Eurozone factory growth hits seven-year low
Ouch! The slump in the eurozone’s manufacturing sector has deepened, hit by the US-China trade war and Brexit.
Data firm Markit has reported that factory output and new orders both fell sharply again last month.
This dragged its Eurozone Manufacturing PMI down to 45.7, from 47.0 in August and its lowest reading since October 2012. Anything below 50 shows contraction, and such a weak reading suggests the eurozone is weakening.
Germany suffered particularly badly, with the weakest PMI in 123 months. Italy, Spain and Austria also suffered contractions.
Chris Williamson, Chief Business Economist at IHS Markit said:
“The health of the eurozone manufacturing sector went from bad to worse in September, with the PMI survey indicating the steepest downturn for nearly seven years and sending increasingly grim signals for the fourth quarter…..
Businesses also remain downbeat about the year ahead, with optimism around a seven-year low amid trade war worries, signs of slowing global economic growth and geopolitical concerns, including heightened anxiety over a disruptive Brexit.
High street bakery chain Greggs says it’s taking steps to prevent disruption from a no-deal Brexit.
Greggs told shareholders this morning that:
We are preparing for the potential impact of the UK’s departure from the European Union by building stocks of key ingredients and equipment that could be affected by disruption to the flow of goods into the UK.
Britons are already worried about disruption to key medicines after a disorderly Brexit, without the added threat of running low on steak bakes and vegan sausage rolls.
In a trading update, Greggs also warned that its labour and food input costs are being pushed up. But it is pressing on with its autumn range, including the popular Pumpkin Spice Latte, and some new post-4pm meal deals (including pizza and a drink for £2).
If people aren’t moving house, then they’re not buying new carpets and furniture.
Sofas and carpets firm SCS has warned that its sales are down 7.6% in the last two months, partly down to Brexit.
The period has been impacted by the record temperatures seen over the key August bank holiday weekend and the increased political and economic uncertainty that the UK is currently facing.
Share in SCS have fallen 7% in early trading.
Britain’s house price slowdown is firmly centred on London, as this map shows:
UK house prices: what the experts say
Guy Harrington, CEO of property lender Glenhawk, blames Brexit for the slowdown in house price growth:
If these were ‘normal’ times, we’d expect the favourable underlying drivers of low interest rates and high employment to be supporting a buoyant market.
However these are unprecedented times and the record that is playing housing growth is stuck until the needle bounces over the Brexit bump, although that assumes that’s all it is.”
Lucy Pendleton of independent estate agents James Pendleton points out that house prices have been lagging inflation for over a year:
“Such low growth means September is set to be the 14th month in a row in which property has lost value in real terms.
“The last time growth even equalled CPI was in July 2018 when both measures were running at 2.5% year on year. The last time the property market was ahead was in April 2018.
“What this means is that there’s no mistaking this trend as a flash in the pan and it is being solidly reflected in buyer and vendor behaviour, particularly in London.
Jonathan Samuels, CEO of property lender Octane Capital, fears that the housing market will weaken in the months ahead:
“It’s a miracle that the market is holding up as well as it is given the level of political turmoil. Low supply and stock levels continue to support prices while cheap mortgages and the strong jobs market are steeling buyers’ resolve.
The resilience of the property market looks set to be tested like never before in the final quarter of 2019.
“To say it’s tin hat time is an understatement.”
Iain McKenzie, CEO of the Guild of Property Professionals, reckons the housing market will pick up once Brexit is resolved.
When the extension of Brexit was announced there was a spike in activity in the market, which again reiterates the fact that it is uncertainty holding buyers back rather than a lack of interest. Once activity starts to increase and buyer confidence returns, which it will, prices will start back on an upward trajectory.”
Weak house price growth is obviously good news for those hoping to get onto the housing ladder.
But despite the slowdown, houses are still relatively unaffordable, as this chart shows:
This would obviously get worse if the Bank of England raised interest rates – although they’re more likely to cut them in the current climate.
London’s housing market is leading the downturn, with prices sliding by 1.7% year-on-year in the last quarter, Nationwide reports.
Prices in the ‘Outer Metropolitan’ region also fell, by 1.5%, reflecting the impact of Brexit uncertainty on the capital.
Northern Ireland, though, has seen house price surge by 3.4% in the last year.
UK house price market stalls
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
With just 30 days until Brexit, the UK housing market is being dragged down by uncertainty and worry.
House prices fell by 0.2% in September, according to new figures from Nationwide. This pulled the average property price down to £215,352, from £216,096 in August.
Over the last year, prices have only risen by 0.2%, well behind inflation (1.7%) and pay (+4%). And there’s a clear decline in the south, with London and the South East bearing the brunt.
Robert Gardner, Nationwide’s chief economist, blames two factors — the weakening global economy, and the ongoing Brexit saga.
“UK annual house price growth almost ground to a halt in September, at just 0.2%. This marks the tenth month in a row in which annual price growth has been below 1%.
“Indicators of UK economic activity have been fairly volatile in recent quarters, but the underlying pace of growth appears to have slowed as a result of weaker global growth and an intensification of Brexit uncertainty. However, the slowdown has centred on business investment – household spending has been more resilient, supported by steady gains in employment and real earnings.
As these charts show, house price inflation has been dropping steadily since the UK voted to leave the EU:
More to follow!
Also coming up today
We could get more grim news from Britain’s factory sector this morning. September’s manufacturing PMI report is expected to show that output shrank again across the UK last month.
The eurozone’s factories also probably suffered a torrid month, hit by recession worries and the US-China trade war.
- 9am BST: Eurozone manufacturing PMI – expected to fall to 45.6, from 47 in August, showing a deeper contraction
- 9.30am BST: UK manufacturing PMI – expected to fall to 47, from 47.4, showing a deeper contraction
- 3pm BST: US manufacturing PMI – expect to rise to 51, from 50.3, showing a little growth
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