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Aug 2, 2018

UK construction growth hits 14-month high ahead of interest rate decision - business live | Business I The Guardian

theguardian.com

UK construction growth hits 14-month high ahead of interest rate decision - business live | Business

Graeme Wearden



UK construction: What the experts say

Sue Kershaw, managing director of major project advisory at KPMG, says Britain’s builders benefitted from the hot summer, but warns that Brexit could derail the recovery seen last month.
She writes:
“Seeing housebuilding come back to good health is hugely positive. As the longstanding driver of activity, the weakening demand we’d seen in recent months did cause some concern and raised questions as to whether residential construction had peaked and was heading for a steady decline.
“But supply chain and cost pressures still remain a cause for concern. We’re seeing input costs continue to creep up and the outcome of Brexit negotiations is still far from clear. Those with infrastructure arms will also be concerned about the sluggish-looking civil engineering market, traditionally quite a reliable source of activity.”
Phil Harris, Director at BLP Insurance, fears that the collapse of the merger between shopping centre groups Hammerson and Intu could hurt construction.
“July was another strong month for commercial activity but the sector remains vulnerable to volatility.
British retailers continue to close shops at a pace and the full impact of shopping centre developer, Hammerson’s failed takeover of rival Intu may have yet to be fully felt.
With many predicting the closure of more Hammerson sites, growth in July may prove a false dawn.”
Brendan Sharkey, head of construction and real estate at accountancy firm MHA MacIntyre Hudson, points out that Carillion’s shock collapse in January has caused less damage than feared. However, a hard Brexit might not be shaken off as easily:
Construction has been relatively slow to wake up to the dangers posed by Brexit. Given the industry doesn’t depend on exports, the potential pitfalls of a no-deal Brexit have perhaps been easier to overlook. Yet construction does depend on the import of raw materials, and crucially on the free movement of labour. Over the next few months we will see more focus on contingency planning and demand for additional information and support from the government.
“The consequences of Carillion’s collapse were over-hyped but only a very foolhardy captain of industry can assume the same will be true about the consequences of a no-deal Brexit.”

China: We'd retaliate to US tariffs

Newsflash: China has hit back at America’s threats to impose steep tariffs on its goods (see earlier post).
Beijing’s commerce ministry has told reporters it is fully prepared to fight back, if America delivers on Donald Trump’s threat to impose 25% tariffs.
stewart hampton (@stewhampton)
*CHINA SAYS WOULD BE FORCED TO RETALIATE ON TARIFFS
August 2, 2018
This is driving financial markets deeper into the red. The FTSE 100 is now down 80 points, with mining stocks leading the selloff.

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Trivia corner: UK interest rate have never been pegged at 0.75%, since the Bank of England was established in 1694.
Back in July 2007, the BoE raised interest rates to 5.75% just as the credit crunch began. It was began cutting as the financial crisis kicked in, including a monster Bank Rate cut from 4.5% to 3% in November 2008.
In March 2009 it halved borrowing costs to 0.5%, where they remained until the Brexit vote prompted a cut to 0.25%, which was reversed in November 2017.
Mike van Dulken (@Accendo_Mike)
Bank of England Base Rate has never been at 0.75%. It went straight from 1% to 0.5% in Mar 09. Before that, either 0.5/1/1.5% cuts in late 2008/early 2009 as crisis grew. Before that, 25bp changes up and down were pretty much the norm for prior decade
August 2, 2018

Labour: Public need help to handle higher interest rates

The pick-up in building activity in July will reassure the Bank of England, as it suggest the construction sector could handle higher borrowing costs.
However, yesterday we heard that manufacturing growth slowed a little last month, so it’s a mixed picture.
The opposition Labour party is concerned that consumers will be hurt by higher borrowing costs.
John McDonnell MP, Labour’s Shadow Chancellor, has warned that higher interest rates will push more people into debt:
“With wages still below 2010 levels and the gap between people’s income and outgoings at record levels, the concern must be that a pattern of interest rate rises will push more families into higher levels of debt.
“The Government needs to end its counterproductive austerity programme and raise people’s incomes.”

Here’s the key points from today’s survey of purchasing managers at UK construction firms:
UK construction PMI
Photograph: Markit

Britain’s builders achieved an “impressive turnaround” in July, says Tim Moore, Associate Director at IHS Markit.
He sees several signs that the construction sector has strengthened this summer:
New business volumes expanded at the strongest rate since May 2017, while workforce numbers increased to the greatest extent for just over two- and-a-half years.
“House building was the bright spot for construction growth in July, alongside a stronger upturn in commercial development projects. Residential activity and commercial work both increased at the sharpest pace since December 2015, which contrasted with another subdued month for civil engineering.

UK construction growth hits 14-month high

Newsflash: Britain’s construction sector has recorded its fastest growth in 14 months.
Data firm Markit reports that builders picked up pace in July, led by a surge in housebuilding.
This pushed Markit’s construction PMI, which measures growth in the sector, up to 55.8 from 53.1. Anything over 50 shows growth, and this is the highest reading since May 2017.
Housebuilders reported the strongest pick-up in growth since the end of 2015.
More to follow....

Tariff threats hit stock markets

Stock markets around the globe are sliding today, thanks to the threat of a US-China trade war.
Investors have been spooked by the news that the Trump administration is considering a 25% tariff on $200bn of Chinese imports - previously it had been planning a 10% levy.
It’s the latest shot in an increasingly bitter and protracted trade spat between Washington and Beijing.
CNN explains:
The United States has already slapped 25% tariffs on Chinese goods worth $34 billion to punish Beijing for what it says are its unfair trade practices, such as forcing American companies to hand over valuable technology.
China immediately responded with equal measures.
In the latest step, President Donald Trump has directed US Trade Representative Robert Lighthizer to consider increasing the proposed tariff level on fruit and vegetables, handbags, refrigerators, and more. The trade office has extended its previous deadline of Aug. 30 to allow the public more time to comment on the new plan. Those comments are now due on September 5.
In London the FTSE 100 has shed 32 points, or 0.4%, to 7620, its lowest level in over two weeks.
There are heavier falls across Europe, with Germany’s DAX shedding 1.3%.
European stock markets this morning
European stock markets this morning Photograph: Thomson Reuters
Over in Asia, the Chinese markets have tumbled by around 2%.
Other markets also in the red as traders fear an escalating trade dispute will hurt growth and exports across the region.
Asian stock markest today
Photograph: Bloomberg TV

Kit Juckes of French bank Société Générale says the Bank of England’s interest rate decision is the main event of the day:
Bloomberg polled 58 forecasts...10 expect no change, and 48 expect a 25 basis point hike (including us). Sterling meanwhile, continues to bump along the bottom of its historic trade-weighted range.
There isn’t nearly enough good news in a much-anticipated rate hike to propel it higher, but the downside is limited.

An interest rate rise today would be risky, argues our economics editor Larry Elliott.
He points out that many UK households are struggling, meaning incomes are lagging spending for the first time in three decades.
Households are not borrowing because they are brimful of confidence. In many cases they are borrowing to make ends meet.
The MPC knows this and will go out if its way to reassure consumers and businesses that any further policy tightening will be both modest and gradual. Thursday’s rate rise is supposed to prevent wage inflation from taking off, underpin sterling and boost the Bank’s credibility without harming growth.
The next eight months will see Brexit negotiations come to a climax and the inevitable period of uncertainty means this is the MPC’s last opportunity to raise rates for some time. Yet the fact remains that this is an ill-timed and risky venture, not least for the millions overburdened with debt.

The pound will tumble if the Bank of England leaves interest rates on hold today, says Miles Eakers of global payments, FX and Treasury management firm Centtrip:
“A hawkish hike will boost the Pound but only for the short term. That said, Mark Carney may catch market participants off-guard again and not increase rates, which will weaken the Pound substantially and could fall as low as its yearly nadir of $1.2956 or even below.
Even if the BoE does hike, the Brexit negotiations are still under way, keeping the Pound under pressure for the foreseeable future.”

Sterling dips ahead of rate decision

The pound is dropping this morning, as the City braces for the Bank of England interest rate decision at noon.
Sterling has lost half a cent against the US dollar to $1.3068, its lowest in nearly two weeks.
Normally you’d expect a currency to rally when interest rates go up. But there may be some anxiety over whether the Bank will actually do the deed today.
Traders may also be anticipating a ‘dovish hike’ - the BoE could raise borrowing costs to 0.75%, but hint that the next rise is a long way away.
This chart shows how sterling has struggled, even as an August rate hike looked more likely.
Interest rate probability vs the pound/dollar rate
Photograph: Hargreaves Lansdown
Laith Khalaf, senior analyst at Hargreaves Lansdown, suspects uncertainty over Britain’s exit from the EU is hurting the pound:
‘Thursday could be a hugely symbolic day if the Bank of England decides to raise interest rates above 0.5% for the first time since the financial crisis. However it doesn’t actually change too much on the ground. Markets are already expecting a rise, and from here on in, further hikes are going to be few and far between because UK economic growth is so fragile.
We could see some reaction from sterling though, which has remained resolutely weak against the dollar, despite rising expectations of a rate rise. That probably reflects the fact that economic data hasn’t been resoundingly positive in the lead up to this interest rate decision, plus of course the prospect of a no-deal Brexit has raised its head in recent weeks.
He also points out that rates could yet be cut, if the economy falters.
Even though rates are very low and will remain so for the foreseeable future, they can still move down if there is an economic shock to the system. Few people thought rates would ever be cut from 0.5%, but that’s exactly what happened following the EU referendum result.

The agenda: Bank of England day

The Governor of the Bank of England, Mark Carney
The Governor of the Bank of England, Mark Carney Photograph: WPA Pool/Getty Images
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
With Love Island finally off our screens, it’s time for the nation’s favourite unreliable boyfriend to show if he’s mended his ways, or is as fickle as ever.
The Bank of England will announce today whether UK interest rates are going up, for only the second time in a decade. The City widely expects a hike, after governor Mark Carney declared last month that the economy seems to have recovered from its slowdown at the start of 2018.
The City is pricing a 91% chance of an interest rate rise today. That would take borrowing costs up to 0.75% today -- their highest level since March 2009 (but still low in historic terms).
But traders are edgy. Carney has a long track record of capriciousness – promising that a rate hike is imminent only to back away when the big day arrives. So there’s a possibility that the Bank will shy away from pressing that rate hike button today.
The decision is unlikely to be unanimous, as some monetary policy committee members are concerned that the economy may not be strong enough to handle higher borrowing costs.
Kathleen Brooks of Capital Index explains:
The market is currently expecting an 8-1 split in favour of a hike, with Sir Jon Cunliffe the only member expected to dissent and vote against a hike.
However, if we get more MPC members voting against a hike then sterling could come under pressure, as it would suggest a future dovish stance by the BOE.
It’s four years since Labour MP Pat McFadden gave Carney his ‘unreliable boyfriend’ tag, but it’s not a title the governor appreciates. He would argue that businesses and households have understood his message -- that interest rates will rise at a modest pace as the recovery allows.

Also coming up

Data firm Markit will report how Britain’s construction sector performed last month. Economists predict that growth slowed, as the bounceback after the winter freeze fades.
Trade war fears are weighing on the markets again. There are reports that Donald Trump is considering slapping a 25% tariff on Chinese imports into the US, which would have a hefty impact on world trade.
IGSquawk (@IGSquawk)
European Opening Calls:#FTSE 7621 -0.41%#DAX 12688 -0.39%#CAC 5478 -0.37%#MIB 21729 -0.29%#IBEX 9771 -0.29%
August 2, 2018

The agenda

  • 9.30am BST: UK construction PMI for July
  • 12pm BST: UK interest rate decision, and Quarterly Inflation Report
  • 12.30pm BST: BoE governor Mark Carney’s press conference
Updated