Contents
Key events:
Boris Johnson is facing MPs at prime minister’s questions right now. He said the government should not walk away in a crisis, and that they had a plan and were getting on with it.
Pound at two-year low, euro hits fresh two-decade low
The battered pound remains under selling pressure, amid recession fears and as Boris Johnson is clinging to power despite a flurry of resignations, including the chancellor, the health secretary and others in more junior roles.
Britain’s financial services minister John Glen also quit today in protest against Boris Johnson. News just in that Victoria Atkins, a junior home office minister, has resigned from the government. The conservative MP Tom Hunt said he had submitted a letter of no confidence in the prime minister, saying: “Events of the past week have been the last straw that has broken the camel’s back”.
Sterling has slipped 0.3% against the dollar to $1.1918, remaining near Tuesday’s low of $1.1899, its lowest level since March 2020. Experts said the crisis at 10 Downing Street meant further turmoil in the days and weeks ahead.
Adam Cole, head of currency strategy at RBC Capital Markets, told Reuters:
Markets have now all but written off Boris Johnson as PM.
There is no real frontrunner to replace him and the potential PMs run to a dozen different people, without a view on that it’s difficult to say what Boris’s replacement would mean for policy.
The Bank of England warned on Tuesday that the outlook for the UK and global economy had “deteriorated materially”.
The euro has hit a fresh two-decade low as fears over rising energy prices and potential shortages outweighed relief over the end of a Norwegian oil and gas worker strike. The single currency fell 0.7% to $1.0194.
News round-up
Here’s a round-up of today’s main stories.
The Norwegian government has stepped in to end the oil and gas worker strike, and this has brought relief to European markets.
The Bank of England will “deliver inflation back to its 2% target”, its chief economist has pledged, despite the challenges it faces from rising food and energy costs and a fall in the value of the pound making both more expensive.
More than 2m UK households have missed a bill payment every month this year as people struggle to keep their heads above water in a “relentless cost of living crisis”, according to new research from consumer group Which?.
The new chancellor, Nadhim Zahawi, is continuing his rapid recent ascent which saw him only become a junior minister in 2018, and first enter the cabinet, as education secretary, less than a year ago – a profile by our political correspondent Peter Walker.
The British government has delayed the decision on whether the UK’s largest producer of semiconductors can be bought by a Chinese-owned manufacturer by another month and a half.
The business secretary, Kwasi Kwarteng, had been expected to make a decision by Tuesday on the purchase of Newport Wafer Fab by Nexperia, a Dutch firm wholly owned by China’s Wingtech.
Kwarteng has sought an extra 45 working days to scrutinise the controversial £63m deal, in a move first reported by the Financial Times.
Canada is to throw out about 13.6m doses of the Oxford-AstraZeneca Covid-19 vaccine because it couldn’t find any takers for it either at home or abroad.
Canada signed a contract with AstraZeneca in 2020 to get 20m doses of its vaccine, and 2.3 million Canadians received at least one dose of it, mostly between March and June 2021.
Ben & Jerry’s has sued its parent Unilever plc to block the sale of its Israeli business to a local licensee, saying it was inconsistent with its values to sell its ice-cream in the occupied West Bank.
UK antitrust watchdog investigating Amazon
The UK’s antitrust watchdog is investigating Amazon on whether the US tech giant is hurting competition by giving its own sellers an unfair advantage over third-party sellers on the marketplace.
Britain’s Competition and Markets Authority said it opened an investigation on Tuesday on concerns Amazon’s practices relating to sellers on its domestic marketplace may be anti-competitive and could result in a worse deal for customers.
The investigation comes after the European Commission decided to investigate over similar concerns.
Some of the products on Amazon’s marketplace are supplied through its own retail business. However, a large proportion are supplied by third-party sellers. Amazon provides services to these sellers, including those that are essential to make sales, such as matching sellers with consumers, the CMA said.
The British regulator said its investigation would focus on three main areas, including how the Seattle-based company collects and uses third-party seller data and how it sets the eligibility criteria for selling under the Prime label.
Sarah Cardell, general counsel at the CMA, said:
Millions of people across the UK rely on Amazon’s services for fast delivery of all types of products at the click of a button. This is an important area so it’s right that we carefully investigate whether Amazon is using third-party data to give an unfair boost to its own retail business and whether it favours sellers who use its logistics and delivery services – both of which could weaken competition.
Thousands of UK businesses use Amazon to sell their products and it is important they are able to operate in a competitive market. Any loss of competition is a loss to consumers and could lead to them paying more for products, being offered lower quality items or having less choice.
A formal investigation will allow us to consider this matter properly.
Global markets calmer but recession fears remain
Some calm has returned to global markets: stock markets are rallying after Tuesday’s slump as an end to a Norwegian oil and gas worker strike has eased worries of an energy supply crunch, although European recession fears remain, and oil has rebounded.
However, the euro is still trading at a two-decade low against the dollar, at $1.0232, and the pound also remains under pressure following two key cabinet resignations and a flurry of other departures, after a slew of self-inflicted scandals raised serious questions about Boris Johnson’s future as prime minister. Sterling briefly ventured above the $1.20 mark this morning, but is now down again, slipping 0.2% to $1.1934.
In London, the FTSE 100 index is 91 points ahead at 7,116, a 1.3% gain. The German and French stock markets have gained more than 1% and Italy is up 0.4%.
Oil is trading back above $100 a barrel after a near-10% plunge on Tuesday. Brent crude is trading $1.26 higher at $104.04 a barrel while US light crude is at $100.25 a barrel.
The Norwegian government has stepped in to end a strike that had threatened supplies of gas to Britain. The labour dispute had shut down oilfields and gasfields and was expected to cut Norway’s gas supplies by almost 60% by the weekend.
At the same time, Goldman Sachs raised its forecasts for European natural gas prices, saying that a complete restoration of flows via the Nordstream 1 pipeline following upcoming maintenance work is no longer the most likely scenario.
It said a prolonged reduced flow rate is more likely going forward, as the required turbine repairs could take longer than expected. The US investment bank is now forecasting Dutch gas prices to average €153 per megawatt hour in the third quarter, €121 in the fourth quarter and €138 next summer, Reuters reported.
Today, the Dutch wholesale gas contract for September delivery has dropped 7.5% to €161 per megawatt hour.
Retail sales rose 0.2% in the eurozone in May from April, following April’s 1.4% drop, and were flat across the European Union, according to Eurostat, the EU’s statistical office.
Consumers cut spending on food, drinks and tobacco for the second month in a row, with those essential purchases down 0.3% after a 2.3% slump in April, which was the first decline since June 2020 amid soaring inflation.
Among member states for which data are available, the highest monthly increases in overall retail sales volumes were registered in Cyprus (+9.0%), Croatia (+1.7%) and Portugal (+1.5%). The largest declines were observed in Ireland (-6.5%), Finland (-2.8%) and Austria (-2.2%).
In Germany, Europe’s economic powerhouse, retail sales rose 0.6% in May following April’s 5.4% slump. In France and Spain, sales were flat on the month.
Some reaction to the construction surveys:
Weak construction PMI -> Keep in mind the lead role of housing in the economic cycle. Another datapoint indicating a steep recession ahead for #eurozone https://t.co/w3sKoDuyua
— Florian Kronawitter (@fkronawitter1) July 6, 2022
A further rise in the latest UK construction materials prices as expected as the spikes in energy costs & commodity prices continue to feed through. Construction materials prices in May 2022 were 27.2% higher than a year ago according to the ONS…#ukconstruction #construction pic.twitter.com/YQyjJPYCAE
— Noble Francis (@NobleFrancis) July 6, 2022
The picture was similarly gloomy in the eurozone, where an equivalent survey suggests that construction activity is declining, led by Germany. Both output and new orders fell at the fastest rates for 16 months. This will feed into growing recession fears.
The headline index from S&P Global fell to 47 in June from 49.2 in May.
Firms talked about weaker demand amid acute price pressures and economic uncertainty. House building fell at the sharpest pace since May 2020, when the sector was shuttered by the initial wave of the Covid-19 pandemic
Usamah Bhatti, economist at S&P Global Market Intelligence, said:
Eurozone construction companies reported a sustained downturn in activity halfway through 2022. Construction activity fell at a solid pace that was the quickest for 16 months amid a steep deterioration in new orders. Firms commonly attributed the weakness to higher prices and economic uncertainty, which held back new project tenders.
There were tentative signs that price and supply pressures were continued to ease from earlier in the year, as delivery times lengthened to the least extent since January, albeit one that was still severe. This somewhat curbed input price inflation for the second month running, with the rate of increase the slowest for five months. Yet, inflation remained elevated overall. Price and supply concerns continued to dampen the outlook for the year ahead, with firms signalling pessimism for the fourth consecutive month.
By country, Germany saw the sharpest fall in overall activity, though the rate of decline softened from that seen in May, while French firms saw a renewed contraction that was the steepest since last August. Growth at Italian firms meanwhile softened to the weakest in the current 17-month sequence, heading closer to stagnation.
UK, eurozone construction sectors weaken
The construction sectors in the UK and eurozone have weakened further.
The latest purchasing manager index from S&P Global and CIPS, a closely-watched monthly survey, showed that UK construction expanded at the weakest pace in nine months and new orders increased at the lowest rate since October. Worries about the economic outlook led to a sharp decline in business expectations for the year ahead, taking optimism to the lowest levels since July 2020. Housebuilding fell for the first time since May 2020.
The headline index fell to 52.6 in June from 56.4 in May, still indicating expansion, but the weakest since last September. Housebuilding was the weakest area of construction activity for the fourth month in a row. The sub-index fell to 49.3, below the 50 mark that divides expansion from contraction.
Tim Moore, economics director at S&P Global Market Intelligence, which compiles the survey said: “
The gloomy UK business outlook and worsening consumer demand due to the cost of living crisis combined to put the brakes on construction growth in June. Commercial construction saw a considerable loss of momentum as clients exercised greater caution on new spending, while long-term infrastructure projects ensured a relatively resilient trend for civil engineering activity.
House building has expanded more quickly than the rest of the construction sector over the course of the pandemic, but now finds itself as the worst-performing broad category so far in 2022.
Construction companies appear braced for a difficult second half of the year as new order growth and business activity expectations fell again in June, reflecting inflation concerns, higher interest rates and less favourable domestic economic conditions.
Here is our full story on Bank of England deputy governor Jon Cunliffe’s comments this morning.
