Time for a quick recap.

The UK government has insisted that nationalising UK steel assets is the ‘least likely’ result of the Liberty Steel crisis.

Kwasi Kwarteng, secretary of state for Business, Energy and Industrial strategy, told MPs that Liberty’s steel factories are good businesses. However, “financial engineering” at the company (whose parent GFG Alliance was a key customer of Greensill) have forced it to put several plants up for sale.

Kwarteng also defended the support given to GFG early in the pandemic, saying the Bank of England’s concerns over its Wyeland Bank weren’t known at the time - nor that the SFO and the National Crime Agency were involved.

However, he argued that these investigations also vindicate his decision not to agree to a £170m bailout earlier this year.

Economists say the UK public finances are in better state than feared, after borrowing fell year-on-year in April.

The government did need to borrow £31.7bn to balance the books - the second highest April on record, meaning debt as a share of GDP is the highest since 1962.

But that’s less than forecast back in March, and it could ease the pressure to raise taxes or cut spending later this parliament.

UK trade in goods with the EU has tumbled by a quarter this year, falling behind goods trade with non-EU members.

The slump, following the Brexit deal and the pandemic, saw China replaced Germany as the biggest single import market, according to official figures.

The Office for National Statistics said total trade in goods – which includes imports and exports – with EU countries fell by 23.1% in the first three months of the year, compared with the first quarter of 2018 before the pandemic began and before Brexit uncertainty became marked.

Trade with countries outside the EU fell by just 0.8% over the same period, reflecting the impact of new border checks on exports to the continent under the Brexit deal agreed between Boris Johnson’s government and Brussels.

In the US, rising inflation worries have pulled consumer confidence down, with people less optimistic about economic prospects over the coming months.

House prices have soared at their fastest rate in 15 years, amid a scramble to move from city apartments to suburban homes.

But sales of new houses has fallen, suggesting that these steep prices are putting people off.

Amazon has partnered with the National Theatre to stream four high-profile live-recorded stage shows, including Phoebe Waller-Bridge’s Fleabag.

But in the US, Amazon faces new antitrust charges in Washington DC.

The FTSE 100 closed lower, with mining companies hit by China’s clampdown on commodity speculation.

Here are more of today’s stories:

Goodnight. GW

After a fairly quiet day, the UK’s FTSE 100 blue-chip index has closed almost 22 points lower at 7029 points, down 0.3% today.

Oil companies Royal Dutch Shell (-2.5%) and BP (-2%) led the fallers, along with mining firms such as Anglo American (-2.3%), Glencore (-2%) and Antofagasta (-2%).

China’s warning of ‘excessive speculation’ in the commodity prices yesterday is weighing on the sector.

Vladimir Potapov, CEO of VTB Capital Investments, says:

We are very cautious about iron ore prices and would suggest that current price levels are unsustainable. The increasing pressure on prices due to China’s policy tightening and post-pandemic global economy impulse weakening will lead to market normalization in the next 1-2 years.

We use $80-100/t iron ore CFR China forecast in our models for 2022-23, which means a risk of a 50% decrease from the current levels.

The shares of major iron ore producers - Vale, BHP, RioTinto and Fortescue – are all at risk of share price decline.

Online takeaway operator Just Eat lead the risers, up 4.5%, followed by airline group IAG (+2.5%), online grocery firm Ocado (+2.2%), credit rating firm Experian (+1.9%) and industrial software developer Aveva (+1.6%).

The Europe-wide Stoxx 600 index touched to a new all-time high, as did Germany’s DAX, boosted by Europe’s largest residential property group Vonovia is taking over its rival Deutsche Wohnen for about €18bn.

Fiona Cincotta, senior financial markets analyst at City Index, says calming words from the US Federal Reserve on inflation is supporting technology firms.

The prospect of low rates for longer is particularly supportive of high growth tech stocks.

Reining in inflation fears is not all about the Fed. China is playing its role too by adopting zero tolerance for excessive speculation in commodities. Persistently rising commodity prices have added to the market’s runaway inflation fears. Seeing the price of commodities, such as base metals decline has helped ease those fears and boost risk appetite.

US consumer confidence has dropped for the first time this year, as Americans grow less optimistic about the economic outlook, and their job prospects.

The Conference Board’s Consumer Confidence Index has dipped to 117.2 in May, down from the 117.5 recorded in April.

The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—increased from 131.9 to 144.3.

However, the Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—fell to 99.1 in May, down from 107.9 last month.

Lynn Franco, senior director of economic indicators at The Conference Board, said that US consumer confidence was “essentially unchanged in May,” having rebounded in recent months.

Franco also suggests that rising inflation expectations is also hitting optimism - after US consumer price inflation surged to a 12-year high of 4.2% last month.

“Consumers’ assessment of present-day conditions improved, suggesting economic growth remains robust in Q2. However, consumers’ short-term optimism retreated, prompted by expectations of decelerating growth and softening labor market conditions in the months ahead.

Consumers were also less upbeat this month about their income prospects—a reflection, perhaps, of both rising inflation expectations and a waning of further government support until expanded Child Tax Credit payments begin reaching parents in July.

Overall, consumers remain optimistic, and confidence should remain resilient in the short term, as vaccination rates climb, COVID-19 cases decline further, and the economy fully reopens.”

Robert Frick, corporate economist at Navy Federal Credit Union, says that some Americans are struggling to find a job paying well, and offering enough hours:

Sales of new family homes in the US fell last month - perhaps a sign that the surge in prices over the last year is now biting.

New single family homes sales dropped by 5.9% in April, compared with March, to an annual rate of 863,000 in April, the Census Bureau reports.

March’s data has been revised rather lower too -- to show a 7.4% increase in sales of newly-built homes, not the 20.7% surge first reported after the February storms hit the sector.

As well as the surge in prices (as flagged earlier), the housing market has also been hit by shortages and delays to components and raw materials (lumber, for example, nearly quadrupled in the last year, before dropping back this month).

Here’s some reaction:

In the US, house price inflation has hit a new 15-year high, as the shortage of properties and pressure to move to the suburbs drives prices to record levels.

Home prices in March were 13.2% higher than a year ago (early in the pandemic), according to the S&P CoreLogic Case-Shiller National Home Price Index.

That’s up from 12% a month ago, and the fastest growth since December 2005.

Prices in 20 large US cities rose by 13.3% year-on-year on average, with the fastest gains seen in Phoenix where price were 20% higher than a year ago. San Diego (+19.1%) and Seattle (+18.3%) were close behind.

Prices were strongest in the West (+15.1%) and Southwest (+14.8%), with every region logging double-digit gains.

Craig J. Lazzara of S&P DJI says this level of national house price growth is unusual.

It may confirm that the pandemic, and the move towards remote working, is driving more demand for suburban homes, further from the office, rather than urban apartments.

Lazzara says:

“These data are consistent with the hypothesis that COVID has encouraged potential buyers to move from urban apartments to suburban homes.

This demand may represent buyers who accelerated purchases that would have happened anyway over the next several years. Alternatively, there may have been a secular change in preferences, leading to a permanent shift in the demand curve for housing. More time and data will be required to analyze this question.

Here’s some reaction:

After a very bruising pandemic, London property landlord Shaftsbury is hoping that the reopening of the economy will lift its fortunes.

Shaftsbury owns 600 buildings in Carnaby, Seven Dials and Chinatown, and also parts of Covent Garden, Soho and Fitzrovia in the heart of the capital, which have been heavily hit by office closures and the slump in tourism.

It reported that pretax losses widened to £339m in the six months to 31 March from £288m a year earlier, as rental income declined by a fifth to £49m.

My colleague Julia Kollewe explains that Shaftsbury is hoping for a summer revival, once more workers return to their desks this summer.

With central London emptied of shoppers and tourists during successive Covid-19 lockdowns, Shaftesbury collected only 43% of rent due from its retail, restaurant, bar and office tenants. It raised £307m from shareholders in November to get through the crisis.

However, vacancy rates improved to 11.3% in the past six weeks from 11.9% on 31 March. The company said almost all hospitality, leisure and retail tenants had reopened, and visitor numbers are back at 45% of pre-pandemic levels across the West End.

Restaurants and bars have reported a strong recovery in trade and bookings, while retail is more mixed, with independent retailers having more success than more mainstream shops.

Shaftesbury expects a gradual return of local workers after 21 June, when the final coronavirus lockdown measures are due to end in England. Nightclubs and music venues will reopen and larger events can resume without limits on crowds under the government’s roadmap.

But a full revival in tourism could take several years, as the FT reports:

It could be another three years until London’s West End enjoys a full recovery in international tourism, according to the boss of one of the area’s largest landlords.

“People have accepted that international tourism is not going to come back this year or perhaps even next. It could be 2024 before it gets back to 2019 levels,” said Brian Bickell, chief executive of Shaftesbury, which owns chunks of Carnaby Street, Chinatown and Soho.

After a reopening boom in April, UK retailers say that sales returned to normal this month.

Slightly more retailers said that sales were lower than an average May than higher, according to the Confederation of British Industry’s monthly survey of the sector

This pulled its sales balance for the time of year to -3, from +16 in April when non-essential shops were allowed to open.

Sales volumes and orders were much stronger than a year ago -- during the first lockdown.

But retailers predicted that sales will remain close to seasonal norms next month, suggesting the initial post-lockdown boost may have faded (last week, the ONS reported that retail sales surged by 9.2% in April, with clothing sales very strong)

Ben Jones, Principal Economist at the CBI, said the figures are a little disappointing:

“The fact that sales were in line with seasonal norms is a definite improvement from earlier in the year, but this month’s survey was perhaps a touch disappointing after April’s stronger results.

“Some retailers have suggested the increase in demand after the initial reopening of non-essential retail in early April was either short-lived or less strong than expected. And non-store sales remain well above seasonal norms, suggesting that some consumers who migrated to online shopping during the pandemic have not fully shifted back to old habits.

“As the economy moves toward a new normal, it’s clear that the pandemic has exacerbated pre-existing challenges for some retailers. The trend away from bricks-and-mortar retail has accelerated, while rent arrears and accrued debts have added to the cumulative burden of costs. The lockdown may be over, but its impact on the sector will be felt for a good while yet.”

The survey did highlight a jump in investment plans:

But worryingly, retailers’ employment plans remained weak:

Q: Are we behind the curve on hydrogen steel compared to Europe, where there are 23 projects underway?

Kwasi Kwarteng insisted that the UK is up to speed on hydrogen, and has a hydrogen strategy coming out.

And he adds that it looks at ‘blue hydrogen’ as well as green hydrogen (which he says Germany and the EU are focused on)

We’re in a position of “a twin track on hydrogen”, Kwarteng says, and he argues that Britain’s future success here will reflect private investment, not just government spending.

Chemistry lesson time...

The idea here is that hydrogen can be used to fuel the steelmaking process, cutting the amount of coal burned to melt the iron ore to make steel, the major cause of carbon emissions by the sector.

Green hydrogen is produced using electrolysis (splitting two water molecules into two hydrogens and an oxygen (2H20 -> 2H2 + O2)

Blue hydrogen, though, splits natural gas into hydrogen and carbon dioxide -- and then captures and stores the CO2.

Green hydrogen is more expensive as it requires more energy, as electrolysis requires electricity to break the water molecules. But if you use renewable energy, then it’s very clean - a ‘zero-carbon’ hydrogen.

Blue hydrogen is cheaper. But it relies on carbon capture and storage systems, otherwise you’re pumping CO2 into the atmosphere and negating your carbon emission goals (so called ‘grey hydrogen’).

Q: As UK steel is a strategic sector, is nationalisation a viable business option, asks Labour MP Charlotte Nichols.

Kwasi Kwarteng says he looks at all options. But nationalisation is an extreme occurrence that is unlikely to happen.

Kwarteng says this view has been “vindicated” by the fact that GFG have put some assets up for sale, so we must take Mr Gupta at his word, and see if he can refinance GFG as he claims.

I’m glad to see he’s doing that, the secretary of state says.

There is a case for UK-produced steel, on the basis of heading towards decarbonisation, Kwarteng adds.

Q: So is nationalisation ruled out?

Nothing is ruled in or out, but nationalisation is the least likely option, Kwarteng replies.

Conservative MP Richard Fuller probes Kwasi Kwarteng about the Bank of England’s concerns over Sanjeev Gupta’s Wyeland’s Bank.

Q: Yesterday, the Bank of England governor said it began its first investigation into Wyelands in Q1 2019. GFG bought the UK arm of Nigerian bank Diamond in April 2019 - why was that permitted?

Business secretary Kwarteng says that if it’s a secret investigation, it won’t be widely known, so the bank can keep operating.

It’s easy with hindsight to say why didn’t we do this, or that, but at the time none of these concerns were being made public, he insists.

Kwasi Kwarteng, Secretary of State for Business, Energy and Industrial Strategy, is testifying to the Business, Energy and Industrial Strategy Committee on its inquiry into the Liberty Steel crisis, and the future of UK steel.

BEIS are investigating why the steel industry moves from crisis to crisis, and also the role of collapsed supply chain finance firm Greensill Capital in the crisis at Sanjeev Gupta’s GFG Alliance.

Q: GFG said yesterday they are planning to sell Liberty Steel assets in Yorkshire and the West Midlands. They’ve had multiple owners in the past, so how do we ensure that a future owner doesn’t end up having to close or sell them again?

Kwarteng says he wants the UK steel industry to focus on a new decarbonisation strategy. That’s why he’s brought back the UK Steel council - so government and industry can work together towards net zero. This will help stabilise the situation.

Q: The Governor of the Bank of England told the Treasury Committee yesterday that Sanjeev Gupta’s Wyelands Bank was under investigation by the Prudential Regulation Authority, the National Crime Agency and the Serious Fraud office -- yet £46m of taxpayer-backed Covid loans were provided to GFG Alliance. How did that happen?

Kwarteng says there weren’t concerns about this particular bank when the British Business Bank was disbursing loans, early in the pandemic.

[BoE governor Andrew Bailey told MPs that the PRA notified the NCA in October or November 2019, with the SFO then notified in February 2020]

Kwarteng adds that these concerns over GFG Alliance are why he didn’t give a £170m bailout to Liberty Steel when they asked for help:

It was this opacity over their corporate governance, this difficulty to understand the actual full nature of their businesses, that prevented me and my officials from giving them taxpayers’ money.

Dare I say it, we were vindicated in our approach.

The UK’s total trade in goods with the European Union has fallen below its trade with the rest of the world, following Brexit and the Covid-19 pandemic.

Total trade in goods with EU countries fell by over 23% in January-March 2021, compared to the same period in 2018, while goods trade with non-EU countries only declined by 0.8%, a new report from the Office for National Statistic shows.

And exports to Ireland saw the greatest proportionate fall out of the UK’s top exporting partners after the EU transition period, the ONS adds.

The ONS used 2018’s data to provide a stable comparison before the Brexit transition period began.

And it shows a clear plunge in trade with the EU... although the stats body says it is too early to judge the impact of the transition period, due to the economic disruption of the pandemic.

In the last quarter alone, the UK’s total trade in goods with EU countries decreased by 20.3%, but only fell 0.4% with the rest of the world, as this chart shows:

The ONS says bilateral stockpiling may have boosted UK-EU trade in the last quarter of 2020 as firms on both sides of the channel prepared for the end of the transition deal (and the threat of a no-deal Brexit).

The ONS also points out that the number of businesses reporting that the end of the EU transition period was their main importing or exporting challenge has risen this year.

Exports of goods to Ireland almost halved in January after the withdrawal agreement ended, the report flags:

The report also found that:

• Imports from Germany have declined since April 2019, coinciding with increased uncertainty around EU exit and, later in 2020, the coronavirus (COVID-19) pandemic.
• The UK has imported more goods from China than from any other country since Quarter 2 (April to June) 2020.
• The early impact of the pandemic seen in Quarter 1 2020 disproportionately affected exports to the United States; decreases in exports to the United States in Quarter 1 2021 are aligned with decreases seen across non-EU countries.

The ONS adds:

We have seen trade with non-EU countries overtake trade with EU countries for the first time in Quarter 1 2021. However, trade was already at depressed levels because of the ongoing pandemic and recession.

It is therefore too early to assess the extent to which the transition period reflects short-term trade disruption or longer-term supply chain adjustments.

In the City, shares in the UK sub-prime lender Amigo have halved this morning after the high court refused to approve a controversial proposal to cap customer compensation claims.

Amigo tumbled as much as 55%, falling to 8.3p, after judge Mr Justice Miles issued a ruling stating that he was “not satisfied that the court should sanction the scheme”. The latest sharp share price declines come after heavy losses last week.

Under Amigo’s proposal, compensation payments to nearly a million current and former customers who were missold unaffordable loans were capped - meaning some might only get back 5% to 10% of a successful claim - while its board directors got the chance to earn £7m in long-term bonuses.

The FCA had initially allowed the scheme, which Amigo’s creditors (including customers due compensation) approved. But it then u-turned, after being criticised by MPs and opposed it, saying it was unfair to customers.

The judge said in his ruling that:

“I understand why the directors have sought to find a way of addressing the potentially unsustainable level of redress claims,”

“Some form of restructuring of the group is clearly desirable and indeed needed. But the question is whether, in all the circumstances, this scheme should be approved. I have accepted the submissions of the Financial Conduct Authority that the redress creditors lacked the necessary information or experience to enable them properly to appreciate the alternative options reasonably available to them; or to understand the basis on which they were being asked by Amigo to sacrifice the great bulk of their redress claims, while the Amigo shareholders were to be allowed to retain their stake.”

Amigo had secured a majority of 95% of votes in favour of a scheme from customers at a meeting on 12 May for its proposals to pay compensation to borrowers who had been mis-sold loans, but the judge noted that the turnout had been very low, at 8.7%.

Amigo charged 49.9% interest and requires borrowers to provide a friend or family member to act as a guarantor for a loan.

Gary Jennison, CEO of Amigo, said the company was ‘incredibly disappointed’ by the ruling.

“Amigo is incredibly disappointed that the Scheme has not been approved despite the 74,877 customers who voted in support of the Scheme, representing over 95% of those who voted. We are currently reviewing all our options and will provide an update at the earliest opportunity.”

On the public finance figures, Chancellor of the Exchequer Rishi Sunak says:

“At the Budget, I set out the steps we are taking to keep the public finances on a sustainable footing by bringing debt under control over the medium term.

“But we also need to focus on driving a strong economy recovery from the pandemic. That is why the Government is continuing a comprehensive package of support to help businesses and workers get back on their feet - and the evidence shows that our Plan for Jobs is working.”

Reminder: The OBR calculated that March’s budget would lift Britain’s tax burden to its highest since the 1960s, by 2025-2026, with income tax thresholds frozen and corporation tax to rise in 2023. But the budget also included £65bn of new financial pandemic-related support.

April’s public finances figures show that the government’s financial position isn’t as bad as the Office for Budget Responsibility (OBR) predicted only two months ago, says Ruth Gregory of Capital Economics.

And that means that the tax hikes and spending cuts that most fear may be avoided, she predicts, if stronger growth improves the public finances.

The estimated £93bn (4.1% of GDP) worth of COVID-19 government support in 2021/22 should keep public borrowing elevated in 2021/22.

But we have been saying since the end of last year that rapid economic growth would quickly improve the outlook for the public finances. That means the Chancellor may be spared having to implement his proposed tax hikes/spending cuts before the 2024 general election.

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

Britain’s borrowing hit its second highest level for an April ever, as the cost of tackling the Covid-19 pandemic and protecting the economy continues to rise.

Public sector net borrowing last month is estimated to be £31.7bn, figures released by the Office for National Statistics this morning show. That’s £15.6bn less than in April 2020, when Britain borrowed around £47bn in the first wave of the pandemic.

It’s still the second highest April borrowing since monthly records began in 1993, due to the ongoing healthcare costs of fighting Covid-19 -- such as NHS Test and Trace programme and the vaccine rollout -- and schemes such as the furlough programme.

But, it’s actually less than the £39bn which the Office for Budget Responsibility had expected the UK to borrow last month, in its March forecasts.

April’s borrowing takes the UK national debt up to £2.171tn -- around 98.5% of GDP, the highest ratio since the 99.5% recorded in March 1962.

But.....the ONS has also revised down its estimate for borrowing in the last financial year. It now estimates public sector net borrowing (PSNB ex) in the financial year ending March 2021 was £300.3bn.

That’s £2.8bn less than estimated last month, but still a record total for a single year.

That works out at 14.3% of the UK’s gross domestic product (GDP) - the highest since the second world war.

Britain’s borrowing costs are still low -- 10-year gilts are trading at a yield, or annual interest rate, of around 0.8% this morning. And many economists argue that this debt will be manageable, if the economy returns to growth (pulling down the debt/GDP ratio).

The ONS estimates that central government receipts were £58bn last month, up £3.8bn compared with April 2020, while central government bodies spent £95.9bn, down £12.9bn on a year earlier.

Current expenditure (stripping out investment and depreciation of assets) came in at £83.9bn - some 15% less than a year ago.

On the spending side, the ONS says:

Central government departments spent £31.0 billion on goods and services in April 2021, including £16.8 billion on procurement and £12.8 billion in pay:

This cost includes the expenditure by the Department of Health and Social Care (DHSC), devolved administrations, and other departments in response to the coronavirus pandemic, including the NHS Test and Trace programme and the cost of vaccines.

Central government paid £7.5 billion in subsidies to businesses and households in April 2021, £5.9 billion less than in April 2020. These payments included the cost of the job furlough schemes.

In April the government spent £3.0 billion on the Coronavirus Job Retention Scheme (CJRS) and £2.5 billion on the Self Employment Income Support Scheme (SEISS).

More details and reaction to follow....

The agenda

• 9am BST: Ifo survey of Germany’s business climate in May
• 9.30am BST: ONS report on impacts of the coronavirus and EU exit on UK trade
• 10.30am BST: BEIS Committee hearing on UK steel industry, with Kwasi Kwarteng, Secretary of State
• 11am BST: CBI monthly survey of UK retailers (distributive trades)
• 2pm BTS: US house price index for March
• 3pm BST: US consumer confidence report for May