UK companies endure sharpest downturn since Brexit vote – business live

We hear time and again that uncertainty does not help companies who want to invest and grow their businesses. There’s been a fair share of uncertainty over the last three years, and it appears the addition of an election campaign is the cherry on top.

Howard Archer, chief economic advisor to the EY ITEM Club, said:

The new “flash” purchasing managers’ survey for the UK manufacturing and services sectors disappointingly marked its debut with weak news on the economy. Indeed, it showed overall manufacturing and services contracting at the fastest rate for 40 months in November, having been flat in October.

It was reported that domestic activity was being hampered by a lack of clarity on Brexit as well as business uncertainty being magnified by the forthcoming general election. It was also reported that there had been overstocking ahead of the scheduled 31 October UK exit from the EU.

The UK services PMI was 48.5, hitting the lowest level since the immediate aftermath of the Brexit vote in July 2016.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the reading was “Consistent with falling GDP, though it has been too downbeat repeatedly this year.”

*The earlier post, which incorrectly gave the services reading as 50, has been corrected – apologies for the error. Please refresh your browser to see the change.

The worse than expected UK PMI data has woken up sterling traders (who otherwise appeared to be taking a bit of a break as they await the general election result next month).

The pound is now down by 0.35% against the US dollar for the day, at $1.2868.

Note though that there have not been any major moves in the currency in recent weeks, with much hanging on the Brexit path taken by the winner on 12 December.

The PMI data represents the worst run since the global financial crisis triggered a recession a decade ago, IHS Markit said – leaving big questions for the Bank of England.

The weak survey data puts the economy on course for a 0.2% drop in GDP in the fourth quarter, according to Chris Williamson, chief business economist at IHS Markit. He said:

With an upcoming general election adding to Brexit-related uncertainty about the outlook, it’s no surprise to see UK businesses reporting falling output and orders in November.

While Brexit issues such as stock-building and car factory closures have led to volatile GDP data so far this year, making monetary policymaking especially difficult and encouraging the Bank of England to sit on its hands until the fog clears, the PMI surveys are not only warning that the underlying trend in the economy is deteriorating markedly, but also that the labour market is cooling.

A worsening jobs market has the potential to feed through to weaker consumer spending and slower wage growth, thereby undermining two of the key supports to the economy in recent months. The big question will be just how long can the Bank of England hold its nerve in keeping policy unchanged.

The British manufacturing sector shrank more than expected in November as the services sector staved off a decline, according to an early reading of company activity.

The flash UK manufacturing output index came in at a reading of 48.3 in November, down from the October reading of 49.7 and lower than the 49 expected by economists.

The services sector, which accounts for about four-fifths of the British economy, showed a reading of 48.5, below the 50 mark showing when decline turns to expansion.

*This post has been corrected. An earlier version said the services PMI reading was 50.

And now we gear up for a very mildly exciting moment for UK economic data nerds: the first ever flash PMI reading for British manufacturing and services.

It will give us – drumroll please – a slightly earlier insight into what’s happening in the economy.

Expected readings are 49.6 for manufacturing and 50 on the dot for the bigger services industry.

The Eurozone manufaturing sector continued to shrink in November, according to IHS Markit’s purchasing managers index (PMI).

The flash manufacturing reading came in at a reading of 46.6, below the 50 mark that indicates growth but an improvement compared to October and slightly higher than expected by economists.

The eurozone services sector reading came in lower than expected, at 51.5.

Germany’s data was published earlier, showing that the manufacturing sector continued to shrink in November. The sector’s PMI reading was 43.8.

Lagarde highlighted public investment in particular (as opposed to spending on day-to-day operations), and repeated Mario Draghi’s calls for closer monetary union.

Economists said Lagarde’s speech, which has now finished, represented a continuation of Draghi’s stances – albeit with a review to come.

Lagarde said she will begin a “strategic review” of monetary policy.

She said: “More on that later, but give us time to give a cohesive view.”

But monetary policy should not be “the only game in town”, she said.

Christine Lagarde has used her first major speech as head of European Central Bank to call for higher investment from governments to take the weight off monetary policy.

She said: “It is clear that monetary policy could achieve its goal faster and with fewer side effects if other policies were supporting growth alongside it.

Lagarde’s statements on monetary policy come with growing discontent among EU member states at low interest rates, despite stagnating growth.

She said:

While investment needs are of course country-specific, there is today a cross-cutting case for investment in a common future that is more productive, more digital and greener.

Public investment in the euro area remains some way below its pre-crisis levels. The share of productive expenditure in total primary expenditure – which in addition to infrastructure includes R&D and education – has also dropped in nearly all euro area economies since the crisis. And new investment needs are emerging.

Lagarde said that uncertainties have “proven to be more persistent than expected” impacting eurozone growth, and that the increasing trade seen during decades of globalisation was “no longer an absolute certainty”.

And here is Lagarde’s speech, delivered at the Frankfurt European Banking Congress on the “future of the euro area economy”.

The FTSE 100 is now up by 0.9%, with broad-based gains – the highest riser is Rolls Royce, which has only gained 2.6%.

It seems that Chinese president Xi Jinping’s trade optimism has buoyed investors.

Lagarde is up shortly (as are those eurozone PMI releases).

Analysts at Deutsche Bank, led by Jim Reid, warned that while there could be “volatility” in communications as she takes over the mantle from Mario Draghi, but also that she could take a gentle approach at first.

Lagarde’s previous remarks as President didn’t touch on monetary policy, but since then, she has met with her Governing Council colleagues, so she may feel emboldened to make firmer comments if she chooses.

[…] we could see a temporary increase in communications volatility at first as the market learns to interpret signals from Lagarde. The initial expectation is that she will be more consensus-driven and less prone to pre-announcing policies than Draghi was, which would likely reduce the scope for any major signal today.

Tesla has launched its new “cybertruck” – a boldly designed pickup truck taking aim for some of the most profitable cars made by US manufacturers – but perhaps even more eye-catching was a demonstration that resulted in shattered windows on the pristine vehicle.

Tesla chief executive Elon Musk’s response?

The truck, which looked liked a futuristic armoured vehicle, will have a starting price of $39,900 and a maximum range of 500 miles or more, Musk said.

You can read more detail here:

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

Investors’ eyes this morning are on Christine Lagarde, as the still fresh European Central Bank boss makes her first proper speech at the helm of one of the world’s key monetary policy setters.

Three weeks into her presidency, Lagarde is yet to talk about her views on the path of interest rates or the eurozone economy, which has weakened in recent months. Germany’s statistics office on Friday confirmed that Europe’s largest economy grew by only 0.1% in the third quarter – narrowly avoiding recession.

Flash purchasing managers indices (PMIs) for the services and manufacturing sectors will give a more up-to-date picture of the economy. Economists expect manufacturing to continue to shrink (in part because of the weakness of the auto sector), while services growth could moderate. In the UK data firm IHS Markit will also break new ground, with flash PMI readings for the first time.

If Europe’s economic weakness worsens Lagarde could have her hands tied, according to Nouriel Roubini, the influential professor of economics at New York University’s Stern School of Business. He wrote yesterday:

The ECB’s new president, Christine Lagarde, will most likely be unable to provide much more in the way of monetary-policy stimulus, given that one-third of the ECB Governing Council already opposes the current round of easing.

She may have to deal with complicating factors in which she has little influence: a trade war between the US and China.

While Donald Trump has sounded off at regular intervals about the trade war, signals from his Chinese counterpart are somewhat rarer. Today he gave a turn that was equal parts fighting talk and more emollient language.

According to a pool report, Xi told representatives of an international forum:

We want to work for a ‘phase one’ agreement on the basis of mutual respect and equality.

When necessary we will fight back, but we have been working actively to try not to have a trade war. We did not initiate this trade war and this is not something we want.

That has contributed to a mixed picture on markets, although the FTSE 100 has gained 0.5% at the open.

The agenda

• 8:30am GMT: European Central Bank Christine Lagarde speech
• 8:30am GMT: Germany manufacturing purchasing managers index (PMI) (November)
• 9am GMT: Eurozone manufacturing and services flash PMIs (November)
• 9:30am GMT: UK manufacturing and services flash PMIs (November)
• 1pm GMT: Germany Bundesbank Jens Weidmann speech
• 2:45pm GMT: US Markit manufacturing and services flash PMI (November)