UK factories suffer worst quarter on record amid coronavirus lockdown – as it happened

Time for a quick recap.

UK factories have suffered their worst quarterly slump in activity since at least the 1970s, as the coronavirus lockdown hit the economy. Manufacturers are also anxious about their prospects for the coming months, with export orders down sharply.

Investors continue to fret about the possibility of a second wave of Covid-19 infections as Western economies reopen. Several US states have reported a rise in cases in recent days, while a local infection in Germany has pushed its R-rate sharply higher.

The FTSE 100 is down 47 points, or 0.75%, in late trading in London at 6251 points, while Wall Street has opened lower.

Drinks firm Diageo (-3.6%), jet engine maker Rolls-Royce (-3.5%) and medical equipment firm Smith & Nephew (-2.8%) are the top fallers on the FTSE 100.

US home sales have fallen to their lowest level in some eight years, as property transactions were curbed by the pandemic.

Consumer confidence across Europe is also weak, although not as bad as in April and May.

Bank of England governor Andrew Bailey has revealed that the UK government could have been left temporarily unable to borrow during the March market panic, before the BoE stepped in.

Bailey has also suggested that the Bank could unwind its QE bond-buying programme before raising interest rates from their record lows.

The London Stock Exchange boss Nikhil Rathi has been appointed chief executive of the Financial Conduct Authority, making him the first BAME leader of the UK’s City regulator.

Ian Mason, head of UK Financial Services at Gowling WLG, thinks Rathi is a good choice to replace Bailey at the FCA:

“Mr Rathi will join the FCA with a full in-tray, but his previous background and experience suggest that he is well equipped to make a flying start. His work at the Treasury on EU and international markets will be important in working with the Government to navigate a workable regulatory outcome on Brexit for the UK.

His CEO role at the London Stock Exchange will have provided commercial experience at the sharp end of the financial markets. Another major challenge will be dealing with post COVID-19 planning, including the accumulated consumer and corporate debts, which are building up. His relative youth should provide the energy and impetus required at the time, and as we have seen with Rishi Sunak, who appointed him, age is no barrier to ability in high profile positions. As an external appointment, he will also bring a new perspective to the FCA’s culture and priorities.”

Thanks for reading, We’ll be back tomorrow… GW

This is why US realtors are optimistic, despite sliding home sales last month.

In another unsurprising development, sales of homes across America have fallen sharply.

Sales of existing homes (rather than new builds) crashed last month to an annual rate of just 3.91m units, which is the lowest since 2012. Potential buyers were kept away by lockdown restrictions, and the surge in unemployment across the US.

But estate agents are hopeful that sales could recover as the economy returns to more normal conditions….

Consumer confidence across the eurozone has risen slightly, but remains extremely weak as the pandemic rumbles on.

The EC’s gauge of consumer morale has risen to -14.7 this month, according to provisional data just released, up from -18.8 in May. That’s a little better than feared, but still lower than average (understandably!).

New figures show that UK shops are still rather quieter than a year ago, despite a surge in visitors after some lockdown restrictions were lifted.

Our economics editor Larry Elliott explains:

Shoppers flocked back to the high streets in England over the past week as non-essential stores reopened but numbers remained well down on a year earlier, according to the latest survey of retail footfall.

Springboard, a company that measures the number of potential customers at retail outlets across the UK, found that footfall in the week starting 15 June was up 45% on the previous week.

But with numbers influenced by later reopenings in Scotland and Wales, restrictions on pubic transport and a shift to online shopping, footfall was down 54% on the same week in 2019.

The US stock market has dipped in early trading, as investors weighed up the recent increase in Covid-19 cases in some American states.

The Dow has lost 193 points, or 0.75%, at the open to 25,678, matching the small losses in Europe earlier today.

The broader S&P 500 has lost 0.5%, while the tech-heavy focused Nasdaq is 0.2% lower.

Edward Moya of OANDA says investors are watching the Covid case numbers closely, but aren’t panicking.

While the number of new COVID-19 cases is noticeably higher in the southeast regions, that is being attributed to reopening before seeing their cases come down to low levels.

Despite the surge in new cases, risk appetite is holding up because confidence is higher with how doctors can treat the virus and now that the virus is working its way through younger individuals. If the seven states that hit record highs with daily cases continues to grow exponentially, that should start to weigh on risk appetite.

The BBC are reporting that sandwich chain Pret a Manger could cut jobs early next month, after suffering a slump in sales under the lockdown.

They say:

A leaked video revealing how sales have plunged at Pret a Manger during the coronavirus crisis has raised fears about job cuts at the sandwich chain.

Boss Pano Christou told staff in a recent online meeting that an announcement about the “job situation” would be made on 8 July.

He said Pret’s global weekly takings had fallen to £3m, just 15% of what they would normally be.

In an encouraging sign, the Chicago Federal Reserve’s index of economic activity across the US has climbed into positive territory.

The Chicago Fed’s national activity index has risen to 2.61 for May, from -17.89 in April as US states locked down.

This index measures production, employment, consumption and sales, so this suggests economic growth increased substantially in May after a terrible April.

The record slump in UK factory output in the last three months is “very disappointing,” says Howard Archer, chief economic advisor to the EY ITEM Club

It suggests that the economy is still struggling, several weeks after the government started to relax some of its lockdown restrictions to get people back to work.

Archer says:

• The June CBI industrial trends survey is still extremely weak overall indicating that the manufacturing sector is still struggling hugely despite the progressive easing of lockdown restrictions since mid-May.
• There have been signs that the economy started to recover in May from April’s lows, and the expectation is that June will see further improvement in economic activity as lockdown restrictions have been eased further. However, the disappointing June CBI industrial trends survey highlights the fact that major uncertainty remains as to just how robust the recovery will be
• We suspect that the economy will likely contract around 17% quarter-on-quarter in the second quarter. We expect the economy to return to clear growth in the third quarter with GDP expanding close to 10% quarter-on-quarter. This assumes a further easing of lockdown restrictions, including a relaxation of social distancing rules. We expect GDP to contract around 8.0% over 2020
• The CBI survey showed only a slight pick-up in orders in June from May’s lowest level since October 1981, as foreign demand fell to an all-time low. Output over the past three months contracted at a record rate
• Prices over the next three months are expected to fall markedly, clearly reflecting manufacturers’ perceived need to discount to try to gain business by discounting
• Output expectations for the next three months picked up modestly for a second month running in June from April’s record low, although they remained extremely low and well in contraction territory

Bank of England governor Andrew Bailey is certainly making headlines today.

He’s been interviewed by Sky News, and warned that Britain’s government could have been unable to finance itself without the Bank’s stimulus packages.

Bailey explained that the core financial markets came “pretty near” to meltdown in March, adding:

“We had a lot of volatility in core markets: the core exchange rate, core government bond markets.

“We were seeing things that were pretty unprecedented, certainly in recent times. And we were facing serious disorder.

And if the Bank hasn’t intervened by cutting interest rates and boosting its QE programme? Bailey says Britain could have been in deep trouble….

“I think the prospects would have been very bad. It would have been very serious.

“I think we would have a situation where in the worst element, the government would have struggled to fund itself in the short run.”

Here’s our news story on the latest Wirecard developments:

UK manufacturers also expect average selling prices to fall over the next quarter, reflecting weak demand.

It’s not surprise that factory output slumped since the pandemic began (it shows the lockdown is working as planned).

But the CBI is particularly concerned that factory order books are “remarkably poor”, suggesting manufacturing is still very weak.

Breaking: UK factories have suffered their worst quarter on record, thanks to the ongoing lockdown.

The CBI reports that British industrial output shrank at an unprecedented pace in the three months to June as COVID-19 heavily disrupted operations.

Factory bosses also fear further declines in the months ahead, undermining hopes of a rapid recovery from the pandemic.

The CBI’s monthly Industrial Trends Survey found that output dropped in 15 out of 17 sub-sectors. The headline fall in output volumes was driven by the motor vehicles & transport equipment, mechanical engineering, and metal products sub-sectors.

This pulled its gauge of industrial output down to -57 for the last quarter, from -54 a month ago, the lowest since the measure started in July 1975.

Total order books remained poor by historical standards, the CBI adds, despite improving slightly on last month. Meanwhile, export orders books worsened on the previous month, falling to their lowest since the survey began in April 1977.

Anna Leach, CBI Deputy Chief Economist, is urging the government to keep supporting the industry until the pandemic is over:

“The UK manufacturing sector remained in a deep downturn in June due to the ongoing COVID-19 crisis. Output volumes declined at a new record pace and export order books fell to an all-time low, reflecting the significant fall in demand in the UK and abroad. Firms are again hoping that this will ease somewhat in the next three months.

“The Government has already undertaken a huge amount of work to provide financial lifelines to businesses throughout this unprecedented period. With firms having been encouraged to restart operations, the Government must continue to engage with the sector to understand their specific concerns and provide support as needed.”

German financial watchdog Bafin has described the unfolding financial scandal at payment group Wirecard as a “total disaster”, Reuters reports.

Bafin president Felix Hufeld said this morning:

“It is a scandal that something like this could happen”.

The news that €1.9bn of funds are missing, and probably never existed, is certainly a disaster for investors. Many trusted Wirecard’s denials, when the Financial Times raised serious questions about its sales and profit figures. It’s a serious blow to the reputation of Germany’s wider tech sector.

And it’s also a disaster for Bafin’s reputation. The regulator clearly missed whatever went wrong at Wirecard, and chose to file a criminal complaint against the FT in 2019 after it first reported suspicious transactions.

Just in: Britain’s City watchdog has a new leader.

Nikhil Rathi, the CEO of London Stock Exchange Plc, has been appointed as the chief executives of the Financial Conduct Authority (FCA), to succeed Andrew Bailey.

It’s a tough job — back in March, MPs criticised the FCA’s “culture, transparency and insufficient speed of action” following recent scandals including London Capital & Finance and the Woodford debacle.

Rathi, who led UK Treasury’s Financial Services Group before joining the LSE, will be the first BAME leader of the financial watchdog. He says:

FCA colleagues can be very proud of their achievements in supporting consumers and the economy in all parts of the UK in recent months.

In the years ahead, we will create together an even more diverse organisation, supporting the recovery with a special focus on vulnerable consumers, embracing new technology, playing our part in tackling climate change, enforcing high standards and ensuring the UK is a thought leader in international regulatory discussions.

Chancellor Rishi Sunak has tweeted:

Here’s more reaction: