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UK Pulling Out Of Recession As Services Sector Growth Accelerates; FTSE 100 At Record High – Business Live

UK pulling out of recession as services sector growth hits 11-month highNewsflash: The UK’s services sector has posted the fastest business activity growth in almost a year, reinforcing hopes that the recession is over.

Data firm S&P Global has reported that its UK Services PMI, which tracks activity in the sector, has jumped to 55.0 in April, up from 53.1 in March.

That’s the highest reading since May 2023, and shows growth accelerated in a sector that makes up around three-quarters of the UK economy.

Services firms reported that activity and new work rose at the fastest rates for 11 months, with reports that optimism about the economic recovery boosted companies.

However, staff hiring remained subdued, with some companies reporting difficulties finding suitable candidates to fill vacancies. Others cited wage pressures, given last month’s near 10% annual rise in the National Living Wage.

Input cost inflation was the highest since August 2023

Tim Moore, economics director at S&P Global Market Intelligence, explains:

“Service providers benefited from improving business and consumer spending in April as more favourable demand conditions underpinned the greatest improvement in activity since May 2023.

The latest survey results are consistent with the UK economy growing at a quarterly rate of 0.4% and therefore pulling further out of last year’s shallow recession.

“Relief at a turnaround in the economic outlook was commonly cited as a factor supporting sales pipelines in April. However, there were also reports that clients remained somewhat risk averse and under pressure from elevated inflation.

Next Friday we will learn if the UK recession is over, when GDP data for the first three months of this year is released. Economists predict a return to growth in January-March, of around 0.4%.

Today’s Services PMI suggests that the second quarter of the year got off to a good start too.

Moore adds that business activity expectations for the year ahead were upbeat:

Election uncertainty and fading prospects for interest rate cuts were cited as headwinds on the horizon, but survey respondents still mostly reported positive sentiment towards their business investment plans and longer-term growth opportunities.”

Key events

HSBC chair: Expect UK interest rate cut in JuneThe chair of HSBC has predicted that the Bank of England will cut interest rates in June, for the first time since early in the pandemic in 2020.

Speaking at HSBC’s annual general meeting in London today, Mark Tucker explains that inflation data is “key” to the global interest rate outlook.

He predicts that the BoE will lower interest rates by one and a half percentage points by the end of next year. That would lower Bank Rate to 3.75%, from 5.25% today.

Tucker says:

Central banks are closely and carefully watching the data and need to be confident that inflation will continue to head down to target on a sustainable basis before lowering rates.

Our economists continue to anticipate a gradual reduction in inflation with our global inflation forecasts at 5.8% in 2024 and 3.8% in 2025.

We expect the ECB and Bank of England to cut rates in June, cutting by 150bps by year-end 2025. We expect the Fed to cut in September, cutting by 100bps by year-end 2025.

The City money markets do not expect the BoE to cut as early as June, though – today, the first cut is only fully priced in for September, although there’s a 66% chance it could come in August.

Tucker adds that it is hard to achieve “relative certainty in the central banks’ decision-making process”, given that both growth and employment numbers are holding up and inflationary pressures are lingering.

As he puts it:

It may not be a steady path.

UK public service productivity in ‘pretty worrying’ fallNew experimental statistics show that UK public sector productivity dropped in the final quarter of last year, and is almost 7% below its pre-pandemic levels.

The Offiec for National Statistics has reported that public service productivity fell by 1% in October-December 2023 compared with July-September, the third quarterly decline in a row.

This left public sector productivity 2.3% lower than in the fourth quarter of 2022.

Annual estimates suggest that public service productivity showed no growth (0.0%) in 2023, following a partial “bounce-back” of 6.5% in 2021 and 3.0% in 2022 following the pandemic in 2020, the ONS reports.

— Office for National Statistics (ONS) (@ONS) May 3, 2024 Productivity rises if output increases faster than inputs, and vice versa.

The ONS reports that inputs (such as wages) rose by 1.2% in the quarter, while output only rise by 0.1%

Inputs increased on the quarter for all service areas, however, output fell for healthcare and education, the two largest areas by expenditure share, the ONS adds.

Paul Johnson, director of the IFS, says the “huge drop” in productivity since the pandemic is “pretty worrying”, and shows public services are struggling.

Public sector productivity 6.8% down on Q4 2019 is pretty worrying. Huge drop.

Consistent with what we know: genuine increases in spending, but struggling public services. E.g. activity in hospitals nowhere near reflecting additional resources. t.co/J9uGV0dPHz

— Paul Johnson (@PJTheEconomist) May 3, 2024 Over in Oslo, Norway’s central bank has left interest rates unchanged.

The Norges Bank decided to maintain its policy rate at 4.5%, and predicted that rates will “likely be kept at that level for some time ahead”.

UK pulling out of recession as services sector growth hits 11-month highNewsflash: The UK’s services sector has posted the fastest business activity growth in almost a year, reinforcing hopes that the recession is over.

Data firm S&P Global has reported that its UK Services PMI, which tracks activity in the sector, has jumped to 55.0 in April, up from 53.1 in March.

That’s the highest reading since May 2023, and shows growth accelerated in a sector that makes up around three-quarters of the UK economy.

Services firms reported that activity and new work rose at the fastest rates for 11 months, with reports that optimism about the economic recovery boosted companies.

However, staff hiring remained subdued, with some companies reporting difficulties finding suitable candidates to fill vacancies. Others cited wage pressures, given last month’s near 10% annual rise in the National Living Wage.

Input cost inflation was the highest since August 2023

Tim Moore, economics director at S&P Global Market Intelligence, explains:

“Service providers benefited from improving business and consumer spending in April as more favourable demand conditions underpinned the greatest improvement in activity since May 2023.

The latest survey results are consistent with the UK economy growing at a quarterly rate of 0.4% and therefore pulling further out of last year’s shallow recession.

“Relief at a turnaround in the economic outlook was commonly cited as a factor supporting sales pipelines in April. However, there were also reports that clients remained somewhat risk averse and under pressure from elevated inflation.

Next Friday we will learn if the UK recession is over, when GDP data for the first three months of this year is released. Economists predict a return to growth in January-March, of around 0.4%.

Today’s Services PMI suggests that the second quarter of the year got off to a good start too.

Moore adds that business activity expectations for the year ahead were upbeat:

Election uncertainty and fading prospects for interest rate cuts were cited as headwinds on the horizon, but survey respondents still mostly reported positive sentiment towards their business investment plans and longer-term growth opportunities.”

FTSE 100 hits record highBoom! Britain’s FTSE 100 share index has hit a new alltime high in early trading, as its rally continues.

The Footsie has risen over 8,200 points for the first time, touching 8205 points, above Tuesday’s intraday high of 8199.95 points.

This extends the FTSE 100’s recent rally, which has seen it gain 6% so far this year.

And as covered earlier, analysts believe it has further to rise.

Mining company Anglo American remains the top riser in London, up over 3% on bidding war hopes – after Reuters reported that Glencore was considering a takeover approach.

The FTSE 100 over the last 20 years Photograph: LSEGThe FTSE 100 has benefited this year from traders switching out of tech stocks and into commodities. Hopes of easing tensions in the Middle East also lifted stocks last month, as have signs that the UK economy is pulling out of recession.

Global food prices rose in AprilFree-range chickens of breed Isa 257 at Sheepdrove Organic Farm, Lambourn, England. Photograph: Tim Graham/Getty ImagesGlobal food prices inched up in April, due to rising meat prices and small increases in the cost of vegetable oils and cereals.

The United Nations food agency’s world price index rose in April, for the second month in a row, to 119.1 points, up from 118.8 points in March.

That still leaves prices 9.6% lower than a year ago, though.

Cereal prices rose by 0.3%, amid concerns about unfavorable crop conditions in parts of the European Union, the Russian Federation and the United States of America.

Vegetable oil prices rose by 0.3%, driven by costlier sunflower and rapeseed oil.

Meat prices increased by 1.6% last month, with international poultry, bovine and ovine meat prices all rising.

But there were some price falls too – among sugar and dairy products.

Sugar prices fell by 4.4%, due to larger-than-previously-anticipated outputs in India and Thailand and improved weather conditions in Brazil.

Dairy prices dipped by 0.3%, ending six consecutive months of increases. This was due to “sluggish spot import demand for skim milk powder”, and lower world cheese prices. Butter prices rose, though.

Asda refinances £3.2bn debtUK supermarket chain Asda has successfully refinanced over £3bn of debt.

Asda reports that it saw “strong demand from investors” for new debt sold yesterday, which has pushed out the majority of its maturities into the next decade.

The sals, it says, included the biggest sterling high-yield bond this year and the second-largest sterling bond in the European leveraged finance market.

Michael Gleeson, Asda’s chief financial officer, says:

“The positive reaction followed Asda’s strong FY23 results – and Moody’s upgrade of its corporate rating to B1 from B2 last week citing a material reduction in leverage and growth in underlying free cashflow.

The takeover of Asda by private equity firm TDR Capital and billionaire brothers Moshin and Zuber Issa added billions of pounds of debt to Asda – with refinancing costs jumping as interest rates have risen.

The Evening Standard reports that Asda is now paying higher interest rates on its new debts, saying:

The firm said it successfully raised £1.75 billion of senior secured notes and refinanced its £900 million Term Loan B. The Term Loan B was secured at a EURIBOR+4.25% interest rate, an increase on the previous loan of EURIBOR+2.75%

Rail ticket platform Trainline are the top riser on the FTSE 250 after doubling its operating profits in the last year.

Trainline reported that its operating profits rose by 101% in the year to 29th February, from £28m to £56m.

Trainline, which says it is now Europe’s most downloaded rail app, grew its net ticket sales by 22% in the last year.

And interestingly, the company tells shareholders that the Labour party have told Trainline that they have “no plans to revive the current Government’s previous proposal for a national retailing website and app”.

Last December, Trainline’s share surged when the Department for Transport scrapped plans to create a Great British Railways ticketing website and app.

With Labour pledging to fully nationalise the train network within five years of coming to power, there had been thoughts that the app plan could be revived.

Trainline’s shares are up almost 7% this morning, as those fears are shunted aside.

Richard Hunter, head of markets at interactive investor, suggests the London stock market has further to climb:

US markets may have lost some of their mojo but the same cannot be said for a flourishing FTSE100, where opening strength lifted gains in the year so far to 6%.

The mixture of technical factors, such as rising commodity prices and higher interest rates underpinning the likes of the mining, oil and banking sectors has been combined with improving sentiment towards the premier index.

Even at these elevated levels at or around record highs, the valuation of the index remains undemanding in comparison to many of its peers which could suggest that the recent rally still has some way to go.

FTSE 100 near all-time highIn the City, the blue-chip share index has nearly hit a new alltime high at the start of trading.

The FTSE 100 index has jumped by 24 points, or 0.3%, to 8197 points – only slightly below the intraday high of 8199.95 points set on Tuesday.

Anglo American is the top riser riser, up 3.3%, after Reuters reported last night that commodities group Glencore was studying an approach for Anglo.

Such an approach could spark a bidding war for Anglo American, which rebuffed an approach from fellow miner BHP Group last month.

Glencore is the top FTSE 100 faller, down 1.7%.

The main highlight today will be the US jobs report for April, predicts Jim Reid, strategist at Deutsche Bank.

He explains:

This will be an important release for the Fed as well, since the resilience in the labour market has enabled them to keep the focus on inflation.

Indeed, the March report showed nonfarm payrolls rise by a 10-month high of +303k, whilst the 3-month average growth was at a 12-month high of +276k.

However, even as the nonfarm payrolls numbers have been strong, other indicators have pointed to growing weakness in the labour market, and this week’s JOLTS report for March showed that both job openings and the quits rate were down to their lowest in over three years.

In terms of what to expect today, our US economists expect nonfarm payrolls growth to moderate to +240k in April, with the unemployment rate unchanged at 3.8%

A chart showing weekly changes in the Brent crude oil price Photograph: LSEGIntroduction: Oil prices set for steepest weekly drop since FebruaryGood morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The oil price is on track for its biggest weekly losses in three months, bringing relief to consumers and central bankers alike.

Crude oil prices have fallen by over 6% so far this week, helped by easing tensions in the Middle East and uncertainty about demand for energy. That would be its worst week since the start of February.

After hefty losses early this week, Brent crude is trading around its weakest level since mid-March, at below $84 per barrel, having ended last week near $90 per barrel.

The Brent crude oil price over the last 12 months Photograph: LSEGHopes for a deal to bring about a ceasefire in Gaza, and free the remaining hostages held there since the October 7 attacks, have risen this week. US secretary of state, Antony Blinken, told Israel and Hamas that “the time is now” for a deal, during his seventh visit to the Middle East since last October.

A ceasefire, if agreed, would cut risks to oil supplies from the region.

The oil price also weakened after US stocks of crude oil climbed unexpectedly this week. The US Energy Information Administration (EIA) reported that energy firms added a surprise 7.3 million barrels of crude into stockpiles during the week to April 26.

The EIA also reported a surprise 0.3-million barrel build in gasoline inventories; analysts had expected gasoline stocks would decline by 1.1 million barrels.

David Morrison, senior market analyst at Trade Nation, says:

Added together, the data show that the US market has plenty of supply, and crude prices fell to reflect this.

Oil has also been hit by fading hopes for early cuts in US interest rates. Lower borrowing costs should boost oil demand, but that seems less likely given the stickiness of US inflation.

Also coming up todayFinancial markets are bracing for the latest US Non-Farm Payroll – the monthly healthcheck on America’s jobs market, due at 1.30pm UK time.

Economists expect a slowdown in job creation; the NFP is expected to rise by 238,000, down on the 303,000 gain in March. The jobless rate is tipped to remain at 3.8%.

Attention will also focus on wage growth, which is expected to slow slightly to 4%, from 4.1% in March.

The agenda 7.45am BST: French industrial production for March

9am BST: Norges bank interest rate decision

9.30am BST: UK services PMI report for April

1.30pm BST: US non-farm payroll for April

3pm BST: US services PMI report for April

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