UK private sector contracting as firms give ‘thumbs down’ to the budget
Newsflash: UK business output is contracting this month for the first time in over a year, as the tax increases announced in last month’s budget hit companies.
Data firm S&P Global says British firms are giving “a clear thumbs down” to the measures in Rachel Reeves’s first budget, such as the increase in employers’ national insurance contributions.
Its flash UK PMI Composite Output Index, which tracks activity across the UK economy, has dropped to a 13-month low of 49.9 this month, down from October’s 51.8.
That shows a marginal contraction (50 points = stagnation), but is at least better than in the eurozone (see earlier post).
UK companies reported that new order growth fell to its lowest for one year amid “widespread reports of fragile business confidence”.
UK retailers warned this week that the budget would drive up their costs, and lead them to cut staff – today’s PMI report has found that service providers “overwhelmingly” linked weaker optimism to forthcoming increases in payroll costs.
Chris Williamson, chief business economist at S&P Global Market Intelligence says:
“The first survey on the health of the economy after the Budget makes for gloomy reading. Businesses have reported falling output for the first time in just over a year while employment has now been cut for two consecutive months.
Although only marginal, the downturns in output and hiring represent marked contrasts to the robust growth rates seen back in the summer and are accompanied by deepening concern about prospects for the year ahead.
Business optimism has slumped sharply since the General Election, dropping further in November to hit the lowest since late 2022. Companies are giving a clear ‘thumbs down’ to the policies announced in the Budget, especially the planned increase in employers’ National Insurance contributions.
Key events
Investors have hiked their bets on another cut to eurozone interest rates before the end of 2024, following the slump in activity at European companies highlighted in today’s PMI report.
Money market pricing suggested that investors now price a 50% chance of a 50 basis point rate cut (ie, half a percentage point) at the ECB’s December meeting, up from 20% before the data, according to Reuters.
A 25 bps cut (a quarter of one percentage point) is fully discounted.
Bank stocks have been hit by the weak PMI data from the UK and the eurozone today.
Financial companies are leading the fallers on the FTSE 100 share index in London, with Barclays down 3.1%, Standard Chartered off 2.7% and NatWest losing 2.2%.
The pan-European Stoxx 600 Banks Index is down 2%, and hit the lowest since 9 October.
Today’s (disappointing) UK PMI data is the first real test of Rachel Reeves’s budget, says Sanjay Raja, chief UK economist at Deutsche Bank, as well as “unfolding geopolitical events” around the world.
Raja explains:
PMI output indices slipped in November. Notably, the services headline print moved down to a stagnant 50, with the headline manufacturing print slipping further into contraction territory at 48.6. Overall, the composite output index fell into negative territory for the first time since Octover 2023.
Underneath the hood, we are seeing stress on hiring plans. Both the manufacturing and services sectors reported falls in hiring plans. And (input) prices – particularly for services – have started to firm – as businesses digest the Budget tax implications.
Pound and euro hit by bad data
The torrent of bad economic news from the UK, and the eurozone, this morning has hit the pound and the euro.
Sterling has hit a new six-month low, dropping below $1.25 against the US dollar this morning as traders reacted to the news that UK private sector output is falling this month, and that retail sales fell in October.
That’s a fall of almost a cent today, and the lowest level since mid-May. It has now lost almost 10 cents since the end of September, when one pound was worth $1.34.
The euro has slumped to its lowest level against the US dollar since November 2022, after today’s PMI data showed the eurozone private sector is shrinking. It’s down three-quarters of a cent, to $1.04.
Kathleen Brooks, research director at XTB, says:
It’s been a bad day for economic data this side of the Atlantic. European and UK PMIs fell into contraction territory for November, and UK retail sales for October were much weaker than expected.
This does not paint a pretty picture for the European and UK economies in Q4, and contrasts sharply with the outlook for the US, the Atlanta Fed’s GDPNow estimate of Q4 YoY GDP is 2.6%.
The budget and Donald Trump’s election win may both have triggered the fall in activity at UK companies last month, says Elias Hilmer, assistant economist at Capital Economics.
Hilmer explains that November’s PMI report suggests the UK’s real GDP growth is contracting in the middle of the final quarter of this year.
Hilmer told clients:
The fall in the Composite PMI suggests that tax hikes announced in the Budget seem to have restrained some private sector activity. Equally so, the prospect of new tariffs imposed by the incoming Trump administration may have weighed on activity too.
Indeed, S&P Global said that respondents cited subdued consumer demand as well a worsening domestic and geopolitical uncertainty as a constraint to activity. Overall, November’s PMI points to GDP falling by 0.2% 3m/3m in the middle of Q4.
PMI suggests UK economy is ‘slipping into a modest decline’
S&P Global’s Chris Williamson adds that this morning’s PMI report suggests the economy could be contracting, saying:
“The November PMI is indicative of the economy slipping into a modest decline, with GDP dropping at a 0.1% quarterly rate, but the loss of confidence hints at worse to come – including further job losses –unless sentiment revives.
UK private sector contracting as firms give ‘thumbs down’ to the budget
Newsflash: UK business output is contracting this month for the first time in over a year, as the tax increases announced in last month’s budget hit companies.
Data firm S&P Global says British firms are giving “a clear thumbs down” to the measures in Rachel Reeves’s first budget, such as the increase in employers’ national insurance contributions.
Its flash UK PMI Composite Output Index, which tracks activity across the UK economy, has dropped to a 13-month low of 49.9 this month, down from October’s 51.8.
That shows a marginal contraction (50 points = stagnation), but is at least better than in the eurozone (see earlier post).
UK companies reported that new order growth fell to its lowest for one year amid “widespread reports of fragile business confidence”.
UK retailers warned this week that the budget would drive up their costs, and lead them to cut staff – today’s PMI report has found that service providers “overwhelmingly” linked weaker optimism to forthcoming increases in payroll costs.
Chris Williamson, chief business economist at S&P Global Market Intelligence says:
“The first survey on the health of the economy after the Budget makes for gloomy reading. Businesses have reported falling output for the first time in just over a year while employment has now been cut for two consecutive months.
Although only marginal, the downturns in output and hiring represent marked contrasts to the robust growth rates seen back in the summer and are accompanied by deepening concern about prospects for the year ahead.
Business optimism has slumped sharply since the General Election, dropping further in November to hit the lowest since late 2022. Companies are giving a clear ‘thumbs down’ to the policies announced in the Budget, especially the planned increase in employers’ National Insurance contributions.
Euro zone business activity shrinks in November
Newsflash: The eurozone’s private sector is shrinking this month at the fastest pace since January, as companies struggle to secure new orders amid political instability.
A new survey of decision makers at companies across Europe has found that activity in the service sector decreased for the first time in ten months, while the downturn in manufacturing deepened.
The eurozone’s two largest countries are having a dire month: German business activity fell at the quickest rate for nine months, while the French economy is shrinking at the fastest pace since January.
Data firm S&P Global, which compiles the poll of purchasing managers, reports that confidence in the outlook for output has dropped to the lowest for just over a year.
New orders at eurozone companies fell for the sixth month running, leading firms to cut back workforce numbers as they ran down their backlog of work.
Its HCOB Flash Eurozone Composite PMI Output Index has fallen to 48.1 for November, down from 50.0 in October, with any reading below 50 showing a contraction. That’s the lowest reading since January.
“Things could hardly have turned out much worse,” says Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, adding:
The eurozone’s manufacturing sector is sinking deeper into recession, and now the services sector is starting to struggle after two months of marginal growth.
It is no surprise really, given the political mess in the biggest eurozone economies lately – France’s government is on shaky ground, and Germany’s heading for early elections.
Throw in the election of Donald Trump as US president, and it is no wonder the economy is facing challenges. Businesses are just navigating by sight.
Government urged to fix “cruel and dangerous” energy pricing system
Campaign group Fuel Poverty Action has warned that thousands of people will die because they cannot afford to keep warm this winter.
Following the news that the UK energy price cap will rise in January, Jonathan Bean, spokesperson for Fuel Poverty Action, says the most vulnerable households are suffering under the current system:
“Millions of us are freezing today in cold damp homes, as energy prices remain 65% inflated and 2.5 million low-income pensioners lose heating support. Many will end up in hospital, and thousands will die.
“Ofgem pricing punishes the most vulnerable, with four times higher pricing for those with only electric heating, and cruel standing charges. Energy firms exploit the millions stuck with only storage heaters, whilst giving the cheap energy tariffs to affluent households with electric vehicles.
“The Labour government needs to fix our cruel and dangerous pricing system, which is harming millions of us whilst gifting energy firms billions in profits
Reeves pushes to improve ‘measly’ rise of women in top finance jobs
Anna Isaac
The great and the good of women in finance were invited to Number 11 Downing Street last night in a bid to improve the “measly increase” in women in top jobs.
The chancellor, Rachel Reeves, convened prominent City women in a bid to reinvigorate the Women in Finance charter, first launched in 2016.
The signatories agree to drive up the proportion of women in senior roles towards parity with their male counterparts as soon as possible.
With the present rate of progress this will not be achieved until 2038, with women currently in just a third of the top jobs, a source of frustration for the high flyers in the room as they traded tales over tea and sandwiches.
Reeves said:
“At the moment, it will still take another 14 years until we have an equal number of women and men on the leadership team in financial services. And I hope that whoever is standing here in 14 years can say it didn’t take 14 years.”
“Diversity in boardrooms is not a tick-box exercise. It’s an economic imperative.”
Dame Amanda Blanc, chief executive of Aviva, called for figures across the sector to redouble their efforts, otherwise, the industry was telling its talented women “they’re not worth helping”, with “painfully slow” progress.
The single percentage point annual increase in female representation at the top was “measly” she said, adding she was eager to help others improve their efforts:
Blanc says:
“We hit our target at Aviva and that’s not showing off and we did it by applying the same discipline that we do to our financial targets of profit of sales…It can be done, but it takes a lot to do that.”
Crypto jumps as Gensler quits SEC
Cryptocurrency prices are rallying today after America’s top financial regulator announced his resignation.
Securities and Exchange Commission chair Gary Gensler will resign on 20 January, the SEC announced last night, the day when Donald Trump will be inaugurated as US president.
Gensler has been a critic of the crypto industry during his stint at the SEC, calling it a “wild west” riddled with fraud and investor risk back in 2021.
It’s likely that his replacement will be more friendly to the sector, given Trump has pledged to make the US “the crypto capital of the planet“.
Bitcoin has extended its rally, hitting $99,500 for the first time this morning. Ether is up over 7% in the last 24 hours, while ‘meme coin’ doge is up 2%.
According to Coindesk, the total market capitalisation of crypto coins is now a record $3.4tn, having added 4.5% in the past 24 hours.
Budget airlines fined for cabin luggage fees
Over in Spain, the Consumer Rights Ministry has upheld fines imposed on budget airlines for policies such as passengers extra for cabin luggage.
Ryanair, easyJet, Vueling, Norwegian and Volotea have been fined €179m (£150m), with the ministry dismissing appeals from the company’s after penalties were announced in May.
Reuters has the details:
The fine set on Ryanair was the highest at €108m, while IAG’s low cost unit Vueling was fined €39m, easyJet €29m, Norwegian €1.6m and Volotea €1.2m.
