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UK economic growth to dry up; house buyer demand falls – business live


Retailers drag FTSE 100 down

In the City, the blue-chip FTSE 100 index has dropped in early trading amid rising gloom about both the UK economy and global growth.

Retail stocks are leading the fallers, following the BCC’s warning that UK growth will grind to a halt this year, and today’s gloom from Poundland’s owner and furniture chain DFS’s profits warning.

Sainsbury’s are the top faller, down 5.7%, followed by DIY chain Kingfisher (-3.8%) and discount retailer B&M European (-2.6%).

Online grocer Ocado have dropped 3%, AB Foods, which owns Primark, have lost 2.5% with joinery business Howdens down 2.7%.

Although oil stocks and banks are rising, the FTSE 100 is 43 points lower at 7549, down 0.6%.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, says:

‘’The downbeat assessment of the prospects of the UK economy and warnings of trouble ahead for global growth are set to see a layer of pessimism descend on the London market.

Warnings from the OECD that the world is paying a hefty price for Russia’s invasion of Ukraine are crystallising concerns that the months ahead are set to be very difficult to navigate for many companies and consumers.

Furniture firm DFS reports slowing demand

The DFS sofa store at the Slough Retail Park in Berkshire.
The DFS sofa store at the Slough Retail Park in Berkshire. Photograph: Maureen McLean/REX/Shutterstock

Sofa retailer DFS has warned that the UK home furniture market has slowed and cut its profit forecasts — adding to concerns over the economic outlook.

DFS reports that its orders have fallen since April, and are below pre-pandemic levels amid a shift in demand.

In a trading update, it says:

The UK furniture market has seen a change in demand patterns with recent data from Barclaycard suggesting a c. 2.1% reduction in transactions in April relative to pre-pandemic periods. We have seen a similar change in order volumes across our Group.

With Covid-linked supply-chain disruption also continuing, DFS’s production and deliveries have both missed forecasts, meaning profits will be lower than forecast.

The UK’s cost of living crisis intensified in April. Energy price cap soared by 54%, while pensions and benefits failed to rise in line with inflation (which hit 9% that month).

The company also warns that “it is difficult to forecast consumer behaviour over the next twelve months”.

Shares in DFS have dropped 15% in early trading.

Retail analyst Nick Bubb says:

The furniture retailer DFS is normally pretty pleased with itself and bullish in tone, but today’s unexpected trading update strikes a different note.

Headlined “Slowing market-wide demand observed in Quarter 4” it warns hat “the ongoing Covid linked supply-chain disruption, combined with lower order intake since April has led to lower levels of production and deliveries relative to our previous expectations” and that underlying profit before tax and brand amortisation for y/e June is now expected to be only £57m-£62m, which compares to guidance of £66m-85m at the time of the interims in March.

#DFS -First glance at today’s TU suggests guidance for FY22 is lowered quite significantly from the “low” end range in guidance at Interims time, particularly for profitability. Profit guidance was £66m-85m & is now £57m-62m

Modest FY23 guidance downgradehttps://t.co/UOxOnUHJzq

— James (@1James1n1) June 9, 2022

China’s exports jump

A container ship from Japan anchored at Shanghai’s Yangshan Port. China’s trade growth rebounded in May after anti-virus restrictions that shut down Shanghai and other industrial centers began to ease.
A container ship from Japan anchored at Shanghai’s Yangshan Port. China’s trade growth rebounded in May after anti-virus restrictions that shut down Shanghai and other industrial centers began to ease. Photograph: Chen Jianli/AP

China’s exports have picked up sharply, in an encouraging sign that supply chain bottlenecks caused by Covid-19 lockdowns may be easing.

Exports accelerated by 16.9% in May, year-on-year, sharply higher than April’s 3.9% growth, and twice as fast as expected.

That outpaced imports, which rose by 4.1%, and lifted China’s trade surplus to $78.8bn for the month.

The jump in exports suggests that some of the disruption which hit China’s ports earlier this year, amid lockdowns, has ended.

That could help calm inflation, as those supply chain problems have helped push up the cost of imported goods.

However…. slowing economic growth could now mean less demand for China’s goods.

Wei Yao, head of research for Asia Pacific and chief economist at Societe Generale, explained:

We always thought China could quickly resolve supply chain disruptions — this is even better than our optimistic view on this point.

“The question from here onwards is demand — western consumers continue to shift from goods to services and are increasingly pressured by inflation. External demand will probably soften from here, which means the recovery of domestic demand will be even more important but challenging given Zero Covid.”

China’s Jan-May exports to
ASEAN +8.1% y/y to 2.37 trillion yuan
🇪🇺EU, +7% y/y to 2.2 trillion yuan
🇺🇸US +10.1% y/y to 2 trillion yuan
🇰🇷South Korea +8.2 % y/y to 0.971 trillion yuan#China #export #trade 🇨🇳
Thread 3/n

— CN Wire (@Sino_Market) June 9, 2022

🇨🇳#China Jan-May imports (y/y):#IronOre -5.1% to 447 million tons, average price -28.1% to 789.6 yuan per ton#Crudeoil -1.7% to 217 million tons, average price +55.6% to 4,463 yuan per ton#Coal -13.6% to 95.96 million tons, average price +105.3% to 1,018.2 yuan per ton#OOTT

— CN Wire (@Sino_Market) June 9, 2022

Poundland owner: UK shoppers cut back on essential items

A Poundland store in Slough.
A Poundland store in Slough. Photograph: Maureen McLean/REX/Shutterstock

The owner of discount group Poundland has reported that consumers in the UK are cutting back on essential purchases, due to the cost of living crisis.

Pepco, which also runs the PEPCO and Dealz brands in Europe, reported that its UK customers were scaling back their spending as rising inflation hits budgets.

In ita lastest financial results this morning, Pepco reports:

Specifically in the UK, the cost-of-living crisis has impacted customers’ disposable income as they scale back even on essential purchases in the short term.

Our continued focus on reducing the costs of doing business means that we are able to offset some of our input inflation, allowing us to protect pricesfor all of our cost-conscious customers whilst also absorbing some of the input inflation ourselves as evidenced by the decline in our gross margins.

Average weekly sales at PEPCO stores are up by 13.7% on pre-Covid levels, it says, while at Poundland they’re just 4.3% higher.

The company points out that customers in the UK, and other Western Europena markets, have suffered falling real incomes:

Whilst the absolute levels of inflationary pressure are greater in Central and Eastern European markets, the degree of wage inflation is substantially offsetting this in the short term.

In Western European markets the acute spike in inflation in a stagnant wage growth environment has quickly resulted in absolute lower spending by consumers.

Pepco also reported that the Ukraine invasion was “exacerbating existing supply chain disruption and inflationary headwinds”, while also leading to an increase in customers in some of its markets in Eastern Europe.

The company expanded its number of stores by almost 14%, from 3,246 to 3,696. Revenues rose by 18.9% year-on-year in the six months to 31 March, with underlying pre-tax profits up 28.5%.

Steinhoff-owned discount retailer Pepco (Pepco and Dealz in Europe and Poundland in the UK), grew half-year revenue 19% as it added 450 new stores.

“In the UK, the cost-of-living crisis has impacted customers’ disposable income as they scale back even on essential purchases.”

— Nick Hedley (@nickhedley) June 9, 2022

UK estate agents report drop in inquiries for new homes

A couple standing outside an estate agent’s window.
Photograph: Tim Ireland/PA

Demand from prospective home buyers fell in May, which could be a sign that the heat could be coming out of the housing market.

The Royal Institution of Chartered Surveyors (Rics) said property professionals reported that new buyer inquiries fell in May, with a net balance of 7% reporting falls rather than rises.

This was a turnaround from April when a balance of 8% of estate agents reported rises in buyer inquiries rather than falls, and ends an eight-month run of rising inquiries from new buyers.

This decline may show that the cost of living squeeze, and rising interest rates, are hitting the housing market.

Looking over the next 12 months, a net balance of 24% of professionals expected sales to fall rather than rise.

Simon Rubinsohn, RICS chief economist, said rising borrowing costs were weighing on demand:

“The increase in the cost of mortgage finance alongside growing concerns about the economic outlook is unsurprisingly having an impact, albeit a relatively modest one at this point, on buyer activity in the sales market.

“Despite this, prices are viewed as likely to remain resilient into 2023. But as is often the case in these circumstances, the pressure is likely to felt more visibly in transaction levels which are seen as likely to slow as the year wears on.”

RICS also found that demand for rental properties remained high — meaning tenants facing rising bills, with fewer rental properties coming onto the market.

Rubinsohn explains:

New instructions of property to let continue to fall according to respondents to the survey while demand is still very strong leading to rental levels being bid higher and greater challenges for tenants who aren’t in the position to compete for the available stock.”

Here are the key points from the BCC’s forecasts for the UK economy:

  • UK GDP growth forecast for 2022 is 3.5%, 0.6% in 2023 and 1.2% in 2024
  • Following Q1 2022 growth of 0.8%, quarter-on-quarter GDP growth is forecast to come to a halt with zero growth in Q2 and Q3, before a 0.2% contraction in Q4 2022.
  • Household consumption forecast is for growth of 4% in 2022, growth of 0.6% for 2023 and 1.2% in 2024.
  • Business investment forecast is to grow by 1.8% in 2022 before more than halving to 0.8% in 2023, amid the end of the super deduction and the corporation tax rise, and then rising to 1.5% in 2024
  • BCC expects export growth of 3% in 2022, 2.3% in 2023 and 1.6% in 2024, compared to import growth of 6.9%, -2.7% and 1.7%
  • BCC expects UK unemployment rate of 3.8% in 2022, 3.9% in 2023 and 2024
  • CPI inflation is forecast to peak at 10% in Q4 2022, before easing to 3.5% by the end of 2023. Inflation is expected to drop back to the Bank of England’s 2% target by Q4 2024
  • UK official interest rates are expected to rise to 2% by Q4 2022 and then to 3% in Q4 2023, ending 2024 at the same level.

Introduction: UK growth to ‘grind to a halt’

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

Storm clouds are gathering over the UK economy as soaring inflation, weak business investment, tax rises and global economic shocks all hit growth.

Britain’s economy is expected to grind to a halt this year – and even shrink slightly in the October-December quarter, as the economic outlook deteriorates and inflation hits double-digit levels.

The latest forecast from the British Chambers of Commerce show that quarter-on-quarter GDP is expected to flatline with no growth expected in Q2 and Q3 before contracting by 0.2% in Q4.

Expectations for annual growth in 2022, at 3.5%, are now less than half the 7.5% growth recorded last year. And things are set to get worse, with growth is expected to slow sharply to 0.6% for 2023, before recovering slightly to 1.2% in 2024.

The BCC also cut its forecast for consumer spending this year as the cost-of-living squeeze hits, and almost halved its prediction for business investment.

The downgrade reflects heightened political and economic uncertainty, and rising cost pressures which are limiting smaller firms’ abilities to invest, it says.

Alex Veitch, director of policy at the British Chambers of Commerce, said:

“Our latest forecast indicates that the headwinds facing the UK economy show little sign of reducing with continued inflationary pressures and sluggish growth. The war in Ukraine came just as the UK was beginning a Covid recovery; placing a further squeeze on business profitability.

“The forecast drop in business investment is especially concerning. It is vital that urgent action is taken here, and we are having constructive conversations with the government about its review of capital allowances and other policies to incentivise business investment.

“With inflation forecast to race ahead of wages, we are concerned about a dip in consumer spending which would further impact businesses and hamper growth. We forecast that if trends continue, inflation will only return to the Bank of England’s target rate at the end of 2024, implying a prolonged period of difficulty for the UK.

“Against this backdrop, the government must put in place stable and supportive policies that help businesses pull the UK out of this economic quagmire. Firms must be given confidence to invest, only then can they drive the growth the economy so desperately needs.”

Here’s the full story:

Alarmingly, the OECD is even more pessimistic about Britain’s prospects.

It forecast that economic growth in the UK will grind to a halt next year, and would be the second-worst performing G20 economy after Russia.

And with petrol prices hitting records on a daily basis, there’s no let-up for struggling families.

Coming up today

The European Central Bank’s governing council meets today, after the surging oil price helped to push eurozone inflation at a record high of 8.1% last month.

The ECB is expected to announce the end of its era of ultra-cheap money by ending its bond-buying quantitative easing programme, and signal that interest rates will rise in July for the first time since 2011.

We’ll also get the ECB’s latest economic projections, which will show the impact of the Ukraine war on growth (downward) and consumer prices (upward), given soaring food and energy prices.

Inflation reports from Greece and Mexico, and the latest US weekly jobless report are also on the agenda.

European stock markets are set to open lower, after parts of Shanghai began imposing new lockdown restrictions today in a bid to control COVID-19 transmission risks.

The agenda

  • 10am BST: Greek inflation report for May
  • 12pm BST: Mexico’s inflation report for May
  • 12.45pm: European Central Bank interest rate decision
  • 1.30pm BST: European Central Bank press conference
  • 1.30pm BST: US weekly jobless report





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