December interest rate cut unlikely despite summer slowdown
High interest rates also weighed on the UK economy over the summer.
The Bank of England kept interest rates at a 16-year high of 5.25% until August, when it cut them to 5% (followed by a cut to 4.75% last week).
Suren Thiru, ICAEW economics director, suspects the Bank will resist cutting interest rates again next month, even though growth was so weak in July-September.
Thiru says:
“These figures suggest that the economy went off the boil even before the budget, as weaker business and consumer confidence helped weaken output across the third quarter, particularly in September.
“Following a ‘gangbusters’ first half of the year, the third quarter outturn paints a more realistic picture of the UK’s underlying growth trajectory given longstanding challenges over poor productivity and persistent supply side constraints.
“Economic growth in the final quarter of this year is likely to be similarly modest with looming tax rises and growing global uncertainty likely to spark a renewed restraint to spend and invest, despite lower interest rates.
“In spite of these downbeat figures, a December policy loosening looks improbable as rate setters will likely be concerned enough over inflation risks from the budget and growing global headwinds to resist signing off back-to-back interest rate cuts.”
The City agrees. According to the money markets this morning, there’s only a 17.5% chance of a UK interest rate cut in December, and an 82.5% chance the BoE leaves rates on hold.
Key events
Closing post
Time to wrap up…
The UK economy slowed to a near-standstill in the third quarter as uncertainty surrounding Labour’s first budget and high interest rates weighed on business and consumer spending.
In a blow to the chancellor, Rachel Reeves, as she attempts push the UK to the top of the G7 growth league, the economy grew by 0.1% in the third quarter of the year, down from 0.5% in the second quarter, according to figures from the Office for National Statistics (ONS).
The UK ranked sixth in the G7 for growth in the third quarter, above Italy but below France, Germany and the US, which grew by o.4%, 0.2% and 0.7% respectively.
Figures released by the ONS on Friday showed that in the three months to the end of September – the first quarter under the new Labour government – services and manufacturing sector output slowed, indicating that uncertainty surrounding the budget and high interest rates contributed to a loss of momentum since the spring.
City economists had expected quarter-on-quarter growth to be 0.2%. Month-on-month GDP shrank by 0.1% in September, falling short of forecasts for growth of 0.2%.
But despite the slowdown, the money markets indicate there’s only an 18% chance of another cut to UK interst rates next month.
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And analysis:
Investors in pharmaceutical companies are selling off stock after Donald Trump nominated the anti-vaccine activist Robert F Kennedy Jr to lead the US Department of Health and Human Services.
RFK Jr has embraced numerous health-related conspiracy theories, and is one of the most persistent and influential vaccine deniers in the US.
Trump’s announcement sent shares in some of the world’s biggest pharmaceutical companies – including Moderna, AstraZeneca and GSK – falling on Friday morning.
The European Commission has forecast that Germany’s economy will shrink by 0.1% this year, casting a shadow over the upcoming general election.
One of Britain’s biggest property developers has reinforced the growing shift to a return to office working, saying that occupancy in its central London offices has grown to an all-time high and the value of its portfolio has returned to growth.
Typhoo Tea is to call in administrators, as Britain’s oldest tea brand struggles with more than £70m in debt amid a sales slump in the highly competitive drinks market.
The pound has dropped to a new four-month low against the US dollar today.
Sterling has lost half a cent to $1.2616, after this morning’s weak UK growth data – and hints from the Federal Reserve that it doesn’t feel in a rush to cut US interest rates.
Austria’s energy company OMV says it’s been told that Russia’s Gazprom will suspend natural gas deliveries to Austria on 16 November (ie, tomorrow).
The Austrian energy company made the announcement after pledging to enforce a €230 million ($242 million) arbitration reward against the Russian company.
OMV was awarded €230m ($243m) under International Chamber of Commerce rules after its row with Gazprom over its supply contract. It plans to recoup this amount from Gazprom by withholding its monthly payments for gas.
Fears that Gazprom might turn off the taps in response drove up gas prices yesterday:
Today, the day-ahead UK gas price is up another 1.3%.
GM lays off 1,000 employees amid reorganization and cost-cutting drive
General Motors laid off roughly 1,000 employees today, according to reports, as the automaker attempts to cut costs and realign priorities amid changing market conditions, according to a person familiar with the decision.
CNBC has the details:
The layoffs, which were announced Friday morning to those impacted, were across the business. Some were due to poor performance, while others were part of a review to reorganize priorities by the automaker, according to the person, who agreed to speak about the decision on the condition of anonymity.
A majority of the employees impacted were in suburban Detroit at the automaker’s global technical center in Warren, Michigan, the person said. A small number of hourly employees were included in the layoffs.
The S&P 500 health care sector is down 1.3% in early New York trading, to the lowest since May, Reuters reports.
Falling vaccine makers pull Wall Street lower
Wall Street has indeed opened in the red.
The Dow Jones industrial average has dipped by 143 points, or 0.33%, to 43,607 points.
The broader S&P 500 share index is down 0.7%, while the tech-focused Nasdaq has dropped by 1.3%.
Vaccine makers are among the fallers, with Pfizer and Moderna both down over 4.5% – adding to yesterday’s losses, following the nomination of Robert F Kennedy Jr as US secretary of health and human services.
As flagged earlier, US central bank chief Jerome Powell has disappointed investors by saying the Federal Reserve doesn’t need to be “in a hurry” to cut interest rates.
Factory output across the United States has dipped, due to the Boeing strike and hurricane disruption.
Industrial production (IP) decreased by 0.3% in October after declining 0.5% in September, the US Federal Reserve has reported.
It adds:
A strike at a major producer of civilian aircraft held down total IP growth by an estimated 0.3 percentage point in September and 0.2 percentage point in October. Hurricane Milton and the lingering effects of Hurricane Helene together reduced October IP growth 0.1 percentage point.
Aluminium price jumps after China cancels export tax rebates
There’s drama in the commodities market today.
The aluminium price has jumped over 8% at one point today after China’s finance ministry said it would reduce or cancel export tax rebates for a wide range of commodities and other products.
The move fuelled concerns that shipments abroad from China could be curbed.
From 1 December, the export tax rebate rate for some refined oil products, photovoltaics, batteries, and certain non-metallic mineral products will be cut from 13% to 9%.
China will also cancel the rebate for aluminum and copper products and chemically modified animal, plant, or microbial oils and fats.
Reuters reports that the three-month aluminium contract on the London Metal Exchange soared as much as 8.5% to $2,730 a metric ton, close to a five-month high.
Just in: US retail sales rose by more than expected last month.
Sales at American retailers and food service outlets rose by 0.4% month-on-month in October, beating forecasts of 0.3% growth, and were 2.8% higher than a year ago.
Spending at motor vehicle & parts dealers jumped 1.6% in the month, while electronics & appliance store sales were 2.3% higher.
Clothes sales dipped by 0.2% in the month, though, while grocery store sales only rose 0.1%.
Analysts at brokerage Jefferies have pointed out that RFK Jr told NBC in an interview that he would not “take away” available vaccines.
They added, though, that the overall prospects for biotech development ventures were seen as dimmed by his nomination, saying:
“The point is around sentiment, stance and perspective – that impacts biotech investors’ view of how FDA [the U.S. Food and Drug Administration regulator] and other HHS issues will evolve (ie not accelerating drugs and pro-biotech).”
The pound has dipped against the euro today, as traders have digested the worse-than-expected UK growth figures.
Sterling is down 0.3% at €1.199.
Joseph Dahrieh, managing principal at trading platform Tickmill, says the pound continues to face downward pressure:
Concerns and speculation surrounding the Bank of England’s (BoE) future rate decisions increased, as market participants question whether the BoE will slow its rate-cutting cycle, thereby dampening investor sentiment.
The pound’s trajectory will largely depend on the effectiveness of the UK’s new expansionary budget, which aims to stimulate growth but also risks reigniting inflation, adding further uncertainty to the outlook for UK monetary policy.
The UK hospitality industry are hoping that the summer slowdown might encourage the government to rethink their plans to raise employers’ national insurance contributions.
Kate Nicholls, Chief Executive of UKHospitality, says:
“These lacklustre growth figures make it clear that the UK economy is still in a very fragile place. How the Government approaches the economy and consumer confidence going forwards, in both its policy and its language, will matter enormously.
“Its policy to inflict £3.4 billion in costs on hospitality businesses in April is already having a negative impact on decision-making on investment and jobs, which will no doubt stifle economic growth once again.