debt restructuring plan following poorer-than-expected sales, causing its shares to dive and taking the Hang Seng index down for the ride.

The index’s real estate sector fell by 2.5% on the day, with Evergrande’s shares down by a quarter at one point.

Economic sentiment in Germany remains gloomy.

IFO, the research institute, reports that German business morale has fallen this month.

Its business climate index has dipped to 85.7 this month, down from 85.8 in August.

Ifo president Clemens Fuest said.

“The German economy is treading water.”

IFO reports that companies were less satisfied with their current business situation, but also slightly less pessimistic about the coming months.

The “Great British Slowdown” has left families £1,400 poorer, according to the Resolution Foundation this morning.

The thinktank has published a new report, showing how the slowdown in economic change over the last 15 years has left the country poorer.

Resolution argues that the UK economy suffers from a lack of “economic dynamism”, in which weaker firms or lower productivity sectors shrink, while more productive ones grow.

That has left the economy 4% smaller since the financial crisis, the equivalent to £1,400 annual income loss per household.

Greg Thwaites, Research Director at the Resolution Foundation, said:

“The British economy has spent the past 15 years struggling from one major crisis to another. But while many people assume this severe economic turbulence has led to major economic change, in fact the opposite is true. Our economy is instead suffering from a Great British slowdown, which has hamstrung our economy, and left families £1,400 poorer.

“Britain needs more, not less, economic change. We need successful firms to grow, and struggling ones to shrink.

“Policy makers need to start embracing and encouraging economic change, from tax and welfare reforms to competition policy, while always being mindful of the need to properly support those who may lose out in the short term.”

Here’s the full story:

Resolution Foundation are presenting the research at 9.30am this morning:

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

Anxiety over the health of the UK economy is rising, as economists fear that high interest rates have hurt growth.

Economists at KPMG have predicted that UK growth will slow sharply in the second half of this year, as high interest rates, continued uncertainty and low productivity weigh on the economy.

They fear the UK could “struggle to keep its head above water in the second half of the year”, as “renewed signs of stress” hit the economy.

KPMG predicts UK growth will slow to just 0.4% this year, down from 4.1% in 2022, and slow further to just 0.3% in 2024.

Inflation is expected to slow, from 9.1% last year to 7.5% in 2023, and then 2.7% in 2024, thanks to easing supply chain bottlenecks and falling energy prices.

Concerns over the UK economy prompted the Bank of England to leave interest rates on hold at 5.25% last Thursday, after 14 consecutive rises in borrowing costs.

The OECD has also predicted weak growth for Britain – last week it predicted the economy would grow by 0.3% in 2023, and by 0.8% in 2024.

And last Friday, industry data showed that Britain’s economy suffered a sharp fall in private sector activity this month.

But, as KPMG points out, the global economy seems to be losing momentum too, with trade volumes shrinking and rising concerns over China’s economy.

There’s another risk too – businesses may be put off from investing in the UK until the general election has taken place. Uncertainty over the government’s fiscal plans, and key policies, risk deterring or delaying spending.

Yael Selfin, chief economist at KPMG UK, says:

“While interest rates have now potentially reached their peak in this cycle, uncertainty remains regarding their future path.

This coupled with uncertainty around future plans for fiscal policy as the UK heads into an election year, may see businesses choose to further delay investment.”

KPMG predicts the upcoming general election will prompt new spending pledges to, for example, address safety concerns around school buildings or patch up the deficits run up by some local authorities.

The agenda

• 9am BST: German IFO institute’s business climate index

• 11am BST: CBI distributive trades survey of UK retail

• 1.30pm BST: Chicago Fed national activity index for the US economy

• 2pm BST: ECB president Christine Lagarde testifies to the Committee on Economic and Monetary Affairs of the European Parliament