Graeme Wearden 

Factory gloom as UK firms cut jobs and US manufacturing shrinks – business live

British manufacturers are cutting employment levels at the fastest pace since 2013, despite a renewed surge in stockpiling
  
  

An aerial night view of a container port in Qingdao in east China’s Shandong province.
An aerial night view of a container port in Qingdao in east China’s Shandong province. Photograph: Yu Fangping/Feature China/Barcroft Media

Finally, here’s our news story on the WTO’s warning of a trade slowdown.

Market fall after worryingly weak US factory report

Stocks have fallen on both sides of the Atlantic after the closely-watched ISM survey of US factories hit its lowest level in a decade.

Europe’s main indices all closed in the red, with the FTSE 100 down 47 points or 0.65% at 7,360.

Fashion group Burberry (-3%), Royal Bank of Scotland (-2.9%) and mining giant Glencore (-2.7%) were all among the top fallers.

France’s CAC shed 1.4%, while Germany’s DAX closed 1.3% lower.

Wall Street is taking a bath too, with the Dow Jones industrial average down 259 points or almost 1%.

Here’s the chart that has worried investors:

The slowdown in world trade forecast by the WTO today shows that life after Brexit won’t be easy.

Ursula Johnston, head of customs at law firm, Gowling WLG, explains:

The recent WTO trade forecasts indicate a fairly significant slowdown in the rate of growth of global trade. The UK should consider that when outside the safety net of the EU single market and European customs union, peddling UK goods and services to the rest of the world will not be plain sailing. In particular the UK’s exposure to large scale trade conflicts will certainly begin to bite.

Here’s Ana Nicholls, Industry Director at The Economist Intelligence Unit, in the no-deal Brexit threat to Nissan’s Sunderland car plant:

Nissan will have no choice but to review its plans for Sunderland if the UK leaves the EU without a deal. Toyota and others will review their production plans too. About 80% of the Sunderland plant’s output is exported and a similar share of components are imported, mostly to and from the EU.

The no-deal Brexit could well disrupt that supply chain; as well as complicating paperwork and logistics, it would also add tariffs of 10% for cars and 4.5% for parts.

America’s factories are clearly suffering from the trade war, and the slowdown in the eurozone isn’t helping either.

This looks bad - US factory activity had fallen at the fastest rate in a decade, accordingly to the ISM’s September health check.

Its US manufacturing PMI has dropped to 47.8, further away from the 50-point mark separating growth from contraction.

Time for a quick recap of the main points.

How Greggs will cope with Brexit disruption

High street bakers Greggs has revealed that its Brexit contingency plans (mentioned earlier) includes changing some of its recipes.

Bloomberg has the details:

If there are any disruptions at ports, “we’ll be able to last a few days and then hopefully it will settle down,” chief executive Roger Whiteside said on a call with reporters as the company reported a slowdown in sales growth that prompted a fall in the shares.

“Should there be any short-term pressures on some ingredients then there are alternative recipe suggestions we can fall back to.”

Greggs has already tried to reduce its dependency on European suppliers, sourcing more of its cheese and sugar from U.K.-based companies. It has also brought forward purchases of trucks from continental Europe to limit the effect of any delays at the borders on its own distribution network.

“A lot of what we sell clearly has a level of substitution involved,” Whiteside said. “People won’t go without food. They’ll make different food choices dependent on what’s available.”

FT: No-deal Brexit could hit Nissan's Sunderland plant

Just in: A no-deal Brexit would increase the risk that Japanese carmaker Nissan closes its Sunderland car plant.

The Financial Times is reporting that Nissan will review its decision to build the Qashqai sport utility vehicle at its Sunderland plant if Britain leaves the EU without a deal.

If Sunderland lost the Qashqai contract, it could lead to the eventual closure of the site, the FT fears.

Here’s a flavour of their story:

The Japanese carmaker pledged in November 2016 to build the SUV in the UK, safeguarding thousands of jobs, after its then chairman Carlos Ghosn received assurances from the government that its operations would be protected from the impact of Brexit.

But following last year’s ousting of Mr Ghosn and a collapse in profits, Nissan has undertaken a global review that makes everything including the Sunderland plant vulnerable to downsizing or closure.

The carmaker’s decision to manufacture in the UK was contingent on a “soft” Brexit that includes a trade deal or transition arrangement, a decision that it would reassess if Britain leaves the EU without any deal, according to two people familiar with its original investment decision.

Here’s a handy couple of charts showing how trade growth, and the expanding Chinese economy, have risen hand in hand.

There’s a major shake-up under way at the John Lewis Partnership.

One in three senior management HQ jobs are being cut, as it effectively merges the running of its supermarkets (Waitrose) and department stores (John Lewis).

More here:

Some good news: Belfast shipyard Harland and Wolff has been saved from closure, by a London-based energy firm.

My colleague Rob Davies explains:

The historic shipyard went into administration in August after its Norwegian parent company collapsed.

But InfraStrata, which works on projects such as the Islandmagee underground gas storage plant off the coast of Country Antrim, said it planned to retain the 79 staff still employed at the yard and potentially employ hundreds more.

The Unite union praised the company’s workers for fighting to keep it alive, including a nine-week sit-in protest that was designed to raise awareness about its plight.

The WTO has also provided these charts, which show clearly that trade growth has levelled out since summer 2018 -- when Donald Trump imposed the first tranche of tariffs on China.

Here are the key points from the WTO’s new trade forecasts, which are rather gloomier than three months ago:

  • World merchandise trade volume is forecast to grow 1.2% in 2019. This is substantially below the 2.6% trade growth that had been projected in April.
  • Trade volume growth should accelerate slightly to 2.7% in 2020 while global GDP growth holds steady at 2.3% (at market exchange rates), but this depends on an easing of trade tensions.
  • Trade conflicts pose the biggest downside risk to the forecast but macroeconomic shocks and financial volatility are also potential triggers for a steeper downturn.
  • Trade-related indicators signal a worrying trajectory for world trade based on global export orders and economic policy uncertainty.
  • Export and import growth slowed across all regions and at all levels of development in the first half of 2019.

WTO predicts weakest trade growth in a decade

The World Trade Organisation has slashed its forecast for global trade growth to its lowest in a decade, and Brexit is partly to blame.

In a warning sign to businesses, and governments around the globe, the WTO predicted that global merchandise trade will only increase by 1.2% this year, compared with its April estimate of 2.6%.

That would be a serious slowdown, as trade grew by 3.0% in 2018. It would also be the worst year since the financial crisis a decade ago.

For 2020, the WTO has cut its forecast to 2.7% growth, from 3.0%. It also cautioned that these forecasts are laden with “downside risks”

It cited the weakening global economy, the ongoing trade dispute between China and America, and Brexit-related uncertainty.

WTO Director-General Roberto Azevedo warned that:

“The darkening outlook for trade is discouraging but not unexpected. Beyond their direct effects, trade conflicts heighten uncertainty, which is leading some businesses to delay the productivity-enhancing investments that are essential to raising living standards.

Less trade means fewer jobs. As Azevêdo puts it:

“Job creation may also be hampered as firms employ fewer workers to produce goods and services for export.”

Brexit stockpiling might give factories a short-term boost, but it’s not very good for the economy as a whole.

It means that firms are holding onto more raw materials than they’d like, tying up precious capital that could be used more productively elsewhere. It also distracts from longer-term planning.

Lee Collinson, head of manufacturing at Barclays, explains:

Some parts of the sector have started to build up inventories again as the 31st October Brexit deadline looms large. The knock-on effect is that this activity is diverting valuable funds away from much-needed investment projects.

To make matters worse, a growing global economic slowdown is increasingly casting a shadow over the sector coupled with reports that some EU-based clients are moving supply chains away from the UK.

There’s another problem with stockpiling - you literally have to put the stuff somewhere.

Last week, Bloomberg’s Lucy Meakin spoke to a fruit crisp manufacturer who bought 24 tonnes (!) of beetroot ahead of the original Brexit deadline in March. That meant paying for expensive refrigerated storage, which they’d rather not do again.

UK factory slowdown: What the experts say

Stephen Cooper, Head of Industrial Manufacturing at KPMG UK, says today’s UK manufacturing PMI report is pretty bad.

Firms should check they have enough working capital to ride out the slowdown, he warns, saying;

“We expected grim news from this month’s UK Manufacturing PMI readings and that unfortunately came to fruition, albeit with marginal improvement on last month’s performance.

“A backdrop of global trade wars, Brexit uncertainty and concerns regarding the slowing global economic growth continue to weigh heavily on the industry, with Europe, our leading trading partner, far from immune. Indeed Europe posted their worst performance since October 2012.

“Lower orders for new work, job losses and reduced investment levels due to prolonged uncertainty paints a rather bleak set of conditions which are unlikely to abate any time soon. This reinforces the importance for manufacturers to ensure that their working capital and supply chains are as robust as possible to weather these challenging times.”

Steve Harris of Lloyds Bank Commercial Banking says some UK factories are focused on short-term Brexit problems, rather than looking further ahead:

“Short-term Brexit headwinds continue to dominate domestically, but it is clear that weaker international demand and trade wars globally are impacting on growth. The danger remains this causes manufacturers to hold back investment and become myopic losing sight of medium and long-term growth opportunities.

Encouragingly, anecdotal feedback and our own research suggests this isn’t happening everywhere, but that doesn’t remove the fact resources are being applied to short-term planning to tackle the immediate challenges.

More reaction:

Rob Dobson, Director at IHS Markit, fears that the UK manufacturing sector is sliding into recession.

Here’s his take on today’s PMI report:

Output, new orders and employment all fell further as rising political, trade and economic uncertainties exacerbated concerns about Brexit.

“The rate of job losses accelerated to a six-and-a- half-year high, highlighting how manufacturers are increasingly seeking to cut costs. Similarly, the investment goods sector was especially hard hit in September, seeing the sharpest drops in production and new business, as clients reined in capital spending while conditions remained volatile.

UK factories slash jobs as output slides again

Newsflash: UK factories are cutting jobs at the fastest pace in six years, despite getting a boost from Brexit stockpiling.

Data firm Markit reports that output shrank again last month, as the downturn at British manufacturing continues.

Bosses reported that output, new orders, and new export business all fell further in September. Employment levels also declined, at the fastest pace since February 2013.

Markit says:

Companies reported that capacity had been reduced due to lower demand, efforts to control costs, redundancies and natural wastage. Job losses were widespread across the sector, with declines seen across the consumer, intermediate and investment goods industries and at SMEs and large-sized producers.

Economic uncertainty, the weak European economy, and the trade war between Washington and Beijing all appear to be hurting the UK’s industrial base.

But there are also signs that companies are preparing for the looming Brexit deadline.

Stocks of purchases and input buying volumes also rose for the first time in recent months, as some companies restarted their preparations for Britain to leave the EU.

This lifted the manufacturing PMI up to 48.3 in September, from August’s six-and-a-half year low of 47.4.

Updated

Credit Suisse COO resigns over spying case

The most remarkable story of the morning is that the chief operating officer of Credit Suisse has resigned, over a spying operation against the bank’s own outgoing head of wealth management.

My colleague Julia Kollewe explains:

Switzerland’s second-biggest bank said Pierre-Olivier Bouée has stepped down after private detectives were hired to tail Iqbal Khan, the bank’s former head of wealth management.

An investigation into the scandal by the Homburger law firm on behalf of the board cleared Tidjane Thiam, Credit Suisse’s chief executive, and found that Bouée alone was responsible for the botched surveillance of Khan, who left in July and later joined arch-rival UBS.

The surveillance led to a confrontation in the streets of Zurich last month between Khan and the private detectives.

The decision to put Khan under surveillance is quite astonishing, and obviously backfired when Khan spotted he was being spied on. CS may have worried that he could poach bankers and clients for UBS - where he starts work today!

But even though Thaim has been cleared, the affair does raise questions about his leadership. He and Khan had what the FT calls an “acrimonious relationship”, due to a series of domestic rows over their adjoining properties in Zurich. One such spat apparently centred on some trees planted on the Thaim residence...

Eurozone factory growth hits seven-year low

Ouch! The slump in the eurozone’s manufacturing sector has deepened, hit by the US-China trade war and Brexit.

Data firm Markit has reported that factory output and new orders both fell sharply again last month.

This dragged its Eurozone Manufacturing PMI down to 45.7, from 47.0 in August and its lowest reading since October 2012. Anything below 50 shows contraction, and such a weak reading suggests the eurozone is weakening.

Germany suffered particularly badly, with the weakest PMI in 123 months. Italy, Spain and Austria also suffered contractions.

Chris Williamson, Chief Business Economist at IHS Markit said:

“The health of the eurozone manufacturing sector went from bad to worse in September, with the PMI survey indicating the steepest downturn for nearly seven years and sending increasingly grim signals for the fourth quarter.....

Businesses also remain downbeat about the year ahead, with optimism around a seven-year low amid trade war worries, signs of slowing global economic growth and geopolitical concerns, including heightened anxiety over a disruptive Brexit.

High street bakery chain Greggs says it’s taking steps to prevent disruption from a no-deal Brexit.

Greggs told shareholders this morning that:

We are preparing for the potential impact of the UK’s departure from the European Union by building stocks of key ingredients and equipment that could be affected by disruption to the flow of goods into the UK.

Britons are already worried about disruption to key medicines after a disorderly Brexit, without the added threat of running low on steak bakes and vegan sausage rolls.

In a trading update, Greggs also warned that its labour and food input costs are being pushed up. But it is pressing on with its autumn range, including the popular Pumpkin Spice Latte, and some new post-4pm meal deals (including pizza and a drink for £2).

If people aren’t moving house, then they’re not buying new carpets and furniture.

Sofas and carpets firm SCS has warned that its sales are down 7.6% in the last two months, partly down to Brexit.

The period has been impacted by the record temperatures seen over the key August bank holiday weekend and the increased political and economic uncertainty that the UK is currently facing.

Share in SCS have fallen 7% in early trading.

Britain’s house price slowdown is firmly centred on London, as this map shows:

UK house prices: what the experts say

Guy Harrington, CEO of property lender Glenhawk, blames Brexit for the slowdown in house price growth:

If these were ‘normal’ times, we’d expect the favourable underlying drivers of low interest rates and high employment to be supporting a buoyant market.

However these are unprecedented times and the record that is playing housing growth is stuck until the needle bounces over the Brexit bump, although that assumes that’s all it is.”

Lucy Pendleton of independent estate agents James Pendleton points out that house prices have been lagging inflation for over a year:

“Such low growth means September is set to be the 14th month in a row in which property has lost value in real terms.

“The last time growth even equalled CPI was in July 2018 when both measures were running at 2.5% year on year. The last time the property market was ahead was in April 2018.

“What this means is that there’s no mistaking this trend as a flash in the pan and it is being solidly reflected in buyer and vendor behaviour, particularly in London.

Jonathan Samuels, CEO of property lender Octane Capital, fears that the housing market will weaken in the months ahead:

“It’s a miracle that the market is holding up as well as it is given the level of political turmoil. Low supply and stock levels continue to support prices while cheap mortgages and the strong jobs market are steeling buyers’ resolve.

The resilience of the property market looks set to be tested like never before in the final quarter of 2019.

“To say it’s tin hat time is an understatement.”

Iain McKenzie, CEO of the Guild of Property Professionals, reckons the housing market will pick up once Brexit is resolved.

When the extension of Brexit was announced there was a spike in activity in the market, which again reiterates the fact that it is uncertainty holding buyers back rather than a lack of interest. Once activity starts to increase and buyer confidence returns, which it will, prices will start back on an upward trajectory.”

Weak house price growth is obviously good news for those hoping to get onto the housing ladder.

But despite the slowdown, houses are still relatively unaffordable, as this chart shows:

This would obviously get worse if the Bank of England raised interest rates - although they’re more likely to cut them in the current climate.

London’s housing market is leading the downturn, with prices sliding by 1.7% year-on-year in the last quarter, Nationwide reports.

Prices in the ‘Outer Metropolitan’ region also fell, by 1.5%, reflecting the impact of Brexit uncertainty on the capital.

Northern Ireland, though, has seen house price surge by 3.4% in the last year.

Updated

UK house price market stalls

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

With just 30 days until Brexit, the UK housing market is being dragged down by uncertainty and worry.

House prices fell by 0.2% in September, according to new figures from Nationwide. This pulled the average property price down to £215,352, from £216,096 in August.

Over the last year, prices have only risen by 0.2%, well behind inflation (1.7%) and pay (+4%). And there’s a clear decline in the south, with London and the South East bearing the brunt.

Robert Gardner, Nationwide’s chief economist, blames two factors -- the weakening global economy, and the ongoing Brexit saga.

“UK annual house price growth almost ground to a halt in September, at just 0.2%. This marks the tenth month in a row in which annual price growth has been below 1%.

“Indicators of UK economic activity have been fairly volatile in recent quarters, but the underlying pace of growth appears to have slowed as a result of weaker global growth and an intensification of Brexit uncertainty. However, the slowdown has centred on business investment – household spending has been more resilient, supported by steady gains in employment and real earnings.

As these charts show, house price inflation has been dropping steadily since the UK voted to leave the EU:

More to follow!

Also coming up today

We could get more grim news from Britain’s factory sector this morning. September’s manufacturing PMI report is expected to show that output shrank again across the UK last month.

The eurozone’s factories also probably suffered a torrid month, hit by recession worries and the US-China trade war.

The agenda

  • 9am BST: Eurozone manufacturing PMI - expected to fall to 45.6, from 47 in August, showing a deeper contraction
  • 9.30am BST: UK manufacturing PMI - expected to fall to 47, from 47.4, showing a deeper contraction
  • 3pm BST: US manufacturing PMI - expect to rise to 51, from 50.3, showing a little growth
 

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