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GUARDIAN Wed, 01 Feb 2012 11:54:29 GMT
British manufacturers enjoyed a strong start to 2012 as their output grew at the fastest pace in almost a year according to the latest PMI survey. Here is what economists make of the dataHoward Archer at IHS Global Insight
The purchasing managers survey indicates that life got better for UK manufacturers at the start of 2012 after a pretty dismal end to 2011. Not only does the survey show output rising at the fastest rate for 10 months but also orders grew for the first time in seven months. This suggests that there is a very decent chance that the manufacturing sector will return to growth in the first quarter of 2012 after contributing significantly to overall GDP contraction of 0.2% quarter-on-quarter in the fourth quarter of 2011. However, whether or not the UK can avoid further contraction in the first quarter will depend mainly on what happens to services output and consumer spending.
Manufacturers still face very challenging domestic and international conditions, so it remains to be seen whether they can build on their improved start to 2012.
Meanwhile, there was some good news on the inflation front, with input prices falling for a third month running and output prices rises at the slowest rate for 27 months. This supports belief that consumer price inflation is headed down substantially further over the coming months and facilitates further Bank of England quantitative easing in February.
James Knightley, senior economist at ING
The UK manufacturing PMI has come in strong, offering some encouragement that the likely recession may not be as deep as some analysts fear. The headline index has rebounded to 52.2 in January from 49.7 in December, leaving the index at its highest level since April last year. Importantly, new orders rose to their highest level since March last year, which bodes well for production data in the next couple of months. The report also states that there has been an increase in the willingness of businesses to spend, thereby potentially offering hope for investment and hiring. Nonetheless, with consumer spending still accounting for nearly two thirds of UK GDP, we still predict a negative quarter of growth in the first quarter of 2012, which would confirm a technical recession.
Samuel Tombs, UK economist at Capital Economics
January's UK CIPS report on manufacturing adds to evidence that the industrial recovery got back on track at the start of 2012. The rise in the overall PMI from 49.7 to 52.1 – its highest level in eight months – was driven by a sharp increase in the survey's output balance from 50.2 to 55.8. On the basis of past form, the output balance is now consistent with quarterly growth in manufacturing output of close to 1%. Accordingly, the CIPS survey supports the upbeat message painted by last week's CBI industrial trends survey, which pointed to a similar rate of growth. Nonetheless, there are signs that this quite rapid growth will not be sustained. For a start, stocks of finished goods reportedly rose for the first time in April 2008. In addition, the new export orders balance fell back from 53.4 to 51.0, suggesting that overall growth is now largely dependent on domestic demand. But with consumer and investment spending likely to struggle this year, we doubt that this will provide a sustainable foundation for growth in the year ahead.
David Tinsley, UK economist at BNP Paribas
We have some very good news from the UK manufacturing PMI for January. The headline index 'soared' to 52.1, up from 49.7 in December. That was the highest index since April 2011 and well above the market expectation.
In the detail, the output index rose to a 10-month high, as new orders rose from both domestic and foreign buyers. Markit/CIPS report that demand rose from clients in Brazil, China, the Middle East and China.
Input prices declined for the third month in a row and the rate of deflation was the steepest since June 2009. Output prices rose, but the rate of increase has slackened...
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GUARDIAN Wed, 01 Feb 2012 12:33:28 GMT
Never mind Mr Fred Goodwin losing a knighthood, millions are struggling to even make a living
Right, that's quite enough time wasted on Mr Goodwin, let's focus today on people at the other end of the social pile whose fate may be greatly affected by today's parliamentary battle over Iain Duncan Smith's welfare bill. Amelia Gentleman describes what sort of individuals they are in a heart-rending article in today's Guardian.
I know you're busy, but spare a few minutes to read at least some of it. Gentleman went to Hull, a very distinctive city on the mouth of the Humber where she interviewed and observed those involved in the government's latest version of the welfare-to-work programmes. It seeks to get the unemployed – especially the hardest-to-reach long-term jobless – back into the labour force where, current theory insists (I broadly agree), most of us are healthier and happier.
By coincidence the Chartered Institute of Personnel and Development (CIPD) today publishes a 60-year survey of British working habits – you'll find it here – to mark the Queen's diamond jubilee.
Though much has improved in 60 years, we don't seem much happier after all, says the CIPD, not least because work-related stress, new technologies and consequent information overload (you're reading an example here, perhaps you should stop!).
Such factors have increased mobility and autonomy in all sorts of ways but blurred the boundaries between work and leisure time. The blurred BlackBerry boundary, you might say, though BlackBerry's makers, Research in Motion, seem to be going through a patch of work-related stress itself at the moment. Not our problem, but I'll come back to the CIPD survey.
What's striking about Amelia Gentleman's assessment is that everyone in sight at the Hull office of Pertemps – the firm doing the work scheme in Hull under supervision of G4S, one of the major private contractors – seems to be well-intentioned. The staff are motivated, their clients, each with a sad story to tell (how did you get to have six kids by 33?), seem mostly keen to find another job – but realistic about their slim prospects of doing so.
You might be better showing us how to start a small business, one old sweat tells the trainer. Good point. According to the CIPD survey there are now 4.5m private sector firms in Britain compared with 160,000 in 1952. I'd call that a healthy development.
Pertemps depends on success – finding someone a job that they keep for two years – for most of its potential profits of up to £14,000 a head, so it's motivated to try seriously. No short-termism built into this scheme, no premature knighthoods in sight. But a National Audit Office report last week both praised the speed and structure of the Department for Work and Pensions (DWP) plan, but worried that it may be a bit "over-optimistic" in the present climate.
Ministers are refusing to release figures until the programme has been running for 18 months – ie in October – which some find suspicious. Given the raucous negativity of most media commentary, I don't personally blame them. We struggle to cope with brighter news like today's better manufacturing figures.
It may indeed prove too optimistic, though that's no reason for not trying to place people or to motivate them, no reason for trying private-sector models either – who knows, they may work better in some circumstances, as they do in other fields.
After all, barely a day passes when we don't read something in the media which suggests that employers prefer to give jobs to young Poles or Italians who will do the job better and complain less than Brits, even at graduate level. When were you last served a pub drink or a restaurant meal – in my experience this applies quite widely all over Britain – by someone who was definitely a local?
It's not right, but you can see why it happens. That suggests a profound dysfunction in the labour market, the education system or the benefits safety net – or all three. Yet...
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GUARDIAN Wed, 01 Feb 2012 13:39:31 GMT
Thinktank argues chancellor could give economy £10bn fillip on 21 March without risk that Bank of England would hike interest rates in response
George Osborne could provide the economy with a £10bn fillip by cutting taxes or increasing spending without the risk of higher interest rates from the Bank of England, according to the Institute for Fiscal Studies.
The independent thinktank said the deterioration in growth and a softer approach to monetary policy by the Bank meant "the case for a significant short-term fiscal stimulus to boost the economy is stronger than it was a year ago".
It added: "There seems little prospect that it would prompt an offsetting monetary tightening in the present climate."
Paul Johnson, the director of the IFS, said his organisation was "sitting on the fence" on whether a budget giveaway would be a good idea but said he would not criticise the chancellor were he to announce pro-growth measures on 21 March.
He added that a £10bn loosening of fiscal policy would only lead to a slight improvement in the economy's growth prospects this year, and that there was a risk that the financial markets would take fright at a boost large enough to make a major difference.
In its annual "green budget", which analyses the state of the economy and the public finances, the IFS said lower Whitehall spending this year would mean that the chancellor would need to borrow £124bn this year, £3bn less than he forecast in the autumn statement in November 2011. By 2016-17, borrowing will be £9bn lower, providing the chancellor with more fiscal flexibility at the time of the 2015 election.
The IFS warned, however, that work on repairing the £114bn "black hole" in the government's finances had only just begun. It said that 75% of the deficit reduction programme was still to come, including 88% of the benefit cuts and 94% of the reductions in departmental spending.
Oxford Economics, which produces forecasts for the green budget, said the economy was on course for a double dip recession – two successive quarters of negative activity – and would grow by just 0.3% in 2012, lower than the 0.7% predicted by the Office for Budget Responsibility.
It added that risks were heavily skewed to the downside, and predicted that a breakup of the eurozone involving five countries would send the UK spiralling back into a deep recession that would see output fall in both 2012 and 2013.
Economics
Budget
Thinktanks
George Osborne
Tax and spending
Tax
Larry Elliott
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GUARDIAN Wed, 01 Feb 2012 14:32:35 GMT
The Institute for Fiscal Studies thinks government borrowing will be lower than forecast. But it is far less sanguine about lost output, recession, public finances, austerity and the euro
A broken-backed economy with devastated public finances and a long, hard slog ahead. That's a brief summary of what the Institute for Fiscal Studies was saying in its "green budget", which sketches out the options for the chancellor in this year's budget and beyond.
Before looking at the bad news – of which there is plenty – it's worth mentioning the one or two snippets of good news. George Osborne has exercised such control over his cabinet spending colleagues that they are on course to spend £3bn less this year than the chancellor had allowed for. By 2016-17, borrowing will be £9bn lower than the projections made by the independent Office for Budget Responsibility last November. At the election, due to be held in 2015, Osborne may have a bit more wiggle-room for some vote-winning sweeteners.
The rest of the IFS report, though, is not for the faint-hearted. Concern number one relates to the enormous cost of the recession of 2008-09, which has cost £200bn in output lost for ever. Concern number two is that a second period of retrenchment is now under way, with the co-authors of the IFS report, Oxford Economics, predicting a double-dip recession in early 2012 and growth of just 0.3% for the year as a whole.
An economy that suffered as big a collapse as that in the UK would normally bounce back quickly and strongly. The dependence of the UK on debt-driven growth in the financial and housing sectors has been brutally exposed, as has the impact of high inflation in an era when wages have been depressed.
Concern number three is that the public finances are in a terrible mess. The IFS calculates that since the financial crisis and recession began, a £114bn black hole has opened up, and because of the slowdown in the economy this is £23bn bigger than estimated at the time of the 2011 March budget. By 2016-17, borrowing will be £24bn – not much different from Alistair Darling's forecast in his last budget, despite the austerity measures introduced by the coalition. Faced with weakening activity, Osborne has been running to stand still.
Concern number four is that the planned squeeze is unprecedented. The IFS delved into the record books to see whether there was anything comparable in the UK's history. There wasn't. They then looked at the records kept by the Organisation for Economic Co-operation and Development in Paris to see if this sort of austerity had been tried anywhere else. With the possible exception of a three-year period of retrenchment in Ireland in the late 1980s, there hadn't. The IFS, in the light of that, wonders whether Osborne's plans are deliverable, particularly since the real pain is yet to begin on the spending side. While 73% of the tax increases have already come into force, only a third of the cuts in investment spending, 12% of the benefit reductions and 6% of the planned fall in non-investment public spending have taken effect.
Concern number five is that things could turn out to be even worse than this. The baseline IFS/Oxford Economics forecasts are based on the assumption that the eurozone sorts out its problems. In the event of a break-up involving the five most vulnerable countries – Greece, Portugal, Ireland, Spain and Italy – the UK would be plunged back into a second deep recession within five years. John Walker of Oxford Economics described that prospect as "challenging". He added: "By that we mean 'absolutely awful'."
How will Osborne react to this? The IFS suggest that he should say publicly what he will do if the economic outlook deteriorates significantly, and that is sage advice. Keeping to the current plans with the economy crash-diving into recession would be economic suicide. On the immediate budget decision, the IFS was more equivocal. On the one hand it said the case for a fiscal boost was....
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GUARDIAN Wed, 01 Feb 2012 17:41:18 GMT
• IFS predicts two-year slump if eurozone breaks up
• 10% risk Italy, Spain, Portugal, Ireland+Greece quit euro
• Eurozone manufacturing output drops in January
• Greece mired in recession, but Germany's doing OK.
• UK manufacturing returns to growth
• The agenda
• Blogging now Nick Fletcher
5.39pm: Time to call a halt for tonight after another busy day which has seen a series of fairly upbeat manufacturing surveys across the world lift global markets.
However it looks like Belgium is the first eurozone country to go into recession.
Elsewhere Portugal got a bond auction away despite fears it's next in the firing line after Greece.
Tomorrow sees Spanish and French bond auctions and the Greek government is preparing various meetings ahead of talks with the Troika, amid the continuing saga of the country's debt negotiations.
Goodnight, thanks for all the comments, and see you back here on Thursday.
4.52pm: Now I know we've been here before many times, but could we be finally seeing Greece announcing a deal with its bondholders? (Cynics would say probably not). Steve Collins, global head of dealing at London & Capital Asset Management, has just tweeted:
French TV is reporting that Greek PSI is completed. 72% NPV loss for bondholders. ECB to take no losses.
Talk is of "hours" now for an agreement, not the "by the end of the week" or "by the end of next week" we've become accustomed to. Still, probably best not to hold your breath.
4.43pm: European markets have closed, and it's another positive result after reasonable economic data across the globe (leaving aside Belgium which seems to have gone into recession).
The FTSE 100 has finished 109.11 points higher at 5790.72, close to a six month high which is pretty remarkable given the continuing uncertainty about Greece, Portugal et al (and Belgium). This is the first triple digit rise since 3 January.
Germany's Dax is up more than 2%, France has risen just below 2% and Italy is up a healthy 2.7%. On Wall Street the Dow Jones Industrial Average is currently up 137 points, or just over 1%. Michael Hewson at CMC Markets said:
Investors continue to push concerns about Europe and Greece to one side and focus on the fact that despite economic concerns markets remain keen to focus on the positives. January manufacturing PMI data from China, Europe and the UK showed some signs of recovery and this has helped bolster these positives.
Oil prices continue find support against a backdrop of Middle East uncertainty as well as optimism about the Chinese economy, after the latest official manufacturing PMI data beat expectations to the upside. Brent prices still continue to outperform US prices but also find it difficult to sustain levels much beyond $113.
4.12pm: Most of the global purchasing manufacturing figures have been fairly positive so far, certainly as far as China, the UK and US are concerned.
But there is one country which has been hit hard by the global downturn, as shown not by surveys but by hard data.
Plucky Belgium, it seems, is the first eurozone country to go into recession. According to official figures, Gross Domestic Product (and we should be formal here, given the gravity of the situation) for what is the eurozone's sixth largest economy fell by 0.2% in the fourth quarter. That follows a 0.1% fall in the previous six months, thus meeting the technical definition of recession as two quarters of decline.
It may be the first, but will it be the last?
3.28pm: Fitch senior analyst David Riley has just been chatting about the eurozone crisis in New York. Looking at his comments on the wires, he appears to be arguing that Italy should resist deeper austerity measures.
Riley also predicted that Greece will remain in the eurozone. Here's the key quotes:
We don't think that fiscal austerity is self defeating. But nonetheless further fiscal austerity given where they [Italy] are probably wouldn't be credible and
feasible.
They should focus more on growth........
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GUARDIAN Wed, 01 Feb 2012 18:05:28 GMT
Institute for Fiscal Studies argues chancellor could give economy £10bn fillip on budget day without forcing Bank of England to raise interest rates
The Treasury is insisting that it will stick to its tough austerity plan despite being told by Britain's leading financial thinktank on Wednesday that a £10bn budget giveaway would be possible without running the risk of forcing the Bank of England to raise interest rates.
Warning that Britain was on course for a double-dip recession this winter, the Institute for Fiscal Studies said: "The case for a significant short-term fiscal stimulus to boost the economy is stronger than it was a year ago."
At the time of the 2011 budget, the IFS was against any let-up in George Osborne's deficit reduction plan, but on Wednesday the thinktank's director, Paul Johnson, said he was now "sitting firmly on the fence".
Johnson said there was still a need to repair the fiscal damage caused to the economy by the deep recession of 2008-09, but that he would not be critical if the chancellor announced a package of tax cuts or increased spending worth £10bn on budget day, 21 March. The IFS director added, however, that £10bn of fiscal easing would only be a small boost to the economy, while a more aggressive loosening – worth £15bn or more – would run the risk of unsettling the financial markets.
A Treasury spokesman said: "The IFS say that tackling the deficit is necessary; that without the government's deficit plan borrowing would be much higher; and that any fiscal stimulus big enough to make a difference would undermine investor confidence and so risk higher interest rates."
Osborne believes that it is the Bank of England that should be responsible for boosting economic activity in the short term, and that the credibility of the Treasury's deficit-reduction programme allows the Bank's monetary policy committee to keep the interest rate, which is currently 0.5%, lower than it would otherwise have to be.
But Rachel Reeves, Labour's shadow chief secretary to the Treasury, said: "The independent IFS is right to say that the case for short-term action on jobs and growth, for example through the temporary tax cuts Labour has been calling for, is now stronger – and will get stronger still if the eurozone crisis deepens.
"But rather than waiting for things to get even worse, George Osborne should take urgent action in next month's budget. Years of slow growth and high unemployment are not just bad for families and for the deficit, but also risk permanent damage to our economy.
"We agree with the IFS that the best form of stimulus would be a temporary cut in VAT, a cut in national insurance contributions for employers and additional infrastructure spending, which are three of the five elements in Labour's plan for jobs and growth."
In its annual "green budget", which analyses the state of the economy and the public finances, the IFS said lower-than-forecast Whitehall spending would mean that the chancellor would need to borrow £124bn this year, £3bn less than he estimated in the autumn statement in November 2011. By 2016-17, borrowing will be £9bn lower, providing the chancellor with more fiscal flexibility at the time of the 2015 election.
The IFS warned, however, that work on repairing the £114bn "black hole" in the government's finances had only just begun. It said that 75% of the austerity programme was still to come, including 88% of the benefit cuts and 94% of the reductions in departmental spending. "The sheer scale of the cuts is daunting and almost without historical or international precedent", the IFS said.
Oxford Economics, which produces forecasts for the green budget, said the economy would grow by just 0.3% in 2012, lower than the official estimate of 0.7% made by the independent Office for Budget Responsibility.
It added that risks were heavily skewed to the downside, and predicted that a breakup of the eurozone involving five countries would send the UK spiralling back......
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GUARDIAN Mon, 30 Jan 2012 17:33:00 GMT
Nervousness over Greece drags down European shares, with financial and resource stocks particularly hard hit
The FTSE 100 index in London has finished the day 62.36 points lower at 5671.09, a 1.09% fall. Market nervousness is increasing over Greece, which is teetering on the brink of a debt default after talks with creditors over a crucial debt restructuring stalled - yet again - over the weekend. Germany's Dax and France's CAC closed down 1% and 1.6% respectively.
Michael Hewson, market analyst at CMC Markets, said:
If today's moves in European markets signal anything, they signal a lack of confidence in European leaders to deliver on what investors had hoped last week would be some form of progress with respect to a Greek debt deal, over the weekend.
Having seen markets hold on to the gains from the previous two weeks on the back of EU officials promises that a deal was close; the lack of any progress over the weekend has seen the markets deliver its verdict and it's rather damning, with the FTSE hitting its lowest levels in nearly two weeks.
Friction between Germany and Greece over increased budget oversight hasn't helped sentiment either.
EU leaders gathered at a summit in Brussels have just agreed on a permanent ESM bailout mechanism to come into effect from July but will sign a treaty at a later stage, Reuters reported.
Financial stocks have borne the brunt of today's falls, with French banks being hit particularly hard after news that France will be implementing a unilateral transaction tax by the third quarter of this year.
UK banks are also lower with Lloyds Banking Group, Barclays and Royal Bank of Scotland at the bottom of Britain's bluechip index. Lloyds slipped 1.3p, or 4.1%, to 31p while Barclays lost 9.3p, or 4.2%, to 213.5p and RBS shed 0.98p, or 3.5%, to 26.76p.
Resource and mining stocks have also slid as investors took profits on the gains seen so far on what has been a fairly positive month for European markets.
Defensive stocks were top of the pack today, with pharmaceutical and utility stocks outperforming the rest of the FTSE, led by AstraZeneca, International Power, GlaxoSmithKline and National Grid. AstraZeneca closed up 19p, or 0.6%, at £30.55; International Power climbed 2p, or 0.6%, to 332p; GSK added 7p, or 0.5%, to £14.37 and National Grid ended the day 3p higher, a 0.5% rise, at 613.5p.
On the FTSE 250, gambling and casino group Rank was the star performer, up 4.1p, or 3.2%, at 131.1p, after the City welcomed its attempts to engineer a merger with Gala Coral's casino arm. This would make Rank Britain's biggest casino operator.
Lloyds Banking Group
Royal Bank of Scotland
Barclays
AstraZeneca
GlaxoSmithKline
International Power
National Grid
FTSE
Rank
Julia Kollewe
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