D-Day has come for Theresa
By Sarah Ryman
With Theresa May having announced her resignation as UK Prime Minister the race is on for new leadership.
The UK service sector beat analysts’ expectations to reach a three-month high in May, according to survey data released this month by IHS Markit and the Chartered Institute of Procurement & Supply. However IHS Markit highlighted that the UK economy was “close to stagnation” as Brexit and global slowdown dragged on, and growth in services having sent manufacturing into contraction in May. Manufacturing slumped to a new 34-month low and the high street continued to suffer with stores facing the steepest fall in customer visits in six years last month, according to a survey by Springboard, a retail industry analyst. The UK economy contracted 0.4% in April and the Office for National Statistics (ONS) announced that vehicle production has fallen 24% year on year in April which is the biggest drop since records began in 1991.
On a more positive note, UK unemployment remained at the near-record low of 3.8% in the three months to April according to figures released this month by the ONS.
The UK’s Consumer Price Index (CPI) inflation rate fell to 2% in May which is now in line with the Bank of England’s target. The ONS sited falling air fares, a drop in car prices and the late arrival of Easter as contributory factors.
American companies created far fewer jobs than predicted last month fuelling expectations that the Federal Reserve will cut interest rates in response to slowing growth. Whilst the Fed kept interest rates on hold this month they dropped the language about being “patient” over future rate hikes from their statement and highlighted that the central bank would “act as appropriate to sustain the expansion”. Forecasts showed it was likely to cut rates by 0.25% next year as opposed to the previously suggested hike of 0.25% in 2020.
Donald Trump has formally kicked off his 2020 campaign speaking before thousands of supporters in the key battleground state of Florida shifting his slogan from ‘Make America Great Again’ to ‘Keep America Great’.
Whilst the trade war between the US and China has not subsided over the course of the month the US President announced that he will meet President Xi Jinping of China for talks at the imminent G20 meeting in Japan.
Growth in the Eurozone construction industry slowed to a four-month low in May as new orders declined for the first time since August last year. The IHS Markit Eurozone Construction PMI fell from 52.1 in April to 50.6 last month although firms remained optimistic towards the business outlook. Whilst elections proved successful for pro-European parties some relationships remain strained as Brussels announced it could impose a £3bn fine on Rome for their rising debt and deficit levels.
The President of the European Central Bank (ECB) and the head of the International Monetary Fund (IMF) warned this month that global trade “headwinds” could damage growth in Europe. They also cautioned that the vulnerability of Europe’s emerging eastern economies to the current global slowdown could damage growth in Europe. Should inflation remain under the ECB’s target of 2% Mario Draghi, the ECB president, has suggested the time to act may be fast approaching. He said at the annual conference this month that: “In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required”.
Oil imports have been hit as a result of reduced purchases from China (the largest buyer of oil) due to US sanctions on Iran. Chinese imports of crude oil fell 8% in May compared to the month before. The fall comes after the US imposed more restrictive sanctions on Iran and ended the waiver which had allowed China to keep importing Iranian oil without consequences. The country has replaced some of its Iranian barrels with supplies from Saudi Arabia, Iraq, the UAE and Brazil.
Industrial output figures from China fell below expectations with growth dropping to 5% in April. Analysts’ forecasts for growth of about 5.5% in May had pointed to a modest recovery but instead released figures showed a slowdown to a 17-year low suggesting a need for more economic stimulus. Escalation of trade tensions between the US and China have clearly not assisted the situation.
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