UK government borrowing more than doubled in December to £27.4bn, the highest December figure on record, largely because of spending on energy support schemes and higher debt interest payments (also at a record). Big giveaways in the spring budget on 15 March look somewhat unlikely as a result.
Business activity contracted at its fastest pace in two years in January as the high cost of living restricted household spending and companies cut investment, raising the prospect of a UK recession.
Private sector firms in the US registered a further decline in output at the start of 2023, with a renewed pick up in cost pressures, according to latest ‘flash’ PMI data from S&P Global. The fall in business activity softened to the slowest in three months, however, as things improved slightly at both manufacturers and service providers.
The S&P Global PMI improved slightly, but stayed in negative territory. The index rose to 46.6 from 45.0 in December, indicating further declines (any reading below 50 points to contraction).
Chris Williamson, chief business economist at S&P Global Market Intelligence, says:
The US economy has started 2023 on a disappointingly soft note, with business activity contracting sharply again in January. Although moderating compared to December, the rate of decline is among the steepest seen since the global financial crisis, reflecting falling activity across both manufacturing and services.
Jobs growth has also cooled, with January seeing a far weaker increase in payroll numbers than evident throughout much of last year, reflecting a hesitancy to expand capacity in the face of uncertain trading conditions in the months ahead. Although the survey saw a moderation in the rate of order book losses and an encouraging upturn in business sentiment, the overall level of confidence remains subdued by historical standards. Companies cite concerns over the ongoing impact of high prices and rising interest rates, as well as lingering worries over supply and labor shortages.
The worry is that, not only has the survey indicated a downturn in economic activity at the start of the year, but the rate of input cost inflation has accelerated into the new year, linked in part to upward wage pressures, which could encourage a further aggressive tightening of Fed policy despite rising recession risks.
And our analysis of the meeting, by the Guardian’s financial editor Nils Pratley who wrote:
There have been worse performers in front of a business select committee, but Simon Thompson, chief executive of Royal Mail, had a shocker on Tuesday. When the session ends with the committee chair – the normally mild-mannered Labour MP Darren Jones – issuing a warning about the seriousness of misleading parliament, you know it did not go well.
The Communication Workers Union was quick to respond to the news. A spokesperson says:
In the interests of democracy and public standards, we wholeheartedly welcome this decision.
Politicians tasked by voters to conduct scrutinising work with the greatest possible knowledge and clarity have grave concerns about Simon Thompson’s evasive conduct.
These concerns are shared by millions of people, who need to know the facts from those who run the postal services they rely on, and deserve to be treated with the utmost seriousness.
Royal Mail boss recalled after claims of inaccurate testimony
The boss of Royal Mail has been recalled to parliament after doubts were raised over the accuracy of evidence he gave to MPs last week.
In a rare move, the business, energy and industrial strategy committee decided to recall Simon Thompson, chief executive of the postal company. Royal Mail has been locked in a months-long dispute with postal workers over pay and working conditions.
Members of the committee received hundreds of emails following his appearance on 17 January. They questioned his denials that Royal Mail used the postal digital assistant system to track workers’ productivity and urge staff to work faster, and that Royal Mail policy prioritises parcels, potentially compromising the delivery of the universal service obligation that guarantees a minimum mail service.
The committee is also seeking clarity on statements made by Thompson on employee sick pay arrangements.
Committee chair Darren Jones said:
Since Mr Thompson appeared before the committee last week we’ve had significant quantities of evidence that suggest his answers may not have been wholly correct.
Giving inaccurate information to a parliamentary committee, whether by accident or otherwise, is taken very seriously. We must get to the bottom of these inconsistencies on behalf of parliament and intend to do so during this additional hearing.
Royal Mail CEO Simon Thompson. Photograph: ROYAL MAIL GROUP/AFP/Getty Images
Eurostar trains forced to run with empty seats due to Brexit passport rules
Gwyn Topham
Peak time Eurostar trains are daily forced to run across the Channel with hundreds of empty seats because border police cannot process passports quick enough.
About 350 out of 900 seats are normally left unsold on the first services between London, Paris and Brussels despite “huge demand” for the greenest form of international travel, Eurostar bosses said, as they unveiled Eurostar’s new logo.
British passports have to be stamped separately, even for travellers who can go through electronic gates, since Brexit. Passengers are now told to arrive up to 90 minutes before some departures but bottlenecks at stations still mean that they cannot all be processed in time, said the chief executive, Gwendoline Cazenave.
Cazenave, who has run the group since October 2022, added: “Even I – I have a work permit, they know who I am – they ask: ‘What are you going to do in the UK?’. It takes almost 30% more time [than before].”
She said tackling capacity issues at stations was her main priority, with Eurostar only able to offer about 70% of pre-Covid and Brexit seats across the Channel.
Only 250 seats can be filled leaving Amsterdam because of the lack of space at the station for border controls, yet London to the Dutch capital is one of the busiest air routes in Europe, Cazenave said.
Eurostar CEO Gwendoline Cazenave presents the new logo of Eurostar during a press conference in Brussels on January 24, 2023. Photograph: Kenzo Tribouillard/AFP/Getty Images
UK factory output flat while cost pressures ease – CBI
More news on the UK economy. Factories reported stable output in the quarter to January following a small decline in the quarter to December, according to the CBI’s latest industrial trends survey.
New orders were flat, while the volume of total order books fell further below normal, suggesting that output has held up in part due to manufacturers tackling backlogs of work.
Cost and pricing pressures in manufacturing remain high but shows signs of easing. In the quarter to January, average unit costs grew at the slowest pace since April 2021, while domestic selling price inflation was the slowest since July 2021, although both remained far above their long-run averages.
Looking ahead, manufacturers expect new orders and output volumes to increase in the next quarter, but the share of firms reporting that orders or sales would constrain output reached its highest level since April 2021.
Anna Leach, CBI deputy chief economist, says:
Mixed conditions are apparent in the manufacturing sector this month. Global supply chain pressures, labour shortages and energy costs are easing, enabling unit cost growth to ease back from record highs.
But there are signs that demand is easing too, with order books weakening sharply, spare capacity in the manufacturing sector rising and the share of firms citing the strength of sales or orders as a potential constraint on output rising to its highest in almost two years.
The survey, based on the responses of 321 manufacturing firms, found that:
Business sentiment fell for the fifth consecutive quarter, but at a much slower rate than in the three months to October (balance of -5%, from -48%). Export optimism also fell, but less quickly than in October, when it dropped at the fastest pace in two years (-22%, from -31%).
Output volumes were stable in the quarter to January, after falling in the three months to December (weighted balance of -1% from -9%). Rising output in the mechanical engineering and food, drink & tobacco sub-sectors was offset by falls in chemicals, metal manufacturing and motor vehicles & transport equipment. Firms expect volumes to increase briskly in the next three months (+19%).
Total new orders were broadly stable in the quarter to January (balance of -3%, from -8%). However, the volume of total order books fell further below normal (balance of -17%, from -6% in October). Manufacturers expect new orders to rise over the next three months (+9%).
Average costs growth remained exceptionally strong in the quarter to January, but eased, with costs rising at the slowest pace since April 2021 (balance of +64%, from +82% in October; average of +17%). Cost growth is expected to slow further in the quarter to April (+53%).
Average domestic selling price inflation also eased but remained elevated in the quarter to January (balance of +37%, from +50% in October; vs average of +2%). Domestic price inflation is expected to remain high over the next three months (+41%).
Numbers employed continued to rise in the three months to January, albeit at a slower pace (+14%, from +26% in October). Firms expect headcount to rise further in the next three months (+24%).
Investment intentions for the year ahead were mixed. Manufacturers expect to raise investment in training and retraining (+20%, from +14%), plant and machinery (+8%, from +6%) and product and process innovation (+6%, from +7%). Investment in buildings is expected to decline in the year ahead (-9% from -5%).
Revival of Scottish car manufacturing led by an electric 4x4 off road vehicle. Scottish electric vehicle maker Munro Vehicles recently launched its first vehicle, the Munro MK_1. Photograph: Murdo MacLeod/The Guardian
National Grid is expected to pay out more than £2m to households and businesses to encourage them to cut their power use at peak times on Tuesday.
The electricity system operator plans to run its “demand flexibility service” – which incentivises households in Great Britain to use less power during a designated period – between 4.30pm and 6.30pm.
Primark’s sales rose ahead of expectations over Christmas as shoppers returned to city centres and consumer spending was more resilient than anticipated.
Sales at the cut-price fashion chain’s established stores rose by 11% in the four months to 17 January, compared with the same period a year before, as owner Associated British Foods (ABF) said it had sold more items of clothing while prices had also risen.
The UK’s least affluent households have almost £40 a month less spare cash than they did a year ago while the richest have gained a similar sum in the same period, according to figures exposing how inflation has hit the poorest the hardest.
The wealthiest 20% of households had £36 a month more in discretionary income in December compared with a year before, as they enjoyed record earnings growth which offset rising energy and food bills, analysts at Retail Economics found.
A Brisbane-based cryptocurrency exchange will continue to operate after creditors agreed to a long-term plan from administrators keep the business going in an attempt to recover from the global collapse of FTX.
Digital Surgewent into administration in December last year as a result of the company having transferred $33m worth of its assets to global platform FTX just two weeks before that company’s spectacular collapse in November.
And here’s analysis of today’s public finance figures.
Budget day on 15 March is less than two months away and if ever there was a government in need of a feelgood event then this is it. Unfortunately for Rishi Sunak, the state of the public finances means the chances of a voter-friendly giveaway to counter a cost of living crisis and sleaze allegations look vanishingly small.
Jeremy Hunt certainly provided no hint in his response to the latest Office for National Statistics figures that he was preparing anything other than a steady-as-she-goes package. It was vital, the chancellor said, to stick to his deficit reduction plan.
Government payments to soften the impact of rocketing energy bills helped send UK public borrowing soaring to more than £27bn last month – the highest figure for December since modern records began 30 years ago.
The latest bulletin on the health of the UK’s finances from the Office for National Statistics showed government spending last month exceeded receipts by £27.4bn, £16.7bn higher than borrowing in December 2021.
Tax receipts in December were up slightly on December 2021 at more than £74bn, but energy support added just over £9bn to public spending, according to the official data.
Fordplans to cut 3,200 jobs across Europe, according to Germany’s largest union, as the carmaker looks to slash costs and shift focus towards electric vehicles.
Most of the 2,500 jobs in product development and up to 700 in administrative roles the automaker is hoping to cut are located in Germany, said IG Metall.
The union, which represents 2.2 million members in the metal, electrical, iron, steel and automotive industries, said other cuts could fall at sites in Belgium and the UK, the Financial Times reported.
The workers at the Cologne site, which employs about 14,000 people, were informed of the plans on Monday.
Twitter is being sued by the crown estate for allegedly failing to pay rent on its London headquarters.
The estate, which manages property belonging to King Charles III, filed a claim against Twitter in the high court in the capital last week. The alleged rental arrears relates to office space near Piccadilly Circus in central London, according to the BBC.
Twitter did not immediately respond for a request for comment.
The crown estate, which owns a property portfolio worth £15.6bn, including 241 locations in central London, said the court action related to “rental arrears” on the social media platform’s office space in the city.
It comes after Twitter was taken over by Elon Musk, the co-owner of Tesla and SpaceX, in October last year. Musk paid $44bn (£36bn) for the platform and quickly initiated sweeping job cuts to the firm’s 7,000-strong workforce – cutting it by 50%.
Musk’s takeover has not been without issues, including a chaotic relaunch of the blue tick scheme for verified users led to a number of impersonator accounts and advertisers withdrawing from the platform over concerns about a rise in hate speech.
Back to the UK. JPMorgan economist Allan Monks sees broader resilience in the detail of the PMI.
The flash PMI for January fell 1.2 percentage points to 47.8, marking a departure from the improvement in the same surveys generally seen elsewhere in Europe. While weak, we had expected to see a decline in the UK and the current level of the PMI is not empirically consistent with a recession – which typically sees the survey drop to around 46 or below.
Moreover, the details of the report were some way better than the headline. While services activity was exclusively responsible for the decline, both the manufacturing sector and details of the services industry gave grounds for some optimism. Overall, the composite new orders reading rose by just under a point to 48.9. Likewise, the employment reading rose half a point to 49.8, while the year-ahead future output reading jumped by just under four points to 66.8.
This should help to further allay fears that the UK is entering a job shedding episode and full recession scenario in the near term, especially with gas prices falling and inflation heading lower. Together with strong wage growth, this probably offers some support to our view the BoE will hike 50bps next week – given the BoE had been expecting a recession – even if the doves choose to focus on the drop in the headline PMI instead.
Bert Colijn, senior eurozone economist at ING, says:
The jump in the composite PMI from 49.3 to 50.2 indicates that the economy is performing better than expected. Businesses are experiencing fewer cost pressures than before, but selling prices remain high. For the ECB, this should seal the deal for a 50 basis point hike next week.
Sometimes you just need a bit of luck. The eurozone economy has avoided dramatic scenarios for the winter thanks to an extremely mild December in which gas storages have been depleted much less than feared.
Whether this is a recession or not is almost semantics at this point. The PMI jumped above the 50 level, which indicates growth in the business economy. While the difference between -0.1 and 0.1% growth is interesting for economists, the overall sense of stagnation will likely prevail for most.
More important is that improvements in the PMI were broad-based as both the manufacturing and services PMIs ticked up. New orders are still falling, but at a slower pace than before and businesses have again seen hiring increase. The latter confirms our view that labour shortages are here to stay despite the sluggish economic performance. That brings upside risk to the wage growth outlook.
For inflation, the survey continues to bring good news on supply-side pressures. Input costs are rising much less rapidly than before, but for now that mainly seems to benefit corporate profitability as selling price growth is expected to remain high, according to the survey. This means that while headline inflation is set to fade more substantially over the coming months, risks to core inflation staying high remain.
Within the eurozone, Germany reported a slight drop in output, as the composite PMI rose from 49.0 in December to 49.7, its highest since output began falling last July. This was led by a return to growth in services activity.
While manufacturing output continued to fall at a rate unchanged on December, the decline remained far less marked than those seen last autumn.
Flash Germany PMI Composite Output Index at 49.7 (Dec: 49.0). 7-month high.
Flash Germany Services PMI Activity Index at 50.4 (Dec: 49.2). 7-month high.
Flash Germany Manufacturing Output Index at 48.4 (Dec: 48.4). Unchanged.
Flash Germany Manufacturing PMI at 47.0 (Dec: 47.1). 2-month low.
Output fell for a third month in France, where the PMI slipped from 49.1 to 49.0, due to a sharper fall in services activity.
Recession fears ease for #Germany after better than expected flash #PMI for January.
Service sector returns to (marginal) growth, supply chains improve and confidence lifts higher. But concerns persist as manufacturing remains in decline.
Chris Williamson, chief business economist at S&P Global Market Intelligence, says:
A steadying of the eurozone economy at the start of the years adds to evidence that the region might escape recession. The survey suggests that a nadir was reached back in October, since when fears over the energy market in particular have been alleviated by falling prices, helped by the warmer than usual weather and generous government assistance. At the same time, supply chain stress has eased, benefitting producers most notably in Germany, and more recently the reopening of the Chinese economy has helped to restore confidence in the broader global economic outlook for 2023, propelling business optimism sharply higher.
The region is by no means out of the woods yet, however, as demand continues to fall – merely dropping at a reduced rate – and an upturn in the rate of inflation of selling prices for both goods and services will add encouragement to the hawks to push for further monetary policy tightening. The case for higher interest rates is fuelled further by the upturn in employment growth recorded during the month and signs of higher wages driving the latest upturn in price pressures.
Eurozone edges back into growth, inflation ticks higher
Things look more rosy in the eurozone, which edged back into growth in January, while inflationary pressures picked up.
The S&P Global PMI for the eurozone rose to 50.2, a seven-month high, as the services sector moved back into growth, with that index at 50.7. Activity in the manufacturing sector continued to decline, but at a slower pace.
Although input cost inflation slowed, average prices charged for goods and services rose at a slightly steeper rate than in December, with rates of inflation edging higher in both manufacturing and services.
The survey says:
Growth was driven by technology (both IT services and equipment), as well as healthcare and pharmaceutical sectors, though industrial services also rebounded into growth territory. However, downturns also eased in financial services, notably including real estate, and in basic resources sectors, while consumer-facing sectors such as tourism and recreation and household goods showed signs of stabilising after several months of decline.
Flash Eurozone PMI Composite Output Index at 50.2 (Dec: 49.3). 7-month high.
Flash Eurozone Services PMI Activity Index at 50.7 (Dec: 49.8). 6-month high.
Flash Eurozone Manufacturing Output Index at 49.0 (Dec: 47.8). 7-month high.
Flash Eurozone Manufacturing PMI at 48.8 (Dec: 47.8). 5-month high.
