European Commission slashes UK GDP growth forecasts but robust eurozone recovery will continue

minister
Prime minister Theresa May and European Commission president Jean-Claude Juncker
  • European Commission slashes UK GDP growth forecasts; projection for 2017 downgraded from 1.8pc to 1.5pc
  • Fashion house Burberry falls as much as 14pc after unveiling a new upmarket strategy to boost margins
  • Miners lead the FTSE 100 lower despite Chinese inflation figures beating expectations
  • Pharma giant AstraZeneca tops the blue-chip index as its sales decline slows
  • Pound makes modest rebound on currency markets after political events put it under pressure yesterday; rises 0.2pc against the dollar to $1.3138

                                                                                                    

Markets wrap: Eurozone economy will leave the UK's in the dust, says EC

The eurozone's robust growth will continue, the EC said

The eurozone's economy will leave the UK's in the dust in the coming years as consumer spending slows amid rising prices and weaker investment, the European Commission predicted today.

The EC, which based its projections on no change to the EU and UK's trading relations, downgraded its forecasts for the UK economy to 1.5pc this year and then 1.3pc and 1.1pc in 2018 and 2019. 

Elsewhere, housebuilders have slipped to the bottom of the FTSE 100 for a second consecutive day after Redrow’s sales slowdown compounded on concerns about the sector’s outlook following Persimmon’s own disappointing figures on Wednesday.

Fashion house Burberry has weighed heavily on the FTSE 100 as investors shunned its shift in strategy while mining stocks plunged despite stronger-than-expected Chinese inflation data. 

Stocks across the globe have dived on a turn in investor sentiment, taking their cue from poor corporate figures and a volatile Japanese session overnight. The FTSE 100 escaped the worst of the retreat, however, closing just 45.62 points lower at 7484.10.

UK hands Saudi Aramco $2bn loan as listing battle drags on  

The UK Export Finance (UKEF) group said the loan guarantee will be used to help deepen trade ties

The UK Government has offered the world’s largest oil company a $2bn (£1.5bn) loan guarantee as the battle to host the Saudi oil giant’s market debut drags on.

The Treasury has admitted to finalising the details of the deal which comes amid a fierce battle between the world’s largest exchanges to secure what could prove to be the world’s largest initial public offering.

The timing of the significant loan has raised eyebrows because Saudi Aramco, the kingdom’s state-back oil giant, is yet to decide where to list 5pc of the oil behemoth in its market debut expected next year.

The float is a central piece within Saudi Arabia’s plans to overhaul its economic future in the wake of the global oil crisis which could leave prices depressed indefinitely.

Read Jillian Ambrose's full report here

Grim EC forecasts drag the pound back to flat territory against the dollar

The pound's slide yesterday was pinned on a second minister losing their job in the space of a week

The European Commission's bullish forecasts for the eurozone have been the focus of the currency markets today but its less flattering outlook for the UK economy has dragged the pound down after its strong start to trading this morning.

Sterling is finishing the day in flat territory against the dollar at $1.3116 after rebounding early on from yesterday's slide pinned on Theresa May's political troubles.

IG market analyst Joshua Mahony reviewed the action on forex markets this morning:

"Today has seen market focus their attention upon the growth story within Europe, after European Commission GDP forecasts were released. Despite the recent losses seen for the euro this week.

"The euro spiked higher in early trade today, after the European Commission predicted that this year will see the eurozone grow at the fastest rate in a decade. Unfortunately, the negative effects of Brexit negotiations appear to be confined to the UK, with the EU speculating that growth will slow to 1.5% for 2017. "

EU predicts eurozone boom but UK gloom in pessimistic forecasts 

The eurozone economies will surge ahead, while the UK will grow only as fast as continental laggard Italy - according to the European Commission’s forecasts.

Spain and Germany will perform particularly strongly, the EC predicts, driving the eurozone’s GDP up by 2.2pc this year and 2.1pc next year.

By contrast the UK will slow to 1.5pc this year, 1.3pc in 2018 and 1.1pc in 2019, the analysis states, with consumer spending slowing and investment weighed down by Brexit uncertainty.

That is a substantially more gloomy view than the Bank of England’s predictions, which envision GDP to grow by 1.7pc in each of the next three years.

Read Tim Wallace's full report here

Stocks sink on disappointing corporate results and volatile Japanese session

A volatile day of trading in Japan has knocked investor confidence

Stocks in Europe are having a miserable day of trading but the FTSE 100 is holding up best out of the major indices.

A disappointing batch of corporate updates is doing the major damage in London today with housebuilder Redrow's sales slowdown spooking investors across the sector and Burberry's strategy shift sinking its shares by 9pc. The FTSE 100 is largely escaping the sell-off, however, with the DAX in Frankfurt sinking 1.5pc and the CAC in Paris plunging 1.2pc.

Some analysts have pinned the blame for slipping stocks today on a volatile session of trading in Japan overnight knocking investor confidence with the Nikkei 225 swinging from a 2pc gain to a 1.7pc loss.

Concerns over whether US president Donald Trump's tax reform plans can gather support in Congress is also hurting US equities but the Dow Jones has only nudged down 0.2pc.

Flybe slims down fleet in effort to address overcapacity  

Flybe is on course to hand back six planes this financial year as it aims for a smaller fleet

Regional airline Flybe will hand back six planes this year as it slims down its fleet in a bid to overcome overcapacity problems.

Christine Ourmieres-Widener, who became chief executive in December last year, said four craft had been handed back to lessors so far this financial year with another two due shortly. This should take the fleet to 80. She added that the company is on course to hit its target of 70 by 2019/2020.

The Exeter-based company has been battling to rid itself of excess planes with costly leases that it has been struggling to fill. 

Better management of its fleet meant the company resulted in an 8.8pc rise in revenue per seat - a key industry performance metric - to £55.29 for the six months to September 30.

Read Bradley Gerrard's full report here

European Commission GDP forecasts: Little to disagree with in the tone

The European Commission's set of forecasts for the UK economy are even grimmer than the Bank of England's but there is little to disagree with in the tone of today's dour assessment of the UK's outlook from the EC, according to Commerzbank's senior economist Peter Dixon.

He added that calls from politicians for more optimistic economic forecasts "fly in the face of the UK's current economic fundamentals" and that the OBR's assessment, which is crucial for the Government's budget, is unlikely to be as pessimistic as the EC's.

Mr Dixon highlighted that the forecasts are worryingly not based on a "hard" Brexit:

"One of the key technical assumptions underpinning the EC’s projections is maintenance of the status quo in terms of trading relations between the EU27 and the UK which “is for forecasting purposes only and has no bearing on the talks underway in the context of the Article 50 process". 

"The forecast presented today is not a “hard” Brexit outcome – it merely reflects the fact that Brexit-related uncertainty is uncovering some of the UK’s structural weaknesses."

National Grid pours investment into US as UK political threat looms  

The FTSE 100 operator of Britain’s pipes and wires is pouring more than half of its spending into US projects

National Grid is training the focus of its multi-billion pound investment effort on the US as political scrutiny in the UK mounts.

The FTSE 100 operator of Britain’s pipes and wires is pouring more than half of its spending into projects in the North East of the US where regulators are encouraging billions of dollars in low carbon investments.

National Grid invested £2bn in the last six months, of which 55pc was ploughed into the US market where profits are on the rise.

Meanwhile in the UK, the group faces increasing political scrutiny over its role at the heart of the energy industry. This has forced the company to defend itself against calls to replace National Grid with a Government-owned body.

The group’s boss John Pettigrew said he was “not surprised” by the recommendation within a recent report on energy costs.

Read Jillian Ambrose's full report here

Lunchtime update: European Commission slashes UK GDP growth forecasts but robust eurozone recovery will continue

European Commission president Jean-Claude Juncker

The European Commission has slashed its forecasts for UK GDP growth this morning, blaming rising prices for constraining consumption growth.

The EC, which based its projections on no change to the EU and UK's trading relations, said that there is still gas left in the tank for the eurozone's robust recovery but the UK economy is on the decline and growth will ease to 1.1pc by 2019 as exports fall and domestic demand slows.

Elsewhere, fashion house Burberry has nosedived as much as 14pc after unveiling a new strategy to tap the upper end of the market. The company said that it will boost its margins by targeting the luxury market and will close some stores as part of the strategy shift.

Meanwhile, housebuilding shares have tumbled for a second straight day after Redrow's sales slowed and sounded the alarm in the sector with larger housebuilding peers Barratt Developments and Persimmon diving 3.1pc apiece.

European Commission forecasts: Eurozone recovery 'still incomplete'

While the European Commission has said that the UK economy is on the decline, it has upped its forecasts for the eurozone economy following its strong recovery this year. 

It said that the recovery is still incomplete in the currency bloc and that suggests that there is more scope for robust growth to continue even with persistently weak inflation.

The entire EU economy will grow by 2.3pc this year (up from a forecast of 1.9pc in Spring) but slow slightly next year, the EC added.

The pound tumbled back into the red following the dour figures but has recovered back to a 0.1pc gain against the dollar at $1.3122.

Spreadex analyst Connor Campbell said this on the pound and FTSE 100's movement this morning:

"Though it has lifted away from last Thursday’s post-BoE lows, sterling has struggled to regain its pre-hike momentum, with the recent political chaos – and now these dismal forecast – repeatedly undermining any potential comeback. None of this was much used to the FTSE, however, which sat flat at 7525 as it dealt with the dual retail blows of Burberry’s 9.5% plunge and Sainsbury’s 2% slide."  

Handheld detector for skin cancer wins James Dyson engineering award

sKan uses sophisticated sensors to pick up on subtle changes in skin temperature

A highly sensitive handheld detector for skin cancer devised by four Canadian graduates has won the James Dyson prize for engineering.

The young developers pick up a £30,000 cash prize to put towards the next stage of the product's development, called sKan.

Mr Dyson, best known for founding his eponymous British vacuum and hand dryer company, set up the award to raise awareness of the importance of quality engineering education.

The winning device sKan uses sophisticated sensors to pick up on subtle changes in skin temperature, helping a doctor decide whether or not a mole or other suspect tissue is a sign of the skin cancer melanoma.

Cancerous cells regain heat more quickly than normal cells, allowing physicians to make the distinction.

Read Iain Withers' full report here

European Commission slashes growth forecast for UK

The European Commission has slashed its GDP growth forecasts for the UK, blaming higher consumer prices for constraining consumption growth.

The EC said that the UK economy will grow by 1.5pc in 2017 and that GDP growth will ease to 1.3pc next year and 1.1pc by 2019 as exports decline and domestic demand slows. 

It added that the government deficit will rise in the 2017-18 fiscal year and growth will remain subdued over the forecast horizon.

The most alarming part of the release is that the EC's projections are based on the assumption that the UK and EU's trading relations continue as they are now and therefore don't account for a "no deal" scenario or the UK pulling out of the single market.

Housebuilders slide as signs emerge of a slowing housing market

Redrow shares have slipped 4.8pc this morning

Housebuilding shares are sinking this morning for a second consecutive day after Redrow admitted that it has suffered a sales slowdown, just a day after Persimmon dragged down the sector on its disappointing figures.

Redrow has dived 4.8pc while FTSE 100 peers Persimmon and Barratt Developments have tumbled 2.6pc apiece as signs emerge of a slowing housing market in the UK.

Markets have taken their due from a volatile session in Japan, according to IG chief market analyst Chris Beauchamp.

He explained:

"The Nikkei performed an impressive handbrake turn after hitting fresh multi-year highs. This sudden drop after the relentless gains over the past two months caught investors on the hop, but the session has seen steady buying in the wake of the open, and the lows of the week continue to hold.

"This week’s macro fears, which included North Korea (again) and Saudi Arabia, are already receding into the background. Yet again, the bears have not found the magic combination of bad news and price action to prompt a broader selloff. "

Marine business remains a worry for Rolls-Royce but company on target for the year

Supplying engines for airliners - the company’s biggest business, responsible for half of the group’s £13.8bn revenue last year - is performing well, Mr East said

The low oil price continues to cause problems for Rolls-Royce’s struggling marine division, the blue-chip engineer has warned.

Energy businesses are slashing spending and this has resulted in Rolls-Royce’s division, which supplies the offshore market, slashing jobs over the past few years and trying to focus on new areas such as “robot ships” to deal with the downturn.

Warren East, chief executive of Rolls-Royce, said that while the wider group was on track to meet full-year targets, the marine division “continues to be impacted by weak demand for products and services for the off-shore oil and gas”.

Mr East said the company had “made steady progress in the second half of the year”, but added: “We have a good deal left to do in the last two months of the year, [but] our performance for 2017, for revenue, profit and free cash, remains on track.”

Read Alan Tovey's full report here

Burberry strategy shift 'ambitious' 

Burberry boss Marco Gorbbetti

Burberry results are a bit of sideshow this morning but they are strong with the fashion house reporting a 4pc rise in underlying revenue and 26pc leap in pre-tax profit in the first half of its year.

Head of equity strategy at Interactive Investor Lee Wild said that chief executive Marco Gobbetti's aim to deliver high-single digit revenue growth is "ambitious" but the company won't reap the rewards of the shift until 2021.

He added:

 "Within Burberry’s half-year results, clever management of costs and spending cuts were behind a 17% increase in underlying operating profit for the half-year.

"Add in a £15 million currency benefit and it was 28%, with only a marginal upgrade to full-year profit forecasts."

Sainsbury’s profits drop 40pc as wage inflation bites  

The supermarket chain said higher wages and losses at newly-acquired Argos were weighing on its bottom line

Sainsbury’s pre-tax profits slumped 40.8pc to £220m in the first half of its financial year as higher wages, discounts and losses at newly-acquired Argos weighed on its bottom line.

Although wages nationally are growing slower than inflation, some retailers have been hit hard by the National Living Wage, which handed minimum wage workers over the age of 25 a 50p per hour pay rise last year.

The Argos takeover, which completed last year, helped Sainsbury’s deliver a 15.9pc increase in total revenues to £14.6bn in the 28 weeks to September 23. Sales in stores open more than one year, excluding fuel, climbed 1.6pc.

The supermarket chain's chief executive Mike Coupe told BBC News: “It’s a tough market but our numbers have beaten the consensus and we’re pleased we’ve got good momentum in our business and we’re serving more customers than ever.

“The nature of our customers’ shopping habits are changing and that’s reflected in our business as well.”  

Read Jack Torrance's full report here

Burberry: 'No pain, no gain' strategy shift

Chief creative officer Christopher Bailey announced that he will leave the firm next year

Just over a week after announcing that its chief creative officer Christopher Bailey will depart the fashion house next year, Burberry has unveiled a new strategy to boost margins by catering more to the luxury market.

The strategy hasn't won over investors so far this morning with its shares currently sitting at a 10pc loss today.

Steve Clayton, manager of the Hargreaves Lansdown Select UK Growth Shares fund, a stakeholder in Burberry, said that the strategy was a "no pain, no gain" shift with shareholders being asked to "accept a couple of years of modest progress" to boost earnings in the long term.

He added:

"Mr Gobbetti wants to take Burberry out of all but the most exclusive stores, starting in the US wholesale channel, and then more widely. Product is to be reinvigorated, and accessories emphasised. It’s a text-book luxury brand repositioning exercise, which should leave Burberry jostling up against the world’s most exclusive names, with the margins to match.

"But this will take time and in the near term, sales growth will be held back and the group must invest more to achieve its goals. Medium term, the group are expecting an acceleration in sales, margins and operating profits as a result of the shift."

Agenda: Burberry suffers sharpest fall in five years after unveiling new upmarket strategy; miners lead the FTSE 100 lower

Burberry fell as low as 14pc in early trade

Fashion house Burberry has plunged as much as 14pc, its sharpest fall in five years, after unveiling a new upmarket strategy to help boost margins. The fashion house is the biggest laggard on London's stock market this morning as investors digest its move to tap the luxury market

Pascal Soriot-led AstraZeneca has topped the slipping FTSE 100 after beating expectations in its third quarter figures while “Big Four” supermarket Sainsbury is yo-yoing on its mixed bag of results.Chinese inflation beating expectations overnight hasn't been able to boost demand for shares in London’s sinking mega miners, which are so dependant on the Asian powerhouse’s economy keeping up its pace.

Elsewhere, a second minister losing their job in the space of a week put pressure on the pound yesterday but this morning that has alleviated and sterling is making a modest rebound on currency markets, nudging up 0.2pc against the dollar to $1.3140.

Macro releases are thin on the ground today with EU economic forecasts due at 10am and US jobless claims scheduled for 1.30pm the only highlights.

Interim results: Wincanton, Dairy Crest, Halfords, Prime People, Renewi, Auto Trader, National Grid, J Sainsbury, SuperGroup

Full-year results: Gattaca

Trading statement: AstraZeneca, Coca-Cola HBC, Inmarsat, Arrow Global, Aldermore, Beazley, Derwent London, Informa, Grafton, Hikma Pharmaceuticals, IMI

AGM: Swallowfield, Eagle Eye Solutions Group, Redrow, Primorus Investments, Urals Energy Public Co

Economics: RICS house price balance (UK), Unemployment claims (US), Final wholesale inventories m/m (US), Federal budget balance (US), ECB economic bulletin (EU)

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