Introduction: UK firms see signs of ‘green shoots’
Good morning and welcome to our rolling coverage of business, the financial markets and the world economy.
There are signs of ‘green shoots’ in the UK economy, with firms more confident about the country’s economic prospects after a tough winter.
British businesses expect a return to growth in the next three months for the first time since shortly after Russia’s invasion of Ukraine, according to the latest poll from the CBI released today.
The monthly business survey found a net majority of +5% of firms expect growth in private sector activity in April-to-June. This is the first time there have been positive expectations for growth since April 2022.
The CBI also reports that activity fell slightly in the three months to March, the eighth ‘rolling quarter’ in a row in which the private sector has shrunk.
Manufacturers are most optimistic, with a balance of +12% predicting a recovery in output, while service sector firms see a small uptick.
Alpesh Paleja, CBI Lead Economist, warns that the UK is ‘skirting stagnation’ rather than growing strongly:
“It’s encouraging that the private sector is expected to return to growth in the months ahead, chiming with a range of other data indicating some resilience in economic activity. But let’s be clear – at best, this illustrates an economy skirting stagnation-like conditions rather than delivering the strong, sustainable growth we need.
“While the chancellor has set out an ambitious plan to deliver growth in his spring budget, there’s broad recognition that the UK still faces considerable economic headwinds.
Paleja cautions, though, that ”Inflation remains stubbornly high”, and will continue to pressure household budgets.
Last week, Bank of England governor Andrew Bailey warned firms to that continuing to lift prices would drive up inflation and lead to higher interest rates.
The annual rate of UK inflation rose to 10.4% last month, but is expected to drop sharply through this year (as we catch up with price hikes in 2022).
But, BoE policymaker Catherine Mann is concerned that core inflation will remain too high, making it harder to bring CPI inflation down to the 2% target.
Last night, Mann told the National Association for Business Economics that persistent underlying inflation will make it hard to set monetary policy this year.
Mann said:
“Gas prices in particular are on the down slope, and that type of dynamic is going to be very important in driving headline inflation down.
But, she added:
“Core goods and services are trending up … It is going to make it very difficult to do our job.”
The financial markets currently indicate there is a 58% chance that the Bank raises rates at its next meeting, in early May. It has already raised them to 4.25% this month, a 14-year high.
Also coming up today
The government is announcing an updated net zero and energy security strategy today, on what was originally going to be billed ‘Green Day’. Instead, we’re getting a new net zero strategy, with a focus on oil and gas development, alongside renewable energy.
The UK government will defy scientific doubts to place a massive bet on technology to capture and store carbon dioxide in undersea caverns, to help expand oil and gas in the North Sea.
Grant Shapps, the energy and net zero secretary, will on Thursday unveil the ‘powering up Britain’ strategy, with carbon capture and storage (CCS) at its heart, during a visit to a nuclear fusion development facility in Oxford.
Hundreds of the UK’s leading scientists are urging Rishi Sunak to halt the licensing of new oil and gas developments in the UK, ahead of the announcement.
On the economic front, we get Germany’s inflation report for March, an economic bulletin from the European Central Bank, and updated US GDP data for the last quarter of 2022.
European stock markets are set to open a little higher:
The agenda
-
9am BST: ECB’s economic bulletin published
-
9.30am BST: Realtime UK economic and business activity data
-
10am BST: Eurozone consumer and business confidence
-
1pm BST: German inflation rate for March
-
1.30pm BST: US Q4 2022 GDP report (final estimate)
-
1.30pm BST: US weekly jobless claims
Key events
Drax shares slump after carbon-capture project rejected
Shares of British power generator Drax have tumbled almost 10% after its carbon-capture project failed to be selected by the UK government.
Drax’s carbon-capture project was not selected for the country’s Track-1 programme, the Department for Energy Security & Net Zero said. Instead, the government will continue to engage over the project.
Drax runs a biomass and coal fuelled power station, near Selby in North Yorkshire. Last week it paused a planned £2bn investment in “bioenergy with carbon capture and storage” (BECCS) technology at the site, saying it needed a “firm commitment” from the government first.
Analysts at RBC Europe say today’s decision not to put Drax into Track 1 is a surprise, given the company’s importance to security of supply in the UK.
RBS add:
The UK government has announced the Track 1 project negotiation list this morning, with Drax not selected as a Track 1 project in the government’s decision. Within the East Coast Cluster, Track 1 projects selected were Net Zero Teesside Power, bpH2Teesside and Teesside Hydrogen CO2 Capture. The government noted the following:
“We are also announcing the conclusion of the power BECCS project assessment process. Both projects which made submissions, Drax Power Ltd and Lynemouth Power Ltd, met the minimum criteria for deliverability by 2027. These projects have not been selected for deployment in Track 1 but the department will engage further with these projects following the assessment outcome. Track 1 is not the extent of our ambition and the government remains committed to achieving 5Mtpa of engineered greenhouse gas removals by 2030.”
Shares in Drax have dropped to 527p, down 8%, the lowest since last November.
European stock markets highest since SVB crisis began
European stock markets have hit their highest level since the collapse of Silicon Valley Bank, as fears over the banking sector ebb.
The Stoxx 600 index of European companies has risen 0.7% this morning to 453.69 points, the highest since March 10th – the day when SVB failed.
In London, the FTSE 100 index of blue-chip stocks has climbed to a two-week high – up 40 points or 0.5% at 7,604 points. Real estate, utilities and mining stocks are leading the risers.
The markets suffered several days of heavy falls after SVB failed, but a degree of calm has now returned – helped by the rescue of Credit Suisse by UBS.
Another day without any unwelcome banking surprises has cheered investors, says Richard Hunter, head of markets at interactive investor:
Technology shares were a particular area of buying interest and have seen gains in anticipation of hopes that the interest rate hiking cycle may be nearing its end. In addition, chipmaker Micron saw its shares rise by over 7% after stating that inventory issues were now improving. The rosy outlook statement added fuel to the fire of optimists, who read the news as being indicative that the overall economy was holding up, given that the company’s chips are used in a wide variety of industries. In terms of the main indices, the Nasdaq has been the stand-out performer and currently stands ahead by 14% in the year to date.
Elsewhere, remarks to Congress by the US bank regulator appeared to lay the blame for the Silicon Valley Bank collapse at the door of the banking supervisors and their failure to spot the stresses, as opposed to a more systemic weakness within the system. While sentiment currently remains on something of a knife-edge, no news will continue to be good news in terms of any further banking shocks. The so-called fear gauge, or volatility index, also returned to early March levels as a further indication of investor relief that the worst may have passed.
Electricity generator SSE has hiked its profit forecasts, again.
SSE now expcts to make 160 pence per share in the 2022-23 financial year, up from previous guidance of more than 150 pence/share.
It credits the upgrade to a “continued strong performance” from its flexible generation plant as it supported the security of UK energy supplies.
Finance director Gregor Alexander said:
As we progress our ambitious net zero acceleration programme, we are investing more than we make in profits into the infrastructure society needs for a more secure, affordable and clean energy system. Our balanced business model has performed well in a volatile year, helping to ensure security of supply.
At the same time, we are progressing multiple projects and adding to our pipeline as we deliver on our net zero-focused electricity infrastructure strategy. This strong performance leaves us well positioned to continue our significant investment programme and we will update the market with more detail in May.”
Shares in SSE are among the top rises in early trading, up by 2.3%. It had already raised its profit forecasts in January, helped by higher energy prices.
Mobile network giant Vodafone is planning to cut about 1,300 full-time jobs in Germany, its regional boss Philippe Rogge has told the Handelsblatt newsaper.
In his first public comments since becoming Vodafone Germany CEO in July, Rogge indicated that administrative and management positions will predominantly be affected by the cutbacks.
This would be about 6.3% of Vodadfone’s 14,230 workforce in Europe’s largest economy.
Victoria Scholar, head of investment at interactive investor, points out that other jobs are being cut across Vodafone, too:
Earlier in March Vodafone said it was planning to slash 1,000 roles in Italy and in January the Financial Times reported that several hundred positions would be let go mostly in London.
In February, Vodafone reported weakness in Germany, its biggest market with service revenue in Europe down 1.1% in the third quarter. Interim CEO Margherita Della Valle said it is ‘simply not good enough’.
In November Vodafone cut its annual profit forecast and announced a €1bn cost-cutting strategy. At the end of 2022, Nick Read stepped down as CEO following a sharp slide in Vodafone’s shares under his four-year period as leader.
Vodafone has been in talks with Three UK over a potential merger to combine networks in Britain, Scholar adds:
The CFO of Hutchinson’s Three UK Darren Purkis said discussions ‘are moving in the right direction.’
Vodafone has been grappling with pressure on its share price, which is hovering near 2002 lows, a weakening economic backdrop with rampant inflation and rising energy bills as well as uncertainty in the C-suite following the CEO’s departure last year. Plus talks over its merger with Three UK are dragging on, adding to the sense of unease.
However, its share price fall has caught the attention of some opportunistic investors with John Malone from Liberty Global, an investor in ITV and Virgin Media O2, snapping up a 4.92% stake in Vodafone amid the belief that the stock is undervalued. French billionaire Xavier Niel also bought a 2.5% stake last September.”
Blackstone’s Schwarzman: banks not in crisis
The head of asset manager giant Blackstone has played down concerns over the banking sector, blaming new technology for the speed of the bank runs we’ve seen this month.
Speaking to Bloomberg, Schwarzman said he expects most US banks to withstand the current industry turmoil, which he blames on the after-effects of the pandemic and technology rather than a wave of bad loans.
Schwarzman explained:
“The banking system is not in any type of conventional crisis. We have just an interim issue with interest rates being up and we have a deposit issue caused by technology. And these are both solvable problems for the vast number of banks.”
He also pointed to the use of mobile phone apps, which let people communicate their concerns and also to withdraw money electronically, rather than having to queue at a branch.
This was a factor in the rapid collapse of Silicon Valley Bank, which the Bank of England governor compared to the high-speed failure of Barings Bank 30 years ago.
Schwarzman says:
“This crisis was caused by people on iPhones and other devices, hearing on social media that some bank might be in trouble.
They responded with huge withdrawals in a very short period of time, collapsing the bank.”
UK car production rises, helped by exports to EU
UK car production rose by over 13% last month, in a signal that the auto industry is recovering from supply chain shortages.
The number of cars built in UK factories rose to 69,707 last month, about 8,050 more than the same month a year ago, the Society of Motor Manufacturers and Traders (SMMT) reports this morning.
Problems sourcing semiconductors had been hurting car production since early in 2021, but those problem seem to now be easing.
Production for both home markets rose by over 20%, while output for overseas markets rose by 11.5%.
Shipments to the EU rose by 6.5%, offsetting a 19.9% drop in car production for the US and 21.6% fall for China, which the SMMT says provides “further evidence of the need for continued free trade across the Channel”.
February’s growth in UK car production signposts an industry on the road to recovery, says Mike Hawes, SMMT chief executive, adding:
The fundamentals of the sector are strong; a highly skilled workforce, engineering excellence, a sector that is embracing new electrified vehicle manufacturing and wide ranging capabilities in the EV supply chain.
To take advantage of global opportunities, however, we must scale up at pace and make the UK the most attractive destination for automotive investment by addressing trading and fiscal costs and delivering low carbon, affordable energy.”
Introduction: UK firms see signs of ‘green shoots’
Good morning and welcome to our rolling coverage of business, the financial markets and the world economy.
There are signs of ‘green shoots’ in the UK economy, with firms more confident about the country’s economic prospects after a tough winter.
British businesses expect a return to growth in the next three months for the first time since shortly after Russia’s invasion of Ukraine, according to the latest poll from the CBI released today.
The monthly business survey found a net majority of +5% of firms expect growth in private sector activity in April-to-June. This is the first time there have been positive expectations for growth since April 2022.
The CBI also reports that activity fell slightly in the three months to March, the eighth ‘rolling quarter’ in a row in which the private sector has shrunk.
Manufacturers are most optimistic, with a balance of +12% predicting a recovery in output, while service sector firms see a small uptick.
Alpesh Paleja, CBI Lead Economist, warns that the UK is ‘skirting stagnation’ rather than growing strongly:
“It’s encouraging that the private sector is expected to return to growth in the months ahead, chiming with a range of other data indicating some resilience in economic activity. But let’s be clear – at best, this illustrates an economy skirting stagnation-like conditions rather than delivering the strong, sustainable growth we need.
“While the chancellor has set out an ambitious plan to deliver growth in his spring budget, there’s broad recognition that the UK still faces considerable economic headwinds.
Paleja cautions, though, that ”Inflation remains stubbornly high”, and will continue to pressure household budgets.
Last week, Bank of England governor Andrew Bailey warned firms to that continuing to lift prices would drive up inflation and lead to higher interest rates.
The annual rate of UK inflation rose to 10.4% last month, but is expected to drop sharply through this year (as we catch up with price hikes in 2022).
But, BoE policymaker Catherine Mann is concerned that core inflation will remain too high, making it harder to bring CPI inflation down to the 2% target.
Last night, Mann told the National Association for Business Economics that persistent underlying inflation will make it hard to set monetary policy this year.
Mann said:
“Gas prices in particular are on the down slope, and that type of dynamic is going to be very important in driving headline inflation down.
But, she added:
“Core goods and services are trending up … It is going to make it very difficult to do our job.”
The financial markets currently indicate there is a 58% chance that the Bank raises rates at its next meeting, in early May. It has already raised them to 4.25% this month, a 14-year high.
Also coming up today
The government is announcing an updated net zero and energy security strategy today, on what was originally going to be billed ‘Green Day’. Instead, we’re getting a new net zero strategy, with a focus on oil and gas development, alongside renewable energy.
The UK government will defy scientific doubts to place a massive bet on technology to capture and store carbon dioxide in undersea caverns, to help expand oil and gas in the North Sea.
Grant Shapps, the energy and net zero secretary, will on Thursday unveil the ‘powering up Britain’ strategy, with carbon capture and storage (CCS) at its heart, during a visit to a nuclear fusion development facility in Oxford.
Hundreds of the UK’s leading scientists are urging Rishi Sunak to halt the licensing of new oil and gas developments in the UK, ahead of the announcement.
On the economic front, we get Germany’s inflation report for March, an economic bulletin from the European Central Bank, and updated US GDP data for the last quarter of 2022.
European stock markets are set to open a little higher:
The agenda
-
9am BST: ECB’s economic bulletin published
-
9.30am BST: Realtime UK economic and business activity data
-
10am BST: Eurozone consumer and business confidence
-
1pm BST: German inflation rate for March
-
1.30pm BST: US Q4 2022 GDP report (final estimate)
-
1.30pm BST: US weekly jobless claims
