Time for a quick recap

• Britain’s manufacturers have recorded the sharpest drop in factory output for seven years as mounting concerns over no-deal Brexit and the slowing global economy hit orders across the country.
  
  Activity plunged in August to the lowest levels since July 2012, according to the latest factory PMI survey
  
  The report found that EU-based customers are shunning British manufacturers as the risk of no-deal Brexit mounts, rerouting supply chains away from the UK as the likelihood of border disruption after 31 October increases.

• Economists said the drop in the UK factory PMI, to just 47.4, was a very worrying sign, indicating manufacturing is in recession.
  
  
• Make UK, the industry body, warned that Brexit worries were “seriously undermining” the sector.
  
  
• European manufacturing also contracted last month, dragged back by a stark slump in German factory output. Spain, Italy, Ireland and Austria also suffered falling output, while the picture brightened in France.
  
  
• Argentina has been forced to introduce currency controls, after the peso plunged alarmingly in recent weeks.
  
  Under the plan, companies will need permission to access the foreign exchange markets, and must repatriate overseas earnings, while individuals will be restricted about how any dollars they can buy.
  
  
• The pound has tumbled by a cent against the US dollar to a two-week low, on rumours of a snap general election. This has pushed the FTSE 100 up up over 1%, hitting a one-month high this morning.
  
  

Make UK, which represents UK manufacturers, is deeply concerned by the tumble in August’s factory PMI.

Their chief economist, Seamus Nevin, says such a large slump in new orders hasn’t been seen since the financial crisis a decade ago:

“The unprecedented economic and political uncertainty in the UK, as fears of a crash out Brexit grow, is continuing to seriously undermine the performance of UK manufacturing. Business confidence has now fallen to an all-time low and consumer purchases, which have driven what little economic growth we have seen recently, has also now worsened.

“Employment in the sector fell at one of the fastest rates for almost seven years, and capital investments have shrunk too.

“While global markets are still struggling and orders from the USA and Asia are shrinking the slump in the Eurozone, the UK’s biggest export market, has reversed slightly on the back of French manufacturers signalling a renewed improvement in operating conditions and German PMI improving from July’s seven-year low. However, anxiety about the UK’s post-Brexit trade rules means British manufacturers are not seeing the benefit.

“Instead, EU-based clients were routing supply chains away from the UK and consequently new orders have contracted at their fastest pace since the worst days of the Global Financial Crisis.”

The slide in the pound has pushed the FTSE 100 share index up to a one-month high.

The blue-chip index has jumped by 100 points to 7307, its highest point since 5 August.

This 1.3% gain is being driven by multinational companies with overseas earnings, including drinks group Diageo (up 2.3%) and weapons maker BAE Systems (+2%).

The FTSE 250 index, which contains smaller, more UK-focused companies, is up 0.5%.

The pound has fallen sharply this morning, hit by the weak factory data and the political crisis in Westminster.

Sterling has shed three-quarters of a cent against the US dollar to $1.2080, a two-week low.

Neil Wilson of Markets.com say today’s manufacturing PMI is “simply shocking”,

The headline PMI reading fell to 47.4, its weakest since July 2012. New orders declined at the fastest clip in seven years. And crucially confidence is on the floor, with manufacturers as pessimistic as they have ever been.

He reckons the global economic slowdown, not Brexit, is the main culprit:

Uncertainty over the outcome of Brexit is certainly a drag on sentiment but we should be hopeful that this will be resolved presently.

The data for the UK economy may well now get worse before it gets better. We need to assess the Services PMI on Wednesday for more clues about whether Q3 could herald a contraction. And as consistently stated, it also makes the next move for the Bank of England down, not up.

Speculation that Britain could be heading for a snap election is also weighing on the pound today. Boris Johnson is now threatening to bar Conservative MP from running in the next election if they try to block a no-deal Brexit.

Our Politics Liveblog has all the details:

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, says Britain’s factories are struggling badly, as fears of a disorderly Brexit hurt the sector.

Here’s his take on the news that UK factory growth slumped to a seven-year low last month:

“The sector’s illness took a turn for the worse in August with the sharpest decline in domestic and export orders for seven years. Investment continued to peter out and heightened concerns about the UK’s political situation and the strength of the global economy acted as a drag on activity.

“As some clients from the Eurozone continued to move their supply chains away from the UK, declining orders from the US and Asia dashed any hopes of redemption, resulting in the sharpest fall in business optimism since at least 2012.

“Soured by the continuing intensely difficult conditions, the sector resorted to some job shedding and increased their own prices as a last-ditch effort against renewed pressure from a weakening pound.

“As Brexit planning intensifies, some firms were resorting to more inventory building whilst others were unravelling their stocks. With some supplies impacted by port delays and poor supplier performance, a creeping dread is descending on the sector that there will be more of these obstacles to come.”

Newsflash: Britain’s factory sector is shrinking at its fastest rate in seven years, as the Brexit crisis hurts the UK economy.

Data firm Markit reports that new orders tumbled last month, with activity sliding at its fastest pace since 2012.

Steep reductions in new orders were seen across the consumer, intermediate and investment goods industries, driving output down across the sector.

Business confidence has also cratered, hitting its lowest level since Markit began tracking it in 2012.

Markit’s UK manufacturing PMI, based on interviews with factory bosses across the UK, fell to just 47.4 - weaker than the 48.4 expected, and deeper into contraction (anything below 50 shows the sector shrank).

Markit blames high levels of “economic and political uncertainty”, with Brexit adding to a wider slowdown in the global economy. The ongoing US-China trade war is also hurting.

It says:

The level of new export business contracted at the fastest rate in over seven years in August. Ongoing global trade tensions, slower world economic growth and Brexit uncertainty were all mentioned by manufacturers as factors contributing to reduced overseas demand. There were reports that some EU-based clients were routing supply chains away from the UK due to Brexit.

Newsflash: Europe’s factory sector has shrunk for seven months in a row, as Germany continues to suffer economic problems.

Data firm Markit has reported that its eurozone manufacturing PMI was 47.0 in August. Any reading below 50 shows a contraction, so this means factories have been shrinking since last December.

Companies reported that production and new orders fell again last month, while business confidence has fallen to its lowest level since 2012 -- suggesting more trouble ahead.

Conditions worsened in Germany, Austria, Ireland, Italy and Spain, while France, the Netherlands and Greece reported growth.

Chris Williamson, chief Business Economist at IHS Markit says:

“Prices are falling as companies offer discounts in the face of disappointingly weak demand, and payroll numbers are being culled at one of the steepest rates seen over the past six years as companies increasingly seek to cut costs in the uncertain trading environment.

“Trade wars and tariffs remain the biggest concerns among producers, and the escalation of global trade war tensions in August encouraged further risk aversion.

“Germany is suffering the steepest decline, in part reflecting slumping global demand for autos and business machinery. While France bucked a wider downturn trend, even here growth was only very modest.”

An IMF spokesperson has said the Fund will analyze the details of Argentina’s “capital flow management measures”, adding:

“Staff will remain in close contact with the authorities in the period ahead and the fund will continue to stand with Argentina during these challenging times.”

Argentina’s new currency controls are an embarrassing u-turn for President Mauricio Macri, who had billed himself as a reformer.

Macri had previously lifted many protectionist practices of his predecessor, Cristina Fernandez de Kirchner, points out Reuters:

After opposition candidate Alberto Fernandez and Fernandez de Kirchner, who is now his vice presidential candidate, pulled off a stunning upset in the Aug. 11 primary vote, bonds, stocks and the peso currency plummeted on market fears over a potential return to the interventionist policies of Fernandez de Kirchner’s previous government.

Macri’s government and the central bank are trying to stabilize the economy as the Oct. 27 presidential election looms, for which Fernandez is now the front-runner.

The Financial Times fears these currency controls could scupper Argentina’s current IMF bailout.

It explains:

Investors had been expecting some form of capital controls. But some fear that the move could jeopardise the IMF’s latest disbursement of its $57bn bailout programme secured by Argentina during a currency crisis last year, with a $5.4bn tranche due by the end of September.

“How is the IMF supposed to disburse the last tranche into this environment?” asked Ed Al-Hussainy, an analyst at Columbia Threadneedle, noting it is a “massive moral hazard”.

Germany’s DW flags up that fears of a default have been rising.

Argentina fell into recession under President Mauricio Macri in 2018. The country faces rising unemployment and one of the world’s highest inflation rates — running at over 55%.

Fearing a default, some Argentines withdrew their savings from banks at the end of August.

Sky News’s Ian King says that Macri’s move to restructure Argentian’s debt last week escalated the panic:

Buenos Aires said on Wednesday that it was extending the maturity of many of its government bonds, in other words, telling lenders they would be getting their money back further into the future than they were expecting.

S&P said this amounted to a default - making it the ninth time Argentina has reneged on its debts and the third time this century.

Accordingly, S&P said it was cutting Argentina’s credit rating to CCC, the lowest possible.

The response on Friday was aggressive selling of Argentinian government bonds by investors, particularly big German pension funds, sparking a slump in prices.

The yield - which rises as the price of a bond falls and which is akin to an interest rate - on the benchmark Argentinian bond due for repayment in 2028 shot up to 22.2%.

At the beginning of the month, the yield on such bonds was 9.57%.

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

The economic crisis gripping Argentina has taken a worrying twist, with the country’s government imposing currency controls in an attempt to support its economy.

Following a 25% slump in the value of the peso during August, Argentina has taken the dramatic move to restrict exporters and citizens when purchasing foreign currency or making transfers abroad.

President Mauricio Macri’s administration announced last night it would take:

“...a series of extraordinary measures to ensure the normal functioning of the economy, to sustain the level of activity and employment and protect the consumers.”

Under the plan:

• Foreign companies will need permission from the central bank to access the foreign exchange market to purchase foreign currency and make transfers abroad.
  
• Exporters must repatriate earnings from sales abroad.
  
• Individuals would only be allowed to purchase up to $10,000 a month “to protect savers and achieve greater exchange rate stability”.

The measures are designed to “maintain currency stability”, according to Argentina’s central bank. They also highlight how Argentina is lurching deeper into a new financial crisis.

The move comes three weeks after Macri suffered a shock defeat to left-wing rival Alberto Fernández in presidential primary elections.

That prompted a collapse in share prices in Buenos Aires, weakened Argentina’s bonds dramatically, and sent the peso stumbling.

Last week, Macri’s government said it would delay interest payments on tens of billions of dollars of debt, and try to extend the maturity of the loans. It also hopes to restructure the $44bn loan recently advanced by the IMF.

With fears of a debt default rampant, Argentina’s central bank has been burning through its currency reserves in a bid to prop up the peso.

Currency controls could help, but will also have a damaging impact on its economy.

Also coming up today

New manufacturing PMI reports from around the globe are likely to show that factories are still struggling. Output is thought to have fallen in both the UK and the eurozone in August, as the US-China trade war hits demand.

That trade war deepened last weekend, as America imposed fresh tariffs on $112bn (£92bn) of Chinese imports such as shoes, nappies and food. In response, Beijing began to introduce measures targeting $75bn worth of US goods.

Wall Street will be closed for Labour Day, so the markets could be subdued.

The agenda

• 9am BST: Eurozone manufacturing PMI for August (expected to remain at 47, showing a contraction).
• 9.30am BST: UK manufacturing PMI for August (expected to rise to 48.4, from 48, showing a slower contraction).