UK business growth rises to six-month high – PMI
The UK has fared better.
Business output growth edged up to a six-month high in December, led by a faster recovery in the service economy while factories continued to cut back production, according to the latest flash estimate from the S&P Global / CIPS purchasing managers’ index (PMI) survey. It said:
UK private sector output expanded for the second month running in December, which continued a modest recovery from the downturn seen during the three months to October. Higher levels of business activity were supported by a renewed improvement in order books, alongside efforts to work through post-pandemic backlogs.
The main index rose to 51.7 in December, from 50.7 in November, the highest since June and pointing to a faster expansion.
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Flash UK PMI Composite Output Index at 51.7 (Nov: 50.7). 6-month high
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Flash UK Services PMI Business Activity Index at 52.7 (Nov: 50.9). 6-month high
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Flash UK Manufacturing Output Index at 45.9 (Nov: 49.2). 2-month low
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Flash UK Manufacturing PMI at 46.4 (Nov: 47.2). 2-month low
Independent economist Julian Jessop tweeted:
Key events
Here’s our full story on Halifax’s house price predictions:
UK house will fall by up to 4% next year as high interest rates continue to affect mortgage affordability and sales completions, according to Halifax.
Britain’s biggest mortgage lender said the price of an average UK property will fall by between 2% and 4% but it expects a part recovery in the market as interest and mortgage rates ease next year.
“Overall, with the combination of cost of living pressures and interest rate levels that are still much higher than even two years ago, we will likely see continued mild downward pressure on house prices,” said Kim Kinnaird, the director of Halifax Mortgages.
Review finds no evidence that NatWest closes customer accounts due to political views, but urges more formal rules
Kalyeena Makortoff
An independent review has found “no evidence” that NatWest Group has been closing customer accounts due to their political views, but the lender has been urged to put in place more formal rules when it decides to end relationships for non-financial reasons, including when they do not align with its “purpose.”
The review, by the law firm Travers Smith, also said the bank may have breached rules by not explaining why those customer accounts were being closed.
The law firm found previously that NatWest’s decision to close Nigel Farage’s accounts at its private bank Coutts earlier this year was lawful, but there were “serious failings” in its treatment of the former Ukip leader.
Lawyers hired by NatWest determined that Coutts had a “contractual right” to shut Farage’s accounts, and had done so because the bank was losing money by keeping him as a client.
While Coutts also considered that there was a reputational risk of keeping Farage as a customer, it had not discriminated against him, despite raising concerns that his views on issues including migration, race, gender or Brexit did not align with its own, the law firm said.
Business growth in December was fuelled by a pick-up in the service sector. Firms talked of tentative signs of a revival in customer demand, especially for technology and financial services. However, cost of living pressures on household budgets remain, as well as subdued conditions in the construction sector.
Manufacturing production declined for the tenth month running, and at a faster pace than in November.
Rhys Herbert, senior economist at Lloyds Bank, said:
Another rise in output in December is in line with the more optimistic outlook as we approach 2024. Recent industry data has shown an uptick in business confidence, including our latest Business Barometer, which showed services sector confidence at a two-year high, and that optimism among manufacturing firms is the highest it’s been for five months.
While these positive signs are good news for businesses when it comes to future activity, we’re continuing to see business caution around the current economic climate given the delicate balancing act the Bank of England will have to consider with its interest rate decision-making next year.
Chris Williamson, chief business economist at S&P Global Markit Intelligence, tweeted:
UK business growth rises to six-month high – PMI
The UK has fared better.
Business output growth edged up to a six-month high in December, led by a faster recovery in the service economy while factories continued to cut back production, according to the latest flash estimate from the S&P Global / CIPS purchasing managers’ index (PMI) survey. It said:
UK private sector output expanded for the second month running in December, which continued a modest recovery from the downturn seen during the three months to October. Higher levels of business activity were supported by a renewed improvement in order books, alongside efforts to work through post-pandemic backlogs.
The main index rose to 51.7 in December, from 50.7 in November, the highest since June and pointing to a faster expansion.
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Flash UK PMI Composite Output Index at 51.7 (Nov: 50.7). 6-month high
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Flash UK Services PMI Business Activity Index at 52.7 (Nov: 50.9). 6-month high
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Flash UK Manufacturing Output Index at 45.9 (Nov: 49.2). 2-month low
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Flash UK Manufacturing PMI at 46.4 (Nov: 47.2). 2-month low
Independent economist Julian Jessop tweeted:
Ricardo Amaro, lead economist at Oxford Economics, said:
Today’s flash PMI results poured a bit of cold water into the mix of recent survey results, which had so far been pointing to a turning point in high-frequency data. Indeed, the eurozone headline index partly reversed last month’s gain to stand at 47 in December, signalling another solid contraction in activity.
Overall, the aggregate PMI results for Q4 are pointing to a contraction in GDP. However, we note that the Q4 average level is broadly unchanged from Q3, when the PMIs proved to be overly pessimistic. Thus, while acknowledging the downside risk, we stick to our forecast that the eurozone economy remained stagnated in Q4. But big picture, today’s results pointed to weak momentum heading into 2024, confirming that the recovery we expect to develop through the year will start from a low base.
The ‘flash’ PMI survey suggests the eurozone is heading for recession, economists say.
Chris Williamson, chief business economist at S&P Global Markit Intelligence, tweeted:
Nationwide: Rebound in UK house prices unlikely
Nationwide building society has put out its predictions for next year, saying that a rebound in house prices is unlikely. It said they could show a low single-digit decline or remain broadly flat in 2024.
The housing market was weak throughout this year, with the total number of transactions running at 15% below pre-pandemic levels over the past six months.
Robert Gardner, Nationwide’s chief economist, said:
Even though house prices are modestly lower and incomes have been rising strongly, at least in cash terms, this hasn’t been enough to offset the impact of higher mortgage rates, which are still more than three times the record lows prevailing in 2021 in the wake of the pandemic.
As a result, housing affordability is still stretched. A borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 38% of take home pay – well above the long run average of 30%.
At the same time, deposit requirements remain prohibitively high for many of those wanting to buy – a 20% deposit on a typical first-time buyer home equates to over 105% of average annual gross income – down from the all-time high of 116% recorded in 2022, but still close to the pre-financial crisis level of 108%.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said:
Once again, the figures paint a disheartening picture as the eurozone economy fails to display any distinct signs of recovery. On the contrary, it has contracted for six straight months. The likelihood of the eurozone being in a recession since the third quarter remains notably high.
The service sector maintains a relatively more stable position compared to the manufacturing sector, contracting at a much slower rate. This is likely attributed to the concurrent reduction in consumer price inflation, coupled with an above-average surge in wages. These factors contribute to bolstering the purchasing power of private households, a crucial element for the more consumer-driven service sector.
However, despite these elements, there are no indications of the service sector breaking free from its unsatisfactory trajectory. Quite the opposite, new business is diminishing at an accelerated pace, as is the backlog of work. Employment has teetered between marginal increases and decreases over the past five months, essentially holding steady.
He is forecasting only modest economic growth in the eurozone, of 0.8% for 2024, following 0.5% growth this year.
Eurozone business activity falls at steeper rate in December
Business activity in the eurozone worsened in December, falling at a steeper rate and closing off a fourth quarter which has seen output fall at its fastest rate for 11 years, barring only the early 2020 pandemic months.
The flash PMI reading shows the manufacturing and services sectors recorded further downturns, with both reporting steep falls in inflows of new business. Jobs were cut for a second month running.
Input cost inflation cooled but selling price inflation picked up and remained high by historical standards.
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HCOB Flash Eurozone Composite PMI Output Index at 47.0 (November: 47.6). 2-month low
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HCOB Flash Eurozone Services PMI Business Activity Index at 48.1 (November: 48.7). 2-month low
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HCOB Flash Eurozone Manufacturing PMI Output Index at 44.1 (November: 44.6). 2-month low
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HCOB Flash Eurozone Manufacturing PMI at 44.2 (November: 44.2). Unchanged rate of decline
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said:
If you are on the hunt for gifts right now, you will not strike gold in the latest PMI survey for Germany. What you will find instead is an increasing number of companies reporting a reduction in output in both the service and manufacturing sectors. This confirms our view of a second consecutive quarter of negative growth by the year’s close, driven by the manufacturing sector.
The less-than-encouraging development could be linked to the constitutional court ruling and the subsequent discord over the 2024 budget. This has injected a significant dose of uncertainty regarding potential new burdens for the economy.
Turning to factories, he said:
Despite a recent upturn in the manufacturing stocks of purchases index over the previous two months, December brought a setback. This does not necessarily spell doom for the inventory cycle’s potential turnaround next year, but it does hint that the journey to recovery might be bumpier than previously thought. In manufacturing, new orders continue to contract rapidly, marking the 21st consecutive month of decline.
However, the index is on an upward trajectory, fuelled in part by a reduced drag from export orders. Notably, after seven months of pessimism, companies have shifted into optimistic territory regarding future output. This aligns with our perspective that the manufacturing sector is poised for a growth recovery next year.
The service sector has not fared much better.
In the realm of services, the economic landscape is still dominated by the gloomy hues of stagflation. Output has contracted for the third consecutive month, while input prices are on the rise at a pace mirroring that of November. Interestingly, companies have managed to hike their selling prices even more rapidly than in previous periods. This outcome serves as a stark reminder of the lingering risks to the inflation outlook, despite a substantial overall reduction in official consumer price inflation in recent months.
Germany’s private sector economy ended 2023 in contraction territory, with declines in manufacturing and services worsening slightly.
The December HCOB ‘flash’ PMI survey compiled by S&P Global said weak underlying demand was signalled by sustained downturns in both inflows of new business and backlogs of work, although there was a softening in the rates of contraction.
Inflationary pressures increased at the end of the fourth quarter, with firms reporting the steepest rise in output prices for seven months amid a more marked uptick in average costs.
A combination of spare capacity and efforts to reduce overheads saw employment fall for the fourth month running, and at a quicker rate. This was despite a further recovery in business expectations from September’s recent low.
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HCOB Flash Germany Composite PMI Output Index at 46.7 (Nov: 47.8). 2-month low
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HCOB Flash Germany Services PMI Business Activity Index at 48.4 (Nov: 49.6). 2-month low
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HCOB Flash Germany Manufacturing PMI Output Index at 43.4 (Nov: 44.2). 2-month low
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HCOB Flash Germany Manufacturing PMI at 43.1 (Nov: 42.6). 7-month high
European stock markets are trading cautiously higher this morning, after the European Central Bank pushed back on interest rate cut hopes, unlike the Fed which hinted it was moving closer to cutting rates.
The FTSE 100 index in London has edged 0.14% ahead, or 10 points, to 7,660, while Germany’s Dax has added 0.5%, France’s CAC rose 0.2% and Italy’s FTSE MiB was up 0.4%.
The contraction in the French economy intensified in December, when activity fell at the fastest pace for over three years, according to a closely-watched survey.
The French economy concluded 2023 with another month-on-month contraction in private sector business activity, the flash reading from the Hamburg Commercial Bank (HCOB) purchasing managers’ index (PMI), compiled by S&P Global showed.
This extended the period of decline that started at the midway point of the year. The decline in output accelerated for the first time since September and was the steepest since November 2020.
New orders fell rapidly amid an increased drag from export markets, driving further cuts to employment. Businesses also expressed less optimism over the year ahead, with growth expectations at their joint-weakest in just over three years.
Any reading below 50 indicates contraction; any reading above points to growth.
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HCOB Flash France Composite PMI Output Index at 43.7 (Nov: 44.6). 37-month low
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HCOB Flash France Services PMI Business Activity Index at 44.3 (Nov: 45.4). 37-month low
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HCOB Flash France Manufacturing PMI Output Index at 40.8 (Nov: 41.0). 43-month low HCOB Flash France Manufacturing PMI at 42.0 (Nov: 42.9). 43-month low
The estate agent Chestertons is predicting a slow recovery in the UK housing market.
UK house prices dipped in 2023 for the first time in 10 years as the cost of borrowing soared and fewer people chose to move. By the end of 2023, we anticipate that house prices will have fallen by 2% in London and by 3% across the UK, suggesting a slowing down in the market rather than a notable correction.
House price growth over the last decade has been driven by ultra-low interest rates that made mortgages – and therefore home ownership – more affordable. It is therefore no surprise that the market has cooled as a result of the 14 interest rate rises that the Bank of England implemented between December 2021 and August 2023, moving the base rate from 0.1% to 5.25%.
Although the era of super-low interest rates is now behind us, with a degree of pain as some homeowners transition from the lower rates to the current rates, the Bank of England is now unlikely to raise interest rates further. It is even projecting small cuts in 2024 (to 5.1%) and 2025 (to 4.5%), which should allow the property market to recover as mortgage rates also start to fall.
Beyond this, the drivers of house price growth are somewhat muted. Despite falling inflation, economic growth has stalled and is not expected to recover quickly over the next two years, and unemployment is slowly creeping up. In addition, a General Election being called at some point before the end of next year, creates added uncertainty, especially for the top end of the market, which is often affected by changes to tax rules.
Reflecting the sluggish economic outlook, projections for house prices over the next two years are similarly subdued, although any interest rate cuts or tax incentives could quickly change this.
Chestertons is forecasting a small dip of 0.3% in UK house prices next year, while London prices will show growth of 1.8% due to the higher number of cash buyers that are less affected by the higher interest rates.
UK house prices will fall by up to 4% next year, predicts Halifax
House prices in the UK are predicted to fall by between 2% and 4% next year, according to Halifax, which is part of Lloyds Banking Group, the country’s biggest mortgage lender.
Pressure on household finances from inflation and higher interest rates has made a house purchase less affordable for many people, leading to fewer completions. Halifax expects a partial recovery in market confidence and transaction volumes in 2024, as interest rates ease and affordability improves.
Property prices held up better than expected over the last year, falling by just 1.0% on an annual basis, to now sit at £283,615. This resilience – which owes more to the shortage of available properties for sale than strength of demand among buyers – means average house prices end the year just 3% down on August 2022’s peak (£293,025) but £44,000 above pre-pandemic levels.
Kim Kinnaird, director of Halifax Mortgages, explained:
To some extent this masks the fluctuations we’ve seen in the housing market throughout 2023. As wider economic headwinds began to bite, house prices fell for six consecutive months between April and September, before rising again later in the year as prospects improved.
And it’s a mixed picture across the country too, with some areas still seeing annual growth, such as Northern Ireland at +2.3%, while in regions like the South East of England house prices continued to drop (-5.7%).
Higher interest rates, and the resulting squeeze on affordability, gave many potential home buyers pause for thought when considering making a move over the last year. Mortgage approvals were down a quarter across the market, while overall housing transactions were a little under 20% down – both the lowest in at least a decade.
As homeowners were hesitant to move, there was a natural reduction in the stock of available properties. Crucially, with unemployment levels only seeing a marginal increase, and many homeowners protected from the immediate impact of rising interest rates by fixed rate deals, there doesn’t appear to have been a spike in the number of ‘forced sales’ – those who feel compelled to sell but would prefer not to, typically triggered by financial pressures.
Cop28 president says his firm will keep investing in oil
The president of the Cop28 climate summit will continue with his oil company’s record investment in oil and gas production, despite coordinating a global deal to “transition away” from fossil fuels, reports our environment editor Fiona Harvey in Dubai.
Sultan Al Jaber, who is also the chief executive of the United Arab Emirates’ national oil and gas company, Adnoc, told the Guardian the company had to satisfy demand for fossil fuels.
“My approach is very simple: it is that we will continue to act as a responsible, reliable supplier of low-carbon energy, and the world will need the lowest-carbon barrels at the lowest cost,” he said, arguing that Adnoc’s hydrocarbons are lower carbon because they are extracted efficiently and with less leakage than other sources.
“At the end of the day, remember, it is the demand that will decide and dictate what sort of energy source will help meet the growing global energy requirements,” he added.
He referred to the findings of the Intergovernmental Panel on Climate Change that the world will still need a small amount of fossil fuel in 2050, even when reaching net zero greenhouse gas emissions, which is required to limit global temperature rises to 1.5C (2.7F) above pre-industrial levels.
High-end house sales are up in London, with 175 fetching £10m
Almost 200 homes in London have been sold for £10m in the past year as the super-rich’s pandemic-inspired desire for a place in the country wanes compared to their wish for swish bolt-holes in the capital.
A total of 175 homes were sold for £10m-plus in the 12 months to November 2023, the highest number for eight-years, according to research by the estate agent Knight Frank.
In 2014, when high-end sales leapt just before the introduction of higher rates of stamp duty for properties above £1m, 225 £10m-plus home were sold.
More than £3.4bn was spent on the properties, referred to as “super prime” by estate agents. That’s the highest combined figure since 2014 when £4.2bn was spent.
The figure for the full calendar year of 2023 is likely to be even higher as a number of extremely pricey sales have recently completed. This week Indian billionaire Adar Poonawalla, known as “the vaccine prince” due to his family’s vast vaccine factories, agreed to buy a mansion in Mayfair for £138m.
Ofgem ponders extra £16 charge for households to protect energy suppliers
Mark Sweney
Britain’s energy regulator has launched a consultation on a plan proposing that households pay an extra £16 on top of their energy bills to help protect suppliers from going bust due to rising bad debt.
Ofgem said that the extra charge, which would be levied at £1.33 a month on bills paid between April next year and March 2025, is to “protect the market and consumers” after figures showed energy debt has hit a record £3bn.
The level of bad debt, which refers to the amount of money owed by customers that is unlikely to realistically be repaid, has soared due to increases in wholesale energy prices and the wider cost of living crisis putting pressure on household finances.
Tim Jarvis, director general for markets at Ofgem, said:
We know that cost of living pressure is hitting people hard and this is evident in the increase in energy debt reaching record levels.
The record level of debt in the system means we must take action to make sure suppliers can recover their reasonable costs, so the market remains resilient, and suppliers are offering consumers support in managing their debts.
Ofgem said this one-off move would be less costly to consumers than if energy suppliers were forced out of business. Any extra costs would not be passed onto customers who use prepayment meters under the regulator’s proposals.
Introduction: UK consumer confidence rises; China economy on shaky ground
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Consumer confidence in the UK edged higher this month, as people became more optimistic about the year ahead. GfK’s consumer confidence index rose two points to -22.
All five sub-measures showed modest improvement. The personal finance situation for the coming year ticked up 1 point to -2, while the outlook for the general economic situation also improved by 1 point, to -25. The major purchase index rose one point to -23.
Joe Staton, client strategy director at GfK, said:
Against the backdrop of flattening economic growth, interest rates at a 15-year high and price rises potentially eroding disposable income for years to come, the index shows a modest improvement this month.
Although the headline figure of -22 means the nation’s confidence is still firmly in negative territory, optimism for our personal finances for the next 12 months shows a notable recovery from the depressed -29 this time last year.
China’s economic recovery looks shaky amid weak demand and a lingering property crisis, putting more pressure on Beijing to come up with supportive policies. While industrial output and retail sales grew in November, both were flattered by comparisons with a year ago when Covid lockdowns held back activity. They weakened compared to more typical periods.
Larry Hu, head of China economics at Macquarie, said:
Discounting the base effect, it’s obvious that China’s economy slowed further in November, especially in terms of retail sales and property.
In Asia, shares have rallied, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 1.9%. Sharp declines in the dollar and US bond yields underpinned a Federal Reserve-fuelled rally, after the Fed signalled on Wednesday that it is moving closer to cutting rates.
However, the European Central Bank and the Bank of England pushed back on rate cut hopes, and the pound hit $1.276 against the US dollar, where it is still trading this morning, its highest level since late August.
Even so, Goldman Sachs now expects the first rate cut from the Bank of England in June, rather than August, after the monetary policy committee voted 6-3 to keep borrowing costs at a 15-yer high of 5.25% yesterday. Economists led by Sven Jan Stehn at the US investment bank said negative surprises to the central bank’s inflation forecasts will eventually prompt it to pivot towards rate cuts.
We expect the MPC to cut at a 25 basis points per meeting pace until policy rates reach 3% in June 2025.
European stock markets are set to open moderately higher.
Michael Hewson, chief market analyst at CMC Markets UK, explained:
After getting off to a strong start yesterday, with both the Dax and Cac 40 trading up at new record highs, European markets lost momentum after firstly the Bank of England, and then the European Central Bank decided to play the Grinch in contrast to the Fed’s Santa and push back on following a similar rate cut outlook, with the Dax finishing the session lower.
The contrast between the ECB’s tone and the Fed’s tone could not have been starker, and yet when you look at the numbers the divergence becomes even more bizarre.
Here we have a situation with the Fed announcing a dovish pivot with third-quarter GDP growth of 5% and headline CPI of 3.1%, while the ECB has maintained its hawkish stance when its two largest economies are showing a contraction in the third quarter, and its headline inflation rate is lower.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said:
The European Central Bank and the Bank of England refused to join the Federal Reserve-thrown pivot party. Both Christine Lagarde and Andrew Bailey declined to discuss cutting interest rates judging a policy loosening too early as the inflation threat looms.
Bailey pointed at the possibility of another rate hike, as three MPC members favoured hiking rates, while the ECB announced to accelerate EXIT from the PEPP stimulus, and the Norges Bank popped up with a surprise rate hike.
The Agenda
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8.15am GMT: France HCOB PMIs flash for December
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8.30am GMT: Germany HCOB PMIs flash for December
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9am GMT: Eurozone HCOB PMIs flash for December
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9.30am GMT: UK S&P Global/CIPS PMIs flash for December
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10am GMT: Eurozone trade for October
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10am GMT: UK Bank of England Dave Ramsden speech
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2.15pm GMT: US Industrial production for November
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2.45pm GMT: US S&P Global PMI Flash for December