Graeme Wearden 

British Steel plans 400 job cuts; Carney blames Brexit for weak pay growth – as it happened

All the day’s economic and financial news, as UK steel industry faces hundreds of job cuts and Mark Carney delivers another Brexit warning
  
  

A British Steel worker in Scunthorpe.
A British Steel worker in Scunthorpe. Photograph: Steve Morgan/British Steel/PA

And finally, Bloomberg has punctured the earlier optimism on Wall Street.

They’re reporting that Donald Trump wants to press on with an extra $200bn of tariffs on China. There’s nothing official yet, but it suggests the trade war could soon enter a new phase.

Here’s a flavour of the story:

President Donald Trump instructed aides on Thursday to proceed with tariffs on about $200 billion more in Chinese products despite his Treasury secretary’s attempt to restart talks with Beijing to resolve the trade war, according to four people familiar with the matter.

But an announcement of the new round of tariffs has been delayed as the administration considers revisions based on concerns raised in public comments, the people said. Trump may be running low on products he can target without significant backlash from major U.S. companies and consumers, two of the people said.

So the Dow is now in the red, down 32 points at 26,113. The FTSE 100 had earlier closed 22 points higher at 7,304.

And on that note, goodnight. GW

Exactly ten years ago, some of America’s top bankers, politicians and officials were engaged in desperate, unsuccceessful, last-ditch discussions on whether, and how, to bail out Lehman Brothers.

So here’s some weekend reading on what we have, and haven’t, learned in the decade since:

Just in: US consumers are more optimistic, as they shrug off worries about trade wars.

The University of Michigan’s consumer morale index has jumped to 100.8 this month, rather stronger than August’s reading of 96.2. That’s the highest reading since March.

Markets up despite trade worries and Manafort latest

Financial markets are ending the week on a bright note, despite trade war worries and fresh developments in the Mueller investigation.

European equities are all up today, with the FTSE 100 some 25 points higher at 7307, up 0.3% today.

Wall Street has opened higher too, with the Dow Jones industrial average 50 points higher at 26,194.

Court filings show that Paul Manafort, Donald Trump’s former campaign chief, faces two new charges - one count of conspiracy against the United States, one count of conspiracy to obstruct justice.

Legal experts believe Manafort has reached a plea deal with special council Robert Mueller, who is leading the investigation into Russian interference in the 2016 US election. Last month, Manafort was convicted of 8 counts of fraud.

This might take Donald Trump’s mind off trade war issues.

Alternatively, the president may feel forced to respond to China’s warning that it won’t surrender to Washington.

Ursula Johnston, head of customs at law firm Gowling WLG, says it would be better if both sides could ditch the “bravado”, and simply negotiate:

“There was potential for this bravado to die down, which would have better allowed for real, practical dialogue that benefits the undeniably interlinked trading relationship the US and China historically have.

“But with an intense war of words continuing – and likely to for some time to come, given Trump’s tendency to ‘post from the hip’ – the ability to salvage traditional links without fundamentally changing the world trade order will decrease. China is showing all the signs that it will not concede to the US, even if that comes with a big cost – and indeed, will see that it is an important principle not to allow the US to impose on it trade terms.

“The China/US spat could become a global issue – if China’s economy slows down then that heavily impacts many countries that supply it with the raw materials – typically emerging economies.”

Updated

The slowdown in American retail sales is a surprise, say Capital Economics’s Andrew Hunter, but it won’t deter the US Federal Reserve from raising interest rates again soon.

Hunter writes:

As the boost from the tax cuts starts to fade, spending growth is likely to continue slowing gradually over the coming months.

For now, however, with the labour market continuing to tighten and inflationary pressures building, the strength of consumer spending growth keeps the Fed on course to continue raising interest rates once a quarter, with the next hike coming at the FOMC meeting later this month.

Updated

Just in: US shops have posted their smallest sales increase in six months.

U.S. retail sales only rose by 0.1% in August, new data shows, as consumers cut back on purchases of motor vehicles, electrical goods and clothing.

But more encouragingly, July’s increase has been revised up to 0.7%, from 0.5%.

Gill Furniss, Labour’s shadow Steel Minister, has blamed the UK government for the looming job cuts at British Steel:

She says:

“This is extremely worrying news. Workers at British Steel fought against the odds to defend the company’s future, even though the Government has refused to properly support the steel industry.

“Workers will see this as another blow to an already fragile situation and will worry it’s a prelude to further job losses.

“The Government has failed to support steel. They have failed to stand up to Donald Trump’s aggressive policies, which threaten our industry and they have failed to produce a steel sector deal or address the vital issues facing steel companies, such as the disproportionately high electricity prices that hamper growth and investment.”

Mike Ashley to shareholders: You've all got it in for me

Mike Ashley, the founder of Sports Direct, has gone nuclear.

SPD has just released an astonishing statement to the City, in which Ashley accuses shareholders of stabbing him and the company in the back.

Ashley is furious that investors didn’t provide more support to ex-chairman Keith Hellawell, who quit this week after repeated criticism over SPD’s corporate governance.

After stewing on the issue for 48 hours, Ashley has now let rip, saying investors have “failed to support Sports Direct, Keith and myself”.

In a blistering statement, Ashley says:

It is blatantly apparent that true entrepreneurs will never be accepted in the public arena. The media circus surrounding Sports Direct, including but not restricted to matters connected to our AGM, only proves that whatever progress Sports Direct makes, it will always be subject to disproportionate scrutiny and misrepresentation.

In light of the above, and despite the substantial progress made over the last few years, the shareholders have now made it extremely challenging for future engagement to take place. On the one hand they are delighted with our performance and progress, yet with the other hand they have stabbed Sports Direct and myself in the back by repeatedly hounding Keith Hellawell.

Hellawell has been expected to face a shareholder revolt at this week’s AGM, before his resignation removed the need to vote on his re-election. Instead, nearly 10% of shareholders voted against Ashley’s reappointment to the board instead.

That’s a chunky revolt, given Ashley owns 61% of the company (and presumably didn’t vote against himself).

This attack might ignite speculation that Ashley could take the company private.

Updated

Back in Dublin, Mark Carney has downplayed those reports that the Bank of England was predicting a house price crash if Britain leaves the EU without a deal.

Reuters has the details:

Carney did not directly address the media reports in a question and answer session after a speech at the Irish central bank, but said bank ‘stress test’ scenarios in which house prices fell sharply did not amount to a prediction from the BoE.

“That’s not a prediction of what’s going to happen, but that’s what we need to do in order to make sure that ... the system is very clearly and transparently ... able to continue to lend,” he said.

Here’s our news story on the steel job cuts:

The Financial Times says most of British Steel’s planned job cuts will hit its Scunthorpe site, adding:

Under Indian steelmaker Tata the business was on the verge of collapse in 2016 but workers agreed to pension reductions and pay restraint to allow a sale.

Greybull, a family investment firm, bought the business and said it had invested £170m since.

Scunthorpe is one of the only two UK locations where steel is made in a blast furnace. British Steel’s main products are rails, wire rod, and steel for the construction industry.

Carney: Brexit uncertainty has hit economy

Newsflash: Bank of England governor Mark Carney is warning that the uncertainty over Britain’s exit from the European Union has “dampened” economic growth.

Carney is giving the 2018 Whitaker Lecture, at the Central Bank of Ireland. The speech is mostly about the 4th Industrial Revolution (the rise of automation and robotics).

But the governor has shoe-horned a Brexit angle onto the end of the speech, warning that has already hurt pay growth...and explaining how the Bank might be forced to raise interest rates if a disorderly Brexit hurts the pound.

Carney says:

Although current rates of pay growth in the UK are below pre-crisis averages, this largely reflects continued weakness in productivity growth. While that weakness may reflect the early consequences of the Fourth Industrial Revolution, other factors seem more likely to be at play. In the years following the global financial crisis, the aftereffects of that shock and the subsequent euro-area crisis exerted a drag on business investment.

More recently, uncertainty around Brexit has had an additional dampening effect. As has been the case for some time, developments regarding the United Kingdom’s withdrawal from the European Union are the most significant influences on the economic outlook. And while the impact of the Fourth Industrial Revolution may be felt over the coming decades, some of the Brexit effects on supply may be much more immediate.

The Bank of England is well-prepared for whatever path the economy takes, including a wide range of potential Brexit outcomes. We have used our stress test to ensure that the largest UK banks can continue to meet the needs of UK households and businesses even through a disorderly Brexit, however unlikely that may be.

Our job, after all, is not to hope for the best but to plan for the worst. The MPC will respond to any persistent change in the outlook to bring inflation sustainably back to 2% target while doing what it can to support jobs and activity.

The appropriate policy response is not automatic and will depend on the balance of the effects on demand, supply, and the exchange rate.

British Steel’s warning about the weak pound highlights an important point: a lower currency doesn’t automatically help exporters.

Instead, a weak currency can be expensive for any firm that buys raw materials and energy from abroad.

But shouldn’t a cheap pound make exports more competitive in America? Yes, but.... this advantage has been destroyed by Donald Trump’s new tariffs. They make European steel imports 25% pricier, eroding the competitive advantage from a cheap pound.

Updated

MP: Government must do more to help steel

Nic Dakin, Labour MP for Scunthorpe, has issued a statement on the job cuts:

The news that British Steel is to shed 400 jobs is devastating news to a workforce that have done everything asked of them over the last two years. They have taken a pay cut, seen their pensions change and worked hard to get British Steel on its way.

Three years on from the height of the steel crisis the Conservative Government hasn’t taken any steps to level the playing field for the UK steel industry. Despite massive goodwill from the steel sector there is still no sector deal for steel in place. And the Government is dragging its feet on improving public procurement, tackling unequal energy costs, tackling high business taxes and supporting capital investment.

As we leave the EU the Government is not giving steel the priority it needs to be confident of a fair deal post Brexit. So today’s news is a wake-up call to Government to get its act together and get behind our steelworkers and steelmakers.

I am talking to British Steel. the steel unions and the Government, doing all I can to stand up for local steelworkers and their families at this difficult time.

Updated

Roland Junck, British Steel’s executive chairman, says the job cuts will create a “sustainable future” for the company.

“We’ll further discuss our proposals, which would consider applications for voluntary redundancy, with senior union representatives. We’ll ensure this process is handled in a sensitive manner. We haven’t set any deadlines but aim to keep the period of uncertainty for our people as short as we can.

“We know this will be a worrying time for many and we’ll do everything possible to ensure our people continue to get the support they deserve, now and in the future.”

Unions says British Steel’s proposed job cuts are a “body blow” to its workforce, especially as the company actually made a profit last year:

A spokesperson for the National Trade Union Steel Coordinating Committee said:

“This announcement will come as a body blow to the workforce who have already made huge sacrifices to make the business sustainable.

“We recognise these are challenging times for UK steelmakers, and it’s high time the government stepped up and delivered for us by supporting investment in strategic steel assets.

“However it is particularly disappointing the company has chosen to cut jobs so soon after celebrating a second successful year and first quarter profits of £21m.

British Steel to cut up to 400 jobs

Newsflash: British Steel is cutting up to 400 jobs -- and blamed the weakness of the UK pound over the last couple of years.

The company, which runs the Scunthorpe Steelworks, says it is streamlining its operations.

The plans include cutting up to 400 managerial, professional and administrative roles at its operations throughout the UK, Ireland, France and the Netherlands.

British Steel was created in 2016, with assets spun out from Tata Steel. It employs 5,000 across its operations. It also runs rolling facilities at Skinningrove (UK), Teesside (UK), and Hayange (France), alongside the Scunthorpe plant.

Gerald Reichmann, British Steel’s chief financial officer, says sterling’s weakness against the US dollar since 2016 is one factor behind today’s job cuts:

“We’ve made a strong start to life as British Steel but our external environment is constantly changing. For example, raw materials are all traded in US dollars, so the weakening of the pound and euro have implications for us.

Like any business we need to be able to flex and adapt to these changes.

Despite today’s recovery, the pound is still worth 10% less than before the EU referendum (when it was worth around $1.47, vs $1.31 today).

More to follow...

Updated

On Mark Carney’s no-deal warning to the cabinet.... it’s worth noting that the governor’s doomsday scenario of soaring unemployment and tumbling house prices is exactly what the BoE models in its annual bank stress tests.

The theory is that a whopping “UK-specific risk premium shock” will send the pound tumbling, driving up inflation and forcing interest rates to be hiked.

That would hurt economic growth, and also trigger a house price crash. You can see the details here.

So in one sense, the governor is right to make such a warning -- a no-deal Brexit is exactly the kind of shock that would cause heavy losses for Britain’s banks.

But on the upside, the UK financial system passed last year’s stress tests. They proved that the banks could ride out the storm of a disorderly Brexit.

Ed Conway of Sky News suggests that such scenarios should be treated cautiously, not as gospel....

Updated

Sterling has now gained two cents against the US dollar since Monday morning, putting it on track for its second-best week this year.

That’s partly because the dollar has been weakening this week, but also shows that the City isn’t - yet - in full-blown Brexit panic.

Pound hits six-week high as traders shrug off Carney warning

Boom! The pound has hit its highest level against the US dollar since the start of August.

Sterling strengthened by 0.2% to nudge $1.3138 in morning trading, as investors refused to be panicked by the BoE governor’s dire predictions to the cabinet yesterday.

Carlo Alberto De Casa of ActivTrades says the City is optimistic that a no-deal Brexit can be avoided.

Markets at this point seem quite confident that a deal can be reached, and the pound is firming.

Cable [the £/$ rate] in particular is continuing its rise, even if this appears mostly due to the temporary weakness of the US dollar, as the recovery of euro against the greenback illustrates.

In the City, housebuilders shares have dipped following Mark Carney’s warning that a no-deal Brexit could cause a housing crash.

But it’s a fairly modest reaction really; Barratt Development and Taylor Wimpey are down around 1%. That shows some nervousness, but not a panic.

Chinese statistics bureau spokesman Mao Shengyong has told reporters in Beijing that investment growth should stabilize in the months ahead, as the government expands its efforts to kick-start large projects.

Updated

Shuang Ding, an economist at Standard Chartered, is concerned that investment in China’s factories and railways has slowed sharply this year.

Ding warns:

“If investment, especially infrastructure investment, fails to recover in September, the risk on economic growth would be very large.”

Chinese fixed investment growth hits record low

Overnight, new official data has suggested that China’s economy is feeling a chill from the dispute with the US.

Fixed-asset investment growth slowed to just 5.3% in the first eight months of the year, weaker than expected, and the lowest on record.

That shows that companies are cutting back on new plants and machinery, as they fret about the prospect of a major trade war.

Tariffs are already making it more expensive to import US goods into China, and making Chinese products less competitive in American shops.

More encouragingly, retail sales in China rose by 9% year-on-year in August (up fro 8.8%), and industrial growth picked up to 6.1% (from 6%).

Updated

China: We won't surrender to US over trade

Trade war news: China has fired another warning shot at America as the two countries ongoing dispute rattles on.

The state-run China Daily newspaper -- usually a firm guide to Beijing’s thinking -- has published an editorial today insisting that Chinese officials won’t roll over.

It says:

“The Trump administration should not be mistaken that China will surrender to the U.S. demands. It has enough fuel to drive its economy even if a trade war is prolonged.”

China Daily also warns that Beijing “will not hesitate to take countermeasures”, if Donald Trump decides to unleash fresh tariffs.

Currently, Trump is weighing up whether to impose $200bn of tariffs on Chinese goods, on top of the existing $50bn.

The president is trying to push Beijing to reduce trade barriers facing US companies looking to trade in China, and to lower the huge trade gap between the two nations.

Yesterday, he denied feeling pressure to reach a deal:

But investors are hoping that a deeper trade war can be avoided.

Earlier this week, it emerged that US treasury secretary Steven Mnuchin had reached out to Beijing to re-open negotiations over trade, in an attempt to avoid a second round of tit-for-tat tariffs that could hurt the world economy.

Updated

The agenda: Carney speaks in Dublin after Brexit warning

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

City traders and cabinet ministers are digesting a stern warning from the Bank of England’s governor this morning. Yesterday, Mark Carney dropped into the cabinet room to warn Britain’s ministers that a no-deal Brexit could be catastrophic for the economy.

In a chilling assessment, Carney explained how a no-deal Brexit could cause as much damage as the financial crisis that crippled the UK economy a decade ago.

The governor explained that unemployment could surge into double-digits (from just 4%) today, and that house prices could plunge by up to a third. Carney also outlined how transport links would be badly hit, also hurting economic growth.

My colleagues Pippa Crerar and Dan Sabbagh explains:

Several sources said Carney compared the outcome of a no-deal Brexit with the fallout from the 2008 financial crash.

One cabinet minister told the Guardian: “The government wouldn’t just stand by. It didn’t in 2008. He wasn’t saying it was all going to happen but I think there is a recognition that you do have to contemplate the worst-case scenario.”

Having given the cabinet the goosebumps, Carney has jetted off to Dublin to give a lecture to the Central Bank of Ireland. It commemorates former CBI governor Ken Whitaker - but the City will be listening for any more dire predictions from the BoE.

Traders will also be keeping an eye out for new eurozone trade data, plus US retail sales figures, which may show if economic growth is being hit by trade disputes.

The agenda:

  • 10am BST: Eurozone trade balance for July
  • 11am BST: Mark Carney gives the Whitaker Lecture in Dublin
  • 1.30pm BST: US retail sales for August
  • 3pm BST: University of Michigan sentiment data

Updated

 

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