Time to wrap up….

Here are today’s main stories:

The UK economy returned to growth in November after a recovery in consumer spending driven by Black Friday sales, with shoppers hunting for bargains as the key Christmas shopping season got under way.

But (as flagged before) some economists fear the UK could yet fall into a technical recession….

Oil prices have hit $80 per barrel as fears grew about the economic impact of disruption to international trade through the Red Sea and escalating tensions in the Middle East.

The electric car manufacturer Tesla is to halt most production at its factory near Berlin for two weeks because of delays in deliveries of parts because of attacks on ships in the Red Sea.

Burberry has warned that annual profits will be sharply lower than previously expected after consumers left its expensive trenchcoats, bags and scarves off their Christmas shopping lists.

Global Infrastructure Partners (GIP), which boasts a $100bn (£79bn) collection of companies including Gatwick airport and the Suez wastewater group, has been sold to the US investment firm BlackRock in a $12.5bn deal.

On Wall Street… JP Morgan has reported a record annual profit, while Citigroup is cutting 20,000 jobs after posting its worst quarter in 15 years.

And it’s been a busy week at the annual CES tech show in Las Vegas:

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Shares in US airlines are under pressure today.

United Airlines are the top faller on the S&P 500, down 8.6%, followed by American Airlines (-8.2%) and Delta Air Lines (-7.9%).

The selloff came after Delta predicts its adjusted earnings will be $6 to $7 a share this year, rather than hitting its long-term profit target of over $7.

Michael Hewson of CMC Markets explains:

Airlines are lower after Delta Airlines adjusted its 2024 profit targets lower due to concerns over higher costs saying it expects full year profits to come in between $6 to $7 a share, below the previous estimate of more than $7. Q4 revenues came in at $14.22bn and profits came in at $1.28c a share.

Cruise operators are also down, with Norwegian Cruise Line (-4%) and Carnival (-3.8%) among the main fallers on the S&P 500.

Newsflash: the Brent crude oil price has hit $80 per barrel for the first time since 27th December.

Brent is now up almost 3.5% today at $80.10, after the US and UK attacks on Houthi-controlled areas of Yemen overnight.

Analysts at Saxo say:

Oil prices surged back to upper end of the current range, in Brent around $80, after the US and UK launched airstrikes against Houthi rebel targets in Yemen, and Iran also raised stakes as its Navy captured an oil tanker off the coast of Oman.

Oil is trading at its highest level in two weeks this morning, following the US and UK attacks on Houthi military targets in Yemen.

Brent crude, the industry benchmark, has jumped by 2.3% so far today to around $79.30 per barrel, its highest level since 28 December.

Oil had surged over $90 per barrel in the aftermath of the 7 October attacks. It then slipped towards the end of last year on forecasts of weak economic growth in 2024, meaning less demand for energy

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, says:

Brent crude has risen more than 2% to over $79 a barrel, as geopolitical tensions increase in the Middle East. Iran has captured an oil tanker off the coast of Oman in response to sanctions, according to reports.

Air strikes on Houthi targets in Yemen have also increased anxiety.

As flagged earlier (see here), Tesla is suspending most car production at its factory near Berlin for two weeks, due to delays to component shipments caused by attacks on vessels in the Red Sea.

Those tensions have prompted shipping firms to take the longer route around Africa, leading to delays.

Fusion Risk Management director of Third Party Risk Management Wes Loeffler warns that other firms will encounter similar problems, saying:

Organisations that have not established redundancies within their supply chains are likely to encounter delays, disruptions, or difficulties in procuring essential components that are necessary for delivering goods and services.

The BBC are reporting that the UK government is concerned that ongoing attacks on shipping in the Red Sea could cause the economy to shrink.

They say:

The BBC understands the Treasury has modelled scenarios including crude oil prices rising by more than $10 a barrel and a 25% increase in natural gas.

The government fears if the disruption to cargo traffic spreads to tanker traffic then another energy shock is possible.

Here’s the BBC’s Faisal Islam:

As flagged earlier, the Brent crude oil price has jumped around 2% this morning, to $79 per barrel.

That’s a two-week high, but still lower than the highs over $120/barrel seen after Russia’s invasion of Ukraine in spring 2022.

Over in the City, shares in luxury goods maker Burberry tumbled by 10% at the start of trading, after it warned that demand was slowing.

Burberry told shareholders this morning that adjusted operating profit for the financial year to 30 March 2024 will be below its previous guidance.

Profits are now expected to be between £410m to £460m, as “the slowdown in luxury demand is having an impact on current trading”.

Back in November, Burberry said they would be at the lower end of the consensus forecast range of £552mn to £668mn.

Jonathan Akeroyd, Burberry’s chief executive officer, told shareholders:

“We are continuing to deliver the transition to our new modern British luxury creative expression for Burberry which started appearing in our stores in early Autumn.

We are still in the early stages of executing on this, which has become more challenging against the backdrop of slowing luxury demand. We experienced a further deceleration in our key December trading period and we now expect our full year results to be below our previous guidanc

Britain’s stronger than expected growth in November gives “a fighting chance” of avoiding recession, says the Resolution Foundation.

James Smith, research director at the Resolution Foundation, explains:

“The economy grew more strongly than expected between October and November, driven by a recovery in our services sector including strong black Friday retail sales and a high performing ICT sector, making it less likely that Britain will fall into recession.

“The final verdict on 2023 will come next month, but it is essential that Britain builds some economic momentum in 2024.”

Several economists are warning that the UK could have slid into a technical recession at the end of last year, even though the economy grew by 0.3% in November.

Britian would be in a technical recession if growth contracted in October-December for the second quarter running.

A technical recession would be a blow to the government ahead of the next election, even though the ONS are arguing that two small drops in quarterly GDP are not a full-blown downturn, as covered earlier.

Yael Selfin, chief economist at KPMG UK, says strike action in December will have hit GDP at the end of last year:

“The economic outlook currently remains gloomy, with a technical recession still potentially on the cards in the second half of 2023, especially given the expected impact from the industrial action in December.

Nonetheless, even if the economy manages to avoid a recession, it is expected to remain in stagnation territory.

Richard Carter, head of fixed interest research at Quilter Cheviot, says the UK remains on the brink of recession, as high interest rates hit growth:

“The UK economy grew by a modestly positive 0.3% month-on-month in November, up from the unexpected 0.3% contraction seen in October. This uplift in November is just enough to bring the UK economy back to flat growth over these two months, but it leaves an awful lot of pressure on the December figures as even a slight downward turn would result in the UK entering a technical recession after Q3 GDP was revised down to a fall of 0.1% at the end of last year.

“This morning’s figure shows just how precarious the situation is for the UK economy and piles yet more pressure onto the Bank of England to cut interest rates. The Bank has managed not to tip the UK into a recession to date, but it is looking increasingly likely that its luck may be coming to an end.

Suren Thiru, economics director at ICAEW, says the case for cutting UK interest rates soon is growing, as the economy struggles to gain momentum.

“November’s rebound may have been insufficient to prevent a small technical recession at the end of 2023, with the cost-of-living squeeze and high borrowing costs likely to have constrained output in December.

“The UK is facing a notably difficult 2024 with the lagged impact of previous interest rate rises, weaker consumer demand and moderately higher unemployment likely to stifle economic activity, despite a boost from lower inflation.

“This lacklustre GDP outturn means that interest rates will remain on hold next month. With the UK teetering on the brink of recession and inflation slowing, the case for loosening policy sooner rather than later is growing.”

Neil Birrell, chief investment officer at Premier Miton Investors, agrees that the economy may have contracted in Q4.

“The UK economy returned to growth in November, although this may not prevent the fourth quarter of 2023 being another one of contraction.

Whether the economy slides into a mild recession or not is unlikely to matter too much, but there is not much momentum moving into 2024.

However, given the inflation and interest rate pressures, this is a creditable performance and with rate cuts in the pipeline and an election looming, there is some stimulus on the way.”

These charts from the ONS show how the economy fared up to November:

Chancellor of the Exchequer Jeremy Hunt has welcomed the news that the UK economy returned to growth in November.

Hunt points out that efforts to slow inflation (such as high interest rates) weighed on the economy, saying:

“While growth in November is welcome news, it will be slower as we bring inflation back to its 2% target.

But we have seen that advanced economies with lower taxes have grown more rapidly, so our tax cuts for businesses and workers put the UK in a strong position for growth into the future.”

Q: What needs to happen for the UK to avoid shrinking in the fourth quarter of 2023, putting the economy into recession?

ONS chief economist Grant Fitzner says “everyone is obsessed” whether the Q4 GDP reading is slightly positive or slightly negative.

That data is due in a month’s time, when we also discover how the economy fared in December.

The UK would be in a ‘technical recession’ if Q4 GDP was negative, given Q3 GDP fell by 0.1%.

Fitzner, though, explains that an actual recession is more serious than just two small falls in quarterly GDP in a row [although this is a widely-held definition].

He told Radio 4’s Today Programme:

It’s important to remember that a recession is not simply a very small negative number followed by another very small negative number. It’s a significant and sustained fall in output.

We don’t expect to see that.

If December’s GDP is flat or positive, and there are no revisions to previous months, the UK might avoid a negative quarter in Q4, Fitzner adds.

Despite the pick-up in growth in November, the UK economy shrank in the three months from September to November.

GDP in the three months to November fell by 0.2%, compared with the three months to August 2023.

Services showed no growth, production output fell by 1.5% and construction fell by 0.6% over the period, the Office for National Statistics reports.

Newsflash: The UK economy returned to growth in November, with GDP expanding by 0.3%.

That’s slightly stronger than the 0.2% growth which City economists expected.

It follows the 0.3% contraction in October.

The Office for National Statistics reports that the UK’s services sector provided the bulk of the growth in November.

Here’s the details:

• Services output grew by 0.4% in November 2023 and was the main contributor to the monthly growth in GDP; this follows a fall of 0.1% in October 2023 (revised up from a 0.2% fall).

• Production output grew by 0.3% in November 2023, following a fall of 1.3% in October (revised down from a 0.8% fall).

• The construction sector fell by 0.2% in November 2023 after a fall of 0.4% in October 2023 (revised up from a 0.5% fall).

Delays to deliveries to components due to the attacks on ships in the Red Sea will force Tesla to suspend most car production at its factory near Berlin for two weeks, Reuters reports.

The partial production stop will run from 29 January to 11 February, and highlights the risks that rising geopolitical tensions pose to the economy.

Reuters explains:

The partial production stop is evidence that the crisis in the Red Sea, unleashed by Iranian-backed Houthi militants attacking vessels in solidarity with Palestinian Islamist group Hamas fighting Israel in Gaza, has hit Europe’s largest economy.

The U.S. electric vehicle maker is the first company to disclose an interruption to output due to the disruption. Many companies including Geely, China’s second-largest automaker by sales, and Swedish home furnishing company Ikea have warned of delays to deliveries.

“The armed conflicts in the Red Sea and the associated shifts in transport routes between Europe and Asia via the Cape of Good Hope are also having an impact on production in Gruenheide,” Tesla said in a statement.

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

New GDP data will show how the UK economy performed in November, as it flirts with a technical recession.

Economists predict the economy returned to growth in November, with GDP expected to have risen by 0.2%.

That would be a welcome pick-up, after GDP fell by 0.3% in October, and also shrank in July-September, which put Britain on the brink of a recession.

Matthew Ryan, head of market strategy at global financial services firm Ebury, says:

We expect a modest rebound in activity that should allay fears of a Q4 recession.

But, the broader picture may be that the UK economy is stuck in neutral gear, wavering between stagnation and a minor contraction.

Bloomberg says:

It’s a bleak backdrop for Prime Minister Rishi Sunak to fight the next election, though there is some prospect of an improvement later this year.

We’ll get the figures at 7am.

Also coming up today

The financial markets are on edge after US and UK forces launched air and missile strikes in Houthi-controlled areas of Yemen overnight.

The oil price has jumped 2%, up $1.5 to around $79 per barrel.

Houthi attacks have already disrupted shipping in the region (as we covered yesterday), pushing up container costs and leading to longer delays as vessels avoid the Red Sea and reroute their journeys.

The agenda

• 7am GMT: UK November GDP report

• 7am GMT: UK November trade report

• Noon GMT: India’s inflation rate in December

• 1.30pm GMT: US PPI index of producer price inflation in December

• 4pm GMT: Russia’s inflation rate in December